Internal Revenue Bulletin 2000-40 (PDF rendition): IRS Revenue Procedures

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

INCOME TAX
T.D. 8895, page 304.
Final regulations implement section 6071(b) of the Code and
extend the due date for filing information returns from Febru-
ary 28 or the last day of February to March 31 if the infor-
mation returns are filed electronically by payors required to
file after December 31, 1999. Final regulations under sec-
tions 6651(a)(2) and 6651(a)(3) of the Code provide that the
failure to pay penalties will be reduced from 0.5 percent per
month to 0.25 percent per month during the period an in-
stallment agreement under section 6159 of the Code is in
effect. The penalty reduction applies to installment agree-
ments beginning after December 31, 1999.
REG–112502–00, page 316.
Proposed regulations provide guidance on the treatment
under subpart F of income earned by a controlled foreign
corporation (CFC) through a partnership. A public hearing is
scheduled for December 5, 2000.
Rev. Proc. 2000–37, page 308.
Like-kind exchanges; replacement property; “parking”
arrangements.This procedure provides a safe harbor under
which the Service will not challenge (a) the qualification of prop-
erty as either “replacement property” or “relinquished proper-
ty” for purposes of section 1031 of the Code or (b) the treat-
ment of the “exchange accommodation titleholder” as the ben-
eficial owner of such property for federal income tax purpos-
es, if the property is held in a “qualified exchange accommo-
dation arrangement” (QEAA).
ADMINISTRATIVE
Rev. Proc. 2000–38, page 310.
Distributor commissions.This revenue procedure provides
three permissible methods of accounting for distributor com-
missions. It also provides instructions for a taxpayer to obtain
consent from the Commissioner of Internal Revenue to change
to any of the three permissible methods of accounting, includ-
ing rules relating to the limitations, terms, and conditions the
Commissioner deems necessary to make the change. Rev.
Proc. 99–49 modified and amplified.
Announcement 2000–80, page 320.
This announcement informs the public of the new toll-free
number for contacting an Appeals Officer (Customer
Service/Outreach).
Internal Revenue
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Bulletin No. 2000–40
October 2, 2000
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
Department of the Treasury
Internal Revenue Service
Finding Lists begin on page ii.
Index for July through September begins on page iv.

October 2, 20002000–40 I.R.B.
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi-
cial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly and may be obtained
from the Superintendent of Documents on a subscription
basis. Bulletin contents 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,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of in-
ternal management are not published; however, statements
of internal practices and procedures that affect the rights
and duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings
to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature
are deleted to prevent unwarranted invasions of privacy and
to comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have
the force and effect of Treasury Department Regulations,
but they may be used as precedents. Unpublished rulings
will not be relied on, used, or cited as precedents by Service
personnel in the disposition of other cases. In applying pub-
lished rulings and procedures, the effect of subsequent leg-
islation, regulations, court decisions, rulings, and proce-
dures must be considered, and Service personnel and oth-
ers concerned are cautioned against reaching the same con-
clusions in other cases unless the facts and circumstances
are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions, and Subpart B, Legislation and Related
Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and Sub-
parts. Also included in this part are Bank Secrecy Act Admin-
istrative Rulings. Bank Secrecy Act Administrative Rulings
are issued by the Department of the Treasury’s Office of the
Assistant Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The first Bulletin for each month includes a cumulative index
for the matters published during the preceding months.
These monthly indexes are cumulated on a semiannual basis,
and are published in the first Bulletin of the succeeding semi-
annual period, respectively.
The IRS Mission
Provide America’s taxpayers top quality service by help-
ing them understand and meet their tax responsibilities
and by applying the tax law with integrity and fairness to
all.
Introduction
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

October 2, 20003042000–40 I.R.B.
Section 6071.—Time for Filing
Returns and Other Documents
26 CFR 31.6071(b): Electronically filed
information returns.
T.D.8895
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 31, and 301
Extension of Due Date for
Electronically Filed Information
Returns; Limitation of Failure to
Pay Penalty for Individuals During
Period of Installment Agreement
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulation.
SUMMARY: This document contains
final regulations implementing section
6071(b) relating to the extension of the
due date for certain electronically filed in-
formation returns. The final regulations
also provide rules under section 6651(h)
relating to a penalty reduction for certain
individuals who have agreed with the IRS
to make installment payments in satisfac-
tion of their tax liability. The regulations
relating to extension of filing dates affect
payors required to file information returns
after December 31, 1999. The regulations
relating to penalty reduction affect indi-
vidual taxpayers with installment agree-
ments in effect during months beginning
after December 31, 1999.
DATES: Effective Date: These regula-
tions are effective August 18, 2000.
Applicability Date: The provisions of
these regulations under section 6071(b)
apply for returns required to be filed after
December 31, 1999. The provisions of
these regulations under section 6651(h)
apply for determining the addition to tax for
months beginning after December 31, 1999.
