Internal Revenue Bulletin 1998-46 (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. 98–54, page 14.
LIFO; price indexes; department stores.The September
1998 Bureau of Labor Statistics price indexes are accepted for
use by department stores employing the retail inventory and
last-in, first-out inventory methods for valuing inventories for tax
years ended on, or with reference to, September 30, 1998.
T.D. 8787, page 5.
Final and temporary regulations provide ordering rules for
the reduction of basis of property under sections 108 and
1017 of the Code.
EMPLOYEE PLANS
Rev. Rul. 98–53, page 12.
Covered compensation tables; 1999.The covered com-
pensation tables for the 1999 calendar year for determining
contributions to defined benefit plans and permitted dispar-
ity are set forth.
Notice 98–52, page 16.
Nondiscriminatory safe harbors; ADP test; ACP test.
This notice provides guidance on the safe harbor methods
contained in sections 401(k)(12) and 401(m)(11) of the
Code for satisfying the nondiscrimination tests contained in
sections 401(k) and 401(m) for plan years beginning after
December 31, 1998.
Notice 98–53, page 24.
Retirement plans; 1999 section 415(d) limitations.
Cost-of-living adjustments effective January 1, 1999, applic-
able to the dollar limits on benefits under qualified defined
benefit pension plans and to other provisions affecting (1)
certain plans of deferred compensation and (2) “control em-
ployees” are set forth.
ADMINISTRATIVE
Notice 98–54, page 25.
Information reporting; qualified student loan interest.
Taxpayers are informed that the Service and Treasury are
extending the application of Notice 98–7, 1998–3 I.R.B. 54,
to information reporting required under section 6050S of
the Code for 1999. Further, no reporting is required with re-
spect to “mixed use” loans.
Notice 98–55, page 26.
Qualified offer rule.Public comment is requested on sev-
eral issues raised by the recently enacted qualified offer rule
regarding the award of reasonable administrative and litiga-
tion costs to a taxpayer in connection with an administrative
or court proceeding.
Rev. Proc. 98–55, page 27.
Late election relief for S corporations.If an S election or
other related election is filed after the due date for the de-
sired effective date of that election, special procedures per-
mit taxpayers meeting the eligibility requirements outlined in
this revenue procedure to request relief through the service
center instead of applying for a private letter ruling. This rev-
enue procedure extends the special procedure for late S
corporation elections described in Rev. Proc. 97–40 from 6
months to 12 months (but in no event to later than the unex-
tended due date of the tax return for the first year the cor-
poration intended to be an S corporation), provides similar
relief for certain QSub elections, and extends the application
of Rev. Proc. 94–23 to ESBT elections. Rev. Procs. 94–23
and 97–40 amplified and superseded.
Rev. Proc. 98–56, page 33.
Section 1374 no-rule.This procedure amplifies the “No
Rule” revenue procedure, Rev. Proc. 98–3, 1998–1 I.R.B.
Internal Revenue
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Bulletin No. 1998–46
November 16, 1998
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
Department of the Treasury
Internal Revenue Service
Finding Lists begin on page 44.
(Continued on page 4)
IRB 1998-46 11/12/98 10:45 AM Page 1

The IRS Mission
Provide America’s taxpayers top quality service by help-
ing them understand and meet their tax responsibilities
and by applying the tax law with integrity and fairness to
all.
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.
IRB 1998-46 11/12/98 10:45 AM Page 2

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.
IRB 1998-46 11/12/98 10:45 AM Page 3

100, to include certain issues arising in the timber, coal, and
domestic iron ore industries under sections 631 and 1374
of the Code.
Announcement 98–99, page 34.
Test of mediation procedure for appeals.Appeals is
conducting an additional two-year test of its mediation pro-
cedure. This announcement contains the procedures that
taxpayers may use to request mediation for certain issues
that are in the Appeals administrative process and that are
not docketed in any court.
Announcement 98–100, page 42.
The Service announces that in order to fully consider com-
ments received in response to draft training materials on the
application of section 119 of the Code to the hospitality in-
dustry, it will not release final training materials by October
31, 1998. The Service confirms that taxpayers will have
until 30 days after the final materials are issued to indicate
interest in accepting the related settlement initiative, and the
Service responds to a question about the terms of the set-
tlement initiative.
November 16, 199841998–46 I.R.B.
HIGHLIGHTS
OF THIS ISSUE—Continued
ADMINISTRATIVE—Continued
IRB 1998-46 11/12/98 10:45 AM Page 4

