us-irs-announcements-irb-2004-13-pdf•Internal Revenue Bulletin 2004-13 (PDF rendition): IRS Announcements
Internal Revenue Bulletin 2004-13 (PDF rendition): IRS Announcements
us-irs-announcements-irb-2004-13-pdfInternal Revenue Bulletin 2004-13 (PDF rendition): IRS AnnouncementsGuidance
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Bulletin No. 200 4-13 March 29, 2004 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. INCOME TAX Rev. Rul. 2004–35, page 640. LIFO; price indexes; department stores.The January 2004 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, January 31, 2004. REG–1655 79–02, page 651. Proposed r egulations under section 368 of the Code clarify that a tra nsferor may transfer, after a reorganization, assets or stock t o a transferee controlled by the transferor. The regu- lations a lso make conforming changes relating to continuity of business enterprise and to the definition of a party to a reorga- nization . REG–166012–02, page 655. Proposed regulations under section 446 of the Code relate to the inclusion into income or deduction of a contingent nonpe- riodic payment made pursuant to a notional principal contract. The regulations also contain rules relating to the character of payments made pursuant to notional principal contracts, bul- let swaps, and forward contracts. In general, contingent non- periodic payments are accounted for under the noncontingent swap method or under an elective mark-to-market regime. With respect to character, the regulations provide ordinary treat- ment for most notional principal contract payments. As a gen- eral exception to ordinary treatment, the regulations provide capital treatment for termination payments. The regulations also provide capital treatment for payments made pursuant to bullet swaps and forward contracts. A public hearing is sched- uled for May 25, 2004. Announcement 2004–20, page 673. Publication 1542,Per Diem Rates (For Travel Within the Con- tinental United States),will now be revised each time newper diemrates are announced. All revisions will be available on the IRS website. Paper copies will be available by request only. EMPLOYEE PLANS Notice 2004–24, page 642. Weighted average interest rate update.The weighted av- erage interest rate for March 2004 and the resulting permis- sible range of interest rates used to calculate current liability and to determine the required contribution are set forth. EXEMPT ORGANIZATIONS Announcement 2004–19, page 668. A list is provided of organizations now classified as private foun- dations. Announcement 2004–23, page 673. Foundation to Save Our Children’s Environment of Tulsa, OK, no longer qualifies as an organization to which contributions are deductible under section 170 of the Code. (Continued on the next page) Finding Lists begin on page ii. Index for January through March begins on page iv. ADMINISTRATIVE Rev. Proc. 2004–20, page 642. Automobile owners and lessees.This procedure provides owners and lessees of passenger automobiles (including trucks, vans, and electric automobiles) with tables detailing the limitations on depreciation deductions for passenger automobiles first placed in service during calendar year 2004 and the amounts to be included in income for passenger automobiles first leased during calendar year 2004. Separate tables are provided for passenger automobiles qualifying for additional first-year bonus depreciation under section 168(k). In addition, this procedure provides the maximum allowable value of employer-provided automobiles first made available to employees for personal use in calendar year 2004 for which the vehicle cents-per-mile valuation rule provided under section 1.61–21(e) of the regulations may be applicable. Announceme nt 2004–16, page 668. The Service announces that Form 3115,Application for Change in Ac counting Method, and its instructions were re- vised Dece mber 2003. This revision is the current version of Form 3115 u sed to request a change in accounting method. Rev. Procs . 2001–10, 2001–23, 2002–9, and 2002–28 modified. Announcement 2004–21, page 673. The Service announces that an updated edition of Publication 538,Accounting Periods and Methods, (revised March 2004) is now available. March 29, 20042004-13 I.R.B. The IRS Mission Provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. Introduction The Internal Revenue Bulletin is the authoritative instrument of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service and for publishing Treasury Decisions, Executive Orders, Tax Conven- tions, 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. Bul- letin contents are consolidated 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, mod- ify, or amend any of those previously published in the Bulletin. All published rulings apply retroactively unless otherwise indi- cated. Procedures relating solely to matters of internal man- agement 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 published rulings and procedures, the effect of subsequent legislation, regulations, court decisions, rulings, and procedures must be considered, and Service personnel and others concerned are cautioned against reaching the same conclusions in other cases unless the facts and circumstances are substantially the same. The Bulletin is divided into four parts as follows: Part I.—19 86 Code. This part i ncludes rulings and decisions based on provisions of the Intern al Revenue Code of 1986. Part II.—Treaties and Tax Legislation. This part is divided into two subparts as follows: Subpart A, Tax Conventions and Other Related Items, and Subpart B, Leg- islation 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 Subparts. Also included in this part are Bank Secrecy Act Administrative Rul- ings. Bank Secrecy Act Administrative Rulings are issued by the Department of the Treasury’s Office of the Assistant Sec- retary (Enforcement). Part IV .—Items of General Interest. This par t includes notices of proposed rulemakings, disbar- ment an d suspension lists, and announcements. The last 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 last Bulletin of each semiannual period.* The c ontents 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. * Beginning with Internal Revenue Bulletin 2003–43, we are publishing the index at the end of the month, rather than at the beginning. 2004-13 I.R.B.March 29, 2004 March 29, 20042004-13 I.R.B. Picture Them Home Call 1-800-THE-LOST National Center for Missing and Exploited Children Missing From: Fairfax, VA on 12/03/1989 Melissa Brannen Female, Age Now: 19 Blue eyes, Blonde hair Help Us To www.missingkids.com (1-800-843-5678) Proud Partners With Internal Revenue Service Age Progression By NCMEC Part I. Rulings and Decisions Under the Internal Revenue Code of 1986 Section 61.—Gross Income Defined 26 CFR 1.61–21: Taxation of fringe benefits. This procedure provides the maximum value of employer-provided automobiles first made available to employees for personal use in calendar year 2004 for which the vehicle cents-per-mile valuation rule provided under § 1.61–21(e) of the Income Tax Reg- ulations may be applicable. See Rev. Proc. 2004-20, page 642. Section 168.—Accelerated Cost Recovery System This procedure provides owners and lessees of passenger automobiles (including electric auto- mobiles) with tables detailing the limitations on depreciation deductions for automobiles first placed in service during calendar year 2004 that qualify for the additional first-year bonus depreciation al- lowance under section 168(k) of the Code. See Rev. Proc. 2004-20, page 642. Section 280F.—Limitation on Depreciation for Luxury Automobiles; Limitation Where Certain Property Used for Personal Purposes 26 CFR 1.280F–7: Property leased after December 31, 1986. This procedure provides owners and lessees of passenger automobiles (including electric auto- mobiles) with tables detailing the limitations on depreciation deductions for automobiles first placed in service during calendar year 2004 and the amounts to be included in income for automobiles first leased during calendar year 2004. See Rev. Proc. 2004-20, page 642. Section 472.—Last-in, First-out Inventories 26 CFR 1.472–1: Last-in, first-out inventories. LIFO; price indexes; department stores.The January 2004 Bureau of La- bor 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, January 31, 2004. Rev. Rul. 2004–35 The following Department Store Inven- tory Price Indexes for January 2004 were issued by the Bureau of Labor Statistics. The indexes are accepted by the Inter- nal Revenue Service, under § 1.472–1(k) of the Income Tax Regulations and Rev. Proc. 86–46, 1986–2 C.B. 739, for ap- propriate application to inventories of department stores employing the retail inventory and last-in, first-out inventory methods for tax years ended on, or with reference to, January 31, 2004. The Department Store Inventory Price Indexes are prepared on a national basis and include (a) 23 major groups of de- partments, (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) GroupsJan. 2003Jan. 2004 Percent Change from Jan. 2003 to Jan. 2004 1 1. PieceGoods .............................................465.2468.00.6 2. DomesticsandDraperies..................................566.8543.5-4.1 3. Women’sandChildren’sShoes ............................648.4599.6-7.5 4. Men’sShoes.............................................876.7849.6-3.1 5. Infants’Wear ............................................593.8578.1-2.6 6. Women’sUnderwear......................................524.0504.8-3.7 7. Women’sHosiery ........................................339.8350.53.1 8. Women’sandGirls’Accessories ...........................549.7544.8-0.9 9. Women’sOuterwearandGirls’Wear .......................338.3335.6-0.8 10. Men’sClothing ..........................................550.9530.7-3.7 11. Men’sFurnishings........................................567.3574.21.2 12. Boys’ClothingandFurnishings............................427.1416.3-2.5 13. Jewelry..................................................866.4888.42.5 14. Notions .................................................782.8788.20.7 15. ToiletArticlesandDrugs..................................971.1981.01.0 16. FurnitureandBedding ....................................626.3617.5-1.4 17. FloorCoverings..........................................593.0595.40.4 18. Housewares..............................................736.4710.7-3.5 19. MajorAppliances.........................................220.0205.5-6.6 20. RadioandTelevision......................................47.143.5-7.6 2004-13 I.R.B.640March 29, 2004 BUREAU OF LABOR STATISTICS, DEPARTMENT STORE INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS (January 1941 = 100, unless otherwise noted) GroupsJan. 2003Jan. 2004 Percent Change from Jan. 2003 to Jan. 2004 1 21. Recreation and Education 2 .................................84.281.3-3.4 22. Home Improvements 2 .....................................125.5127.71.8 23. Automotive Accessories 2 ..................................112.0112.30.3 Groups1–15:SoftGoods .......................................552.0545.3-1.2 Groups16–20:DurableGoods...................................403.0386.5-4.1 Groups 21–23 : Misc. Goods 2 .................................... 95.393.6-1.8 Store Total 3 ..............................................497.8488.6-1.8 1 Absence of a minus sign before the percentage change in this column signifies a price increase. 2 Indexes o n 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, tobacco and contract departments. DRAFTING INFORMATION The principal author of this revenue ruling is Michael Burkom of the Office of Associate Chief Counsel (Income Tax and Accounting). For further informa- tion regarding this revenue ruling, contact Mr. Burkom at (202) 622–7924 (not a toll-free call). March 29, 20046412004-13 I.R.B. Part III. Administrative, Procedural, and Miscellaneous Weighted Average Interest Rate Update Notice 2004–24 Sections 412(b)(5)(B) and 412(l)(7) (C)(i) of the Internal Revenue Code pro- vide that the interest rates used to calculate current liability and to determine the re- quired contribution under § 412(l) must be within a permissible range around the weighted average of the rates of interest on 30-year Treasury securities during the four-year period ending on the last day before the beginning of the plan year. Notice 88–73, 1988–2 C.B. 383, pro- vides guidelines for determining the weighted average interest rate and the resulting permissible range of interest rates used to calculate current liability. Section 417(e)(3)(A)(ii)(II) of the Code defines the applicable interest rate, which must be used for purposes of determining the minimum present value of a partici- pant’s benefit under § 417(e)(1) and (2), as the annual rate of interest on 30-year Treasury securities for the month before the date of distribution or such other time as the Secretary may by regulations pre- scribe. Section 1.417(e)–1(d)(3) of the In- come Tax Regulations provides that the ap- plicable interest rate for a month is the an- nual interest rate on 30-year Treasury se- curities as specified by the Commissioner for that month in revenue rulings, notices or other guidance published in the Internal Revenue Bulletin. The rate of interest on 30-year Treasury Securities for February 2004 is 4.93 per- cent. Pursuant to Notice 2002–26, 2002–1 C.B. 743, the Service has determined this rate as the monthly average of the daily de- termination of yield on the 30-year Trea- surybondmaturinginFebruary2031. The following rates were determined for the plan years beginning in the month shown below. MonthYear Weighted Average 90% to 105% Permissible Range 90% to 110% Permissible Range March20045.214.69 to 5.474.69 to 5.73 Drafting Information The principal authors of this notice are Paul Stern and Tony Montanaro of the Employee Plans, Tax Exempt and Government Entities Division. For fur- ther information regarding this notice, please contact the Employee Plans’ tax- payer assistance telephone service at 1–877–829–5500 (a toll-free number), between the hours of 8:00 a.m. and 6:30 p.m. Eastern time, Monday through Friday. Mr. Stern may be reached at 1–202–283–9703. Mr. Montanaro may be reached at 1–202–283–9714. The tele- phone numbers in the preceding sentences are not toll-free. 26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement; determination of correct tax liability. (Also, Part I, §§ 61, 168, 280F; 1.61–21, 1.280F–7.) Rev. Proc. 2004–20 SECTION 1. PURPOSE 01. This revenue procedure provides: (1) limitations on depreciation deductions for owners of passenger automobiles first placed in service by the taxpayer during calendar year 2004, including special ta- bles of limitations on depreciation deduc- tions for trucks and vans, and for passenger automobiles designed to be propelled pri- marily by electricity and built by an orig- inal equipment manufacturer (electric au- tomobiles); (2) the amounts to be included in income by lessees of passenger auto- mobiles first leased by the taxpayer dur- ing calendar year 2004, including a sepa- rate table of inclusion amounts for lessees of trucks and vans, and a separate table for lessees of electric automobiles; and (3) the maximum allowable value of employer- provided passenger automobiles first made available to employees for personal use in calendar year 2004 for which the vehicle cents-per-mile valuation rule provided un- der § 1.61–21(e) of the Income Tax Regu- lations may be applicable. 02. This revenue procedure also pro- vides tables of dollar limitations on depre- ciation deductions for owners of passenger automobiles to which the additional 50 percent first-year allowance for deprecia- tion available under § 168(k)(4) applies, including special tables of limitations on depreciation deductions for qualifying trucks and vans and for qualifying elec- tric automobiles. For purposes of these tables, the additional 50 percent first-year allowance does not apply if the taxpayer has elected under § 168(k)(2)(C)(iii) not to take the additional allowance. 03. The tables detailing these de- preciation limitations and lessee inclu- sion amounts reflect the automobile price inflation adjustments required by § 280F(d)(7). The maximum allowable passenger automobile value for apply- ing the vehicle cents-per-mile valuation rule reflects the automobile price infla- tion adjustment of § 280F(d)(7) of the Internal Revenue Code, as required by § 1.61–21(e)(1)(iii)(A). SE CTION 2. BACKGROUND 01. For owners of passenger automo- biles, § 280F(a) imposes dollar limita- tions on the depreciation deduction for the year that the passenger automobile is placed in service by the taxpayer and each succeeding year. In the case of electric automobiles placed in service after Au- gust 5, 1997, and before January 1, 2007, § 280F(a)(1)(C) requires tripling of these limitation amounts.Section 280F(d)(7) requires the amounts allowable as de- preciation deductions to be increased by a price inflation adjustment amount for passenger automobiles placed in service after 1988. The method of calculating this price inflation amount for trucks and vans 2004-13 I.R.B.642March 29, 2004 placed in service in or after calendar year 2003 uses a different CPI “automobile component” (the “new trucks” compo- nent) than that used in the price inflation amount calculation for other passenger automobiles (the “new cars” component), resulting in somewhat higher deprecia- tion deductions for trucks and vans. This change reflects the higher rate of price inflation that trucks and vans have been subject to since 1988. For purposes of this revenue procedure, the term “trucks and vans” refers to passenger automobiles that are built on a truck chassis, including minivans and sport utility vehicles (SUVs) that are built on a truck chassis. 02. Section 101 of the Job Creation and Worker Assistance Act of 2002, Pub. L. No. 107–147, 116 Stat. 21 (March 9, 2002) added § 168(k) to the Code. Gener- ally, § 168(k)(1)(A) provides an additional 30 percent first-year depreciation deduc- tion for new property acquired by the tax- payer after September 10, 2001, and be- fore September 11, 2004 (subsequently ex- tended to January 1, 2005), so long as no written binding contract for the acquisition of the property existed prior to September 11, 2001. 03. Section 201 of the Jobs and Growth Tax Relief Reconciliation Act of 2003, Pub. L. No. 108–27, 117 Stat. 752 (May 28, 2003) added § 168(k)(4) to the Code. Section 168(k)(4)(A)(i) provides that § 168(k)(1) is applied by substituting “50 percent” for “30 percent” for new prop- erty acquired by the taxpayer after May 5, 2003, and before January 1, 2005, so long as no written binding contract for the acquisition of the property existed prior to May 6, 2003. In the case of a passenger automobile to which the 50 percent addi- tional allowance applies (or would apply but for an election under § 168(k)(4)(E)) and for which no election has been made under § 168(k)(2)(C)(iii), § 168(k)(4)(D) increases the first-year depreciation al- lowed under § 280F(a)(1)(A) by $7,650. For purposes of this revenue procedure, a passenger automobile to which the ad- ditional 50 percent first-year allowance under § 168(k)(4) applies (or would apply but for an election under § 168(k)(4)(E)) and for which no election has been made under § 168(k)(2)(C)(iii) is referred to as a “§ 168(k)(4) passenger automobile”. 04. For leased passenger automobiles, § 280F(c) requires a reduction in the de- duction allowed to the lessee of the pas- senger automobile. The reduction must be substantially equivalent to the limitations on the depreciation deductions imposed on owners of passenger automobiles. Under § 1.280F–7(a), this reduction requires the lessees to include in gross income an in- clusionamountdeterminedbyapplyinga formula to the amount obtained from a ta- ble. There is a table for lessees of electric automobiles, a table for lessees of trucks and vans, and a table for all other passenger automobiles. Each table shows inclusion amounts for a range of fair market values for each tax year after the passenger auto- mobile is first leased. These tables should also be used by lessees of § 168(k)(4) pas- senger automobiles. 05. For passenger automobiles (in- cluding trucks, vans, and electric au- tomobiles) first provided by employ- ers to employees that meet the require- ments of § 1.61–21(e)(1), the value to the employee of the use of the pas- senger automobile may be determined under the vehicle cents-per-mile val- uation rule of § 1.61–21(e). Section 1.61–21(e)(1)(iii)(A) provides that for a passenger automobile first made avail- able after 1988 to any employee of the employer for personal use, the value of the use of the passenger automobile may not be determined under the vehicle cents-per-mile valuation rule for a calen- dar year if the fair market value of the passenger automobile (determined pur- suant to § 1.61–21(d)(5)(i) through (iv)) on the first date the passenger automobile is made available to the employee exceeds $12,800 as adjusted by § 280F(d)(7). SECTION 3. SCOPE 01. The limitations on depreciation de- ductions in section 4.02(2) of this revenue procedure apply to passenger automobiles (other than leased passenger automobiles) that are placed in service by the taxpayer in calendar year 2004, and continue to apply for each tax year that the passenger auto- mobile remains in service. 02. The tables in section 4.03 of this revenue procedure apply to leased passen- ger automobiles for which the lease term begins during calendar year 2004. Lessees of such passenger automobiles must use these tables to determine the inclusion amount for each tax year during which the passenger automobile is leased. See Rev. Proc. 2002–14, 2002–1 C.B. 450, for passenger automobiles first leased before January 1, 2003, and Rev. Proc. 2003–75, 2003–2 C.B. 1018, for passenger auto- mobiles first leased during calendar year 2003. 03. The maximum fair market value figure in section 4.04(2) of this revenue procedure applies to employer-provided passenger automobiles first made avail- able to any employee for personal use in calendar year 2004. See Rev. Proc. 2002–14 for the maximum fair market value figure for passenger automobiles first made available before January 1, 2003, and Rev. Proc. 2003–75 for pas- senger automobiles first made available during calendar year 2003. SECTION 4. APPLICATION 01. In General. (1) Limitations on Depreciation Deduc- tions for Certain Automobiles. The limita- tions on depreciation deductions for pas- senger automobiles placed in service by the taxpayer for the first time during cal- endar year 2004 are found in Tables 1 through 9 in section 4.02(2) of this rev- enue procedure. Table 1 of this revenue procedure provides limitations on depreci- ation deductions for a passenger automo- bile (other than a truck, van, electric au- tomobile, or § 168(k)(4) passenger auto- mobile). Table 2 of this revenue proce- dure provides limitations on depreciation deductions for a § 168(k)(4) passenger au- tomobile (other than a truck, van, or elec- tric automobile). Table 3 of this revenue procedure provides limitations on depreci- ation deductions for a truck or van (other than a § 168(k)(4) passenger automobile). Table 4 of this revenue procedure provides limitations on depreciation deductions for a truck or van that is a § 168(k)(4) pas- senger automobile. Table 5 of this revenue procedure provides limitations on depreci- ation deductions for an electric automobile (other than a § 168(k)(4) passenger auto- mobile). Table 6 of this revenue proce- dure provides limitations on depreciation deductions for an electric automobile that is a 168(k)(4) passenger automobile. (2) Inclusions in Income of Lessees of Passenger Automobiles. A taxpayer first leasing a passenger automobile during cal- endar year 2004 must determine the inclu- March 29, 20046432004-13 I.R.B. sion amount that is added to gross income using the tables in section 4.03 of this rev- enue procedure. The inclusion amount is determined using Table 7 in the case of a passenger automobile (other than a truck, van, or electric automobile), Table 8 in the case of a truck or van, and Table 9 in the case of an electric automobile. In addition, the procedures of § 1.280F–7(a) must be followed. (3) Maximum Automobile Value for Using the Cents-per-mile Valuation Rule. An employer providing a passenger au- tomobile for the first time in calendar year 2004 for the personal use of any em- ployee may determine the value of the use of the passenger automobile by us- ing the cents-per-mile valuation rule in § 1.61–21(e) if the fair market value of the passenger automobile does not exceed the amount specified in section 4.04(2) of this revenue procedure. If the fair mar- ket value of the passenger automobile exceeds the amount specified in section 4.04(2) of this revenue procedure, the employer may determine the value of the use of the passenger automobile under the general valuation rules of § 1.61–21(b) or under the special valuation rules of § 1.61–21(d) (Automobile lease valuation) or § 1.61–21(f) (Commuting valuation) if the applicable requirements are met. 02. Limitations on Depreciation De- ductions for Certain Automobiles. (1) Amount of the Inflation Adjust- ment. Under § 280F(d)(7)(B)(i), the automobile price inflation adjustment for any calendar year is the percentage (if any) by which the CPI automobile component for October of the preceding calendar year exceeds the CPI automobile component for October 1987. The term “CPI automobile component” is defined in § 280F(d)(7)(B)(ii) as the “automobile component” of the Consumer Price Index for all Urban Consumers published by the Department of Labor (the CPI). The new car component of the CPI was 115.2 for October 1987 and 133.5 for October 2003. The October 2003 index exceeded the Oc- tober 1987 index by 18.3. The Service has, therefore, determined that the automobile price inflation adjustment for 2004 for passenger automobiles (other than trucks and vans) is 15.89 percent (18.3/115.2 