FOR FURTHER INFORMATION CON-
TACT: Marilyn E. Brookens, (202) 622-
4920 (for information relating to the ex-
tension of due dates under section
6071(b)); or Robert B. Taylor, (202) 622-
4940 (for information relating to the re-
duction in the penalty under section
6651(h)) (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
This document contains amendments to
the Income Tax Regulations, Employment
Tax Regulations, and Procedure and Ad-
ministration Regulations (26 CFR Parts 1,
31, and 301), and implements sections
6071(b) and 6651(h), which were added to
the Internal Revenue Code (Code) by the
Internal Revenue Service Restructuring and
Reform Act of 1998, Public Law 105-206
(112 Stat. 685, 724 (1998 Act)). Section
6071(b) was added to the Code by section
2002 of the 1998 Act and extends the due
date for information returns required by
chapter 61, subchapter A, part III, subparts
B and C (sections 6041 through 6053) that
are filed electronically. The information re-
turns affected include the Form W-2 series,
Form W-2G, the Form 1098 series, the
Form 1099 series, and Form 8027. Under
section 6071(b) such information returns
are due on or before March 31 of the year
following the calendar year to which the re-
turns relate. Section 6071(b) applies to in-
formation returns required to be filed with
the IRS or the Social Security Administra-
tion after December 31, 1999.
Section 6651(h) was added to the Code
by section 3303 of the 1998 Act and pro-
vides that, for individuals, the failure to
pay penalty is reduced from 0.5 percent
per month to 0.25 percent per month dur-
ing the period an installment agreement
under section 6159 is in effect with regard
to a timely filed return. Section 6651(h)
applies to any Federal tax liability of an
individual (including a liability under
subtitle C) and is effective for determin-
ing the addition to tax for months begin-
ning after December 31, 1999.
On January 27, 2000, a notice of pro-
posed rulemaking (REG–105279–99,
2000–8 I.R.B. 707) under sections
6071(b) and 6651(h) was published in the
Federal Register(65 F.R. 4396). Al-
though written or electronic comments
and requests for a public hearing were so-
licited, no comments were received and
no public hearing was requested or held.
The proposed regulations under sections
6071(b) and 6651(h) are adopted by this
Treasury decision.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assess-
ment is not required. It has also been de-
termined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regula-
tions, and, because the regulations do not
impose a collection of information on
small entities, a Regulatory Flexibility
Analysis under the Regulatory Flexibil-
ity Act (5 U.S.C. chapter 6) is not re-
quired. Pursuant to section 7805(f) of
the Code, the notice of proposed rule-
making that preceded these regulations
was submitted to the Chief Counsel for
Advocacy of the Small Business Admin-
istration for comment on its impact on
small business.
Drafting Information
The principal author of the regulations
relating to the extension of due dates
under section 6071(b) is Marilyn E.
Brookens, Office of Associate Chief
Counsel (Income Tax & Accounting).
The principal author of the regulations re-
lating to the reduction in the penalty
under section 6651(h) is Robert B. Taylor,
Office of Assistant Chief Counsel (Ad-
ministrative Provisions and Judicial Prac-
tice). However, other personnel from the
IRS and Treasury Department partici-
pated in their development.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1, 31, and
301 are 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. In §1.6041–2, paragraph
(a)(3)(ii) is revised to read as follows:
§1.6041–2 Return of information as to
payments to employees.
(a) * * *
(3) * * *
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

2000–40 I.R.B.305October 2, 2000
(ii) Exception. In a case where an em-
ployer is not required to file Forms W-3
and W-2 under §31.6011(a)–4 or
§31.6011(a)–5 of this chapter, returns on
Forms W-3 and W-2 required under this
paragraph (a) for any calendar year shall
be filed on or before February 28 (March
31 if filed electronically) of the following
year.
* * * * *
Par. 3. In §1.6041–6, the first sentence
is revised to read as follows:
§1.6041–6 Returns made on Forms 1096
and 1099 under section 6041; contents
and time and place for filing.
Returns made under section 6041 on
Forms 1096 and 1099 for any calendar
year shall be filed on or before February
28 (March 31 if filed electronically) of the
following year with any of the Internal
Revenue Service Centers, the addresses
of which are listed in the instructions for
such forms. * * *
Par. 4. In §1.6042–2, the first sentence
of paragraph (c) is revised to read as fol-
lows:
§1.6042–2 Returns of information as to
dividends paid in calendar years after
1962.
* * * * *
(c) Time and place for filing. The re-
turns required under this section for any
calendar year shall be filed after Septem-
ber 30 of such year, but not before the
payer’s final payment for the year, and on
or before February 28 (March 31 if filed
electronically) of the following year with
any of the Internal Revenue Service Cen-
ters, the addresses of which are listed in
the instructions for Form 1096. * * *
* * * * *
Par. 5. In §1.6043–2, paragraph (a) is
revised to read as follows:
§1.6043–2 Return of information
respecting distributions in liquidation.
