Internal Revenue Bulletin 1998-22 (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. 98–27, page 4.
Spin-off of subsidiary, followed by its merger with unre-
lated corporation. Based on the enactment of section
1012 of the Taxpayer Relief Act of 1997, the Service will not
apply Court Holding(or any formulation of the step transac-
tion doctrine) to determine whether the distributed corpora-
tion was a controlled corporation immediately before the dis-
tribution under section 355(a) solely because of any
postdistribution acquisition or restructuring of the distributed
corporation, whether prearranged or not. Rev. Ruls. 96–30
and 75–406 obsoleted. Rev. Rul. 70–225 modified.
Rev. Rul. 98–28, page 5.
Federal rates; adjusted federal rates; adjusted fed-
eral long-term rate, and the long-term exempt rate.
For purposes of sections 1274, 1288, 382, and other sec-
tions of the Code, tables set forth the rates for June 1998.
EMPLOYEE PLANS
Notice 98–29, page 8.
Qualified plans; plan amendments.The Service is re-
questing comments from the public regarding several ap-
proaches under which exceptions under section 411(d)(6) of
the Code for certain optional forms of benefit could be pro-
vided for defined contribution plans. The Service also re-
quests comments regarding possible section 411(d)(6) relief
for defined benefit plans.
Notice 98–32, page 23.
Weighted average interest rate update. Guidelines are
set forth for determining for May 1998, the weighted aver-
age interest rate and the resulting permissible range of in-
terest rates used to calculate current liability for purposes
of the full funding limitation of section 412(c)(7) of the Code
as amended by the Omnibus Budget Reconciliation Act of
1987 and by the Uruguay Round Agreements Act (GATT).
EXEMPT ORGANIZATIONS
Announcement 98–44, page 24.
A list is given of organizations now classified as private foun-
dations.
ADMINISTRATIVE
Notice 98–30, page 9.
Electronic funds transfer; failure to deposit penalty.
This notice provides guidance relating to the waiver of the
failure to deposit penalty under section 6656 of the Code
for certain taxpayers first required to make federal tax de-
posits by electronic funds transfer beginning on or after
July 1, 1997.
Notice 98–31, page 10.
Methods of accounting; involuntary changes. The Ser-
vice is requesting comments on a proposed revenue proce-
dure that, when finalized, will provide the procedures under
sections 446(b) of the Code and section 1.446–1(b) of the
regulations for changes in method of accounting initiated by
the Service, and the procedures that the Service will use for
accounting method issues raised and resolved by the Ser-
vice on a nonaccounting-method-change basis.
Internal Revenue
bbuulllleettiinn
Bulletin No. 1998–22
June 1, 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 31.
Announcement of the Consent Voluntary Suspension of Attorneys, Certified Public Accounts, Enrolled Agents, etc., begins on
page 27.
Announcement of the Expedited Suspension of Attorneys, Certified Public Accountants, Enrolled Agents, and Enrolled
Actuaries from Practice before the Internal Revenue Service begins on page 28.
Index for January-May begins on page 33.

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.

June 1, 199841998–22 I.R.B.
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 June 1998. See Rev. Rul. 98–28, page 5.
Section 280G.—Golden
Parachute Payments
Federal short-term, mid-term, and long-term
rates are set forth for the month of June 1998. See
Rev. Rul. 98–28, page 5.
Section 355.—Distribution of
Stock and Securities of a
Controlled Corporation
26 CFR 1.355–2: Limitations.
(Also § 7805; 301.7805–1.)
Spin-off of subsidiary, followed by its
merger with unrelated corporation.
Based on the enactment of section 1012
of the Taxpayer Relief Act of 1997, the
Service will not apply Court Holding(or
any formulation of the step transaction
doctrine) to determine whether the dis-
tributed corporation was a controlled cor-
poration immediately before the distribu-
tion under section 355(a) solely because
of any postdistribution acquisition or re-
structuring of the distributed corporation,
whether prearranged or not. Rev. Ruls.
96–30, 1996–1 C.B. 36, and 75–406,
1975–2 C.B. 125, obsoleted. Rev. Rul.
70–225, 1970–1 C.B. 80, modified.
Rev. Rul. 98–27
PURPOSE
This revenue ruling obsoletes Rev.
Ruls. 96–30, 1996–1 C.B. 36, and 75–
406, 1975–2 C.B. 125, modified by Rev.
Rul. 96–30. This revenue ruling also
modifies Rev. Rul. 70–225, 1970–1 C.B.
80.
BACKGROUND
Rev. Rul. 96–30 applies the principles
of Commissioner v. Court Holding Co.,
324 U.S. 331 (1945), to a distribution of
controlled corporation stock by a publicly
traded parent, followed by a merger of the
controlled corporation into an unrelated
acquiring corporation. The former share-
holders of the controlled corporation re-
ceive a 25 percent interest in the acquiring
corporation. Based on all the facts and cir-
cumstances, the ruling concludes that the
transaction satisfies the requirements of §
355 of the Internal Revenue Code. Rev.
Rul. 96–30 also modifies the factually
similar Rev. Rul. 75–406 by eliminating
the implication that an independent, post-
distribution shareholder vote to approve
the acquisition of a controlled corporation
is, by itself, enough to prevent application
of the step transaction doctrine.
Section 1012(c) of the Taxpayer Relief
Act of 1997 (the “Act”), Pub. L. No.
105–34, 111 Stat. 788, 916–17, amended
the control requirements of §§ 351 and
368(a)(1)(D) to provide that, generally for
transactions seeking qualification after
August 5, 1997 under either provision and
§ 355, the shareholders of the distributing
corporation must own stock possessing
more than 50 percent of the voting power
and more than 50 percent of the total
value of the controlled corporation’s stock
immediately after the distribution. Sec-
tions 351(c) and 368(a)(2)(H). In addi-
tion, § 1012(a) of the Act amended § 355
by adding subsection (e), which provides
rules for the recognition of gain on certain
distributions of stock or securities of a
controlled corporation in connection with
acquisitions of stock representing a 50
percent or greater interest in the distribut-
ing corporation or any controlled corpora-
tion. Section 1012(a) of the Act generally
applies to distributions after April 16,
1997, pursuant to a plan (or series of re-
lated transactions) that involves an acqui-
sition described in § 355(e)(2)(A)(ii) oc-
curring after such date.
The Conference Report accompanying
the legislation states, in part, that:
The House bill does not change the present-law
requirement under section 355 that the distributing
corporation must distribute 80 percent of the voting
power and 80 percent of each other class of stock of
the controlled corporation. It is expected that this
requirement will be applied by the Internal Revenue
Service taking account of the provisions of the pro-
posal regarding plans that permit certain types of
planned restructuring of the distributing corporation
following the distribution, and to treat similar re-
structurings of the controlled corporation in a simi-
lar manner. Thus, the 80-percent control require-
ment is expected to be administered in a manner that
would prevent the tax-free spin-off of a less-than-
80-percent controlled subsidiary, but would not gen-
erally impose additional restrictions on post-distrib-
ution restructurings of the controlled corporation if
such restrictions would not apply to the distributing
corporation.
H.R. Rep. No. 105–220, at 529–30
(1997).
ANALYSIS
The application of Court Holdingprin-
ciples to determine whether the distrib-
uted corporation was a controlled corpo-
ration immediately before the distribution
under § 355(a) imposes a restriction on
postdistribution acquisitions or restructur-
ings of a controlled corporation that is in-
consistent with § 1012 of the Act. See §
1012(c) of the Act and H.R. Rep. No.
105–220, at 529–30. Accordingly, the
Service will not apply Court Holding(or
any formulation of the step transaction
doctrine) to determine whether the dis-
tributed corporation was a controlled cor-
poration immediately before the distribu-
tion under § 355(a) solely because of any
postdistribution acquisition or restructur-
ing of the distributed corporation,
whether prearranged or not. In otherwise
applying the step transaction doctrine, the
Service will continue to consider all facts
and circumstances. See, e.g., Rev. Rul.
63–260, 1963–2 C.B. 147. An indepen-
dent shareholder vote is only one relevant
factor to be considered.
HOLDING
Based on the enactment of § 1012 of
the Act, the Service will not apply Court
Holding(or any formulation of the step
transaction doctrine) to determine
whether the distributed corporation was a
controlled corporation immediately be-
fore the distribution under § 355(a) solely
because of any postdistribution acquisi-
tion or restructuring of the distributed cor-
poration, whether prearranged or not.
EFFECT ON OTHER REVENUE
RULINGS
Rev. Ruls. 96–30 and 75–406 are obso-
leted. Rev. Rul. 70–225 is modified to the
extent inconsistent with this revenue rul-
ing.
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

1998–22 I.R.B.5June 1, 1998
EFFECTIVE DATE
Pursuant to the authority of § 7805(b),
this revenue ruling applies to distributions
after April 16, 1997. However, this rev-
enue ruling does not apply to a distribu-
tion pursuant to a plan (or series of related
transactions) that involves an acquisition
described in § 355(e)(2)(A)(ii) if the ac-
quisition is pursuant to an agreement that
was binding on April 16, 1997 and at all
times thereafter, described in a ruling re-
quest submitted to the Service on or be-
fore that date, or described on or before
that date in a public announcement or in a
filing with the Securities and Exchange
Commission required solely by reason of
the acquisition or restructuring. The pre-
vious sentence shall not apply to any
agreement, ruling request, or public an-
nouncement or filing unless it identifies
the acquirer of the distributed corporation.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Phoebe Bennett of the Office of
Assistant Chief Counsel (Corporate). For
further information regarding this revenue
ruling, contact Ms. Bennett at (202) 622-
7750 or Brendan P. O’Hara at (202) 622-
7530 (not toll free calls).
Section 382.—Limitation on Net
Operating Loss Carryforwards
and Certain Built-In Losses
Following Ownership Change
The adjusted applicable federal long-term rate is
set forth for the month of June 1998. See Rev. Rul.
98–28, on this page.
Section 412.—Minimum Funding
Standards
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of June 1998. See Rev. Rul. 98–28, on this page.
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 June 1998. See Rev. Rul. 98–28, on this page.
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 June 1998. See Rev. Rul. 98–28, on this page.
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 June 1998. See
Rev. Rul. 98–28, on this page.
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 June 1998. See Rev. Rul. 98–28, on this page.
Section 642.—Special Rules for
Credits and Deductions
Federal short-term, mid-term, and long-term
rates are set forth for the month of June 1998. See
Rev. Rul. 98–28, on this page.
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 June 1998. See Rev. Rul. 98–28, on this page.
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 June 1998. See Rev. Rul. 98–28, on this page.
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 June 1998.
Rev. Rul. 98–28
This revenue ruling provides various
prescribed rates for federal income tax
purposes for June 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.

REV. RUL. 98–28 TABLE 4
Appropriate Percentages Under Section 42(b)(2) for June 1998
Appropriate percentage for the 70% present value low-income housing credit8.38%
Appropriate percentage for the 30% present value low-income housing credit 3.59%
REV. RUL. 98–28 TABLE 1
Applicable Federal Rates (AFR) for June 1998
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-Term
AFR5.58%5.50%5.46%5.44%
110% AFR 6.14%6.05%6.00%5.98%
120% AFR6.71%6.60%6.55%6.51%
130% AFR 7.28%7.15% 7.09%7.05%
Mid-Term
AFR5.77%5.69%5.65%5.62%
110% AFR6.36%6.26%6.21%6.18%
120% AFR6.95%6.83%6.77%6.73%
130% AFR7.54%7.40%7.33% 7.29%
150% AFR8.72%8.54%8.45%8.39%
175% AFR10.21%9.96%9.84%9.76%
Long-Term
AFR6.02%5.93%5.89%5.86%
110% AFR6.63%6.52%6.47%6.43%
120% AFR7.25%7.12%7.06%7.02%
130% AFR7.86%7.71%7.64%7.59%
June 1, 199861998–22 I.R.B.
REV. RUL. 98–28 TABLE 2
Adjusted AFR for June 1998
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
adjusted AFR3.86%3.82%3.80%3.79%
Mid-term
adjusted AFR4.43%4.38%4.36%4.34%
Long-term
adjusted AFR5.15%5.09%5.06%5.04%
REV. RUL. 98–28 TABLE 3
Rates Under Section 382 for June 1998
Adjusted federal long-term rate for the current month5.15%
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)5.15%

1998–22 I.R.B.7June 1, 1998
REV. RUL. 98–28 TABLE 5
Rate Under Section 7520 for June 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 interest7.0%
Section 1288.—Treatment of
Original Issue Discount on
Tax-Exempt Obligations
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of June 1998. See Rev. Rul. 98–28, page 5.
Section 7520.—Valuation
Tables
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of June 1998. See Rev. Rul. 98–28, page 5.
Section 7805.—Rules and
Regulations
26 CFR 301.7805–1: Promulgation of regulations.
The revenue ruling provides that, based on the
enactment of § 1012 of the Taxpayer Relief Act of
1997, the Service will not apply Court Holding (or
any formulation of the step transaction doctrine) to
determine whether the distributed corporation was a
controlled corporation immediately before the distri-
bution under § 355(a) solely because of any postdis-
tribution acquisition or restructuring of the distrib-
uted corporation, whether prearranged or not. Rev.
Ruls. 96–30, 1996–1 C.B. 36, and 75–406, 1975–2
C.B. 125, obsoleted. Rev. Rul. 70–225, 1970–1 C.B.
80, modified. See Rev. Rul. 98–28, page 5.
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 June 1998. See Rev. Rul. 98–28, page 5.

June 1, 199881998–22 I.R.B.
Optional Forms of Benefit Under
Defined Contribution Plans
Notice 98–29
Section 411(d)(6) of the Internal Rev-
enue Code precludes qualified retirement
plan amendments that have the effect of
eliminating optional forms of benefit and
further states, in § 411(d)(6)(B), that the
Secretary may provide exceptions to this
provision. The Internal Revenue Service
and the Treasury Department are consid-
ering further guidance exercising this au-
thority in order to address a number of
concerns in this area. The Service and
Treasury believe that any such relief
should take into account the interests of
participants and the practical needs of em-
ployers in effectively and efficiently pro-
viding retirement benefits for their em-
ployees, including the need to adapt plans
to changing circumstances. The Service
and Treasury are inviting comments on
possible approaches before regulations
are proposed.
BACKGROUND
Section 411(d)(6) generally provides
that a plan is not treated as satisfying the
requirements of § 411 if the accrued bene-
fit of a participant is decreased by a plan
amendment. Under § 411(d)(6)(B), a plan
amendment that eliminates an optional
form of benefit is treated as reducing ac-
crued benefits to the extent that the
amendment applies to benefits accrued as
of the later of the adoption date or the ef-
fective date of the amendment. However,
§ 411(d)(6)(B) permits the Service and
Treasury to provide exceptions to this rule.
This authority does not extend to a plan
amendment that would have the effect of
eliminating or reducing an early retire-
ment benefit or a retirement-type subsidy.
Regulatory exceptions to the applica-
tion of § 411(d)(6)(B) to optional forms
of benefit generally have been developed
to address certain specific practical prob-
lems. For example, § 1.411(d)–4, Q&A-
3(b) of the Income Tax Regulations per-
mits a transfer of a participant’s entire
nonforfeitable benefit between plans to be
made at the election of the participant,
without a requirement that the transferee
plan preserve all § 411(d)(6) protected
benefits, but only if the participant is eli-
gible to receive an immediate distribution
and certain other conditions are satisfied.
The Service and Treasury recognize
that the accumulation of a variety of pay-
ment choices under plans may increase
the cost and complexity of plan opera-
tions. For example, an employer that ini-
tially adopted a plan form offered by a
prototype sponsor may now be using a
different prototype plan that offers a dif-
ferent array of distribution forms. The re-
quirement to preserve the preexisting op-
tional forms for benefits accrued up to the
date of change in the prototype plan may
present significant practical problems in
certain cases.
Similar issues arise where employers
merge with or acquire other businesses.
These employers often face issues of
whether to maintain separate plans, termi-
nate one or more of the plans, or merge
the plans. If an employer chooses to
merge the plans, the resulting plan may
accumulate a wide variety of optional
forms, some of which may differ in in-
significant ways or may entail special ad-
ministrative costs. Because the existing
elective transfer rule of § 1.411(d)–4,
Q&A–3(b) applies only to terminated
plans and to other situations in which a
participant’s benefits have become dis-
tributable, its applicability is limited.
Furthermore, it has become easier for
individuals to duplicate the various pay-
ment choices available from qualified
plans through other means. The Unem-
ployment Compensation Amendments of
1992 substantially expanded participants’
ability to transfer qualified plan distribu-
tions to individual retirement arrange-
ments (IRAs) on a tax-deferred basis.
Individuals who receive single-sum dis-
tributions from qualified plans frequently
roll those distributions over directly to
IRAs, under which distributions can be
made in a wide variety of payment forms.
There are also indications that the vast
majority of participants in defined contri-
bution plans who have a choice of op-
tions elect single-sum distributions,
which are often rolled over to IRAs.
The Service and Treasury are weighing
these considerations as they apply to vari-
ous circumstances and various benefit
forms, and expect to propose regulations
that would allow greater flexibility with
respect to plan payment forms.
Any § 411(d)(6) relief provided would
not provide exceptions from other re-
quirements of the Code. For example,
any such relief would not permit a money
purchase pension plan to be amended to
eliminate any distribution form required
by §§ 401(a)(11) and 417, and would not
affect the requirements of § 401(a)(31)
(relating to direct rollovers).
POSSIBLE RELIEF FOR DEFINED
CONTRIBUTION PLANS
Under one approach being considered,
a plan amendment to a defined contribu-
tion plan would not violate § 411(d)(6)
merely because the amendment elimi-
nated alternative forms of payment if,
after the amendment, each affected partic-
ipant could elect between a single-sum
distribution form and at least one ex-
tended payment form. The extended pay-
ment form condition would be satisfied if
the plan offered at least one of the follow-
ing three alternatives: (1) a single and a
joint life annuity, (2) installments payable
over a single and a joint life expectancy,
or (3) in the case of a plan that did not
previously provide for payment of bene-
fits to the participant in any form de-
scribed in (1) or (2), installments payable
over the longest installment period per-
mitted under the plan before the amend-
ment. Such an approach would apply to a
plan amendment eliminating or restricting
the availability of an alternative form of
payment only if the amendment did not
apply to a participant whose distribution
began before the date the amendment was
adopted or within 90 days thereafter.
In addition to comments on this ap-
proach, comments are invited on possible
variations, which might include providing
that the extended payment form condition
could be satisfied by installments for a
fixed number of years (such as five, ten,
or twenty years), or by a provision under
which a participant could elect to receive
any amount of the participant’s account
balance at any time, or not requiring an
extended payment form.
Part III. Administrative, Procedural, and Miscellaneous