x 100%). This adjustment is applicable to all passenger automobiles (other than trucks and vans) that are first placed in service in calendar year 2004. The dollar limitations in § 280F(a) must therefore be multiplied by a factor of 0.1589, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limitations to give the depreciation limita- tions applicable to passenger automobiles (other than trucks, vans, and electric au- tomobiles) for calendar year 2004. To determine the dollar limitations applicable to an electric automobile first placed in service during calendar year 2004, the dol- lar limitations in § 280F(a) are tripled in accordance with § 280F(a)(1)(C) and are then multiplied by a factor of 0.1588; the resulting increases, after rounding to the nearest $100, are added to the tripled 1988 limitations to give the depreciation limita- tions for calendar year 2004. To determine the dollar limitations applicable to trucks and vans first placed in service during cal- endar year 2004, the new truck component of the CPI is used instead of the new car component. The new truck component of the CPI was 112.4 for October 1987 and 144.6 for October 2003. The October 2003 index exceeded the October 1987 index by 32.2. The Service has, there- fore, determined that the automobile price inflation adjustment for 2004 for trucks and vans is 28.65 percent (32.2/112.4 x 100%). This adjustment is applicable to all trucks and vans that are first placed in service in calendar year 2004. The dollar limitations in § 280F(a) must therefore be multiplied by a factor of 0.2865, and the resulting increases, after rounding to the nearest $100, are added to the 1988 limi- tations to give the depreciation limitations applicable to trucks and vans. (2) Amount of the Limitation. For pas- senger automobiles placed in service by the taxpayer in calendar year 2004, Ta- bles 1 through 6 contain the dollar amount of the depreciation limitation for each tax year. Use Table 1 for passenger automo- biles (other than trucks, vans, electric au- tomobiles, and § 168(k)(4) passenger auto- mobiles) placed in service by the taxpayer in calendar year 2004. Use Table 2 for § 168(k)(4) passenger automobiles (other than trucks, vans, and electric automo- biles) placed in service by the taxpayer in calendar year 2004. Use Table 3 for trucks and vans (other than § 168(k)(4) passenger automobiles) placed in service by the tax- payer in calendar year 2004. Use Table 4 for trucks or vans that are § 168(k)(4) pas- senger automobiles placed in service by the taxpayer in calendar year 2004. Use Table 5 for electric automobiles (other than § 168(k)(4) passenger automobiles) placed in service by the taxpayer in calendar year 2004. Use Table 6 for electric automobiles that are § 168(k)(4) passenger automobiles placed in service by the taxpayer in calen- dar year 2004. REV. PROC. 2004–20 TABLE 1 DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES (THAT ARE NOT § 168(k)(4) PASSENGER AUTOMOBILES, TRUCKS, VANS, OR ELECTRIC AUTOMOBILES) PLACED IN SERVICE BY THE TAXPAYER DURING CALENDAR YEAR 2004 Tax YearAmount 1st Tax Year $2,960 2nd Tax Year $4,800 3rd Tax Year $2,850 Each Succeeding Year $1,675 2004-13 I.R.B.644March 29, 2004 REV. PROC. 2004–20 TABLE 2 DEPRECIATION LIMITATIONS FOR § 168(k)(4) PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS, VANS, OR ELECTRIC AUTOMOBILES) PLACED IN SERVICE BY THE TAXPAYER DURING CALENDAR YEAR 2004 Tax YearAmount 1st Tax Year $10,610 2nd Tax Year $4,800 3rd Tax Year $2,850 Each Succeeding Year $1,675 REV. PROC. 2004–20 TABLE 3 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS (THAT ARE NOT § 168(k)(4) PASSENGER AUTOMOBILES) PLACED IN SERVICE BY THE TAXPAYER DURING CALENDAR YEAR 2004 Tax YearAmount 1st Tax Year $3,260 2nd Tax Year $5,300 3rd Tax Year $3,150 Each Succeeding Year $1,875 REV. PROC. 2004–20 TABLE 4 DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS THAT ARE § 168(k)(4) PASSENGER AUTOMOBILES PLACED IN SERVICE BY THE TAXPAYER DURING CALENDAR YEAR 2004 Tax YearAmount 1st Tax Year $10,910 2nd Tax Year $5,300 3rd Tax Year $3,150 Each Succeeding Year $1,875 REV. PROC. 2004–20 TABLE 5 DEPRECIATION LIMITATIONS FOR ELECTRIC AUTOMOBILES (THAT ARE NOT § 168(k)(4) PASSENGER AUTOMOBILES) PLACED IN SERVICE BY THE TAXPAYER DURING CALENDAR YEAR 2004 Tax YearAmount 1st Tax Year $8,880 2nd Tax Year $14,300 3rd Tax Year $8,550 Each Succeeding Year $5,125 March 29, 20046452004-13 I.R.B. REV. PROC. 2004–20 TABLE 6 DEPRECIATION LIMITATIONS FOR ELECTRIC AUTOMOBILES THAT ARE § 168(k)(4) PASSENGER AUTOMOBILES PLACED IN SERVICE BY THE TAXPAYER DURING CALENDAR YEAR 2004 Tax YearAmount 1st Tax Year $31,830 2nd Tax Year $14,300 3rd Tax Year $8,550 Each Succeeding Year $5,125 03. Inclusi ons in Income of Lessees of Passenger Automobiles. The inclus ion amounts for passen- ger automo biles (including § 168(k)(1) passenger automobiles and § 168(k)(4) passenger automobiles) first leased in cal- endar year 2 004 are calculated under the procedure s described in § 1.280F–7(a). Lessees of passenger automobiles other than truck s, vans, and electric automo- biles shou ld use Table 7 of this revenue procedur e in applying these procedures, while lesse es of trucks and vans should use Table 8 of this revenue procedure and lessees of electric automobiles should use Table 9 of t his revenue procedure. REV. PROC. 2004–20 TABLE 7 DOLLAR AMOUNTS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS, VANS, OR ELECTRIC AUTOMOBILES) WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2004 Fair Market Value of Passenger AutomobileTax Year During Lease OverNot Over1st2nd3rd4th5th & Later $17,500 18,0001123334248 18,00018,5001326404956 18,50019,0001431465565 19,00019,5001635516373 19,50020,0001839577081 20,00020,5002043637789 20,50021,0002247698497 21,00021,50023517591106 21,50022,00025558198114 22,00023,000286190109126 23,00024,0003269102123142 24,00025,0003577114137159 25,00026,0003985126151176 26,00027,0004393137166192 27,00028,00046101149180209 28,00029,00050109161194225 29,00030,00054116174208242 30,00031,00057125185223257 31,00032,00061133197237274 32,00033,00064141209251291 33,00034,00068149221265307 34,00035,00072157232280323 35,00036,00075165244294340 36,00037,00079173256308357 37,00038,00083181268322373 38,00039,00086189280337389 39,00040,00090197292351405 40,00041,00094204304365423 41,00042,00097213316379438 42,00043,000101221327394455 2004-13 I.R.B.646March 29, 2004 REV. PROC. 2004–20 TABLE 7 DOLLAR AMOUNTS FOR PASSENGER AUTOMOBILES (THAT ARE NOT TRUCKS, VANS, OR ELECTRIC AUTOMOBILES) WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2004 Fair Market Value of Passenger AutomobileTax Year During Lease OverNot Over1st2nd3rd4th5th & Later 43,00044,000105228340408471 44,00045,000108237351422488 45,00046,000112245363436504 46,00047,000115253375451520 47,00048,000119261387464538 48,00049,000123269398479554 49,00050,000126277411493570 50,00051,000130285422508586 51,00052,000134292435522603 52,00053,000137301446536619 53,00054,000141309458550636 54,00055,000145316471564652 55,00056,000148325482578669 56,00057,000152333493593685 57,00058,000155341506607701 58,00059,000159349517622718 59,00060,000163357529636734 60,00062,000168369547657759 62,00064,000176384571686792 64,00066,000183401594714825 66,00068,000190417618743857 68,00070,000197433642771890 70,00072,000205448666800923 72,00074,000212465689828956 74,00076,000219481713856990 76,00078,0002274967388841,022 78,00080,0002345137609141,055 80,00085,0002475408039631,112 85,00090,0002655808621,0351,194 90,00095,0002836219211,1051,277 95,000100,0003016619801,1771,359 100,000110,0003287211,0691,2841,482 110,000120,0003658001,1891,4261,646 120,000130,0004018811,3071,5681,811 130,000140,0004389601,4261,7111,975 140,000150,0004741,0411,5441,8532,140 150,000160,0005111,1201,6631,9962,304 160,000170,0005471,2001,7822,1382,468 170,000180,0005831,2811,9002,2802,633 180,000190,0006201,3602,0202,4222,797 190,000200,0006561,4402,1392,5642,962 200,000210,0006931,5202,2572,7073,126 210,000220,0007291,6002,3762,8493,291 220,000230,0007651,6812,4942,9913,455 230,000240,0008021,7602,6133,1343,619 240,000250,0008381,8402,7323,2763,784 March 29, 20046472004-13 I.R.B. REV. PROC. 2004–20 TABLE 8 DOLLAR AMOUNTS FOR TRUCKS AND VANS WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2004 Fair Market Value of Truck or VanTax Year During Lease OverNot Over1st2nd3rd4th5th and Later $18,000$18,500 715212630 18,50019,000918283338 19,00019,5001122344047 19,50020,0001326394855 20,00020,5001431455463 20,50021,0001635516172 21,00021,5001838586880 21,50022,0002042637688 22,00023,00023487287100 23,00024,000265783101117 24,00025,000306496115133 25,00026,0003472108129149 26,00027,0003781119143166 27,00028,0004188132157183 28,00029,0004497143172198 29,00030,00048104155187215 30,00031,00052112167201231 31,00032,00055121178215248 32,00033,00059128191229264 33,00034,00063136203243281 34,00035,00066145214257298 35,00036,00070152227271314 36,00037,00074160238286330 37,00038,00077169249301346 38,00039,00081176262314364 39,00040,00084185273329379 40,00041,00088192286343396 41,00042,00092200298357412 42,00043,00095209309371429 43,00044,00099216322385445 44,00045,000103224333400462 45,00046,000106233345413479 46,00047,000110240357428495 47,00048,000114248369442511 48,00049,000117257380457527 49,00050,000121264393471544 50,00051,000125272404486560 51,00052,000128280417499577 52,00053,000132288428514593 53,00054,000135297440527610 54,00055,000139304452542626 55,00056,000143312464556643 56,00057,000146321475571659 57,00058,000150328488585675 58,00059,000154336499600691 59,00060,000157345511613708 60,00062,000163356529635733 62,00064,000170372553663766 64,00066,000177389576692798 66,00068,000185404600720832 68,00070,000192420624749864 70,00072,000199436648777897 72,00074,000206453671805931 74,00076,000214468695834963 76,00078,000221484719863996 2004-13 I.R.B.648March 29, 2004 REV. PROC. 2004–20 TABLE 8 DOLLAR AMOUNTS FOR TRUCKS AND VANS WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2004 Fair Market Value of Truck or VanTax Year During Lease OverNot Over1st2nd3rd4th5th and Later 78,00080,0002285017428911,029 80,00085,0002415287859401,087 85,00090,0002595688441,0121,168 90,00095,0002776099021,0841,250 95,000100,0002966489621,1551,333 100,000110,0003237081,0521,2611,456 110,000120,0003597881,1711,4031,620 120,000130,0003968681,2891,5461,785 130,000140,0004329481,4081,6881,949 140,000150,0004691,0281,5261,8312,113 150,000160,0005051,1081,6451,9732,278 160,000170,0005411,1881,7642,1152,443 170,000180,0005781,2681,8822,2582,607 180,000190,0006141,3482,0012,4002,771 190,000200,0006511,4282,1202,5422,936 200,000210,0006871,5082,2392,6843,100 210,000220,0007241,5882,3572,8273,264 220,000230,0007601,6682,4762,9693,429 230,000240,0007961,7482,5953,1123,593 240,000250,0008331,8282,7133,2543,758 REV. PROC. 2004–20 TABLE 9 DOLLAR AMOUNTS FOR ELECTRIC AUTOMOBILES WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2004 Fair Market Value of Electric AutomobileTax Year During Lease OverNot Over1st2nd3rd4th5th and Later $53,000$54,000 3372106127147 54,00055,0003779118142164 55,00056,0004088130155180 56,00057,0004496141170197 57,00058,00048103154184213 58,00059,00051112165199229 59,00060,00055120177213245 60,00062,00060132195234270 62,00064,00068147219263303 64,00066,00075164242291336 66,00068,00082180266320369 68,00070,00090195290348402 70,00072,00097211314377435 72,00074,000104228337405468 74,00076,000111244361434500 76,00078,000119259385462534 78,00080,000126275409491566 80,00085,000139303451540624 85,00090,000157343510612706 90,00095,000175384569682788 95,000100,000193424628754870 100,000110,000221483718860994 110,000120,0002575638371,0031,158 120,000130,0002946439551,1451,323 130,000140,0003307231,0741,2881,486 March 29, 20046492004-13 I.R.B. REV. PROC. 2004–20 TABLE 9 DOLLAR AMOUNTS FOR ELECTRIC AUTOMOBILES WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2004 Fair Market Value of Electric AutomobileTax Year During Lease OverNot Over1st2nd3rd4th5th and Later 140,000150,0003668041,1921,4301,651 150,000160,0004038831,3111,5731,815 160,000170,0004399631,4301,7151,980 170,000180,0004761,0431,5491,8572,144 180,000190,0005121,1231,6681,9992,309 190,000200,0005481,2031,7862,1422,473 200,000210,0005851,2831,9052,2842,637 210,000220,0006211,3632,0242,4262,802 220,000230,0006581,4432,1422,5692,966 230,000240,0006941,5232,2612,7113,131 240,000250,0007301,6032,3802,8543,294 04. Maximum Automobile Value for Using the Cents-per-mile Valuation Rule. (1) Amount of Adjustment. Under § 1.61–21(e)(1)(iii)(A), the limitation on the fair market value of an employer-pro- vided passenger automobile first made available to any employee for personal use after 1988 is to be adjusted in accor- dance with § 280F(d)(7). Accordingly, the adjustment for any calendar year is the percentage (if any) by which the CPI automobile component for October of the preceding calendar year exceeds the CPI automobile componentfor October 1987. See, section 4.02(1) of this revenue proce- dure. The new car component of the CPI was 115.2 for October 1987 and 133.5 for October 2003. The October 2003 index exceeded the October 1987 index by 18.3. The Service has, therefore, determined that the adjustment for 2004 is 15.89 per- cent (18.3/115.2 x 100%). This adjustment is applicable to all employer-provided pas- senger automobiles first made available to any employee for personal use in calendar year 2004. The maximum fair market value specified in § 1.61–21(e)(1)(iii)(A) must therefore be multiplied by a factor of 0.1589, and the resulting increase, after rounding to the nearest $100, is added to $12,800 to give the maximum value for calendar year 2004. (2) The Maximum Automobile Value. For passenger automobiles first made available in calendar year 2004 to any em- ployee of the employer for personal use, the vehicle cents-per-mile valuation rule may be applicable if the fair market value of the passenger automobile on the date it is first made available does not exceed $14,800. SECTION 5. EFFECTIVE DATE This revenue procedure applies to pas- senger automobiles (other than leased pas- senger automobiles)that are first placed in service by the taxpayer during calen- dar year 2004, to leased passenger auto- mobiles that are first leased by the tax- payer during calendar year 2004, and to employer-provided passenger automobiles first made available to employees for per- sonal use in calendar year 2004. SECTION 6. DRAFTING INFORMATION The principal author of this rev- enue procedure is Bernard P. Harvey oftheOfficeofAssociateChiefCoun- sel (Passthroughs & Special Industries). For further information regarding the de- preciation limitations and lessee inclusion amounts in this revenue procedure, contact Bernard P. Harvey at (202) 622–3110 (not a toll-free call); for further information regarding the maximum automobile value for applying the vehicle cents-per-mile valuation rule, contact Dan E. Boeskin of the Office of the Associate Chief Counsel (Tax Exempt and Government Entities) at (202) 622–6040 (not toll-free calls). 2004-13 I.R.B.650March 29, 2004 Part IV. Items of General Interest Notice of Proposed Rulemaking Corporate Reorganizations; Transfers of Assets or Stock Following a Reorganization REG–165579–02 AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulema king. SUMMARY: This document contains proposed regulations that provide guid- ance relating to the effect of certain asset and stock transfers on the qualification of certain transactions as reorganizations under section 368(a). This document also contains proposed regulations that pro- vide guidance relating to the continuity of business enterprise requirement and the definition of a party to a reorganization. These regulations affect corporations and their shareholders. DATES: Written or electronic comments and requests for a public hearing must be received by June 1, 2004. ADDRESSES: Send submissions to CC:PA:LPD:PR (REG–165579–02), room 5203, Internal Revenue Service, POB 7604, Ben Franklin Station, Washing- ton, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG–165579–02), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Wash- ington, DC. Alternatively, taxpayers may submit comments electronically to the IRS Internet site atwww.irs.gov/regs. FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Rebecca O. Burch, (202) 622–7550; concerning submissions and the hear- ing, Sonya Cruse, (202) 622–4693 (not toll-free numbers). SUPPLEMENTARY INFORMATION: Background To qualify as a reorganization under section 368 of the Internal Revenue Code, a transaction must satisfy certain statutory requirements and nonstatutory require- ments, including continuity of business enterprise (COBE). Section 368(a)(2)(C) provides that a transaction otherwise qual- ifying as a reorganization under section 368(a)(1)(A),(B),(C),or(G)willnotbe disqualified by reason of the fact that part or all of the acquired assets or stock are transferredtoacorporationcontrolledby the acquiring corporation. Section 354(a) provides that, in gen- eral, no gain or loss shall be recognized if stock or securities in a corporation a party to a reorganization are, in pursuance of the plan of reorganization, exchanged solely for stock or securities in such cor- poration or in another corporation a party to the reorganization.Section 368(b) pro- vides that the term “a party to a reorga- nization” includes a corporation resulting from a reorganization, and both corpora- tions, in the case of a reorganization re- sulting from the acquisition by one cor- poration of stock or properties of another. Section 368(b) further provides that, in the case of a reorganization qualifying under section 368(a)(1)(B) or (C), if the stock ex- changed for the stock orproperties is stock of a corporation which is in control of the acquiring corporation, the term “a party to a reorganization” includes the corporation so controlling the acquiring corporation. In the case of a reorganization qualifying under section 368(a)(1)(A), (B), (C), or (G) by reason of section 368(a)(2)(C), the term “a party to a reorganization” includes the corporation controlling the corporation to which the acquired assets or stock are transferred. In the case of a reorganization qualifying under section 368(a)(1)(A) or (G) by reason of section 368(a)(2)(D), the term “a party to a reorganization” includes the controlling corporation. Finally, in the case of a reorganization qualifying under section 368(a)(1)(A) by reason of section 368(a)(2)(E), the term “a party to a reorga- nization” includes the controlling corpora- tion. On January 28, 1998, final regulations providing guidance regarding the COBE requirement, the definition of “a party to the reorganization,” and the effect of cer- tain transfers of acquired assets or stock on the qualification of a transaction as a reorganization under section 368(a)(1)(A), (B), (C), or (G) were published in theFed- eral Register(T.D. 8760, 1998–1 C.B. 803 [63 FR 4174]). Sections 1.368–1(d) and 1.368–2(f) and (k) were among those regulations. Section 1.368–1(d) generally provides that, for a transaction to satisfy the COBE requirement, the issuing corporation must either continue a significant historic busi- ness of the target corporation or use a sig- nificant portion of the target corporation’s assets in a business. For this purpose, the term issuing corporation generally means the acquiring corporation, but, in the case of a triangular reorganization, it means the corporation in control of the acquiring cor- poration. In addition, the issuing corpora- tion is treated as holding all of the busi- nesses and assets of all of the members of the qualified group. For this purpose, the qualified group is one or more chains of corporations connected through stock ownership with the issuing corporation, but only if the issuing corporation owns directly stock meeting the requirements of section 368(c) in at least one other corpora- tion, and stock meeting the requirements of section 368(c) in each of the corporations (except the issuing corporation) is owned directly by one of the other corporations. Section 1.368–2(f) provides that the term “a party to a reorganization” includes a corporation resulting from a reorganiza- tion, and both corporations in a transaction qualifying as a reorganization where one corporation acquires stock or properties of another corporation. In the case of a triangular reorganization, a corporation controlling an acquiring corporation is March 29, 20046512004-13 I.R.B. a party to the reorganization when the stock of such controlling corporation is used in the acquisition of properties. Sec- tion 1.368–2(f) further provides that, if a transaction otherwise qualifies as a reor- ganization, a corporation remains a party to the reorganization even though stock or assets acquired in the reorganization are transferred in a transaction described in §1.368–2(k). Section 1.368–2(k) provides that, ex- cept as otherwise provided, a transaction otherwise qualifying as a reorganization under section 368(a)(1)(A), (B), (C), or (G) (where the requirements of sections 354(b)(1)(A) and (B) are met) will not be disqualified by reason of the fact that part or all of the assets or stock acquired in the transaction are transferred or suc- cessively transferred to one or more cor- porations controlled in each transfer by the transferor corporation. For this pur- pose, a corporation is a controlled corpo- ration if the transferor corporation owns stock of such corporation constituting con- trol within the meaning of section 368(c). Furthermore, a transaction qualifying un- der section 368(a)(1)(A) by reason of the application of section 368(a)(2)(E) is not disqualified by reason of the fact that part or all of the stock of the surviving corpo- ration is transferred or successively trans- ferred to one or more corporations con- trolled in each transfer by the transferor corporation, or because part or all of the assets of the surviving corporation or the merged corporation are transferred or suc- cessively transferred to one or more cor- porations controlled in each transfer by the transferor corporation. Again, for this purpose a corporation is controlled by the transferor corporation if the transferor cor- poration owns stock of such corporation constituting control within the meaning of section 368(c). The preamble to the January 28, 1998, regulations explains that assets or stock acquired in certain reorganizations may be transferred among members of a qualified group, and in certain cases to partnerships, without preventing the reorganization from satisfying COBE. It also states that the IRS and Treasury Department believe that the COBE requirements adequately address the remote continuity of interest issues raised in Groman v. Commis- sioner, 302 U.S. 82 (1937), and Helvering v. Bashford, 302 U.S. 454 (1938), and, therefore, that the final regulations do not separately articulate rules for remote continuity. The preamble also states that §1.368–1(d), being limited to a discussion of the COBE requirement, does not ad- dress satisfaction of the explicit statutory requirements of a reorganization, which is the subject of §1.368–2. Finally, the preamble states that no inference is to be drawn as to whether transactions not de- scribed in §1.368–2(k) otherwise qualify as reorganizations. In Rev. Rul. 2001–24, 2001–1 C.B. 1290, and Rev. Rul. 2002–85, 2002–2 C.B. 986, the IRS addressed the ef- fect of certain transfers not described in §1.368–2(k) on certain transactions that otherwise qualify as reorganizations. In Rev. Rul. 2001–24, the IRS consid- ered whether a transfer of the stock of the acquiring corporation to a corporation wholly owned by the issuing corpora- tion following a transaction that other- wise qualified as a reorganization under section 368(a)(1)(A) by reason of section 368(a)(2)(D) (a forward triangular merger) prevented the transaction from qualifying as such. The IRS ruled that the transfer of stock of the acquiring corporation did not cause the issuing corporation to be treated as not in control of the acquiring corpora- tion for purposes of section 368(a)(2)(D), and did not cause the issuing corporation to fail to be treated as a party to the reorga- nization. In arriving atthese conclusions, the ruling notes that section 368(a)(2)(C) and §1.368–2(k) do not specifically ad- dress the facts of the ruling and section 368(a)(2)(C) does not preclude the trans- action from qualifying as a reorganization. The ruling states that, by its terms, sec- tion 368(a)(2)(C) is a permissive, rather than an exclusive or restrictive, section. Therefore, the transfer of acquiring cor- poration stock to the issuing corporation’s wholly owned subsidiary did not prevent the transaction from qualifying as a for- ward triangular merger. In Rev. Rul. 2002–85, the IRS consid- ered whether an acquiring corporation’s transfer of acquired assets to a subsidiary controlled by the acquiring corporation would prevent the acquiring corporation’s acquisition of those assets from quali- fying as a reorganization under section 368(a)(1)(D). After noting that section 368(a)(2)(C) is permissive rather than ex- clusive or restrictive, the ruling reasons that, because §1.368–2(k) restates and in- terprets section 368(a)(2)(C), §1.368–2(k) also should be viewed as permissive and not exclusive or restrictive. The ruling concludes that the absence of section 368(a)(1)(D) from §1.368–2(k) does not prevent a corporation from remaining a party to a reorganization even if the ac- quired stock or assets are transferred to a controlled subsidiary. The ruling states that, like reorganizations under sections 368(a)(1)(A) and 368(a)(1)(C), reorga- nizations under section 368(a)(1)(D) are asset reorganizations. In reorganizations under sections 368(a)(1)(A) and reorga- nizations under section 368(a)(1)(C), the original transferee is treated as a party to a reorganization, even if the acquired assets are transferred to a controlled sub- sidiary of the original transferee. Because the differences