1998–46 I.R.B.5November 16, 1998
Section 108.—Income From
Discharge of Indebtedness
26 CFR 1.108–4: Election to reduce basis of
depreciable property under section 108(b)(5) of the
Internal Revenue Code.
T.D. 8787
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 301, and 602
Basis Reduction Due to
Discharge of Indebtedness
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regula-
tions.
SUMMARY: This document contains final
and temporary regulations that provide or-
dering rules for the reduction of bases of
property under sections 108 and 1017 of
the Internal Revenue Code of 1986. The
regulations will affect taxpayers that ex-
clude discharge of indebtedness income
from gross income under section 108.
DATES: Effective Date:These regula-
tions are effective,
October 22, 1998.
Applicability Date:These regulations
apply to discharges of indebtedness oc-
curring on or after, October 22, 1998 and
to elections under section 108(b)(5) con-
cerning discharges of indebtedness occur-
ring on or after, October 22, 1998.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations gener-
ally, Sharon L. Hall or Christopher F.
Kane of the Office of Assistant Chief
Counsel (Income Tax & Accounting) at
(202) 622-4930; concerning partnership
adjustments under section 1017,
Matthew Lay of the Office of Assistant
Chief Counsel (Passthroughs & Special
Industries) at (202) 622-3050.
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information con-
tained in this final regulation have been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)) under control
number 1545–1539. Responses to these
collections of information are required to
obtain a benefit.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the col-
lection of information displays a valid
control number.
The estimated annual burden per re-
spondent is 1 hour.
Comments concerning the accuracy of
this burden estimate and suggestions for
reducing this burden should be sent to the
Internal Revenue Service,Attn: IRS
Reports Clearance Officer, OP:FS:FP,
Washington, DC 20224, and to the Office
of Management and Budget,Attn: Desk
Officer for the Department of the Trea-
sury, Office of Information and Regula-
tory Affairs, Washington, DC 20503.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
This final regulation contains amend-
ments to the income tax regulations (26
CFR Parts 1 and 301) under sections 108
and 1017 of the Internal Revenue Code of
1986 (Code). The amendments conform
the regulations to amendments to sections
108 and 1017 made by the Bankruptcy
Tax Act of 1980, Public Law 96–589, §§2,
94 (Stat. 3389 (1980)); 1980–2 C.B. 607
(Bankruptcy Tax Act); the Technical Cor-
rections Act of 1982, Public Law 97–448,
§102(h)(1), 96 (Stat. 2365, 2372 (1983));
1983–1 C.B. 451; the Deficit Reduction
Act of 1984, Public Law 98–369, sections
474(r)(5) and 721(b)(2), 98 (Stat. 494,
839, 966 (1984)); 1984–3 C.B. (Vol. 1) 1;
the Tax Reform Act of 1986, Public Law
99–514, sections 104(b)(2), 231(d)(3)(D),
822, and 1171(b)(4), 100 (Stat. 2085,
2105, 2179, 2373, 2513 (1986)); 1986–3
C.B. (Vol. 1) 2; and the Omnibus Budget
Reconciliation Act of 1993, Public Law
103–66, section 13150, 107 (Stat. 312,
446 (1993)); 1993–3 C.B. 1.
On January 7, 1997, proposed regula-
tions (REG–208172–91), were published
in the Federal Register(62 F.R. 955).
Written comments were received in re-
sponse to the notice of proposed rulemak-
ing. One speaker provided testimony at a
public hearing held on May 29, 1997.
After consideration of all the com-
ments, the proposed regulations under
sections 108 and 1017 are adopted, as re-
vised by this Treasury decision.
Explanation of Revisions and Summary
of Comments
1. Basis Reduction Limited to Fair
Market Value
One commentator requested that basis
reduction be limited to fair market value
as provided by §1.1016–7(a) (as removed
by this regulation). The final regulations
do not adopt this recommendation. Sec-
tion 1017, as enacted by the Bankruptcy
Tax Act, fundamentally changed the rules
relating to basis reduction where dis-
charge of indebtedness income (cancella-
tion of debt (COD) income) is excluded
from gross income. The revised statute,
in section 1017(b)(2), provides only one
limitation on basis reduction for insolvent
and bankrupt taxpayers who do not make
an election under section 108(b)(5).
Under that rule, the basis reduction may
not exceed the excess of the aggregate of
the bases of the property held by the tax-
payer immediately after the discharge
over the aggregate of the liabilities of the
taxpayer immediately after the discharge.
The fair market value limitation found in
the regulations removed by this Treasury
decision is not reflected in section 1017.
Accordingly, the IRS and Treasury De-
partment do not believe that a rule limit-
ing basis reduction to fair market value
would be appropriate.
2. Section 108(c)(2)(A) Limitation
Section 1.108–5(a) of the proposed
regulations described the limitation under
section 108(c)(2)(A) and provided that
the amount excluded under section
108(a)(1)(D) (concerning discharges of
qualified real property business indebted-
ness) could not exceed the excess of the
outstanding principal amount of that in-
debtedness immediately before the dis-
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
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November 16, 199861998–46 I.R.B.
charge over the net fair market value of
the qualifying real property (as defined
under §1.1017–1(c)(1)) immediately be-
fore the discharge. Two commentators re-
quested that the regulations clarify that
any outstanding accrued and unpaid inter-
est is included in determining the out-
standing principal amount of the indebt-
edness for purposes of this limitation.
Given the purpose of this limitation,
which is to prevent taxpayers from using
the section 108(a)(1)(D) exclusion to the
extent that debt cancellation would create
equity in property (H.R. Rep. 103–111,
103d Cong., 1st Sess., 622–23 (1993)),
the IRS and Treasury Department believe
that it is inappropriate to strictly limit the
exclusion by reference to the amount
stated as principal in the debt instrument.
Accordingly, the final regulations provide
that, for purposes of section 108(c)(2)(A)
and §1.108–6 only, outstanding principal
amount means the principal amount of an
indebtedness and all additional amounts
owed that, immediately before the dis-
charge, are equivalent to principal, in that
interest on such amounts would accrue
and compound in the future. Amounts
that are subject to section 108(e)(2) are
excepted from the definition of principal
amount. In addition, principal amount
must be adjusted to account for unamor-
tized premium and discount consistent
with section 108(e)(3).
3. Allocation of Basis Reduction of
Multiple Properties Within the Same
Class
The proposed regulations incorporated
the limitation described in section
1017(b)(2) which provides that the basis
reduction for bankrupt and insolvent tax-
payers may not exceed the excess of the
aggregate of the bases of the property
held by the taxpayer immediately after the
discharge over the aggregate of the liabili-
ties of the taxpayer immediately after the
discharge. A commentator suggested that
this limitation be applied on a class by
class basis, so that when a basis reduction
applied within a single class of properties
described in §1.1017–1(a) exceeds the
amount of basis over the debt secured by
the properties in that class, the basis re-
duction in excess of that amount should
default to the next class.
The final regulations do not adopt this
comment.
The overall limitation on basis reduc-
tion is determined by reference to the ad-
justed basis of property and the amount of
money held by the taxpayer over the lia-
bilities of the taxpayer “immediately after
the discharge.” By contrast, under the
basis reduction rules applicable for pur-
poses of section 108(b)(2)(E), the tax-
payer must reduce the adjusted basis of
property “held by the taxpayer at the be-
ginning of the taxable year following the
year in which the discharge occurs.” Sec-
tion 1017(a). Given the difference in the
relevant time for applying the basis limi-
tation and the basis reduction rules, and
the relative complexity of the calculations
necessary to implement the proposal, the
IRS and Treasury Department believe that
the suggested limitation is not workable.
Accordingly, the final regulations con-
tinue to apply the limitation based on the
aggregate bases and liabilities of the tax-
payer consistent with section 1017(b)(2).
The proposed regulations also provided
that a taxpayer must treat a distributive
share of a partnership’s COD income as
attributable to a discharged indebtedness
secured by the taxpayer’s interest in that
partnership. The rule in the proposed reg-
ulations for allocating basis reduction
among multiple properties under section
108(b)(2)(E) contained parenthetical lan-
guage cross-referencing the partnership
provision for the property classes that in-
cluded secured real and personal property
used in a trade or business or held for in-
vestment. This parenthetical language
was intended to remind taxpayers that
partnership indebtedness is treated as in-
debtedness secured by the taxpayer’s in-
terest in the partnership.
One commentator stated that the cross-
reference with respect to secured real
property was confusing since a partner-
ship interest presumably should be treated
as personal property in reducing basis
under section 108(b)(2)(E). This is con-
trasted with the modified basis reduction
rules under sections 108(b)(5) and 108(c)
which, assuming the appropriate requests
are made and consents are granted, apply
a look-through rule to reduce the inside
basis of depreciable property or deprecia-
ble real property held by a partnership.
In order to eliminate this confusion, the
parenthetical language is not included in
the final regulations. However, as under
the proposed regulations, the final regula-
tions continue to treat a distributive share
of a partnership’s COD income as attrib-
utable to a discharged indebtedness se-
cured by the taxpayer’s partnership inter-
est. Accordingly, the elimination of the
parenthetical language is not intended to
change the substantive results obtained in
allocating a basis reduction among multi-
ple properties.
4. Meaning of “In Connection With” In
Section 108(c)(3)
A commentator requested that the final
regulations provide that the phrase “in
connection with” in section 108(c)(3)
does not require that the proceeds of debt
incurred or assumed before January 1,
1993 be traced to real property used in a
trade or business, but only requires that
the debt be secured by real property used
in a trade or business as of January 1,
1993. The final regulations do not adopt
this comment. Section 108(c)(3)(A) de-
fines qualified real property business in-
debtednessas indebtedness which “was
incurred or assumed by the taxpayer in-
connection with real property used in a
trade or business and is secured by such
real property”. The IRS and Treasury De-
partment do not believe that this sentence
should be interpreted to mean only that
the debt must be secured by real property
used in a trade or business as of January
1, 1993.
5. Basis Reduction With Respect to a
Residence
A commentator requested that when the
basis of a taxpayer’s residence is reduced
under section 1017 and is disposed of in a
transaction subject to section 1034
(which provided for the deferral of gain
on the sale of a personal residence), the
potential recapture income arising under
section 1245 should be carried into the re-
placement property. This comment is not
adopted in the final regulations. Section
1034 was repealed by the Taxpayer Relief
Act of 1997. New section 121, enacted
by the Taxpayer Relief Act of 1997, ex-
empts certain gain on the sale of a resi-
dence, but does not provide that the po-
tential gain will be transferred to a
replacement residence. Therefore, under
the new law, there is no mechanism to
preserve the potential recapture income
with respect to a new residence, and the
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1998–46 I.R.B.7November 16, 1998
potential recapture income must be recog-
nized on the sale of the residence under
section 1245.
6. Mandatory Request and Consent
The proposed regulations provided that
a partner may treat a partnership interest
as depreciable property under section
108(b)(5) (or as depreciable real property
under section 108(c)) only if the partner-
ship consents to make corresponding ad-
justments to the basis of the partnership’s
depreciable property (or depreciable real
property). The IRS and Treasury Depart-
ment generally believe, in this context,
that whether or not a partnership consents
to make the corresponding adjustments to
the basis of its property should be a matter
of agreement between the partner and the
partnership. Therefore, the proposed reg-
ulations generally provided that a partner
is free to choose whether or not to request
that a partnership reduce the basis of part-
nership property and that the partnership
is free to grant or withhold its consent.
The ability to freely choose whether or
not to request or grant consent, however,
provides opportunities to avoid the gen-
eral ordering rules of the proposed regula-
tions through the use of a partnership.
Therefore, the proposed regulations pro-
vided that, in a limited number of situa-
tions; (i) a partner is required to request
the partnership’s consent, and (ii) the
partnership is required to grant that con-
sent. Specifically, the proposed regula-
tions provided that a partner is required to
request consent if the partner owns (di-
rectly or indirectly) more than 50 percent
of the capital and profits interests of the
partnership, or if the partner receives a
distributive share of COD income from
the partnership. In addition, the partner-
ship is required to grant consent if re-
quests are made by partners owning (di-
rectly or indirectly) an aggregate of more
than 50 percent of the capital and profits
interests of the partnership.
One commentator requested revisions
to the mandatory request and consent
rules contained in the proposed regula-
tions. This commentator argued that the
proposed regulations, as written, could
unduly burden certain large partnerships
in situations where the partnership’s re-
fusal to consent was not motivated by tax
avoidance. The commentator requested
that the mandatory consent rule be revised
to require a partnership to consent only if
the partnership receives requests from
five or fewer partners who own, in the ag-
gregate, more than 50 percent of the capi-
tal and profits of the partnership.
To ensure that partnerships are not un-
duly burdened by the mandatory request
and consent rules, the commentator’s pro-
posal has been adopted, in part, in the
final regulations. However, to preserve
the general ordering rules of the regula-
tions, the IRS and Treasury Department
believe that it is appropriate to require a
partnership to consent to reduce the basis
of its depreciable property (or depreciable
real property) where a substantial major-
ity of its partners elect to exclude the
COD income under sections 108(b)(5) or
108(c). Therefore, the final regulations
provide that a partnership must consent to
reduce its partners’ shares of the partner-
ship’s depreciable basis in depreciable
property (or depreciable real property) if
consent is requested by; (i) partners own-
ing (directly or indirectly) an aggregate of
more than 80 percent of the capital and
profits interests of the partnership, or (ii)
five or fewer partners owning (directly or
indirectly) an aggregate of more than 50
percent of the capital and profits interests
of the partnership.
As in the proposed regulations, the
final regulations do not require a partner-
ship to reduce the basis of its depreciable
property (or depreciable real property) in
all situations where the partnership is the
source of the COD income. However,
where a partnership is the source of the
COD income and partners elect to ex-
clude such income, such partners are re-
quired to request that the partnership re-
duce its basis in such property.
Accordingly, if partners meeting the
requirements in (i) or (ii) above elect to
exclude such income, the partnership
must consent to reduce the basis of its de-
preciable property (or depreciable real
property).
Commentators also requested that the
final regulations clarify that a partner-
ship’s consent is not required for basis ad-
justments under section 108(b)(2)(E).
The final regulations make it clear that a
partnership’s consent to reduce the basis
of the partnership’s depreciable property
(or depreciable real property) is neither
required nor relevant where a partner re-
duces the basis in its partnership interest
under section 108(b)(2)(E).
7. Treatment of the Adjustment to the
Basis of Partnership Property Under
Subchapter K
One commentator requested that the
final regulations address a number of is-
sues concerning the treatment of the part-
nership’s adjustments to the basis of part-
nership property under subchapter K. The
final regulations do not address these is-
sues. Instead, the IRS and Treasury De-
partment have addressed these issues in
the proposed regulations recently promul-
gated under sections 743 and 755.
8. Timing and Reporting
The proposed regulations provided that
a partner requesting a reduction in inside
basis must make the request and receive
consent before the due date (including ex-
tensions) for filing the partner’s Federal
income tax return for the taxable year in
which the partner has COD income. The
proposed regulations also provided that a
partnership that consents to a basis reduc-
tion must include a consent statement
with its Form 1065, U.S. Partnership Re-
turn of Income, and provide a copy of that
statement to the affected partner on or be-
fore the date the Form 1065 is filed. One
commentator stated that the final regula-
tions should provide that; (i) partners
should not be required to request consent,
and (ii) neither the partner nor the partner-
ship should be required to attach state-
ments to their returns, until the filing date
of their respective returns for the taxable
year following the year that the partner
excludes COD income.
The IRS and Treasury Department con-
tinue to believe that a partner electing
under sections 108(b)(5) or 108(c) must
receive the consent of the partnership be-
fore the partner excludes the COD in-
come. Therefore, the final regulations
provide that the partner must request and
receive the consent of the partnership
prior to the due date (including exten-
sions) for filing the partner’s Federal in-
come tax return for the taxable year in
which the partner has COD income. The
final regulations do, however, adopt the
commentator’s suggestion that the part-
nership is not required to attach a state-
ment to its return until the filing date of its
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November 16, 199881998–46 I.R.B.
Federal income tax return for the taxable
year following the year that ends with or
within the taxable year that the partner ex-
cludes the COD income.
The commentator also stated that the
final regulations should provide that when
a partnership recognizes any COD in-
come from qualified real property busi-
ness indebtedness it should attach a state-
ment to its partners’ Forms K–1 stating
that the COD income is from qualified
real property business indebtedness and
the date the cancellation occurred. The
final regulations do not adopt this pro-
posal. The IRS and Treasury Department
believe that §1.703–1(a)(1) currently re-
quires partnerships to separately state
qualified real property business indebted-
ness and identify it as such.
The IRS and Treasury Department rec-
ognize that a partner might not always
have sufficient information with which to
decide to request a basis reduction until
on, or shortly before, the due date (includ-
ing extensions) for filing the partner’s
Federal income tax return. Therefore,
comments were requested as to whether
additional rules (such as requiring a part-
nership to inform partners of COD in-
come prior to the date the Form 1065 is
filed) are necessary to ensure that infor-
mation is exchanged between the partner-
ship and its partners in a timely fashion.
The final regulations do not require part-
nerships to inform their partners of COD
income prior to the date the Form 1065 is
filed. Instead, the IRS and Treasury De-
partment believe that any additional ad-
ministrative burdens imposed on partner-
ships should be the result of an
understanding between the partners and
the partnership.
9. Methods Used Prior to Issuance of
Final Regulations
A commentator requested that, for can-
cellation of debt events occurring prior to
the issuance of final regulations, taxpay-
ers be allowed to use any reasonable
method that conforms with existing regu-
lations or the proposed regulations in de-
termining which properties are subject to
the basis adjustments under sections 108
and 1017. This suggestion to provide for
retroactive application of these regula-
tions has not been adopted.
Special Analyses
It has been determined that this final
regulation is not a significant regulatory
action as defined in EO 12866. There-
fore, a regulatory assessment is not re-
quired. It has been determined that a final
regulatory flexibility analysis is required
for the collection of information in this
Treasury decision under 5 U.S.C. 604. A
summary of the analysis is set forth below
under the heading “Summary of Final
Regulatory Flexibility Act Analysis.”
Pursuant to section 7805(f) of the Internal
Revenue Code, this final regulation has
been submitted to the Chief Counsel for
Advocacy of the Small Business Admin-
istration for comment on its impact on
small business.
Summary of Final Regulatory Flexibility
Act Analysis
This analysis is required under the Reg-
ulatory Flexibility Act (5 U.S.C. chapter
6). In certain circumstances, the final reg-
ulations will require a partnership to in-
clude a statement with its Form 1065,
U.S. Partnership Return of Income, for
the taxable year following the year that
ends with or within the taxable year the
taxpayer excludes COD income from
gross income, and provide a statement to
the taxpayer on or before the due date of
the requesting partner’s return (including
extensions) for the taxable year in which
the COD income is excluded under sec-
tion 108(a), stating the amount of the
partner’s share of the reduction in the
partnership’s adjusted bases of deprecia-
ble real or personal property (inside
basis). This requirement will ensure that
the partner knows it is entitled to reduce
the adjusted basis of the partnership inter-
est and that the affected partnership
knows it must reduce the partner’s inter-
est in inside basis. The legal basis for this
requirement is contained in sections
1017(b), 6001, and 7805(a).
Though the final regulations might af-
fect any partnership owning depreciable
property, the IRS and Treasury Depart-
ment believe that partnerships owning de-
preciable real property are the most likely
to be affected. Approximately 1,560,000
partnership returns were filed for 1993.
Approximately 620,000 of these were for
partnerships owning real property. It is
unlikely, however, that many of these
partnerships or partners in these partner-
ships will have COD income in any given
year, so it is anticipated that only a small
number of these partnerships will be af-
fected by the final regulations in a partic-
ular year.
After a partner conveys information
concerning the amount of COD income
excluded from gross income under sec-
tion 108(a) to the affected partnership, the
partnership must reduce the partner’s in-
terest in inside basis. Accordingly, the
partnership must prepare and maintain
special entries on its books because this
basis reduction will reduce the partner’s
share of the partnership’s depreciation de-
ductions, and ultimate gain or loss on the
sale of the property, in subsequent years.
In many cases, partnership returns are
prepared using computer software that
can prepare and maintain these special en-
tries after the initial year.
The IRS and Treasury Department are
not aware of any federal rules that may
duplicate, overlap, or conflict with the
rule in the final regulation.
As an alternative to the disclosure de-
scribed above, the IRS and Treasury De-
partment considered, but rejected as too
burdensome, a rule that would have re-
quired an affected partnership to disclose
the reductions of adjusted basis on a prop-
erty-by-property basis. There are no
known alternative rules that are less bur-
densome to small entities but that accom-
plish the purpose of the statute.
Drafting Information
The principal authors of these regula-
tions are Sharon L. Hall, Office of Assis-
tant Chief Counsel (Income Tax and Ac-
counting) and Brian Blum, Office of
Assistant Chief Counsel (Passthroughs and
Special Industries). However, other per-
sonnel from the IRS and Treasury Depart-
ment participated in their development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1, 301 and
602 are amended as follows:
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1998–46 I.R.B.9November 16, 1998
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding entries in nu-
merical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.108–4 also issued under 26
U.S.C. 108.
Section 1.108–5 also issued under 26
U.S.C. 108. * * *
Section 1.1017–1 also issued under 26
U.S.C. 1017. * * *
Par. 2. Section 1.108-4 is added to read
as follows.
§1.108–4 Election to reduce basis of
depreciable property under section
108(b)(5) of the Internal Revenue Code .
(a) Description.An election under sec-
tion 108(b)(5) is available whenever a
taxpayer excludes discharge of indebted-
ness income (COD income) from gross
income under sections 108(a)(1)(A), (B),
or (C) (concerning title 11 cases, insol-
vency, and qualified farm indebtedness,
respectively). See sections 108(d)(2) and
(3) for the definitions of title 11 case and
insolvent.See section 108(g)(2) for the
definition of qualified farm indebtedness.
(b) Time and manner.To make an elec-
tion under section 108(b)(5), a taxpayer
must enter the appropriate information on
Form 982, Reduction of Tax Attributes
Due to Discharge of Indebtedness (and
Section 1082 Basis Adjustment),and at-
tach the form to the timely filed (including
extensions) Federal income tax return for
the taxable year in which the taxpayer has
COD income that is excluded from gross
income under section 108(a). An election
under this section may be revoked only
with the consent of the Commissioner.
(c) Effective date.This section applies
to elections concerning discharges of in-
debtedness occurring on or after October
22, 1998.
§1.108(c)–1 [Redesignated as §1.108–5]
Par. 3. Section 1.108(c)–1 is redesig-
nated as §1.108–5.
Par. 4. Section 1.108–6 is added to
read as follows:
§1.108–6 Limitations on the exclusion of
income from the discharge of qualified
real property business indebtedness.
(a) Indebtedness in excess of value.
With respect to any qualified real prop-
erty business indebtedness that is dis-
charged, the amount excluded from gross
income under section 108(a)(1)(D) (con-
cerning discharges of qualified real prop-
erty business indebtedness) shall not ex-
ceed the excess, if any, of the outstanding
principal amount of that indebtedness im-
mediately before the discharge over the
net fair market value of the qualifying real
property, as defined in §1.1017–1(c)(1),
immediately before the discharge. For
purposes of this section, net fair market
valuemeans the fair market value of the
qualifying real property (notwithstanding
section 7701(g)), reduced by the out-
standing principal amount of any quali-
fied real property business indebtedness
(other than the discharged indebtedness)
that is secured by such property immedi-
ately before and after the discharge. Also,
for purposes of section 108(c)(2)(A) and
this section, outstanding principal amount
means the principal amount of indebted-
ness together with all additional amounts
owed that, immediately before the dis-
charge, are equivalent to principal, in that
interest on such amounts would accrue
and compound in the future, except that
outstanding principal amount shall not in-
clude amounts that are subject to section
108(e)(2) and shall be adjusted to account
for unamortized premium and discount
consistent with section 108(e)(3).
(b) Overall limitation.The amount ex-
cluded from gross income under section
108(a)(1)(D) shall not exceed the aggre-
gate adjusted bases of all depreciable real
property held by the taxpayer immedi-
ately before the discharge (other than de-
preciable real property acquired in con-
templation of the discharge) reduced by
the sum of any—
(1) Depreciation claimed for the tax-
able year the taxpayer excluded discharge
of indebtedness from gross income under
section 108(a)(1)(D); and
(2) Reductions to the adjusted bases of
depreciable real property required under
section 108(b) or section 108(g) for the
same taxable year.
(c) Effective date.This section applies
to discharges of qualified real property
business indebtedness occurring on or
after, October 22, 1998.
§1.108(a)–1 [Removed]
Par. 5. Section 1.108(a)–1 is removed.
§1.108(a)–2 [Removed]
Par. 6. Section 108(a)–2 is removed.
§1.108(b)–1 [Removed]
Par. 7. Section 1.108–(b)-1 is removed.
§1.1016–7 [Removed]
Par. 8. Section 1.1016–7 is removed.
§1.1016–8 [Removed]
Par. 9. Section 1.1016–8 is removed.
Par. 10. Section 1.1017–1 is revised to
read as follows:
§1.1017–1 Basis reductions following a
discharge of indebtedness.
(a) General rule for section 108(b)-
(2)(E).This paragraph (a) applies to basis
reductions under section 108(b)(2)(E) that
are required by section 108(a)(1)(A) or (B)
because the taxpayer excluded discharge of
indebtedness (COD income) from gross in-
come. A taxpayer must reduce in the fol-
lowing order, to the extent of the excluded
COD income (but not below zero), the ad-
justed bases of property held on the first
day of the taxable year following the tax-
able year that the taxpayer excluded COD
income from gross income (in proportion
to adjusted basis)—
(1) Real property used in a trade or
business or held for investment, other
than real property described in section
1221(1), that secured the discharged in-
debtedness immediately before the dis-
charge;
(2) Personal property used in a trade or
business or held for investment, other
than inventory, accounts receivable, and
notes receivable, that secured the dis-
charged indebtedness immediately before
the discharge;
(3) Remaining property used in a trade
or business or held for investment, other
than inventory, accounts receivable, notes
receivable, and real property described in
section 1221(1);
(4) Inventory, accounts receivable,
notes receivable, and real property de-
scribed in section 1221(1); and
(5) Property not used in a trade or busi-
ness nor held for investment.
(b) Operating rules—(1) Prior tax-at-
tribute reduction.The amount of ex-
cluded COD income applied to reduce
basis does not include any COD income
applied to reduce tax attributes under sec-
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November 16, 1998101998–46 I.R.B.
tions 108(b)(2)(A) through (D) and, if ap-
plicable, section 108(b)(5). For example,
if a taxpayer excludes $100 of COD in-
come from gross income under section
108(a) and reduces tax attributes by $40
under sections 108(b)(2)(A) through (D),
the taxpayer is required to reduce the ad-
justed bases of property by $60 ($100 –
$40) under section 108(b)(2)(E).
(2) Multiple discharged indebted-
nesses. If a taxpayer has COD income at-
tributable to more than one discharged in-
debtedness resulting in the reduction of
tax attributes under sections 108(b)(2)(A)
through (D) and, if applicable, section
108(b)(5), paragraph (b)(1) of this section
must be applied by allocating the tax-at-
tribute reductions among the indebted-
nesses in proportion to the amount of
COD income attributable to each dis-
charged indebtedness. For example, if a
taxpayer excludes $20 of COD income at-
tributable to secured indebtedness A and
excludes $80 of COD income attributable
to unsecured indebtedness B (a total ex-
clusion of $100), and if the taxpayer re-
duces tax attributes by $40 under sections
108(b)(2)(A) through (D), the taxpayer
must reduce the amount of COD income
attributable to secured indebtedness A to
$12 ($20 – ($20 / $100 3$40)) and must
reduce the amount of COD income attrib-
utable to unsecured indebtedness B to $48
($80 – ($80 / $100 3$40)).
(3) Limitation on basis reductions
under section 108(b)(2)(E) in bankruptcy
or insolvency.If COD income arises
from a discharge of indebtedness in a title
11 case or while the taxpayer is insolvent,
the amount of any basis reduction under
section 108(b)(2)(E) shall not exceed the
excess of—
(i) The aggregate of the adjusted bases
of property and the amount of money held
by the taxpayer immediately after the dis-
charge; over
(ii) The aggregate of the liabilities of
the taxpayer immediately after the dis-
charge.
(c) Modification of ordering rules for
basis reductions under sections 108(b)(5)
and 108(c)—(1) In general.The ordering
rules prescribed in paragraph (a) of this
section apply, with appropriate modifica-
tions, to basis reductions under sections
108(b)(5) and (c). Thus, a taxpayer that
elects to reduce basis under section
108(b)(5) may, to the extent that the elec-
tion applies, reduce only the adjusted
basis of property described in paragraphs
(a)(1), (2), and (3) of this section and, if
an election is made under paragraph (f) of
this section, paragraph (a)(4) of this sec-
tion. Within paragraphs (a)(1),(2), (3) and
(4) of this section, such a taxpayer may re-
duce only the adjusted bases of deprecia-
ble property. A taxpayer that elects to
apply section 108(c) may reduce only the
adjusted basis of property described in
paragraphs (a)(1) and (3) of this section
and, within paragraphs (a)(1) and (3) of
this section, may reduce only the adjusted
bases of depreciable real property. Fur-
thermore, for basis reductions under sec-
tion 108(c), a taxpayer must reduce the ad-
justed basis of the qualifying real property
to the extent of the discharged qualified
real property business indebtedness before
reducing the adjusted bases of other depre-
ciable real property. The term qualifying
real propertymeans real property with re-
spect to which the indebtedness is quali-
fied real property business indebtedness
within the meaning of section 108(c)(3).
See paragraphs (f) and (g) of this section
for elections relating to section 1221(1)
property and partnership interests.
(2) Partial basis reductions under sec-
tion 108(b)(5).If the amount of basis re-
ductions under section 108(b)(5) is less
than the amount of the COD income ex-
cluded from gross income under section
108(a), the taxpayer must reduce the bal-
ance of its tax attributes, including any re-
maining adjusted bases of depreciable and
other property, by following the ordering
rules under section 108(b)(2). For exam-
ple, if a taxpayer excludes $100 of COD
income from gross income under section
108(a) and elects to reduce the adjusted
bases of depreciable property by $10
under section 108(b)(5), the taxpayer
must reduce its remaining tax attributes
by $90, starting with net operating losses
under section 108(b)(2).
(3) Modification of fresh start rule for
prior basis reductions under section
108(b)(5).After reducing the adjusted
bases of depreciable property under sec-
tion 108(b)(5), a taxpayer must compute
the limitation on basis reductions under
section 1017(b)(2) using the aggregate of
the remaining adjusted bases of property.
For example, if, immediately after the dis-
charge of indebtedness in a title 11 case, a
taxpayer’s adjusted bases of property is
$100 and its undischarged indebtedness is
$70, and if the taxpayer elects to reduce
the adjusted bases of depreciable property
by $10 under section 108(b)(5), section
1017(b)(2) limits any further basis reduc-
tions under section 108(b)(2)(E) to $20
(($100 – $10) – $70).
(d) Changes in security.If any property
is added or eliminated as security for an
indebtedness during the one-year period
preceding the discharge of that indebted-
ness, such addition or elimination shall be
disregarded where a principal purpose of
the change is to affect the taxpayer’s basis
reductions under section 1017.
(e) Depreciable property.For purposes
of this section, the term depreciable prop-
ertymeans any property of a character
subject to the allowance for depreciation
or amortization, but only if the basis re-
duction would reduce the amount of de-
preciation or amortization which other-
wise would be allowable for the period
immediately following such reduction.
Thus, for example, a lessor cannot reduce
the basis of leased property where the
lessee’s obligation in respect of the prop-
erty will restore to the lessor the loss due
to depreciation during the term of the
lease, since the lessor cannot take depre-
ciation in respect of such property.
(f) Election to treat section 1221(1)
real property as depreciable—(1) In gen-
eral.For basis reductions under section
108(b)(5) and basis reductions relating to
qualified farm indebtedness, a taxpayer
may elect under sections 1017(b)(3)(E)
and (4)(C), respectively, to treat real prop-
erty described in section 1221(1) as de-
preciable property. This election is not
available, however, for basis reductions
under section 108(c).
(2) Time and manner. To make an elec-
tion under section 1017(b)(3)(E) or
(4)(C), a taxpayer must enter the appro-
priate information on Form 982, Reduc-
tion of Tax Attributes Due to Discharge of
Indebtedness (and Section 1082 Basis Ad-
justment),and attach the form to a timely
filed (including extensions) Federal in-
come tax return for the taxable year in
which the taxpayer has COD income that
is excluded from gross income under sec-
tion 108(a). An election under this para-
graph (f) may be revoked only with the
consent of the Commissioner.
(g) Partnerships—(1) Partnership
COD income.For purposes of paragraph
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1998–46 I.R.B.11November 16, 1998
(a) of this section, a taxpayer must treat a
distributive share of a partnership’s COD
income as attributable to a discharged in-
debtedness secured by the taxpayer’s in-
terest in that partnership.
(2) Partnership interest treated as de-
preciable property—(i) In general.For
purposes of making basis reductions, if a
taxpayer makes an election under section
108(b)(5) (or 108(c)), the taxpayer must
treat a partnership interest as depreciable
property (or depreciable real property) to
the extent of the partner’s proportionate
share of the partnership’s basis in depre-
ciable property (or depreciable real prop-
erty), provided that the partnership con-
sents to a corresponding reduction in the
partnership’s basis (inside basis) in depre-
ciable property (or depreciable real prop-
erty) with respect to such partner.
(ii) Request by partner and consent of
partnership—(A) In general.Except as
otherwise provided in this paragraph
(g)(2)(ii), a taxpayer may choose whether
or not to request that a partnership reduce
the inside basis of its depreciable property
(or depreciable real property) with respect
to the taxpayer, and the partnership may
grant or withhold such consent, in its sole
discretion. A request by the taxpayer
must be made before the due date (includ-
ing extensions) for filing the taxpayer’s
Federal income tax return for the taxable
year in which the taxpayer has COD in-
come that is excluded from gross income
under section 108(a).
(B) Request for consent required.A
taxpayer must request a partnership’s con-
sent to reduce inside basis if, at the time
of the discharge, the taxpayer owns (di-
rectly or indirectly) a greater than 50 per-
cent interest in the capital and profits of
the partnership, or if reductions to the
basis of the taxpayer’s depreciable prop-
erty (or depreciable real property) are
being made with respect to the taxpayer’s
distributive share of COD income of the
partnership.
(C) Granting of request required.A
partnership must consent to reduce its
partners’ shares of inside basis with re-
spect to a discharged indebtedness if con-
sent is requested with respect to that in-
debtedness by partners owning (directly
or indirectly) an aggregate of more than
80 percent of the capital and profits inter-
ests of the partnership or five or fewer
partners owning (directly or indirectly) an
aggregate of more than 50 percent of the
capital and profits interests of the partner-
ship. For example, if there is a cancella-
tion of partnership indebtedness that is
secured by real property used in a partner-
ship’s trade or business, and if partners
owning (in the aggregate) 90 percent of
the capital and profits interests of the part-
nership elect to exclude the COD income
under section 108(c), the partnership must
make the appropriate reductions in those
partners’ shares of inside basis.
(iii) Partnership consent statement—
(A) Partnership requirement.A consent-
ing partnership must include with the
Form 1065, U.S. Partnership Return of
Income, for the taxable year following the
year that ends with or within the taxable
year the taxpayer excludes COD income
from gross income under section 108(a),
and must provide to the taxpayer on or be-
fore the due date of the taxpayer’s return
(including extensions) for the taxable year
in which the taxpayer excludes COD in-
come from gross income, a statement
that—
(1) Contains the name, address, and
taxpayer identification number of the
partnership; and
(2) States the amount of the reduction
of the partner’s proportionate interest in
the adjusted bases of the partnership’s de-
preciable property or depreciable real
property, whichever is applicable.
(B) Taxpayer’s requirement.State-
ments described in paragraph (g)(2)(iii)-
(A) of this section must be attached to a
taxpayer’s timely filed (including exten-
sions) Federal income tax return for the
taxable year in which the taxpayer has
COD income that is excluded from gross
income under section 108(a).
(iv) Partner’s share of partnership’s
adjusted basis.[Reserved]
(3) Partnership basis reduction.The
rules of this section (including this para-
graph (g)) apply in determining the prop-
erties to which the partnership’s basis re-
ductions must be made.
(h) Special allocation rule for cases to
which section 1398 applies. If a bank-
ruptcy estate and a taxpayer to whom sec-
tion 1398 applies (concerning only indi-
viduals under Chapter 7 or 11 of title 11
of the United States Code) hold property
subject to basis reduction under section
108(b)(2)(E) or (5) on the first day of the
taxable year following the taxable year of
discharge, the bankruptcy estate must re-
duce all of the adjusted bases of its prop-
erty before the taxpayer is required to re-
duce any adjusted bases of property.
(i) Effective date.This section applies
to discharges of indebtedness occurring
on or after October 22, 1998.
§1.1017–2 [Removed]
Par. 11. Section 1.1017–2 is removed.
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 12. The authority citation for part
301 continues to read as follows:
Authority: 26 U.S.C. 7805 * * *
§301.9100–13T [Removed]
Par. 13. Section 301.9100–13T is re-
moved.
PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 14. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 15. Section 602.101(c) is amended
by:
1. Adding the following entries in nu-
merical order to the table:
§602.101 OMB Control numbers.
* * * * *
(c) * * *
CFR part or section Current OMB
where identified and control No.
described
* * * * *
1.108–4 . . . . . . . . . . . . . . . . . 1545–1539
1.108–5 . . . . . . . . . . . . . . . . . 1545–1421
* * * * *
1.1017–1 . . . . . . . . . . . . . . . .1 545–1539
* * * * *
2. Removing the following entries in
numerical order from the table:
* * * * *
IRB 1998-46 11/12/98 10:45 AM Page 11

November 16, 1998121998–46 I.R.B.
CFR part or sectionCurrent OMB
where identified andcontrol No.
described
* * * * *
1.108(a)–1 . . . . . . . . . . . . . . .1545–0046
1.108(a)–2 . . . . . . . . . . . . . . .1545–0046
1.108(c)–1 . . . . . . . . . . . . . . .1545–1421
* * * * *
1.1017–2 . . . . . . . . . . . . . . . .1545–0028
1545–0046
* * * * *
301.9100–13T . . . . . . . . . . . .1545–0046
Michael P. Dolan,
Commissioner of
Internal Revenue.
Approved September 14, 1998.
Donald C. Lubick,
Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on
October 21, 1998, at 8:45 a.m., and published in the
issue of the Federal Register for October 22, 1998,
63 F.R. 56559)
Section 401.—Qualified
Pension, Profit-Sharing, and
Stock Bonus Plans
26 CFR 1.401(l)–1: Permitted disparity with
respect to employer-provided contributions or
benefits.
Covered compensation tables; 1999.
The covered compensation tables for the
1999 calendar year for determining con-
tributions to defined benefit plans and
permitted disparity are set forth.
Rev. Rul. 98–53
This revenue ruling provides tables of
covered compensation under § 401(l)-
(5)(E) of the Internal Revenue Code (the
“Code”) and the Income Tax Regulations,
thereunder, for the 1999 plan year.
Section 401(l)(5)(E)(i) defines covered
compensation with respect to an em-
ployee, as the average of the contribution
and benefit bases in effect under § 230 of
the Social Security Act (the “Act”) for
each year in the 35-year period ending
with the year in which the employee at-
tains social security retirement age.
Section 401(l)(5)(E)(ii) of the Code
states that the determination for any year
preceding the year in which the employee
attains social security retirement age shall
be made by assuming that there is no in-
crease in covered compensation after the
determination year and before the em-
ployee attains social security retirement
age.
Section 1.401(l)–1(c)(34) of the regula-
tions defines the taxable wage base as the
contribution and benefit base under § 230
of the Act.
Section 1.401(l)–1(c)(7)(i) defines cov-
ered compensation for an employee as the
average (without indexing) of the taxable
wage bases in effect for each calendar
year during the 35-year period ending
with the last day of the calendar year in
which the employee attains (or will attain)
social security retirement age. A 35-year
period is used for all individuals regard-
less of the year of birth of the individual.
In determining an employee’s covered
compensation for a plan year, the taxable
wage base for all calendar years begin-
ning after the first day of the plan year is
assumed to be the same as the taxable
wage base in effect as of the beginning of
the plan year. An employee’s covered
compensation for a plan year beginning
after the 35-year period applicable under
§ 1.401(l)–1(c)(7)(i) is the employee’s
covered compensation for a plan year dur-
ing which the 35-year period ends. An
employee’s covered compensation for a
plan year beginning before the 35-year
period applicable under this § 1.401(l)–
1(c)(7)(i) is the taxable wage base in ef-
fect as of the beginning of the plan year.
Section 1.401(l)–1(c)(7)(ii) provides
that, for purposes of determining the
amount of an employee’s covered com-
pensation under § 1.401(l)–1(c)(7)(i), a
plan may use tables, provided by the
Commissioner, that are developed by
rounding the actual amounts of covered
compensation for different years of birth.
For purposes of determining covered
compensation for the 1999 year the tax-
able wage base is $72,600.
The following tables provide covered
compensation for 1999:
1999 Covered Compensation Table
CalendarCalendar Year of1999 Covered
Year ofSocial SecurityCompensation
BirthRetirement Age
19071972$4,488
190819734,704
190919745,004
191019755,316
191119765,664
191219776,060
191319786,480
191419797,044
191519807,692
191619818,460
191719829,300
1918198310,236
1919198411,232
IRB 1998-46 11/12/98 10:45 AM Page 12