Such an approach would not permit the
elimination or restriction of other features
relating to a distribution form, including
the time of commencement, and the right
to receive payments in cash or in kind, to
receive a partial distribution, or to accel-
erate payments. Under such an approach,
absent other § 411(d)(6) relief, these other
features would have to be retained for
both the single-sum and extended pay-
ment forms. For example, a participant
would have to be able to receive payment
(under both the single-sum and extended
payment forms) beginning whenever pay-
ments could have begun under any alter-
native form of payment that has been
eliminated or restricted.
Comments are also requested on other
possible approaches, including the fol-
lowing approaches that some have sug-
gested:
• Permitting amendments that elimi-
nate optional forms of benefit with re-
spect to which participant utilization is
demonstrably very low. This approach
would require resolution of a variety of
questions. For example, it would raise
practical issues of substantiation and
would require rules for separating and
combining optional forms of benefit (in
order to measure the utilization of any one
optional form). Other issues would in-
clude whether only utilization by retirees
or some other class of participants should
be taken into account as the basis for mea-
surements (such as all participants retiring
within a specified period), and how such a
utilization approach might coordinate
with other § 411(d)(6) relief.
• Permitting amendments that elimi-
nate optional forms of benefit that apply
with respect to no more than a small por-
tion of participants’ benefits (such as
cases in which an optional form of benefit
is inapplicable to benefits attributable to
contributions made after a specific date
and the prior benefits represent no more
than a small percentage of a participant’s
total benefit).
• Permitting amendments that elimi-
nate optional forms of benefit if the effec-
tive date of the amendment is deferred for
some period of years.
The Service and Treasury are also con-
sidering whether it would be appropriate
to develop additional relief for elective
transfers between defined contribution
plans. Such relief would apply under cer-
tain conditions, for example, where em-
ployees are transferred to a new con-
trolled group in connection with an acqui-
sition. This would permit employers to
allow employees of an acquired business
to elect to have their benefits transferred
between defined contribution plans, even
though the benefits may not yet be distrib-
utable. Comments are requested on this
approach and on whether the approach
should be limited to situations in which
both plans are of the same type (for exam-
ple, the approach would be available if
both plans are profit-sharing plans with
qualified cash or deferred arrangements),
or whether the transferee plan should
merely be required to retain the distribu-
tion restrictions and other relevant charac-
teristics of the transferor plan.
DEFINED BENEFIT PLANS
Defined benefit plans have special
characteristics, including benefit payment
calculation specifications and possible re-
tirement-type subsidies (for which
§ 411(d)(6)(B) does not authorize the is-
suance of regulatory relief). See also S.
Rep. No. 575, 98th Cong., 2d Sess. 30
(1984) (addressing issues with respect to
elimination of optional forms of benefit).
These features are not characteristic of
defined contribution plans and provide
special protections to participants. Com-
ments are invited on whether additional
§ 411(d)(6) relief is appropriate in the
context of defined benefit plans and, if so,
how any relief might adequately take ac-
count of the special characteristics of de-
fined benefit plans.
COMMENTS REQUESTED
The Service and Treasury invite com-
ments on the possible approaches de-
scribed in this notice. It is anticipated that
further guidance in this area would take
the form of proposed regulations. Com-
ments should be submitted by August 31,
1998, in writing, and should reference
Notice 98–29. Comments may be sub-
mitted by mail to—
Internal Revenue Service
P.O. Box 7604
Ben Franklin Station
Attn: CC:CORP:T:R (Notice 98–
29), Room 5226
Washington, DC 20044;
or may be hand delivered between the
hours of 8 a.m. and 5 p.m. to
CC:DOM:CORP:R (Notice 98–29),
Courier’s Desk, Internal Revenue Build-
ing, 1111 Constitution Avenue NW,
Washington, DC. Alternatively, com-
ments may be submitted via the Internet
at http://www.irs.ustreas.gov/prod/
tax_regs/comments.html
DRAFTING INFORMATION
The principal authors of this notice are
Linda Marshall of the Office of the Asso-
ciate Chief Counsel (Employee Benefits
and Exempt Organizations) and Kenneth
Conn of the Employee Plans Division.
For further information regarding this no-
tice, please contact Ms. Marshall at (202)
622-6030 or Mr. Conn at (202) 622-6214.
These are not toll-free numbers.
Electronic Funds Transfer—
Temporary Waiver of Failure to
Deposit Penalty for Certain
Taxpayers
Notice 98–30
This notice provides guidance relating
to the waiver of penalties announced in
News Release IR–98–28, issued March
31, 1998. In IR–98–28, the Internal Rev-
enue Service announced that it will waive
the failure to deposit penalty under § 6656
of the Internal Revenue Code for certain
taxpayers first required to make federal
tax deposits by electronic funds transfer
beginning on or after July 1, 1997.
BACKGROUND
Section 6302(h)(1)(A) provides that the
Secretary will prescribe regulations nec-
essary for the development and imple-
mentation of an electronic funds transfer
system for the collection of depository
taxes. Section 6302(h)(2) provides a
phase-in schedule for the system.
Section 31.6302–1(h) of the Employ-
ment Taxes and Collection of Income Tax
at Source Regulations prescribes rules for
implementing an electronic funds transfer
system for the collection of depository
taxes. Under the regulation, taxpayers are
required to deposit taxes by electronic
funds transfer if the amount of their de-
pository taxes in a specified earlier year
exceeds the applicable threshold amount.
The regulation provides that taxpayers
1998–22 I.R.B.9June 1, 1998

June 1, 1998101998–22 I.R.B.
with more than $50,000 of federal em-
ployment tax deposits in calendar year
1995 must use electronic funds transfer to
make deposits that are due on or after July
1, 1997 and relate to return periods begin-
ning on or after January 1, 1997. Taxpay-
ers with more than $50,000 in employ-
ment tax deposits in calendar year 1996
must use electronic funds transfer to make
deposits of taxes relating to return periods
beginning on or after January 1, 1998. In
addition, taxpayers with no employment
tax deposits but with more than $50,000
in other federal tax deposits in either 1995
or 1996 must use electronic funds transfer
to make deposits of taxes relating to re-
turn periods beginning on or after January
1, 1998.
Section 6656(a) provides that in the
case of any failure by any person to de-
posit taxes on the prescribed date in an
authorized government depository, a
penalty applies unless the failure is due to
reasonable cause and not due to willful
neglect. Rev. Rul. 95–68, 1995–2 C.B.
272, provides that, absent reasonable
cause, a taxpayer that is required to de-
posit federal taxes by electronic funds
transfer is subject to the 10 percent failure
to deposit penalty if the taxpayer deposits
the taxes by means other than electronic
funds transfer.
Notice 97–43, 1997–30 I.R.B. 9, pro-
vides that, in the case of taxpayers first re-
quired to deposit electronically on or after
July 1, 1997, the Internal Revenue Ser-
vice will not impose the failure to deposit
penalty under § 6656 solely for the failure
to make the deposit electronically. This
waiver applies only to deposit obligations
incurred on or before December 31, 1997.
Section 931 of the Taxpayer Relief Act
of 1997, Pub. L. No. 105–34, 111 Stat.
881, provides that no penalty shall be im-
posed under the Internal Revenue Code
solely by reason of a failure by a person to
use the electronic fund transfer system es-
tablished under § 6302(h) of the Code if
(1) the person is a member of a class of
taxpayers first required to use such sys-
tem on or after July 1, 1997, and (2) the
failure occurs before July 1, 1998.
TEMPORARY WAIVER OF PENALTY
FOR CERTAIN TAXPAYERS
For taxpayers first required to make
federal tax deposits electronically on or
after July 1, 1997, the Service will not im-
pose the 10 percent § 6656 penalty solely
for the failure to make those deposits by
electronic funds transfer. However, a tax-
payer will remain liable for the failure to
deposit penalty under § 6656 (absent rea-
sonable cause) if the taxpayer fails to
make a required deposit (using either
electronic funds transfer or a paper
coupon) in a timely manner.
This waiver of the failure to deposit
penalty applies only to deposit obligations
incurred on or before December 31, 1998.
The penalty waiver includes deposits
made after December 31, 1998, provided
the deposit obligation was incurred on or
before December 31, 1998.
This waiver of the failure to deposit
penalty does not apply to taxpayers that
were required to begin using electronic
funds transfer in 1995 or 1996.
DRAFTING INFORMATION
The principal author of this notice is
Vincent G. Surabian of the Office of As-
sistant Chief Counsel (Income Tax and
Accounting). For further information re-
garding the penalty waiver, contact Mr.
Surabian at (202) 622-4940 (not a toll-
free call).
Service-Initiated Accounting
Method Changes
Notice 98–31
This notice provides a proposed rev-
enue procedure that, when finalized, will
provide the procedures under § 446(b) of
the Internal Revenue Code and § 1.446–
1(b) of the Income Tax Regulations for
changes in method of accounting initiated
by the Internal Revenue Service, and the
procedures that the Service will use for
accounting method issues raised and re-
solved by the Service on a nonaccount-
ing-method-change basis.
As part of these procedures, the pro-
posed revenue procedure describes the
discretion the Service may exercise in re-
solving an accounting method issue as an
accounting method change or on a nonac-
counting-method-change basis. Except as
otherwise provided in published guid-
ance, the proposed revenue procedure re-
quires Examination to resolve any timing
issue as an accounting method change and
to make the change in the earliest taxable
year under examination with a § 481(a)
adjustment and a 1-year § 481(a) adjust-
ment period. The proposed revenue pro-
cedure does not alter the authority of Ap-
peals or counsel for the government to
resolve or settle any accounting method
issues.
The Service intends to publish addi-
tional guidance making the Coordinated
Examination Program (CEP) early refer-
ral process provided in Rev. Proc. 96–9,
1996–1 C.B. 575, available to non-CEP
taxpayers for the resolution of accounting
method issues. This will permit faster
resolution of timing issues that non-CEP
taxpayers want to refer to Appeals.
In addition, the Service intends to pub-
lish guidance that will delegate limited
discretionary authority to Examination to
resolve certain accounting method issues,
allow taxpayers and the Service to re-
solve accounting method issues for tax-
able years beyond the years under exami-
nation, before Appeals, or before a
federal court, and permit taxpayers under
examination who otherwise cannot re-
quest certain voluntary changes in
method of accounting from an impermis-
sible method to request such changes
without audit protection. The Service
also intends to publish guidance that pro-
vides a model closing agreement for Ser-
vice-initiated accounting method
changes. This guidance will increase the
number of accounting method issues that
the Service may resolve earlier in the ex-
amination/appeals process, provide a
more efficient use of Service and tax-
payer resources, and facilitate greater
uniformity in the Service’s resolution of
accounting method issues.
The Service welcomes comments on
the proposed revenue procedure provided
in this notice. Comments should be sub-
mitted by July 31, 1998, either to:
Internal Revenue Service
P. O. Box 7604
Ben Franklin Station
Washington, DC 20044
Attn: CC:DOM:CORP:R (IT&A,
Branch 7), Room 5228
or electronically via:
http://www.irs.ustreas.gov/prod/tax_regs/
comments.html (the Service internet site).

Rev. Proc. 98–00
TABLE OF CONTENTS
SECTION 1. PURPOSE
.01 In general
.02 Voluntary compliance
.03 Procedures for Examination, Appeals, and counsel for the government for resolving timing issues
SECTION 2. BACKGROUND
.01 Change in method of accounting defined
.02 Method changes initiated by the Service
.03 No right to retroactive method change
.04 Service ordinarily will not initiate a taxpayer favorable method change
.05 Method change with a § 481(a) adjustment
(1) Need for adjustment
(2) Adjustments attributable to pre-1954 years
(3) Adjustment period
.06 Method change using a cut-off method
.07 Previous method change without consent
.08 Penalties
SECTION 3. DEFINITIONS
.01 Timing issue
.02 Year of change
.03 Section 481(a) adjustment period
SECTION 4. SCOPE
SECTION 5. EXAMINATION DISCRETION TO RESOLVE TIMING ISSUES
.01 In general
.02 Requirement to treat a timing issue as a method change
.03 Requirement to apply the law to the facts
.04 Requirement to impose a § 481(a) adjustment
.05 Terms and conditions of change
SECTION 6. APPEALS AND COUNSEL FOR THE GOVERNMENT DISCRETION TO RESOLVE TIMING ISSUES
.01 Authority to resolve timing issues
.02 Types of resolutions
(1) In general
(2) Accounting method change with compromise terms and conditions
(a) Treating a timing issue as a method change
(b) Requirement to apply the law to the facts
(c) Using a § 481(a) adjustment or cut-off method
(d) Terms and conditions of change
(3) Alternative timing
(4) Time-value of money
SECTION 7. PROCEDURES FOR A SERVICE-INITIATED ACCOUNTING METHOD CHANGE
.01 Requirement to notify of treatment as method change
(1) In general
(2) Form of notice
(3) Content of notice
(4) Method not established without notice
.02 Finalizing a Service-initiated method change
(1) In general
(2) Content of closing agreement
1998–22 I.R.B.11June 1, 1998

June 1, 1998121998–22 I.R.B.
.03 Implementing a Service-initiated method change
(1) Years before the Service
(2) Succeeding years for which returns have been filed
(3) Future years
.04 Effect of final Service-initiated method change
(1) New method established
(2) Subsequent examination
(3) Audit protection
.05 Coordination with Examination
.06 Deemed cut-off method
SECTION 8. PROCEDURES FOR RESOLVING TIMING ISSUES ON A NONACCOUNTING-METHOD-CHANGE BASIS
.01 Closing agreement required
.02 Content of closing agreement
.03 Implementing resolution of a timing issue on a nonaccounting-method-change basis
(1) Resolution on an alternative-timing basis
(a) Years before the Service
(b) Succeeding years for which returns have been filed
(c) Future years
(2) Resolution on a time-value-of-money basis
.04 Effect of resolving a timing issue on a nonaccounting-method-change basis
(1) No change in method
(2) Subsequent change
(3) Effect of subsequent change
SECTION 9. DEFAULT PROCEDURES
.01 In general
.02 Effect of adjustments
(1) No omission or duplication
(2) No change in method
(3) Subsequent change
(4) Effect of subsequent change
SECTION 10. EXAMPLES
.01 Examination-initiated change
.02 Appeals resolution of timing issue as a method change with compromise terms and conditions
.03 Appeals resolution of timing issue on an alternative-timing basis
.04 Appeals resolution of timing issue on a time-value-of-money basis
.05 Default procedures
SECTION 11. INQUIRIES
SECTION 12. EFFECTIVE DATE
.01 In general
.02 Transition rule
SECTION 1. PURPOSE
.01In general.This revenue procedure
provides the procedures under § 446(b) of
the Internal Revenue Code and § 1.446-
1(b) of the Income Tax Regulations for
changes in method of accounting initiated
by the Internal Revenue Service. This
revenue procedure also provides the pro-
cedures that the Service will use for timing
issues raised and resolved by the Service
on a nonaccounting-method-change basis.
.02 Voluntary compliance.This rev-
enue procedure provides terms and condi-
tions for Service-initiated changes that are
intended to encourage taxpayers to volun-
tarily request a change from an impermis-
sible method of accounting prior to being
contacted for examination. Under this ap-
proach, a taxpayer that is contacted for
examination and required to change its
method of accounting by the Service gen-
erally receives less favorable terms and
conditions (for example, an earlier year of
change and a shorter § 481(a) adjustment
period for a positive adjustment) than if
the taxpayer had filed its request to
change before the taxpayer was contacted
for examination. See Rev. Proc. 97–27,
1997–1 C.B. 680, and Rev. Proc. 97–37,
1997–33 I.R.B. 18, which provide the
procedures for voluntary requests to
change an accounting method.
.03 Procedures for Examination, Ap-
peals, and counsel for the government for
resolving timing issues.This revenue