between reorganizations under section 368(a)(1)(D) on the one hand and reorganizations under sections 368(a)(1)(A) and (C) on the other hand do not warrant treating the original transferee in a transaction that otherwise satisfies the requirements of a reorganization un- der section 368(a)(1)(D) differently from the original transferee in a reorganiza- tion under section 368(a)(1)(A) or (C) for purposes of section 368(b), the ruling concludes that the original transferee in a transaction that otherwise satisfies the requirements of a reorganization under section 368(a)(1)(D) is treated as a party to the reorganization, notwithstanding the original transferee’s transfer of acquired assets to a controlled subsidiary of the original transferee.The ruling concludes that the transaction qualifies as a reorgani- zation under section 368(a)(1)(D). Explanation of Provisions As described above, in the regulations under section 368 and in revenue rulings, the IRS and Treasury Department have considered the effect of transfers of assets or stock to controlled corporations on the qualification of a transaction as a reorga- nization in a variety of situations not ad- dressed by section 368(a)(2)(C). In each of these cases, the IRS and Treasury Depart- ment have concluded that the transfers did not cause the transaction to fail to qualify as a reorganization. These conclusions re- flect the fact that, in all of the situations considered, the transactions, in form, sat- 2004-13 I.R.B.652March 29, 2004 isfy the statutory requirements of a reorga- nization and, in substance, constitute read- justments of continuing interests in the re- organized business in modified corporate form. None of the transactions involve the transfer of the acquired stock or assets to a “stranger,” a result inconsistent with reor- ganization treatment. H.R. Rep. No. 83– 1337, A134 (1954). The IRS and Treasury believe that cer- tain transfers of stock and assets to con- trolled corporations are consistent with reorganization treatment, even though in some cases the transfers involve a type of reorganization notincluded in section 368(a)(2)(C). The effect of transferring stock or assets to a controlled corporation on the qualification of a transaction as a reorganization should not depend on the specific reorganization provision at is- sue. Given that section 368(a)(2)(C) was intended to be permissive rather than ex- clusive with respect tocertain transfers of stock or assets to a controlled corporation following a transaction that would qualify as a reorganization without regard to the transfer, the IRS and Treasury believe it is appropriate to extend its principles to certain transfers of stock and assets after all types of reorganizations. Accordingly, these regulations propose to amend §1.368–2(k) to provide that a transaction otherwise qualifying as a reor- ganization under section 368(a) will not be disqualified as a result of the transfer or successive transfers to one or more corpo- rations controlled in each transfer by the transferor corporation of part or all of (i) the assets of any party to the reorganiza- tion, or (ii) the stock of any party to the reorganization other than the issuing cor- poration. In addition, these proposed reg- ulations include amendments to the COBE regulations under §1.368–1(d) and amend- ments to the definition of a party to a re- organization under §1.368–2(f) that reflect §1.368–2(k) as proposed. Special Analyses It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory as- sessment is not required. It has also been determined that section 553(b) of the Ad- ministrative Procedure Act (5 U.S.C. chap- ter 5) does not apply to these regulations, and, because these regulations do not im- pose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Internal Revenue Code, this notice of proposed rulemaking will be submitted to the Chief Counsel for Advocacy of the Small Business Adminis- tration for comment on its impact on small businesses. Comments and Requests for a Public Hearing Before these proposed regulations are adopted as final regulations, considera- tion will be given to any written (a signed original and 8 copies) or electronic com- ments that are submitted timely to the IRS. The IRS and Treasury Department request comments on the clarity of the proposed rules and how they can be made easier to understand. All comments will be avail- able for public inspection and copying. A public hearing will be scheduled if requested in writing by any person that timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place for the public hearing will be published in theFederal Register. Drafting Information The principal author of these proposed regulations is Rebecca O. Burch of the Of- fice of Associate Chief Counsel (Corpo- rate). However, other personnel from the IRS and Treasury Department participated in their development. ***** Proposed Amendments to the Regulations Accordingly, 26 CFR part 1 is proposed to be amended as follows: PART 1—INCOME TAXES Paragraph 1. The authority citation for part 1 continues to read in part as follows: Authority: 26 U.S.C. 7805 * * * Par. 2. Section 1.368–1 is amended as follows: 1. Paragraph (d)(4)(i) is redesignated as paragraph (d)(4)(i)(A) and revised. 2. New paragraph (d)(4)(i)(B) is added. 3. Paragraph (d)(5), introductory text, is redesignated as paragraph (d)(5)(i), and revised. 4. In newly designated paragraph (d)(5)(i), Examples 7, 8, 9, 10, 11, and 12 are redesignated as Examples 8, 9, 10, 11, 12, and 13, respectively. 5. In newly designated paragraph (d)(5)(i), the first sentence in Ex- amples 9, 10, and 12 is revised. 6. In newly designated paragraph (d)(5)(i), a newExample 7is added. 7. New paragraph (d)(5)(ii) is added. The revisions and additions read as fol- lows: §1.368–1 Purpose and scope of exception of reorganization exchanges. ***** (d) * * * ***** (4) * * * (i)Businesses and assets of members of a qualified group—(A)In general.The issuing corporation is treated as holding all of the businesses and assets of all of the members of the qualified group, as defined in paragraph (d)(4)(ii) of this section. (B)Special rule. The issuing cor- poration is treated as holding all of the businesses and assets of the sur- viving corporation after a reorganiza- tion that otherwise satisfies the require- ments of a reverse triangular merger (as defined in §1.358–6(b)(2)(iii)), the acquired corporation after a reorgani- zation that otherwise satisfies the re- quirements of section 368(a)(1)(B), and the acquiring corporation after a reor- ganization that otherwise satisfies the requirements of a forward triangular merger (as defined in §1.358–6(b)(2)(i)), a triangular B reorganization (as de- fined in §1.358–6(b)(2)(iv)), a trian- gular C reorganization (as defined in §1.358–6(b)(2)(ii)), or a reorganization under section 368(a)(1)(G) by reason of section 368(a)(2)(D), provided that mem- bers of the qualified group own, in the aggregate, stock of the surviving, ac- quired, or acquiringcorporation meeting the requirements of section 368(c). This March 29, 20046532004-13 I.R.B. paragraph (d)(4)(i)(B) applies to transac- tions occurring after the date these regula- tions are published as final regulations in theFederal Register. ***** (5)Examples. (i) The following exam- ples illustrate this paragraph (d). All the following corporations have only one class of stock outstanding. ***** Example 7.(i)Facts. The facts are the same as inExample 6, except that, instead of P acquiring the assets of T, HC acquires all of outstanding stock of T in exchange solely for voting stock of P. In addition, as part of the plan of reorganization, HC transfers 10 percent of the stock of T to each of subsidiaries S–1 through S–10. Finally, T will continue to operate an auto parts distributorship. Without regard to whether the transaction satisfies the COBE requirement, the transaction qualifies as a triangular B reorganization. (ii)Continuity of business enterprise. Under para- graph (d)(4)(i)(B) of this section, P is treated as hold- ing all the assets and conducting the business of T because S–1 through S–10, members of the qualified group, own stock of T meeting the requirements of section 368(c). Therefore, the COBE requirement of paragraph (d)(1) of this section is satisfied because P is treated as continuing T’s business. ***** Example 9.***(i)Facts. The facts are the same asExample 8, except that S–3 transfers the historic T business to PRS in exchangefor a 1 percent interest in PRS. ***** Example 10.***(i)Facts. The facts are the same asExample 8, except that S–3 transfers the his- toric T business to PRS in exchange for a 33 1/3 per- cent interest in PRS, and no member of P’s qualified group performs active and substantial management functions for the ski boot business operated in P RS. ***** Example 12.***(i)Facts. The facts are the same asExample 11, except that S–1 transfers all the T assets to PRS, and P and X each transfer cash to PRS in exchange for partnership interests. * * * ***** (ii)Effective dates. Paragraph (d)(5) Example 6,andExample 8throughEx- ample 13apply to transactions occurring after January 28, 1998, except that they do not apply to any transaction occurring pursuant to a written agreement which is binding on January 28, 1998, and at all times thereafter. Paragraph (d)(5)Exam- ple 7applies to transactions occurring after the date these regulations are published as final regulations in theFederal Register. ***** Par. 3. Section 1.368–2 is amended by: 1. Adding three sentences at the end of paragraph (f). 2. Revising paragraph (k). The additions and the revision read as follows: §1.368–2 Definition of terms. ***** (f) * * * If a transaction otherwise qualifies as a reorganization under section 368(a)(1)(B) or as a reverse triangular merger (as defined in §1.358–6(b)(2)(iii)), the target corporation (in the case of a transaction that otherwise qualifies as a re- organization under section 368(a)(1)(B)) or the surviving corporation (in the case of a transaction that otherwise qualifies as a reverse triangular merger) remains a party to the reorganization even though its stock or assets are transferred in a transaction described in paragraph (k) of this section. If a transaction other- wise qualifies as a forward triangular merger (as defined in §1.358–6(b)(2)(i)), a triangular B reorganization (as de- fined in §1.358–6(b)(2)(iv)), a trian- gular C reorganization (as defined in §1.358–6(b)(2)(ii)), or a reorganization under section 368(a)(1)(G) by reason of section 368(a)(2)(D), the acquiring corpo- ration remains a party tothe reorganization even though its stock is transferred in a transaction described in paragraph (k) of this section. The two preceding sentences apply to transactions occurring after the date these regulations are published as final regulations in theFederal Register. ***** (k)Certain transfers of assets or stock in reorganizations—(1)General rule.A transaction otherwise qualifying as a reor- ganization under section 368(a) shall not be disqualified as a result of the transfer or successive transfers to one or more corpo- rations controlled in each transfer by the transferor corporation of part or all of— (i) The assets of any party to the reorga- nization; or (ii) The stock of any party to the reorga- nization other than the issuing corporation (as defined in §1.368–1(b)). (2)Control. Control is defined under section 368(c). (3)Examples. The following examples illustrate the application of this paragraph (k). P is the issuing corporation and T is the target corporation. P has only one class of stock outstanding. The examples are as follows: Example 1.Transfers of acquired assets to con- trolled corporations after a reorganization under sec- tion 368(a)(1)(C).(i)Facts. T operates a bakery that supplies delectable pastries and cookies to local re- tail stores. The acquiring corporate group produces a variety of baked goods for nationwide distribution. P owns 80 percent of the stock of S–1. Pursuant to a plan of reorganization, T transfers all of its assets to S–1 solely in exchange for P stock, which T dis- tributes to its shareholders. S–1 owns 80 percent of the stock of S–2, and S–2 owns 80 percent of the stock of S–3, which also makes and supplies pastries and cookies. Pursuant to the plan of reorganization, S–1 transfers all of the T assets to S–2, and S–2 transfers all of the T assets to S–3. (ii)Analysis. Under this paragraph (k), the trans- action, which otherwise qualifies as a reorganization under section 368(a)(1)(C), is not disqualified by rea- son of the fact of the successive transfers of all of the T assets to S–2, and from S–2 to S–3 because, in each transfer, the transfereecorporation is controlled by the transferor corporation. Example 2.Transfers of acquired assets to con- trolled corporations after a reorganization under sec- tion 368(a)(1)(D).(i)Facts. The facts are the same as Example 1except that P also owns 100 percent of the stock of T before the transaction, and T transfers all of its assets to S–1 solely in exchange for S–1 stock, which T distributes to P. (ii)Analysis. Under this paragraph (k), the trans- action, which otherwise qualifies as a reorganization under section 368(a)(1)(D), is not disqualified by rea- son of the fact of the successive transfers of all of the acquired assets from S–1 to S–2, and from S–2 to S–3 because, in each transfer, thetransferee corporation is controlled by the transferor corporation. Example 3.Transfer of acquiring stock to con- trolled corporation after a reorganization under sec- tion 368(a)(1)(A).(i)Facts. The facts are the same asExample 1except that P owns 80 percent of the stock of S–4 and, pursuant to the plan of reorgani- zation, S–1 acquires all of the T assets as a result of the merger of T with and into S–1. In addition, in the merger, the T shareholders receive consideration 50 percent of which is stock of P and 50 percent of which is cash. Finally, pursuant to the plan of reorga- nization, P transfers all of the S–1 stock to S–4. (ii)Analysis. Under this paragraph (k), the trans- action, which otherwise qualifies as a reorganization under section 368(a)(1)(A) by reason of section 368(a)(2)(D), is not disqualified by the transfer of all of the S–1 stock to S–4 because, in the transfer, the transferee corporation is controlled by the transferor corporation. Example 4.Transfers of acquired stock to con- trolled corporations after a reorganization under sec- tion 368(a)(1)(B).(i)Facts. The facts are the same as Example 1except that S–1 acquires all of the T stock rather than the T assets, and as part of the plan of re- organization, S–1 transfers 50 percent of the T stock to S–2, and S–2 transfers that T stock to S–3. (ii)Analysis. Under this paragraph (k), the trans- action, which otherwise qualifies as a reorganization under section 368(a)(1)(B), is not disqualified by the successive transfers of part of the acquired stock from 2004-13 I.R.B.654March 29, 2004 S–1 to S–2, and from S–2 to S–3 because, in each transfer, the transferee corporation is controlled by the transferor corporation. Example 5.Transfers of acquiring corporation stock to controlled corporations after a reorganiza- tion under section 368(a)(1)(B).(i)Facts. The facts are the same asExample 4except that P owns 80 per- cent of the stock of S–4, and S–4 owns 80 percent of the stock of S–5, and, as part of the plan of reorgani- zation, following the acquisition of T stock by S–1, P transfers 10 percent of itsS–1 stock to S–4, and S–4 transfers that S–1 stock to S–5. (ii)Analysis. Under this paragraph (k), the trans- action, which otherwise qualifies as a reorganization under section 368(a)(1)(B), is not disqualified by rea- son of the successive transfers of S–1 stock to S–4, and from S–4 to S–5 because, in each transfer, the transferee corporation is controlled by the transferor corporation. Example 6.Transfer of acquired stock to a part- nership.(i)Facts. The facts are the same as inExam- ple 4. However, as part of the plan of reorganization, S–2 and S–3 form a new partnership, PRS. Immedi- ately thereafter, S–3 transfers all of its T stock to PRS in exchange for an 80 percent partnership interest, and S–2 transfers cash to PRS in exchange for a 20 per- cent partnership interest. (ii)Analysis. This paragraph (k) describes the successive transfers of T stock to S–3, but does not describe S–3’s transfer of TstocktoPRS.Therefore, the characterization of this transaction must be deter- mined under the relevant provisions of law, including the step transaction doctrine.See§1.368–1(a). The transaction fails to meet the control requirement of a reorganization described in section 368(a)(1)(B) be- cause immediately after the acquisition of the T stock, the acquiring corporation does not have control of T. (4)Effective date. This paragraph (k) applies to transactions occurring after the date these regulations are published as fi- nal regulations in theFederal Register. Mark E. Matthews, Deputy Commissioner for Services and Enforcement. (Filed by the Office of the Federal Register on March 1, 2004, 8:45 a.m., and published in the issue of the Federal Register for March 2, 2004, 69 F.R. 9771) Notice of Proposed Rulemaking and Notice of Public Hearing Notional Principal Contracts; Contingent Nonperiodic Payments REG–166012–02 AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemaking and notice of public hearing. SUMMARY: This document contains pro- posed regulations relating to the inclusion into income or deduction of a contingent nonperiodic payment provided for under a notional principal contract (NPC). This document also provides guidance relating to the character of payments made pur- suant to an NPC. These regulations will af- fect taxpayers that enter into NPCs. This document also provides a notice of a pub- lic hearing on these proposed regulations. DATES: Written or electronically trans- mitted comments and requests to speak (with outlines of oral comments to be dis- cussed) at the public hearing scheduled for May 25, 2004, at 10 a.m., must be received by May 4, 2004. Comments on the collec- tion of information should be received by April 26, 2004. ADDRESSES: Send submissions to CC:PA:LPD:PR (REG–166012–02), room 5203, Internal Revenue Service, POB 7604, Ben Franklin Station, Washing- ton, DC 20044. Submissions may be hand-delivered Monday through Friday betweenthehoursof8a.m. and4p.m. to CC:PA:LPD:PR (REG–166012–02), Couriers Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Wash- ington, DC. Alternatively, taxpayers may submit electronic comments directly to the IRS Internet site at:www.irs.gov/regs. ThepublichearingwillbeheldintheIRS Auditorium, Seventh Floor, Internal Rev- enue Service, 1111 Constitution Avenue, NW, Washington, DC. FOR FURTHER INFORMATION CONTACT: Concerning submissions of comments, the hearing, or to be placed on the building access list to attend the hearing, Sonya Cruse, (202) 622–7180; concerning the regulations, Kate Sleeth, (202) 622–3920 (not toll-free numbers). SUPPLEMENTARY INFORMATION: Paperwork Reduction Act The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of Manage- ment and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collection of information should be sent to theOffice of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies to theInternal Rev- enue Service, Attn: IRS Reports Clear- ance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 20224. Comments on the collection of information should be received by April 26, 2004. Comments are specifically requested concerning: Whether the proposed collection of in- formation is necessary for the proper per- formance of the functions of the IRS, in- cluding whether the information will have practical utility; The accuracy of the estimated burden associated with the proposed collection of information (see below); How the quality, utility, and clarity of the information to be collected may be en- hanced; How the burden of complying with the proposed collection of information may be minimized, including through the appli- cation of automated collection techniques or other forms of information technology; and Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide informa- tion. The collection of information in these proposed regulations is in §1.446– 3(g)(6)(vii). This information is required by the IRS to verify compliance with sec- tion 446 and the method of accounting described in §1.446–3(g)(6). This infor- mation will be used to determine whether the amount of tax has been calculated cor- rectly. The collection of information is required to properly determine the amount of income or deduction to be taken into ac- count. The respondents are sophisticated investors that enter into notional princi- pal contracts with contingent nonperiodic payments. Estimated total annual recordkeeping burden: 25,500 hours. Estimated average annual burden per recordkeeper: 6 hours. Estimated number of recordkeepers: 4,250. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays March 29, 20046552004-13 I.R.B. a valid control number assigned by the Of- fice of Management and Budget. Books or records relating to a collection of information must be retained as long as their contents may become material 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 document contains proposed amendments to 26 CFR Part 1 under sec- tion 446(b) of the Internal Revenue Code (Code). This document also contains pro- posed amendments under sections 162, 212 and 1234A of the Code. In 1989, the IRS issued Notice 89–21, 1989–1 C.B. 651, to provide guidance with respect to the tax treatment of lump-sum payments received in connection with NPCs. The notice stated that a method of accounting that properly recognizes a lump-sum payment over the life of the contract clearly reflects income and indi- cated that regulations would be issued to provide specific rules regarding the man- ner in which a taxpayer must take into account over the life of an NPC payments made or received with respect to the con- tract. The notice further stated that “for contracts entered into prior to the effective date of the regulations, the Commissioner will generally treat a method of accounting as clearly reflecting income if it takes such payments into account over the life of the contract under a reasonable amortization method, whether or not the method satis- fies the specific rules in the forthcoming regulations.” (1989–1 C.B. 652). On October 14, 1993, the IRS pub- lished in theFederal Registerfinal reg- ulations (T.D. 8491, 1993–2 C.B. 215 [58 FR 53125]) under section 446(b) relating to the timing of income and deductions for amounts paid or received pursuant to NPCs. §1.446–3. In this preamble, the fi- nal regulations published in 1993 are re- ferred to as the 1993 Treasury regulations. The 1993 Treasury regulations define an NPC as a “financial instrument that provides for the payment of amounts by one party to another at specified inter- vals calculated by reference to a specified index upon a notional principal amount in exchange for specified consideration or a promise to pay similar amounts.” §1.446–3(c)(1)(i). Payments made pur- suanttoNPCsaredividedintothree categories (periodic, nonperiodic, and termination payments), and the 1993 Trea- sury regulations provide timing regimes for each. The 1993 Treasury regulations require all taxpayers, regardless of their method of accounting, to recognize the ratable daily portion of a nonperiodic pay- ment for the taxable year to which that portion relates. Nonperiodic payments generally must be recognized over the term of an NPC in a manner that reflects the economic substance of the contract. §1.446–3(f)(2)(i). Although §1.446–3 does not distinguish between noncon- tingent and contingent nonperiodic pay- ments, the specific rules and examples in the 1993 Treasury regulations address only noncontingent nonperiodic payments. The Preamble to the 1993 Treasury regulations states that “the IRS expects to address contingent payments in future regulations, and welcomes comment on the treatment of those payments.” (1993–2 C.B. 216). In addition, neither §1.446–3 nor any other section provides specific rules governing the character of the various types of NPC payments. On July 23, 2001, the IRS published Notice 2001–44, 2001–2 C.B. 77, solicit- ing comments on the appropriate method for the inclusion or deduction of contin- gent nonperiodic payments made pursuant to NPCs and the proper character treatment of payments made pursuant to an NPC. The notice set forth four different methods under consideration by the IRS and Trea- sury and asked the public to comment on the extent to which each method reflects certain fundamental tax policy principles, including certainty, clarity, administrabil- ity, and neutrality. Several comments were received from the public, which expressed diverse views regarding the relative ad- vantages and disadvantages of the differ- ent methods. Included in the four methods were the noncontingent swap method and a mark-to-market method, versions of which are adopted in the proposed regulations. The notice also solicited comments on the proper character of payments on NPCs and bullet swaps. The comments received on this issue also reflected differing views. Explanation of Provisions A.Overview The IRS and Treasury understand that some taxpayers take into account contin- gent nonperiodic payments on an NPC only when the payment becomes fixed and determinable (the open transaction or wait-and-see method of accounting). The wait-and-see method, however, is inconsistent with the existing specific timing rules for periodic and nonperiodic payments and with the general rule in §1.446–3(f)(2)(i) respecting recognition of nonperiodic payments over the term of the contract. For example, if the amount of a periodic payment is set in arrears at the end of an accrual period that spans taxable years, the parties cannot use a wait-and-see method for the portion of the accrual period in the first taxable year. Instead, the parties must