(a) Unless the distribution is one in re-
spect of which information is required to
be filed pursuant to §1.332–6(b),
1.368–3(a), or 1.1081–11, every corpora-
tion making any distribution of $600 or
more during a calendar year to any share-
holder in liquidation of the whole or any
part of its capital stock shall file a return
of information on Forms 1096 and 1099,
giving all the information required by
such form and by the regulations in this
part. A separate Form 1099 must be pre-
pared for each shareholder to whom such
distribution was made, showing the name
and address of such shareholder, the num-
ber and class of shares owned by him in
liquidation of which such distribution was
made, and the total amount distributed to
him on each class of stock. If the amount
distributed to such shareholder on any
class of stock consisted in whole or in part
of property other than money, the return
on such form shall in addition show the
amount of money distributed, if any, and
shall list separately each class of property
other than money distributed, giving a de-
scription of the property in each such
class and a statement of its fair market
value at the time of the distribution. Such
forms, accompanied by transmittal Form
1096 showing the number of Forms 1099
filed therewith, shall be filed on or before
February 28 (March 31 if filed electroni-
cally) of the year following the calendar
year in which such distribution was made
with any of the Internal Revenue Service
Centers, the addresses of which are listed
in the instructions for Form 1096.
* * * * *
Par. 6. In §1.6044–2, the first sentence
of paragraph (d) is revised to read as fol-
lows:
§1.6044–2 Returns of information as to
payments of patronage dividends with
respect to patronage occurring in taxable
years beginning after 1962.
* * * * *
(d) Time and place for filing.The re-
turn required under this section on Forms
1096 and 1099 for any calendar year shall
be filed after September 30 of such year,
but not before the payer’s final payment
for the year, and on or before February 28
(March 31 if filed electronically) of the
following year, with any of the Internal
Revenue Service Centers, the addresses
of which are listed in the instructions for
such forms. * * *
* * * * *
Par. 7. Section §1.6045–1 is amended
by adding paragraph (r) to read as fol-
lows:
§1.6045–1 Returns of information of
brokers and barter exchanges.
* * * * *
(r) Electronic filing. Notwithstanding
the time prescribed for filing in paragraph
(j) of this section, Forms 1096 and 1099
required under this section for reporting
periods ending during a calendar year
shall, if filed electronically, be filed after
the last calendar day of the reporting pe-
riod elected by the broker or barter ex-
change and on or before March 31 of the
following calendar year.
Par. 8. In §1.6045–2, paragraph (g)(3)
is revised to read as follows:
§1.6045–2 Furnishing statement required
with respect to certain substitute
payments.
* * * * *
(g) * * *
(3) Time and place of filing. The re-
turns required under this paragraph (g) for
any calendar year shall be filed after Sep-
tember 30 of such year, but not before the
final substitute payment for the year is re-
ceived by the broker, and on or before
February 28 (March 31 if filed electroni-
cally) of the following year with any of
the Internal Revenue Service Centers, the
addresses of which are listed in the in-
structions for Form 1096.
* * * * *
Par. 9. In §1.6045–4, the first sentence
of paragraph (j) is revised to read as fol-
lows:
§1.6045–4 Information reporting on real
estate transactions with dates of closing
on or after January 1, 1991.
* * * * *
(j) Time and place for filing. A report-
ing person shall file the information re-
turns required by this section with respect
to a real estate transaction after December
31 of the calendar year that includes the
date of closing (as determined under para-
graph (h)(2)(ii) of this section) and on or
before February 28 (March 31 if filed
electronically) of the following calendar
year. * * *
* * * * *
Par. 10. In §1.6047–1, the first sen-
tence of paragraph (a)(6) is revised to
read as follows:
§1.6047–1 Information to be furnished
with regard to employee retirement plan
covering an owner-employee.

October 2, 20003062000–40 I.R.B.
(a) * * *
(6) Time and place for filing. The re-
turn required under this section for any
calendar year shall be filed after the close
of that year and on or before February 28
(March 31 if filed electronically) of the
following year with any of the Internal
Revenue Service Centers, the addresses
of which are listed in the instructions for
Form 1096. * * *
* * * * *
Par. 11. Section 1.6049–4 is amended
by:
1. Revising the first sentence of para-
graph (g)(1).
2. Revising the first sentence of para-
graph (g)(2).
The revisions read as follows:
§1.6049–4 Return of information as to
interest paid and original issue discount
includible in gross income after
December 31, 1982.
* * * * *
(g) * * * (1) Annual return. Except as
provided in paragraph (g)(2) of this sec-
tion, the returns required under this sec-
tion for any calendar year for the payment
of interest shall be filed after September
30 of such year, but not before the payor’s
final payment to the payee for the year,
and on or before February 28 (March 31 if
filed electronically) of the following year.
* * *
(2) Transactional return. In the case of
a return under paragraph (e) of this sec-
tion, relating to returns on a transactional
basis, such return shall be filed at any
time but in no event later than February
28 (March 31 if filed electronically) of the
year following the calendar year in which
the interest was paid. * * *
* * * * *
Par. 12. In §1.6049–7, the first sen-
tence of paragraph (b)(2)(iv) is revised to
read as follows:
§1.6049–7 Returns of information with
respect to REMIC regular interests and
collateralized debt obligations.
* * * * *
(b) * * *
(2) * * *
(iv) Time and place for filing a return
with respect to amounts includible as in-
terest. The returns required under this
paragraph (b)(2) for any calendar year
must be filed after September 30 of that
year, but not before the payor’s final pay-
ment to the payee for the year, and on or
before February 28 (March 31 if filed
electronically) of the following year.