procedure sets forth procedures for Exam-
ination, Appeals, and counsel for the gov-
ernment to resolve timing issues. It does
not alter Examination’s authority to ex-
amine the returns of a taxpayer. It pro-
vides parameters for Examination to re-
solve timing issues, but does not limit or
expand Examination’s authority to re-
solve any issues under Delegation Order
No. 236, Application of Appeals Settle-
ment to Coordinated Examination Pro-
gram Taxpayers, or Delegation Order No.
247, Authority of Examination Case Man-
agers to Accept Settlement Offers and Ex-
ecute Closing Agreements on Industry
Specialization Program and International
Field Assistance Program Issues. This
revenue procedure does not alter the au-
thority of Appeals or counsel for the gov-
ernment to resolve or settle any issues.
SECTION 2. BACKGROUND
.01 Change in method of accounting
defined.
(1) Section 1.446–1(e)(2)(ii)(a) pro-
vides that a change in method of account-
ing includes a change in the overall plan
of accounting for gross income or deduc-
tions, or a change in the treatment of any
material item. A material item is any item
that involves the proper time for the inclu-
sion of the item in income or the taking of
the item as a deduction. In determining
whether a taxpayer’s accounting practice
for an item involves timing, generally the
relevant question is whether the practice
permanently changes the amount of the
taxpayer’s lifetime income. If the prac-
tice does not permanently affect the tax-
payer’s lifetime income, but does or could
change the taxable year in which income
is reported, it involves timing and is
therefore a method of accounting. See
Rev. Proc. 91–31, 1991–1 C.B. 566.
(2) Although a method of accounting
may exist under this definition without a
pattern of consistent treatment of an item,
a method of accounting is not adopted in
most instances without consistent treat-
ment. The treatment of a material item in
the same way in determining the gross in-
come or deductions in two or more con-
secutively filed tax returns (without re-
gard to any change in status of the method
as permissible or impermissible) repre-
sents consistent treatment of that item for
purposes of § 1.446–1(e)(2)(ii)(a). If a
taxpayer treats an item properly in the
first return that reflects the item, however,
it is not necessary for the taxpayer to treat
the item consistently in two or more con-
secutive tax returns to have adopted a
method of accounting. If a taxpayer has
adopted a method of accounting under
these rules, the taxpayer may not change
the method by amending its prior income
tax returns(s). SeeRev. Rul. 90–38,
1990–1 C.B. 57.
(3) A change in the characterization
of an item may also constitute a change in
method of accounting if the change has
the effect of shifting income from one pe-
riod to another. For example, a change
from treating an item as income to treat-
ing the item as a deposit is a change in
method of accounting. SeeRev. Proc.
91–31.
(4) A change in method of account-
ing does not include correction of mathe-
matical or posting errors, or errors in the
computation of tax liability (such as er-
rors in computation of the foreign tax
credit, net operating loss, percentage de-
pletion, or investment credit). See
§ 1.446–1(e)(2)(ii)(b).
.02 Method changes initiated by the
Service.
(1) Section 446(b) and § 1.446–
1(b)(1) provide that if a taxpayer does not
regularly employ a method of accounting
that clearly reflects its income, the com-
putation of taxable income must be made
in the manner that, in the opinion of the
Commissioner, does clearly reflect in-
come.
(2) The Commissioner has broad dis-
cretion in determining whether a tax-
payer’s method of accounting clearly re-
flects income, and the Commissioner’s
determination must be upheld unless it is
clearly unlawful. See Thor Power Tool
Co. v. Commissioner,439 U.S. 522
(1979); RCA Corp. v. United States,664
F.2d 881 (2nd Cir. 1981), cert. denied,
457 U.S. 1133 (1982).
(3) The Commissioner has broad dis-
cretion in selecting a method of account-
ing that the Commissioner believes prop-
erly reflects the income of a taxpayer
once the Commissioner has determined
that the taxpayer’s method of accounting
does not clearly reflect income, and the
Commissioner’s selection may be chal-
lenged only upon showing an abuse of
discretion by the Commissioner. See
Wilkinson-Beane, Inc. v. Commissioner,
420 F.2d 352 (1st Cir. 1970); Standard
Paving Company v. Commissioner,190
F.2d 330 (10th Cir.), cert. denied,342
U.S. 860 (1951).
(4) The Commissioner has the dis-
cretion to change a taxpayer’s method of
accounting even though the Commis-
sioner previously changed the taxpayer to
the method if the Commissioner deter-
mines that the method of accounting does
not clearly reflect the taxpayer’s income.
The Commissioner is not precluded from
correcting mistakes of law in determining
a taxpayer’s tax liability, including the
power to retroactively correct rulings or
other determinations on which the tax-
payer may have relied. See Dixon v.
United States,381 U.S. 68 (1965); Auto-
mobile Club of Michigan v. Commis-
sioner, 353 U.S. 180 (1957); Massaglia v.
Commissioner,286 F.2d 258 (10th Cir.
1961).
(5) The Commissioner does not have
discretion, however, to require a taxpayer
to change from a method of accounting
that clearly reflects income to a method
that, in the Commissioner’s view, more
clearly reflects income. See Capitol Fed-
eral Savings & Loan v. Commissioner,96
T.C. 204 (1991); W.P. Garth v. Commis-
sioner,56 T.C. 610 (1971), acq.,1975-1
C.B. 1.
(6) The Commissioner may change
the accounting method of a taxpayer that
is under examination, before an appeals
office, or before a federal court, except as
otherwise provided in published guid-
ance. See, for example, section 9 of Rev.
Proc. 97–27, which generally precludes
the Service from changing a taxpayer’s
method of accounting for an item for prior
taxable years if the taxpayer timely files a
Form 3115 pursuant to Rev. Proc. 97–27
requesting to change its method of ac-
counting for the item.
.03 No right to retroactive method
change.Although the Commissioner is
authorized to consent to a retroactive ac-
counting method change, a taxpayer does
not have a right to a retroactive change,
regardless of whether the change is from a
permissible or impermissible method.
See generally,Rev. Rul. 90–38.
.04 Service ordinarily will not initiate a
taxpayer favorable method change.Con-
sistent with the policy of encouraging
prompt voluntary compliance with proper
tax accounting principles, the Service or-
1998–22 I.R.B.13June 1, 1998

dinarily will not initiate an accounting
method change if the change will place
the taxpayer in a position more favorable
than the taxpayer’s position would have
been had the taxpayer not been contacted
for examination. For example, an exam-
ining agent ordinarily will not initiate a
change from an impermissible method
that results in a negative § 481(a) adjust-
ment. If the Service declines to initiate
such an accounting method change, the
district director will consent to the tax-
payer requesting a voluntary change
under Rev. Proc. 97–27. Seesection
6.01(4) of Rev. Proc. 97–27.
.05 Method change with a § 481(a) ad-
justment.
(1) Need for adjustment.Section
481(a) requires those adjustments neces-
sary to prevent amounts from being dupli-
cated or omitted to be taken into account
when the taxpayer’s taxable income is
computed under a method of accounting
different from the method used to com-
pute taxable income for the preceding tax-
able year. When there is a change in
method of accounting to which § 481(a) is
applied, income for the taxable year pre-
ceding the year of change must be deter-
mined under the method of accounting
that was then used, and income for the
year of change and the following taxable
years must be determined under the new
method of accounting as if the new
method had always been used.
Example.A taxpayer, although not permitted to
use the cash receipts and disbursements method of
accounting by § 448, uses the overall cash method
and changes to an overall accrual method. The tax-
payer has $120,000 of income earned but not yet re-
ceived (accounts receivable) and $100,000 of ex-
penses incurred but not yet paid (accounts payable)
as of the end of the taxable year preceding the year
of change. A positive § 481(a) adjustment of
$20,000 ($120,000 accounts receivable less
$100,000 accounts payable) is required as a result of
the change.
(2) Adjustments attributable to pre-
1954 years.Section 481(a)(2) and
§ 1.481–3 provide that if the adjustments
required by § 481(a) are attributable to a
change in method of accounting not initi-
ated by the taxpayer, no portion of any ad-
justments which is attributable to pre-
1954 taxable years is taken into account
in computing taxable income.
(3) Adjustment period.Section
481(c) and §§ 1.446–1(e)(3)(i) and
1.481–4 provide that the adjustment re-
quired by § 481(a) may be taken into ac-
count in determining taxable income in
the manner and subject to the conditions
agreed to by the Commissioner and the
taxpayer. Generally, in the absence of
such an agreement, the § 481(a) adjust-
ment is taken into account completely in
the year of change, subject to § 481(b)
which limits the amount of tax where the
adjustment is substantial.
.06 Method change using a cut-off
method. The Commissioner may deter-
mine that certain changes in method of ac-
counting will be made without a
§ 481(a) adjustment, using a “cut-off
method.” Under a cut-off method, only the
items arising on or after the beginning of
the year of change are accounted for under
the new method of accounting. Any items
arising before the year of change continue
to be accounted for under the taxpayer’s
former method of accounting. Because no
items are duplicated or omitted from in-
come when a cut-off method is used to ef-
fect a change in accounting method, no §
481(a) adjustment is necessary.
.07 Previous method change without
consent.The Commissioner may require
a taxpayer that has changed a method of
accounting without the Commissioner’s
consent to change back to its former
method. The Commissioner may do so
even when the taxpayer changed from an
impermissible to a permissible method.
The change back to the former method
may be made in the taxable year the tax-
payer changed without consent, or if that
year is closed by the running of the period
of limitations, in the earliest open year.
See Commissioner v. O. Liquidating
Corp.,292 F.2d 225 (3rd Cir.), cert. de-
nied, 368 U.S. 898 (1961); Handy Andy
T.V. and Appliances, Inc.,T.C. Memo.
1983–713.
.08 Penalties.Any otherwise applica-
ble penalty for the failure of a taxpayer to
change its method of accounting (for ex-
ample, the accuracy-related penalty under
§ 6662 or the fraud penalty under § 6663)
may be imposed if the Service initiates an
accounting method change. See§ 446(f).
Additionally, the taxpayer’s return pre-
parer may also be subject to the preparer
penalty under § 6694.
SECTION 3. DEFINITIONS
.01 Timing issue.The term “timing
issue” means any issue regarding the pro-
priety of a taxpayer’s method of account-
ing for an item. See the definition of
change in method of accounting in
§ 1.446–1(e)(2)(ii)(a) and section 2.01 of
this revenue procedure.
.02 Year of change.The year of change
is the taxable year for which a change in
method of accounting is effective, that is,
the first taxable year the new method is
used, even if no affected items are taken
into account for that year. The year of
change is also the first taxable year for
complying with all the terms and condi-
tions accompanying the change.
.03 Section 481(a) adjustment period.
The § 481(a) adjustment period is the ap-
plicable number of taxable years for tak-
ing into account the § 481(a) adjustment
required as a result of the change in
method of accounting. The year of
change is the first taxable year in the ad-
justment period and the § 481(a) adjust-
ment is taken into account ratably over
the number of taxable years in the adjust-
ment period.
SECTION 4. SCOPE
Except as otherwise provided in pub-
lished guidance, this revenue procedure
applies to any accounting method change
initiated by the Service, and to any timing
issue raised and resolved by the Service
on a nonaccounting-method-change basis.
SECTION 5. EXAMINATION
DISCRETION TO RESOLVE TIMING
ISSUES
.01 In general.Except as otherwise
provided in published guidance (for exam-
ple, Delegation Order No. 236), the dis-
cretion of an examining agent to resolve a
timing issue is set forth in sections 5.02
through 5.05 of this revenue procedure.
See section 10.01 of this revenue proce-
dure for an example of the application of
section 5 of this revenue procedure.
.02 Requirement to treat a timing issue
as a method change. An examining agent
proposing an adjustment with respect to a
timing issue will treat the issue as a
change in method of accounting.
.03 Requirement to apply the law to the
facts.An examining agent changing a
taxpayer’s method of accounting will
properly apply the law to the facts without
taking into account the hazards of litiga-
tion when determining the new method of
accounting.
June 1, 1998141998–22 I.R.B.

.04 Requirement to impose a § 481(a)
adjustment.An examining agent chang-
ing a taxpayer’s method of accounting
will impose a § 481(a) adjustment. The
change may be made using a cut-off
method only in rare and unusual circum-
stances when the examining agent deter-
mines that the taxpayer’s books and
records do not contain sufficient informa-
tion to compute the adjustment and the
adjustment is not susceptible to reason-
able estimation.
.05 Terms and conditions of change.
An examining agent changing a tax-
payer’s method of accounting will effect
the change in the earliest taxable year
under examination (or, if later, the first
taxable year the method is considered im-
permissible) with a one-year § 481(a) ad-
justment period, subject to the computa-
tion of tax under § 481(b) (if applicable).
SECTION 6. APPEALS AND
COUNSEL FOR THE GOVERNMENT
DISCRETION TO RESOLVE TIMING
ISSUES
.01 Authority to resolve timing issues.
An appeals officer or counsel for the gov-
ernment may resolve a timing issue when
it is in the interest of the government to do
so.
.02 Types of resolutions.
(1)In general.An appeals officer or
counsel for the government, to reflect the
hazards of litigation, may resolve a timing
issue by changing the taxpayer’s method
of accounting using compromise terms
and conditions, or on a nonaccounting-
method-change basis using either an alter-
native-timing or a time-value-of-money
resolution. See sections 10.02 through
10.04 of this revenue procedure for exam-
ples of the application of section 6 of this
revenue procedure.
(2) Accounting method change with
compromise terms and conditions.
(a) Treating a timing issue as a
method change.An appeals officer or
counsel for the government resolving a
timing issue may treat the issue as a
change in method of accounting.
(b) Requirement to apply the law
to the facts. An appeals officer or counsel
for the government changing a taxpayer’s
method of accounting will properly apply
the law to the facts without taking into ac-
count the hazards of litigation when deter-
mining the new method of accounting.
(c) Using a § 481(a) adjustment
or a cut-off method.An appeals officer or
counsel for the government changing a
taxpayer’s method of accounting may
make the change using a § 481(a) adjust-
ment or a cut-off method.
(d) Terms and conditions of
change.
(i) In general. An appeals
officer or counsel for the government
changing a taxpayer’s method of account-
ing may agree to terms and conditions
that differ from those applicable to an Ex-
amination-initiated accounting method
change. The appeals officer or counsel
for the government may compromise the
year of change (for example, by agreeing
to a later year of change), the amount of
the § 481(a) adjustment (for example, by
agreeing to a reduced § 481(a) adjust-
ment), or the § 481(a) adjustment period
(for example, by agreeing to a longer §
481(a) adjustment period). If an appeals
officer or counsel for the government
agrees to compromise the amount of the §
481(a) adjustment, the agreement must be
in writing.
(ii) Limitation on year of
change.An appeals officer or counsel for
the government changing a taxpayer’s
method of accounting ordinarily will not
defer the year of change to later than the
most recent taxable year under examina-
tion on the date of the agreement finaliz-
ing the change, and, in no event, will
defer the year of change to later than the
taxable year that includes the date of the
agreement finalizing the change.
(3) Alternative timing.An appeals
officer or counsel for the government may
resolve a timing issue by not changing the
taxpayer’s method of accounting, and by
the Service and the taxpayer agreeing to
alternative timing for all or some of the
items arising during, or prior to and dur-
ing, the taxable years before Appeals or a
federal court. The resolution of a timing
issue on an alternative-timing basis for
certain items will not affect the taxpayer’s
method of accounting for any items not
covered by the resolution. For example,
the Service and the taxpayer may agree
that the taxpayer will capitalize the inven-
toriable costs incurred during 1995 that
were deducted under the taxpayer’s
method of accounting. The taxpayer’s in-
ventoriable costs covered by the agree-
ment must be capitalized and accounted
for under the taxpayer’s inventory
method. The inventoriable costs that are
not covered by the agreement (that is,
those costs incurred in taxable years prior
and subsequent to 1995) are not affected
by the resolution and thus, consistent with
the taxpayer’s method of accounting,
must continue to be deducted.
(4) Time-value of money.
(a) In general.An appeals offi-
cer or counsel for the government may re-
solve a timing issue by not changing the
taxpayer’s method of accounting, and by
the Service and the taxpayer agreeing that
the taxpayer will pay the government a
“specified amount” that approximates the
time-value-of-money benefit the taxpayer
has derived from using its method of ac-
counting for the taxable years before ap-
peals or a federal court (instead of the
method of accounting determined by the
appeals officer or counsel for the govern-
ment to be the proper method of account-
ing), reduced by an appropriate factor to
reflect the hazards of litigation. The spec-
ified amount is not interest under §
163(a), and may not be deducted or capi-
talized under any provision of the Code.
(b) Computation of specified
amount.
(i) In general. An appeals
officer or counsel for the government may
use any reasonable manner to compute
the specified amount, including the sam-
ple computation described in section
6.02(4)(b)(ii) of this revenue procedure.
(ii) Sample computation.
Under the sample computation, the speci-
fied amount equals the sum of the time-
value-of-money benefit (detriment) com-
puted with respect to each taxable year
before Appeals or a federal court. How-
ever, if the sum of the time-value-of-
money benefit (detriment) computed with
respect to each taxable year is negative,
the specified amount will be zero and no
refund will be made to the taxpayer. The
time-value-of- money benefit (detriment)
with respect to each taxable year before
Appeals or a federal court equals the “hy-
pothetical underpayment (overpayment)”
(as defined in section 6.02(4)(b)(ii)(A) of
this revenue procedure), multiplied by the
“applicable time-value rate” (as defined
in section 6.02(4)(b)(ii)(B) of this rev-
enue procedure), compounded daily for
the “applicable period” (as defined in sec-
tion 6.02(4)(b)(ii)(C) of this revenue pro-
cedure).
1998–22 I.R.B.15June 1, 1998