use a reasonable estimate of the payment for determin- ing taxable income in the year before the payment is fixed. §1.446–3(e)(2)(ii). In addition, some NPCs are structured to provide for nonperiodic payments consist- ing of a noncontingent component and a contingent component, which the parties to the contract treat as a single contingent payment that they account for under the wait-and-see method. The attempted ap- plication of the wait-and-see method to these contracts highlights the potential for abusepresentinthemethod. SeeRev. Rul. 2002–30, 2002–1 C.B. 971. The back-loaded timing of tax conse- quences that results from the wait-and- see method is also inconsistent with the timing regime that §1.1275–4(b) provides for contingent debt instruments subject to the noncontingent bond method. Under the noncontingent bond method, the par- ties to a contingent payment debt instru- ment must determine the yield at which a comparable noncontingent debt instru- ment would be issued and then project a fixed amount for each contingent payment and each noncontingent payment. The projected amounts are accounted for over the term of the debt instrument. The differ- ence, if any, between the projected amount of a contingent payment and the actual amount of the payment generally is ac- counted for when payment is made. The proposed regulations adopt a vari- ation on the noncontingent swap regime 2004-13 I.R.B.656March 29, 2004 described in Notice 2001–44, as well as an elective mark-to-market regime. The 1993 Treasury regulations reflect an underlying principle that nonperiodic pay- ments should be spread over the term of an NPC in a manner that properly reflects the economic substance of the contract. The proposed regulations build upon this principle. Furthermore, the IRS and Trea- sury believe that the proposed regulations provide a timing regime for contingent nonperiodic payments that clearly reflects the economics of the underlying contracts. The requirement that nonperiodic pay- ments be spread over the term of an NPC results in substantially similar treatment for all NPCs without regard to whether payment obligations are settled on a cur- rent basis through periodic payments or are either pre-paid or deferred through nonpe- riodic payments. Adopting this approach for contingent payment NPCs achieves symmetry between fixed payment NPCs and contingent payment NPCs. The proposed noncontingent swap method requires taxpayers to project the expected amount of contingent payments, to take into account annually the appro- priate portions of the projected contin- gent amounts, to reproject the contingent amounts annually, and to reflect the dif- ferences between projected amounts and reprojected amounts through adjustments. The IRS and Treasury recognize that an- nual reprojections will require additional effort by taxpayers and the IRS. The IRS and Treasury believe, however, that the an- nual reprojection requirement is essential to ensure clear reflection of income with respect to NPCs with one or more con- tingent nonperiodic payments. Moreover, reprojections, and the resulting adjust- ments to current inclusion and deduction amounts, are especially important for the income and deductions generated by these types of contracts because otherwise, tax- payers might be more likely to attempt to manipulate the character of the income or deductions from the contract. In developing the proposed regulations, the IRS and Treasury have taken into ac- count comments received in response to Notice 2001–44, as well as the following considerations. First, although many com- ments advocated the wait-and-see method of accounting for contingent nonperiodic payments, this method encourages the cre- ation of NPCs that provide such payments. As a result of the adoption of guidelines for taking contingent nonperiodic payments into account over the term of an NPC, the tax treatment of payments with respect to an NPC should no longer provide an incentive for structuring payments in a par- ticular manner. Second, taxpayers using swaps with contingent nonperiodic pay- ments are sophisticated investors. Many of these taxpayers will be making simi- lar projections and reprojections for their own purposes in evaluating the results of their derivative investments and taking ac- tions to manage the risks created by their derivative investments. Third, the pro- posed regulations also provide an elective mark-to-market method as an alternative to the noncontingent swap method. Tax- payers who use a mark-to-market method for financial reporting purposes may adopt the elective mark-to-market method to reduce their tax and accounting adminis- trative burden for NPCs. The IRS and Treasury understand that similar timing issues exist for other types of derivative investments, like bullet swaps and prepaid forward contracts. Although the application of the proposed regulations to these types of transactions may achieve appropriate timing, the appli- cation of these rules to investments other than NPCs could present a number of is- sues not directly addressed by the rules contained in these proposed regulations. The expansion of the scope of these pro- posed regulations to contracts other than NPCs is not being proposed at this time so as not to delay the publication of the proposed regulations. With respect to character, the proposed regulations under sections 162 and 212 provide that both periodic and nonperi- odic payments with respect to NPCs are generally ordinary in character. This is because neither periodic nor nonperiodic payments (whenever made) involve a sale or exchange within the meaning of section 1222, and no other section of the Code pro- vides otherwise. The proposed regulations issued under section 1234A provide cap- ital treatment for termination payments. Under the proposed regulations, however, even nonperiodic payments made at the maturity of an NPC are not termination payments under section 1234A. Because of their recurring nature, pe- riodic payments should be treated as or- dinary income items, whether or not the payments are made at the expiration of an NPC. The same rationale applies to nonpe- riodic payments, which are required to be spread over the term of an NPC. Even if a nonperiodic payment is made at the expi- ration or termination of an NPC, only the final portion is taken into account on the termination date for the contract, and that portion should be treated in the same way as a periodic payment. B.Specific Provisions Adjustments Paragraph (d)(2) of the proposed reg- ulations provides for adjustments to be made in the gain or loss realized on the sale, exchange, or termination of an NPC, to account for inclusions into income and deductions provided for in the 1993 Trea- sury regulations and the proposed regula- tions, as well as for any payments made or received on the NPC. These adjustments are expected to produce consequences similar to the consequences that would result if basis were increased or decreased for these items. Using adjustments for this purpose avoids the issue of negative basis. Significant nonperiodic payments Paragraph (g)(4) of the proposed regu- lations clarifies the rules for the treatment of an NPC with a significant upfront non- periodic payment and provides additional rules for the treatment of a significant non- periodic payment that is not paid upfront. The 1993 Treasury regulations provide that a significant nonperiodic payment on an NPC is treated as two separate transac- tions — an on-market level payment NPC and a loan. §1.446–3(g)(4). The proposed regulations clarify that the parties to an NPC with one or more significant nonpe- riodic payments must treat the contract as two or more separate transactions consist- ing of an on-market NPC and one or more loans. In some cases, the on-market NPC payments for a party making a significant nonperiodic upfront payment will be level payments that may be constructed through a combination of the actual payments on the NPC and level payments computed under the level payment method described in §1.446–3(f)(2)(iii)(A). The proposed regulations also provide that an NPC with a significant nonperi- odic payment that is not paid upfront is March 29, 20046572004-13 I.R.B. treated as if the partyreceiving the signif- icant nonperiodic payment paid a series of annual level payment loan advances, equal to the present value of the nonperiodic pay- ment, to the party owing the significant nonperiodic payment. The interest com- ponent of the level payments is treated as interest for all purposes of the Code and is not taken into account in determining the income and deductions on the NPC. The principal component of the level payments is calculated solely to determine the inter- est amount. The party owing the signif- icant nonperiodic payment is then treated as using the level payment loan advances to make annual level payment NPC pay- ments, which are included in income and deducted as provided in §1.446–3(d). Contingent nonperiodic payments The 1993 Treasury regulations define both periodic and nonperiodic payments but do not distinguish between contingent and noncontingent nonperiodic payments. Paragraph (g)(6)(i)(B) of the proposed regulations defines a contingent nonperi- odic payment as any nonperiodic payment other than a noncontingent nonperiodic payment. A noncontingent nonperi- odic payment is defined in paragraph (g)(6)(i)(A) of the proposed regulations as a nonperiodic payment that either is fixed on or before the end of the taxable year in which a contract commences or is equal to the sum of amounts that would be periodic payments if they are paid when they become fixed, including amounts determined as interest accruals. Paragraph (g)(6)(ii) of the proposed regulations sets forth the noncontingent swap method for the inclusion into income and deduction of contingent nonperi- odic payments. The noncontingent swap method requires taxpayers to project the reasonably expected amount of the contin- gent nonperiodic payment and to apply the level payment method and, as appropri- ate, the rules for significant nonperiodic payments, to the projected amount as if it were a noncontingent nonperiodic pay- ment. The risk-free rate of return, which is defined in the proposed regulations, is used in applying the level payment method. Paragraphs (g)(6)(iii)(A) through (C) of the proposed regulations provide the meth- ods for projecting thereasonably expected amount. If the contingent payment is de- termined by reference to the value of a specified index at a designated future date, the projected amount may be determined by reference to the future value of the spec- ified index in actively traded futures or for- ward contracts providing for delivery or settlement on the designated future date. If no actively traded contract exists for the designated future date, the value may be derivedfromactivelytradedfuturesorfor- ward contracts providing for delivery or settlement within three months of the des- ignated future date. The projected amount may also be de- termined based on the projected future value of the current market price of the specified index. The future value is de- termined using a constant yield method at the risk-free interest rate with appropri- ate compounding and making appropriate adjustments for expected cash payments on the property underlying the speci- fied index. The proposed regulations use the applicable federal rate under section 1274(d)(1) as the risk-free rate for this pur- pose. Comments are requested on whether this rate is appropriate. If neither of the two methods described above results in a reasonable estimate of the future value of the specified index, the taxpayer must use another method that does result in a reasonable estimate of the amount of the contingent payment and that is based on objective financial informa- tion, and must consistently use the method from year to year. The proposed regulations require an- nual adjustments to the projected amounts of the contingent payment. Paragraphs (g)(6)(iv) through (vi) of the proposed reg- ulations provide rules for the redetermina- tion of the projected amount of the contin- gent payment and the subsequent adjust- ments to the recognition of income and de- ductions under a contract based on the re- projected amount. Paragraph (g)(6)(iv) of the proposed regulations providesthat the projected amount must be redetermined on each successive anniversary date (redetermina- tion date) and on each special redetermi- nation date as described below. On each redetermination date, the taxpayer must reproject the amount of the contingent payment using the same method used at the commencement of the NPC but applied to the new current value of the specified index. Once the contingent payment is reprojected, the level payment method (and the rules for significant nonperiodic payments, if applicable) are applied again using the new projected amount. Comments are requested as to how the reprojection process should respond to changes in the availability of market data during the life of an NPC. Suppose, for example, that the initial projection is made when there are no actively traded futures or forward contracts in the spec- ified index but that these contracts come into existence before the time of one of the reprojections. Should the reprojections be made using the newly available futures data rather than the method employed for the first projection? Paragraph (g)(6)(v) of the proposed regulations provides rules for adjustments following the redetermination of the pro- jected amount of the contingent payment. The amounts determined for the redeter- mined projected amount under the level payment method and, as applicable, the rules for significant nonperiodic pay- ments, are recognized in the current and subsequent taxable years. In addition, any difference between the newly deter- mined amounts for prior periods and the amounts determined and previously taken into account using the previously projected contingent payment are recognized ratably over the one-year period beginning with the redetermination date. Any difference in amounts that would have been treated as interest under the rules for significant nonperiodic payments is also treated as interest for all purposes of the Code. Paragraph (g)(6)(iv)(B) of the proposed regulations provides a special rule for a contingent nonperiodic payment that is fixed more than six months before it is due. If the date on which the payment be- comes fixed is in a different taxable year from the date it is due, the date on which the payment becomes fixed is a special redetermination date. In such a case, the fixed amount is treated as the reprojected amount, and the rules described above for redeterminations and adjustments apply. In general, under paragraph (g)(6)(vi) of the proposed regulations, when a con- tingent payment is made, the parties must make appropriate adjustments to the amount of income or deduction at- tributable to the NPC for any differences between the projected amount of the con- 2004-13 I.R.B.658March 29, 2004 tingent payment and the actual amount of the contingent payment. Paragraph (g)(6)(vii) of the proposed regulations providesa recordkeeping re- quirement with respect to the noncontin- gent swap method. Taxpayers must main- tain in their books and records a descrip- tion of the method used to determine the projected amount of the contingent pay- ment, the projected payment schedules, and the adjustments taken into account un- der the proposed regulations. The IRS and Treasury are considering whether to provide an alternative to the noncontingent swap method that would permit a taxpayer to use a current inclu- sion method for certain NPCs that provide for periodic calculations of amounts due under the terms of the NPC, but provide for deferred payment of the amounts. The IRS and Treasury are considering per- mitting current inclusion of income and deduction for the amounts so calculated, provided the NPC also provides for ac- crual of interest at a qualified rate until the periodically determined amounts are paid or offset against other amounts due under the NPC. The purpose of provid- ing a current inclusion method for the deferred payment NPC described above is to provide tax treatment for NPCs with contingent nonperiodic payments that is economically equivalent to the tax treat- ment of NPCs providing only for periodic payments while avoiding the necessity of using projected amounts for contingent payments. The IRS and Treasury request comments concerning whether an NPC like the deferred payment NPC described above would be a viable transaction for market participants, whether a current inclusion method would be an appropri- ate substitute for the noncontingent swap method for deferred payment NPCs, and whether that method should require sepa- rate computation of interest accruals. Elective mark-to-market methodology Paragraph (i) of the proposed regula- tions provides an elective mark-to-market methodology for certain NPCs providing for nonperiodic payments. If an election is made, the specific accounting rules for nonperiodic payments in §1.446–3(f)(2) (other than (f)(2)(i)) are not applicable. Instead, for any contract that is held at the close of the taxable year, the taxpayer determines income inclusions and deduc- tions by reference to the gain or loss that would be realized if the contract were sold for its fair market value on the last busi- ness day of the taxable year. Because the determination of fair market value takes into account the expected value of future nonperiodic payments, the mark-to-mar- ket methodology constitutes a reasonable basis for amortizing the nonperiodic pay- ments over the term of the contract as required by §1.446–3(f)(2)(i). Proper adjustments are made in the amount of gain or loss subsequently real- ized (or calculated) for income inclusions and deductions taken into account in marking the contract to fair market value. Furthermore, under paragraph (i)(5) of the proposed regulations, if an election is made for a contract providing for a sig- nificant nonperiodic payment, paragraph (g)(4) continues to apply and proper ad- justments must be made to the income inclusions and deductions recognized un- der the mark-to-market methodology to take into account amounts recognized as interest and the payment or receipt of the significant nonperiodic payment, subject to the special rule set forth below. The proposed regulations set forth a special rule for contracts providing for sig- nificant contingent nonperiodic payments that are subject to the mark-to-market elec- tion. If a contract provides for a significant contingent nonperiodic payment, the tax- payer must apply the noncontingent swap method to determine the amounts recog- nized as interest under paragraph (g)(4). However, the taxpayer is not required to reproject the amount of the contingent pay- ment each year. The interest amounts for subsequent years are the interest amounts as determined using the initial projection of the contingent payment. Furthermore, an alternative deemed equivalent value methodmaybeusedtodeterminethepro- jected amount of the contingent payment. The deemed equivalent value method may be applied when the contract fixes the timing and amount of all of the payments under the contract, except for the signif- icant contingent nonperiodic payment. The amount of the significant contingent nonperiodic payment is deemed to be the amount that causes the present value of all the payments by the taxpayer to equal the present value of all of the payments of the counterparty to the contract. The inclusion of an elective mark-to- market methodology is intended to pro- vide taxpayers with an alternative to the provisions of paragraphs (f) of the 1993 Treasury regulations and (g)(6) of the pro- posed regulations respecting nonperiodic payments. With respect to significant nonperiodic payments, however, the pro- posed regulations preserve certain features of those provisions for purposes of com- puting an interest component of swap payments. Such a calculation is necessary to preserve the characterization of an ac- crual as interest. The IRS and Treasury request comments on the appropriateness of requiring taxpayers to compute an in- terest amount for significant nonperiodic payments under the elective mark-to-mar- ket methodology and, in particular, on any effect that requirement may have on the relative usefulness and administrability of the mark-to-market methodology. Paragraph (i)(2) of the proposed reg- ulations provides the scope of the elec- tion. The election is available to con- tracts that are: (1) actively traded within the meaning of §1.1092(d)–1(c) (deter- mined without regard to the limitation in §1.1092(d)–1(c)(2)); (2) marked to market for purposes of the taxpayer’s financial statements provided the taxpayer satisfies the requirements in paragraph (i)(4) of the proposed regulations; (3) subject to an agreement by a party to the contract that is a person to whom section 475 applies to supply to the taxpayer the value that it uses in applying section 475(a)(2); or (4) marked to market by a regulated invest- ment company (RIC) described in section 1296(e)(2). Paragraphs (i)(3)(i) through (iv) of the proposed regulations provide the acceptable methods for determining fair market value. If the contract is actively traded, the fair market value is determined based on the mean between the bid and asked prices quoted for the contract. If a contract is not actively traded, but is marked to market for financial statement purposes, and the valuations used for those purposes comply with the requirements of paragraph (i)(4), the fair market value is deemed to be the value used for the fi- nancial statements. For a contract that is subject to an agreement with a dealer in securities to provide a value, the value that is provided by the dealer is the fair market value. Finally, for a contract marked to market by a RIC, the fair market value March 29, 20046592004-13 I.R.B. is equal to the value used for purposes of determining the RIC’s net asset value. Paragraph (i)(6) of the proposed reg- ulations provides that the mark-to-market election shall be made in the time and man- ner prescribed by the Commissioner and is effective for the taxable year in which it is made and all subsequent years unless revoked with the consent of the Commis- sioner. The proposed regulations indicate that a taxpayer will be permitted to elect the mark-to-market method for NPCs that are marked to market for purposes of the tax- payer’s financial statements and that the values used on the financial statements may be used as fair market value under the mark-to-market election. However, the proposed regulations also indicate that an election to use financial statement values will be subject to further require- ments. On May 5, 2003, the IRS and Treasury published in theFederal Regis- teran Advance Notice of Proposed Rule Making (REG–100420–03, published in the I.R.B. as Announcement 2003–35, 2003–21 I.R.B. 956) requesting com- ments regarding appropriate rules for the use of financial statement values under the mark-to-market provisions of section 475 applicable to securities dealers and electing commodities dealers and secu- rities and commodities traders. The IRS and Treasury will take into account the comments received in response to that Ad- vance Notice in developing the rules to be established for use of financial statement values under the mark-to-market method set forth in paragraph (i) of the proposed regulations. In addition, unlike other mark-to-market regimes, the mark-to-mar- ket method proposed in paragraph (i) does not require a mark immediately before disposition in either a recognition or non- recognition context.Cf. section 1256(c) and proposed regulations §1.475(a)–2. The IRS and Treasury request comments regarding this aspect of the proposed reg- ulations and whether taxpayers who are eligible to elect a mark-to-market method under section 475 but do not do so should be eligible to make the paragraph (i) elec- tion for NPCs. Anti-abuse rule Paragraph (i) of the 1993 Treasury reg- ulations provides that if a taxpayer “en- ters into a transaction with a principal pur- pose of applying the rules of [§1.446–3] to produce a material distortion of income,” the IRS may depart from those rules “as necessary to reflect the appropriate tim- ing of income and deductions from the transaction.” In light of the comprehen- sive rules in the proposed regulations pre- scribing methods of accounting for NPCs, the IRS and Treasury have determined that a general anti-abuse rule is not necessary to prevent these methods being used in a manner that fails to clearly reflect in- come. Accordingly, the proposed regula- tions delete this rule. Proposed dates of applicability These proposed regulations contain both new substantive rules as well as clarifying changes to the 1993 Trea- sury regulations. The new substantive rules, which are contained in paragraph (g)(6) (the noncontingent swap method) (except (g)(6)(i)) and paragraph (i) (the mark-to-market election), are proposed to apply to NPCs entered into on or after 30 days after the date of publication of the final regulations in theFederal Register. Paragraphs (c) (definitions), (d) (taxable year of inclusion and deduction), (f) (non- periodic payments), (g)(4) (significant nonperiodic payments), and (g)(6)(i) (def- inition of contingent and noncontingent nonperiodic payments) are proposed to be integrated into the 1993 Treasury regula- tions which apply to NPCs entered into on or after December 13, 1993. Because of their purely clarifying nature, these proposed changes will apply to the same transactions that are governed by the 1993 Treasury regulations. With respect to NPCs that provide for contingent nonperiodic payments and that are in effect or entered into on or after 30 days after the date of publication of these proposed regulations in theFederal Register, if a taxpayer has not adopted a method of accounting