1998–46 I.R.B.13November 16, 1998
1999 Covered Compensation Table (Continued)
CalendarCalendar Year of1999 Covered
Year ofSocial SecurityCompensation
BirthRetirement Age
1920198512,276
1921198613,368
1922198714,520
1923198815,708
1924198916,968
1925199018,312
1926199119,728
1927199221,192
1928199322,716
1929199424,312
1930199525,920
1931199627,576
1932199729,304
1933199831,128
1934199933,060
1935200034,992
1936200136,888
1937200238,772
1938200442,468
1939200544,328
1940200646,176
1941200747,988
1942200849,752
1943200951,456
1944201053,124
1945201154,768
1946201256,364
1947201357,936
1948201459,352
1949201560,684
1950201661,920
1951201763,060
1952201864,116
1953201965,112
1954202066,060
1955202267,752
1956202368,544
1957202469,240
1958202569,852
1959202670,404
1960202770,884
1961202871,316
1962202971,664
1963203071,988
1964203172,264
1965203272,480
1966 or later203372,600
IRB 1998-46 11/12/98 10:45 AM Page 13

November 16, 1998141998–46 I.R.B.
1999 Rounded Covered Compensation Table
Year of BirthCovered Compensation
1934 33,000
1935 – 193636,000
193739,000
193842,000
1939 – 194045,000
194148,000
1942 – 194351,000
1944 – 194554,000
1946 – 194757,000
1948 – 194960,000
1950 – 195263,000
1953 – 195466,000
1955 – 195969,000
1960 – 196472,000
1965 or later72,600
Drafting Information
The principal author of this revenue rul-
ing is Todd Newman of the Employee
Plans Division. For further information
regarding this revenue ruling, call (202)
622-6076 between 2:30 and 3:30 Eastern
time (not a toll free number) Monday thru
Thursday. Mr. Newman’s number is (202)
622-8458 (also not a toll free number).
Section 472.—Last-in, First-out
Inventories
26 CFR 1.472–1: Last-in, first-out inventories.
LIFO; price indexes; department
stores.The September 1998 Bureau of
Labor Statistics price indexes are ac-
cepted for use by department stores em-
ploying the retail inventory and last-in,
first-out inventory methods for valuing
inventories for tax years ended on, or with
reference to, September 30, 1998.
Rev. Rul. 98–54
The following Department Store Inven-
tory Price Indexes for September 1998
were issued by the Bureau of Labor Sta-
tistics. The indexes are accepted by the
Internal Revenue Service, under § 1.472–
1(k) of the Income Tax Regulations and
Rev. Proc. 86–46, 1986–2 C.B. 739, for
appropriate application to inventories of
department stores employing the retail in-
ventory and last-in, first-out inventory
methods for tax years ended on, or with
reference to, September 30, 1998.
The Department Store Inventory Price
Indexes are prepared on a national basis
and include (a) 23 major groups of depart-
ments, (b) three special combinations of
the major groups - soft goods, durable
goods, and miscellaneous goods, and (c) a
store total, which covers all departments,
including some not listed separately, ex-
cept for the following: candy, food,
liquor, tobacco, and contract departments.
BUREAU OF LABOR STATISTICS, DEPARTMENT STORE
INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS
(January 1941 = 100, unless otherwise noted)
Percent Change
GroupsSept.Sept.from Sept.1997
1997 1998to Sept. 1998
1
1. Piece Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .521.1542.34.1
2. Domestics and Draperies . . . . . . . . . . . . . . . . . . . . .646.6634.0–1.9
3. Women’s and Children’s Shoes . . . . . . . . . . . . . . . .652.0664.9 2.0
4. Men’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .902.9915.11.4
5. Infants’ Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .623.3621.4–0.3
6. Women’s Underwear . . . . . . . . . . . . . . . . . . . . . . . .557.8569.32.1
7. Women’s Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . .304.3308.7 1.4
8. Women’s and Girls’ Accessories . . . . . . . . . . . . . . .544.1545.70.3
9. Women’s Outerwear and Girls’ Wear . . . . . . . . . . . .422.2419.3–0.7
10. Men’s Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .620.2614.9–0.9
11. Men’s Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . .603.1595.5–1.3
IRB 1998-46 11/12/98 10:45 AM Page 14

1998–46 I.R.B.15November 16, 1998
BUREAU OF LABOR STATISTICS, DEPARTMENT STORE (Continued)
INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS
(January 1941 = 100, unless otherwise noted)
Percent Change
GroupsSept.Sept.from Sept.1997
1997 1998to Sept. 1998
1
12. Boys’ Clothing and Furnishings498.7511.62.6
13. Jewelry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1009.5973.7–3.5
14. Notions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .842.0754.8–10.4
15. Toilet Articles and Drugs . . . . . . . . . . . . . . . . . . . . .904.6939.83.9
16. Furniture and Bedding . . . . . . . . . . . . . . . . . . . . . . .662.7673.81.7
17. Floor Coverings . . . . . . . . . . . . . . . . . . . . . . . . . . . .583.2602.13.2
18. Housewares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .816.8807.8–1.1
19. Major Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . .243.4236.9–2.7
20. Radio and Television . . . . . . . . . . . . . . . . . . . . . . . .74.971.0–5.2
21. Recreation and Education
2
. . . . . . . . . . . . . . . . . . . .108.9103.2–5.2
22. Home Improvements
2
. . . . . . . . . . . . . . . . . . . . . . . .131.7129.9–1.4
23. Auto Accessories
2
. . . . . . . . . . . . . . . . . . . . . . . . . . .108.3107.5–0.7
Groups 1 – 15: Soft Goods . . . . . . . . . . . . . . . . . . . . . .606.4605.4–0.2
Groups 16 – 20: Durable Goods . . . . . . . . . . . . . . . . . . .465.3458.1–1.5
Groups 21 – 23: Misc. Goods
2
. . . . . . . . . . . . . . . . . . . .111.8107.6–3.8
Store Total
3
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .556.7551.9–0.9
1
Absence of a minus sign before percentage change in this column signifies price increase.
2
Indexes on a January 1986=100 base.
3
The store total index covers all departments, including some not listed separately, except for the following: candy, food, liquor, to-
bacco, and contract departments.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Stan Michaels of the Office of
Assistant Chief Counsel (Income Tax and
Accounting). For further information re-
garding this revenue ruling, contact Mr.
Michaels on (202) 622-4970 (not a toll-
free call).
Section 1361.—S Corporation
Defined
If a taxpayer files a qualified subchapter S sub-
sidiary (QSub) election after the due date for a de-
sired effective date but within 12 months of that
due date, may the taxpayer obtain relief under
§301.9100 of the regulations without applying for a
private letter ruling? See Rev. Proc. 98–55,
page 27.
Section 1362.—Election;
Revocation; Termination
26 CFR 1.1362–4: Inadvertent terminations.
If a qualified subchapter S trust election or an
electing small business trust election is filed after
the required due date but within 24 months of that
due date, may the beneficiary (in the case of a
QSST) or the trustee (in the case of an ESBT) obtain
relief under §1362(f) without applying for a private
letter ruling? See Rev. Proc. 98–55, page 27.
26 CFR 1.1362–6: Elections and consents.
If a taxpayer files an S corporation election after
the statutory due date but within 12 months of that
statutory due date, may the taxpayer obtain relief
under § 1362(b)(5) of the Internal Revenue Code
without applying for a private letter ruling? See
Rev. Proc. 98–55, page 27.
IRB 1998-46 11/12/98 10:45 AM Page 15

November 16, 1998161998–46 I.R.B.
Cash or Deferred Arrangements;
Nondiscrimination
Notice 98–52
I. PURPOSE
This notice provides guidance on the
design-based alternative or “safe harbor”
methods in § 401(k)(12) and § 401(m)(11)
of the Internal Revenue Code for satisfy-
ing the § 401(k) and § 401(m) nondiscrim-
ination tests.
Specifically, under this notice:
• A section 401(k) plan generally satisfies
the actual deferral percentage (“ADP”)
test if a prescribed level of safe harbor
matching or nonelective contributions
are made on behalf of all eligible non-
highly compensated employees
(“NHCEs”) and if employees are pro-
vided a timely notice describing their
rights and obligations under the plan.
See section V.
• Employee notices for the 1999 plan
year are not required to be provided be-
fore March 1, 1999. See the transition
rule in section V.C.2.
• A plan that satisfies the ADP test safe
harbor by providing a basic level of safe
harbor matching contributions automat-
ically satisfies the actual contribution
percentage (“ACP”) test with respect to
matching contributions. Plans that pro-
vide additional matching contributions
satisfy the ACP test if matching contri-
butions do not exceed specified limita-
tions. See section VI.
• A special rule allows § 403(b) plans to
take advantage of the ACP test safe har-
bor. See section VI.C.
• Plan amendments needed to implement
the safe harbor methods generally may
be deferred until the date other SBJPA
plan amendments are required (for cal-
endar year plans, December 31, 1999).
See section XI.
Among other matters, this notice also
addresses the timing of safe harbor contri-
butions (section VII), the interaction of
the safe harbor methods with other quali-
fication rules and testing methods (section
VIII), and how the safe harbor methods
work where an employer maintains multi-
ple CODAs or plans (section IX).
II. BACKGROUND
Section 1433(a) of the Small Business
Job Protection Act of 1996 (“SBJPA”),
Pub. L. 104–188, added new §§ 401(k)-
(12) and 401(m)(11) to the Code, effective
for plan years beginning after December
31, 1998, which provide design-based safe
harbor methods for satisfying the ADP test
contained in § 401(k)(3)(A)(ii) and the
ACP test contained in § 401(m)(2). Sec-
tion 401(k)(12) provides that a cash or de-
ferred arrangement (“CODA”) is treated
as satisfying the ADP test if the CODA
meets certain contribution and notice re-
quirements. Section 401(m)(11) provides
that a defined contribution plan is treated
as satisfying the ACP test with respect to
matching contributions if the plan meets
the contribution and notice requirements
contained in § 401(k)(12) and, in addi-
tion, meets certain limitations on the
amount and rate of matching contribu-
tions available under the plan.
Previous guidance on other SBJPA
amendments to §§ 401(k) and 401(m) was
provided in Notice 97–2, 1997–1 C.B.
348, and Notice 98–1, 1998–3 I.R.B. 42.
III. EFFECT ON REGULATIONS
Because of the amendments made to
§§ 401(k) and 401(m) by SBJPA, as well
as by other recent legislation, certain por-
tions of §§ 1.401(k)–1, 1.401(m)–1 and
1.401(m)–2 of the Income Tax Regula-
tions no longer reflect current law. How-
ever, these regulations continue to apply
to the extent they are not inconsistent with
the Code, Notices 97–2 and 98–1, this no-
tice, and any subsequent guidance.
IV. DEFINITIONS
A. In General
Except as provided in this section IV,
any term used in this notice that is defined
in Notice 98–1 or the regulations under
§§ 401(k) and 401(m) has the same mean-
ing as in Notice 98–1 or those regulations.
For example, the definition of “plan” in
§ 1.401(k)–1(g)(11) applies for purposes
of this notice.
B. Compensation
Except as provided in section
V.B.1.c.iii, “compensation” for purposes
of this notice means compensation as de-
fined in § 1.401(k)–1(g)(2) (which incor-
porates by reference the definition of com-
pensation in § 414(s) and § 1.414(s)–1);
provided, however, that the rule in the last
sentence of § 1.414(s)–1(d)(2)(iii) (which
generally permits a definition of compen-
sation to exclude all compensation in ex-
cess of a specified dollar amount) does not
apply in determining the compensation of
NHCEs. The annual compensation limit
under § 401(a)(17) applies for purposes of
the safe harbor methods.
Thus, a uniform definition of compen-
sation described in this section IV.B must
be used for purposes of the basic matching
formula or an enhanced matching formula
under section V.B.1.a, the nonelective
contribution requirement under section
V.B.2, and the matching contribution limi-
tations under section VI.B. As provided
under § 1.401(k)–1(g)(2), an employer
may limit the period used to determine
compensation for a plan year to that por-
tion of the plan year in which the em-
ployee is an eligible employee, provided
that this limit is applied uniformly to all
eligible employees under the plan for the
plan year.
C. Basic Matching Formula
For purposes of this notice, the “basic
matching formula” is the formula de-
scribed in section V.B.1.a.i.
D. Enhanced Matching Formula
For purposes of this notice, an “en-
hanced matching formula” is a formula
described section V.B.1.a.ii.
E. Rate of Elective Contributions
For purposes of this notice, an em-
ployee’s “rate of elective contributions”
means the ratio of an employee’s elective
contributions under the plan for a plan
year to the employee’s compensation for
that plan year.
F. Rate of Employee Contributions
For purposes of this notice, an em-
ployee’s “rate of employee contributions”
means the ratio of an employee’s em-
ployee contributions under the plan for a
plan year to the employee’s compensation
for that plan year.
Part III. Administrative, Procedural, and Miscellaneous
IRB 1998-46 11/12/98 10:45 AM Page 16

1998–46 I.R.B.17November 16, 1998
G. Rate of Matching Contributions
For purposes of the ADP test safe har-
bor under section V, a “rate of matching
contributions” means the ratio of match-
ing contributions on behalf of an em-
ployee under the plan for a plan year to
the employee’s elective contributions for
that plan year. For purposes of the ACP
test safe harbor under section VI, a “rate
of matching contributions” means the
ratio of matching contributions on behalf
of an employee under the plan for a plan
year to the employee’s respective em-
ployee contributions or elective contribu-
tions for that plan year.
H. Safe Harbor Matching Contribu-
tions and Safe Harbor Nonelective
Contributions
For purposes of this notice, safe harbor
matching contributions and safe harbor
nonelective contributions are matching
and nonelective contributions, respec-
tively, that (1) are nonforfeitable within
the meaning of § 1.401(k)–1(c), (2) are
subject to the withdrawal restrictions of
§ 401(k)(2)(B) and § 1.401(k)–1(d), and
(3) are used to satisfy the safe harbor con-
tribution requirement of section V.B. Ac-
cordingly, pursuant to § 401(k)(2)(B) and
§ 1.401(k)–1(d), such contributions (and
earnings thereon) must not be distributable
earlier than separation from service, death,
disability, an event described in
§ 401(k)(10), or, in the case of a profit-
sharing or stock bonus plan, the attain-
ment of age 59
1
⁄
2
. Pursuant to § 401(k)-
(2)(B) and § 1.401(k)-1(d)(2)(ii), hardship
is not a distributable event for contribu-
tions other than elective contributions.
V. ADP TEST SAFE HARBOR
A. General Rule
A CODA is treated as satisfying the
ADP test under § 401(k)(3)(A)(ii) and
§ 1.401(k)–1(b)(2) for a plan year if, for
the entire plan year, the arrangement sat-
isfies the safe harbor contribution require-
ment of subsection B of this section V and
the notice requirement of subsection C of
this section V.
B. Safe Harbor Contribution
Requirement
The safe harbor contribution require-
ment of this section V.B is satisfied for a
plan year if the plan satisfies either (1) the
matching contribution requirement of
paragraph 1 of this section V.B or (2) the
nonelective contribution requirement of
paragraph 2 of this section V.B. Pursuant
to § 401(k)(12)(E)(ii), the safe harbor
contribution requirement of this section
V.B must be satisfied without regard to
§ 401(l).
1. Matching Contribution
Requirement
a. In General
The matching contribution requirement
of this section V.B.1 is satisfied if, under
the terms of the plan, safe harbor match-
ing contributions under either the basic
matching formula or an enhanced match-
ing formula described below are required
to be made on behalf of each NHCE who
is an eligible employee.
i. Basic Matching Formula
The basic matching formula provides
matching contributions on behalf of each
NHCE who is an eligible employee in an
amount equal to (A) 100 percent of the
amount of the employee’s elective contri-
butions that do not exceed 3 percent of the
employee’s compensation and (B) 50 per-
cent of the amount of the employee’s
elective contributions that exceed 3 per-
cent of the employee’s compensation but
that do not exceed 5 percent of the em-
ployee’s compensation.
ii. Enhanced Matching Formula
An enhanced matching formula pro-
vides matching contributions on behalf of
each NHCE who is an eligible employee
under a formula that, at any rate of elec-
tive contributions, provides an aggregate
amount of matching contributions at least
equal to the aggregate amount of matching
contributions that would have been pro-
vided under the basic matching formula.
In addition, under an enhanced matching
formula, the rate of matching contribu-
tions may not increase as an employee’s
rate of elective contributions increases.
b. Limitation on Matching
Contributions for HCEs
The matching contribution requirement
of this section V.B.1 is not satisfied if, at
any rate of elective contributions, the rate
of matching contributions that would
apply with respect to any highly compen-
sated employee (“HCE”) who is an eligi-
ble employee is greater than the rate of
matching contributions that would apply
with respect to any NHCE who is an eligi-
ble employee and who has the same rate
of elective contributions.
c. Permissible Restrictions on
Elective Contributions by
NHCEs
The matching contribution requirement
of this section V.B.1 is not satisfied if
elective contributions by NHCEs are re-
stricted, unless the restrictions are permit-
ted as described below.
i. Restrictions on Election Periods
A plan sponsor may limit the frequency
and duration of periods in which eligible
employees may make or change cash or
deferred elections under a plan, provided
that, after receipt of the notice described
in subsection C of this section V, an em-
ployee has a reasonable opportunity (in-
cluding a reasonable period) to make or
change a cash or deferred election for the
plan year. For purposes of the preceding
sentence, a 30-day period is deemed to be
a reasonable period.
ii. Restrictions on Amount of
Elective Contributions
A plan sponsor may limit the amount of
elective contributions that may be made
by an eligible employee under a plan, pro-
vided that each NHCE who is an eligible
employee is permitted (unless the em-
ployee is restricted under paragraph 1.c.iv
of this section V.B) to make elective con-
tributions in an amount that is at least suf-
ficient to receive the maximum amount of
matching contributions available under
the plan for the plan year, and the em-
ployee is permitted to elect any lesser
amount of elective contributions.
iii. Restrictions on Types of
Compensation That May be
Deferred
A plan sponsor may limit the types of
compensation that may be deferred by an
eligible employee under a plan, provided
that each NHCE who is an eligible em-
ployee is permitted to make elective con-
tributions under a definition of compensa-
tion that would be a reasonable definition
of compensation within the meaning of
§ 1.414(s)–1(d)(2). (Thus, the definition
IRB 1998-46 11/12/98 10:45 AM Page 17