(A) Hypothetical underpay-
ment (overpayment).The hypothetical un-
derpayment (overpayment) for each tax-
able year before Appeals or a federal court
is equal to the net increase or decrease in
taxable income (including the § 481(a) ad-
justment) that would have been reflected
on the return for the taxable year if the
Service had changed the taxpayer’s
method of accounting (in the earliest tax-
able year before Appeals or a federal
court, or, if later, the first taxable year the
method is considered impermissible),
multiplied by the applicable tax rate for
the taxable year of the underpayment
(overpayment). For this purpose, only ad-
justments associated with the change are
taken into account. The applicable tax
rate is the highest rate of income tax ap-
plicable to the taxpayer (for example, the
highest rate in effect under section 1 for
individuals or section 11 for corporations).
(B) Applicable time-value
rate. The applicable time-value rate gen-
erally equals an average of the quarterly
underpayment rates in effect under §
6621(a) for the applicable period. How-
ever, for a taxpayer that would be entitled
to a deduction under § 163(a) for the
specified amount if the specified amount
were treated as interest arising from the
underpayment of tax, the applicable time-
value rate is computed at a reduced rate
equaling an average of the quarterly un-
derpayment rates in effect under §
6621(a) for the applicable period, multi-
plied by the excess of 100% over the ap-
plicable tax rate for the taxable year of the
underpayment (overpayment).
(C) Applicable period. The
applicable period begins on the due date
(without regard to extensions) of the re-
turn for the taxable year of the underpay-
ment (overpayment) and ends on the date
on which the specified amount is paid.
SECTION 7. PROCEDURES FOR A
SERVICE-INITIATED ACCOUNTING
METHOD CHANGE
.01 Requirement to notify of treatment
as method change.
(1) In general.An examining agent,
appeals officer, or counsel for the govern-
ment changing a taxpayer’s method of ac-
counting will provide notice that a timing
issue is being treated as an accounting
method change.
(2)Form of notice.The notice must
be in writing. If the taxpayer and the Ser-
vice execute a closing agreement finaliz-
ing the change, the notice will be pro-
vided in the closing agreement. If the
taxpayer and the Service do not execute a
closing agreement, the notice ordinarily
will be provided in the examiner’s report
or the Form 870AD (Offer of Waiver of
Restriction on Assessment and Collection
of Deficiency in Tax and of Acceptance of
Overpayment). However, the Service
may also provide the notice in a prelimi-
nary notice of deficiency, a statutory no-
tice of deficiency, a notice of claim disal-
lowance, a notice of final administrative
adjustment, a pleading (for example, a pe-
tition, complaint, or answer) or amend-
ment thereto, or in any other similar writ-
ing provided to the taxpayer.
(3) Content of notice.The notice
must include (a) a statement that the tim-
ing issue is being treated as an accounting
method change or a clearly labeled §
481(a) adjustment, and (b) a description
of the new method of accounting.
(4) Method not established without
notice. The resolution of a timing issue
will not establish a new method of ac-
counting if the Service does not provide
the notice required by section 7.01 of this
revenue procedure. Seesection 9 of this
revenue procedure for the procedures ap-
plicable if the Service does not provide
this notice.
.02 Finalizing a Service-initiated
method change.
(1) In general. To finalize a Service-
initiated accounting method change, the
taxpayer and the Service must execute a
closing agreement under § 7121 in which
the taxpayer agrees to the change and the
terms and conditions of the change. In
the absence of such an agreement, a Ser-
vice-initiated accounting method change
is final only upon the expiration of the pe-
riod of limitations for filing a claim for re-
fund under § 6511 for the year of change
or the date of a final court order requiring
the change.
(2) Content of closing agreement.A
closing agreement finalizing a Service-
initiated accounting method change must
comply with the requirements of Rev.
Proc. 68–16, 1968–1 C.B. 770, and must
include a statement setting forth:
(a) the name, address, telephone
number, and taxpayer identification num-
ber of any taxpayer included in the agree-
ment;
(b) the timing issue(s) covered
by the agreement;
(c) the taxable years covered by
the agreement;
(d) the facts and representations
upon which the taxpayer and the Service
relied in reaching the agreement;
(e) the taxpayer’s current
method of accounting;
(f) the notification required by
section 7.01 of this revenue procedure;
(g) the year of change;
(h) the § 481(a) adjustment and
the § 481(a) adjustment period, or that a
cut-off method is being used;
(i) any computations under
§ 481(b);
(j) the adjustments to taxable in-
come necessary to reflect the new method
(including the § 481(a) adjustment re-
quired as a result of the change), and any
collateral adjustments to taxable income
or tax liability resulting from the change
for each of the taxable years covered by
the agreement;
(k) the taxable years that are
covered by the audit protection provided
in section 7.04(3) of this revenue proce-
dure;
(l) if appropriate, a condition re-
quiring the taxpayer to file amended re-
turns to reflect the change for any affected
succeeding taxable years for which a fed-
eral income tax return has been filed as of
the date of the closing agreement; and
(m) any other appropriate condi-
tions for implementing the closing agree-
ment, including any requirements for
waiving restrictions on assessment and
collection, paying any tax, abating any
overassessment, or refunding or crediting
any tax overpayment.
.03 Implementing a Service-initiated
method change.
(1) Years before the Service.The
Service will make the adjustments neces-
sary to effect a Service-initiated account-
ing method change to the taxpayer’s re-
turns for the taxable years under
examination, before Appeals, or before a
federal court. These adjustments include
the adjustments to taxable income neces-
sary to reflect the new method (including
the § 481(a) adjustment required as a re-
sult of the change), and any collateral ad-
justments to taxable income or tax liabil-
ity resulting from the change.
June 1, 1998161998–22 I.R.B.

1998–22 I.R.B.17June 1, 1998
(2) Succeeding years for which re-
turns have been filed.If a Service-initi-
ated accounting method change is final-
ized by a closing agreement, the Service
may require the taxpayer to file amended
returns to reflect the change for any af-
fected succeeding taxable years for which
a federal income tax return has been filed
as of the date of the closing agreement.
The amended returns must include the ad-
justments to taxable income and any col-
lateral adjustments to taxable income or
tax liability resulting from the change
necessary to reflect the new method. The
Service may require that the amended re-
turns be filed prior to execution of the
closing agreement finalizing the change.
If the Service does not require the
amended returns, the taxpayer should file
such amended returns. If the Service does
not require the amended returns and the
taxpayer does not file the amended re-
turns, the Service will make the adjust-
ments necessary to reflect the change for
affected succeeding taxable years when it
examines the returns for those years. A
taxpayer that files an amended return
using the new method prior to the date a
Service-initiated change becomes final
must continue to use the new method on
all subsequent returns, unless the taxpayer
obtains the consent of the Commissioner
to change from the new method or the
Service changes the taxpayer from the
new method on subsequent examination.
SeeRev. Rul. 90–38.
(3) Future years.The taxpayer must
use the new method of accounting on all
returns filed after the date that a Service-
initiated accounting method change be-
comes final (seesection 7.02 of this rev-
enue procedure), unless the taxpayer
obtains the consent of the Commissioner
to change from the new method or the
Service changes the taxpayer from the
new method on subsequent examination.
A taxpayer that files a return using the
new method prior to the date a Service-
initiated change becomes final must con-
tinue to use the new method on all subse-
quent returns, unless the taxpayer obtains
the consent of the Commissioner to
change from the new method or the Ser-
vice changes the taxpayer from the new
method on subsequent examination. If
the taxpayer does not use the new method
on any return filed prior to the date a Ser-
vice-initiated change becomes final, and
does not file amended returns to reflect
the change, the Service will make the ad-
justments necessary to reflect the change
for the affected taxable years when it ex-
amines those returns.
.04 Effect of final Service-initiated
method change.
(1) New method established.A Ser-
vice-initiated change that is final estab-
lishes a new method of accounting within
the meaning of § 446(e) and § 1.446–1(e).
As a result, the taxpayer is required to use
the new method of accounting for the year
of change and for all subsequent taxable
years, unless the taxpayer obtains the con-
sent of the Commissioner to change from
the new method or the Service changes
the taxpayer from the new method on sub-
sequent examination.
(2) Subsequent examination. Except
as provided in section 7.04(3) of this rev-
enue procedure, the Service is not pre-
cluded from changing the taxpayer from
the new method of accounting if the Ser-
vice determines that the new method does
not clearly reflect the taxpayer’s income.
(3) Audit protection.
(a) In general. A taxpayer that
executes a closing agreement finalizing a
Service-initiated accounting method
change will not be required to change or
modify the new method for any taxable
year for which a federal income tax return
has been filed as of the date of the closing
agreement, provided that:
(i) the taxpayer has complied
with all the applicable provisions of the
closing agreement;
(ii) there has been no tax-
payer fraud, malfeasance, or misrepresen-
tation of a material fact;
(iii) there has been no change
in the material facts on which the closing
agreement was based; and
(iv) there has been no change
in the applicable law on which the closing
agreement was based.
(b) Limitations.The Service may
require the taxpayer to change or modify
the new method in the earliest open tax-
able year if the taxpayer fails to comply
with the applicable provisions of the clos-
ing agreement or upon a showing of the
taxpayer’s fraud, malfeasance, or misrep-
resentation of a material fact. The Service
may require the taxpayer to change or
modify the new method in the earliest
open taxable year in which the material
facts have changed. The Service may also
require the taxpayer to change or modify
the new method in the earliest open tax-
able year in which the applicable law has
changed. For this purpose, a change in
the applicable law includes: (i) the enact-
ment of legislation; (ii) a decision of the
United States Supreme Court; (iii) the is-
suance of temporary or final regulations;
or (iv) the issuance of a revenue ruling,
revenue procedure, notice, or other guid-
ance published in the Internal Revenue
Bulletin. Except in rare and unusual cir-
cumstances, a retroactive change in ap-
plicable law is deemed to occur when one
of the events described in the preceding
sentence occurs and not when the change
in law is effective.
.05 Coordination with Examination.
An appeals officer or counsel for the gov-
ernment changing a taxpayer’s method of
accounting will coordinate the resolution
with Examination if the appeals officer or
counsel for the government proposes to
defer the year of change to any taxable
year not before appeals or a federal court.
Examination will advise the appeals offi-
cer or counsel for the government of any
changes in material fact in any taxable
year under examination and may com-
ment on the proposed resolution, but the
approval of the resolution by Examination
is not required.
.06 Deemed cut-off method. If the Ser-
vice does not impose a § 481(a) adjust-
ment but otherwise provides the notice re-
quired by section 7.01 of this revenue
procedure, the Service-initiated change
will be treated as being made using a cut-
off method, unless the Service and the
taxpayer specifically have agreed in writ-
ing to compromise the amount of the
§ 481(a) adjustment.
SECTION 8. PROCEDURES FOR
RESOLVING TIMING ISSUES ON A
NONACCOUNTING-METHOD-
CHANGE BASIS
.01 Closing agreement required. To re-
solve a timing issue raised by the Service
on a nonaccounting-method-change basis,
the Service and the taxpayer will execute
a closing agreement under § 7121. If the
timing issue is being resolved on an alter-
native- timing basis as described in sec-
tion 6.02(3) of this revenue procedure, the
taxpayer must agree to pay the govern-
ment any taxes and interest due as a result

of the resolution. If the timing issue is
being resolved on a time-value-of-money
basis as described in section 6.02(4) of
this revenue procedure, the taxpayer must
agree to pay the government the specified
amount as a result of the resolution. See
section 9 of this revenue procedure for the
procedures applicable if a closing agree-
ment is not executed as required by sec-
tion 8.01 of this revenue procedure.
.02 Content of closing agreement.A
closing agreement finalizing the resolu-
tion of a timing issue on a nonaccounting-
method-change basis must comply with
the requirements of Rev. Proc. 68-16, and
must include a statement setting forth:
(1) the name, address, telephone
number, and taxpayer identification num-
ber of any taxpayer included in the agree-
ment;
(2) the timing issue(s) covered by the
agreement;
(3) the facts and representations
upon which the taxpayer and the Service
relied in reaching the agreement;
(4) that the Service is not changing
the taxpayer’s method of accounting;
(5) if the timing issue is being re-
solved on an alternative- timing basis as
described in section 6.02(3) of this rev-
enue procedure:
(a) the items covered by the clos-
ing agreement and the manner in which
the items are to be accounted for in any
affected taxable year;
(b) that any items not covered by
the closing agreement are not affected by
the closing agreement;
(c) that the Service is not pre-
cluded from changing the taxpayer’s
method of accounting in any open taxable
year for the items not covered by the clos-
ing agreement;
(d) that if the taxpayer’s method
of accounting is changed (voluntarily or
involuntarily) in a subsequent taxable
year, the § 481(a) adjustment (if any) will
be determined by reference to all items
arising prior to the year of change, except
those items covered by the closing agree-
ment (that is, those items for which the
closing agreement specifically provides
the manner in which the items are to be
accounted for); and
(e) if appropriate, a condition re-
quiring the taxpayer to file amended re-
turns to reflect the alternative-timing res-
olution for any affected succeeding
taxable years for which a federal income
tax return has been filed as of the date of
the closing agreement;
(6) if the timing issue is being re-
solved on a time-value-of-money basis as
described in section 6.02(4) of this rev-
enue procedure:
(a) the taxable years covered by
the agreement;
(b) the computation of the speci-
fied amount as provided in section
6.02(4)(b) of this revenue procedure;
(c) that the specified amount is
not interest under § 163(a) and may not be
deducted or capitalized under any provi-
sion of the Code;
(d) that the Service is not pre-
cluded from changing the taxpayer’s
method of accounting in any open taxable
year not covered by the closing agree-
ment;
(e) that if the taxpayer’s method
of accounting is changed (voluntarily or
involuntarily) in a subsequent taxable
year, the § 481(a) adjustment (if any) will
be determined by reference to all items
arising prior to the year of change; and
(f) that if the Service changes the
taxpayer’s method of accounting in a sub-
sequent taxable year and imposes a §
481(a) adjustment, the interest that is as-
sessed on any underpayment or the inter-
est that is due on any overpayment for the
year of change will be treated as paid to
the extent necessary to prevent the dupli-
cate payment of the time-value-of-money
benefit relating to the § 481(a) adjust-
ment; and
(7) any other appropriate conditions
for implementing the closing agreement,
including any requirements for waiving
restrictions on assessment and collection,
paying any tax, abating any overassess-
ment, or refunding or crediting any tax
overpayment.
.03Implementing resolution of a timing
issue on a nonaccounting-method-change
basis.
(1) Resolution on an alternative-tim-
ing basis.
(a) Years before the Service.The
Service will make the adjustments neces-
sary to effect an alternative-timing resolu-
tion for the taxable years before appeals
or before a federal court. These adjust-
ments include the adjustments to taxable
income necessary to reflect the resolution
and any collateral adjustments to taxable
income or tax liability resulting from the
resolution.
(b) Succeeding years for which
returns have been filed.The Service may
require the taxpayer to file amended re-
turns to reflect an alternative-timing reso-
lution for any affected succeeding taxable
years for which a federal income tax re-
turn has been filed as of the date of the
closing agreement. The amended returns
must include the adjustments to taxable
income and any collateral adjustments to
taxable income or tax liability resulting
from the resolution necessary to reflect
the resolution. The Service may require
that the amended returns be filed prior to
execution of the closing agreement final-
izing the resolution. If the Service does
not require the amended returns, the tax-
payer should file such amended returns.
If the Service does not require amended
returns and the taxpayer does not file
amended returns, the Service will make
the adjustments necessary to reflect the
resolution for affected succeeding taxable
years when it examines the returns for
those years.
(c) Future years.The taxpayer
must reflect the alternative-timing resolu-
tion on the returns for any affected suc-
ceeding taxable years for which a return
has not been filed as of the date of the
closing agreement. The taxpayer must
continue to file its returns on its current
method of accounting for all items not
covered by the closing agreement, unless
the taxpayer obtains the consent of the
Commissioner to change from its current
method or the Service changes the tax-
payer from its current method on subse-
quent examination.
(2) Resolution on a time-value-of-
money basis.The taxpayer must pay the
specified amount required by the time-
value-of-money resolution. The Service
will not change or otherwise propose ad-
justments to taxable income with respect
to the taxpayer’s method of accounting
for the taxable years covered by the clos-
ing agreement. The taxpayer must con-
tinue to file its returns on its current
method of accounting, unless the taxpayer
obtains the consent of the Commissioner
to change from its current method or the
Service changes the taxpayer from its cur-
rent method on subsequent examination.
.04 Effect of resolving a timing issue on
a nonaccounting-method-change basis.
June 1, 1998181998–22 I.R.B.