* * *
* * * * *
Par. 13. In §1.6050A–1, paragraph (b)
is revised to read as follows:
§1.6050A–1 Reporting requirements of
certain fishing boat operators.
* * * * *
(b) Time and place for filing.Returns
required to be made under this section on
Form 1099-MISC shall be filed with the
Internal Revenue Service Center, desig-
nated in the instructions for Form 1099-
MISC, on or before February 28 (March
31 if filed electronically) of the year fol-
lowing the calendar year in which the rel-
evant services were performed.
* * * * *
Par. 14. In §1.6050D–1, paragraph (b)
is revised to read as follows:
§1.6050D–1 Information returns relating
to energy grants and financing.
* * * * *
(b) Time and place for filing. Returns
required to be made under this section
shall be filed with the Internal Revenue
Service Center designated in the instruc-
tions for Form 6497 or 1099-G on or be-
fore the last day of February (March 31 if
filed electronically) of the year following
the calendar year for which the return is
made.
Par. 15. In §1.6050E–1, the first sen-
tence of paragraph (h) is revised to read as
follows:
§1.6050E–1 Reporting of State and local
income tax refunds.
* * * * *
(h) Time and place for filing. The returns
required under this section for any calendar
year shall be filed after September 30 of
that calendar year, but not before the refund
officer’s final payment (or allowance of
credit or offset) for the year, and on or be-
fore February 28 (March 31 if filed elec-
tronically) of the following year. * * *
* * * * *
Par. 16. In §1.6050H–2, the first and
second sentences of paragraph (a)(4) are
revised to read as follows:
§1.6050H–2 Time, form, and manner of
reporting interest received on qualified
mortgage.
(a) * * *
(4) Time and place for filing return. An
interest recipient must file a return required
by this paragraph (a) on or before February
28 (March 31 if filed electronically) of the
year following the calendar year for which
it receives the mortgage interest. If no in-
terest is required to be reported for the cal-
endar year, but a reimbursement of interest
on a qualified mortgage is required to be re-
ported for the calendar year, then a return
required by this paragraph (a) must be filed
on or before February 28 (March 31 if filed
electronically) of the year following the
calendar year in which the reimbursement
was made. * * *
* * * * *
Par. 17. In §1.6050J–1T, A-33 is re-
vised to read as follows:
§1.6050J–1T Questions and answers
concerning information returns relating
to foreclosures and abandonments of
security (temporary).
* * * * *
A-33: The return or returns must be
filed on or before February 28 (March 31
if filed electronically) of the year follow-
ing the calendar year in which the acquisi-
tion of an interest in the property occurs
or in which the lender knows or has rea-
son to know of the abandonment of the
property.
* * * * *
Par. 18. In §1.6050P–1, paragraph
(a)(4)(i) is revised to read as follows:
§1.6050P–1 Information reporting for
discharges of indebtedness by certain
financial entities.
(a) * * *
(4) * * * (i) In general. Except as
provided in paragraph (a)(4)(ii) of this
section, returns required by this section
must be filed with the Internal Revenue
Service office designated in the instruc-
tions for Form 1099-C on or before Feb-
ruary 28 (March 31 if filed electronically)
of the year following the calendar year in
which the identifiable event occurs.
* * * * *
Par. 19. In §1.6052–1, paragraph
(b)(1)(ii) is revised to read as follows:

2000–40 I.R.B.307October 2, 2000
§1.6052–1 Information returns regarding
payment of wages in the form of group-
term life insurance.
* * * * *
(b) * * * (1) * * *
(ii) Exception. In a case where an em-
ployer is not required to file Forms W-3
and W-2 under §31.6011(a)–4 or
§31.6011(a)–5 of this chapter, returns on
Forms W-3 and W-2 required under para-
graph (a) of this section for any calendar
year shall be filed on or before February
28 (March 31 if filed electronically) of the
following year.
* * * * *
PART 31—EMPLOYMENT TAXES
AND COLLECTION OF INCOME TAX
AT THE SOURCE
Par. 20. The authority citation for part
31 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 21. In §31.3402(q)–1, the first
sentence of paragraph (f)(1) is revised to
read as follows:
§31.3402(q)–1 Extension of withholding
to certain gambling winnings.
* * * * *
(f)(1) In general. Every person mak-
ing payment of winnings for which a
statement is required under paragraph (e)
of this section shall file a return on Form
W-2G with the Internal Revenue Service
Center serving the district in which is lo-
cated the principal place of business of
the person making the return on or before
February 28 (March 31 if filed electroni-
cally) of the calendar year following the
calendar year in which the payment of
winnings is made. * * *
* * * * *
Par. 22. In §31.6053–3, the first sen-
tence of paragraph (a)(4) is revised to
read as follows:
§31.6053–3 Reporting by certain large
food or beverage establishments with
respect to tips.
(a) * * *
(4) Time and place for filing. The in-
formation return required by this para-
graph (a) shall be filed on or before the
last day of February (March 31 if filed
electronically) of the year following the
calendar year for which the return is made
with the Internal Revenue Service Center
specified by the Form 8027 or its instruc-
tions. * * *
* * * * *
Par. 23. In §31.6071(a)–1, paragraph
(a)(3)(i) is revised to read as follows:
§31.6071(a)–1 Time for filing returns and
other documents.