November 16, 1998181998–46 I.R.B.
is not required to satisfy the nondiscrimi-
nation requirement of § 1.414(s)-1(d)(3).)
However, see section IV.B regarding the
definition of compensation for purposes
of the basic matching formula or an en-
hanced matching formula under para-
graph 1.a of this section V.B, the nonelec-
tive contribution requirement under
paragraph 2 of this section V.B, and the
matching contribution limitations under
section VI.B.
iv. Restrictions Due to Limitations
under the Code
A plan sponsor may limit the amount of
elective contributions made by an eligible
employee under a plan (A) because of the
limitations under § 402(g) or § 415 or (B)
because, on account of a hardship distrib-
ution, an employee’s ability to make elec-
tive contributions has been suspended for
12 months in accordance with § 1.401(k)–
1(d)(2)(iv)(B)(4) or limited in accordance
with § 1.401(k)–1(d)(2)(iv)(B)(3).
2. Nonelective Contribution
Requirement
The nonelective contribution require-
ment of this section V.B.2 is satisfied if,
under the terms of the plan, the employer
is required to make a safe harbor nonelec-
tive contribution on behalf of each NHCE
who is an eligible employee equal to at
least 3 percent of the employee’s compen-
sation.
3. Examples
The safe harbor contribution require-
ment of this section V.B is illustrated by
the following examples:
Example 1
(a) Beginning January 1, 1999, Em-
ployer A maintains Plan L covering em-
ployees (including HCEs and NHCEs) in
Divisions D and E. Plan L contains a
CODA and provides a required matching
contribution equal to 100 percent of each
eligible employee’s elective contributions
up to 4 percent of compensation. For pur-
poses of the matching contribution for-
mula, compensation is defined as all com-
pensation within the meaning of
§ 415(c)(3) (a definition that satisfies
§ 414(s)). Also, each employee is permit-
ted to make elective contributions from
all compensation within the meaning of
§ 415(c)(3) and may change a cash or de-
ferred election at any time. Plan L limits
the amount of an employee’s elective con-
tributions for purposes of § 402(g) and
§ 415, and, in the case of a hardship distri-
bution, suspends an employee’s ability to
make elective contributions for 12 months
in accordance with § 1.401(k)–1(d)(2)-
(iv)(B)(4) and limits an employee’s elec-
tive contributions in accordance with
§ 1.401(k)–1(d)(2)(iv)(B)(3). All contri-
butions under Plan L are nonforfeitable
and are subject to the withdrawal restric-
tions of § 401(k)(2)(B). Plan L provides
for no other contributions and Employer
A maintains no other plans. Plan L is
maintained on a calendar-year basis and
all contributions for a plan year are made
within 12 months after the end of the plan
year.
(b) Based on these facts, matching
contributions under Plan L are safe harbor
matching contributions because they are
nonforfeitable, are subject to the with-
drawal restrictions of § 401(k)(2)(B), and
are used to satisfy the safe harbor contri-
bution requirement of section V.B.
(c) Plan L’s formula is an enhanced
matching formula because each NHCE
who is an eligible employee receives
matching contributions at a rate that, at
any rate of elective contributions, pro-
vides an aggregate amount of matching
contributions at least equal to the aggre-
gate amount of matching contributions
that would have been received under the
basic matching formula, and the rate of
matching contributions does not increase
as the rate of an employee’s elective con-
tributions increases.
(d) Plan L satisfies the safe harbor con-
tribution requirement of this section V.B
because safe harbor matching contribu-
tions under an enhanced matching for-
mula are required to be made on behalf of
each NHCE who is an eligible employee.
(e) Plan L would satisfy the ADP test
safe harbor if Plan L also satisfied the no-
tice requirement of subsection C of this
section V. (Plan L then would also satisfy
the ACP test safe harbor. See section VI.)
Example 2
(a) The facts are the same as in Exam-
ple 1, except that instead of providing a
required matching contribution equal to
100 percent of each eligible employee’s
elective contributions up to 4 percent of
compensation, Plan L provides a match-
ing contribution equal to 150 percent of
each eligible employee’s elective contri-
butions up to 3 percent of compensation.
(b) Plan L’s formula is an enhanced
matching formula and Plan L satisfies the
safe harbor contribution requirement of
this section V.B.
(c) Plan L would satisfy the ADP test
safe harbor if Plan L also satisfied the no-
tice requirement of subsection C of this
section V. (Plan L then would also satisfy
the ACP test safe harbor. See section VI.)
Example 3
(a) The facts are the same as in Exam-
ple 1, except that instead of permitting
each employee to make elective contribu-
tions from compensation within the
meaning of § 415(c)(3), each employee’s
elective contributions under Plan L are
limited to 15 percent of the employee’s
“basic compensation.” Basic compensa-
tion is defined under Plan L as compensa-
tion within the meaning of § 415(c)(3),
but excluding overtime pay.
(b) The definition of basic compensa-
tion under Plan L is a reasonable defini-
tion of compensation within the meaning
of § 1.414(s)–1(d)(2).
(c) Plan L will not fail to satisfy the
safe harbor contribution requirement of
this section V.B merely because Plan L
limits the amount of elective contribu-
tions and the types of compensation that
may be deferred by eligible employees,
provided that each NHCE who is an eligi-
ble employee may make elective contri-
butions equal to at least 4 percent of the
employee’s compensation under
§ 415(c)(3) (that is, the amount of elective
contributions that is sufficient to receive
the maximum amount of matching contri-
butions available under the plan).
Example 4
(a) The facts are the same as in Exam-
ple 1, except that Plan L provides that
only employees employed on the last day
of the plan year will receive a safe harbor
matching contribution.
(b) Even if the section 401(m) plan sat-
isfies the minimum coverage require-
ments of § 410(b)(1) taking into account
this last-day requirement, Plan L would
not satisfy the safe harbor contribution re-
quirement of this section V.B because safe
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1998–46 I.R.B.19November 16, 1998
harbor matching contributions are not
made on behalf of all NHCEs who are eli-
gible employees and who make elective
contributions.
(c) The result would be the same if, in-
stead of providing safe harbor matching
contributions under an enhanced formula,
Plan L provides for a 3-percent safe har-
bor nonelective contribution that is re-
stricted to eligible employees under the
CODA who are employed on the last day
of the plan year.
Example 5
(a) The facts are the same as in Exam-
ple 1, except that instead of providing
safe harbor matching contributions under
the enhanced matching formula to em-
ployees in both Divisions D and E, em-
ployees in Division E are provided safe
harbor matching contributions under the
basic matching formula, while matching
contributions continue to be provided to
employees in Division D under the en-
hanced matching formula.
(b) Even if Plan L satisfies
§ 1.401(a)(4)–4 with respect to each rate
of matching contributions available to em-
ployees under the plan, the plan would fail
to satisfy the safe harbor contribution re-
quirement of this section V.B because the
rate of matching contributions with re-
spect to HCEs in Division D at a rate of
elective contributions between 3 and 5
percent would be greater than that with re-
spect to NHCEs in Division E at the same
rate of elective contributions. For exam-
ple, an HCE in Division D who would
have a 4-percent rate of elective contribu-
tions would have a rate of matching con-
tributions of 100 percent while an NHCE
in Division E who would have the same
rate of elective contributions would have a
lower rate of matching contributions.
C. Notice Requirement
The notice requirement of this section
V.C is satisfied if each eligible employee
for the plan year is given written notice of
the employee’s rights and obligations
under the plan and the notice satisfies the
content requirement of paragraph 1 of this
section V.C and the timing requirement of
paragraph 2 of this section V.C.
1. Content Requirement
a. General Rule
The content requirement of this section
V.C.1 is satisfied if the notice (1) is suffi-
ciently accurate and comprehensive to in-
form the employee of the employee’s
rights and obligations under the plan and
(2) is written in a manner calculated to be
understood by the average employee eli-
gible to participate in the plan. For pur-
poses of the preceding sentence, a notice
is not considered sufficiently accurate and
comprehensive unless the notice accu-
rately describes (i) the safe harbor match-
ing or nonelective contribution formula
used under the plan (including a descrip-
tion of the levels of matching contribu-
tions, if any, available under the plan); (ii)
any other contributions under the plan (in-
cluding the potential for discretionary
matching contributions) and the condi-
tions under which such contributions are
made; (iii) the plan to which safe harbor
contributions will be made (if different
than the plan containing the CODA); (iv)
the type and amount of compensation that
may be deferred under the plan; (v) how
to make cash or deferred elections, in-
cluding any administrative requirements
that apply to such elections; (vi) the peri-
ods available under the plan for making
cash or deferred elections; and (vii) with-
drawal and vesting provisions applicable
to contributions under the plan.
b. 1999 Transition Relief for Con-
tent Requirement
For a plan adopting the safe harbor pro-
visions for a plan year that begins before
January 1, 2000, a notice will not fail to
satisfy the content requirement for that
plan year merely because the notice does
not include all of the items listed in para-
graph 1.a of this section V.C, provided
that the notice satisfies a reasonable good
faith interpretation of the notice require-
ments under §§ 401(k)(12) and
401(m)(11).
2. Timing Requirement
a. General rule
The timing requirement of this section
V.C.2 is satisfied if the notice is provided
within a reasonable period before the be-
ginning of the plan year (or, in the year an
employee becomes eligible, within a rea-
sonable period before the employee be-
comes eligible). The determination of
whether a notice satisfies the timing re-
quirement of this section V.C.2 is based
on all of the relevant facts and circum-
stances.
b. Deemed Satisfaction of Timing
Requirement
The timing requirement of this section
V.C.2 is deemed to be satisfied if at least
30 days (and no more than 90 days) be-
fore the beginning of each plan year, the
notice is given to each eligible employee
for the plan year. In the case of an em-
ployee who does not receive the notice
within the period described in the previ-
ous sentence because the employee be-
comes eligible after the 90th day before
the beginning of the plan year, the timing
requirement is deemed to be satisfied if
the notice is provided no more than 90
days before the employee becomes eligi-
ble (and no later than the date the em-
ployee becomes eligible). Thus, for ex-
ample, the preceding sentence would
apply in the case of any employee eligible
for the first plan year under a newly estab-
lished section 401(k) plan, or would apply
in the case of the first plan year in which
an employee becomes eligible under an
existing section 401(k) plan.
c. 1999 Transition Relief for Timing
Requirement
For a plan year that begins on or before
April 1, 1999, the notice described in this
section V.C satisfies the timing require-
ment for that plan year (with respect to an
existing section 401(k) plan or a newly
established one) if the notice is given on
or before March 1, 1999. However, in
order to satisfy the ADP or ACP test safe
harbor for the plan year, a plan that is
using the transition relief provided under
this section V.C.2.c still must satisfy the
otherwise applicable requirements of this
Notice 98-52 with respect to the entire
plan year.
VI. ACP TEST SAFE HARBOR
A. General Rule
A defined contribution plan is treated
as satisfying the ACP test under §
401(m)(2) and § 1.401(m)-1(b) with re-
spect to matching contributions for a plan
year if, for the entire plan year, (i) each
NHCE eligible to receive an allocation of
matching contributions under the plan is
also an eligible employee under a CODA
that satisfies the ADP test safe harbor of
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November 16, 1998201998–46 I.R.B.
section V and (ii) the plan satisfies the
matching contribution limitations of sub-
section B of this section VI. See section
VIII.F.1 regarding the continued applica-
tion of the ACP test to employee contribu-
tions.
B. Matching Contribution Limitations
1. Harbor Matching Contributions
Under Basic Matching Formula
A plan satisfies the matching contribu-
tion limitations of this section VI.B if (i)
the plan satisfies the matching contribu-
tion requirement of section V.B.1 using
the basic matching formula and (ii) no
other matching contributions are provided
under the plan.
2. Safe Harbor Matching Contribu-
tions Under an Enhanced Match-
ing Formula
A plan satisfies the matching contribu-
tion limitations of this section VI.B if (i)
the plan satisfies the matching contribu-
tion requirement of section V.B.1 using an
enhanced matching formula under which
matching contributions are only made
with respect to elective contributions that
do not exceed 6 percent of the employee’s
compensation and (ii) no other matching
contributions are provided under the plan.
3. Other Matching Contributions
In the case of any other plan, the
matching contribution limitations of this
section VI.B are satisfied if, under the
plan, (i) matching contributions are not
made with respect to employee contribu-
tions or elective contributions that in the
aggregate exceed 6 percent of the em-
ployee’s compensation, (ii) the rate of
matching contributions does not increase
as the rate of employee contributions or
elective contributions increases, and (iii)
at any rate of employee contributions or
elective contributions, the rate of match-
ing contributions that would apply with
respect to any HCE who is an eligible em-
ployee is no greater than the rate of
matching contributions that would apply
with respect to an NHCE who is an eligi-
ble employee and who has the same rate
of employee contributions or elective
contributions. If a plan provides match-
ing contributions with respect to em-
ployee contributions or elective contribu-
tions, those employee contributions or
elective contributions may be restricted
only to the extent permitted under section
V.B.1.c.
4. Matching Contributions Gener-
ally Must be Required Under
Plan Terms
a. ADP Test Safe Harbor
As provided under section V.B.1.a, a
matching contribution may be taken into
account in determining whether the
matching contribution requirement of the
ADP test safe harbor is satisfied only if
the contribution is required to made under
the terms of a plan. Even though match-
ing contributions made at the employer’s
discretion may not be taken into account
in determining whether the matching con-
tribution requirement of section V.B.1 is
satisfied, a plan that satisfies the safe har-
bor contribution requirement of section
V.B will not fail to satisfy the ADP test
safe harbor merely because additional
matching contributions are made at the
employer’s discretion.
b. ACP Test Safe Harbor
A plan fails to satisfy the ACP test safe
harbor for a plan year if the plan provides
for matching contributions made at the
employer’s discretion on behalf of any
employee that, in the aggregate, could ex-
ceed a dollar amount equal to 4 percent of
the employee’s compensation. This limi-
tation on matching contributions made at
the employer’s discretion does not apply
to plan years beginning before January 1,
2000.
C. Special Rule for Matching Contri-
butions Under a § 403(b) Plan
For purposes of § 403(b)(12)(A)(i), a
§ 403(b) plan is treated as satisfying the
requirements of § 401(m) with respect to
matching contributions if the plan satis-
fies the safe harbor contribution require-
ment of section V.B, the notice require-
ment of section V.C, and the matching
contribution limitations of subsection B
of this section VI. For purposes of apply-
ing the requirements of section V and this
section VI, salary reduction contributions
under a § 403(b) plan are treated as elec-
tive contributions under a CODA.
D. Examples
The following examples illustrate the
requirements of the ACP test safe harbor
described in this section VI:
Example 1
(a) An employer’s only plan, Plan M,
contains a CODA that satisfies the ADP
test safe harbor using safe harbor match-
ing contributions under the basic match-
ing formula. No contributions, other than
elective contributions and contributions
under the basic matching formula, are
made to Plan M.
(b) Because the CODA under Plan M
satisfies the ADP test safe harbor using
the basic matching formula and Plan M
provides for no other matching contribu-
tions, Plan M automatically satisfies the
ACP test safe harbor.
Example 2
(a) Beginning January 1, 2000, Em-
ployer B maintains Plan N, the only plan
maintained by Employer B. Plan N con-
tains a CODA that satisfies the ADP test
safe harbor using a 3-percent safe harbor
nonelective contribution. Plan N also
provides matching contributions equal to
50 percent of each eligible employee’s
elective contributions up to 6 percent of
compensation. Under Plan N, elective
contributions are limited to 10 percent of
an employee’s compensation and are lim-
ited in accordance with § 402(g) and
§ 415. Under Plan N, an employee may
change a cash or deferred election at any
time. Plan N provides a definition of
compensation that satisfies § 414(s) and
that same definition is used for all pur-
poses under Plan N. Matching contribu-
tions under Plan N are fully vested after 3
years of service. No other matching con-
tributions are provided for under Plan N.
The plan is maintained on a calendar-year
basis and all contributions for a plan year
are made within 12 months after the end
of the plan year.
(b) Based on these facts, Plan N satis-
fies the ACP test safe harbor with respect
to matching contributions because each
NHCE eligible to receive an allocation of
matching contributions under Plan N is
also an eligible employee under a CODA
that satisfies the ADP test safe harbor of
section V and because the matching con-
tribution limitations of subsection B of
this section VI are satisfied.
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1998–46 I.R.B.21November 16, 1998
Example 3
(a) The facts are the same as in Exam-
ple 2, except that Plan N also provides
matching contributions equal to 50 per-
cent of each eligible employee’s em-
ployee contributions up to 6 percent of
compensation.
(b) Plan N does not satisfy the match-
ing contribution limitations of subsection
B of this section VI because matching
contributions can be made with respect to
elective contributions and employee con-
tributions that, in the aggregate, equal 12
percent of compensation (and thus exceed
6 percent of compensation).
Example 4
(a) The facts are the same as in Exam-
ple 2, except that Plan N also provides
that Employer B, in its discretion, may
make additional matching contributions
up to 50 percent of each eligible em-
ployee’s elective contributions that do not
exceed 6 percent of compensation.
(b) Plan N does not fail to satisfy the
ACP test safe harbor on account of discre-
tionary matching contributions, because,
under Plan N, the amount of discretionary
matching contributions cannot exceed 4
percent of an employee’s compensation.
VII. TIMING OF PLAN
CONTRIBUTIONS
A. In General
As provided in subsections B and C of
this section VII, matching and nonelective
contributions under a plan using the safe
harbor methods must be made to the plan
within the same time period that would
apply if these contributions were made to
a plan using the current year testing
method for ADP or ACP testing purposes
(that is, no later than 12 months after the
close of the plan year).
Matching and nonelective contribu-
tions also may be made from time to time
during the plan year, instead of at one
time after the close of the plan year. Re-
gardless of the timing of employer contri-
butions, however, the total amount of
matching or nonelective contributions for
the plan year still must satisfy the require-
ments of sections V and VI, taking into
account the total amount of compensation
for the plan year, in order for a CODA to
satisfy the ADP test safe harbor.
B. Contributions Under the ADP Test
Safe Harbor
A CODA will not satisfy the ADP test
safe harbor for a plan year unless safe har-
bor matching and nonelective contribu-
tions needed to satisfy the safe harbor
contribution requirement of section V.B
are made in accordance with the alloca-
tion and timing rules of § 1.401(k)–
1(b)(4).
C. Matching Contributions Under the
ACP Test Safe Harbor
Matching contributions are taken into
account for a plan year under the ACP test
safe harbor of section VI in accordance
with the allocation and timing rules of §
1.401(m)-1(b)(4)(ii)(A).
VIII. INTERACTION WITH OTHER
RULES AND TESTING METHODS
A. In General
A CODA that is treated as satisfying the
ADP test under § 401(k)(3)(A)(ii) and
§ 1.401(k)-1(b)(2) will not be treated as a
qualified CODA unless the arrangement
satisfies the other requirements of
§ 401(k). For example, under § 401(k)-
(3)(A)(i), the group of eligible employees
under the section 401(k) plan must satisfy
the requirements of § 410(b), under
§ 401(k)(4)(A), benefits (other than match-
ing contributions) must not be contingent
on an election to defer, and elective contri-
butions must satisfy the allocation and tim-
ing rules of § 1.401(k)–1(b)(4). A plan that
satisfies the ADP or ACP test safe harbor
must satisfy all other qualification require-
ments of the Code that are applicable to the
plan, such as the nondiscriminatory avail-
ability of benefits, rights, and features
under § 401(a)(4) and the limitations of
§§ 401(a)(17), 401(a)(30) and 415.
B. Use of Safe Harbor Nonelective
Contributions to Satisfy Other
Nondiscrimination Tests
A safe harbor nonelective contribution
used to satisfy the nonelective contribu-
tion requirement under section V.B.2 may
also be taken into account for purposes of
determining whether a plan satisfies
§ 401(a)(4). Thus, these contributions are
not subject to the limitations on qualified
nonelective contributions under
§ 1.401(k)–1(b)(5)(ii), but are subject to
the rules generally applicable to nonelec-
tive employer contributions under §
401(a)(4). See § 1.401(a)(4)–1(b)(2)(ii).
However, pursuant to § 401(k)(12)(E)(ii),
to the extent they are needed to satisfy the
safe harbor contribution requirement of
section V.B, safe harbor nonelective con-
tributions may not be taken into account
under any plan for purposes of § 401(l)
(including the imputation of permitted
disparity under § 1.401(a)(4)–7).
C. Top-Heavy Rules
1. Safe Harbor Nonelective Contribu-
tions
Safe harbor nonelective contributions
may be counted under § 416 toward the
minimum contribution requirement for
top-heavy plans. Thus, if a plan allocates
to all eligible employees a 3-percent safe
harbor nonelective contribution, the plan
generally would also satisfy the top-heavy
minimum contribution requirement. See
§ 1.416–1, M-18 for a similar rule applic-
able to qualified nonelective contribu-
tions.
2. Safe Harbor Matching
Contributions
If a plan uses contributions allocated to
employees on the basis of elective contri-
butions or employee contributions to sat-
isfy the top-heavy minimum contribution
requirement under § 416, these contribu-
tions are not treated as matching contribu-
tions for purposes of §§ 401(k) and
401(m). Therefore, safe harbor matching
contributions may not be counted toward
the minimum contribution requirement
for top-heavy plans under § 416. See
§ 1.416–1, M–19.
D. Qualified Matching Contributions
and Qualified Nonelective Contri-
butions
To the extent they are needed to satisfy
the safe harbor contribution requirement
of section V.B, safe harbor matching and
nonelective contributions may not be used
as qualified matching contributions and
qualified nonelective contributions, re-
spectively, under any plan for any plan
year. For example, if a plan satisfies the
safe harbor contribution requirement
using a safe harbor nonelective contribu-
tion by allocating a 7-percent safe harbor
nonelective contribution to all eligible
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November 16, 1998221998–46 I.R.B.
employees, contributions in an amount
equal to the first 3 percent of each em-
ployee’s compensation may not be used
as a qualified nonelective contribution
under the ACP test. However, safe harbor
nonelective contributions in an amount
equal to the remaining 4 percent of each
employee’s compensation may be used to
satisfy the ACP test (subject to the re-
quirements of § 1.401(m)–1(b)(5)).
E. Testing Methods Under Notice 98–1
For purposes of Notice 98–1, a plan
that uses the safe harbor methods to sat-
isfy the ADP or ACP test for a plan year is
treated as using the current year testing
method for that year and, thus, is subject
to the rules contained in section VII of
Notice 98–1 (relating to changes from
current year to prior year testing).
In addition, in the case of a plan that is
not maintained on a calendar plan year
basis, the anti-abuse provision of section
VIII of Notice 98–1 applies in a similar
manner to changes between the safe har-
bor methods and the current or prior year
testing method.
F. Continued Application of the ACP
Test to Certain Contributions
1. Employee Contributions
Even if a defined contribution plan sat-
isfies the ACP test safe harbor of section
VI with respect to matching contributions,
the plan still must satisfy the ACP test in
the manner described in paragraph 3 of
this section VIII.F with respect to em-
ployee contributions made under the plan.
2. Matching Contributions that Fail to
Satisfy the ACP Test Safe Harbor
If a plan satisfies the ADP test safe har-
bor of section V.A, but fails to satisfy the
ACP test safe harbor with respect to
matching contributions under the plan,
then the plan must satisfy the ACP test in
the manner described in paragraph 3 of
this section VIII.F.
3. Special Rules for ACP Test
If paragraph 1 or 2 of this section
VIII.F applies, then the plan must satisfy
the ACP test under § 401(m)(2), and
under § 1.401(m)–1(b), as modified by
Notices 97–2 and 98–1, using the current
year testing method. However, in apply-
ing the ACP test, an employer may elect
to disregard with respect to all eligible
employees (i.e., all HCEs and NHCEs)
(1) all matching contributions, if the ACP
test safe harbor of section VI is satisfied
or (2) matching contributions that do not
exceed 4 percent of each employee’s
compensation, if the matching contribu-
tion requirement of section V.B.1 is satis-
fied. Except as otherwise provided in
section VIII.D, qualified nonelective con-
tributions may be treated as matching
contributions to the extent permitted
under § 1.401(m)–1(b)(5). Finally, in ap-
plying the ACP test (i) matching contribu-
tions may not be treated as elective contri-
butions under § 401(k)(3)(D) to a CODA
that satisfies the ADP test safe harbor
(and thus excluded from the ACP test
under § 401(m)(3)) and (ii) elective con-
tributions under a CODA that satisfies the
ADP test safe harbor may not be treated
as matching contributions under
§ 401(m)(3).
G. Multiple Use Test
The restrictions on multiple use under
§ 1.401(m)–2 do not apply to a CODA that
satisfies the ADP test safe harbor. In addi-
tion, the restrictions on multiple use under
§ 1.401(m)–2 do not apply to a defined
contribution plan that satisfies the ACP test
safe harbor, if the plan does not permit em-
ployee contributions. In determining
whether multiple use of the alternative lim-
itation under § 401(k)(3)(A)(ii)(II) or
§ 401(m)(2)(A)(ii) occurs with respect to
another plan of an employer, (1) a CODA
that satisfies the ADP test safe harbor and
(2) a defined contribution plan that satis-
fies the ACP test safe harbor and does not
permit employee contributions, are disre-
garded for purposes of § 1.401(m)–2(b).
In the case of a defined contribution plan to
which subsection F.1 or F.2 of this section
VIII applies (that is, a defined contribution
plan that satisfies the ACP test safe harbor
but permits employee contributions, or a
defined contribution plan that fails to sat-
isfy the ACP test safe harbor), the special
rules of subsection F.3 of this section VIII
(relating to ACP testing) also apply for
purposes of § 1.401(m)–2(b) in determin-
ing whether the multiple use of the alterna-
tive limitation occurs.
H. Early Participation Rules
Sections 401(k)(3)(F) and 401(m)(5)-
(C), which provide alternative nondis-
crimination rules for certain plans that
provide for early participation, do not
apply for purposes of the safe harbor
methods. However, see section IX.B.1
for application of the § 410(b)(4)(B) rule
permitting the separate testing of employ-
ees who satisfy age and service conditions
under the plan that are lower than the
greatest age and service conditions per-
mitted under § 410(a).
IX. MULTIPLE CODAS OR
MULTIPLE PLANS
A. Satisfying Safe Harbor Contribu-
tion Requirement Under Another
Defined Contribution Plan
1. In General
Safe harbor matching or nonelective
contributions may be made to the plan
that contains the CODA or to another de-
fined contribution plan that satisfies §
401(a) or § 403(a). If safe harbor contri-
butions are made to another defined con-
tribution plan, the safe harbor contribu-
tion requirement of section V.B must be
satisfied in the same manner as if the con-
tributions were made to the plan that con-
tains the CODA. Consequently, each em-
ployee eligible under the plan containing
the CODA must be eligible under the
same conditions under the other defined
contribution plan.
2. Plan Year Requirement
In order for safe harbor contributions to
be made to another defined contribution
plan, that plan must have the same plan
year as the plan containing the CODA.
However, for plan years of plans contain-
ing CODAs beginning before January 1,
2000, contributions used to satisfy the
safe harbor contribution requirement of
section V.B for a CODA also may be
made to another defined contribution plan
that does not have the same plan year as
the plan containing the CODA, provided
that the safe harbor contribution is allo-
cated as of a date within the plan year of
the plan containing the CODA and is
made no later than 12 months after the
close of that plan year.
3. Section 410(b) Aggregation Not
Required
In order for safe harbor contributions to
be made to another defined contribution
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1998–46 I.R.B.23November 16, 1998
plan, it is not necessary that the other plan
be capable of being aggregated with the
plan containing the CODA for purposes
of § 410(b). Therefore, notwithstanding
§§ 1.410(b)–7(c)(2) and 54.4975–11(e), a
contribution to an ESOP may be used to
satisfy the safe harbor contribution re-
quirement of section V.B for a CODA that
is not part of the ESOP.
4. Contributions Used Only Once
Safe harbor matching or nonelective
contributions cannot be used to satisfy the
safe harbor contribution requirement of
section V.B with respect to more than one
plan.
B. Aggregation and Disaggregation
Rules
1. Plans
The rules that apply for purposes of ag-
gregating and disaggregating CODAs and
plans under §§ 401(k) and 401(m) also
apply for purposes of §§ 401(k)(12)
and 401(m)(11), respectively. See
§§ 1.401(k)–1(b)(3) and 1.401(m)–1(b)(3).
Accordingly, all CODAs included in a
plan are treated as a single CODA that
must satisfy the safe harbor contribution
requirement of section V.B and the notice
requirement of section V.C. Moreover,
two plans (within the meaning of
§ 1.410(b)–7(b)) that are treated as a sin-
gle plan pursuant to the permissive aggre-
gation rules of § 1.410(b)–7(d) are treated
as a single plan for purposes of the safe
harbor methods. Conversely, a plan
(within the meaning of § 414(l)) that in-
cludes a CODA covering both collec-
tively bargained employees and noncol-
lectively bargained employees is treated
as two separate plans for purposes of
§ 401(k), and the ADP test safe harbor
need not be satisfied with respect to both
plans in order for one of the plans to take
advantage of the ADP test safe harbor.
Similarly, if, pursuant to § 410(b)(4)(B),
an employer applies § 410(b) separately
to the portion of a plan (within the mean-
ing of § 414(l)) that benefits only employ-
ees who satisfy age and service conditions
under the plan that are lower than the
greatest minimum age and service condi-
tions permitted under § 410(a), the plan is
treated as two separate plans for purposes
of § 401(k), and the ADP test safe harbor
need not be satisfied with respect to both
plans in order for one of the plans to take
advantage of the ADP test safe harbor.
2. Highly Compensated Employees
In accordance with §§ 401(k)(3) and
401(m)(2), elective or matching contribu-
tions under a plan made on behalf of an
HCE who is eligible to participate in more
than one plan of the same employer pro-
viding such contributions must generally
be aggregated and treated as made under
each of the plans, even if one or more of
the plans is intended to satisfy the ADP or
ACP test safe harbor. Thus, for example,
if an HCE is simultaneously an eligible
employee under two plans maintained by
an employer for a plan year, only one of
which one is intended to satisfy the ADP
and ACP tests using the safe harbor meth-
ods, and the matching contribution for-
mula of the plan that is not using the safe
harbor methods provides greater match-
ing contributions than the formula under
the plan that is intended to satisfy the
ADP and ACP tests using the safe harbor
methods, the rules in sections V.B.1.b and
VI.B.3 (prohibiting an HCE from receiv-
ing a greater rate of matching contribu-
tions than an NHCE) could be violated.
These issues could also arise, for exam-
ple, when an HCE is transferred from a
plan maintained for one group of employ-
ees to a plan maintained for another group
of employees.
X. PLAN YEARS OF FEWER THAN
12 MONTHS
A plan will fail to satisfy the ADP test
safe harbor or the ACP test safe harbor for
a plan year unless (i) the plan year is 12
months long or (ii) in the case of the first
plan year of a newly established plan
(other than a successor plan), the plan
year is at least 3 months long (or, any
shorter period in the case of a newly es-
tablished employer that establishes the
plan as soon as administratively feasible
after the employer comes into existence).
XI. PLAN PROVISIONS RELATING
TO SAFE HARBORS
A. General Rules
1. Plan Must Include Safe Harbor
Provisions
Sections 1.401(k)–1(b)(2)(iii) and
1.401(m)–1(b)(2) require that a plan to
which § 401(k) or § 401(m) applies pro-
vide that the ADP or ACP test will be met.
Because, effective for plan years begin-
ning after December 31, 1998, a plan may
use the SIMPLE 401(k) plan formula or
safe harbor provisions as alternatives to
the ADP and ACP tests, a plan must spec-
ify which of these alternatives it is using.
Generally, a plan sponsor that intends to
use the safe harbor provisions for a plan
year must adopt those provisions before
the first day of that plan year. However,
see section XI.B for the remedial amend-
ment period applicable to plan changes
incorporating the safe harbor provisions.
2. Safe Harbor Contributions Made to
Another Plan
If, pursuant to section IX.A, safe har-
bor matching or nonelective contributions
will be made to another plan, the name of
the other plan must be specified in the
plan containing the CODA. Moreover, if
safe harbor matching or nonelective con-
tributions will be made to another plan for
a plan year, the other plan must also
adopt, before the first day of that plan
year, provisions specifying that the safe
harbor contributions will be made and
providing for the withdrawal and vesting
restrictions required by § 401(k)(12)-
(E)(i). However, see section XI.B for the
remedial amendment period applicable to
plan changes incorporating the safe har-
bor provisions.
3. Disaggregated Plans
If a plan, within the meaning of
§ 414(l), is composed of disaggregated
plans under § 1.410(b)–7(c), the plan pro-
visions must specify which disaggregated
plans are subject to the safe harbor provi-
sions.
B. Remedial Amendment Period
Section 1.401(b)–1T(b)(3) authorizes
the Commissioner to designate a plan pro-
vision as a disqualifying provision that ei-
ther (1) results in the failure of the plan to
satisfy the qualification requirements of
the Code by reason of a change in those
requirements or (2) is integral to a qualifi-
cation requirement that has been changed.
Section 1.401(b)–1T(c)(3) authorizes the
Commissioner, in the case of a disqualify-
ing provision designated as described in
the preceding sentence, to impose limits
IRB 1998-46 11/12/98 10:45 AM Page 23