(1) No change in method.If the Ser-
vice resolves a timing issue on a nonac-
counting-method-change basis, the reso-
lution does not constitute a change in
method of accounting. If the timing issue
is resolved on an alternative-timing basis,
the taxpayer is required to use its current
method of accounting for all items not
covered by the closing agreement, unless
the taxpayer obtains the consent of the
Commissioner to change from its current
method or the Service changes the tax-
payer from its current method on subse-
quent examination. If the timing issue is
resolved on a time-value-of-money basis,
the taxpayer is required to continue to use
its current method of accounting on all re-
turns for taxable years subsequent to the
years covered by the closing agreement,
unless the taxpayer obtains the consent of
the Commissioner to change from its cur-
rent method or the Service changes the
taxpayer from its current method on sub-
sequent examination.
(2) Subsequent change.
(a) Resolution on an alternative-
timing basis.If a timing issue is resolved
on an alternative-timing basis, the Service
is not precluded from changing the tax-
payer’s method of accounting in any open
taxable year for any item not covered by
the closing agreement.
(b) Resolution on a time-value-
of-money basis.If a timing issue is re-
solved on a time-value-of-money basis,
the Service is not precluded from chang-
ing the taxpayer’s method of accounting
in any open taxable year not covered by
the closing agreement.
(3) Effect of subsequent change.
(a) Resolution on an alternative-
timing basis.If a timing issue is resolved
on an alternative-timing basis and the
taxpayer’s method of accounting is
changed (voluntarily or involuntarily) in a
subsequent taxable year, the § 481(a) ad-
justment (if any) will be determined by
reference to all items arising prior to the
year of change, except those items cov-
ered by the closing agreement (that is,
those items for which the closing agree-
ment specifically provides the manner in
which the items are to be accounted for).
(b) Resolution on a time-value-
of-money basis.If a timing issue is re-
solved on a time-value-of-money basis
and the taxpayer’s method of accounting
is changed (voluntarily or involuntarily)
in a subsequent taxable year, the § 481(a)
adjustment (if any) will be determined by
reference to all items arising prior to the
year of change. If the Service changes the
taxpayer’s method of accounting in a sub-
sequent taxable year and imposes a §
481(a) adjustment, the interest that is as-
sessed on any underpayment or the inter-
est that is due on any overpayment for the
year of change will be treated as paid to
the extent necessary to prevent the dupli-
cate payment of the time-value-of- money
benefit relating to the § 481(a) adjustment.
SECTION 9. DEFAULT PROCEDURES
.01 In general.Section 9 of this rev-
enue procedure applies to the resolution
of any timing issue unless the Service
provides the notice required by section
7.01 of this revenue procedure, or the Ser-
vice resolves the timing issue on a nonac-
counting-method-change basis and the
Service and the taxpayer execute a clos-
ing agreement as required by section 8.01
of this revenue procedure. See section
10.05 of this revenue procedure for an ex-
ample of the application of section 9 of
this revenue procedure.
.02 Effect of adjustments.For timing
issues resolved under section 9 of this
revenue procedure:
(1) No omission or duplication. The
Service and the taxpayer are required to
treat all items in a manner that prevents
the duplication or omission of items of in-
come or deduction;
(2) No change in method.The reso-
lution does not constitute a change in
method of accounting. The taxpayer is re-
quired to continue to use its current
method of accounting for all items not af-
fected by the adjustments made by the
Service, unless the taxpayer obtains the
consent of the Commissioner to change
from its current method or the Service
changes the taxpayer from its current
method on subsequent examination;
(3) Subsequent change. The Service
is not precluded from changing the tax-
payer’s method of accounting in any open
taxable year; and
(4) Effect of subsequent change. If
the taxpayer’s method of accounting is
changed (voluntarily or involuntarily) in a
subsequent taxable year, the § 481(a) ad-
justment (if any) will be determined by
reference to all items arising prior to the
year of change (including the items af-
fected by the adjustment made by the Ser-
vice).
SECTION 10. EXAMPLES
.01 Examination-initiated change.
(1) Facts.A taxpayer that is a corpo-
ration deducted certain costs that, as a
matter of law, should have been capital-
ized as part of the cost of a nondepreciable
asset that was acquired in 1994. The tax-
payer incurred and deducted $1,000,000
of the costs in 1994, $2,000,000 in each of
1995 and 1996, and $5,000,000 in each of
1997 and 1998. The taxpayer is examined
for the 1995 and 1996 taxable years (1995
is the earliest open year) and the examin-
ing agent discovers the taxpayer’s imper-
missible method of accounting.
(2) Effect.Under section 5 of this
revenue procedure, the examining agent
is required to properly apply the law to
the facts and change the taxpayer to the
capitalization method of accounting for
the costs for 1995. The examining agent
will provide the notice required by section
7.01 of this revenue procedure. The ex-
amining agent will impose a § 481(a) ad-
justment of $1,000,000 (representing the
$1,000,000 of the costs deducted in 1994)
the entire amount of which will be taken
into account in computing taxable income
in 1995. The examining agent will also
disallow the deductions of $2,000,000 in
each of 1995 and 1996. The taxpayer’s
basis in the property as of the end of 1996
is increased by $5,000,000 (representing
the $1,000,000 § 481(a) adjustment and
the disallowance of the $2,000,000 of de-
ductions in each of 1995 and 1996). The
method change (once final) is effective
for 1995. Thus, the taxpayer is required
to capitalize the costs in 1995 and all sub-
sequent taxable years, unless the taxpayer
obtains the consent of the Commissioner
to change the method or the Service
changes the taxpayer from the method on
subsequent examination.
.02 Appeals resolution of timing issue
as a method change with compromise
terms and conditions.
(1) Facts. The facts are the same as
in section 10.01 of this revenue proce-
dure, except that the issue of whether the
costs should be capitalized is referred to
Appeals. The appeals officer believes
there is substantial merit to the Service’s
position that the costs must be capitalized
as a matter of law, but believes there are
1998–22 I.R.B.19June 1, 1998

June 1, 1998201998–22 I.R.B.
hazards of litigation. The appeals officer
and the taxpayer agree to resolve the tim-
ing issue by changing the taxpayer’s
method of accounting for the costs, but
with compromise terms and conditions to
reflect the hazards of litigation.
(2) Effect.Under section 6.02 of this
revenue procedure, when the appeals offi-
cer changes the taxpayer’s method of ac-
counting, the appeals officer is required to
properly apply the law to the facts and
change the taxpayer to the capitalization
method of accounting for the costs. The
appeals officer will provide the notice re-
quired by section 7.01 of this revenue
procedure.
The appeals officer may make the
change using the cut-off method. If the
appeals officer makes the change in 1995
using the cut-off method, the appeals offi-
cer will disallow the deductions of
$2,000,000 in each of 1995 and 1996.
The taxpayer’s basis in the property as of
the end of 1996 will be increased by
$4,000,000 (representing the disal-
lowance of the $2,000,000 of deductions
in each of 1995 and 1996). The method
change (once final) is effective for 1995.
Thus, the taxpayer is required to capital-
ize the costs in 1995 and all subsequent
taxable years, unless the taxpayer obtains
the consent of the Commissioner to
change the method or the Service changes
the taxpayer from the method on subse-
quent examination.
Alternatively, the appeals officer may
compromise the amount of the § 481(a)
adjustment. If the appeals officer makes
the change in 1995 and agrees to reduce
the § 481(a) adjustment by 25%, the ap-
peals officer will impose a § 481(a) ad-
justment of $750,000 (representing 75%
of the amount of the costs deducted in
1994), the entire amount of which will be
taken into account in computing taxable
income in 1995. The appeals officer will
disallow the deductions of $2,000,000 in
each of 1995 and 1996. The taxpayer’s
basis in the property as of the end of 1996
will be increased by $5,000,000 (repre-
senting the unreduced § 481(a) adjust-
ment of $1,000,000 and the disallowance
of the $2,000,000 of deductions in each of
1995 and 1996). The method change
(once final) is effective for 1995. Thus,
the taxpayer is required to capitalize the
costs in 1995 and all subsequent taxable
years, unless the taxpayer obtains the con-
sent of the Commissioner to change the
method or the Service changes the tax-
payer from the method on subsequent ex-
amination.
As another alternative, the appeals offi-
cer may compromise the year of change
and/or the § 481(a) adjustment period.
For example, the appeals officer may
agree to make the change in 1996 with a
two-year § 481(a) adjustment period. The
appeals officer will impose a § 481(a) ad-
justment of $3,000,000 (representing the
$1,000,000 of costs deducted in 1994 and
the $2,000,000 of costs deducted in 1995)
one-half of which will be taken into ac-
count in computing taxable income in
each of 1996 and 1997. The appeals offi-
cer will disallow the deduction of
$2,000,000 in 1996. The taxpayer’s basis
in the property as of the end of 1996 will
be increased by $5,000,000 (representing
the $3,000,000 § 481(a) adjustment and
the disallowance of the $2,000,000 of de-
ductions in 1996). The method change
(once final) is effective for 1996. Thus,
the taxpayer is required to capitalize the
costs in 1996 and all subsequent taxable
years, unless the taxpayer obtains the con-
sent of the Commissioner to change the
method or the Service changes the tax-
payer from the method on subsequent ex-
amination.
.03 Appeals resolution of timing issue
on an alternative-timing basis.
(1) Facts.The facts are the same as
in section 10.02 of this revenue proce-
dure, except that the appeals officer and
the taxpayer agree to resolve the issue on
an alternative-timing basis as described in
section 6.02(3) of this revenue procedure
and they enter into a closing agreement as
required by section 8.01 of this revenue
procedure. The timing issue is resolved
by providing in the closing agreement that
the taxpayer will deduct 50% of the costs
incurred in 1995 and 1996 and capitalize
the other 50% of the costs incurred in
those years.
(2) Effect.The appeals officer will
disallow $1,000,000 of the deductions in
each of 1995 and 1996. The taxpayer’s
basis in the property as of the end of 1996
is increased by $2,000,000 (representing
the disallowance of the $1,000,000 of de-
ductions in each of 1995 and 1996). The
taxpayer’s current method of accounting
for the costs is not changed. Thus, the
taxpayer is required to continue to deduct
the costs not covered by the closing
agreement (that is, the costs incurred in
1994 and the costs incurred in 1997 and
all subsequent taxable years), unless the
taxpayer obtains the consent of the Com-
missioner to change the method or the
Service changes the taxpayer from the
method on subsequent examination. If
the Service changes the taxpayer’s
method in 1997, the Service will compute
a § 481(a) adjustment of $1,000,000 (in-
cluding the amount of the costs deducted
in 1994 which are not covered by the
closing agreement and excluding the
amount of the costs deducted in 1995 and
1996 because the costs are covered by the
closing agreement). The Service will also
disallow the deduction of $5,000,000 in
1997. The taxpayer’s basis in the prop-
erty as of the end of 1997 will be in-
creased by an additional $6,000,000 (rep-
resenting the $1,000,000 § 481(a)
adjustment and the disallowance of the
$5,000,000 deduction in 1997). The
method change (once final) is effective
for 1997. Thus, the taxpayer is required
to capitalize the costs in 1997 and all sub-
sequent taxable years, unless the taxpayer
obtains the consent of the Commissioner
to change the method or the Service
changes the taxpayer from the method on
subsequent examination.
Alternatively, the timing issue may be
resolved by providing in the closing
agreement that the taxpayer will capital-
ize $1,000,000 of the costs incurred in
each of 1995 and 1996 (when the closing
agreement is silent as to the manner in
which the other $1,000,000 of costs in-
curred in each of 1995 and 1996 are to be
accounted for). The results for 1995 and
1996 will be the same as under the closing
agreement in the original facts described
in section 10.03(1) of this revenue proce-
dure. That is, the appeals officer will dis-
allow $1,000,000 of the deduction in each
of 1995 and 1996. The taxpayer’s basis in
the property as of the end of 1996 is in-
creased by $2,000,000 (representing the
disallowance of the $1,000,000 of deduc-
tions in each of 1995 and 1996). Because
the taxpayer’s current method of account-
ing for the costs is not changed, the tax-
payer is required to continue to deduct the
costs not covered by the closing agree-
ment (that is, the costs incurred in 1994,
the remaining $1,000,000 of costs in-
curred in each of 1995 and 1996, and the

1998–22 I.R.B.21June 1, 1998
costs incurred in 1997 and all subsequent
taxable years). However, if the Service
changes the taxpayer’s method in 1997,
the Service will compute a § 481(a) ad-
justment of $3,000,000 (including the
$1,000,000 of the costs deducted in 1994,
and the remaining $2,000,000 of the costs
deducted in 1995 and 1996 because the
costs are not items covered by the closing
agreement). The Service will also disal-
low the deduction of $5,000,000 in 1997.
The taxpayer’s basis in the property as of
the end of 1997 will be increased by an
additional $8,000,000 (representing the
$3,000,000 § 481(a) adjustment and the
disallowance of the $5,000,000 deduction
in 1997). The method change (once final)
is effective for 1997. Thus, the taxpayer
is required to capitalize the costs in 1997
and all subsequent taxable years, unless
the taxpayer obtains the consent of the
Commissioner to change the method or
the Service changes the taxpayer from the
method on subsequent examination.
Assuming, in the alternative, that the
timing issue is resolved by providing in
the closing agreement that, for the costs
incurred in 1994 through 1996, the tax-
payer will deduct 50% of the costs and
capitalize the other 50% of the costs, and
will increase taxable income by $500,000
in 1995 (representing the disallowance of
$500,000 of costs in 1994). The appeals
officer will disallow $1,000,000 of the de-
ductions in each of 1995 and 1996. The
taxpayer’s basis in the property as of the
end of 1996 is increased by $2,500,000
(representing the disallowance of the
$500,000 of deductions in 1994 and the
$1,000,000 of deductions in each of 1995
and 1996). The taxpayer’s current
method of accounting for the costs is not
changed. Thus, the taxpayer is required
to continue to deduct the costs not cov-
ered by the closing agreement (that is, the
costs incurred in 1997 and all subsequent
taxable years), unless the taxpayer obtains
the consent of the Commissioner to
change the method or the Service changes
the taxpayer from the method on subse-
quent examination. If the Service
changes the taxpayer’s method in 1997,
the Service will compute a § 481(a) ad-
justment of $0 (excluding the amount of
the costs deducted in 1994 through 1996
because the manner in which the costs are
to be accounted for is specifically covered
by the closing agreement). The Service
will also disallow the deduction of
$5,000,000 in 1997. The taxpayer’s basis
in the property as of the end of 1997 will
be increased by an additional $5,000,000
(representing the disallowance of the
$5,000,000 deduction in 1997). The
method change (once final) is effective
for 1997. Thus, the taxpayer is required
to capitalize the costs in 1997 and all sub-
sequent taxable years, unless the taxpayer
obtains the consent of the Commissioner
to change the method or the Service
changes the taxpayer from the method on
subsequent examination.
.04 Appeals resolution of timing issue
on time-value-of-money basis.
(1) Facts.The facts are the same as
section 10.02 of this revenue procedure,
except that the appeals officer and the tax-
payer agree to settle the issue on a time-
value-of-money basis as described in sec-
tion 6.02(4) of this revenue procedure.
The taxpayer files its return on a calendar
year basis. The appeals officer believes
that an appropriate factor to reflect the
hazards of litigation is 25%. The tax-
payer pays the specified amount on May
15, 1998. The highest marginal tax rate
applicable to the taxpayer for 1995 and
1996 is 35% and the quarterly large cor-
poration underpayment rates in effect for
January 1, 1996 through June 30, 1998
are: 11%, 10%, 11%, 11%, 11%, 11%,
11%, 11%, 11%, 10%. The specified
amount under section 6.02(4) of this rev-
enue procedure would by deductible
under § 163(a) by the taxpayer if it were
treated as interest expense arising from an
underpayment of tax.
(2) Computation of specified
amount.The hypothetical underpayment
of tax for 1995 is $1,050,000, computed
as follows: the net increase in taxable in-
come of $3,000,000 (representing the §
481(a) adjustment of $1,000,000 and the
disallowance of the deduction of
$2,000,000 computed as if Examination
had changed the taxpayer’s method in
1995) multiplied by the applicable tax
rate of 35%. The hypothetical underpay-
ment of tax for 1996 is $700,000, com-
puted as follows: the net increase in tax-
able income of $2,000,000 (representing
the disallowance of the deduction of
$2,000,000 computed as if Examination
had changed the taxpayer’s method in
1995) multiplied by the applicable tax
rate of 35%.
The applicable time-value rate for 1995
is 7.02%, which is computed as follows:
The applicable period for 1995 is March
15, 1996 (the due date of the return) to
May 15, 1998 (the date the specified
amount is paid). The underpayment rates
in effect for the applicable period are
11%, 10%, 11%, 11%, 11%, 11%, 11%,
11%, 11%, and 10%. The average under-
payment rate in effect for the applicable
period is 10.8% [(11+10+11+11+11+
11+11+11+11+10)/10]. The applicable
after-tax time-value rate is 7.02%, com-
puted by multiplying the average under-
payment rate by one minus the applicable
tax rate [10.8% * (1–.35)].
The applicable time-value rate for 1996
is 7.04%, which is computed as follows:
The applicable period for 1996 is March
15, 1997 (the due date of the return) to
May 15, 1998 (the date the specified
amount is paid). The underpayment rates
in effect for the applicable period are
11%, 11%, 11%, 11%, 11%, and 10%.
The average underpayment rate in effect
for the applicable period is 10.83%
[(11+11+11+11+11+10)/6]. The applica-
ble after-tax time-value rate is 7.04%,
computed by multiplying the average un-
derpayment rate by one minus the applic-
able tax rate [10.83% * (1-.35)].
The time-value-of-money benefit for
each taxable year is computed by using
the following formula:
U * {[1+(r/365)]
n
–1}
where U =hypothetical underpay-
ment for the taxable year
r = the applicable time-value
rate
n = the number of days in the
applicable period
The time-value-of-money benefit for
1995 is $172,512, computed as follows:
$1,050,000 * {[1+(.0702/365)]
791
–1}.
The time-value-of-money benefit for
1996 is $59,939, computed as follows:
$700,000 * {[1+(.0704/365)]
426
–1}.
The specified amount is the sum of the
time-value-of-money benefit for 1995 and
1996 reduced by 25% to reflect the haz-
ards of litigation. The specified amount is
$174,338 computed as follows:
($172,512+$59,939)*(1-.25).
(3) Effect. The Service will not pro-
pose any adjustments to taxable income
with respect to the taxpayer’s method of
accounting for the costs for 1995 and
1996. The taxpayer’s basis in the prop-