(a) * * *
(3) * * * (i) General rule. Each infor-
mation return in respect of wages as de-
fined in the Federal Insurance Contribu-
tions Act or of income tax withheld from
wages which is required to be made under
§31.6051–2 shall be filed on or before the
last day of February (March 31 if filed
electronically) of the year following the
calendar year for which it is made, except
that, if a tax return under §31.6011(a)–
5(a) is filed as a final return for a period
ending prior to December 31, the infor-
mation statement shall be filed on or be-
fore the last day of the second calendar
month following the period for which the
tax return is filed.
* * * * *
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 24. The authority citation for part
301 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 25. Section 301.6651–1 is
amended by:
1. Revising the last sentence in para-
graph (a)(2).
2. Revising the second sentence in
paragraph (a)(3).
3. Adding paragraph (a)(4).
The revisions and additions read as fol-
lows:
§301.6651–1 Failure to file tax return or
to pay tax.
(a) * * *
(2) * * * Except as provided in para-
graph (a)(4) of this section, the amount to
be added to the tax is 0.5 percent of the
amount of tax shown on the return if the
failure is for not more than 1 month, with
an additional 0.5 percent for each addi-
tional month or fraction thereof during
which the failure continues, but not to ex-
ceed 25 percent in the aggregate.
(3) * * * Except as provided in para-
graph (a)(4) of this section, the amount to
be added to the tax is 0.5 percent of the
amount stated in the notice and demand if
the failure is for not more than 1 month,
with an additional 0.5 percent for each ad-
ditional month or fraction thereof during
which the failure continues, but not to ex-
ceed 25 percent in the aggregate. * * *
(4) Reduction of failure to pay penalty
during the period an installment agree-
ment is in effect—(i) In general. In the
case of a return filed by an individual on
or before the due date for the return (in-
cluding extensions)—
(A) The amount added to tax for a
month or fraction thereof is determined
by using 0.25 percent instead of 0.5 per-
cent under paragraph (a)(2) of this section
if at any time during the month an install-
ment agreement under section 6159 is in
effect for the payment of such tax; and
(B) The amount added to tax for a
month or fraction thereof is determined
by using 0.25 percent instead of 0.5 per-
cent under paragraph (a)(3) of this section
if at any time during the month an install-
ment agreement under section 6159 is in
effect for the payment of such tax.
(ii) Effective date. This paragraph
(a)(4) applies for purposes of determining
additions to tax for months beginning
after December 31, 1999.
* * * * *
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
Approved August 1, 2000.
Jonathan Talisman,
Acting Assistant Secretary
of the Treasury.
(Filed by the Office of the Federal Register on Au-
gust 17, 2000, 8:45 a.m., and published in the issue
of the Federal Register for August 18, 2000, 65 F.R.
50405)

October 2, 20003082000–40 I.R.B.
26 CFR 1.1031(a)–1: Property held for productive
use in trade or business or for investment;
1.1031(k)–1: Treatment of deferred exchanges.
Rev. Proc. 2000–37
SECTION 1. PURPOSE
This revenue procedure provides a safe
harbor under which the Internal Revenue
Service will not challenge (a) the qualifica-
tion of property as either “replacement
property” or “relinquished property” (as
defined in § 1.1031(k)–1(a) of the Income
Tax Regulations) for purposes of § 1031 of
the Internal Revenue Code and the regula-
tions thereunder or (b) the treatment of the
“exchange accommodation titleholder” as
the beneficial owner of such property for
federal income tax purposes, if the property
is held in a “qualified exchange accommo-
dation arrangement” (QEAA), as defined in
section 4.02 of this revenue procedure.
SECTION 2. BACKGROUND
.01 Section 1031(a)(1) provides that no
gain or loss is recognized on the exchange
of property held for productive use in a
trade or business or for investment if the
property is exchanged solely for property
of like kind that is to be held either for
productive use in a trade or business or
for investment.
.02 Section 1031(a)(3) provides that
property received by the taxpayer is not
treated as like-kind property if it: (a) is
not identified as property to be received in
the exchange on or before the day that is
45 days after the date on which the tax-
payer transfers the relinquished property;
or (b) is received after the earlier of the
date that is 180 days after the date on
which the taxpayer transfers the relin-
quished property, or the due date (deter-
mined with regard to extension) for the
transferor’s federal income tax return for
the year in which the transfer of the relin-
quished property occurs.
.03 Determining the owner of property
for federal income tax purposes requires an
analysis of all of the facts and circum-
stances. As a general rule, the party that
bears the economic burdens and benefits of
ownership will be considered the owner of
property for federal income tax purposes.
SeeRev. Rul. 82–144, 1982–2 C.B. 34.
.04 On April 25, 1991, the Treasury De-
partment and the Service promulgated final
regulations under § 1.1031(k)–1 providing
rules for deferred like-kind exchanges
under § 1031(a)(3). The preamble to the
final regulations states that the deferred ex-
change rules under § 1031(a)(3) do not
apply to reverse-Starkerexchanges (i.e.,
exchanges where the replacement property
is acquired before the relinquished property
is transferred) and consequently that the
final regulations do not apply to such ex-
changes. T.D. 8346, 1991–1 C.B. 150, 151;
see Starker v. United States, 602 F.2d 1341
(9
th
Cir. 1979). However, the preamble in-
dicates that Treasury and the Service will
continue to study the applicability of the
general rule of § 1031(a)(1) to these trans-
actions. T.D. 8346, 1991–1 C.B. 150, 151.