November 16, 1998241998–46 I.R.B.
and provide additional rules regarding the
amendments that may be made with re-
spect to that disqualifying provision.
Pursuant to § 1.401(b)-1T(b)(3) and
(c)(3), a plan provision is hereby desig-
nated as a disqualifying provision if the
plan provision is integral to a qualifica-
tion requirement changed by a provision
of SBJPA that becomes effective on the
first day of the first plan year beginning
after December 31, 1998, provided that
the following conditions are satisfied.
First, the plan provision must be amended
to reflect the change made by SBJPA by
no later than the last day of the first plan
year beginning after December 31, 1998.
(If an employer or plan administrator files
a request for a determination letter on the
qualified status of a plan by the last day of
the first plan year beginning after Decem-
ber 31, 1998, then the date by which the
plan provision must be amended shall be
extended through the 91st day following
the applicable date under § 1.401(b)–
1(e)(3)(i) or (ii).) Second, the plan provi-
sion as amended must be effective as of
the first day of the first plan year begin-
ning after December 31, 1998. Thus, if a
plan uses the safe harbor methods for the
plan year beginning in 1999, the plan gen-
erally must be amended no later than the
end of that plan year, retroactive to the
first day of that year, to reflect the safe
harbor methods. This remedial amend-
ment period also applies to a plan amend-
ment reflecting the use of the early partic-
ipation rules under §§ 401(k)(3)(F) and
401(m)(5)(C).
The preceding paragraph does not per-
mit a CODA to be adopted retroactively.
See § 1.401(k)–1(a)(3)(ii).
A plan amendment described in this
section XI.B shall not be treated as violat-
ing the requirements of § 411(d)(6)
merely because the plan amendment im-
poses the withdrawal restrictions required
by § 401(k)(12)(E)(i), provided that those
withdrawal restrictions do not apply with
respect to contributions allocated as of a
date before the first day of the first plan
year beginning after December 31, 1998.
REQUEST FOR COMMENTS
The Service and Treasury invite com-
ments and suggestions concerning the
guidance provided in this notice. Com-
ments are specifically requested as to
whether there are circumstances (in addi-
tion to the first plan year of a newly estab-
lished plan) in which the use of the safe
harbor methods would be appropriately
allowed for a plan year of less than 12
months (e.g., certain corporate merger or
acquisition transactions involving a plan
sponsor maintaining a plan using the safe
harbor methods, if appropriate conditions
are satisfied).
Comments can be addressed to
CC:DOM:CORP:R (Notice 98–52), room
5228, Internal Revenue Service, POB
7604, Ben Franklin Station, Washington,
DC 20044. In the alternative, comments
may be hand delivered between the hours
of 8 a.m. and 5 p.m. to CC:DOM:
CORP:R (Notice 98–52), Courier’s Desk,
Internal Revenue Service, 1111 Constitu-
tion Avenue NW, Washington, DC. Alter-
natively, taxpayers may transmit com-
ments electronically via the IRS Internet
site at: http://www.irs.ustreas.gov/prod/
tax_regs/comments.html.
PAPERWORK REDUCTION ACT
The collection of information con-
tained in this notice has been reviewed
and approved by the Office of Manage-
ment and Budget (OMB) in accordance
with the Paperwork Reduction Act (44
U.S.C. 3507) under control number 1545-
1624.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the col-
lection of information displays a valid
OMB control number.
The collection of information in this
notice is in section V.C, “Notice Require-
ment,” and section XI, “Plan Provisions
Relating to Safe Harbors.” The collection
of information is required to obtain a ben-
efit. The likely respondents are busi-
nesses or other for-profit institutions, and
not-for-profit institutions.
The estimated total annual reporting/
recordkeeping burden is 80,000 hours.
The estimated annual burden per re-
spondent/recordkeeper is 1 hour and 20
minutes. The estimated number of re-
spondents/recordkeepers is 60,000.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Drafting Information
The principal author of this notice is
Roger Kuehnle of the Employee Plans Di-
vision. For further information regarding
this notice, please contact the Employee
Plans Division’s taxpayer assistance tele-
phone service at (202) 622-6074/6075
(not toll-free numbers), between the hours
of 1:30 and 3:30 p.m. Eastern Time, Mon-
day through Thursday.
1999 Limitations Adjusted As
Provided in Section 415(d),
Etc.
1
Notice 98–53
Section 415 of the Internal Revenue
Code (the Code) provides for dollar limi-
tations on benefits and contributions
under qualified plans. Section 415 also
requires that the Commissioner annually
adjust these limits for cost-of-living in-
creases. Other limitations applicable to
deferred compensation plans are also af-
fected by these adjustments.
Effective January 1, 1999, the limita-
tion for the annual benefit under
§ 415(b)(1)(A) for defined benefit plans
remains unchanged at $130,000. For par-
ticipants who separated from service be-
fore January 1, 1999, the limitation for
defined benefit plans under § 415(b)-
(1)(B) is computed by multiplying the
participant’s compensation limitation, as
adjusted through 1998 by 1.0160. The
limitation for defined contribution plans
under § 415(c)(1)(A) remains unchanged
at $30,000.
The Code provides that various other
dollar amounts are to be adjusted at the
same time and in the same manner as the
dollar limitation of § 415(b)(1)(A) is ad-
justed. These dollar amounts and the ad-
justed amounts are as follows:
The limitation on the exclusion for
elective deferrals under § 402(g)(1) re-
mains unchanged at $10,000.
The dollar amount under
§ 409(o)(1)(C)(ii) for determining the
maximum account balance in an em-
ployee stock ownership plan subject to a
5-year distribution period is increased
from $725,000 to $735,000, while the
1
Based on News Release IR-98-63, dated Octo-
ber 23, 1998.
IRB 1998-46 11/12/98 10:45 AM Page 24

1998–46 I.R.B.25November 16, 1998
dollar amount used to determine the
lengthening of the 5-year distribution re-
mains unchanged at $145,000.
The limitation used in the definition of
a highly compensated employee under
§ 414(q)(1)(B) remains unchanged at
$80,000.
The annual compensation limit under
§§ 401(a)(17) and 404(l) remains un-
changed at $160,000. The annual com-
pensation limit under § 401(a)(17) for eli-
gible participants in certain governmental
plans that, under the plan as in effect on
July 1, 1993, allowed cost-of-living ad-
justments to the compensation limitation
under the plan under § 401(a)(17) to be
taken into account, is increased from
$265,000 to $270,000.
The compensation amount under
§ 408(k)(2)(C) regarding simplified em-
ployee pension plans (SEPs) remains un-
changed at $400. The compensation
amount under § 408(k)(3)(C) for SEPs re-
mains unchanged at $160,000.
The limitation under § 408(p)(2)(A) re-
garding simple retirement accounts re-
mains unchanged at $6,000.
The limitation on deferrals under
§ 457(b)(2) and (c)(1) concerning eligible
deferred compensation plans of state and
local governments and of tax-exempt or-
ganizations remains unchanged at $8,000.
The compensation amounts under
§ 1.61–21(f)(5)(i) and (iii) of the Income
Tax Regulations concerning the definition
of “control employee” for fringe benefit
valuation purposes are $70,000 and
$145,000, respectively.
Administrators of defined benefit or
defined contribution plans that have re-
ceived favorable determination letters
should not request new determination let-
ters solely because of yearly amendments
to adjust maximum limitations in the
plans.
Returns Relating to Interest on
Education Loans
Notice 98–54
PURPOSE
This notice modifies Notice 98–7,
1998–3 I.R.B. 54, which describes the in-
formation reporting requirements under
§ 6050S of the Internal Revenue Code for
1998 that apply in the case of payments of
interest on qualified education loans.
Specifically, this notice provides that no
information reporting is required with re-
spect to “mixed use” loans in light of
amendments made to § 221(e)(1) by the
Internal Revenue Service Restructuring
and Reform Act of 1998 (RRA 1998),
Pub. L. No. 105–206, § 6004(b)(1), 112
Stat. 792. This notice also provides that
the Internal Revenue Service and the
Treasury Department are extending the
application of Notice 98–7 to information
reporting required under § 6050S for
1999.
BACKGROUND
Section 6050S, as enacted by the Tax-
payer Relief Act of 1997, Pub. L. No.
105–34, § 202(c), 111 Stat. 808, requires
the filing of information returns by per-
sons who receive payments of interest
that may be deductible as interest on a
qualified education loan (“payees”). Sec-
tion 6050S(e) provides that, except as
provided in regulations, the term “quali-
fied education loan” has the meaning
given such term by § 221(e)(1). Section
6050S requires that payees file the speci-
fied information returns with the Service
and provide a corresponding statement to
the individuals named on the information
return (“payor”) showing the information
that has been reported.
The requirements for reporting quali-
fied education loan interest under § 6050S
are generally described in Notice 98–7,
along with specific information reporting
requirements for 1998. Section D of the
Discussion portion of Notice 98–7 pro-
vides a rule for reporting payments of in-
terest made on or after January 1, 1998,
on mixed use loans or revolving accounts,
such as credit card accounts. Payments of
interest on these loans are treated under
Notice 98–7 as interest paid with respect
to a qualified education loan (and must be
reported as such) only if the mixed use
loan or revolving account is certified by
the payor to be, in part, a qualified educa-
tion loan, and the payee has a reasonable
method for allocating the interest pay-
ments to the part of the loan that is certi-
fied to be a qualified education loan. In
addition, Section E of the Discussion pro-
vides that, with respect to loans made on
or after January 1, 1998, that are secured
by real property, if a payor certifies all or
part of such a loan as a qualified educa-
tion loan, only the certified portion of the
loan may be treated as a qualified educa-
tion loan for purposes of information re-
porting. The remaining portion must be
treated as a mortgage subject to informa-
tion reporting under § 6050H.
DISCUSSION
Section 221(e)(1), as amended by RRA
1998, provides that the term “qualified
education loan” means any indebtedness
incurred by the taxpayer solelyto pay
qualified higher education expenses. The
amendment to § 221(e)(1) is effective as
if included in the Taxpayer Relief Act of
1997 and applies to interest payments due
and paid after December 31, 1997. Thus,
the payee must not report under § 6050S
information on mixed use loans (whether
or not secured by real property) because
they are not qualified education loans
under § 221(e)(1) as amended. However,
information reporting under § 6050S con-
tinues to be required for any loan (includ-
ing a loan secured by real property) or re-
volving account, such as credit card
account, that the payor certifies is used
solelyfor the purpose of paying qualified
higher education expenses. The payee
may rely on this certification when filing
Form 1098–E, Student Loan Interest
Statement, for 1998 and need not verify
the payor’s actual use of the funds. In all
other respects, the requirements of
§ 6050S with respect to qualified educa-
tion loan interest reporting for 1998 re-
main the same as described in Notice
98–7.
The Service is currently revising Form
W–9S, Request for Student’s or Bor-
rower’s Social Security Number and Cer-
tification, to remove the certification for
mixed use loans. In addition, payees
should disregard the instructions regard-
ing mixed use loans and revolving ac-
counts, which are found in the Form
1098-E section of the 1998 Instructions
for Forms 1099, 1098, 5498, and W–2G.
Those instructions will be revised for
1999.
The Treasury Department intends to
issue regulations soon on the information
reporting requirements of § 6050S. Pend-
ing issuance of those regulations, the Ser-
vice is extending the application of Notice
IRB 1998-46 11/12/98 10:45 AM Page 25

November 16, 1998261998–46 I.R.B.
98–7, as modified by this notice, for an
additional year,i.e.,to information report-
ing required under § 6050S for 1999.
For 1999, payees must follow the rules
provided in Notice 98–7, as modified by
this notice, for information reporting
under § 6050S. For example, a payee that
receives payments of interest on a quali-
fied education loan in 1999 must file a
Form 1098–E that includes the same in-
formation that was required by Notice
98–7, as modified by this notice. The
Forms 1098-E for 1999 must be filed with
the Service by February 28, 2000, if filed
on paper or by magnetic media, or by
March 31, 2000, if filed electronically. A
statement containing the same informa-
tion as the Form 1098-E filed with the
Service must be furnished to the payor by
January 31, 2000. Similarly, Notice 98–7,
as modified by this notice, applies for
1999 with respect to how penalties will be
administered under §§ 6721 and 6722 for
information returns required under
§ 6050S.
EFFECT ON OTHER DOCUMENTS
Notice 98–7 is modified.
DRAFTING INFORMATION
The principal author of this notice is
John J. McGreevy of the Office of the As-
sistant Chief Counsel (Income Tax and
Accounting). For further information re-
garding this notice contact him on (202)
622-4910 (not a toll-free call).
Awards of Costs and Certain
Fees in Tax Litigation
Notice 98–55
Section 3101(e) of the Internal Rev-
enue Service Restructuring and Reform
Act of 1998, Pub. L. No. 105–206,
amended § 7430 of the Internal Revenue
Code to add a “qualified offer rule” that
treats certain taxpayers as prevailing par-
ties when the United States has rejected
their offer to settle their tax controversy.
Treatment as a prevailing party is a neces-
sary element for a taxpayer to receive an
award of reasonable administrative and
litigation costs in connection with an ad-
ministrative or court proceeding. The
Service and the Treasury Department in-
tend to publish guidance to address sev-
eral issues raised by the new qualified
offer rule and invite public comment on
these issues.
BACKGROUND
Under § 7430, as amended, a taxpayer
qualifying as a prevailing party under this
new qualified offer rule may be eligible to
receive an award for reasonable adminis-
trative and litigation costs in connection
with an administrative or court proceed-
ing, even when the position of the United
States is reasonable and even though the
taxpayer does not substantially prevail in
the tax controversy. To qualify as a pre-
vailing party under this new rule, a tax-
payer must meet the net worth require-
ments and make a “qualified offer” during
the “qualified offer period.” If the Ser-
vice rejects the taxpayer’s last qualified
offer made during the qualified offer pe-
riod, and the tax liability of the taxpayer
(as determined by a court judgment) is
less than the tax liability would have been
had the last qualified offer been accepted,
the taxpayer qualifies as a prevailing
party under § 7430. A “qualified offer” is
a written offer that is made by the tax-
payer to the United States during the qual-
ified offer period, specifies the amount of
the taxpayer’s tax liability (determined
without regard to interest), is designated a
qualified offer when made, and remains
open until the earliest of: (1) the date the
offer is rejected, (2) the date the trial be-
gins, or (3) 90 days from the date of the
offer. The “qualified offer period,” during
which a qualified offer may be made, be-
gins on the date the 30-day letter is mailed
by the Service to the taxpayer and ends on
the date which is 30 days before the date
the case is first set for trial.
ISSUES FOR COMMENT
The Service and Treasury invite public
comments on the following issues (and
any others) raised by the new qualified
offer rule:
Comparison of Liability:
In multiple issue tax cases, partial set-
tlements involving discrete issues often
occur throughout both the administrative
and court proceedings. Depending upon
when a qualified offer is made, issues in-
volved in the proceeding at the time of the
offer may not be part of the court’s adju-
dication but may still be part of the judg-
ment entered by the court. If settlement
occurs before the court proceeding is
commenced, those issues would not be
part of the judgment. The Service and
Treasury are interested in receiving com-
ments on how the settlement of issues at
the various stages of the proceedings
should be taken into account in compar-
ing the taxpayer’s liability under the judg-
ment with that under the qualified offer.
(1) In comparing a taxpayer’s tax lia-
bility under a qualified offer with the tax-
payer’s tax liability under a court judg-
ment, should the comparison be limited to
court-determined issues or should settled
issues also be taken into account?
(2) If settled issues are included in the
comparison, should issues settled before
the court proceeding is commenced be in-
cluded in the comparison?
Content of Offer:
If it is determined that settled issues
are not to be taken into account, in whole
or in part, a meaningful comparison will
only be possible if the qualified offer is
specific enough to carve out those issues
from the comparison. On the other hand,
if all settled issues are to be included in
the comparison, a lump-sum offer could
be compared with the liability under the
judgment as modified to take into account
the settled issues not included in the judg-
ment. The Service and Treasury are inter-
ested in receiving comments on how the
qualified offer rule should be applied in
such multiple issue cases.
(1) May a qualified offer be in the form
of a lump-sum amount when the case in-
volves multiple tax issues (one or more of
which may be settled while others may be
determined by the court)?
(2) How much specificity should a
qualified offer be required to contain
when the case involves multiple tax issues
(one or more of which may be settled
while others may be determined by the
court)?
Timing of Offer:
In the U.S. Tax Court, the court places
cases on a trial calendar that lists the cases
to be heard by the court during the desig-
nated trial session. Notices informing the
parties that their respective cases are set
for trial during the designated trial session
IRB 1998-46 11/12/98 10:45 AM Page 26