for these NPCs, the taxpayer must adopt a method that takes contingent nonperiodic payments into ac- count over the life of the contract under a reasonable amortization method, which may be, but need not be, a method that sat- isfies the specific rules in these proposed regulations. If a taxpayer has adopted a method of accounting for these NPCs, the Commissioner generally will not require a change in the accounting method ear- lier than the first year ending on or after 30 days after the date of publication of the final regulations in theFederal Reg- ister. The preceding sentence does not ap- ply to transactions described in Rev. Rul. 2002–30, 2002–1 C.B. 971, or other pub- lished guidance. The proposed regulations do not con- tain a specific consistency requirement. Nevertheless, under the general rules governing accounting methods, once a taxpayer adopts a method of accounting foranitem,thetaxpayermustusethe same method from year to year unless the taxpayer obtains the Commissioner’s consent to change to another method of accounting. Character The proposed regulations under §1.162–30 provide that in general, the net periodic and nonperiodic payments (including mark-to-market deductions) are deductible by the payor under section 162 as ordinary and necessary business expenses. However, payments represent- ing interest under the rules for significant nonperiodic payments as well as termi- nation payments are not deductible under section 162. A similar rule is provided for individuals in the proposed regulations under §1.212–1(q). These regulations un- der sections 162 and 212 are proposed to apply to NPCs entered into on or after 30 days after the date of publication of the final regulations in theFederal Register. Anygainorlossarisingfromatermina- tion payment, however, is treated as cap- ital gain or loss pursuant to the proposed regulations under section 1234A. These proposed regulations clarify that periodic payments, noncontingent nonperiodic pay- ments, and contingent nonperiodic pay- ments are not termination payments. The proposed regulations under section 1234A also apply to any gain or loss aris- ing from the settlement of obligations un- der a bullet swap or forward contract. A payment in settlement of obligations under a bullet swap or forward contract, includ- ing a payment pursuant to the terms of the bullet swap or forward contract, is treated as gain or loss from a termination of the bullet swap or forward contract. For purposes of these proposed regula- tions, a bullet swap is defined as a financial 2004-13 I.R.B.660March 29, 2004 instrument that is not an excluded contract as defined in §1.446–3(c)(1)(ii), that pro- vides for the computation of an amount or amounts due from one party to another by reference to a specified index upon a no- tional principal amount, and that provides for settlement of all the parties’ obliga- tions at or close to maturity of the contract, rather than for the payment of the specified amounts at specific intervals. The defini- tion of bullet swap is intended to cover a contract that obligates each party to make a payment at the end of the contract, al- though only one net payment will actually be paid. For example, party A is obligated to pay at the end of three years a fixed rate multiplied by the notional amount. Also at the end of three years, party B is obli- gated to pay a variable rate multiplied by the same notional amount. At the end of three years, only one party makes a net payment equal to the difference between the fixed rate multiplied by the notional amount and the variable rate multiplied by the notional amount. These regulations under section 1234A are proposed to apply to NPCs entered into on or after 30 days after the date of publica- tion of the final regulations in theFederal Register. Special Analyses It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that very few small businesses enter into NPCs with contingent nonperiodic payments because these contracts are costly and complex and because they require constant monitoring and a sophisticated understanding of the capital markets. Therefore, a Regulatory Flexibility Analysis is not required. Pur- suant to section 7805(f) of the Code, this notice of proposed rulemaking will be submitted to the Chief Counsel for Advo- cacy of the Small Business Administration for comment on its impact on small busi- nesses. Comments and Public Hearing Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. The IRS and Treasury specifically request comments on the clar- ity of the proposed rules and how they may be made easier to understand. All com- ments will be available for public inspec- tion and copying. A public hearing has been scheduled for May 25, 2004, beginning at 10 a.m., in the IRS Auditorium, Seventh Floor, Internal Revenue Building, 1111 Constitution Av- enue, NW, Washington, DC. Due to build- ing security procedures, visitors must enter at the Constitution Avenue entrance. In ad- dition, all visitors must present photo iden- tification to enter the building. Because of access restrictions, visitors will not be ad- mitted beyond the immediate entrance area more than 30 minutes before the hearing starts. For information about having your name placed on the building access list to attend the hearing, see “FOR FURTHER INFORMATION CONTACT” section of this preamble. The rules of 26 CFR 601.601(a)(3) ap- ply to the hearing. Persons who wish to present oral comments at the hearing must submit written comments or elec- tronic comments and an outline of topics to be discussed and the time to be devoted to each topic (a signed original and eight (8) copies) by May 4, 2004. A period of 10 minutes will be allotted to each person making comments. An agenda showing the scheduling of the speakers will be pre- pared after the deadline for receiving out- lines has passed. Copies of the agenda will be available free of charge at the hearing. Drafting Information The principal author of these regula- tions is Kate Sleeth, Office of the Asso- ciate Chief Counsel (Financial Institutions and Products). However, other personnel from the IRS and Treasury participated in their development. ***** Proposed Amendments to the Regulations Accordingly, 26 CFR part 1 is proposed to be amended as follows: PART 1—INCOME TAXES Paragraph 1. The authority citation for part 1 continues to read in part as follows: Authority: 26 U.S.C. 7805 * * * Par. 2. Section 1.162–30 is added to read as follows: §1.162–30 Notional principal contract payments. (a)In general.Amounts taken into account by a taxpayer pursuant to §1.446–3(d)(1) (including mark-to-mar- ket deductions) with respect to a no- tional principal contract as defined in §1.446–3(c)(1)(i), are deductible as or- dinary and necessary business expenses. However, this section will not apply to any amount representing interest expense on the deemed loan component of a sig- nificant nonperiodic payment as described in §1.446–3(g)(4). For any loss arising from a termination payment as defined in §1.446–3(h)(1), see section 1234A and the regulations thereunder. For the timing of deductions with respect to notional princi- pal contracts, see §1.446–3. (b)Effective date. Paragraph (a) of this section is applicable to notional principal contracts entered into on or after 30 days after the date a Treasury decision based on these proposed regulations is published in theFederal Register. Par. 3. In §1.212–1, paragraph (q) is added to read as follows: §1.212–1 Nontrade or nonbusiness expenses. ***** (q)Notional principal contract pay- ments—(1) Amounts taken into account by an individual pursuant to §1.446–3(d)(1) (including mark-to-market deductions) with respect to a notional principal con- tract as defined in §1.446–3(c)(1)(i), are ordinary and necessary, and are de- ductible to the extent these amounts are paid or incurred in connection with the production or collection of income. How- ever, this section will not apply to any amount representing interest expense on March 29, 20046612004-13 I.R.B. the deemed loan component of a signif- icant nonperiodic payment as described in §1.446–3(g)(4). For any loss arising from a termination payment as defined in §1.446–3(h)(1), see section 1234A and the regulations thereunder. For the timing of deductions with respect to notional princi- pal contracts, see §1.446–3. (2)Effective date. Paragraph (q) of this section is applicable to notional principal contracts entered into on or after 30 days after the date a Treasury decision based on these proposed regulations is published in theFederal Register. Par. 4. Section 1.446–3 is amended by: 1. Revising the introductory text of paragraph (a) and the table of contents in paragraph (a). 2. Adding paragraph (c)(5). 3. Revising paragraphs (d), (f)(2)(i), (f)(2)(iii)(A), and (g)(4). 4. Redesignating the text of paragraph (g)(6) as paragraph (g)(7). 5. Adding new paragraph (g)(6). 6. Amending the newly designated text of paragraph (g)(7) by: a. Revising the heading forExample 3. b. AddingExample 5throughExample 9. 7. Revising paragraphs (i) and (j). The revisions and additions read as fol- lows: §1.446–3 Notional principal contracts. (a)Table of contents. This paragraph (a) lists captioned paragraphs contained in this section. §1.446–3 Notional principal contracts. (a) Table of contents. (b) Purpose. (c) Definitions and scope. (1) Notional principal contract. (i) In general. (ii) Excluded contracts. (iii) Transactions within section 475. (iv) Transactions within section 988. (2) Specified index. (3) Notional principal amount. (4) Special definitions. (i) Related person and party to the con- tract. (ii) Objective financial information. (iii) Dealer in notional principal con- tracts. (5) Risk-free interest rate and determi- nation date. (i) Risk-free interest rate. (ii) Determination date. (d) Taxable year of inclusion and de- duction; adjustment of gain or loss. (1) Inclusion and deduction. (2) Adjustment of gain or loss. (e) Periodic payments. (1) Definition. (2) Recognition rules. (i) In general. (ii) Rate set in arrears. (iii) Notional principal amount set in arrears. (3) Examples. (f) Nonperiodic payments. (1) Definition. (2) Recognition rules. (i) In general. (ii) General rule for swaps. (iii) Alternative methods for swaps. (A) Prepaid swaps. (B) Other nonperiodic swap payments. (iv) General rule for caps and floors. (v) Alternative methods for caps and floors that hedge debt instruments. (A) Prepaid caps and floors. (B) Other caps and floors. (C) Special method for collars. (vi) Additional methods. (3)Termofextendibleorterminable contracts. (4) Examples. (g) Special rules. (1) Disguised notional principal con- tracts. (2) Hedged notional principal contracts. (3) Options and forwards to enter into notional principal contracts. (4) Swaps with significant nonperiodic payments. (5) Caps and floors that are significantly in-the-money. [Reserved] (6) Notional principal contracts with contingent nonperiodic payments. (i) Definitions. (A) Noncontingent nonperiodic pay- ments. (B) Contingent nonperiodic payments. (ii) Noncontingent swap method. (iii) Determining projected amount of contingent payment. (A) Payment based on actively traded futures or forward contracts. (B) Payment based on extrapolation from current market prices. (C) Payment based on reasonable esti- mate. (iv) Redeterminations of projected pay- ments and level payment amounts. (A) General rule. (B) Special rule for fixed but deferred contingent nonperiodic payments. (v) Adjustments following redetermi- nations. (vi) Adjustments for differences be- tween projected and actual payments. (vii) Recordkeeping requirements. (7) Examples. (h) Termination payments. (1) Definition. (2) Taxable year of inclusion and de- duction by original parties. (3) Taxable year of inclusion and de- ductionbyassignees. (4) Special rules. (i) Assignment of one leg of a contract. (ii) Substance over form. (5) Examples. (i) Election to mark to market. (1) General rule. (2) Scope of election. (3) Determination of fair market value. (i) Determination based on readily as- certainable value. (ii) Determination based on value used for financial statements. (iii) Determination based on counter- party’s mark-to-market value. (iv) Determination based on value used in determining net asset value. (4) Requirements for use of financial statement values. [Reserved] (5) Notional principal contracts accru- ing interest on significant nonperiodic pay- ments. (i) General rule. (ii) Special rules for significant contin- gent nonperiodic payments. (iii) Nonapplicability to regulated in- vestment companies. (6) Election. (j) Effective dates. (1) General rule. (2) Exception. ***** (c) * * * (5)Risk-free interest rate and deter- mination date—(i)Risk-free interest rate. The risk-free interest rate is the applica- ble Federal rate determined in accordance with section 1274(d)(1) for a determina- tion date and the period remaining in the term of the contract on the determination date. 2004-13 I.R.B.662March 29, 2004 (ii)Determination date. A determina- tion date is the commencement date of the swap, each redetermination date as defined in paragraph (g)(6)(ii) of this section, and each special redetermination date as de- fined in paragraph (g)(6)(iv)(B) of this sec- tion. (d)Taxable year of inclusion and de- duction; adjustment of gain or loss—(1) Inclusion and deduction. For all purposes of the Internal Revenue Code, the net income or net deduction from a notional principal contract for a taxable year is taken into account for that taxable year. The net income or net deduction from a notional principal contract for a taxable year equals the total of all of the peri- odic payments that are recognized from that contract for the taxable year under paragraph (e) of this section, all of the nonperiodic payments that are recognized from that contract for the taxable year under paragraph (f) of this section, and the mark-to-market income inclusions and deductions recognized from that contract under paragraph (i) of this section. (2)Adjustment of gain or loss.Proper adjustment shall be made in the amount of any gain or loss realized on a sale, ex- change, or termination of a notional prin- cipal contract for inclusions or deductions pursuant to paragraphs (d)(1) and (g)(4) of this section and for payments or receipts with respect to the notional principal con- tract. ***** (f) * * * (2)Recognition rules—(i)In general. All taxpayers, regardless of their method of accounting, must recognize the ratable daily portion of a nonperiodic payment for the taxable year to which that portion re- lates. Generally, a nonperiodic payment must be recognized over the term of a no- tional principal contract in a manner that reflects the economic substance of the con- tract. See paragraph (g)(6) of this section for additional rules for contingent nonpe- riodic payments. ***** (iii) * * * (A)Prepaid swaps. An upfront pay- ment on a swap may be amortized by as- suming that the nonperiodic payment rep- resents the present value of a series of equal payments made throughout the term of the swap contract (the level payment method), adjusted as appropriate to take account of increases or decreases in the notional principal amount. The discount rate used in this calculation must be the rate (or rates) used by the parties to deter- mine the amount of the nonperiodic pay- ment. If that rate is not readily ascertain- able,thediscountrateusedmustbearate that is reasonable under the circumstances. Under this method, an upfront payment is allocated by dividing each equal payment into its principal recovery and time value components. The principal recovery com- ponents of the equal payments are treated as periodic payments that are deemed to be made on each of the dates that the swap contract provides for periodic payments by the payor of the nonperiodic payment or, if none, on each of the dates that the swap contract provides for periodic payments by the recipient of the nonperiodic payment. The sum of the principal recovery compo- nents equals the amount of the upfront pay- ment. The time value component is used to compute the amortization of the nonperi- odic payment but is otherwise disregarded. See paragraph (f)(4)Example 5of this sec- tion. ***** (g) * * * (4)Swaps with significant nonperiodic payments. The parties to a swap with one or more significant nonperiodic payments must treat the contract as two or more sep- arate transactions consisting of an on-mar- ket swap and one or more loans. The parties must account for the loans sepa- rately from the swap. The payments as- sociated with the on-market swap are in- cluded in the net income or net deduction from the swap under paragraph (d) of this section. The time value components as- sociated with the loans are not included in the net income or net deduction from the swap under paragraph (d) of this sec- tion but are recognized as interest for all purposes of the Internal Revenue Code. The on-market swap must result in recog- nition of the payments associated with the swap in a manner that complies with the principles set forth in paragraph (f)(2)(i) of this section. See paragraph (g)(7)Ex- ample 3of this section for a situation in which the on-market swap payments for a party making a significant nonperiodic upfront payment will be level payments that may be constructed through a combi- nation of the actual payments on the swap and level payments computed under the level payment method provided by para- graph (f)(2)(iii)(A) of this section. In cer- tain cases, a swap with significant nonpe- riodic payments other than an upfront pay- ment may be treated as if the swap pro- vided for a series of level payment loan ad- vances having a present value equal to the present value of the nonperiodic payments, with the amount of each loan advance be- ing immediately returned as a level pay- ment on the swap. See paragraph (g)(7) Example 5of this section. For purposes of section 956, the Commissioner may treat any nonperiodic swap payment, whether or not it is significant, as one or more loans. ***** (6)Notional principal contracts with contingent nonperiodic payments—(i) Definitions—(A)Noncontingent nonperi- odic payments. A noncontingent nonpe- riodic payment is a nonperiodic payment that either is fixed on or before the end of the taxable year in which a contract com- mences or is equal to the sum of amounts that would be periodic payments if they are paid when they become fixed (including amounts determined as interest accruals). (B)Contingent nonperiodic payments. A contingent nonperiodic payment is any nonperiodic payment other than a noncon- tingent nonperiodic payment. (ii)Noncontingent swap method.Un- der the noncontingent swap method, a taxpayer, regardless of its method of accounting, recognizes each contingent nonperiodic payment with respect to a notional principal contract by determin- ing the projected amount of the payment and by applying to that projected amount the level payment method described in paragraphs (f)(2)(iii)(A) and (B) of this section. The projected amount of a con- tingent nonperiodic payment is the rea- sonably expected amount of the payment, whichisdeterminedbyusingoneofthe methods described in paragraph (g)(6)(iii) of this section and by using the risk-free interest rate in applying the level payment method. On each successive anniversary date for the notional principal contract (a redetermination date) and each spe- cial redetermination date (as defined in paragraph (g)(6)(iv)(B) of this section), the taxpayer must redetermine the pro- jected amount of each contingent nonpe- March 29, 20046632004-13 I.R.B. riodic payment, reapply the level payment method as provided in paragraph (g)(6)(iv) of this section, and make the adjustments specified in paragraph (g)(6)(v) of this section. If paragraph (g)(4) of this section applies to the notional principal contract, redeterminations and adjustments must also be made to account for the time value components of the transaction as interest in accordance with that paragraph. Except for contingent nonperiodic payments gov- erned by paragraph (g)(6)(iv)(B) of this section, in the taxable year in which a con- tingent payment is made or received, the parties must make appropriate adjustments to the amount of income or deductions at- tributable to the notional principal contract for any differences between projected and actual contingent nonperiodic payments as provided in paragraph (g)(6)(vi) of this section. (iii)Determining projected amount of contingent payment—(A)Payment based on actively traded futures or forward con- tracts. If a contingent nonperiodic pay- ment is determined under the contract by reference to the value of a specified index on a designated future date, the projected amount of the payment may be determined on the basis of the future value for the spec- ified index in actively traded futures or for- ward contracts, if any, providing for deliv- ery or settlement on the designated future date. If no actively traded contract exists for the designated future date, a determina- tion from the future values for the specified index in actively traded futures or forward contracts, if any, providing for delivery or settlement on dates within three months of the designated future date may be used. (B)Payment based on extrapolation from current market prices. If a contin- gent nonperiodic payment is determined under the contract by reference to the value of a specified index on a designated future date, the projected amount of the payment may be determined on the basis of the current value of the specified index as established by objective financial in- formation adjusted to convert the current value to a future value for the specified index on the designated future date. The current value is converted to a future value by adding to the current value an amount equal to the accrual of interest on the cur- rent value under a constant yield method at the risk-free interest rate with appropriate compounding and by making appropriate adjustments for expected cash payments on the property underlying the specified index. (C)Payment based on reasonable es- timate. If the methods provided in para- graphs (g)(6)(iii)(A) and (B) of this sec- tion do not result in a reasonable estimate of the amount of the contingent payment, the taxpayer must use another method that does result in a reasonable estimate of the amount of the contingent payment and that is based on objective financial informa- tion. (iv)Redeterminations of projected pay- ments and level payment amounts—(A) General rule. On each redetermination date, the taxpayer must redetermine the projected amount using current values on the redetermination date and the same method that was used on the commence- ment date of the notional principal con- tract, and must reapply the level payment method as of the commencement date of the notional principal contract on the basis of the new projected payment amount and the risk-free interest rate in effect on the redetermination date. (B)Special rule for fixed but deferred contingent nonperiodic payments.Ifa contingent nonperiodic payment is fixed more than six months before it is due, and if the date the payment is fixed is in adifferenttaxableyearfromthedatethe payment is due, the date on which the pay- ment is fixed is a special redetermination date. As of that date, the taxpayer must treat the fixed amount as the projected amount for that contingent nonperiodic payment and apply paragraphs (g)(6)(iv) and (v) of this section as if the special re- determination date were a redetermination date. (v)Adjustments following redetermi- nations. Following each redetermination of projected payments and level payment amounts, the taxpayer must apply the new schedule of level payments for purposes of determining amounts to be recognized in the current and subsequent taxable years with respect to the contingent nonperiodic payments. Any difference between the amounts recognized inprior taxable years and the amounts that would have been rec- ognized in those years had the new level payment schedule been in effect for those years is taken into account as additional payments or receipts with respect to the contract ratably over the one-year period beginning with the redetermination date and, to the extent attributable to a differ- ence in the interest amounts calculated under paragraph (g)(4) of this section, is recognized as interest for all purposes of the Internal Revenue Code. (vi)Adjustments for differences be- tween projected and actual payments. Any difference between the amounts taken into account under paragraph (f) and this paragraph (g)(6) on the one hand and the amount of the actual payment under the contract on the other hand is taken into ac- count as an adjustment to the net income or net deduction from the notional prin- cipal contract for the taxable year during which the payment occurs, and not as an adjustment to interest income or expense. (vii)Recordkeeping requirements.The books and records maintained by a tax- payer must contain a description of the method used to determine the projected amount of a contingent payment, projected payment schedules, any adjustments fol- lowing redeterminations, and any adjust- ments for differences between projected and actual contingent payments. (7) * * * Example 3.Upfront significant nonperiodic pay- ment.