.05 Since the promulgation of the final
regulations under § 1.1031(k)–1, taxpay-
ers have engaged in a wide variety of
transactions, including so-called “park-
ing” transactions, to facilitate reverse
like-kind exchanges. Parking transac-
tions typically are designed to “park” the
desired replacement property with an ac-
commodation party until such time as the
taxpayer arranges for the transfer of the
relinquished property to the ultimate
transferee in a simultaneous or deferred
exchange. Once such a transfer is
arranged, the taxpayer transfers the relin-
quished property to the accommodation
party in exchange for the replacement
property, and the accommodation party
then transfers the relinquished property to
the ultimate transferee. In other situa-
tions, an accommodation party may ac-
quire the desired replacement property on
behalf of the taxpayer and immediately
exchange such property with the taxpayer
for the relinquished property, thereafter
holding the relinquished property until the
taxpayer arranges for a transfer of such
property to the ultimate transferee. In the
parking arrangements, taxpayers attempt
to arrange the transaction so that the ac-
commodation party has enough of the
benefits and burdens relating to the prop-
erty so that the accommodation party will
be treated as the owner for federal income
tax purposes.
.06 Treasury and the Service have de-
termined that it is in the best interest of
sound tax administration to provide tax-
payers with a workable means of qualify-
ing their transactions under § 1031 in situ-
ations where the taxpayer has a genuine
intent to accomplish a like-kind exchange
at the time that it arranges for the acquisi-
tion of the replacement property and actu-
ally accomplishes the exchange within a
short time thereafter. Accordingly, this
revenue procedure provides a safe harbor
that allows a taxpayer to treat the accom-
modation party as the owner of the prop-
erty for federal income tax purposes,
thereby enabling the taxpayer to accom-
plish a qualifying like-kind exchange.
SECTION 3. SCOPE
.01 Exclusivity. This revenue proce-
dure provides a safe harbor for the qualifi-
cation under § 1031 of certain arrange-
ments between taxpayers and exchange
accommodation titleholders and provides
for the treatment of the exchange accom-
modation titleholder as the beneficial
owner of the property for federal income
tax purposes. These provisions apply
only in the limited context described in
this revenue procedure. The principles set
forth in this revenue procedure have no
application to any federal income tax de-
terminations other than determinations
that involve arrangements qualifying for
the safe harbor.
.02 No inference. No inference is in-
tended with respect to the federal income
tax treatment of arrangements similar to
those described in this revenue procedure
that were entered into prior to the effec-
tive date of this revenue procedure. Fur-
ther, the Service recognizes that “park-
ing” transactions can be accomplished
outside of the safe harbor provided in this
revenue procedure. Accordingly, no in-
ference is intended with respect to the
federal income tax treatment of “parking”
transactions that do not satisfy the terms
of the safe harbor provided in this revenue
procedure, whether entered into prior to
or after the effective date of this revenue
procedure.
.03 Other issues. Services for the tax-
payer in connection with a person’s role
as the exchange accommodation title-
holder in a QEAA shall not be taken into
account in determining whether that per-
son or a related person is a disqualified
Part III. Administrative, Procedural, and Miscellaneous

2000–40 I.R.B.309October 2, 2000
person (as defined in § 1.1031(k)–1(k)).
Even though property will not fail to be
treated as being held in a QEAA as a re-
sult of one or more arrangements de-
scribed in section 4.03 of this revenue
procedure, the Service still may recast an
amount paid pursuant to such an arrange-
ment as a fee paid to the exchange accom-
modation titleholder for acting as an ex-
change accommodation titleholder to the
extent necessary to reflect the true eco-
nomic substance of the arrangement.
Other federal income tax issues impli-
cated, but not addressed, in this revenue
procedure include the treatment, for fed-
eral income tax purposes, of payments de-
scribed in section 4.03(7) and whether an
exchange accommodation titleholder may
be precluded from claiming depreciation
deductions (e.g., as a dealer) with respect
to the relinquished property or the re-
placement property.
.04 Effect of Noncompliance. If the re-
quirements of this revenue procedure are
not satisfied (for example, the property
subject to a QEAA is not transferred
within the time period provided), then this
revenue procedure does not apply. Ac-
cordingly, the determination of whether
the taxpayer or the exchange accommoda-
tion titleholder is the owner of the prop-
erty for federal income tax purposes, and
the proper treatment of any transactions
entered into by or between the parties,
will be made without regard to the provi-
sions of this revenue procedure.
SECTION 4. QUALIFIED
EXCHANGE ACCOMMODATION
ARRANGEMENTS
.01 Generally. The Service will not
challenge the qualification of property as
either “replacement property” or “relin-
quished property” (as defined in
§ 1.1031(k)–1(a)) for purposes of § 1031
and the regulations thereunder, or the
treatment of the exchange accommoda-
tion titleholder as the beneficial owner of
such property for federal income tax pur-
poses, if the property is held in a QEAA.