1998–46 I.R.B.27November 16, 1998
are usually sent by the court five or six
months prior to the beginning of the trial
session. Not infrequently, cases are con-
tinued, stricken or otherwise removed
from the calendar on which they were
originally set for trial and placed on an-
other trial calendar relating to a different
trial session. At the start of each trial ses-
sion, all cases appearing on the trial cal-
endar that have not been previously dis-
posed of will be called by the court.
Thereafter, the court announces the dates
and times that the cases will be tried dur-
ing the trial session. Thus, the actual trial
date is often unknown until after the cal-
endar call. Depending on how the phrase
“first set for trial” is interpreted with re-
spect to a Tax Court case, the length of the
period during which a qualified offer may
be made may vary significantly. The Ser-
vice and Treasury are interested in receiv-
ing comments on whether the settlement
process is better promoted by interpreting
the phrase “first set for trial” to provide a
longer qualified offer period or by inter-
preting that phrase to provide a shorter
qualified offer period.
(1) When should a U.S. Tax Court case
be considered “first set for trial”: (a) on
the date of the calendar call for the first
trial session during which the case is orig-
inally set for trial; (b) on the date the case
is actually called for trial; or (c) on some
other date?
(2) When should a U.S. district court,
U.S. bankruptcy court, or Court of Fed-
eral Claims case be considered “first set
for trial”?
(3) What effect, if any, should a contin-
uance have on when a case is considered
“first set for trial”?
ADDRESS FOR COMMENTS
Written comments on the new qualified
offer rule issues should be submitted by
November 30, 1998, should reference No-
tice 98-55, and may be submitted by mail
to:
Internal Revenue Service
Attn: CC:DOM:CORP:T:R
(DOM:FS:IT&A) Room 5226
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044
or may be hand-delivered between the
hours of 8 a.m. and 5 p.m. to CC:DOM:
CORP:R (DOM:FS:IT&A) at the
Courier’s Desk, Internal Revenue Build-
ing, 1111 Constitution Avenue NW, Wash-
ington, DC. Alternatively, comments may
be submitted electronically via:
http://www.irs.ustreas.gov/prod/tax_regs/
comments.html (the Service’s Internet
site).
DRAFTING INFORMATION
The principal authors of this notice are
Tom Moffitt and Henry Schneiderman of
the Office of the Assistant Chief Counsel
(Field Service). For further information
regarding this notice, please contact Mr.
Moffitt at (202) 622-7900 or Mr. Schnei-
derman at (202) 622-7820 (not toll-free
calls).
26 CFR 601.105: Examination of returns and
claims for refund, credit or abatement;
determination of correct tax liability.
(Also Part I, §§ 1361, 1362; 1.1361–1, 1.1362–4,
1.1362–6, 301.9100–1, 301.9100–3.)
Rev. Proc. 98–55
SECTION 1. PURPOSE
This revenue procedure amplifies and
supersedes the provisions of Rev. Proc.
94–23, 1994–1 C.B. 609, and Rev. Proc.
97–40, 1997–33 I.R.B. 50. This revenue
procedure is intended to provide guidance
for taxpayers requesting relief for late S
corporation elections and certain untimely
elections required to be filed by or with
respect to an S corporation. Accompany-
ing this document is a flowchart designed
to aid taxpayers in applying this revenue
procedure.
SECTION 2. BACKGROUND
Section 1361(a)(1) of the Internal Rev-
enue Code defines an “S corporation,”
with respect to any taxable year, as a
small business corporation for which an S
corporation election is in effect for that
year.
Section 1361(b)(1) defines a “small
business corporation” as a domestic cor-
poration that is not an ineligible corpora-
tion and that does not (A) have more than
75 shareholders, (B) have as a share-
holder a person (other than an estate, a
trust described in § 1361(c)(2), or an or-
ganization described in § 1361(c)(6)) who
is not an individual, (C) have a nonresi-
dent alien as a shareholder, and (D) have
more than one class of stock.
Section 1362(a)(1) provides that, ex-
cept in a situation described in § 1362(g),
a small business corporation may elect to
be treated as an S corporation.
Section 1362(b)(1) provides that the
corporation may make an election to be
treated as an S corporation (A) at any time
during the preceding taxable year, or (B)
at any time during the taxable year and on
or before the 15th day of the 3rd month of
the taxable year. Under § 1362(b)(3), if
an S corporation election is made for a
taxable year after the 15th day of the 3rd
month of that taxable year and on or be-
fore the 15th day of the 3rd month of the
following taxable year, then the S corpo-
ration election is treated as made for the
following taxable year.
Section 1362(b)(5) provides that if (A)
an election under § 1362(a) is made for
any taxable year (determined without re-
gard to § 1362(b)(3)) after the date pre-
scribed by § 1362(b) for making the elec-
tion for the taxable year or no election is
made for any taxable year, and (B) the
Secretary determines that there was rea-
sonable cause for the failure to timely
make the election, the Secretary may treat
the election as timely made for the taxable
year (and § 1362(b)(3) shall not apply).
Rev. Proc. 97–40 provides a special
procedure to request relief for a late S cor-
poration election. That revenue proce-
dure applies only to a corporation (1) that
has not filed a timely S corporation elec-
tion under § 1362(a)(1), (2) for which an
S corporation election is filed within 6
months of the original due date for the
election, and (3) for which the due date of
the tax return (excluding extensions) for
the first year the corporation intended to
be an S corporation has not passed.
Rev. Proc. 97–48, 1997–43 I.R.B. 19,
provides special procedures to obtain au-
tomatic relief for certain late S corpora-
tion elections in two situations. In both
situations, relief is available only where
the due date for the tax return for the first
year the corporation intended to be an S
corporation has passed and other eligibil-
ity requirements are met. Rev. Proc. 97–
48 does not provide relief for late electing
small business trust (ESBT), qualified
subchapter S trust (QSST), or qualified
subchapter S subsidiary (QSub) elections.
Section 1362(f) grants the Service au-
thority to provide relief in situations
where a corporation’s S election was not
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November 16, 1998281998–46 I.R.B.
effective for the taxable year for which it
was made by reason of a failure to meet
the requirements of § 1361(b), or where
the corporation’s S election terminates
under § 1362(d)(2) or (3). A corporation
is eligible for relief under this provision if
(1) the Secretary determines that the cir-
cumstances resulting in the ineffective-
ness or termination were inadvertent, (2)
no later than a reasonable period of time
after discovery of the circumstances re-
sulting in the ineffectiveness or termina-
tion, steps were taken so that the S corpo-
ration is a small business corporation, and
(3) the corporation, and each person who
was a shareholder of the corporation at
any time during the period specified pur-
suant to § 1362(f), agrees to make any ad-
justments (consistent with the treatment
of the corporation as an S corporation) as
may be required by the Secretary with re-
spect to the period. If a corporation is eli-
gible for relief under this provision, then,
notwithstanding the circumstances result-
ing in the ineffectiveness or termination,
the corporation will be treated as an S cor-
poration during the period specified by
the Secretary.
Section 1.1362–4 of the Income Tax
Regulations sets forth additional guidance
regarding inadvertent termination relief.
Section 1.1362–4(b) provides that the cor-
poration has the burden of establishing
that under the relevant facts and circum-
stances the Commissioner should deter-
mine that the termination was inadvertent.
The fact that the terminating event was not
reasonably within the control of the corpo-
ration and was not part of a plan to termi-
nate the election, or the fact that the event
took place without the knowledge of the
corporation, notwithstanding its due dili-
gence to safeguard against such an event,
tends to establish that the termination was
inadvertent. Section 1.1362–4(c) provides
that a taxpayer may request inadvertent
termination relief by submitting a request
for a private letter ruling. Section
1.1362–4(d) provides that the Commis-
sioner may condition the granting of a rul-
ing request on any adjustments that are ap-
propriate. Section 1.1362–4(e) requires
the corporation and all persons who were
shareholders of the corporation at any time
during the time specified by the Commis-
sioner to consent to any adjustments that
the Commissioner may require.
Section 1361(d)(1)(A) provides that in
the case of a QSST with respect to which
a beneficiary makes an election under
§ 1361(d)(2), the trust will be treated as a
trust described in § 1361(c)(2)(A)(i) (re-
lating to trusts that may be a shareholder
of a small business corporation under
§ 1361(b)(1)). Pursuant to § 1361(d)-
(2)(A) and § 1.1361–1(j)(6)(i), the elec-
tion by a current income beneficiary of a
QSST may be made by the beneficiary’s
legal representative (or a natural or an
adoptive parent of the current income
beneficiary if a legal representative has
not been appointed and the current in-
come beneficiary is a minor).
Section 1361(d)(2) provides for the
time and manner in which the beneficiary
of a QSST may elect to have the provi-
sions of § 1361(d) apply. Included is the
requirement that the QSST election must
be filed within the 2 month and 16 day pe-
riod beginning on the day that the stock is
transferred to the trust.
Section 1361(d)(3) sets forth the provi-
sions a trust instrument must contain for
the trust to qualify as a QSST. Under
§ 1361(d)(3)(A), the terms of the trust
must require that: (i) during the life of the
current income beneficiary, there is only
one income beneficiary; (ii) any corpus
distributed during the life of the current
beneficiary may be distributed only to that
beneficiary; (iii) the current income bene-
ficiary’s interest terminates on the earlier
of the beneficiary’s death or the trust’s ter-
mination; and (iv) if the trust terminates
during the current income beneficiary’s
life, the trust assets must be distributed to
that beneficiary. In addition, § 1361(d)-
(3)(B) requires that the trust must distrib-
ute all of its income (within the meaning
of § 643(b)) currently to one individual
who is a United States resident or citizen.
Rev. Proc. 94–23 provides automatic
inadvertent termination relief to certain
corporations whose S corporation election
terminates because stock of the corpora-
tion was transferred to a trust whose cur-
rent income beneficiary (or the legal rep-
resentative of the current income
beneficiary) inadvertently failed to file a
timely election with respect to a QSST
under § 1361(d)(2). Section 4 of that rev-
enue procedure provides the prerequisites
for automatic relief and the procedural re-
quirements for obtaining it.
Section 1361(c)(2)(A)(v) provides that
an ESBT (as defined in § 1361(e)) is a
permitted S corporation shareholder.
Generally, an ESBT is any trust if: (1) the
trust does not have as a beneficiary any
person other than an individual, an estate,
or an organization described in §
170(c)(2), (3), (4), or (5); (2) no interest
in the trust was acquired by purchase; and
(3) an election to be an ESBT has been
filed with respect to the trust.
Section 1361(b)(3)(B) provides that a
QSub is a domestic corporation that is not
an ineligible corporation, if (1) an S cor-
poration holds 100 percent of the stock of
the corporation, and (2) that S corporation
elects to treat the subsidiary as a QSub.
Under § 301.9100–1(c) of the Proce-
dure and Administration Regulations, the
Commissioner may grant a reasonable ex-
tension of time to make a regulatory elec-
tion or certain statutory elections under all
subtitles of the Code, except subtitles E,
G, H, and I, if the taxpayer demonstrates
to the satisfaction of the Commissioner
that the taxpayer acted reasonably and in
good faith, and that granting the relief
will not prejudice the interests of the Gov-
ernment. Section 301.9100–1(b) defines
the term “regulatory election” as an elec-
tion whose due date is prescribed by a
regulation published in the Federal Regis-
ter, or a revenue ruling, revenue proce-
dure, notice, or announcement published
in the Internal Revenue Bulletin.
SECTION 3. SCOPE
.01 In General. This revenue proce-
dure extends the special procedure for late
S corporation elections described in Rev.
Proc. 97–40 from 6 months to 12 months
(but in no event later than the unextended
due date of the tax return for the first year
the corporation intended to be an S corpo-
ration), provides similar relief for certain
QSub elections, and extends the applica-
tion of Rev. Proc. 94–23 to ESBT elec-
tions.
.02 Late S Corporation Elections.With
respect to late S corporation election s,
this revenue procedure applies only to a
corporation (1) that has not filed a timely
S corporation election under § 1362(a)(1),
(2) for which an S corporation election is
filed within 12 months of the original due
date for the election, and (3) for which the
due date for the tax return (excluding ex-
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1998–46 I.R.B.29November 16, 1998
tensions) for the first year the corporation
intended to be an S corporation has not
passed. Section 4 of this revenue proce-
dure describes a simplified method for
obtaining relief where the corporation can
demonstrate reasonable cause for the fail-
ure to file a timely S corporation election.
Section 4 also provides automatic relief
for ESBT, QSST, and QSub elections in-
tended to be effective as of the first date
the corporation intended to elect S corpo-
ration status for itself.
.03 Untimely QSub Elections.This
revenue procedure also applies to certain
QSub elections for which the automatic
relief described above is not available be-
cause the parent corporation’s S election
was timely filed. For those situations, this
revenue procedure applies only to a cor-
poration (1) for which a timely QSub
election under § 1361(b)(3)(B) was not
filed for the desired effective date, (2) for
which a QSub election is filed within 12
months of the date that an election for the
desired effective date should have been
filed, and (3) for which the due date for
the S corporation’s tax return (excluding
extensions) for the first taxable year for
which the S corporation desired QSub sta-
tus for the subsidiary has not passed. Sec-
tion 5 of this revenue procedure describes
a simplified method, similar to that for a
late S corporation election, for filing an
untimely QSub election.
.04 Late ESBT and QSST Elections.
For late ESBT or QSST elections, this
revenue procedure applies to corporations
that, but for (1) a trust beneficiary’s inad-
vertent failure to make a timely QSST
election or (2) a trustee’s inadvertent fail-
ure to make a timely ESBT election,
would otherwise meet or continue to meet
the criteria for S corporation status. Sec-
tion 6.02 of this revenue procedure pro-
vides an automatic grant of relief for cer-
tain corporations that satisfy the criteria
therein.
.05 Alternate Relief.This revenue pro-
cedure provides alternatives to the letter
ruling process ordinarily used to obtain
relief for late S corporation and related
elections under § 1362(b)(5), § 1362(f),
or §§ 301.9100–1 and 301.9100–3. Ac-
cordingly, user fees do not apply to cor-
rective action under this revenue proce-
dure. However, a corporation or trust that
does not meet the requirements for relief
or is denied relief under this revenue pro-
cedure may request inadvertent termina-
tion, inadvertent invalid election, or late
election relief (as appropriate) by request-
ing a private letter ruling. The Service
will not ordinarily issue a private letter
ruling if the period of limitations on as-
sessment under § 6501(a) has lapsed for
any taxable year for which an election
should have been made or any taxable
year that would have been affected by the
election had it been timely made. The
procedural requirements for requesting a
private letter ruling are described in Rev.
Proc. 98–1, 1998–1 I.R.B. 7 (or its suc-
cessor).
SECTION 4. RELIEF FOR LATE S
CORPORATION ELECTIONS UNDER
THIS REVENUE PROCEDURE
.01 Relief When Late S Election is Sole
Defect.
(1) Eligibility for Relief.A corpora-
tion is eligible for relief under section
4.03 of this revenue procedure if the fol-
lowing requirements are met:
(a) The corporation fails to qualify
as an S corporation on the first day that S
corporation status was desired solely be-
cause the Form 2553 (Election by a Small
Business Corporation) was not filed
timely pursuant to § 1362(b)(1),
(b) The due date for the tax return
(excluding extensions) for the first year
the corporation intended to be an S corpo-
ration has not passed, and
(c) The corporation has reasonable
cause for its failure to timely make the S
corporation election.
(2) Procedural Requirements for Re-
lief.Within 12 months of the original due
date for the S corporation election (but in
no event later than the due date for the tax
return (excluding extensions) for the first
year the corporation intended to be an S
corporation), the corporation must file
with the applicable service center a com-
pleted Form 2553, signed by an officer of
the corporation authorized to sign and all
persons who were shareholders at any
time during the period that began on the
first day of the taxable year for which the
election is to be effective and ends on the
day the election is made. For purposes of
signing the shareholder consent, any trust
that qualifies for relief under section 6 of
this revenue procedure, but did not hold
stock on the first day the corporation in-
tended S corporation status, is considered
an eligible shareholder. In this situation,
the corporation must also file a request for
relief pursuant to section 6 of this revenue
procedure and attach it to the Form 2553.
The Form 2553 must state at the top of the
document “FILED PURSUANT TO REV.
PROC. 98–55.” Attached to the Form
2553 must be a statement explaining the
reason for the failure to file a timely S
corporation election.
.02 Relief for Late S Election and Auto-
matic Relief for Invalid Elections and
Late Elections.
(1) Eligibility for Relief.
(a) Late S Election and Late ESBT
or QSST Election.A corporation is eligi-
ble for relief under section 4.03 of this
revenue procedure, and the trustee of a
trust that would otherwise qualify as an
ESBT or the beneficiary of a QSST is eli-
gible to make an ESBT or QSST election,
respectively, effective on the first day of
the relevant corporation’s first taxable
year as an S corporation under section
4.04 of this revenue procedure, if the fol-
lowing requirements are met:
(i) The corporation fails to qualify
as an S corporation because the Form
2553 was not filed timely pursuant to
§ 1362(b)(1);
(ii) The trust fails to qualify as an
ESBT or to be taxable as described in
§ 1361(d)(1)(B) (relating to a QSST and
its current income beneficiary) on the first
day of the related corporation’s first tax-
able year as an S corporation solely be-
cause a proper ESBT or QSST election,
whichever is applicable, was not filed
timely;
(iii) The due date for the tax return
of the corporation (excluding extensions)
for the first taxable year the corporation
intended to be an S corporation has not
passed; and
(iv) The corporation has reason-
able cause for its failure to timely make
the S corporation election.
(b) Late S Election and Untimely
QSub Election.A parent corporation is
eligible for relief under section 4.03 of
this revenue procedure, and may make a
QSub election with respect to a subsidiary
effective on the first day of the parent cor-
poration’s first taxable year as an S corpo-
ration under section 4.04 of this revenue
procedure, if the following requirements
are met:
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November 16, 1998301998–46 I.R.B.
(i) The parent corporation fails to
qualify as an S corporation because the
Form 2553 was not filed timely pursuant
to § 1362(b)(1);
(ii) The subsidiary corporation
fails to qualify as a QSub on the first day
of the parent corporation’s first taxable
year as an S corporation solely because a
proper QSub election was not filed timely
(after giving effect to the relief provided
in section 4.03 of this revenue procedure);
(iii) The due date for the parent S
corporation’s tax return (excluding exten-
sions) for the first taxable year the parent
corporation intended to be an S corpora-
tion has not passed; and
(iv) The parent corporation has
reasonable cause for its failure to timely
make the S corporation election.
(2) Procedural Requirements for Re-
lief. Within 12 months of the original due
date for the S corporation election (but in
no event later than the due date for the tax
return (excluding extensions) for the first
year the corporation intended to be an S
corporation), the corporation must file
with the applicable service center a com-
pleted Form 2553, signed by an officer of
the corporation authorized to sign and all
persons who were shareholders at any
time during the period that began on the
first day of the taxable year for which the
election is to be effective and ends on the
day the election is made. Accompanying
the Form 2553 must be all applicable
ESBT, QSST, or QSub elections, com-
pleted in accordance with the proper pro-
cedure for the election as provided in reg-
ulation, revenue procedure, or notice. All
of the above elections must state at the top
of the document “FILED PURSUANT
TO REV. PROC. 98–55.” Attached to the
Form 2553 must be a statement explain-
ing the reason for the failure to file a
timely S corporation election.
.03 Relief for Late S Corporation Elec-
tion.Upon receipt of a completed appli-
cation requesting relief under section 4.01
or 4.02 of this revenue procedure, the Ser-
vice will determine whether the require-
ments for granting an additional time to
file an S corporation election have been
satisfied and will notify the corporation of
the result of this determination.
.04 Automatic Relief for Late ESBT,
QSST, and QSub Elections. If relief for a
late S corporation election is granted pur-
suant to section 4.03 of this revenue pro-
cedure, any request for relief submitted
pursuant to the terms of section 4.02 of
this revenue procedure will be automati-
cally approved by the Service.
.05 Automatic Relief for Late S Corpo-
ration Elections Provided in Other Docu-
ments.Certain corporations may be eligi-
ble for automatic late S corporation
election relief pursuant to Rev. Proc.
97–48.
SECTION 5. RELIEF FOR CERTAIN
QSUB ELECTIONS UNDER THIS
REVENUE PROCEDURE
.01 Eligibility for Relief. A corporation
that is not requesting relief under section
4 of this revenue procedure (because the
corporation has a valid S corporation
election) may be granted additional time
under section 5.03 of this revenue proce-
dure to file a QSub election with respect
to a subsidiary if the following require-
ments are met:
(1) The subsidiary corporation fails
to qualify as a QSub on the desired effec-
tive date solely because the parent S cor-
poration failed to file a timely (with re-
spect to the desired effective date)
election to treat the subsidiary as a QSub;
(2) The due date for the S corpora-
tion’s tax return (excluding extensions)
for the first taxable year of the S corpora-
tion for which it intended to treat the sub-
sidiary as a QSub has not passed; and
(3) The S corporation has reason-
able cause for its failure to timely make
the QSub election.
.02 Procedural Requirements for Re-
lief. Within 12 months of the due date for
filing a QSub election to be effective on
the desired effective date (but in no event
later than the due date for the S corpora-
tion’s tax return (excluding extensions)
for the first taxable year of the S corpora-
tion for which the S corporation intended
to treat the subsidiary as a QSub), the cor-
poration must file with the applicable ser-
vice center a completed QSub election.
The QSub election must state at the top of
the form “FILED PURSUANT TO REV.
PROC. 98–55.” Attached to the form
must be a statement explaining the reason
for the failure to file a QSub election
within the time period required for the de-
sired effective date. For purposes of this
section 5, if a corporation is seeking (or
has sought) relief under section 4.01 of
this revenue procedure for a late S corpo-
ration election, and also did not make a
timely (with respect to the desired effec-
tive date) election to treat a subsidiary as
a QSub effective on a date other than the
first day the corporation intended to be an
S corporation, the corporation will be
treated as having made a valid S corpora-
tion election. In this situation, the corpo-
ration must also file (or have filed) a re-
quest for relief pursuant to section 4.01 of
this revenue procedure.
.03 Grant of Additional Time for Filing
Certain QSub Elections.Upon receipt of
a completed application requesting relief
under section 5.02 of this revenue proce-
dure, the Service will determine whether
the requirements for granting an addi-
tional time to file a QSub election have
been satisfied and will notify the corpora-
tion of the result of this determination.
SECTION 6. RELIEF FOR CERTAIN
LATE ESBT AND QSST ELECTIONS
UNDER THIS REVENUE
PROCEDURE
.01 Eligibility for Automatic Relief.A
corporation is eligible for inadvertent in-
valid election relief or inadvertent termi-
nation relief under section 6.03 of this
revenue procedure if it meets the follow-
ing requirements:
(1) The corporation’s S corporation
election was invalid or terminated solely
because the beneficiary of a QSST (or the
beneficiary’s legal representative) failed
to file a timely QSST election pursuant to
§ 1361(d)(2) or the trustee of a trust that
would otherwise qualify as an ESBT
failed to file a timely ESBT election pur-
suant to § 1361(e)(3);
(2) All taxpayers whose tax liability
and tax returns would be affected by the
QSST or ESBT election (including the
trust itself and, in the case of a QSST, the
beneficiary of the trust) have reported
their income (on all affected returns) con-
sistent with the corporation’s S corpora-
tion election for the year the QSST or
ESBT election should have been made, as
well as for any subsequent year;
(3) The failure to file a timely QSST
or ESBT election was inadvertent; and
(4) Within 24 months of the original
due date of the election, the beneficiary
of the QSST or the trustee of the ESBT
files the election pursuant to this revenue
procedure.
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1998–46 I.R.B.31November 16, 1998
.02 Procedural Requirements for Auto-
matic Relief.
The current income beneficiary (in the
case of a QSST) or the trustee (in the case
of an ESBT) of the trust must sign and file
the appropriate election with the applica-
ble service center. This election must
state at the top “FILED PURSUANT TO
REV. PROC. 98–55” and include the fol-
lowing material:
(1) The names, addresses, and tax-
payer identification numbers of the cur-
rent income beneficiary (in the case of a
QSST), the trust, and the corporation;
(2) A statement identifying the elec-
tion as an election under § 1361(d)(2) or
§ 1361(e)(3);
(3) The date on which the stock of
the corporation was originally transferred
to the trust;
(4) In the case of a QSST, an affi-
davit from the trustee stating that the trust
satisfies the QSST requirements of
§ 1361(d)(3) and that the income distribu-
tion requirements have been and will con-
tinue to be met;
(5) In the case of an ESBT, an affi-
davit from the trustee stating that all po-
tential current beneficiaries meet the
shareholder requirements of § 1361(b)(1)
and that the trust satisfies the require-
ments of an ESBT under § 1361(e)(1)
other than the requirement to make an
ESBT election;
(6) An affidavit from the current in-
come beneficiary (in the case of a QSST)
or the trustee (in the case of an ESBT)
stating that the failure to file the relevant
election was inadvertent and that the ben-
eficiary or trustee acted diligently to cor-
rect the mistake upon its discovery;
(7) Affidavits from all shareholders
during the period between the date the S
corporation election terminated or was to
have become effective and the date the
completed election was filed (including
the trust itself and, in the case of a QSST,
the beneficiary of the trust) stating that
they have reported their income (on all af-
fected returns) consistent with the S cor-
poration election for the year the election
should have been made and for any subse-
quent year; and
(8) A dated declaration, signed by
the current income beneficiary (in the
case of a QSST) or the trustee (in the case
of an ESBT), which states: “Under penal-
ties of perjury, I declare that, to the best of
my knowledge and belief, the facts pre-
sented in support of this election are true,
correct, and complete.”
.03 Automatic Relief for Late ESBT and
QSST Elections.Corporations that satisfy
the requirements of sections 6.01 and 6.02
of this revenue procedure will automati-
cally be granted relief pursuant to the pro-
visions of § 1362(f). Thus, the corpora-
tion will be treated as an S corporation for
the period beginning on the date of termi-
nation or the date on which the election
was to have become effective, whichever
applies, and ending on the date the com-
pleted ESBT or QSST election is filed,
and thereafter, unless the S corporation
election is otherwise terminated under
§ 1362(d). In addition, during such pe-
riod, the trust will be treated as a trust de-
scribed in § 1361(c)(2)(A), and the rules
applicable to ESBTs or QSSTs will apply.
In the case of a QSST, the beneficiary of
the trust will be treated, for purposes of
§ 678, as the owner of that portion of the
trust consisting of S corporation stock.
SECTION 7. DEEMED
SHAREHOLDERS
Any reference in this revenue proce-
dure to a shareholder of an S corporation
shall be treated as including a reference to
those persons whose consent is required
under § 1.1362–6(b).
SECTION 8. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 94–23 and Rev. Proc. 97–40
are amplified and superseded.
SECTION 9. EFFECTIVE DATE
This revenue procedure is effective for
all applications (including those applica-
tions now being considered by the Ser-
vice) for relief satisfying the requirements
of sections 4, 5, or 6 of this revenue pro-
cedure (including those filed pursuant to
either Rev. Proc. 94–23 or Rev. Proc.
97–40).
SECTION 10. PAPERWORK
REDUCTION ACT
The collection of information con-
tained in this revenue procedure has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act (44
U.S.C. 3507) under control number
1545–1548.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the col-
lection of information displays a valid
control number.
The collections of information in this
revenue procedure are in sections 4.01(2),
4.02(2), 5.02, and 6.02. This information
is required to be submitted to the applica-
ble service center in order to obtain relief
for late or inadvertently invalid S corpora-
tion elections, as well as other late elec-
tions. This information will be used to
determine whether the eligibility require-
ments for obtaining relief have been met.
The collection of information is required
to obtain a benefit. The likely respon-
dents are business or other for-profit insti-
tutions.
The estimated total annual reporting
burden is 500 hours.
The estimated annual burden per re-
spondent varies from .5 hours to 7 hours,
depending on individual circumstances,
with an estimated average burden of 1
hour to complete the statement. The esti-
mated number of respondents is 500.
The estimated annual frequency of re-
sponses is on occasion.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
DRAFTING INFORMATION
The principal authors of this revenue
procedure are Mark D. Harris and Deanna
L. Walton of the Office of Assistant Chief
Counsel (Passthroughs and Special Indus-
tries). For further information regarding
this revenue procedure contact Ms. Wal-
ton at (202) 622-3050 (not a toll-free
call).
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November 16, 1998321998–46 I.R.B.
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1998–46 I.R.B.33November 16, 1998
26 CFR 601.201: Rulings and determination
letters.
Rev. Proc. 98–56
SECTION 1. PURPOSE
This revenue procedure amplifies Rev.
Proc. 98–3, 1998–1 I.R.B. 100, which sets
forth areas of the Internal Revenue Code
(Code) under the jurisdiction of the Asso-
ciate Chief Counsel (Domestic) and the
Associate Chief Counsel (Employee Ben-
efits and Exempt Organizations) in which
the Internal Revenue Service will not
issue advance rulings or determination
letters.
SECTION 2. BACKGROUND
Section 5 of Rev. Proc. 98–3 sets forth
those areas under extensive study in
which rulings or determination letters will
not be issued until the Service resolves
the issue through publication of a revenue
ruling, revenue procedure, or otherwise.
Section 631(a) of the Code provides that a
taxpayer may elect to treat the cutting of
certain timber as a sale or exchange of
that timber. Sections 631(b) and (c) treat
the specified gain or loss on the disposal
of certain timber, coal, or domestic iron
ore under a contract whereby the owner
retains an economic interest in the prop-
erty as though it were a gain or loss on the
sale of such property. Section 1374 im-
poses a tax on the recognized built-in
gains of an S corporation. The Service in-
tends to study further whether § 1374 ap-
plies to the situations described in section
3 of this revenue procedure.
SECTION 3. PROCEDURE
Rev. Proc. 98–3 is amplified by adding
to section 5 the following:
Section 1374.—Tax Imposed on Certain
Built-in Gains—The tax consequences
under § 1374 in the following situations:
(1) an S corporation holds timber property
on the date it converts from a C corpora-
tion to an S corporation (or acquires tim-
ber property from a C corporation in a
transaction to which § 1374(d)(8) applies)
and during the recognition period (a) cuts
the timber and sells resulting wood prod-
ucts (including any unfinished or finished
products derived, manufactured, or pro-
duced from such wood products) in a
transaction to which § 631 does not apply,
(b) recognizes gain or loss on cutting the
timber pursuant to a § 631(a) election, or
(c) recognizes gain or loss on the disposal
of timber under a contract to which
§ 631(b) applies, and (2) an S corporation
holds coal or domestic iron ore property
on the date it converts from a C corpora-
tion to an S corporation (or acquires coal
or domestic iron ore property from a C
corporation in a transaction to which
§ 1374(d)(8) applies) and during the
recognition period recognizes gain or loss
on the disposal of the coal or iron ore
under a contract to which § 631(c) applies.
SECTION 4. EFFECTIVE DATE
This revenue procedure applies to all
ruling requests, including any pending in,
or received by, the National Office on or
after October 30, 1998 (the date it is re-
leased to the public).
SECTION 5. REQUEST FOR PUBLIC
COMMENTS
The Service requests comments on the
extent to which § 1374 applies to the situ-
ations described in section 3 of this rev-
enue procedure. Written comments must
be received by January 28, 1999. Send
comments to: CC:DOM:CORP:R (Rev-
enue Procedure 98–56), Room 5226, In-
ternal Revenue Service, POB 7604, Ben
Franklin Station, Washington, DC 20044.
Submissions may be hand delivered be-
tween the hours of 8 a.m. and 5 p.m. to
CC:DOM:CORP:R (Revenue Procedure
98-56), Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue, NW,
Washington, DC. Alternatively, taxpayers
may submit comments electronically via
the Service’s Internet site at www.irs.
ustreas.gov/prod/tax_regs/comments.html.
All comments submitted will be available
for public inspection and copying.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Marlene P. Oppenheim of the
Office of the Assistant Chief Counsel
(Corporate). For further information re-
garding this revenue procedure contact
Ms. Oppenheim at (202) 622-7750 (not a
toll-free call).
IRB 1998-46 11/12/98 10:46 AM Page 33