June 1, 1998221998–22 I.R.B.
erty as of the end of 1996 is not changed.
The taxpayer’s current method of ac-
counting for the costs is not changed.
Thus, the taxpayer is required to continue
to deduct the costs in 1997 and all subse-
quent taxable years, unless the taxpayer
obtains the consent of the Commissioner
to change the method or the Service
changes the taxpayer from the method on
subsequent examination. If the Service
changes the taxpayer’s method in 1997,
the Service will compute a § 481(a) ad-
justment of $5,000,000 (representing the
$1,000,000 of the costs deducted in 1994
and the $2,000,000 of costs deducted in
each of 1995 and 1996). The Service will
also disallow the deduction of $5,000,000
in 1997. The taxpayer’s basis in the prop-
erty as of the end of 1997 will be in-
creased by $10,000,000 (representing the
$5,000,000 § 481(a) adjustment and the
disallowance of the $5,000,000 deduction
in 1997). The method change (once final)
is effective for 1997. Thus, the taxpayer
is required to capitalize the costs in 1997
and all subsequent taxable years, unless
the taxpayer obtains the consent of the
Commissioner to change the method or
the Service changes the taxpayer from the
method on subsequent examination.
The interest on the taxpayer’s defi-
ciency (which reflects the inclusion of the
$5,000,000 § 481(a) adjustment in taxable
income) for 1997 is $100,000. A portion
of the $100,000 of interest will be treated
as paid to the extent necessary to prevent
duplicate payment of the time-value-of-
money benefit relating to the § 481(a) ad-
justment. The interest on the deficiency
for 1997 includes the time-value-of-
money benefit attributable to the § 481(a)
adjustment for the period March 15, 1998,
through the date of payment of the defi-
ciency. The taxpayer previously paid the
Service the time-value-of-money benefit
attributable to $3,000,000 of the § 481(a)
adjustment for the period March 15, 1996,
through May 15, 1998, and $2,000,000 of
the § 481(a) adjustment for the period
March 15, 1997 through May 15, 1998.
The interest on the deficiency for 1997 at-
tributable to the overlap period of March
15, 1998, through May 15, 1998, is
$20,073, computed as follows:
A * t * {[1+(r/365)]
n-1
}
where A = the § 481(a) adjustment
t = highest marginal tax rate
applicable to the taxpayer
r = the applicable time-value
rate (computed for the
overlap period)
n = the number of days in the
overlap period
$5,000,000 * .35 *
{[1+(.06825/365)]
61
–1}
The $20,073 is reduced by 25% (the fac-
tor used by the appeals officer to reflect
the hazards of litigation). The Service
will treat the $15,055 as a payment to-
ward the $100,000 of interest on the tax-
payer’s deficiency for 1997.
.05 Default procedures.
(1) Facts.The facts are the same as
section 10.01 of this revenue procedure,
except that the examining agent does not
provide the notice required by section
7.01 of this revenue procedure. Specifi-
cally, the examining agent disallows the
deductions of $2,000,000 in each of 1995
and 1996, but does not compute the
§ 481(a) adjustment of $1,000,000 or oth-
erwise provide notice that the timing issue
is being treated as an accounting method
change.
(2) Effect. The taxpayer’s basis in
the property as of the end of 1996 is in-
creased by $4,000,000 (representing the
disallowance of the $2,000,000 of deduc-
tions in each of 1995 and 1996). The tax-
payer’s current method of accounting for
the costs is not changed. Thus, the tax-
payer is required to continue to deduct the
costs in 1997 and all subsequent taxable
years, unless the taxpayer obtains the con-
sent of the Commissioner to change the
method or the Service changes the tax-
payer from the method on subsequent ex-
amination. If the Service changes the tax-
payer’s method in 1997, the Service will
compute a § 481(a) adjustment of
$1,000,000 (representing the $1,000,000
of the costs deducted in 1994). The Ser-
vice will also disallow the deduction of
$5,000,000 in 1997. The taxpayer’s basis
in the property as of the end of 1997 will
be increased by an additional $6,000,000
(representing the $1,000,000 § 481(a) ad-
justment and the disallowance of the
$5,000,000 deduction in 1997). The
method change (once final) is effective
for 1997. Thus, the taxpayer is required
to capitalize the costs in 1997 and all sub-
sequent taxable years, unless the taxpayer
obtains the consent of the Commissioner
to change the method or the Service
changes the taxpayer from the method on
subsequent examination.
Assume that the examining agent disal-
lows the deductions of $2,000,000 in each
of 1995 and 1996 and computes the §
481(a) adjustment of $1,000,000, but
does not label the § 481(a) adjustment or
otherwise provide notice that the timing
issue is being treated as an accounting
method change. The taxpayer’s basis in
the property as of the end of 1996 is in-
creased by $5,000,000 (representing the
$1,000,000 adjustment and the disal-
lowance of the $2,000,000 of deductions
in each of 1995 and 1996). The tax-
payer’s current method of accounting for
the costs is not changed. Thus, the tax-
payer is required to continue to deduct the
costs in 1997 and all subsequent taxable
years, unless the taxpayer obtains the con-
sent of the Commissioner to change the
method or the Service changes the tax-
payer from the method on subsequent ex-
amination. If the Service changes the tax-
payer’s method in 1997, the Service will
compute a § 481(a) adjustment of $0 (ex-
cluding the $1,000,000 of the costs de-
ducted in 1994 and the $2,000,000 of the
costs deducted in each of 1995 and 1996
because the costs were accounted for in
the prior adjustments). The Service will
also disallow the deduction of $5,000,000
in 1997. The taxpayer’s basis in the prop-
erty as of the end of 1997 will be in-
creased by an additional $5,000,000 (rep-
resenting the disallowance of the
$5,000,000 deduction in 1997). The
method change (once final) is effective
for 1997. Thus, the taxpayer is required
to capitalize the costs in 1997 and all sub-
sequent taxable years, unless the taxpayer
obtains the consent of the Commissioner
to change the method or the Service
changes the taxpayer from the method on
subsequent examination.
SECTION 11. INQUIRIES
Inquiries regarding this revenue proce-
dure may be addressed to the Commis-
sioner of Internal Revenue, Attention:
CC:DOM:IT&A, 1111 Constitution Av-
enue, NW, Washington D.C. 20224.
SECTION 12. EFFECTIVE DATE
.01 In general.Except as provided in
section 12.02 of this revenue procedure,
this revenue procedure is effective for:
(1) examiner’s reports issued on or
after [insert date that is 90 days from the

1998–22 I.R.B.23June 1, 1998
date this revenue procedure is published
in the Internal Revenue Bulletin]; and
(2) Forms 870AD and closing agree-
ments executed on or after [insert date
that is 90 days from the date this revenue
procedure is published in the Internal
Revenue Bulletin] (regardless of when the
underlying examiner’s report was issued).
.02 Transition rule.The Service and
the taxpayer may agree to apply this rev-
enue procedure to closing agreements ex-
ecuted on or after [insert the date this rev-
enue procedure is published in the
Internal Revenue Bulletin].
DRAFTING INFORMATION
The principal authors of this notice and
proposed revenue procedure are Robert
A. Testoff and Dwight N. Mersereau of
the Office of Assistant Chief Counsel (In-
come Tax and Accounting). For further
information regarding this notice and pro-
posed revenue procedure, contact Mr.
Testoff on (202) 622-4990 or Mr.
Mersereau on (202) 622-4970 (not toll-
free calls).
Weighted Average Interest Rate
Update
Notice 98–32
Notice 88–73 provides guidelines for
determining the weighted average interest
rate and the resulting permissible range of
interest rates used to calculate current lia-
bility for the purpose of the full funding
limitation of § 412(c)(7) of the Internal
Revenue Code as amended by the Om-
nibus Budget Reconciliation Act of 1987
and as further amended by the Uruguay
Round Agreements Act, Pub. L. 103-465
(GATT).
The average yield on the 30-year Trea-
sury Constant Maturities for April 1998 is
5.92 percent.
The following rates were determined
for the plan years beginning in the month
shown below.
90% to 106%90% to 110%
Weighted PermissiblePermissible
MonthYearAverageRangeRange
May19986.635.97 to 7.035.97 to 7.29
Drafting Information
The principal author of this notice is
Donna Prestia of the Employee Plans Di-
vision. For further information regarding
this notice, call (202) 622-6076 between
2:30 and 3:30 p.m. Eastern time (not a
toll-free number). Ms. Prestia’s number
is (202) 622-7473 (also not a toll-free
number).

June 1, 1998241998–22 I.R.B.
Foundations Status of Certain
Organizations
Announcement 98–44
The following organizations have
failed to establish or have been unable to
maintain their status as public charities or
as operating foundations. Accordingly,
grantors and contributors may not, after
this date, rely on previous rulings or des-
ignations in the Cumulative List of Orga-
nizations (Publication 78), or on the pre-
sumption arising from the filing of notices
under section 508(b) of the Code. This
listing does notindicate that the organiza-
tions have lost their status as organiza-
tions described in section 501(c)(3), eligi-
ble to receive deductible contributions.
Former Public Charities.The following
organizations (which have been treated as
organizations that are not private founda-
tions described in section 509(a) of the
Code) are now classified as private foun-
dations:
A A Raiders Youth Sports Organization,
Pasadena, MD
ACAP Austin Cen-Tex, Austin, TX
AGAPE Outreach Ministries
Incorporated, Yeadon, PA
Aman Inc., New Orleans, LA
Amateur Sports Foundation, Omaha, NE
American Dance Theatre, Dallas, TX
Animals Have Rights Too, Warren, MI
Arts for Education Inc., Half Moon Bay,
CA
Atrium Society, Houston, TX
Ballinger Meals on Wheels Inc.,
Ballinger, TX
Barbara Loey Child Development
Centers Inc., Concord, CA
Bayc Inc., Osseo, MN
Bike-a-Thon Inc., Dayton, OH
Blackwater Preservation Society,
Blackwater, MO
Boone County Courthouse Square,
Columbia, MO
Bradshaw Mountain Babe Ruth
Association, Dewey, AZ
Camden County College Foundation Inc.,
Blackwood, NJ
Camp All American Inc., Duluth, GA
Center for Peacekeeping Studies,
Washington, DC
Chicago Allcity Performing Arts Parent
Group, Forest Park, IL
Childrens Assistance Programs Inc.,
Berea, OH
Clay County Economic Development
Organization Inc., Brazil, IN
Concerned Black Men of Lufkin Texas
Inc., Lufkin, TX
Cread, Sierra Vista, AZ
Dalo Ministries Corp., Deer Trail, CO
Delaware Mental Health Consumer
Coalition Inc., Wilmington, DE
Earth Day New Jersey Inc., Bloomfield,
NJ
East Pennsboro Aquatic Association,
Mechanicsburg, PA
El Paso Soap Box Derby Inc., El Paso,
TX
Elmwood Park Education Association
Philanthropic Fund, Elmwood Park, NJ
Empower Incorporated, Albuquerque,
NM
Family Tyes Inc., Pittsburgh, PA
First Choice Community Services Inc.,
Dallas, TX
Fort Bridger Historical Rendezvous Site,
Rock Springs, WY
Foundation for Women in Need of
General Services, Inman, SC
Friends of Southern University-
Shreveport, Shreveport, LA
Glacier Foundation Non Profit Housing
Association, Seattle, WA
Grand Rapids E C Foundation Inc.,
Marne, MI
Greater Dallas Hispanic Community
Services Corporation, Dallas, TX
Griffith School PTG, Ferguson, MO
His Touch Ministries Inc., Houston, TX
Hopkins County Aquatics Club Inc.,
Madisonville, KY
Houston Storytellers Guild, Houston, TX
Indianapolis Childrens Theatre Inc.,
Indianapolis, IN
Lake County Symphony Board Inc.,
Leesburg, FL
Leedom Parent Teacher Organization,
Ridley Park, PA
Lisle Community Band, Lisle, IL
Los Alamos School District Educational
Foundation Corporation, Los Alamos,
CA
Los Gatos-Saratoga Girls Softball
Association, Los Gatos, CA
Made Alive Ministries, Westminster, MD
Make-a-Wish Foundation International,
Phoenix, AZ
Marion Harding Academic Boosters,
Marion, OH
Mental Health Consumer Advocates of
North Dakota, Bismarck, ND
Meriwether Lewis Institute Inc., Helena,
MT
Michigan Music Education Multicultural
Committee, Ann Arbor, MI
Mississippi River Coalition Inc.,
Memphis, TN
Missouri River Raiders, Liberty, MO
Moms of Tierra Verde Inc.,
St. Petersburg, FL
Montessori School of Herndon Parents
Teachers Association, Herndon, VA
Mt. Royal String Orchestra, Baltimore,
MD
National Tar Wars, Denver, CO
Nebraska Association of Child Care
Workers, Lincoln, NE
Nehemiah Youth Mission, Philadelphia,
PA
Nightingale Productions, Philadelphia, PA
NJEA Frederick L Hipp Foundation for
Excellence in Education, Trenton, NJ
North Bergen Education Association
Philanthropic Fund, Neptune, NJ
North Shore Community Theater,
Wilmette, IL
North Valley-Milpitas Bobby Sox
Softball, San Jose, CA
OBU Global Options Inc., Shawnee, OK
Okemos High School Parent Group,
Okemos, MI
On a Roll Inc., Phoenix, AZ
On Our Own Inc., Chicago, IL
Operation Phone Home a Non-Profit
Corporation, Philadelphia, PA
Oregon Community Theater, Oregon, OH
Other Opera Company, Bethesda, MD
Our God Reigns Mission Inc., Paradise,
CA
Our Lady of Tenderness Fraternity Inc.,
Dallas, TX
Outreach Latin America, Kalamazoo, MI
ORA Productions, Inc., Pittsford, NY
Oakland International Dragon Boat
Racing Association Inc., Oakland, CA
Ocean Shores Kiwanis Club Foundation,
Ocean Shores, WA
116th Pennsylvania Volunteer Infantry
Company B, Monmouth, OR
Operation Field Trip, Los Angeles, CA
Operation-Safe Community, Rowland
Heights, CA
Part IV. Items of General Interest

1998–22 I.R.B.25June 1, 1998
Operation Uplift, Oakland, CA
Opus Seven Opera Company of Detroit,
Detroit, MI
Orange County Korean Senior Citizens
Association, Garden Grove, CA
Othello Huskie Hoop Club, Othello, WA
Our Lady of Nazareth Life Association,
Corp., West Park, NY
Outback Christian Ministries, Vista, CA
OV Homes for the Aged, Los Angeles,
CA
PMGS Imhotep Scholarship Foundation,
Inglewood, CA
PQ Aquatics Corporation, Poway, CA
Pacific Islanders Outreach Inc., East Palo
Alto, CA
Pacific Northwest Passages, Langley, WA
Palm Beach India Association, Palm
Beach Gardens, FL
Palos Verdes High School Grad Nite
Committee, Torrance, CA
Pan African Aid & Development Corp.,
New York, NY
Pan American Bank Scholarship
Foundation, Los Angeles, CA
Parent Organization of Williams Porter
Elementary School Inc., Mesa, AZ
Parents and Educators in Action at
Kamiakin, Kennewick, WA
Participation Puget Sound, Seattle, WA
Partners in Plastic Recovery, Inc.,
Bardonia, NY
Pasadena AIDS Resource Center,
Altadena, CA
Paso Robles Foundation for Cultural
Arts, Paso Robles, CA
Pawtucket Babe Ruth League, Pawtucket,
RI
Pax Christi Southern California, San
Pedro, CA
Peel Foundation, Oklahoma City, OK
People Educating Through Art Creativity
and Entertainment, Dayton, OH
People First of Otero County,
Alamogordo, NM
People for Progress Incorporated,
Banning, CA
Peoples Crisis Center, Shamokin, PA
Personal Safety Institute, Kirkland, WA
Pets are Wonderful Support of Chicago
Inc., Chicago, IL
Philadelphia Homes Project CDC,
Philadelphia, PA
Phoenix Creation Group, Inc., New York,
NY
Pierce County Womens Center, Tacoma,
WA
Philipinyana TV Magazine, Renton, WA
Pinellas Homestead Project Inc.,
Gulfport, FL
Polar Bears Alive, Fresno, CA
Port Charlotte Lions Club Foundation,
Inc., Port Charlotte, FL
Posterity, Chicago, IL
Postwar Enviro-Life Research &
Restoration Society Inc., Fullerton, CA
Powerhouse Ministries Unlimited Inc.,
Gloverville, SC
Pownal Education Foundation, Pownal,
ME
Prison To Success Program, San Quentin,
CA
Professional Business Leadership
Council, Glen Carbon, IL
Project New Beginning, Troy, NY
Project Turnaround Inc., Pocatello, ID
Protect the Child Foundation, Inc.,
Norwood, MA
Quakemobile Inc., San Jose, CA
Queen City Performing Arts Organization
Inc., Cincinnati, OH
Queen of the Apostles Mission
Association, Inc., Englewood, CO
Quincy After School Child Care, Inc.,
Quincy, MA
RAAD, Moses Lake, WA
R A D Educational Programs,
Carbondale, CO
RCT Christian Renewal Ministries Inc.,
Cleveland, OK
RH Project Inc., Louisville, KY
Reach for Peace Foundation, Kansas
City, KS
Reach Out Christian Community Center,
Detroit, MI
Reach Out Foundation Inc., Jackson, MS
Reaching the Worlds Families for Christ,
Inc., Woodbury, TN
READIncorporated of America,
Stockbridge, MI
Real Estate Ministries of Dallas Inc.,
Dallas, TX
Real Hope Ministries Inc., Canyon, TX
Real World Foundation Inc., Lanham,
MD
Realtors Who Care Inc., Muskegon, MI
Recovery Support Services Inc.,
Minneapolis, MN
Recovery Television Network, Inc.,
Naples, FL
Recovery Way of Oklahoma Inc.,
Wellington, KS
Recycle Bicycles Corporation Inc.,
Washington, DC
Recycled Baseball Items Inc., Houston,
TX
Recycling Collection Center of San
Antonio, San Antonio, TX
Red and Black Booster Club, Franklin,
PA
Red Nose Hotline Inc., Lauderhill, FL
Red Oak Area Outreach Center Inc., Red
Oak, TX
Red Octopus Productions Inc., Little
Rock, AR
Redblock Report Inc., Jackson, MI
Redeeming the Time Ministries
Incorporated, Roswell, GA
Redeeming the Time Youth Ministries,
Raleigh, NC
Redemption, Ann Arbor, MI
Redfield Athletic Association, Redfield,
AR
Register Volunteer Fire Department, Inc.,
Register, GA
Rehoboth Bay Foundation, Rehoboth
Beach, DE
Reinvestment Partnership Corporation,
Warren, OH
Relief International, Chicago, IL
Retired Educational Consulting Service,
New Rochelle, NY
Reverence for Life, Royal Oak, MI
Rheems Ambulance Company Inc.,
Rheems, PA
Rialto Youth Soccer League, Rialto, CA
Riccardi Elementary Parent Teacher
Organization, Saugerties, NY
Richland School District Education
Foundation, Johnstown, PA
Richmond Area Christian Services,
Mechanicsville, VA
Richmond PC Users Group, Richmond,
VA
Ride for the Future Inc., Denver, CO
Ridgecrest Camp Alumni and Friends,
Winston Salem, NC
Ridgeview Community Association Inc.,
Hickory, NC
RISD Rotary D-FY-IT Inc., Dallas, TX
Rise Inc., Washington, DC
Rise Up Sanford Incorporated, Sanford,
FL
Rising Star Dance Ensemble, Howell, NJ
Rising Sun Foundation, Media, PA
Risk, Allentown, PA
Ritchie County Humane Society Inc.,
Harrisville, WV
River Falls Scouting Inc., River Falls,
WI
River Valley Skippers Incorporated,
Parkersburg, WV
Riverdale Home for Furry Friends Inc.,
St. Augustine, FL

June 1, 1998261998–22 I.R.B.
Riverview Estates Resident Development
Corporation, Cleveland, OH
Riviera Productions Inc., Biloxi, MS
Riyans International Childrens
Foundation, Inc., Hollyhill, FL
Roadbuilders Mission, Houston, TX
Roanoke Valley Animal Foundation
Incorporated, Roanoke, VA
Robert E Snow Memorial Mathematics
Trust, Sturgis, MI
Robert F. Kennedy Institute of
Community and Family Medicine,
Redondo Beach, CA
Robert J. Stoller Foundation, Los
Angeles, CA
Robert W. Coleman Parent Action Board
Corporation, Baltimore, MD
Robinson House, Highland Park, MI
Rochdale Village Sport and Fitness
Organization, Jamaica, NY
Rockaway Area Chamber of Commerce
Community Projects Inc., Rockaway,
NJ
Rockwood Farm, Adrian, MI
If an organization listed above submits
information that warrants the renewal of
its classification as a public charity or as a
private operating foundation, the Internal
Revenue Service will issue a ruling or de-
termination letter with the revised classi-
fication as to foundation status. Grantors
and contributors may thereafter rely upon
such ruling or determination letter as pro-
vided in section 1.509(a)–7 of the Income
Tax Regulations. It is not the practice of
the Service to announce such revised clas-
sification of foundation status in the Inter-
nal Revenue Bulletin.