.02 Qualified Exchange Accommoda-
tion Arrangements.For purposes of this
revenue procedure, property is held in a
QEAA if all of the following require-
ments are met:
(1) Qualified indicia of ownership of
the property is held by a person (the “ex-
change accommodation titleholder”) who
is not the taxpayer or a disqualified per-
son and either such person is subject to
federal income tax or, if such person is
treated as a partnership or S corporation
for federal income tax purposes, more
than 90 percent of its interests or stock are
owned by partners or shareholders who
are subject to federal income tax. Such
qualified indicia of ownership must be
held by the exchange accommodation ti-
tleholder at all times from the date of ac-
quisition by the exchange accommodation
titleholder until the property is transferred
as described in section 4.02(5) of this rev-
enue procedure. For this purpose, “quali-
fied indicia of ownership” means legal
title to the property, other indicia of own-
ership of the property that are treated as
beneficial ownership of the property
under applicable principles of commercial
law (e.g., a contract for deed), or interests
in an entity that is disregarded as an entity
separate from its owner for federal in-
come tax purposes (e.g., a single member
limited liability company) and that holds
either legal title to the property or such
other indicia of ownership;
(2) At the time the qualified indicia of
ownership of the property is transferred to
the exchange accommodation titleholder,
it is the taxpayer’s bona fide intent that
the property held by the exchange accom-
modation titleholder represent either re-
placement property or relinquished prop-
erty in an exchange that is intended to
qualify for nonrecognition of gain (in
whole or in part) or loss under § 1031;
(3) No later than five business days after
the transfer of qualified indicia of owner-
ship of the property to the exchange ac-
commodation titleholder, the taxpayer and
the exchange accommodation titleholder
enter into a written agreement (the “quali-
fied exchange accommodation agree-
ment”) that provides that the exchange ac-
commodation titleholder is holding the
property for the benefit of the taxpayer in
order to facilitate an exchange under
§ 1031 and this revenue procedure and that
the taxpayer and the exchange accommo-
dation titleholder agree to report the acqui-
sition, holding, and disposition of the prop-
erty as provided in this revenue procedure.
The agreement must specify that the ex-
change accommodation titleholder will be
treated as the beneficial owner of the prop-
erty for all federal income tax purposes.
Both parties must report the federal in-
come tax attributes of the property on their
federal income tax returns in a manner
consistent with this agreement;
(4) No later than 45 days after the
transfer of qualified indicia of ownership
of the replacement property to the ex-
change accommodation titleholder, the re-
linquished property is properly identified.
Identification must be made in a manner
consistent with the principles described in
§ 1.1031(k)–1(c). For purposes of this
section, the taxpayer may properly iden-
tify alternative and multiple properties, as
described in § 1.1031(k)–1(c)(4);
(5) No later than 180 days after the
transfer of qualified indicia of ownership
of the property to the exchange accommo-
dation titleholder, (a) the property is
transferred (either directly or indirectly
through a qualified intermediary (as de-
fined in § 1.1031(k)–1(g)(4))) to the tax-
payer as replacement property; or (b) the
property is transferred to a person who is
not the taxpayer or a disqualified person
as relinquished property; and
(6) The combined time period that the
relinquished property and the replacement
property are held in a QEAA does not ex-
ceed 180 days.
.03 Permissible Agreements. Property
will not fail to be treated as being held in
a QEAA as a result of any one or more of
the following legal or contractual arrange-
ments, regardless of whether such
arrangements contain terms that typically
would result from arm’s length bargaining
between unrelated parties with respect to
such arrangements:
(1) An exchange accommodation title-
holder that satisfies the requirements of
the qualified intermediary safe harbor set
forth in §1.1031(k)–1(g)(4) may enter
into an exchange agreement with the tax-
payer to serve as the qualified intermedi-
ary in a simultaneous or deferred ex-
change of the property under § 1031;
(2) The taxpayer or a disqualified per-
son guarantees some or all of the obliga-
tions of the exchange accommodation ti-
tleholder, including secured or unsecured
debt incurred to acquire the property, or
indemnifies the exchange accommodation
titleholder against costs and expenses;
(3) The taxpayer or a disqualified per-
son loans or advances funds to the ex-
change accommodation titleholder or
guarantees a loan or advance to the ex-
change accommodation titleholder;

October 2, 20003102000–40 I.R.B.
(4) The property is leased by the ex-
change accommodation titleholder to the
taxpayer or a disqualified person;
(5) The taxpayer or a disqualified per-
son manages the property, supervises im-
provement of the property, acts as a con-
tractor, or otherwise provides services to
the exchange accommodation titleholder
with respect to the property;
(6) The taxpayer and the exchange ac-
commodation titleholder enter into agree-
ments or arrangements relating to the pur-
chase or sale of the property, including
puts and calls at fixed or formula prices,
effective for a period not in excess of 185
days from the date the property is ac-
quired by the exchange accommodation
titleholder; and
(7) The taxpayer and the exchange ac-
commodation titleholder enter into agree-
ments or arrangements providing that any
variation in the value of a relinquished
property from the estimated value on the
date of the exchange accommodation ti-
tleholder’s receipt of the property be
taken into account upon the exchange ac-
commodation titleholder’s disposition of
the relinquished property through the tax-
payer’s advance of funds to, or receipt of
funds from, the exchange accommodation
titleholder.