November 16, 1998341998–46 I.R.B.
Test of Mediation Procedure for
Appeals
Announcement 98–99
SUMMARY: The Service has tested the
use of mediation for Coordinated Exami-
nation Program (CEP) cases assigned to
Appeals Team Chiefs. The Service is
now expanding the mediation test to
allow taxpayers to request mediation for
factual issues involving an adjustment of
$1 million or more that are already in the
Appeals administrative process. Under
the mediation procedure the taxpayer and
Appeals will continue to negotiate a set-
tlement, but an objective and neutral third
party mediator will assist them. The me-
diator has no authority to impose a deci-
sion; decision-making authority remains
with the taxpayer and Appeals. This pro-
cedure is effective for requests for media-
tion made during the two-year test period
beginning on November 16, 1998, the
date this Announcement is published in
the Internal Revenue Bulletin. Addition-
ally, section 3465 of the Internal Revenue
Service Restructuring and Reform Act of
1998, P.L. 105–206 (the Act), provides for
expansion of mediation below the $1 mil-
lion threshold contained in this procedure.
Because Appeals intends to expand the
availability of mediation as required by
the Act, Appeals welcomes comments on
the process. Comments should be sub-
mitted by February 14, 1999, either to:
National Director of Appeals
901 D Street, SW
Box 68
Washington, D.C. 20024
Attn: C:AP:ADR & CS, Room 236
or electronically via: http://www.irs.us-
treas.gov/prod/tax_regs/comments.html
(the Service Internet site).
BACKGROUND: Announcement 95–
86, 1995–44 I.R.B. 27, and Announce-
ment 97–1, 1997-2 I.R.B. 62, contain the
procedure that taxpayers previously used
to request mediation. Under these An-
nouncements, mediation only applied to
certain issues in CEP cases assigned to
Appeals Team Chiefs. A test of the medi-
ation procedure concluded on January 12,
1998.
CHANGES: The mediation procedure
has been expanded to allow for additional
cases to be eligible for mediation. Media-
tion is no longer limited to CEP cases as-
signed to Appeals Team Chiefs; it is now
available for factual issues (such as valua-
tion, reasonable compensation and trans-
fer pricing) involving an adjustment of $1
million or more, arising from examina-
tion.
FOR FURTHER INFORMATION CON-
TACT: Thomas Carter Louthan, Director,
Office of Alternative Dispute Resolution
and Customer Service Programs, National
Office Appeals, (202) 401-4098 (not a
toll-free number).
TEST OF MEDIATION PROCEDURE
FOR APPEALS
Summary:
Appeals is conducting an additional
two-year test of its mediation procedure.
This test will allow taxpayers to request
mediation for factual issues involving an
adjustment of $1 million or more that are
already in the Appeals administrative
process. Under the procedure, the tax-
payer and Appeals will attempt to negoti-
ate a settlement, assisted by an objective
and neutral third party who has no author-
ity to impose a decision. This procedure
is effective for requests for mediation
made during the additional two-year test
period beginning on November 16, 1998,
the date this Announcement is published
in the Internal Revenue Bulletin.
Overview:
The mission of Appeals is to resolve
tax controversies, without litigation, on a
basis which is fair and impartial to both
the Government and the taxpayer. Media-
tion is an extension of the Appeals
process and will enhance voluntary com-
pliance. Mediation is a nonbinding
process, and the mediator will help the
parties reach their own negotiated settle-
ment. To accomplish this goal, the medi-
ator will act as a facilitator, assist in defin-
ing the issues, and promote settlement
negotiations between the parties. The me-
diator will not have settlement authority
in the mediation process and will not ren-
der a decision regarding any issue in dis-
pute. The mediator should inform and
discuss with the parties the rules and pro-
cedures concerning the mediation
process.
Scope of Mediation:
The mediation procedure will attempt
to resolve factual issues while a case is in
the jurisdiction of Appeals. This proce-
dure may be used only after Appeals set-
tlement discussions are unsuccessful, and
when all other issues are resolved but for
the issue(s) for which mediation is being
requested. Mediation is available for:
• Factual issues (such as valuation, rea-
sonable compensation and transfer pric-
ing) involving an adjustment of $1 mil-
lion or more, arising from examination.
Mediation will not be available for:
• An issue designated for litigation or
docketed in any court; [for the Chief
Counsel mediation program involving
issues in docketed cases, see Chief
Counsel Directives Manual (CCDM)
(35)3(20)0]
• An Industry Specialization Program
(ISP) issue or an Appeals Coordinated
Issue (ACI) [ISP issues are listed in Ex-
hibit 8.7.1-1 and ACI issues are listed in
section 8.7.1-3 of the Internal Revenue
Manual]; or
• An issue for which the taxpayer has
filed a request for competent authority
assistance, or an issue for which the
taxpayer intends to seek competent au-
thority assistance. Mediation is also not
available for an issue for which the tax-
payer has requested the simultaneous
Appeals/Competent Authority proce-
dure described in section 8 of Revenue
Procedure 96–13, 1996–1 C.B. 616. If
a taxpayer enters into a settlement with
Appeals (including an Appeals settle-
ment through the mediation process),
and then requests competent authority
assistance, the U.S. competent authority
will endeavor only to obtain a correla-
tive adjustment with the treaty country
and will not take any actions that would
otherwise amend the settlement. See
section 7.05 of Revenue Procedure
96–13.
Part IV. Items of General Interest
IRB 1998-46 11/12/98 10:46 AM Page 34

1998–46 I.R.B.35November 16, 1998
Mediation process:
1. Mediation is optional.A taxpayer
and an Appeals Team Chief (or Appeals
Officer) may request mediation, after con-
sultation with each other. Such request is
initiated by the taxpayer sending a written
request seeking approval for mediation to
the appropriate ARDA-LC, with a copy to
the National Director of Appeals. For
cases assigned to an Appeals Officer, the
handling of such request will be expedited
if the taxpayer also sends a copy of the
mediation request to the Appeals Officer
and the appropriate Appeals Associate
Chief.
Request approved—If the ARDA-
LC approves the request, the ARDA-
LC will inform the taxpayer and the
Appeals Team Chief or Appeals As-
sociate Chief and Appeals Officer
and schedule a conference to discuss
the proposed mediation process.
Request denied—If the ARDA-LC
denies the request, the ARDA-LC
will promptly inform the taxpayer
and the Appeals Team Chief or the
Appeals Associate Chief and Ap-
peals Officer. Although no formal
appeal procedure exists for the de-
nial of a mediation request, a tax-
payer may request a conference with
the ARDA-LC to discuss the denial.
Generally, the ARDA-LC will respond
to the taxpayer and the Appeals Team
Chief or Appeals Associate Chief and Ap-
peals Officer within 30 days after the
ARDA-LC receives the taxpayer’s re-
quest for mediation.
2. Agreement to mediate. The taxpayer
and Appeals will enter into a written
agreement to mediate. The agreement
should be as concise as possible. See Ex-
hibit 1, below for a model agreement to
mediate. The ARDA-LC (in consultation
with the Appeals Team Chief or Appeals
Associate Chief and Appeals Officer) will
negotiate and sign the agreement to medi-
ate on behalf of Appeals. The following
sections describe some considerations
that the taxpayer and Appeals should take
into account in preparing this agreement.
3. Participants.The parties to the me-
diation process will be the taxpayer and
Appeals. Absent an agreement to the con-
trary, the parties must have participants
attending the mediation with decision-
making authority. The mediation agree-
ment will set forth the procedures by
which the parties inform the other parties
and the mediator of the participants in the
mediation and will set forth any limitation
on the number, identity or participation by
such participants. In general, the parties
are encouraged to include, in addition to
the required decision-makers, those per-
sons with information and expertise that
will be useful to the decision-makers and
the mediator. Each party must notify the
mediator and the other party, no later than
two weeks before the mediation, regard-
ing the participants on their mediation
team. See Exhibit 2, below for a model
participants list.
4. Selection of mediators, in general.
The taxpayer and the ARDA-LC will se-
lect a mediator. The test of mediation
procedure for Appeals seeks to include
cases using both non-IRS and Appeals
personnel as mediators. Appeals’ deci-
sion to mediate may depend upon the tax-
payer’s acceptance of an Appeals media-
tor. See sections 5, 6, and 7, below,
regarding who can be a mediator. Co-me-
diators can also be used, and may be suit-
able for the most complex issues.
The taxpayer and the ARDA-LC can use
any local or national organization that pro-
vides a roster of neutrals in selecting a me-
diator. In order to minimize the possibility
of a last-minute disqualification of the me-
diator(s), the taxpayer and the ARDA-LC
are encouraged to prepare a list of parties
to the transaction and potential participants
in the mediation other than employees of
the taxpayer and Appeals for presentation
to the potential mediators. If the taxpayer
and the ARDA-LC cannot agree on a me-
diator, they may agree to a procedure to be
used to select a mediator.
In obtaining the services of a mediator,
the IRS will follow all applicable provi-
sions of the Federal Acquisition Regula-
tion. A mediator shall have no official, fi-
nancial, or personal conflict of interest
with respect to the parties, unless such in-
terest is fully disclosed in writing to the
taxpayer and the ARDA-LC and they
agree that the mediator may serve. See 5
U.S.C. § 573.
5. Appeals personnel as mediators,
conflict statement and expenses.The tax-
payer and the ARDA-LC may select an
Appeals representative to be the mediator.
The Appeals mediator shall be from an-
other Appeals region, or from National
Office Appeals. The ARDA-LC from the
region in which the case is located will
coordinate with the ARDA-LC from the
region in which the proposed mediator is
located.
Due to the inherent conflict that results
because the Appeals mediator is an em-
ployee of the IRS, Appeals will provide to
the taxpayer a statement confirming the
employee’s proposed service as a media-
tor, that the person is a current employee
of the IRS and that a conflict results from
that mediator’s continued status as an IRS
employee. The written agreement to me-
diate will include this statement.
If the parties select an Appeals media-
tor (or Appeals co-mediator), National
Office Appeals will pay the expenses as-
sociated with the Appeals mediator (or
co-mediator).
6. Non-Internal Revenue Service medi-
ator, expenses.The taxpayer and the
ARDA-LC may agree on a mediator from
outside the IRS. If the parties select a
non-IRS mediator or co-mediator, the tax-
payer and National Office Appeals will
share expenses associated with the media-
tor (or co-mediator) equally.
7. Criteria for selection of mediators.
Criteria for selecting a mediator or co-
mediator may include completion of me-
diation training, previous mediation ex-
perience, a substantive knowledge of tax
law, or knowledge of industry practices.
Criteria may also include the projected
travel costs, hourly fees and other ex-
penses, which will be considered subject
to rules and regulations for Government
procurement.
8. Issues covered. The agreement to
mediate will specify the issue(s) that the
parties agree to mediate. Each party will
prepare a discussion summary of the is-
sues (including the party’s arguments in
favor of the party’s position) for consider-
ation by the mediator. The discussion
summaries should be submitted to the me-
diator and the other party no later than
two weeks before the mediation session is
scheduled to begin.
9. Site, date, agenda. The agreement
to mediate should identify the location
and the proposed date of the mediation
session. The parties should attempt to se-
lect a site at or near the mediator’s office,
the taxpayer’s office or an Appeals office.
The parties should also agree upon an
agenda in consultation with the mediator.
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November 16, 1998361998–46 I.R.B.
10. Confidentiality. The mediation
process is confidential. As part of the
agreement to mediate, the taxpayer will
acknowledge in writing that the mediator,
the persons invited to participate in these
procedures by the taxpayer, and those per-
sons the IRS invites to participate, may
have access to all the taxpayer’s return or
return information pertaining to the issues
being considered, pursuant to I.R.C.
§ 6103 and the regulations thereunder,
particularly I.R.C. §§ 6103(c), and
6103(n) and the regulations thereunder.
See Exhibit 3, below for a model consent
and acknowledgment form regarding the
disclosure of returns and return informa-
tion. IRS employees involved in any way
in the mediation process, the outside me-
diator and any person under contract to
the IRS that the IRS invites to participate
will be subject to the confidentiality and
disclosure provisions of the Internal Rev-
enue Code, including I.R.C. §§ 6103,
7213, and 7431.
IRS employees, the taxpayer, the out-
side mediator, and persons invited to par-
ticipate by the IRS and the taxpayer shall
not voluntarily, or through discovery or
compulsory process, disclose any infor-
mation regarding the mediation process or
any communication made during the me-
diation process, including the settlement
terms, except as provided in 5 U.S.C.
§ 574.
11. Section 7214(a)(8) disclosure.
Under I.R.C. § 7214(a)(8), IRS employ-
ees must report information concerning
violations of any revenue law to the Sec-
retary. The agreement to mediate will
state this requirement and the parties will
acknowledge this duty.
12. Disqualification.The mediator
will be disqualified from representing the
taxpayer in any pending or future action
that involves the transactions or issues
that are the particular subject matter of the
mediation. This disqualification extends
to representing any other parties involved
in the transactions or issues that are the
particular subject matter of the mediation.
Moreover, the mediator’s firm will be dis-
qualified from representing the taxpayer
or any other parties involved in the trans-
actions or issues that are the particular
subject matter of the mediation in any ac-
tion that involves the transactions or is-
sues that are the particular subject matter
of the mediation.
The mediator’s firm will not be dis-
qualified from representing the taxpayer
or any other parties in any future action
that involves the same transactions or is-
sues that are the particular subject matter
of the mediation, provided that (I) the me-
diator disclosed the potential of such rep-
resentation to the parties to the mediation
conducted by the mediator prior to the
parties’ acceptance of the mediator, (ii)
such action relates to a taxable year that is
different from the taxable year that is the
subject matter of the mediation, (iii) the
firm’s internal controls preclude the medi-
ator from any form of participation in the
matter, and (iv) the firm does not appor-
tion to the mediator any part of the fee
therefrom. In the event the mediator has
been selected prior to the mediator learn-
ing of the identity of one or more of the
parties involved in the mediation, require-
ment (I) will be deemed satisfied if the
mediator promptly notifies the parties of
the potential representation.
While the mediator may not receive a
direct allocation of the fee from the tax-
payer (or other party) in the matter for
which the internal controls are in effect,
the mediator will not be prohibited from
receiving a salary, partnership share or
corporate distribution established by prior
independent agreement. The mediator and
his or her firm are not disqualified from
representing the taxpayer or any other
parties involved in the mediation in any
matters unrelated to the transactions or is-
sues that are the particular subject matter
of the mediation.
This paragraph 12 only applies to rep-
resentations on matters before the IRS.
The provisions of this paragraph 12 are
in addition to any other applicable dis-
qualification provisions including, for ex-
ample, the rules of the United States Tax
Court and applicable canons of ethics.
13. Withdrawal.Either party may
withdraw from the process anytime be-
fore reaching a settlement of the issues
being mediated by notifying the other
party and the mediator in writing.
14. Mediator’s report.At the conclu-
sion of the mediation process, the media-
tor will prepare a brief written report and
submit a copy to each party. See Exhibit
4, below for a model mediator’s report.
15. Appeals procedures apply.If the
parties reach an agreement on all or some
issues through the mediation process, Ap-
peals will use established procedures, in-
cluding preparation of a specific matters
closing agreement (Form 906). See State-
ment of Procedural Rules, 26 C.F.R.
§ 601.106. Delegation Order 236 (Rev. 3)
may apply to settlements resulting from
the mediation process.
If the parties do not reach an agreement
on an issue being mediated, Appeals will
not reconsider it, and a statutory notice of
deficiency will be issued.
16. Use as precedent.A settlement
reached by the parties through mediation
will not be binding on the parties (or oth-
erwise control) for taxable years not cov-
ered by the agreement. Except as pro-
vided in the agreement, such settlement
may not be used as precedent by any party.
17. Effective Date.These procedures
are effective for requests for mediation
made during the two-year test period be-
ginning on November 16, 1998, the date
this Announcement is published in the In-
ternal Revenue Bulletin.
For further information contact:
Thomas C. Louthan, Director, Office of
Alternative Dispute Resolution and Cus-
tomer Service Programs, National Office
Appeals, (202) 401-4098 (not a toll-free
number), or Sandy Cohen, Office of Al-
ternative Dispute Resolution and Cus-
tomer Service Programs, National Office
Appeals, (202) 401-4101 (not a toll-free
number).
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1998–46 I.R.B.37November 16, 1998
Exhibit 1:
Model Agreement to Mediate
1. The Mediation Process.
The mediation will be an extension of the Appeals process to help [NAME OF TAXPAYER] and Internal Revenue Service
(IRS)—Appeals (the PARTIES) reach their own negotiated settlement of the issues to be mediated. See (2) below for the partici-
pants in the mediation process. To accomplish this goal, the mediator will act as a facilitator, assist in defining the issues and pro-
mote settlement negotiations between the PARTIES. The mediator will inform and discuss with the PARTIES the rules and proce-
dures pertaining to the mediation process. The mediator will not have settlement authority and will not render a decision regarding
any issue in dispute. The PARTIES will continue to have settlement authority for all issues considered under the mediation process.
2. Nature of Process, Participants, Withdrawal.
(a) The mediation process is optional.
(b) The PARTIES must have participants attending the mediation session with decision-making authority. No later than two
weeks before the mediation, each PARTY will submit to the other PARTY and the mediator a list of the participants who will attend
the mediation session on behalf of or at the request of the party, including a designation of the person with decision-making author-
ity who will represent the PARTY at the mediation session. Each PARTY’s list of participants should contain the participant’s name,
the participant’s position with the PARTY or other affiliation (e.g., a member of the XYZ law firm, counsel to the taxpayer), and the
participant’s address, [telephone number and fax number]. Allparticipants attending the mediation on behalf of or at the request of a
PARTY should be listed on the PARTY’s list of participants, including witnesses, consultants and attorneys.
[Insert limitations on the number or types of participants, if any.]
(c) Either PARTY may withdraw from the process at any time prior to reaching a settlement of the issues to be mediated by noti-
fying the other PARTY and the mediator in writing.
3. Selection of Mediator, Costs.
a [NAME OF TAXPAYER] and [NAME], Assistant Regional Director of Appeals-Large Case (ARDA-LC), by mutual agree-
ment, will select a mediator. To facilitate the selection of a mediator, the PARTIES may agree to use any local or national organiza-
tion that provides a roster of neutrals in selecting a mediator. The mediator may be a non-IRS individual or an Appeals representa-
tive, with previous mediation training or experience. Co-mediators may also be selected. A potential mediator must disclose any
official, financial, or personal conflict of interest with respect to the PARTIES. Any potential mediator with any such conflict of in-
terest may not serve as a mediator, unless such interest is fully disclosed in writing to the PARTIES and they agree that the mediator
may serve. See 5 U.S.C. § 573.
b. The costs of a non-IRS mediator or co-mediator will be shared equally by the taxpayer and National Office Appeals, subject to
applicable rules and regulations for Government procurement. If an Appeals mediator or co-mediator is selected, National Office
Appeals will pay the costs associated with the mediator (or co-mediator). Due to the inherent conflict that results when the Appeals
mediator is an employee of the IRS, Appeals will provide to the taxpayer a statement confirming the employee’s proposed service as
a mediator, that the person is a current employee of the IRS and that a conflict results from that mediator’s continued status as an IRS
employee.
4. Issues to be Mediated.
The mediation session will encompass the following issues in the IRS audit of [NAME OF TAXPAYER]’s federal tax returns:
(a) Issue #1
(b) Issue #2
5. Submission of Materials.
Each PARTY will present to the mediator a separate written summation not to exceed 20 pages (exclusive of exhibits consisting of
pre-existing documents and reports) regarding each issue. The mediator will have the right to ask either PARTY for additional in-
formation before the mediation session if deemed necessary for a full understanding of the issues to be mediated. A copy of any
submission a PARTY gives to the mediator will be provided simultaneously to the other PARTY.
6. Place of Mediation.
The PARTIES should attempt to select a site at or near the mediator’s office, [NAME OF TAXPAYER]’s office, or an Appeals
office.
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November 16, 1998381998–46 I.R.B.
7. Proposed Schedule.
Subject to the approval of the mediator, the mediation session will be conducted according to the following schedule:
Submission of Materials toA DATE WHICH IS NOT LATER THAN TWO WEEKS BEFORE THE DATE OF
Mediator: MEDIATION SESSION
Mediation Session:By MONTH DAY,YEAR and TIME
8. Confidentiality.
The mediation process will be confidential. [NAME OF TAXPAYER] acknowledges that the mediator and the other persons in-
vited by the PARTIES to participate in the mediation, will have access to all of [NAME OF TAXPAYER]’s return or return informa-
tion pertaining to the issues being mediated pursuant to I.R.C. §§ 6103(b), 6103© and 6103(n) and the regulations thereunder. (See at-
tached Consent to and Acknowledgment of Disclosure of Return and Return Information.) IRS employees involved in any way in the
mediation process, and any person under contract to the IRS that the IRS invites to participate will be subject to the confidentiality and
disclosure provisions of the Internal Revenue Code, including I.R.C. §§ 6103, 7213 and 7431. IRS employees, [NAME OF TAX-
PAYER], the outside mediator, and persons invited to participate by the PARTIES in the mediation shall not voluntarily, or through
discovery or compulsory process, disclose any information regarding the mediation process or any communication made during the
mediation process, including the settlement terms, except as provided in 5 U.S.C. § 574.
9. I.R.C. Section 7214 (a)(8) Disclosure.
The PARTIES to this agreement acknowledge that IRS employees involved in this mediation are bound by the I.R.C. § 7214
(a)(8) disclosure requirements concerning violations of any revenue law.
10. No Record.
There will be no stenographic record, no audio or video tape recording or other transcript of the mediation session(s).
11. Report by Mediator.
At the conclusion of the mediation session, the mediator will issue a brief report to the PARTIES identifying each issue described
in section 4, above, and whether the PARTIES either agreed to resolve or did not resolve the issue.
12. Appeals Procedures Apply.
If the mediation process enables the PARTIES to reach agreement on the issues, established Appeals procedures will apply. Dele-
gation Order 236 (Rev. 3) may apply to settlements resulting from the mediation process. If the PARTIES cannot reach agreement on
an issue being mediated, Appeals will not reconsider it, and a statutory notice of deficiency will be issued with respect to all unagreed
issues.
13. Precedential Use.A settlement reached by the parties through mediation will not be binding on the parties (or otherwise con-
trol) for taxable years not covered by the agreement. Except as provided in the agreement, such settlement may not be used as prece-
dent by any party.
INTERNAL REVENUE SERVICE,NAME OF TAXPAYER
APPEALS
By:_________________________________________________By:____________________________________________
Assistant RegionalNAME
Director of Appeals-Title
Large CaseDate: __________________________________________
Date: _______________________________________________
IRB 1998-46 11/12/98 10:46 AM Page 38