*** ***** Example 5.Backloaded significant nonperiodic payment. (i) On January 1, 2003, unrelated partiesP andQenter into an interest rate swap contract. Un- der the terms of the contract,Pagrees to make five annual payments toQequal to LIBOR times a no- tional principal amount of $100,000,000. In return, Qagrees to payP6% of $100,000,000 annually, plus $24,420,400 on December 31, 2007. At the timeP andQenter into this swap agreement, the rate for sim- ilar on-market swaps is LIBOR to 10%. Assume that on January 1, 2003, the risk-free rate is 10%. (ii) The $24,420,400 payment fromQtoPis sig- nificant when compared to the present value of the total payments due fromQunder the contract. Ac- cordingly, pursuant to paragraph (g)(4) of this sec- tion, the transaction is recharacterized as two sepa- rate transactions. First,Pis treated as paying toQ a series of $4,000,000 level payment loan advances. The present value of the level payment loan advances equals the present value of $24,420,400, the signifi- cant nonperiodic payment. Stated differently, the sum of the level payment loan advances and accrued inter- est on those advances equals the significant nonperi- odic payment. (iii) Next,Qis treated as using each loan ad- vance to fund five annual level swap payments of $4,000,000. The level payment loan advances and accrued interest on the advances computed with an- nual compounding at 10% are as follows: 2004-13 I.R.B.664March 29, 2004 Level Payment Accrued Interest 2003....................... $4,000,000$0 2004.......................4,000,000400,000 2005....................... 4,000,000840,000 2006.......................4,000,0001,324,000 2007.......................4,000,000 1,856,400 $20,000,000$4,420,400 (iv)Precognizes interest income, andQaccrues interest expense, each taxable year equal to the in- terest accruals on the deemed level payment loan ad- vances. These interest amounts are not included in the parties’ net income or net deduction from the swap contract under paragraph (d) of this section. (v) The level payment amounts of $4,000,000 are taken into account in determining the parties’ net in- come and deductions on the swap pursuant to para- graph (d) of this section. Example 6.Contingent nonperiodic payment on an equity swap. (i) On January 1, 2005, unrelated par- tiesVandWenter into an equity swap contract. Un- der the terms of the contract,Vagrees to make three annual payments toWequal to 1-year LIBOR times a notional principal amount of $50,000,000. In re- turn,Wagrees to make a single payment on Decem- ber 31, 2007, equal to the appreciation, if any, of a $50,000,000 investment in a basket of equity securi- ties over the term of the swap.Vis obligated to make a single payment on December 31, 2007, equal to the depreciation, if any, in the same $50,000,000 invest- ment in the basket of equity securities. Assume that on January 1, 2005, 1-year LIBOR is 9.5%, and the risk-free rate is 10.0%. (ii) This contract is a notional principal contract as defined in paragraph (c)(1) of this section. The annual LIBOR-based payments fromVtoWare peri- odic payments and the single payment on December 31, 2007, is a contingent nonperiodic payment. (iii) Pursuant to the method described in (g)(6)(iii)(B) of this section, the parties determine that the projected amount of the contingent non- periodic payment thatWwill payVon December 31, 2007, is $16,550,000. The present value of this projected fixed payment is significant when com- pared to the present value of the total payments due fromWunder the contract. Accordingly, pursuant to paragraph (g)(4) of this section, the transaction is recharacterized as two separate transactions. (iv) As a preliminary step, using the risk-free rate of 10.0% as the discount rate, the parties deter- mine the level payment amounts that have a present value equal to the present value of $16,550,000, the projected significant nonperiodic payment. Stated differently, the sum of the level payment amounts and accrued interest at 10.0% on those amounts must equal the projected significant nonperiodic payment. The level payment amounts thus determined are $5,000,000. (v) Next,Vis treated as paying toWaseriesof $5,000,000 loan advances. (vi) Then,Wis treated as using each loan advance to fund one of the three annual level swap payments of $5,000,000. The level payment loan advances and accrued interest on the advances computed with an- nual compounding at 10.0% are as follows: Level Payment Accrued Interest 2005....................... $5,000,000$0 2006....................... 5,000,000500,000 2007....................... 5,000,0001,050,000 $15,000,000$1,550,000 (vii) No interest amount is taken into account for the contract year 2005. (viii) The level payment amount of $5,000,000 is taken into account for the contract year 2005 in determining the parties’ net income and deductions on the swap pursuant to paragraph (d) of this section. (ix) For the contract year 2005,Vmakes a swap payment toWequal to 1-year LIBOR at 9.5% times $50,000,000, or $4,750,000, andWis deemed to make a swap payment toVequal to the annual level payment of $5,000,000. The net of the ratable daily portions of these payments determines the annual net income or deduction from the contract for bothVand W. Example 7.Initial Adjustment.(i)Thetermsof the equity swap agreement are the same as inExam- ple 6. In addition, assume that on January 1, 2006, the first redetermination date, 1-year LIBOR is 10.0%, and the risk-free rate is 10.5%. On that date, the parties redetermine the projected amount of the con- tingent nonperiodic payment using current values in effect on that date. Under the method described in (g)(6)(iii)(B) of this section, the parties determine that the reprojected amount of the contingent nonpe- riodic payment thatWwill payVon December 31, 2007, is $23,261,500. The present value as of January 1, 2005, of this projected fixed payment is significant when compared to the present value of the total pay- ments due fromWunder the contract. Accordingly, pursuant to paragraph (g)(4) of this section, the trans- action is recharacterized as two separate transactions. (ii) The parties use the redetermined projected amount of $23,261,500, to reapply the method pro- vided by paragraph (g)(4) of this section effective as of the commencement date of the swap. As a pre- liminary step, using the risk-free rate of 10.5% as the discount rate, the parties determine the level pay- ment amounts that have a present value equal to the present value of $23,261,500, the reprojected signifi- cant nonperiodic payment. Stated differently, the sum of the level payment amounts and accrued interest at 10.5% on those amounts must equal the reprojected significant nonperiodic payment. The level payment amounts thus determined are $6,993,784. (iii) Next,Vis treated as paying toWaseriesof $6,993,784 loan advances. (iv) Then,Wis treated as using each loan advance to fund one of the three annual level swap payments of $6,993,784. The level payment loan advances and accrued interest on the advances computed with an- nual compounding at 10.5%, are as follows: March 29, 20046652004-13 I.R.B. Level Payment Accrued Interest 2005....................... $6,993,784$0 2006.......................6,993,784734,347 2007.......................6,993,784 1,545,801 $20,981,352$2,280,148 (v) For the contract year 2006,Vrecognizes inter- est income, andWaccrues interest expense equal to the accrue d interest of $734,347 on the deemed level payment loan advance. These interest amounts are not included in the parties’ net income or net deduc- tion from t he swap contract under paragraph (d) of this section. (vi) The level payment amount of $6,993,784 is taken int o account for the contract year 2006 in de- termining the parties’ net income and deductions on the swap pursuant to paragraph (d) of this section. (vii) The parties also take into account for the con- tract year 2006 the difference between the amount recognized for 2005 and the amount that would have been reco gnized in 2005 had the new level payment schedule in thisExample 7been in effect in 2005. Thus, for purposes of paragraph (d) of this section, Wis trea ted as making a swap payment, andVis treated as receiving a swap payment of $1,993,784 ($6,993,784 - $5,000,000) for purposes of paragraph (d) of th is section. (viii) For the contract year 2006,Vmakes a swap payment toWequal to 1-year LIBOR at 10.0% times $50,000,0 00, or $5,000,000, andWis deemed to make a swap payment toVequal to the annual level payment of $6,993,784 and the adjustment amount of $1,993, 784. The net of the ratable daily portions of these payments determines the annual net income or deduction from the contract for bothVandW. Example 8 .Subsequent Adjustment. (i) The terms of the equity swap agreement are the same as inEx- ample 7. In addition, assume that on January 1, 2007, the secon d redetermination date, 1-year LIBOR is 11.0%, and the risk-free rate is also 11.0%. On that date, the parties redetermine the projected amount of the co ntingent nonperiodic payment using current values in effect on that date. The parties determine that the reprojected amount of the contingent nonpe- riodic p ayment thatWwill payVon December 31, 2007, is $11,050,000. The present value as of January 1, 2005, of this projected fixed payment is significant when co mpared to the present value of the total pay- ments due fromWunder the contract. Accordingly, pursuant to paragraph (g)(4) of this section, the trans- action is recharacterized as two separate transactions. (ii) The par ties use the redetermined projected amount of $11,050,000, to reapply the method pro- vided by paragraph (g)(4) effective as of the com- mencement date of the swap. As a preliminary step, using the risk-free rate of 11.0% as the discount rate, the parties determine the level payment amounts that have a pre sent value equal to the present value of $11,050,000, the reprojected significant nonperiodic payment. Stated differently, the sum of the level pay- ment amou nts and accrued interest at 11.0% on those amounts must equal the reprojected significant non- periodic payment. The level payment amounts thus determi ned are $3,306,304. (iii) Next,Vis treated as paying toWaseriesof $3,306,304 loan advances. (iv) Then ,Wis treated as using each loan advance to fund one of the three annual level swap payments of $3,306,304. The level payment loan advances and accrued interest on the loan advances computed with annual compounding at 11.0% are as follows: Level Payment Accrued Interest 2005....................... $3,306,304$0 2006.......................3,306,304363,693 2007.......................3,306,304767,393 $9,918,912$1,131,086 (v) For 2007,Vrecognizes interest income, and Waccrues interest expense equal to the $767,393 ac- crued interest amount for 2007 on the deemed loan advances. In addition,Vhas a net interest expense item andWhas a net interest income item equal to $370,654 ($734,347 - 363,693), the difference be- tween the interest accrual taken into account for 2006 and the amount that would have been taken into ac- count for 2006 had the new level payment schedule in thisExample 8been in effect for 2006. As a re- sult,Vhas net interest income andWhas net interest expense in the amount of $396,739 for 2007. These interest amounts are not included in the parties’ net income or net deduction from the swap contract un- der paragraph (d) of this section. (vi) The level payment amount of $3,306,304 is taken into account for the contract year 2007 in de- termining the parties’ net income and deductions on the swap pursuant to paragraph (d) of this section. (vii) For 2007, the parties also take into account for 2007 the difference between the amounts previ- ously recognized for 2005 and 2006 and the amounts that would have been recognized for those years had the new level payment schedule in thisExample 8been in effect in 2005 and 2006. The amounts previously recognized were: a total of $6,993,784 for 2005, which is the sum of $5,000,000 (in 2005) and $1,993,784 (in 2006), and a total of $6,993,784 for 2006 (in 2006). The adjustment amount, there- fore, equals two times $3,687,480 ($6,993,784 - $3,306,304), or $7,374,960. This amount is taken into account as a payment for purposes of paragraph (d) of this section. (viii) For the contract year 2007,Vmakes a swap payment toWequal to 1-year LIBOR at 11.0% times $5,000,000, or $5,500,000.Wis deemed to make a swap payment toVequal to the annual level payment for 2007 of $3,306,304, andVis deemed to make a swap payment toWequal to the adjustment amount of $7,374,960. The net of the ratable daily portions of these payments determines the annual net income or deduction from the contract for bothVandW. Example 9.Adjustment for actual payment.(i) The terms of the equity swapagreement are the same as inExample 8. In addition, on December 31, 2007, Wmakes a payment toVof $25,000,000, an amount equal to the appreciation of a $50,000,000 investment in the basket of equity securities. (ii) For 2007, $13,950,000, the difference be- tween $25,000,000 and $11,050,000, the projected amount of the contingent payment as of January 1, 2007, is taken into account as an adjustment to the parties’ net income or deductions for each party’s taxable year that containsDecember 31, 2007, pur- suant to paragraph (d) of this section. ***** (i)Electiontomarktomarket.Atax- payer may elect to mark to market notional principal contracts providing for nonperi- odic payments. The rules of paragraphs (f) (other than (f)(2)(i)), (g)(6)(ii) through (vii), and (h) of this section do not ap- ply to contracts to which this paragraph (i) applies. See paragraph (i)(5) of this sec- tion for rules respecting interest accruals under paragraph (g)(4) of this section for contracts providing for significant nonpe- riodic payments to which this paragraph (i) applies. (1)General rule. In the case of any contract held at the close of the taxable 2004-13 I.R.B.666March 29, 2004 year to which this paragraph (i) applies, the taxpayer shall determine income inclu- sions and deductions by reference to the gain or loss that would be realized if the contract were sold for its fair market value on the last business day of the taxable year. Proper adjustment shall be made in the amount of any gain or loss subsequently realized (or calculated) for the income in- clusions and deductions taken into account by reason of this paragraph (i)(1) as pro- vided in paragraph (d)(2) of this section. (2)Scope of election. The election pro- vided by this paragraph is available for no- tional principal contracts that are— (i) Of a type that is actively traded within the meaning of §1.1092(d)–1(c) (determined without regard to the limita- tion in §1.1092(d)–1(c)(2)); (ii) Marked to market by the taxpayer for purposes of determining the taxpayer’s financial income provided the taxpayer satisfies the requirements in paragraph (i)(4) of this section; (iii) Subject to an agreement by a party to the contract that is subject to section 475 to supply to the taxpayer the value that it uses in applying section 475(a)(2); or (iv) Marked to market by a regulated investment company described in section 1296(e)(2). (3)Determination of fair market value. For purposes of paragraph (i)(1) of this section, fair market value is determined by applying the rules set forth in paragraphs (i)(3)(i) through (iv) of this section. (i)Determination based on readily ascertainable value. For a contract de- scribed in paragraph (i)(2)(i) of this sec- tion, fair market value is determined based on the mean between the bid and asked prices quoted for the contract on an established financial market as de- fined in §1.1092(d)–1(b)(1), or, if bid and asked prices are not available, com- parable prices determined on the basis of recent price quotations described in §1.1092(d)–1(b)(2). (ii)Determination based on value used for financial statements. For a contract described in paragraph (i)(2)(ii) of this section that is not described in paragraph (i)(2)(i) of this section, fair market value is the value used by the taxpayer for pur- poses of preparing its financial statements under paragraph (i)(4) of this section. (iii)Determination based on counter- party’s mark-to-market value. For a con- tract described in paragraph (i)(2)(iii) of this section that is not described in para- graph (i)(2)(i) of this section, fair mar- ket value is the mark-to-market value pro- vided by a counterparty as being the value the counterparty used for purposes of sec- tion 475(a)(2). (iv)Determination based on value used in determining net asset value. Notwith- standing paragraphs (i)(3)(i) through (iii) of this section, for a contract described in paragraph (i)(2)(iv) of this section, fair market value is the value used by the tax- payer in determining its net asset value. (4)Requirements for use of financial statement values. [Reserved]. (5)Notional principal contracts ac- cruing interest on significant nonperiodic payments—(i)General rule. If a notional principal contract that is marked to mar- ket under this paragraph (i) provides for one or more significant nonperiodic pay- ments, paragraph (g)(4) of this section applies to the contract (computed with regard to the rule in paragraph (i)(5)(ii) of this section). Proper adjustment shall be made in the amount of any income inclusions or deductions recognized under paragraph(i)(1)ofthissectiontotakeinto account amounts recognized as interest under paragraph (g)(4) of this section and the payment or receipt of the nonperiodic payment or payments. (ii)Special rules for significant contin- gent nonperiodic payments. In the case of a contract providing for a significant con- tingent nonperiodic payment, the projected amount of the payment is determined by applying one of the methods described in paragraph (g)(6)(iii) of this section or by applying the deemed equivalent value method described in this paragraph (i)(5)(ii). The amount of the payment is not redetermined except as provided in paragraph (g)(6)(iv)(B) of this section. The deemed equivalent value method may be applied if the contract fixes the timing and amount of all of the payments under the contract, except for a sole significant contingent nonperiodic payment. Under the deemed equivalent value method, the amount of the significant contingent non- periodic payment is the amount that, as of the date the terms of the contract are fixed, causes the present value of all of the payments by the taxpayer to equal the present value of all of the payments of the counterparty to the contract. The present value of each payment of the contract is determined by applying the risk-free inter- est rate. (iii)Nonapplicability to regulated in- vestment companies. Paragraphs (i)(5)(i) and(ii)ofthissectiondonotapplytoa regulated investment company described in paragraph (i)(2)(iv) of this section that makes an election under paragraph (i) of this section. (6)Election. An election to apply this paragraph (i) must be made with respect to all notional principal contracts described in paragraph (i)(2) of this section to which the taxpayer is a party. The election must be made in the time and manner prescribed by the Commissioner and is effective for the taxable year for which made and all subsequent taxable years, unless revoked with the consent of the Commissioner. (j)Effective dates—(1)General rule. Except as provided in paragraph (j)(2) of this section, this section is applicable for notional principal contracts entered into on or after December 13, 1993. (2)Exception. Paragraphs (g)(6) (other than (g)(6)(i)) and (i) of this section are applicable for notional principal contracts entered into on or after 30 days after the date a Treasury decision based on these proposed regulations is published in the Federal Register. Par. 5. Section 1.1234A–1 is added to read as follows: §1.1234A–1 Notional principal contracts, bullet swaps, and forward contracts. (a)General rule. If a taxpayer has a po- sition in a notional principal contract gov- erned by the rules of §1.446–3, any gain or loss arising from a termination payment as defined in §1.446–3(h)(1) is treated as gain or loss from a termination of the notional principal contract. (b)Nonapplicability to payments other than termination payments.For purposes of section 1234A, none of the following payments terminate or cancel a right or obligation: a peri- odic payment described in §1.446–3(e), a nonperiodic payment described in §1.446–3(f), a contingent nonperiodic payment described in §1.446–3(g)(6) to which §1.446–3(g)(6)(ii) applies, or mark-to-market income inclusions and deductions described in §1.446–3(i)(1). Accordingly, section 1234A does not ap- March 29, 20046672004-13 I.R.B. ply to any of these items, including any final scheduled payment. If a payment made or received pursuant to a notional principal contract is not a termination pay- ment as defined in §1.446–3(h)(1), the payment constitutes ordinary income or expense. See sections 162 and 212 and the regulations thereunder. (c)Bullets swaps and forward con- tracts—(1)Anygainorlossarisingfrom the settlement of obligations under a bul- let swap or forward contract (including a payment pursuant to the terms of the obli- gations) is treated as gain or loss from a termination of the bullet swap or forward contract. (2)Definition of bullet swap. A bul- let swap is a financial instrument that is not an excluded contract as defined in §1.446–3(c)(1)(ii), that provides for the computation of an amount or amounts due from one party to another by reference to a specified index upon a notional principal amount, and that provides for settlement of all the parties’ obligations at or close to maturity of the contract. (d)Effective date. Paragraphs (b)(1) and (c) of this section are applicable to notional principal contracts, bullet swaps, and forward contracts entered into on or af- ter 30 days after the date a Treasury deci- sion based on these proposed regulations is published in theFederal Register. Mark E. Matthews, Deputy Commissioner for Services and Enforcement. (Filed by the Office of the Federal Register on February 25, 2004, 8:45 a.m., and published in the issue of the Federal Register for February 26, 2004, 69 F.R. 8886) Revision of Form 3115 Announcement 2004–16 DECEMBER 2003 REVISION OF FORM 3115 Form 3115,Application for Change in Accounting Method, and its instructions have been revised. This December 2003 revision is the current Form 3115 and re- places the May 1999 version of the Form 3115. In general, a taxpayer requesting a change in accounting method must com- plete and file a current Form 3115. See section 8.06 of Rev. Proc. 97–27, 1997–1 C.B. 680 (as modified and amplified by Rev. Proc. 2002–19, 2002–1 C.B. 696, as amplified and clarified by Rev. Proc. 2002–54, 2002–2 C.B. 432). See also Rev. Proc. 2002–9, 2002–1 C.B. 327 (as modified and clarified by Announcement 2002–17, 2002–1 C.B. 561, modified and amplified by Rev. Proc. 2002–19, 2002–1 C.B. 696, and amplified, clarified and modified by Rev. Proc. 2002–54, 2002–2 C.B. 432). To allow a reasonable transi- tion period to the December 2003 Form 3115, the Service will accept either the May 1999 Form 3115 or the December 2003 Form 3115 through May 31, 2004, except where the use of the December 2003 Form 3115 is specifically required in guidance published by the IRS. Taxpayers filing Forms 3115 after May 31, 2004, must use the December 2003 Form 3115. The Service encourages taxpayers to use the December 2003 Form 3115 prior to June 1, 2004. When requesting a change in account- ing method, the applicant must provide the requested information to be eligible for approval of the requested accounting method change. The applicant may be re- quired to provide information specific to the accounting method change such as an attached statement. The applicant must provide all information relevant to the re- quested accounting method change, even if not specifically requested by the Form 3115. The December 2003 Form 3115 and in- structions may be downloaded or ordered using the IRS website,www.irs.gov,and will be available at many local IRS of- fices. In addition, the December 2003 Form 3115 and instructions may be or- dered by telephone by calling 1–800–TAX FORM (1–800–829–3676). EFFECT OF THE DECEMBER 2003 FORM 3115 ON OTHER DOCUMENTS The following revenue procedures con- tain references to specific sections of the Form 3115. Those references to the Form 3115 are modified to reflect the December 2003 Form 3115, as follows. In Rev. Proc. 2001–10, 2001–1 C.B. 272, section 6.02(1)(d), the reference to “Part III (regardingthe § 481(a) adjust- ment)” is modified to refer to “Part IV (re- garding the § 481(a) adjustment).” In Rev. Proc. 2001–23, 2001–1 C.B. 784, section 5.02(4), the reference to “Part I of Schedule B” is modified to refer to "Part I of Schedule C.” In Rev. Proc. 2002–9, section 10.04(4)(c) of the Appendix, the refer- ence to “Part I of Schedule B” is modified to refer to “Part I of Schedule C.” In Rev. Proc. 2002–28, 2002–1 C.B. 815, section 7.02(1)(b), the reference to “Part III of Form 3115 (regarding the § 481(a) adjustment)” is modified to refer to “Part IV of Form 3115 (regarding the § 481(a) adjustment).” For further information regarding this announcement, contact Brenda D. Wilson at (202) 622–4800 (not a toll-free call). Foundations Status of Certain Organizations Announcement 2004–19 The following organizations have failed to establish or have been unable to main- tain their status as public charities or as op- erating foundations. Accordingly, grantors and contributors maynot, after this date, rely on previous rulings or designations in the Cumulative List of Organizations (Publication 78), or on the presumption arising from the filing of notices under sec- tion 508(b) of the Code. This listing does notindicate that the organizations have lost their status as organizations described in section 501(c)(3), eligible to receive de- ductible contributions. Former Public Charities.The follow- ing organizations (which have been treated as organizations that are not private foun- dations described in section 509(a) of the Code) are now classified as private foun- dations: 100 Black Men of America, Inc., Greater Dallas Chapter, Dallas, TX 100 Blacks Who Care, Inc., Brooklyn, NY Addison Terrace High Rise Resident Council, Pittsburgh, PA African Centre for the Constructive Resolution of Disputes, New York, NY African Liberation League, Los Angeles, CA African Refugees Relief Organization, Inc., Atlanta, GA Agape Life Center, Wichita, KS Agape Productions, Inc., Passaic, NJ 2004-13 I.R.B.668March 29, 2004 Ambassadors For Christ Family Enhancement, Inc., Miami, FL American Friends of