1998–22 I.R.B.27June 1, 1998
NameAddressDesignationDate of Suspension
Soulides, James C. Berwyn, ILCPAJanuary 1, 1998 to June 30, 2000
Bujan, FrankOrland Park, ILCPAJanuary 1, 1998 to June 30, 2000
Field, Edward L.Topeka, KSCPAJanuary 27, 1998 to April 26, 1999
Cito, Paul J.West Orange, NJCPAFebruary 21, 1998 to May 20, 1999
Sproul, JerryIdaho Falls, IDCPAFebruary 25, 1998 to October 24, 1998
Hunt, RussellPauls Valley, OKCPAMarch 1, 1998 to June 30, 1998
Oertli, WilliamRochester, MNCPAMach 4, 1998 to March 3, 2000
Maynard, RichardReno, NVCPAMarch 10, 1998 to March 9, 2002
McDonald, BillReno, NVAttorneyMarch 10, 1998 to March 9, 2002
Komendant, HowardPassaic, NJCPAMarch 10, 1998 to September 9, 1998
Kwiatek, Fabian A.Silver Spring, MDCPAMarch 16, 1998 to March 15, 2001
Brown, PatriciaDeKalb, ILCPAMarch 16, 1998 to September 15, 1999
Marshall, RobertWoodland Hills, CAAttorneyMarch 18, 1998 to November 17, 2000
Baloun, Donald J.Palatine, ILCPAMarch 25, 1998 to November 24, 1998
Goldman, Harold J.Summit, NJCPAMarch 27 , 1998 to September 26, 1998
Garner, Darrow C.Austin, TXCPAApril 1, 1998 to March 20, 2000
Klein, Charles U.Dunedin, FLCPAApril 1, 1998 to September 30, 1999
Morgan, Robert I.Brownsville, VTAttorneyApril 2, 1998 to April 1, 2000
Teel, Jeffrey J.Hollis, NHCPAApril 2, 1998 to April 1, 2001
Hancock, Randall M.Gardendale, ALCPAIndefinite from April 13, 1998
Allison Jr., Dale A.Blairsville, GAAttorneyApril 15, 1998 to July 14, 2001
Gogel, William A.North Hills, NYAttorneyApril 21, 1998 to April 20, 2002
Bose, GautemOak Brook, ILCPAMay 1, 1998 to April 30, 2001
Woods, W. RexBelleville, KSCPAMay 1, 1998 to January 31, 1999
Monahan, JohnSeattle, WAAttorneyMay 1, 1998 to April 30, 2001
Swartz, Lewis A.Syosset, NYCPAMay 1, 1998 to April 30, 2002
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:

June 1, 1998281998–22 I.R.B.
NameAddressDesignationDate of Suspension
Eckert, Bruce G.Cleveland, OHCPAMay 2, 1998 to May 1, 1999
Rozanski, Lawrence J.Pittsburg, PACPAJune 1, 1998 to May 30, 2000
Mangum, Carl E.Morris Plains, NJCPAJuly 1, 1998 to December 31, 1999
Reeser, Richard M. Thornton, COCPAJuly 1, 1998 to September 30, 1999
Bailey, Thomas O.Dallas, TXCPAJuly 1, 1998 to June 30, 2001
Johnson, Kenneth E.Forest Lake, MNCPAJuly 1, 1998 to November 30, 1999
Deren, JosephLackawanna, NYAttorneyJuly 1, 1998 to June 30, 2001
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:
NameAddressDesignationDate of Suspension
McDonald, MiltonStone Mountain, GAAttorneyIndefinite from February 24, 1998
Parsons, Gary D.Chattanooga, TNCPAIndefinite from February 24, 1998
Buchanan, StevenPhoenix, AZAttorneyIndefinite from February 24, 1998
Caplan, AlanSan Francisco, CAAttorneyIndefinite from February 24, 1998
Delany, R. EmmetRidgefield, CTAttorneyIndefinite from February 24, 1998
Hirsch, SheldonBrooklyn, NYCPAIndefinite from February 24, 1998
Newman, Peter R.Syossett, NYAttorneyIndefinite from February 24, 1998
Land, GaryFayetteville, AREnrolled AgentIndefinite from February 24, 1998
Hunt, William D.Tulsa, OKAttorneyIndefinite from February 24, 1998
Hamilton, RobertCorpus Christie, TXAttorneyIndefinite from February 24, 1998
Rabinowitz, EmileMinnetonka, MNEnrolled AgentIndefinite from February 24, 1998
McCaffrey, MichaelWheaton, ILCPAIndefinite from February 24, 1998
Eisenstein, JoelSt. Charles, MOAttorneyIndefinite from February 24, 1998
Announcement of the Expedited Suspension of Attorneys, Certified Public
Accountants, Enrolled Agents, and Enrolled Actuaries From Practice
Before the Internal Revenue Service

1998–22 I.R.B.29June 1, 1998
Cannavo Jr., Joseph S.St. Louis, MOAttorneyIndefinite from February 24, 1998
Tilker, Robert M.Fairfax, VACPAIndefinite from February 24, 1998
Toms, James H.Hendersonville, NCAttorneyIndefinite from February 24, 1998
Everett, KennethNew York, NYAttorneyIndefinite from February 24, 1998
Frederick, CharlesElk Grove, Enrolled AgentIndefinite from March 13, 1998
Artho, DavidLubbock, TXCPAIndefinite from March 18, 1998
Seale, Forrest I.San Antonio, TXCPAIndefinite from March 18, 1998
Yancey, Quinton E.Stephens City, VACPAIndefinite from March 18, 1998
Hunnicut, BenjaminReseda, CACPAIndefinite from March 18, 1998
Finkel, MerleBeverly Hills, CACPAIndefinite from March 18, 1998
Mullay, Carl P.Swoyersville, PACPAIndefinite from March 18, 1998
Cunning, Dennis A.Molalla, ORCPAIndefinite from March 18, 1998
Adamson, Steven A.Nampa, IDAttorneyIndefinite from April 14, 1998
Bowman, David W.Colorado Springs, COAttorneyIndefinite from April 21, 1998
Beezley, Jack L.Dallas, TXAttorneyIndefinite from April 21, 1998
Cunningham, AndrewHatfield, PACPAIndefinite from April 28, 1998
Palmquist, Craig S.Seattle, WAAttorneyIndefinite from April 21, 1998
Ross, Mark J.Columbus, OHAttorneyIndefinite from April 21, 1998
Madoch, LawrenceElgin, ILCPAIndefinite from April 21, 1998
Taylor, George M.Springfield, ILAttorneyIndefinite from April 21, 1998
Casey, Kenneth J.Corte Madera, CACPAIndefinite from April 21, 1998
Akolt III, John P.Denver, COAttorneyIndefinite from April 21, 1998
Dowdy, FrankHuntsville, ALCPAIndefinite from April 28, 1998
Eckert, Bruce G.Cleveland, OHCPAMay 2, 1998 to May 1, 1999
Rozanski, Lawrence J.Pittsburgh, PACPAJune 1, 1998 to May 30, 2000
Mangum, Carl E.Morris Plains, NJCPAJuly 1, 1998 to December 31, 1999
Reeser, Richard M. Thornton, COCPAJuly 1, 1998 to September 30, 1999
Bailey, Thomas O.Dallas, TXCPAJuly 1, 1998 to June 30, 2001
Johnson, Kenneth E.Forest Lake, MNCPAJuly 1, 1998 to November 30, 1999
Deren, JosephLackawanna, NYAttorneyJuly 1, 1998 to June 30, 2001
NameAddressDesignationDate of Suspension

June 1, 1998301998–22 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. Rul.—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

1998–22 I.R.B.31June 1, 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 1998–21
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
98–15, 1998–10 I.R.B.36
98–16, 1998–9 I.R.B. 17
98–17, 1998–9 I.R.B. 16
98–18, 1998–10 I.R.B.44
98–19, 1998–10 I.R.B.44
98–20, 1998–11 I.R.B. 25
98–21, 1998–11 I.R.B. 26
98–22, 1998–12 I.R.B. 33
98–23, 1998–12 I.R.B. 34
98–24, 1998–12 I.R.B. 35
98–25, 1998–13 I.R.B.43
98–26, 1998–14 I.R.B. 28
98–27, 1998–15 I.R.B. 30
98–28, 1998–15 I.R.B. 30
98–29, 1998–16 I.R.B. 48
98–30, 1998–17 I.R.B. 38
98–32, 1998–17 I.R.B. 39
98–33, 1998–17 I.R.B. 39
98–34, 1998–17 I.R.B. 39
98–35, 1998–17 I.R.B. 40
98–36, 1998–18 I.R.B. 18
98–37, 1998–19 I.R.B. 24
98–38, 1998–19 I.R.B. 26
98–39, 1998–20 I.R.B.24
98–40, 1998–20 I.R.B. 24
98–41, 1998–20 I.R.B. 25
98–42, 1998–21 I.R.B. 26
98–43, 1998–21 I.R.B. 26
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
98–16, 1998–15 I.R.B. 12
98–17, 1998–11 I.R.B. 6
98–18, 1998–12 I.R.B. 11
98–19, 1998–13 I.R.B.24
98–20, 1998–13 I.R.B.25
98–21, 1998–15 I.R.B. 14
Notices—Continued
98–22, 1998–17 I.R.B. 5
98–23, 1998–18 I.R.B. 9
98–24, 1998–17 I.R.B. 5
98–25, 1998–18 I.R.B. 11
98–26, 1998–18 I.R.B. 14
98–27, 1998–18 I.R.B. 14
98–28, 1998–19 I.R.B.7
Proposed Regulations:
PS–158–86, 1998–11 I.R.B. 13
REG–100841–97, 1998–8 I.R.B. 30
REG–102144–98, 1998–15 I.R.B.25
REG–102894–97, 1998–3 I.R.B. 59
REG–104062–97, 1998–10 I.R.B. 34
REG–104537–97, 1998–16 I.R.B. 21
REG–104691–97, 1998–11 I.R.B. 13
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–110965–97, 1998–13 I.R.B. 42
REG–115795–97, 1998–8 I.R.B.33
REG–119449–97, 1998–10 I.R.B. 35
REG–120200–97, 1998–12 I.R.B. 32
REG–120882–97, 1998–14 I.R.B. 25
REG–121268–97, 1998–20 I.R.B. 12
REG–121755–97, 1998–9 I.R.B. 13
REG–208299–90, 1998–16 I.R.B. 26
REG–209276–87, 1998–11 I.R.B. 18
REG–209322–82, 1998–15 I.R.B. 26
REG–209373–81, 1998–14 I.R.B. 26
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–209485–86, 1998–11 I.R.B. 21
REG–209682–94, 1998–17 I.R.B. 20
REG–209807–95, 1998–8 I.R.B. 40
REG–243025–96, 1998–18 I.R.B. 18
REG–251502–96, 1998–9 I.R.B. 14
REG–251698–96, 1998–20 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
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
98–22, 1998–12 I.R.B. 11
98–23, 1998–10 I.R.B. 30
98–24, 1998–10 I.R.B. 31
98–25, 1998–11 I.R.B. 7
98–26, 1998–13 I.R.B.26
Revenue Procedures—Continued
98–27, 1998–15 I.R.B.15
98–28, 1998–15 I.R.B.14
98–29, 1998–15 I.R.B. 22
98–30, 1998–17 I.R.B. 6
98–32, 1998–17 I.R.B. 11
98–33, 1998–19 I.R.B. 7
98–34, 1998–18 I.R.B. 15
98–35, 1998–21 I.R.B. 6
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
98–10, 1998–10 I.R.B. 11
98–11, 1998–10 I.R.B. 13
98–12, 1998–10 I.R.B. 5
98–13, 1998–11 I.R.B. 4
98–14, 1998–11 I.R.B. 4
98–15, 1998–12 I.R.B. 6
98–16, 1998–13 I.R.B. 18
98–17, 1998–13 I.R.B. 21
98–18, 1998–14 I.R.B. 22
98–19, 1998–15 I.R.B. 5
98–20, 1998–15 I.R.B. 8
98–21, 1998–18 I.R.B. 7
98–22, 1998–19 I.R.B.5
98–23, 1998–18 I.R.B. 5
98–24, 1998–19 I.R.B. 6
98–25, 1998–19 I.R.B.4
98–26, 1998–21 I.R.B. 4
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
8751, 1998–10 I.R.B. 23
8752, 1998–9 I.R.B. 4
8753, 1998–9 I.R.B. 6
8754, 1998–10 I.R.B. 15
8755, 1998–10 I.R.B. 21
8756, 1998–12 I.R.B.4
8757, 1998–13 I.R.B.4
8758, 1998–13 I.R.B. 15
8759, 1998–13 I.R.B. 19
8760, 1998–14 I.R.B. 4
8761, 1998–14 I.R.B. 13
8762, 1998–14 I.R.B. 15
8763, 1998–15 I.R.B. 5
8764, 1998–15 I.R.B. 9
8765, 1998–16 I.R.B. 11
8766, 1998–16 I.R.B. 17
8767, 1998–16 I.R.B. 4
8768, 1998–20 I.R.B.4

June 1, 1998321998–22 I.R.B.
Finding List of Current Action on
Previously Published Items
1
Bulletins 1998–1 through 1998–21
Revenue Procedures:
91–59
Updated and superseded by
98–25, 1998–11 I.R.B. 7
94–16
Modified and superseded by
98–22, 1998–12 I.R.B. 11
93–62
Modified and superseded by
98–22, 1998–12 I.R.B. 11
95–35
95–35A
Superseded by
98–19, 1998–7 I.R.B. 30
96–29
Modified and superseded by
98–22, 1998–12 I.R.B. 11
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
97–24
97–24A
Superseded by
98–33, 1998–19 I.R.B. 7
97–26
Obsoleted by
98–28, 1998–15 I.R.B. 14
97–34
Superseded by
98–35, 1998–21 I.R.B. 6
97–53
Superseded by
98–3, 1998–1 I.R.B. 100
Revenue Rulings:
68–352
Obsoleted by
98–24, 1998–19 I.R.B. 6
73–198
Modified by
98–24, 1998–19 I.R.B. 6
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.