1998–46 I.R.B.39November 16, 1998
Exhibit 2:
Model Mediation Participants List
Case Name: _____________________________________________________________
Submitted By: ___________________________________________________________
Date: __________________________________________________________________
Please list below all participants attending the mediation, including witnesses, consultants, and attorneys. This form must be sent to
the other party and to the mediator(s) no later than two weeks before the mediation session. Insert an asterisk (*) before the name of
the person who has decision-making authority at the mediation sessions:
NAMEPOSITION ORADDRESSTELEPHONE &
AFFILIATIONFAX NUMBER
IRB 1998-46 11/12/98 10:46 AM Page 39

November 16, 1998401998–46 I.R.B.
Exhibit 3:
Model Consent to and Acknowledgment of Disclosure Of Return And Return Information
Pursuant to I.R.C. § 6103(c) and the regulations thereunder, I,__________, on behalf of __________ , (hereafter Taxpayer) authorize
the Internal Revenue Service to disclose to __________, a person the Taxpayer has invited to participate in the Taxpayer’s mediation
with the Internal Revenue Service, all of the Taxpayer’s returns and return information, within the meaning of I.R.C. §§
6103(b)(1)—(2), pertaining to the issues being mediated.
Taxpayer also acknowledges that the Internal Revenue Service may disclose Taxpayer’s returns and return information to the media-
tor or to persons the Internal Revenue Service may invite to participate in the Taxpayer’s mediation, pursuant to I.R.C. § 6103, in-
cluding I.R.C. § 6103(n).
Taxpayer understands that, without this consent to disclosure, Taxpayer’s returns and return information would be confidential and
disclosable only as authorized by Title 26.
I certify that I am the Taxpayer’s __________, and that I have the authority to execute this consent to disclosure on the Taxpayer’s
behalf.
Taxpayer’s Name: ________________________________________________________
Taxpayer’s Address: ______________________________________________________
______________________________________________________
Taxpayer’s Identification Number: ___________________________________________
Tax period(s): _____________________ through ______________________, inclusive.
Name of person executing consent:* __________________________________________
(Please print or type)
Signature: _______________________________________________________________
Date: ___________________________________________________________________
* If signed by taxpayer’s authorized representative, attach a copy of Form 2848, Power of Attorney and Declaration of Representa-
tive.
IRB 1998-46 11/12/98 10:46 AM Page 40

Exhibit 4:
Model Mediator’s Report
The parties below agreed to mediate their dispute on MONTH DAY, 199X. The parties attended a mediation session on MONTH
DAY, 199X in an attempt to settle the following issue(s):
ISSUE:
SETTLEMENT:[ ] Yes
[ ] No
[ ] Partial
ISSUE:
SETTLEMENT:[ ] Yes
[ ] No
[ ] Partial
Settlement documents will be prepared under established Appeals procedures.
DATED this _______________________ day of ________________________________
________________________________________________________________________
/s/ Mediator
_______________________________________________________________________
/s/ Party
_______________________________________________________________________
/s/ Party
1998–46 I.R.B.41November 16, 1998
IRB 1998-46 11/12/98 10:46 AM Page 41

Announcement 98–100
The Internal Revenue Service an-
nounces today that the proposed training
materials relating primarily to the applica-
tion of section 119 of the Internal Revenue
Code to meals provided to the employees
in the hospitality industry, as described in
Announcement 98–77, 1998–34 I.R.B. 30
(the Proposed Section 119 Training Mate-
rials), will not be finalized by October 31,
1998. The Service had indicated in An-
nouncement 98–78 that it expected to fi-
nalize the training materials by that date.
However, the Service has determined that
it needs additional time in order to con-
sider the comments received on the pro-
posed training materials and to discuss
such comments with the commentators.
In Announcement 98–78, 1998–34
I.R.B. 30, issued on August 4, 1998, the
Service announced a settlement initiative
relating to employee meals. The purpose
of the initiative is to resolve certain issues
quickly and eliminate the need for further
potentially costly controversies for the pe-
riods covered by the settlement initiative.
The settlement initiative provides that
taxpayers can indicate their interest in ac-
cepting the offer no later than 30 days
after the Proposed Section 119 Training
Materials are finalized. Taxpayers will
continue to have until 30 days after the re-
lease of final training materials to indicate
an interest in the settlement initiative re-
lating to these issues.
The Service received questions about
one aspect of the settlement offer. In re-
sponse to these questions, the Service
clarifies that, for taxable years beginning
on or after January 1, 1995 and before
December 31, 1998, the taxpayer may
deduct an amount of the otherwise allow-
able expenses for such periods, taking
into account section 274(n)(1), but substi-
tuting 70% in section 274(n)(1) in place
of 50%. If, for example, a taxpayer in-
curred $100 of allowable expenses for
employee meals in the tax year beginning
on January 1, 1996, section 274(n)(1)
would ordinarily limit the deduction of
those expenses to $50. The settlement
offer, as set forth in Announcement
98–78, provides for a $70 deduction for
the 1996 tax year.
For further information on the settle-
ment initiative, contact Bob Patrick, at
(702) 455-1403 (not a toll-free number).
For further information on the training
materials, contact Dan Bryant, Senior An-
alyst, Office of Employment Tax Admin-
istration and Compliance at (202) 622-
3650 (not a toll-free number).
The principal author of this announce-
ment is Thomas Burger, Director, Office
of Employment Tax Administration and
Compliance (OETAC). For further infor-
mation regarding this announcement con-
tact Bob Patrick at (702) 455-1403 (not a
toll-free call).
November 16, 1998421998–46 I.R.B.
IRB 1998-46 11/12/98 10:46 AM Page 42

1998–46 I.R.B.43November 16, 1998
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
IRB 1998-46 11/12/98 10:46 AM Page 43

November 16, 1998441998–46 I.R.B.
Numerical Finding List
1
Bulletins 1998–29 through 45
Announcements:
98–62, 1998–29 I.R.B. 13
98–68, 1998–29 I.R.B. 14
98–69, 1998–30 I.R.B. 16
98–70, 1998–30 I.R.B. 17
98–71, 1998–30 I.R.B. 17
98–72, 1998–31 I.R.B.14
98–73, 1998–31 I.R.B.14
98–74, 1998–31 I.R.B.15
98–75, 1998–31 I.R.B.15
98–76, 1998–32 I.R.B.64
98–77, 1998–34 I.R.B.30
98–78, 1998–34 I.R.B.30
98–79, 1998–34 I.R.B.31
98–80, 1998–34 I.R.B.32
98–81, 1998–36 I.R.B.35
98–82, 1998–35 I.R.B. 17
98–83, 1998–36 I.R.B. 36
98–84, 1998–38 I.R.B.30
98–85, 1998–38 I.R.B.30
98–86, 1998–38 I.R.B.31
98–87, 1998–40 I.R.B.11
98–88, 1998–41 I.R.B. 14
98–89, 1998–40 I.R.B.11
98–90, 1998–42 I.R.B.22
98–91, 1998–40 I.R.B.12
98–92, 1998–41 I.R.B.15
98–93, 1998–43 I.R.B.10
98–94, 1998–43 I.R.B.32
98–95, 1998–44 I.R.B.13
98–96, 1998–44 I.R.B.18
98–97, 1998–44 I.R.B.18
98–98, 1998–44 I.R.B.18
98–101, 1998–45 I.R.B.27
98–102, 1998–45 I.R.B.28
Court Decisions:
2063, 1998–36 I.R.B. 13
2064, 1998–37 I.R.B. 4
2065, 1998–39 I.R.B.7
Notices:
98–36, 1998–29 I.R.B. 8
98–37, 1998–30 I.R.B.13
98–38, 1998–34 I.R.B.7
98–39, 1998–33 I.R.B.11
98–40, 1998–35 I.R.B. 7
98–41, 1998–33 I.R.B.12
98–42, 1998–33 I.R.B.12
98–43, 1998–33 I.R.B.13
98–44, 1998–34 I.R.B.7
98–45, 1998–35 I.R.B.7
98–46, 1998–36 I.R.B. 21
98–47, 1998–37 I.R.B. 8
98–48, 1998–39 I.R.B.17
98–49, 1998–38 I.R.B.5
98–50, 1998–44 I.R.B.10
98–51, 1998–44 I.R.B. 11
Railroad Retirement Quarterly Rate:
1998–31 I.R.B. 7
Proposed Regulations:
REG–209446–82, 1998–36 I.R.B. 24
REG–209060–86, 1998–39 I.R.B. 18
Proposed Regulations—Continued
REG–209769–95, 1998–41 I.R.B.8
REG–209813–96, 1998–35 I.R.B. 9
REG–246256–96, 1998–34 I.R.B.9
REG–104641–97, 1998–29 I.R.B. 9
REG–104565–97, 1998–39 I.R.B.21
REG–106177–97, 1998–37 I.R.B.33
REG–109708–97, 1998–45 I.R.B.29
REG–115446–97, 1998–36 I.R.B. 23
REG–116608–97, 1998–29 I.R.B. 12
REG–118926–97, 1998–39 I.R.B.23
REG–118966–97, 1998–39 I.R.B.29
REG–119227–97, 1998–30 I.R.B. 13
REG–122488–97, 1998–42 I.R.B. 19
REG–101363–98, 1998–40 I.R.B.10
REG–106221–98, 1998–41 I.R.B.10
REG–110332–98, 1998–33 I.R.B.18
REG–110403–98, 1998–29 I.R.B.11
REG–115393–98, 1998–39 I.R.B.34
Revenue Procedures:
98–40, 1998–32 I.R.B. 6
98–41, 1998–32 I.R.B. 7
98–42, 1998–28 I.R.B. 9
98–43, 1998–29 I.R.B. 8
98–44, 1998–32 I.R.B. 11
98–45, 1998–34 I.R.B.8
98–46, 1998–36 I.R.B. 21
98–47, 1998–37 I.R.B. 8
98–48, 1998–38 I.R.B.7
98–49, 1998–37 I.R.B. 9
98–50, 1998–38 I.R.B.8
98–51, 1998–38 I.R.B.20
98–52, 1998–37 I.R.B. 12
98–53, 1998–40 I.R.B.9
98–54, 1998–43 I.R.B.7
Revenue Rulings:
98–34, 1998–31 I.R.B. 12
98–35, 1998–30 I.R.B. 4
98–36, 1998–31 I.R.B.6
98–37, 1998–32 I.R.B.5
98–38, 1998–32 I.R.B.4
98–39, 1998–33 I.R.B.4
98–40, 1998–33 I.R.B.4
98–41, 1998–35 I.R.B.6
98–42, 1998–35 I.R.B. 5
98–43, 1998–36 I.R.B. 9
98–44, 1998–37 I.R.B.4
98–45, 1998–38 I.R.B.4
98–46, 1998–39 I.R.B. 10
98–47, 1998–39 I.R.B. 4
98–48, 1998–39 I.R.B. 6
98–49, 1998–40 I.R.B.4
98–50, 1998–40 I.R.B.7
98–51, 1998–43 I.R.B.4
98–52, 1998–45 I.R.B.4
Tax Conventions:
1998–43 I.R.B. 6
Treasury Decisions:
8771, 1998–29 I.R.B. 6
8772, 1998–31 I.R.B. 8
8773, 1998–29 I.R.B. 4
8774, 1998–30 I.R.B. 5
8775, 1998–31 I.R.B.4
8776, 1998–33 I.R.B.6
Treasury Decisions—Continued
8777, 1998–34 I.R.B.4
8778, 1998–36 I.R.B. 4
8779, 1998–36 I.R.B. 11
8780, 1998–39 I.R.B.14
8781, 1998–40 I.R.B. 4
8782, 1998–41 I.R.B.5
8783, 1998–41 I.R.B.4
8784, 1998–42 I.R.B.4
8785, 1998–42 I.R.B.5
8786, 1998–44 I.R.B. 4
8788, 1998–45 I.R.B.6
1
A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 1998–1 through 1998–28
will be found in Internal Revenue Bulletin 1998–29,
dated July 20, 1998.
IRB 1998-46 11/12/98 10:46 AM Page 44

1998–46 I.R.B.45November 16, 1998
Finding List of Current Action on
Previously Published Items
1
Bulletins 1998–29 through 45
*Denotes entry since last publication
Notices:
87–13
Modified by
98–49, 1998–38 I.R.B. 5
87–16
Modified by
98–49, 1998–38 I.R.B. 5
Revenue Procedures:
83–58
Obsoleted by
98–37, 1998–32 I.R.B. 5
88–17
Clarified, modified, and superseded by
98–54, 1998–43 I.R.B. 7
97–60
Superseded by
98–50, 1998–38 I.R.B. 8
97–61
Superseded by
98–51, 1998–38 I.R.B. 20
98–14
Modified by
98–53, 1998–40 I.R.B. 9
Revenue Rulings:
57–271
Obsoleted by
98–37, 1998–32 I.R.B. 5
67–301
Modified by
98–41, 1998–35 I.R.B. 6
70–225
Obsoleted by
98–44, 1998–37 I.R.B. 4
71–277
Obsoleted by
98–37, 1998–32 I.R.B. 5
71–434
Obsoleted by
98–37, 1998–32 I.R.B. 5
71–574
Obsoleted by
98–37, 1998–32 I.R.B. 5
72–75
Obsoleted by
98–37, 1998–32 I.R.B. 5
72–120
Obsoleted by
98–37, 1998–32 I.R.B. 5
72–121
Obsoleted by
98–37, 1998–32 I.R.B. 5
72–122
Obsoleted by
98–37, 1998–32 I.R.B. 5
74–77
Obsoleted by
98–37, 1998–32 I.R.B. 5
Revenue Rulings—Continued
75–19
Obsoleted by
98–37, 1998–32 I.R.B. 5
76–562
Obsoleted by
98–37, 1998–32 I.R.B. 5
77–214
Obsoleted by
98–37, 1998–32 I.R.B. 5
79–106
Obsoleted by
98–37, 1998–32 I.R.B. 5
83–113
Obsoleted by
98–37, 1998–32 I.R.B. 5
85–143
Obsoleted by
98–37, 1998–32 I.R.B. 5
88–8
Obsoleted by
98–37, 1998–32 I.R.B. 5
88–76
Obsoleted by
98–37, 1998–32 I.R.B. 5
88–79
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–4
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–5
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–6
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–30
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–38
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–49
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–50
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–53
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–81
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–91
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–92
Obsoleted by
98–37, 1998–32 I.R.B. 5
Revenue Rulings—Continued
93–93
Obsoleted by
98–37, 1998–32 I.R.B. 5
94–5
Obsoleted by
98–37, 1998–32 I.R.B. 5
94–6
Obsoleted by
98–37, 1998–32 I.R.B. 5
94–30
Obsoleted by
98–37, 1998–32 I.R.B. 5
94–51
Obsoleted by
98–37, 1998–32 I.R.B. 5
94–79
Obsoleted by
98–37, 1998–32 I.R.B. 5
95–2
Obsoleted by
98–37, 1998–32 I.R.B. 5
95–9
Obsoleted by
98–37, 1998–32 I.R.B. 5
97–37
Obsoleted by
98–39, 1998–33 I.R.B. 4
1
A cumulative finding list for previously published
items mentioned in Internal Revenue Bulletins
1998–1 through 1998–28 will be found in Internal
Revenue Bulletin 1998–29, dated July 20, 1998.
IRB 1998-46 11/12/98 10:46 AM Page 45

Notes
November 16, 1998461998–46 I.R.B.
IRB 1998-46 11/12/98 10:46 AM Page 46

IRB 1998-46 11/12/98 10:47 AM Page 47

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.
IRB 1998-46 11/12/98 10:47 AM Page 48