Children of Africa, Dover, DE American Friends ofMasterprize, Inc., San Francisco, CA Andrea Levine Foundation, Cherry Hill, NJ Angel of Mercy Group Home, Inc., Hacienda Heights, CA Anti-Racist Education, Columbus, OH Appalachian Counseling Foundation, Portsmouth, OH Armenian International Womens Association Los Angeles Affiliate, Inc., Glendale, CA Arts Engine, Inc., Beverly Hills, CA Arts Incorporated in Human Services Ltd., Rego Park, NY Ashtabula County Foster Parent Support Group, Geneva, OH Badrock Fire and Quick Response Unit, Columbia Falls, MT Bar & Restaurant Service, Inc., Providence, RI Barbaras Playhouse a Haven For Little Angels, Inc., West Palm Beach, FL Basic Care of Greenfield, Inc., Greenfield, OH Beyth Millo Ministries, Inc., Blairsville, GA Black Star Housing Development, Inc., Houston, TX Bookmark Production, Inc., Providence, RI Boys and Girls Club of Lamar County, Purvis, MS Bruce Coslets Executives for Charity, W. Chester, OH Building Links, Inc., Ithaca, NY Buy American Campaign, Inc., Laguna Hills, CA California Organization For Assistive Technology Support, Orange, CA Calvary Cathedral International, Inc., Fort Worth, TX Capital Properties, Inc., Birmingham, AL Carey Hill Development Corporation, Inc., North Augusta, SC Caring For Families, Leiceister, NC Cass County Boys & Girls Club, Inc., Atlanta, TX Central New Life Outreach Ministries, Inc., Anchorage, AK Charity Human Services Organization, Inc., Freeport, NY Charles T. Carter Pastoral Education Foundation, Birmingham, AL Christian Helping Hands, Inc., Port Chester, NY Christian Rescue Mission, Inc., Dayton, OH Cincinnati Spikes, Cincinnati, OH Citizens For Recreation, Inc., Enosburg Falls, VT Classicway Cagers, Cincinnati, OH Clear Vision Foundation, Montpelier, VT Clinica San Pablo, El Monte, CA Clinical Research Network, Inc., Scotch Plains, NJ Coalition For a Safer Healthier Community, Kerrville, TX Collier County Community Tennis Foundation, Marco Island, FL Combined Fraternal Organizations of South Phoenix, Phoenix, AZ Commercial Assistance Program, Inc., Summit, NJ Commonwealth Landmarks Foundation, Oil City, PA Community Improvement Corporation of New Richmond Ohio, New Richmond, OH Community Support Initiative, Inc., Pittsburgh, PA Community Youth Development Services, Columbus, OH Conservative Front, Inc., Athens, OH Consumer Debt Management Corp., Rockville, MD Cook Communications Ministries International, Inc., Colorado Springs, CO Council For Public Deliberation, Columbus, OH Councils of Governments of Beaver & Butler Counties, Aliquippa, PA Counseling & Education Foundation For Texas Youth, Houston, TX Court Street Common, Inc., Exeter, NH Craighead County Citizens For Decency, Inc., Jonesboro, AR Creative Clowns Under Construction, Inc., Mount Vernon, OH Creative Community Development and Housing Corporation, Richmond, VA Crepe Myrtle, Memphis, TN Crime Victims Legal Assistance, Philadelphia, PA Cultural Society of Inland Empire, Apple Valley, CA D B Funds, Inc., Dallas, TX Dare to Dream Foundation, Inc., Tuskegee, AL Dauphin County Economic Development Corp., Harrisburg, PA Davids Heart, Euless, TX Delta Lambda Sigma Chapter of Phi Beta Sigma, Inc., Port Pierce, FL Destiny Ministries, Columbus, OH Discipling Com, San Diego, CA District of Northwest Schools Foundation, Cincinnati, OH Doctors Care Project of Bakersfield, Bakersfield, CA Drinkers Against Drunk Drivers, Concord, CA Earth Rise Spirituality and Educational Center, Inc., Scranton, PA East Canton Community Sports Complex Committee, East Canton, OH East Cleveland Park Commission, Cleveland, OH East Orange Urban Renewal Housing Development Corporation, Newark, NJ Edon Summer Ball League, Edon, OH Education For Industry, Sayre, PA El Rescate Development Fund, Inc., Los Angeles, CA Elders Place II, Inc., Philadelphia, PA Electra Productions, Inc., New Orleans, LA Emergency Management Volunteers, San Diego, CA Enjoy Theatre, Inc., Columbus, OH Envisions Learning Center, Sherman, TX Esther L. Stewart Memorial Fund, Inc., Dublin, OH Euharlee Valley Historical Society, Rockmart, GA Expressions For Life Funding Foundation, Tahoe Vista, CA External Educational Resources, Inc., Portland, ME EZ Transportation, Inc., Toledo, OH Facts of Life, Lodi, CA Fair Elections Commissions, Shippensburg, PA Faith Temple New Hope Community Development Corporation, East Orange, NJ Feed Our Children Ministries, Inc., Sarasota, FL Fertile Ground Ministries, Decatur, AL First Things Corp., St. Louis, MO Florida Community Homes, Inc., Ft. Lauderdale, FL Fondazione Regionale Christoforo Colombo, Italy Foundation For Educational Alternatives in the Rural South, Macon, MS Foundation For Health in Aging, Inc., New York, NY March 29, 20046692004-13 I.R.B. Foundation For Understanding Chinese Business, Kingston, PA Foundation Maria of Nevada, Las Vegas, NV Fraternidad Peruana De Utah, Murray, UT Freeburg Area Community Development Assn., Freeburg, IL Freeport Baseball Association, Freeport, PA Friends Glen, Philadelphia, PA Friends of Ash, Allentown, PA Friends of Children Society, Vancouver, WA Friends of Gummi, Inc., Naples, FL Friends of Phoenix Advantage Charter School, Inc., Phoenix, AZ Friends of the Boardwalk, Inc., Brooklyn, NY Friends of the Great Falls Library, Great Falls, VA Friends of the Hallstead-Great Bend Ranch Library, Hallstead, PA Gallman National Historic District Association, Inc., Gallman, MS Galveston Humane Society, Galveston, TX GAM Home Aid, Inc., Nashville, TN Gateppis Balloons, Waynesboro, VA Georgetown Alliance For Liberty and Freedom, Washington, DC Germantown-Venango Farmers Market Community Development Corp., Philadelphia, PA Gibbs Community Foundation, Oakland, CA GIF Outreach, Inc., Elizabethtown, KY Glenville Health Foundation, Cleveland, OH Glory Foundation, Columbia, SC God First, North Hollywood, CA Good Ground Ministries, Cottonport, LA Good Orderly Direction, Lorain, OH Good Messenger, Antelope, CA Good Samaritan Ministries, Fort Scott, KS Goshen Cancer Foundation, Pataskala, OH Gotell Communications, Dallas, TX Grace Institute, Shaker Heights, OH Grace Retirement Centers, Inc., Pasadena, TX GRC-II Charities, Inc., Middletown, NY Great Divide Orchid Society, Helena, MT Greenhouse Ministries, Inc., Lebanon, OH Greenwich 2000, Ltd., More Philips & Duncan PC, Greenwich, CT Growing Peace Foundation, Kettering, OH Guernsey County Society For the Physically Challenged, Inc., Cambridge, OH Haitian Agency Cultural & Technical Corporation, Atlanta, GA Hale Ohana O Kapaa, Kapaa, HI Hanai I Ka Uhane O Na Keiki to Foster the Spirit of Children, Honolulu, HI Harvey Community Center, Harvey, IL Heart Rock TV, Inc., Franklin, TN Helping Educators Remove Obstacles, Akron, OH Helping Hand For Relief & Development, Inc., Farmingdale, NY Heritage Center For Human and Community Development, Inc., Birmingham, AL Hillcrest Community Services & Free Store, Amelia, OH His Arms Extended Community Outreach Center, Inc., Pompano Beach, FL His Image Creations, Pickerington, OH Hollies Hope, Inc., Metairie, LA Housing Partners Community Development Corporation, Ambler, PA Huggle, Inc., Miami, FL Humane Society of Beaverhead County, Dillon, MT I E C A Foundation of Arizona, Inc., Phoenix, AZ Illyrian Group, Inc., Los Angeles, CA In Motion Sports, Inc., Newport, KY Inner City Perceptions, Inc., Arnold, PA Inspired Ministries, Potrero, CA Institute For Ethics in Education, Hudson, OH InstituteFortheEconomic Development of Children, Philadelphia, PA Institute For the Study of the Magisterial Teaching of the Church, Worcester, MA Institute of Genetics Education, Santa Fe, NM Inter Denominational Energy and Economic Development Coalition, Philadelphia, PA International Football Club of Pennsylvania, Murrysville, PA International Institute of S P O R T, Inc., Georgetown, TX International Shalom Institute, Inc., Miami Beach, FL International Society of Otrhnlrngc Allergy and Immunology, Inc., Pittsburgh, PA Isaiah Services, Laguna Hills, CA Istanbul Heritage Fune, Inc., New York, NY Jackson Purchase Transportation Museum, Inc., Benton, KY James Buddy McGirt Foundation For Children, New York, NY JCLS Ministries, Inc., Camden, OH Jesus Fellowship, San Diego, CA Joe Robbie Foundation For Children, Boulder, CO John & Ada Diedrich 4–H Camp, Inc., Worthington, KY Ju-Jitsu Shotokan Karate Association, Darby, PA Kansas Ferret Association KFA, Lawrence, KS Kay Baxter Foundation, Inc., Spring Valley, NY Kealihooneaiana the Dallas Mossman Voegler Ohana, Honolulu, HI Keep the Faith Foundation, Inc., Jackson, MS Keeshond Sunshine Rescue Foundation, Woodbury, MN Keystone Center of Music and the Arts, Milford, PA KidPower,Olympia,WA Kiddy City Development Center, Inc., Chicago, IL Kingdom Harvest Ministries, Inc., Los Angeles, CA Koleinu, Reynoldsburg, OH Ladies of Essence, Waterloo, IA Land of Flourishing Virtue, Inc., San Gabriel, CA Leadership Center, Houston, TX Leadership Potential, Inc., Avondale Est, GA Lee County Lacrosse, Inc., Fort Myers, FL Levine & West Group Home For Boys, Hawthorne, CA Liberty Place Clubhouse, Pittsburgh, PA Life Concerns Education and Counseling, Inc., Cincinnati, OH Louisiana Repertory Theatre Company, Houma, LA Lovell Johnson Quality of Life Center, Incorporated, Milwaukee, WI Loveman Village Resident Council, Inc., Birmingham, AL Lucas Outdoor, Inc., Washington Court House, OH M-Pact Youth Services, Cincinnati, OH Mack Ministries, Toledo, OH Maria Olberding Foundation, Cincinnati, OH Maryland Mountain Trust, Inc., Lonaconing, MD Mastee International, Annandale, VA Master of Breakthroughs, Baltimore, MD Matthew Harrington Memorial Fund, Jamison, PA MCPBA Foundation, Inc., Miami, FL 2004-13 I.R.B.670March 29, 2004 Mentoring For Occupational Readiness and Employment, St. Charles, IL Merrifield Estates, Inc., Portsmouth, VA Messiah International Foundation, Beverly Hills, CA Mi Casa Su Casa Housing Development Corporation, Menlo Park, CA Mid Atlantic Golfers Association, Inc., Atlanta, GA Middle Road Foundation, Santa Fe, NM Millennium Center For Digital History, Washington, DC Millennium Philadelphia Celebration, Philadelphia, PA Mine Victims Fund, Charlottesville, VA Mineola Senior Citizens Center, Inc., Mineola, TX Mission Emmanuel, Portland, OR Mobility Impaired Resources, Inc., Billings, MT Montana Mining Association-Mine Safety Program, Helena, MT Mortal Angels, Inc., Carson, CA Motion Picture Industry Charitable Alliance, Springfield, OH Mount Carmel Area School District Education Foundation, Mount Carmel, PA Mu Chapter of Sigma Chi Foundation, Granville, OH Mu Sigma Zeta Chapter of Zeta Phi Beta Sorority, Inc., San Diego, CA Multicultural Art Academy, Dallas, TX N B Cbethel-U S A Housing, Inc., Thirty Two, Newark, OH Name Center — Pelham, Pelham, AL NATAS Northwest Regional Scholarship Foundation, Seattle, WA National Nephrology Technical Certification Board, Sunnyvale, CA National Voluntary Health Facility 5, Inc., Brooklyn, NY Neighborhood Investment Resources, Dayton, OH Neighborhood Learning Options, Inc., Germantown, MD Neighborhood Storehouse Association, Inc., Third Street, GA Nevada Association of State and Drug Abuse Programs, Las Vegas, NV New Community Builders, Inc., Jersey City, NJ New Concept Visions 2000, Inc., Hollywood, FL New Covenant Development Foundation, Heath Springs, SC New Mexico Hispano Entertainers Association, Albuquerque, NM Nisan Young Women Leaders USA, Inc., New York, NY North Carolina Association of Black Lawyers Foundation, Inc., Durham, NC North Carolina Association on Aging Foundation, Rocky Mount, NC North Carolina Dance & Dance Sport Foundation, Raleigh, NC North Central Pennsylvania Ice Sports, Inc., Williamsport, PA NorthHardinYouthCheerleading League, Inc., Radcliff, KY North Star Foundation, Cedar City, UT Northridge Pee Wee Football Association, Dayton, OH Northside Center For Women, Inc., S. Hamilton, MA Northumberland County Organizational Resources For Community Outreach, Kulpmont, PA Oaks Group, Inc., San Antonio, TX Oasis Community Development Corporation, Camden, NJ Ohio Campus Ministry For Korean Students, Inc., Huber Heights, OH Ohio Community Schools Center, Columbus, OH Ohio Firefighters Benevolent Fund, Cincinnati, OH Ohio High School Cup, Springfield, OH Ohio Premier Too, Inc., Dublin, OH Ohio Valley Boxing, Inc., Dayton, OH Ohio Valley Youth Athletics, Inc., Dayton, OH Old Logandale School Historical and Cultural Society, Logandale, NV Olentangy Heritage Foundation, Delaware, OH One Community One Goal, Inc., Miami, FL Opera For Everyone, Inc., Havertown, PA Opera Institute of California, San Jose, CA Orchard Place East at Spartanburg, Inc., Columbia, SC Oxford Animal Rescue Foundation, Inc., Camden, OH Parade Street Development Corporation, Erie, PA Parents and Children Against Drugs, Philadelphia, PA Parents Backing Students, Baton Rouge, LA Parents Empowerment Coalition, Cincinnati, OH Partners For Human Progress, Inc., Somers, NY Patrick F. Knapp Scholarship Fund, Central City, PA Peerspectives, Inc., Syracuse, NY Peggy Still Foundation For Creation & Education of New Music, Inc., Roswell, GA Pennsylvania Performing Arts Company, North Wales, PA Pentecostes Siglo XXI, Anaheim, CA Philadelphia Polo Club, Inc., Villanova, PA Philip Procaccino Memorial Scholarship Fund, Vineland, NJ Phoenix House, Inc., Warren, PA Physicians Council For the Hearing Impaired, Huntington Beach, CA Pike County Youth Soccer League, Waverly, OH Playback Theatre Midwest, Chicago, IL Plover Hill Productions, Inc., Ipswich, MA Plum Street Foundation, Philadelphia, PA Polacek Family Human Needs Fund, Johnstown, PA Police and Community Together Community Volunteer Services, Tacoma, WA Polish American Radiological Education Trust, Boston, MA Polk Community Preschools Association, Inc., Winter Haven, FL Poor Box Consortium For the Arts, Westerville, OH Poplar Bluff Soccer Club, Inc., Poplar Bluff, MO Pot Belly Pig Rescue, Inc., Las Vegas, NV Powhatan Fair Association, Powhatan, VA Praise and Worship Ministries, Dublin, OH Prillerman, Columbus, OH Primera Iglesia Cristiana Nueva Vida Amor Y Verdad, Inc., Buffalo, NY Professional Cosmetologists and Barbers Association, Cincinnati, OH Progressive Youth Foundation, Danville, CA Project Enrichment, Cincinnati, OH Project Feel Better, Inc., White Plains, NY Project Green of Montana, Inc., Butte, MT Prospect Terrace Resident Council, E. Pittsburgh, PA Public Education Foundation of Monroe County, Inc., Monroeville, AL Purpose For Life Foundation, Columbus, OH R Carolina Life Center, Kershaw, SC Rainbow Farms Therapeutic Riding Center, Inc., Atlanta, GA Rainbows End, Inc., Poland, OH Rankin Arts Coalition, Inc., Brandon, MS March 29, 20046712004-13 I.R.B. Reach Out Ministries, Springfield, OH Real Hope Cafe, Fisher, WV Recovery Foundation, Inc., Miami, FL Redeeming Word Christian Academy, Inc., Ft. Lauderdale, FL Region Three School-to-Work Alliance, Lima, OH Rhema Outreach Ministries, Inc., Harleysville, PA Richmond Conservative Union, Richmond, VA Riggers Athletic Club, Honolulu, HI Roberson Economic Development, Inc., Pembroke Pines, FL Rocky Mountain Forestry and Fire Suppression, Littleton, CO Roswell Outdoor Theatrical Association, Inc.,Roswell,NM RX2000 Foundation, Minnetonka, MN Safe House Services, Inc., Sherman Oaks, CA Safer Children Agency, S. Williamsport, PA Safety Net Foundation, Philadelphia, PA SaintJudeHouse,Wichita,KS Samantha Foundation, Ltd., Ellicott City, MD San Francisco Partnership, San Francisco, CA Sanctuary for the Arts, Portland, OR Senior and Disabled Services of North Carolina, Inc., Red Springs, NC Seven Oaks Tenant Association, Kansas City, MO Shabbat New York, Inc., New York, NY Shadowbrook Animal Rescue, Louisville, KY Shamrock Gym of Cincinnati, Inc., Loveland, OH Shelter Eldercare Foundation, Inc., Baltimore, MD Shepherds Learning Centers a Charitable Foundation, Loomis, CA Shiloh Entreprenurial & Economic Development Corp., Plainfield, NJ Sistahs in Good Company, Cedar Rapids, IA Slavic Support and Assistance Association, W. Sacramento, CA Society of Hearing-Impaired Physicians, Inc., Ambler, PA SouthBendFirefighters Association, Jacksonville, AR South Central Oregon Domestic Violence Coalition Haven House, La Pine, OR Southern New Orleans Association of the Deaf, New Orleans, LA Sport Psychiatry Foundation, Inc., Pacific Palisades, CA St. Mathews Community Development and Management Corporation, Baltimore, MD Star Toys Museum, Inc., Linthicum, MD Supervise Family Interaction Center, Inc., Grand Blanc, MI Suspicious Cheeselords, Inc., Washington, DC Teen Challenge International Madison Life Center, Inc., Madison, WI Terrace Poe Tennet Council, Inc., Baltimore, MD Tomorrows Hope, Inc., Jefferson, WI Touched By a Paw, Whitewater, WI Transitional Support Services, Ft. Washington, MD Travesties Project, Ltd., Madison, WI Tri-Quest Charities, Inc., La Crosse, WI Trivisions, Inc., New Carrollton, MD Tropic Org Association For Resources & Tropical America, Washington, DC U S-Taiwan Business Forum, Arlington, VA Unique Rescue Base, Ferndale, MI United Neighbors Involved in Quality Urban Exp Unique Development, Inc., Washington, DC United States Chechen Republic Alliance, Inc., Silver Spring, MD Unity Project, Inc., Annapolis, MD Vantage Point Forum, Inc., Colorado Springs, CO Via Dolorosa Genesis Project, Detroit, MI Victims Impact Video, Inc., Owings Mills, MD Viola Club of MD-DC & VA, Inc., Baltimore, MD Wallace Development Corporation, Inc., Riviera Beach, FL Walter Graham Society, Inc., Dayton, OH Warrington House, Inc., Brooklyn, ME Way Out Foundation, Torrance, CA Waynesville Athletic Facilities Committee, Inc., Waynesville, OH We Care Foundation, Inc., Cincinnati, OH Wellness Foundation of San Ramon Valley, San Ramon, CA West Hertel Academy Parent Association, Buffalo, NY White Bear Lake High School Wrestling Booster Club, White Bear Lake, MN Whitehall Day Care Center, Inc., Whitehall, WI Wiconi Teca, Interior, SD Wildtalk, Williams Bay, WI WillieMaeWebbHomeForUnwed Mothers, Inc., Minneapolis, MN Wings For Kids, Inc., Mechanicsburg, PA Winnemucca Soccer Club, Winnemucca, NV Wisconsin Black Law Alumni Association Corp., Madison, WI Wisconsin Braille, Cazenovia, WI Wisconsin Deaf Sports Club, Inc., Sun Prairie, WI Wisconsin Education Reform Foundation, Madison, WI Wisconsin Futurity Horse Festival, Pewaukee, WI Wisconsin Handgun Violence Prevention, Milwaukee, WI Wisconsin Multisport, Inc., Madison, WI Wisconsin National Organization For Women Education Fund, Inc., Madison, WI Wisconsin North Youth Ballet State Regional Arts Center, Eau Claire, WI Wisconsin Siberian Husky Rescue, Madison, WI Wisconsin State Youth Baseball League, Inc., Milwaukee, WI With Him, Inc., Oak Ridge, TN Women of God, Walker, MN Y O C A, Inc., Toledo, OH Young Artisans Research & Design Center, Inc., Pittsburgh, PA Young Singers of Darlington, Inc., Darlington, SC Youth Determined to Succeed, Inc., Pittsburgh, PA Youth Education Scholarship Services, Lathrop, CA Youth Owning Urban Responsibilities Service, Minneapolis, MN Yukla27, Lakewood, CO Yuma Family YMCA Foundation, Yuma, AZ Zoelife Ministries, Incorporated, Baton Rouge, LA If an organization listed above submits information that warrants the renewal of its classification as a public charity or as a private operating foundation, the Inter- nalRevenueServicewillissuearulingor determinationletterwiththerevisedclas- sification as to foundation status. Grantors and contributors may thereafter rely upon such ruling or determination letter as pro- videdinsection1.509(a)–7oftheIncome Tax Regulations. It is not the practice of the Service to announce such revised clas- 2004-13 I.R.B.672March 29, 2004 sification of foundation status in the Inter- nal Revenue Bulletin. IRS Announces Changes to Publication 1542,Per Diem Rates (For Travel Within the Continental United States) Announcement 2004–20 Paper copies of the February 2004 an- nual revision of Publication 1542 are now available. This is the last regularly sched- uled printed edition. All future revisions will be available on the IRS website at www.irs.gov. Paper copies will be avail- able by request only. Beginning this year, interim revisions to Publication 1542 will be made each time changes toper diemrates are an- nounced by the General Services Adminis- tration (GSA). AWhat’s Hotarticle on the IRS website will announce the availability of each new revision on the Internet. The annual issue with the fiscal yearper diemrates will be released on the Inter- net as soon as possible after GSA and the IRS announce those rates. We anticipate the annual issue being available in mid- to late-October. New Revision of Publication 538,Accounting Periods and Methods Announcement 2004–21 Publication 538, revised March 2004, is now available from the Internal Revenue Service. It replaces the March 2003 revi- sion. This publication provides information on how to determine the appropriate ac- counting period and accounting method for your business. It also provides infor- mation on how to change your accounting period and accounting method. You can get a copy of this publi- cation by calling 1–800-TAX-FORM (1–800–829–3676) or by writing to the IRS Forms Distribution Center nearest you. Check your income tax package for the address. The publication is also available on the IRS Internet website at www.irs.gov. Deletions From Cumulative List of Organizations Contributions to Which are Deductible Under Section 170 of the Code Announcement 2004–23 The name of an organization that no longer qualifies as an organization de- scribed in section 170(c)(2) of the Internal Revenue Code of 1986 is listed below. Generally, the Service will not disallow deductions for contributions made to a listed organization on or before the date of announcement in the Internal Revenue Bulletin that an organization no longer qualifies. However, the Service is not precluded from disallowing a deduction for any contributions made after an or- ganization ceases to qualify under section 170(c)(2) if the organization has not timely filed a suit for declaratory judgment under section 7428 and if the contributor (1) had knowledge of the revocation of the ruling or determination letter, (2) was aware that such revocation was imminent, or (3) was in part responsible for or was aware of the activities or omissions of the organization that brought about this revocation. If on the other hand a suit for declara- tory judgment has been timely filed, con- tributions from individuals and organiza- tions described in section 170(c)(2) that are otherwise allowable will continue to be deductible. Protection under section 7428(c) would begin on October 28, 2002, and would end on the date the court first determines that the organization is not de- scribed in section 170(c)(2) as more partic- ularly set forth in section 7428(c)(1). For individual contributors, the maximum de- duction protected is $1,000, with a hus- band and wife treated as one contributor. This benefit is not extended to any indi- vidual, in whole or in part, for the acts or omissions of the organization that were the basis for revocation. Foundation to Save Our Children’s Environment Tulsa, OK March 29, 20046732004-13 I.R.B. Definition of Terms 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 ef- fect: Amplifieddescribes a situation where no change is being made in a prior pub- lished position, but the prior position is be- ingextendedtoapplytoavariationofthe fact situation set forth therein. Thus, if an earlier ruling held that a principle ap- plied to A, and the new ruling holds that the same principle also applies to B, the earlier ruling is amplified. (Compare withmodi- fied,below). Clarifiedis used in those instances where the language in a prior ruling is be- ing made clear because the language has caused, or may cause, some confusion. It is not used where a position in a prior ruling is being changed. Distinguisheddescribes a situation where a ruling mentions a previously pub- lished ruling and points out an essential difference between them. Modifiedis 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 applies to both A and B, the prior ruling is modified because it corrects a published position. (Compare withamplifiedandclarified, above). Obsoleteddescribes 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 rul- ings that are obsoleted because of changes in laws or regulations. A ruling may also be obsoleted because the substance has been included in regulations subsequently adopted. Revokeddescribes situations where the position in the previously published ruling is not correct and the correct position is beingstatedinanewruling. Supersededdescribes a situation where the new ruling does nothing more than re- state the substance and situation of a previ- ously published ruling (or rulings). Thus, the term is used to republish under the 1986 Code and regulations the same po- sition published under the 1939 Code and regulations. The term is also used when it is desired to republish in a single rul- ing a series of situations, names, etc., that were previously published over a period of time in separate rulings. If the new rul- ing does more than restate the substance of a prior ruling, a combination of terms is used. For example,modifiedandsu- persededdescribes a situation where the substance of a previously published 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 pub- lished ruling is first modified and then, as modified, is superseded. Supplementedis 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 rul- ing has been supplemented several times, a new ruling may be published that includes the list in the original ruling and the ad- ditions, and supersedes all prior rulings in the series. Suspendedis used in rare situations to show that the previous published rul- ings 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 fol lowing abbreviations in current use and for merly used will appear in material publis hedintheBulletin. A—Individual. Acq.—A cquiescence. B—Individual. BE—Beneficiary. BK—Bank . B.T.A.—Board of Tax Appeals. C—Individual. C.B.