Index
Internal Revenue Bulletins
1998–1 Through 1998–18
For the index of items published during
the first six months of 1997, see I.R.B.
1998–1, dated January 5, 1998.
The abbreviation and number in paren-
thesis following the index entry refer to
the specific item; numbers in roman and
italic type following the parenthesis refer
to the Internal Revenue Bulletin in which
the item may be found and the page
number on which it appears.
Key to Abbreviations:
RRRevenue Ruling
RPRevenue Procedure
TDTreasury Decision
CDCourt Decision
PLPublic Law
EOExecutive Order
DODelegation Order
TDOTreasury Department Order
TCTax Convention
SPRStatement of Procedural
Rules
PTEProhibited Transaction
Exemption
EMPLOYMENT TAX
Electronic filing; magnetic media; 1998
Form W–4 specifications (RP 26) 13,
26
Proposed regulations:
26 CFR 31.3121(v)(2)–1, revised;
FICA and FUTA taxation of amounts
under employee benefit plans (REG–
209484–87; REG–209807–95) 8, 40
26 CFR 31.6053–1, –4; electronic tip
reports (REG–104691–97) 11, 13
Student FICA exception (RP 16) 5,19
ESTATE TAX
Regulations:
26 CFR 20.2041–3, 20.2056(d)–2,
amended; 20.2046–1, revised; prop-
erty interests and disclaimer (TD
8744) 7, 20
26 CFR 25.2702–5, –7, amended; qual-
ified prsonal residence trust, sale of
residence (TD 8743) 7, 26
26 CFR 25.2511–1, 25.2514–3,
25.2518–1, –2, amended; property
interests and disclaimers (TD 8744)
7, 20
ESTATE TAX—Continued
Revocable trust; election (RP 13) 4, 21
Special use value; farm real property;
1998 interest rates (RR 22) 19, 5
Underpayment interest, interest expense
deduction, estates (RP 15) 4, 25
Valuation of compensatory stock options
(RP 34) 18, 15
EXCISE TAX
Bows and arrows; taxable and nontaxable
articles (RR 5) 2, 20
Federal excise taxes for consular officers
and employees, exemption (RR 24) 19,
6
Proposed regulations:
26 CFR 40.0–1T, added; 40.6011(a)–
1T, added; 40.6302(c)–2T, added;
deposits of excise taxes (REG–
102894–97) 3, 59
26 CFR 54.4980B–1, added; group
health plans continuation coverage
requirements (REG–209485–86) 11,
21
Regulations:
26 CFR 40.0–1(a), amended;
40.6011(a)–1(a)(2)(iii), 40.5302(c)–
1, amended, 40.6302(c)–2(b)(2)(iii),
added; deposits of excise taxes (TD
8740) 3, 4
26 CFR 40.6011(a)–1(b)(2)(vi),
amended; 48.4082–5T, removed;
48.4082–5, added; 48.4081–1,
amended; 48.4082–5T, redesignated;
48.6416(b)(4)–1, removed; 48.6421–
3(d)(2), amended; 48.6427–3(d)(2),
amended; 48.6715–1(a)(3), revised;
48.6715–2T, removed; gasoline and
diesel fuel excise tax; special rules for
Alaska, definitions (TD 8748) 8, 24
GIFT TAX
Nonstatutory stock option, transfer (RR
21) 18, 7
Qualifying income interest, disposition
(RR 8) 7, 24
Valuation of compensatory stock options
(RP 34) 18, 15
INCOME TAX
Advance pricing agreements, small busi-
ness taxpayers (Notice 10) 6, 9
Article XIII (8) Rev. Proc. (RP 21) 8, 27
Automobile owners and lessees (RP 24)
10, 31; (RP 30) 17,6
INCOME TAX—Continued
Books and records; automatic data pro-
cessing system (RP 25) 11, 7
Business expenses:
Underground waste storage tank (RR
25) 19, 4
Capital gains and charitable remainder
trusts (Notice 20) 13, 25
Classification settlement program:
Extended until further notice (Notice
21) 15, 14
Education loans (Notice 7) 3, 54
Elections under section 7704(g) (Notice
3) 3, 48
Electronic Federal Tax Payment System:
Batch filers and bulk filers (RP 32) 17,
11
Electronic or magnetic media filing:
Specifications for 1998 Forms 1098,
1099, 5498, and W–2G (RP 35) 19,
6
Employee plans:
Administrative programs; closing
agreements (RP 22) 12, 11
Determination letters (RP 6) 1, 183;
(RP 14) 4,22
Discrimination; CODAs (Notice 1) 3,
42
Eligible deferred compensation plans
(Notice 8) 4, 6
Group health plans; COBRA continua-
tion coverage; HIPAA portability
(Notice 12) 5, 12
Net unrealized appreciation; capital
gains (Notice 24) 17, 5
Fuel from a nonconventional source,
credit; section 29 inflation adjustment;
reference price for 1997 (Notice 28)
19, 7
Funding:
Full funding limitations, weighted av-
erage interest rate for January 1998
(Notice 9) 4, 8; February 1998 (No-
tice 15) 9,8; March 1998 (Notice
18) 12,11; April 1998 (Notice 26)
18, 14
Letter rulings, etc. (RP 4) 1, 113
Limitations on benefits and contribu-
tions (RR 1) 2, 5
Minimum Funding Standards (RP 10)
2, 35
26 CFR 1.401(a)(9)–1, amended; quali-
fied plans and individual retirement
plans, required distributions (REG–
209463–82) 4, 27
Recovery of basis; retirees (Notice 2) 2,
22
SIMPLE-IRAs (Notice 4) 2,25
1998–22 I.R.B.33June 1, 1998

Technical advice (RP 5) 1, 155
User fees (RP 8) 1, 225
Environmental cleanup costs; letter
rulings (RP 17) 5, 21
Exempt Organizations:
Letter rulings, etc. (RP 4) 1, 113
Organizations excepted from reporting
lobbying expenditures (RP 19) 7,
30
Tax consequences of physicians re-
cruitment incentives provided by
hospitals (RR 15) 12, 6
Technical advice (RP 5) 1, 155
User fees (RP 8) 1, 225
Failure to deposit federal tax; penalty
abatement (Notice 14) 8, 27
Foreign partnerships, reporting transfer of
property by U.S. persons (Notice 17)
11, 6
Foreign tax credit abuse (Notice 5) 3, 49
Fringe benefits aircraft valuation formula,
first half of 1998 (RR 14) 11, 4
Insurance companies:
Discounting estimated salvage recover-
able (RP 12) 4, 18
Interest rate tables (RR 2) 2,15
Loss reserves; discounting unpaid
losses (RP 11) 4, 9
Interest:
Investment:
Federal short-term, mid-term, and
long-term rates for January 1998
(RR4) 2, 18; February 1998
(RR7) 6, 6; March 1998 (RR11)
10, 13; April 1998 (RR 18) 14,
22; May (RR 23) 18,xx
Rates, underpayments and overpay-
ments (RR 17) 13, 21
Inventory:
LIFO:
Price indexes; department stores for
November 1997 (RR 6) 4, 4; De-
cember 1997 (RR 9) 6,5; January
1998 (RR 16) 13,18; February
1998 (RR 20) 15,8; March 1998
(RR 26) 21,xx
Shrinkage estimates:
Changing method of accounting for
estimating inventory shrinkage
(RP 29) 15, 22
Letter rulings, determination letters, and
information letters issued by Associate
Chief Counsel (Domestic), Associate
Chief Counsel (EBEO), Associate
Chief Counsel (Enforcement Litiga-
tion), and Associate Chief Counsel
(International) (RP 1) 1, 7
Losses attributable to a disaster during
1997 (RR 12) 10, 5
Low-income housing tax credit (Notice
13) 6, 19
Satisfactory bond; “bond factor”
amounts for the period October
through December 1997 (RR 3) 2, 4;
January–March 1998 (RR 13) 11,4
Passive foreign investment companies:
Shareholders may use rules of sec.
1.1295–1T(b)(4), (f), and (g) to tax-
able years beginning before January
1, 1998 (Notice 22) 17, 5
Proposed regulations:
26 CFR 1.72(p)–1, amended; loans to
plan participants (REG–209476–82)
8, 36
26 CFR 1.72(p)–1, corrected; loans to
plan participants (REG–209476–82)
19, xx
26 CFR 1.141–7, 1.142(f)(4)–1,
1.150–5, added; 1.141–8, –15,
amended; obligations of states and
political subdivisions (REG–
110965–97) 13, 42
26 CFR 1.195–1, added; election to
amortize start-up expenditures
(REG–209373–81) 14,26
26 CFR 1.356–6, added; reorganiza-
tions, nonqualified preferred stock
(REG–121755–97) 9, 13
26 CFR 1.368–1, amended; corporate
reorganizations, continuity of inter-
est (REG–120882–97) 14, 25
26 CFR 1.460–6, amended; election
not to apply look-back method in de
minimiscases (REG–120200–97)
12, 32
26 CFR 1.469–10, revised; 1.7704–1,
added; investment income, passive
activity income and loss rules for
publicly traded partnerships
(REG–105163–97) 8, 31
26 CFR 1.475(g)–2, new; 1.482–8,
added; 1.482–0, –1, –2, 1.863,
1.863–7(a)(1), 1.864–4, –6, 1.894–1,
amended; 1.482–9, redesignated;
global dealing operation allocation
and sourcing of income and deduc-
tions among taxpayers (REG–
208299–90) 16, 26
26 CFR 1.702–1, 1.954–1, 301.7701–3,
amended; 1.952–1(b), (c), redesig-
nated 1.954–2(a)(5), (6), 1.954–
4(b)(2)(iii), 1.954–9, 1.956–2(a)(3),
added (REG–104537–97) 16, 21
26 CFR 1.732–1, amended; 1.732–2,
amended; 1.734–1(e), added; 1.743–
1, revised; 1.751–1, amended;
1.755–1, revised; 1.1017–1, revised;
adjustments to basis of partnership
property and partnership interest
(REG–209682–94) 17, 20
26 CFR 1.925(a)–1, (b)–1, added;
1.927(e)–1, amended; foreign sales
corporation transfer pricing source
and grouping rules (REG–102144–
98) 15, 25
26 CFR 1.1291–1, 1.1293–1, 1.1295–1,
–3, 1.1297–3(c), added; 1.1296–4,
amended; passive foreign investment
company preferred shares, special
income exclusion (REG–115795–
97) 8, 33
26 CFR 1.1397E–1, added; qualified
zone academy bonds (REG–
119449–97) 10, 35
26 CFR 1.1502–3(c), revised; 1.1502–
4(f)(3), (g)(3), added; 1.1502–9(b)-
(1)(v), added; 1.1502–21(c)(1)(iii),
amended; consolidated returns, limi-
tations on the use of certain losses
and credits (REG–104062–97) 10, 34
26 CFR 1.6031–1, removed;
1.6031(a)–1, added; 1.6063–1,
amended; partnership returns
(REG–209322–82) 15, 26
26 CFR 1.7702B–1, –2, added; quali-
fied long-term care insurance con-
tracts (REG–109333–97) 9, 9
26 CFR 301.6159–1, amended; agree-
ments for tax liability installment
payments (REG–100841–97) 8, 30
26 CFR 301.6404–2, added; abatement
of interest (REG–209276–87) 11, 18
26 CFR 301.7433–1(a), (d), (e), and
(f), revised; civil cause of action for
certain unauthorized collection ac-
tions (REG–251502–96) 9, 14
26 CFR 54.9812–1, added; mental
health parity; HIPAA (REG–
109704–97) 3, 60
Qualified Funeral Trust; guidance (Notice
6) 3, 52
Qualified intermediary agreements:
Guidance provided to foreign financial
institutions (RP 27) 15, 15
Qualified mortgage bonds, mortgage
credit certificates:
Guidance provided regarding use of na-
tional and area median gross income
figures by issuers (RP 28) 15, 14
June 1, 1998341998–22 I.R.B.
INCOME TAX—Continued INCOME TAX—Continued INCOME TAX—Continued

Qualified Subchapter S Trust (QSST)
conversion to Electing Small Business
Trust (ESBT) 10, 30
Qualified Zone Academy Zone Bonds
(RP) 3, 100
Real estate transactions (RP 20) 7, 32
Regulations:
26 CFR 1.61–12, 1.249–1, 1.1016–5,
1.1275–1, amended; 1.163–13,
1.171–5, added; 1.171–1, –2, –3, –4,
revised; 1.1016–9, removed; amorti-
zable bond premium (TD 8746) 7, 4
26 CFR 1.141–0, –2, amended;
1.141–7, –8, removed; 1.141–7T,
–8T, –15T, 1.142(f)(4)–1T, 1.150–
5T, added; 1.141–15, revised; oblig-
ations of states and political subdivi-
sions (TD 8757) 13, 4
26 CFR 1.166–3(a)(3), 1.1001–4,
added; 1.166–3T, 1.1001–4T, re-
moved; modifications of bad debts
and dealer assignments of notional
principal contracts (TD 8763) 15, 5
26 CFR 1.280B–1, added; building de-
molition, definition of structure (TD
8745) 7, 15
26 CFR 1.338–2, 1.368–1, –2,
amended; 1.368–1T, added; corpo-
rate reorganizations, continuity of in-
terest, and continuity of business en-
terprise (TD 8760) 14, 4; (TD 8761)
14, 13
26 CFR 1.354–1, 1.355–1, 1.356–3,
amended; reorganizations, treatment
of warrants as securities (TD 8752)
9, 4
26 CFR 1.356–6T, added; reorganiza-
tions, nonqualified preferred stock
(TD 8753) 9, 6
26 CFR 1.446–1, amended; 1.446–1T,
removed; 301.9100–0, added;
301.9100–1, revised; 301.9100–2,
–3, added; 301.9100–1T, –2T, –3T;
removed extensions of time to make
elections (TD 8742) 5, 4
26 CFR 1.453.11; installment obliga-
tions received from liquidating cor-
porations (TD 8762) 14, 15
26 CFR 1.460–0, amended; 1.460–6T,
added; election not to apply look-
back method in de minimiscases
(TD 8756) 12, 4
26 CFR 1.468A–2, –3, –8, amended;
nuclear decommissioning funds; re-
vised schedules of ruling amounts
(TD 8758) 13, 15
26 CFR 1.904–5(o), 1.904–5T, 1.954–
0(b), 1.954–1, amended; 1.954–1T,
–2T, –9T, added; 301.7701–3(f)(1),
amended; controlled foreign corpo-
ration relating to partnerships and
branches (TD 8767) 16, 4
26 CFR 1.905–2, amended; foreign tax
credit filing requirements (TD 8759)
13, 19
26 CFR 1.925(a)–1T, 1.925(b)–
1T(b)(3)(i), amended; 1.927(e)–1T,
revised; foreign sales corporation
transfer pricing source and grouping
rules (TD 8764) 15, 9
26 CFR 1.985–1, –5(a), amended;
1.985–7, added; dollar approximate
separate transactions method of ac-
counting (DASTM) to profit and loss
method of accounting, change from
P&L method to DASTM (TD 8765)
16, 11
26 CFR 1.1271–1, 1.1275–1, amended;
debt instruments with original issue
discount, annuity contracts (TD
8754) 10, 15
26 CFR 1.1202–0, –2, added; qualified
small business stock (TD 8749) 7, 16
26 CFR 1.1290–0, amended; 1.1294–0,
added; a. 1291–0T, amended;
1.1291–1T, added; 1.1291–9,
amended; 1.1293–0, –1T, added;
1.1295–0, –1T, –3T, 1.1297–3T(c),
added; passive foreign investment
company preferred shares, special
income exclusion (TD 8750) 8, 4
26 CFR 1.1396–1; empowerment zone
employment credit, qualified zone
employees (TD 8747) 7, 18
26 CFR 1.1397E–1T, added; qualified
zone academy bonds (TD 8755) 10,
21
26 CFR 1.1502–3, –4, –9(a),
–21T(c)(1)(iii), amended; 1.1502–
3T, –4T, –9T, –55T, added; 1.1502–
23T(b), (c), redesignated; consoli-
dated returns, limitations on the use
of certain losses and credits, overall
foreign loss accounts (TD 8751) 10,
23
26 CFR 54.9801–2T, amended;
54.9801–4T, –5T, revised; 54.9804–
1T, redesignated; 54.9806–1T, redes-
ignated; 54.9812–1T, added; mental
health parity, interim rules (TD
8741) 3, 6
Relocation payments:
Authorized by sec. 105(a)(11) of Hous-
ing and Community Development
Act, not includible in gross income
(RR 19) 15, 5
Renewable electricity production credit;
calendar year 1998 inflation adjustment
factor and reference prices. (Notice 27)
18, xx
Reorganizations; exchange of securities
(RR 10) 10, 11
Rulings:
Areas in which advance rulings will not
be issued:
Associate Chief Counsel (Domes-
tic), Associate Chief Counsel
(EBEO) (RP 3) 1, 100
Associate Chief Counsel (Interna-
tional) (RP 7) 1, 222
Rural airports (RP 18) 6, 20
Social security benefits under U.S.-
Canada treaty, recent changes (Notice
23) 18, xx
Technical advice to district directors and
chiefs, appeals offices, Associate Chief
Counsel (Domestic), Associate Chief
Counsel (EBEO), Associate Chief
Counsel (Enforcement Litigation), and
Associate Chief Counsel (International)
(RP 2) 1, 74
Tentative differential earnings rate for
1997 (Notice 19) 13, 24
Treatment of hybrid arrangements under
subpart F (Notice 11) 6, 18
Trust, election to treat U.S. person;
domestic trust (Notice 25) 18, xx
Withholding regulations:
Effective date of sec. 1441 withholding
regulations amended (Notice 16) 15,
12
1998–22 I.R.B.35June 1, 1998
INCOME TAX—Continued INCOME TAX—Continued INCOME TAX—Continued

June 1, 1998361998–22 I.R.B.
Notes

1998–22 I.R.B.37June 1, 1998
Notes

Notes
June 1, 1998381998–22 I.R.B.

INTERNAL REVENUE BULLETIN
The Introduction on page 3 describes the purpose and content of this publication. The weekly Internal Revenue Bulletin is sold
on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superintendent of
Documents when their subscriptions must be renewed.
CUMULATIVE BULLETINS
The contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are
sold on a single copy basis and are not included as part of the subscription to the Internal Revenue Bulletin. Subscribers to the week-
ly Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of print
and are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from the
Superintendent of Documents.
HOW TO ORDER
Check the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance,
detach entire page, and mail to the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402. Please
allow two to six weeks, plus mailing time, for delivery.
WE WELCOME COMMENTS ABOUT THE
INTERNAL REVENUE BULLETIN
If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we
would be pleased to hear from you. You can e-mail us your suggestions or comments through the IRS Internet Home Page
(www.irs.ustreas.gov) or write to the IRS Bulletin Unit, T:FP:F:CD, Room 5560, 1111 Constitution Avenue NW, Washington, DC
20224. You can also leave a recorded message 24 hours a day, 7 days a week at 1–800–829–9043.