—Cu mulative Bulletin. CFR—Code of Federal Regulations. CI—City. COOP—Coo perative. Ct.D.—Court Decision. CY—County. D—Decede nt. 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—Emp loyer. ERISA—Employee Retirement Income Security Act. EX—Executor. F—Fiduc iary. FC—Foreign Country. FICA—Federal Insurance Contributions Act. FISC—Fo reign International Sales Company. FPH—Foreign Personal Holding Company. F.R.—Federal Register. FUTA—Fed eral Unemployment Tax Act. FX—Foreign corporation. G.C.M.—Chief Counsel’s Memorandum. GE—Grante e. GP—General Partner. GR—Grantor. IC—Insura nce Company. I.R.B.—Internal Revenue Bulletin. LE—Lessee. LP—Limited Partner. LR—Lessor. M—Minor. Nonacq.—No nacquiescence. O—Organization. P—Parent Corporation. PHC—Persona l Holding Company. PO—Possession of the U.S. PR—Partner. PRS—Pa rtnership. PTE—Prohibited Transaction Exemption. Pub. L.—Public Law. REIT—Re al Estate Investment Trust. Rev. Proc.—Revenue Procedure. Rev. Rul.—Revenue Ruling. S—Subsi diary. S.P.R.—Statement of Procedural Rules. Stat.—Statutes at Large. T—Target Corporation. T.C.—Tax Court. T.D.—Treasury Decision. TFE—Trans feree. TFR—Transferor. T.I.R.—Technical Information Release. TP—Taxpay er. TR—Trust. TT—Trustee. U.S.C.—Uni ted States Code. X—Corporation. Y—Corporation. Z—Corporat ion. 2004-13 I.R.B.iMarch 29, 2004 Numerical Finding List 1 Bulletins 2004–1 through 2004–13 Announcements: 2004-1, 2004-1 I.R.B.254 2004-2, 2004-3 I.R.B.322 2004-3, 2004-2 I.R.B.294 2004-4, 2004-4 I.R.B.357 2004-5, 2004-4 I.R.B.362 2004-6, 2004-3 I.R.B.322 2004-7, 2004-4 I.R.B.365 2004-8, 2004-6 I.R.B.441 2004-9, 2004-6 I.R.B.441 2004-10, 2004-7 I.R.B.501 2004-11, 2004-10 I.R.B.581 2004-12, 2004-9 I.R.B.541 2004-13, 2004-9 I.R.B.543 2004-14, 2004-10 I.R.B.582 2004-15, 2004-11 I.R.B.612 2004-16, 2004-13 I.R.B.668 2004-17, 2004-12 I.R.B.635 2004-18, 2004-12 I.R.B.639 2004-19, 2004-13 I.R.B.668 2004-20, 2004-13 I.R.B.673 2004-21, 2004-13 I.R.B.673 2004-23, 2004-13 I.R.B.673 Notices: 2004-1, 2004-2 I.R.B.268 2004-2, 2004-2 I.R.B.269 2004-3, 2004-5 I.R.B.391 2004-4, 2004-2 I.R.B.273 2004-5, 2004-7 I.R.B.489 2004-6, 2004-3 I.R.B.308 2004-7, 2004-3 I.R.B.310 2004-8, 2004-4 I.R.B.333 2004-9, 2004-4 I.R.B.334 2004-10, 2004-6 I.R.B.433 2004-11, 2004-6 I.R.B.434 2004-12, 2004-10 I.R.B.556 2004-13, 2004-12 I.R.B.631 2004-14, 2004-9 I.R.B.526 2004-15, 2004-9 I.R.B.526 2004-16, 2004-9 I.R.B.527 2004-17, 2004-11 I.R.B.605 2004-18, 2004-11 I.R.B.605 2004-19, 2004-11 I.R.B.606 2004-20, 2004-11 I.R.B.608 2004-21, 2004-11 I.R.B.609 2004-22, 2004-12 I.R.B.632 2004-24, 2004-13 I.R.B.642 Proposed Regulations: REG-116664-01, 2004-3 I.R.B.319 REG-122379-02, 2004-5 I.R.B.392 Proposed Regulations— Continued: REG-139845-02, 2004-5 I.R.B.397 REG-165579-02, 2004-13 I.R.B.651 REG-166012-02, 2004-13 I.R.B.655 REG-126459-03, 2004-6 I.R.B.437 REG-126967-03, 2004-10 I.R.B.566 REG-156232-03, 2004-5 I.R.B.399 REG-156421-03, 2004-10 I.R.B.571 REG-167217-03, 2004-9 I.R.B.540 Revenue Procedures: 2004-1, 2004-1 I.R.B.1 2004-2, 2004-1 I.R.B.83 2004-3, 2004-1 I.R.B.114 2004-4, 2004-1 I.R.B.125 2004-5, 2004-1 I.R.B.167 2004-6, 2004-1 I.R.B.197 2004-7, 2004-1 I.R.B.237 2004-8, 2004-1 I.R.B.240 2004-9, 2004-2 I.R.B.275 2004-10, 2004-2 I.R.B.288 2004-11, 2004-3 I.R.B.311 2004-12, 2004-9 I.R.B.528 2004-13, 2004-4 I.R.B.335 2004-14, 2004-7 I.R.B.489 2004-15, 2004-7 I.R.B.490 2004-16, 2004-10 I.R.B.559 2004-17, 2004-10 I.R.B.562 2004-18, 2004-9 I.R.B.529 2004-19, 2004-10 I.R.B.563 2004-20, 2004-13 I.R.B.642 Revenue Rulings: 2004-1, 2004-4 I.R.B.325 2004-2, 2004-2 I.R.B.265 2004-3, 2004-7 I.R.B.486 2004-4, 2004-6 I.R.B.414 2004-5, 2004-3 I.R.B.295 2004-6, 2004-4 I.R.B.328 2004-7, 2004-4 I.R.B.327 2004-8, 2004-10 I.R.B.544 2004-9, 2004-6 I.R.B.428 2004-10, 2004-7 I.R.B.484 2004-11, 2004-7 I.R.B.480 2004-12, 2004-7 I.R.B.478 2004-13, 2004-7 I.R.B.485 2004-14, 2004-8 I.R.B.511 2004-15, 2004-8 I.R.B.515 2004-16, 2004-8 I.R.B.503 2004-17, 2004-8 I.R.B.516 2004-18, 2004-8 I.R.B.509 2004-19, 2004-8 I.R.B.510 2004-20, 2004-10 I.R.B.546 2004-21, 2004-10 I.R.B.544 2004-22, 2004-10 I.R.B.553 2004-23, 2004-11 I.R.B.585 Revenue Rulings— Continued: 2004-24, 2004-10 I.R.B.550 2004-25, 2004-11 I.R.B.587 2004-26, 2004-11 I.R.B.598 2004-27, 2004-12 I.R.B.625 2004-28, 2004-12 I.R.B.624 2004-29, 2004-12 I.R.B.627 2004-30, 2004-12 I.R.B.622 2004-31, 2004-12 I.R.B.617 2004-32, 2004-12 I.R.B.621 2004-33, 2004-12 I.R.B.628 2004-34, 2004-12 I.R.B.619 2004-35, 2004-13 I.R.B.640 2004-36, 2004-12 I.R.B.620 2004-37, 2004-11 I.R.B.583 Tax Conventions: 2004-3, 2004-7 I.R.B.486 Treasury Decisions: 9099, 2004-2 I.R.B.255 9100, 2004-3 I.R.B.297 9101, 2004-5 I.R.B.376 9102, 2004-5 I.R.B.366 9103, 2004-3 I.R.B.306 9104, 2004-6 I.R.B.406 9105, 2004-6 I.R.B.419 9106, 2004-5 I.R.B.384 9107, 2004-7 I.R.B.447 9108, 2004-6 I.R.B.429 9109, 2004-8 I.R.B.519 9110, 2004-8 I.R.B.504 9111, 2004-8 I.R.B.518 9112, 2004-9 I.R.B.523 9113, 2004-9 I.R.B.524 9114, 2004-11 I.R.B.589 1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2003–27 through 2003–52 is in Internal Revenue Bulletin 2003–52, dated December 29, 2003. March 29, 2004ii2004-13 I.R.B. Findings List of Current Actions on Previously Published Items 1 Bulletins 2004–1 through 2004–13 Announcements: 2003-56 Modified by Ann. 2004-11, 2004-10 I.R.B.581 Notices: 98-5 Withdrawn by Notice 2004-19, 2004-11 I.R.B.606 2003-76 Modified by Notice 2004-19, 2004-11 I.R.B.606 Proposed Regulations: REG-110896-98 Corrected by Ann. 2004-14, 2004-10 I.R.B.582 REG-115037-00 Corrected by Ann. 2004-7, 2004-4 I.R.B.365 REG-143321-02 Withdrawn by REG-156232-03, 2004-5 I.R.B.399 REG-146893-02 Corrected by Ann. 2004-7, 2004-4 I.R.B.365 REG-163974-02 Corrected by Ann. 2004-13, 2004-9 I.R.B.543 Revenue Procedures: 87-19 Obsoleted in part by Rev. Proc. 2004-18, 2004-9 I.R.B.529 93-15 Obsoleted in part by Rev. Proc. 2004-18, 2004-9 I.R.B.529 94-41 Superseded by Rev. Proc. 2004-15, 2004-7 I.R.B.490 94-55 Obsoleted in part by Rev. Proc. 2004-18, 2004-9 I.R.B.529 98-16 Suspended by Notice 2004-12, 2004-10 I.R.B.556 Revenue Procedures— Continued: 2000-38 Modified by Rev. Proc. 2004-11, 2004-3 I.R.B.311 2000-50 Modified by Rev. Proc. 2004-11, 2004-3 I.R.B.311 2001-10 Modified by Ann. 2004-16, 2004-13 I.R.B.668 2001-23 Modified by Ann. 2004-16, 2004-13 I.R.B.668 2002-9 Modified and amplified by Rev. Rul. 2004-18, 2004-8 I.R.B.509 Modified by Rev. Proc. 2004-11, 2004-3 I.R.B.311 Ann. 2004-16, 2004-13 I.R.B.668 2002-28 Modified by Ann. 2004-16, 2004-13 I.R.B.668 2002-71 Superseded by Rev. Proc. 2004-13, 2004-4 I.R.B.335 2003-1 Superseded by Rev. Proc. 2004-1, 2004-1 I.R.B.1 2003-2 Superseded by Rev. Proc. 2004-2, 2004-1 I.R.B.83 2003-3 As amplified by Rev. Proc. 2003-14, and as modified by Rev. Proc. 2003-48 superseded by Rev. Proc. 2004-3, 2004-1 I.R.B.114 2003-4 Superseded by Rev. Proc. 2004-4, 2004-1 I.R.B.125 2003-5 Superseded by Rev. Proc. 2004-5, 2004-1 I.R.B.167 2003-6 Superseded by Rev. Proc. 2004-6, 2004-1 I.R.B.197 2003-7 Superseded by Rev. Proc. 2004-7, 2004-1 I.R.B.237 2003-8 Superseded by Rev. Proc. 2004-8, 2004-1 I.R.B.240 Revenue Procedures— Continued: 2003-23 Modified and superseded by Rev. Proc. 2004-14, 2004-7 I.R.B.489 2003-26 Supplemented by Rev. Proc. 2004-17, 2004-10 I.R.B.562 2004-1 Corrected by Ann. 2004-8, 2004-6 I.R.B.441 2004-4 Modified by Rev. Proc. 2004-15, 2004-7 I.R.B.490 2004-5 Modified by Rev. Proc. 2004-15, 2004-7 I.R.B.490 2004-6 Modified by Rev. Proc. 2004-15, 2004-7 I.R.B.490 Revenue Rulings: 55-748 Modified and superseded by Rev. Rul. 2004-20, 2004-10 I.R.B.546 92-19 Supplemented in part by Rev. Rul. 2004-14, 2004-8 I.R.B.511 94-38 Clarified by Rev. Rul. 2004-18, 2004-8 I.R.B.509 98-25 Clarified by Rev. Rul. 2004-18, 2004-8 I.R.B.509 1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2003–27 through 2003–52 is in Internal Revenue Bulletin 2003–52, dated December 29, 2003. 2004-13 I.R.B.iiiMarch 29, 2004 INDEX Internal Revenue Bulletins 2004–1 through 2004–13 The abbreviation and number in parenthesis following the index entry refer to the specific item; numbers in roman and italic type follow- ing the parentheses refer to the Internal Rev- enue Bulletin in which the item may be found and the page number on which it appears. Key to Abbreviations: AnnAnnouncement CDCourt Decision DODelegation Order EOExecutive Order PLPublic Law PTEProhibited Transaction Exemption RPRevenue Procedure RRRevenue Ruling SPRStatement of Procedural Rules TCTax Convention TDTreasury Decision TDOTreasury Department Order EMPLOYEE PLANS COBRA health care continuation cover- age requirements (RR 22) 10,553 Determination letters, issuing procedures (RP 6) 1,197 Electronic delivery of payee statements (Notice 10) 6,433 Forms 1099 and 5498 payee statements, electronic delivery (Notice 10) 6,433 Full funding limitations, weighted aver- age interest rate for: January 2004 (Notice 3) 5,391 February 2004 (Notice 14) 9,526 March2004(Notice24)13,642 Letter rulings: And determination letters, areas which will not be issued from: Associates Chief Counsel and Divi- sion Counsel (TE/GE) (RP 3) 1, 114 Associate Chief Counsel (Interna- tional) (RP 7) 1,237 And information letters, etc. (RP 4) 1, 125 And information letters issued by As- sociate Offices, determination letters issued by Operating Divisions (RP 1) 1,1; correction of user fee (Ann 8) 6,441 EMPLOYEE PLANS—Cont. User fees, request for letter rulings (RP 8) 1,240 Minimum funding standards, waivers (RP 15) 7,490 Presidentially-declared disaster or combat zone, postponement of certain acts (RP 13) 4,335 Proposed Regulations: 26 CFR 1.79–1, amended; 1.83–3, amended; 1.402(a)–1, amended; value of life insurance contracts when distributed from a qualified retirement plan (REG–126967–03) 10,566 Qualified retirement plans: Employee stock ownership plans, syn- thetic equity, listed transactions (RR 4) 6,414 Minimum participation standards, spe- cial rule (RR 11) 7,480 Rollovers (RR 12) 7,478 Section 412(i) plans: Deductibility, listed transactions (RR 20) 10,546 Discrimination (RR 21) 10,544 Valuation (RP 16) 10,559 Top-heavy status, special rules (RR 13) 7,485 Vesting, consent (RR 10) 7,484 Roth IRAs, tax shelters (Notice 8) 4,333 S corporations, employee stock owner- ship plans (ESOPs), termination of election (RP 14) 7,489 Technical advice: To directors and appeals area direc- tors from Associates Chief Coun- sel and Division Counsel/Associate Chief Counsel (TE/GE) (RP 2) 1,83 To IRS employees (RP 5) 1,167 Valuation of distributed life insurance contracts (REG–126967–03) 10,566 EMPLOYMENT TAX Delinquent tax, levy on wages, salary, and other income, exempt amount ta- bles (Notice 4) 2,273 Form W-2, new reporting code for Box 12,2004(Ann2)3,322 Income and employment tax treatment of benefits received under the Smallpox Emergency Personnel Protection Act of 2003 (SEPPA) (Notice 17) 11,605 EMPLOYMENT TAX—Cont. Mileage allowance, local transporta- tion expenses computed similarly to a courier’s compensation, accountable plan (RR 1) 4,325 Presidentially-declared disaster or combat zone, postponement of certain acts (RP 13) 4,335 Proposed Regulations: 26 CFR 31.3121(b)(2)–1, amended; 31.3121(b)(10)–2,amended; 31.3306(c)(10)–2, revised; student FICA exception (REG–156421–03) 10,571 Reduction of the stated principal amount of a recourse note issued by the em- ployee to the employer to acquire em- ployer stock, treatment (RR 37) 11,583 Student FICA exception under Code sec- tion 3121(b)(10): And section 3306(c)(10)(B), applica- tion (REG–156421–03) 10,571 Proposed safe harbor available for cer- tain institutions (Notice 12) 10,556 ESTATE TAX Gross estate, election to value on alter- nate valuation date (REG–139845–02) 5,397 Presidentially-declared disaster or combat zone, postponement of certain acts (RP 13) 4,335 Proposed Regulations: 26 CFR 20.2032–1(b), revised; 301.9100–6T, amended; gross es- tate, election to value on alternate valuation date (REG–139845–02) 5, 397 Regulations: 26 CFR 20.2056(b), amended; 20.2056A–5, amended; 20.2056A– 13, revised; definition of income for trust purposes (TD 9102) 5,366 Trusts, definition of income, total return, adjustments to income (TD 9102) 5, 366 EXCISE TAX Presidentially-declared disaster or combat zone, postponement of certain acts (RP 13) 4,335 March 29, 2004iv2004-13 I.R.B. EXEMPT ORGANIZATIONS Declaratory judgment suits, annual notice to doners regarding pending and settled suits (Ann 1) 1,254 Electronic delivery of payee statements (Notice 10) 6,433 Forms 1099 and 5498 payee statements, electronic delivery (Notice 10) 6,433 Letter rulings: And determination letters, areas which will not be issued from Associates Chief Counsel and Division Counsel (TE/GE) (RP 3) 1,114 And information letters, etc. (RP 4) 1, 125 And information letters issued by As- sociate Offices, determination letters issued by Operating Divisions (RP 1) 1,1; correction of user fee (Ann 8) 6,441 User fees, request for letter rulings (RP 8) 1,240 List of organizations classified as private foundations (Ann 12) 9,541; (Ann 15) 11,612; (Ann 17) 12,635; (Ann 19) 13, 668 Presidentially-declared disaster or combat zone, postponement of certain acts (RP 13) 4,335 Public advocacy activities conducted by certain tax-exempt organizations (RR 6) 4,328 Revocations (Ann 18) 12,639; (Ann 23) 13,673 Technical advice: To directors and appeals area direc- tors from Associates Chief Coun- sel and Division Counsel/Associate Chief Counsel (TE/GE) (RP 2) 1,83 To IRS employees (RP 5) 1,167 GIFT TAX Presidentially-declared disaster or combat zone, postponement of certain acts (RP 13) 4,335 Regulations: 26 CFR 25.2523(e)–1, amended; 25.2523(h)–2, amended; 26.2601–1, amended; definition of income for trust purposes (TD 9102) 5,366 Trusts, definition of income, total return, adjustments to income (TD 9102) 5, 366 INCOME TAX Abusive foreign tax credit transactions: Taxpayer alert (Notice 20) 11,608 Withdrawal of Notice 98–5 (Notice 19) 11,606 Agent for certain purposes, definition (TD 9111) 8,518 Automobile owners and lessees, inflation adjustment for 2004 (RP 20) 13,642 Capitalization: Of amounts paid to acquire or create intangibles (TD 9107) 7,447 Tangible property (Notice 6) 3,308 Capitalized costs, treatment of capitalized business acquisitioncosts (Notice 18) 11,605 Charitable contributions, intellectual property (Notice 7) 3,310 Charitable remainder trust, application of ordering rule, cancellation of public hearing on REG–110896–98 (Ann 14) 10,582 Confidential transactions (TD 9108) 6, 429 Contingent nonperiodic payments made pursuant to notional principal contracts (REG–166012–02) 13,655 Corporations: Spin-offs, corporate distributions (RR 23) 11,585 Transfers of assets or stock following a reorganization (REG–165579–02) 13,651 Cost depletion for an oil and gas property, determining total recoverable units to compute (RP 19) 10,563 Credits: Health coverage tax credit, qualified health insurance (RP 12) 9,528 Increasing research activities credit: Internal-use software, advance no- tice of proposed rulemaking – REG–153656–03 (Ann 9) 6,441 Qualified research definition (TD 9104) 6,406 Research credit recordkeeping agreements, pilot program (No- tice 11) 6,434 Low-income housing credit: 2004 population figures used for calculation (Notice 21) 11,609 Satisfactory bond, “bond factor” amounts for the period: January through March 2004 (RR 16) 8,508 State or local housing tax credit (TD 9110) 8,503 INCOME TAX—Cont. Declaratory judgment suits, annual notice to doners regarding pending and settled suits (Ann 1) 1,254 Disciplinary actions involving attorneys, certified public accountants, enrolled agents, and enrolled actuaries (Ann 6) 3,499 Disclosure of relative values of optional forms of benefit (TD 9099) 2,255 Electronic filing of: Certain income tax returns and other forms (TD 9100) 3,297; (REG–116664–01) 3,319 Duplicate Forms 5472 (TD 9113) 9, 524; (REG–167217–03) 9,540 Form 8609 (TD 9112) 9,523 Electronic payee statements (TD 9114) 11,589 Environmental remediation expenses: Restoration of amount held under claim of right (RR 17) 8,516 Uniform capitalization of costs (RR 18) 8,509 Forest Land Enhancement Program (FLEP), cost-share payments (RR 8) 10,544 Forms: 3115, Application for Change in Ac- counting Method, revised (Ann 16) 13,668 5472, electronic filing of du- plicates (TD 9113) 9,524; (REG–167217–03) 9,540 8609, Low-Income Housing Credit Al- location Certification, electronic fil- ing (TD 9112) 9,523 8806, Information Return for Ac- quisition of Control or Substantial Change in Capital Structure, new (Ann 5) 4,361 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities, comments re- quested(Ann4)4,357 Frivolous tax returns: Attempting to avoid taxes under sec- tion 861 (RR 30) 12,622 Common tax avoidance schemes, civil and criminal penalties (Notice 22) 12,632 Excluding gross income under section 911 (RR 28) 12,624 Filing a “zero return” (RR 34) 12,619 Meritless “claim of right” arguments (RR 29) 12,627 2004-13 I.R.B.vMarch 29, 2004 INCOME TAX—Cont. Meritless “corporation sole” argument (RR 27) 12,625 Meritless home-based business deduc- tions (RR 32) 12,621 Meritless “removal arguments” (RR 31) 12,617 Reparations tax credit (RR 33) 12,628 Health Savings Accounts (HSAs), ques- tions and answers (Notice 2) 2,269 Income and employment tax treatment of benefits received under the Smallpox Emergency Personnel Protection Act of 2003 (SEPPA) (Notice 17) 11,605 Individual income tax returns, common taxpayer mistakes (Notice 13) 12,631 Individual Taxpayer Identification Num- bers (ITINs), new application process (Notice 1) 2,268 Information reporting: Extension of certain 2004 deadlines (Notice 9) 4,334 For payments in lieu of dividends (TD 9103) 3,306 Health plans (Notice 16) 9,527 Insurance companies: Distributions from non-qualified annu- ity, section 72(q)(2) (Notice 15) 9, 526 Diversification requirements for variable annuity, endowment, and life insurance contracts (REG–163974–02), hearing (Ann 13) 9,543 Loss payment patterns and discount factors for the 2003 accident year (RP 9) 2,275 Salvage discount factors for the 2003 accident year (RP 10) 2,288 Interest: Investment: Federal short-term, mid-term, and long-term rates for: January 2004 (RR 2) 2,265 February 2004 (RR 9) 6,428 March 2004 (RR 25) 11,587 Rate tables (RR 14) 8,512 Rates: Underpayments and overpayments, quarter beginning: April 1, 2004 (RR 26) 11,598 Inventory: LIFO, price indexes used by depart- ment stores for: November 2003 (RR 7) 4,327 December 2003 (RR 19) 8,511 January 2004 (RR 35) 13,640 INCOME TAX—Cont. Letter rulings: And determination letters, areas which will not be issued from: Associates Chief Counsel and Divi- sion Counsel (TE/GE) (RP 3) 1, 114 Associate Chief Counsel (Interna- tional) (RP 7) 1,237 And information letters issued by As- sociate Offices, determination letters issued by Operating Divisions (RP 1) 1,1; correction of user fee (Ann 8) 6,441 Methods of accounting, changes in de- termining depreciation or amortization (RP 11) 3,311; (TD 9105) 6,419; (REG–126459–03) 6,437 Partnerships: Charitable contributions, trust govern- ing instrument requirement (RR 5) 3, 295 Electing large partnerships, separately stated items, qualified dividend in- come (Notice 5) 7,489 Penalties, defenses available to the im- position of the accuracy-related penalty (TD 9109) 8,519 Per diem rates, Publication 1542, revision changes (Ann 20) 13,673 Practice before the Internal Revenue Ser- vice (REG–122379–02) 5,392 Presidentially-declared disaster or combat zone, postponement of certain acts (RP 13) 4,335 Private foundations, organizations now classified as (Ann 12) 9,541;(Ann15) 11,612; (Ann 17) 12,635;(Ann19) 13,668 Proposed Regulations: 26 CFR 1.162–30, added; 1.212–1(q), added;1.446–3,amended; 1.1234A–1, added; notional prin- cipal contracts, contingent nonperi- odic payments (REG–166012–02) 13,655 26 CFR 1.167(e)–1, amended; 1.446–1, amended; 1.1016–3, amended; changes in computing depreciation (REG–126459–03) 6, 437 26 CFR 1.170A–11, amended; 1.556–2, amended; 1.565–1, amended; 1.936–7, amended; 1.1017–1, amended; 1.1368–1, amended; 1.1377–1, amended; 1.1502–21,–75,amended; INCOME TAX—Cont. 1.1503–2, amended; 1.6038B–1, amended; 301.7701–3, amended; guidance necessary to facili- tate business electronic filing (REG–116664–01) 3,319 26 CFR 1.368–1, –2, amended; corpo- rate reorganizations, transfers of as- sets or stock following a reorganiza- tion (REG–165579–02) 13,651 26 CFR 1.482–6, –9, amended; treat- ment of services under section 482, allocation of income and deductions from intangibles (REG–115037–00, REG–146893–02); correction (Ann 7) 4,365 26 CFR 1.6038A–1, –2, amended; electronic filing of duplicate Forms 5472 (REG–167217–03) 9,540 26 CFR 1.6043–4, added; 1.6045–3, added; information reporting re- lating to taxable stock transactions (REG–156232–03) 5,399 31 CFR 10.33, revised; 10.35, added; 10.36, added; 10.37, added; reg- ulations governing practice be- fore the Internal Revenue Service (REG–122379–02) 5,392 Publications: 538, Accounting Periods and Methods, revised (Ann 21) 13,673 1220, Specifications for Filing Forms 1098, 1099, 5498 and W-2G Elec- tronically or Magnetically, changes affecting tax year2003 filing of in- formation returns (Ann 3) 2,294 1542, Per Diem Rates (For Travel Within the Continental United States), revision changes (Ann 20) 13,673 Qualified dividends, changes to rules (Ann 11) 10,581 Qualified mortgage bonds and mortgage credit certificates, average area and na- tionwide housing purchase prices (RP 18) 9,529 Qualified offer regulations, award of at- torney’s fees and other costs (TD 9106) 5,384 Real estate investment trust (REIT) park- ing income (RR 24) 10,550 Reduction of the stated principal amount of a recourse note issued by the em- ployee to the employer to acquire em- ployer stock, treatment (RR 37) 11,583 March 29, 2004vi2004-13 I.R.B. INCOME TAX—Cont. Regulations: 26 CFR 1.41–0, –4, amended; 602.101, amended; credit for in- creasing research activities (TD 9104) 6,406 26 CFR 1.42–1, added; 1.42–1T, amended; low-income housing credit allocation certification, elec- tronic filing (TD 9112) 9,523 26 CFR 1.42–6, –8, –12, –14, amended; section 42 carryover and stacking rule amendments (TD 9110) 8,503 26 CFR 1.167(a)–3, amended; 1.263(a)–0, –4, –5, added; 1.446–5, added; 602.101, amended; guidance regarding deduction and capitaliza- tion of expenditures (TD 9107) 7, 447 26 CFR 1.167(e)–1, amended; 1.167(e)–1T, added; 1.446–1, amended;1.446–1T, added; 1.1016–3, amended; 1.1016–3T, added; changes in computing depre- ciation (TD 9105) 6,419 26 CFR 1.170A–11, amended; 1.170A–11T, added; 1.556–2, amended;1.556–2T, added; 1.565–1, amended; 1.565–1T, added;1.936–7,amended; 1.936–7T, added;1.1017–1, –1T, amended;1.1368–1, amended; 1.1368–1T, added; 1.1377–1, amended; 1.1377–1T, added;1.1502–21,–21T, –75, amended;1.1502–75T, added;1.1503–2, amended; 1.1503–2T, added; 1.6038B–1, –1T, amended; 301.7701–3, amended; 301.7701–3T, added; 602.101, amended; guidance necessary to facilitate business electronic filing (TD 9100) 3,297 26 CFR 1.401(a)–11, –(20), revised; 1.417(a)(3)–1, added; 1.417(e)–1, amended; 602.101, amended; dis- closure of relative values of optional forms of benefit (TD 9099) 2,255 26 CFR 1.642(c)–2, amended; 1.642(c)–5, revised; 1.643, revised; 1.651(a)–2(d), added; 1.661(a)–2(f), revised; 1.664–3, amended; defini- tion of income for trust purposes (TD 9102) 5,366 26 CFR 1.1502–35T, amended; sus- pension of losses on certain stock INCOME TAX—Cont. dispositions (TD 9048); correction (Ann 10) 7,501 26 CFR 1.6011–4, amended; 301.6112–1, amended; confiden- tial transactions (TD 9108) 6,429 26 CFR 1.6038A–2, amended; 1.6038–2T, added; electronic fil- ing of duplicate Forms 5472 (TD 9113) 9,524 26 CFR 1.6041–2(a)(5), added; 1.6041–2T, removed; 1.6050S–2, –4,added;1.6050S–2T, –4T, removed;31.6051–1(j), added; 31.6051–1T, removed; 301.6724–1T, removed; 602.101(b), amended; electronic payee state- ments (TD 9114) 11,589 26 CFR 1.6043–4T, revised; 1.6045–3T, revised; information reporting relating to taxable stock transactions (TD 9101) 5,376 26 CFR 1.6045–2, amended; informa- tion statements for certain substitute payments (TD 9103) 3,306 26 CFR 1.6662–0, –2, –3, –4, amended; 1.6664–0, –1, –4, amended; establishing defenses to the imposition of the accuracy-re- lated penalty (TD 9109) 8,519 26 CFR 301.6103(1)–1, added; 301.6103(m)–1, added; definition of agent for certain purposes (TD 9111) 8,518 26 CFR 301.7430–7, added; 301.7430–7T, removed; awards of attorney’s fees and other costs based upon qualified offers (TD 9106) 5, 384 Reporting an acquisition of control or sub- stantial change in capital structure, new Form 8806 (Ann 5) 4,362 Revocations, exempt organizations (Ann 18) 12,639;(Ann23)13,673 Section 911(d)(4) waiver, 2003 update (RP 17) 10,562 Standard Industry Fare Level (SIFL) for- mula (RR 36) 12,620 Stocks: Constructive sale, short sale, and trans- fers by broker (RR 15) 8,515 Guidance under section 1502, suspen- sion of losses on certain stock dispo- sitions (TD 9048); correction (Ann 10) 7,501 INCOME TAX—Cont. Information reporting relating to tax- able stock transactions (TD 9101) 5, 376; (REG–156232–03) 5,399 Tax conventions, taxation of nonresident partners in a service partnership that conducts activities in the United States (RR 3) 7,486 Technical advice to directors and appeals area directors from Associates Chief Counsel and Division Counsel/Asso- ciate Chief Counsel (TE/GE) (RP 2) 1, 83 Treatment of services under section 482 (REG–115037–00, REG–146893–02); correction (Ann 7) 4,365 Trusts, definition of income, total return, adjustments to income (TD 9102) 5, 366 SELF-EMPLOYMENT TAX Presidentially-declared disaster or combat zone, postponement of certain acts (RP 13) 4,335 2004-13 I.R.B.viiMarch 29, 2004 *U.S.G overnment Printing O ff ice: 2 004 —3 04–7 78/60128 March 29, 20042004-13 I.R.B. Picture Them Home Call 1-800-THE-LOST National Center for Missing and Exploited Children Missing From: Myrtle Point, OR on 08/14/1986 Jeremy Bright Male, Age Now: 31 Ht:6'0 Wt:140 lbs. 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