.04 Permissible Treatment. Property
will not fail to be treated as being held in
a QEAA merely because the accounting,
regulatory, or state, local, or foreign tax
treatment of the arrangement between the
taxpayer and the exchange accommoda-
tion titleholder is different from the treat-
ment required by section 4.02(3) of this
revenue procedure.
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective for
QEAAs entered into with respect to an
exchange accommodation titleholder that
acquires qualified indicia of ownership of
property on or after September 15, 2000.
SECTION 6. PAPERWORK
REDUCTION ACT
The collections of information con-
tained in this revenue procedure have
been reviewed and approved by the Of-
fice of Management and Budget in accor-
dance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545-1701. An agency may not conduct
or sponsor, and a person is not required to
respond to, a collection of information
unless the collection of information dis-
plays a valid control number.
The collections of information are con-
tained in section 4.02 of this revenue pro-
cedure, which requires taxpayers and ex-
change accommodation titleholders to
enter into a written agreement that the ex-
change accommodation titleholder will be
treated as the beneficial owner of the
property for all federal income tax pur-
poses. This information is required to en-
sure that both parties to a QEAA treat the
transaction consistently for federal tax
purposes. The likely respondents are
businesses and other for-profit institu-
tions, and individuals.
The estimated average annual burden
to prepare the agreement and certification
is two hours. The estimated number of
respondents is 1,600, and the estimated
total annual reporting burden is 3,200
hours.
The estimated annual frequency of re-
sponses is on occasion.
Books and records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
DRAFTING INFORMATION
The principal author of this revenue
procedure is J. Peter Baumgarten of the
Office of Associate Chief Counsel (In-
come Tax and Accounting). For further
information regarding this revenue proce-
dure, contact Mr. Baumgarten at (202)
622-4950 (not a toll-free call).
26 CFR 601.204: Changes in accounting periods
and in methods of accounting.
(Also Part I, §§ 446, 481; 1.446–1, 1.481–1.)
Rev. Proc. 2000–38
SECTION 1. PURPOSE
This revenue procedure provides three
permissible methods of accounting for
distributor commissions (as defined in § 2
below). A taxpayer may change to or
adopt any of the three methods. This rev-
enue procedure provides procedures for a
taxpayer to obtain consent from the Com-
missioner of Internal Revenue to change
to any of the three methods of accounting
for distributor commissions, including
rules relating to the limitations, terms, and
conditions the Commissioner deems nec-
essary to make the change.
SECTION 2. DEFINITIONS
Under Rule 12b–1 (17 C.F.R. § 270.
12b–1), an open-end regulated investment
company (“mutual fund”) may adopt, for
one or more classes of its shares, a plan
that permits it to use fund assets to pay a
fee to cover distribution costs of fund
shares (“distribution fee”). For purposes
of this revenue procedure, the term “dis-
tributor commissions” means commis-
sions paid or incurred by a distributor of a
mutual fund on the sale of mutual fund
shares for which the distributor is to re-
ceive a distribution fee from the mutual
fund and, in some cases, a contingent de-
ferred sales charge from the investor in
future taxable year(s) (typically referred
to in the mutual fund industry as “B
shares”). Distributor commissions do not
include commissions paid or incurred on
the sale of mutual fund shares for which
the distributor is to receive a distribution
fee and, in some cases, a contingent de-
ferred sales charge in future taxable years
and will make commission payments to
the selling broker in an amount equal to
the amount it receives each year that the
shares remain outstanding (typically re-
ferred to in the mutual fund industry as “C
shares”).
SECTION 3. BACKGROUND
.01 Mutual funds generally distribute
new shares to the public through a distrib-
utor. If an investor purchases mutual fund
shares through a broker, either the in-
vestor or the distributor pays the broker-
age commissions. If the distributor pays
the brokerage commissions (i.e., distribu-
tor commissions), the distributor typically
recovers this cost by collecting from the
mutual fund a distribution fee in accor-
dance with Rule 12b–1 and, in some
cases, by receiving a sales charge from
the investor if the shares are redeemed
within a specified period of time.
.02 Under § 446, the Commissioner
has broad authority to determine whether
a method of accounting clearly reflects in-
come. Under § 446(b), if a taxpayer’s
method of accounting does not clearly re-
flect income, the computation of taxable
income must be made under a method

2000–40 I.R.B.311October 2, 2000
that, in the opinion of the Secretary, does
clearly reflect income. See Thor Power
Tool Co. v. Commissioner, 439 U.S. 522
(1979), 1979–1 C.B. 167; Commissioner
v. Hansen, 360 U.S. 446 (1959), 1959–2
C.B. 460; § 1.446–1(c)(2)(ii) of the In-
come Tax Regulations.
.03 To minimize disputes regarding the
accounting for distributor commissions and
to provide appropriate methods for match-
ing those commissions with the related dis-
tribution fees and sales charges so as to
clearly reflect income, the Internal Revenue
Service will permit a taxpayer that com-
plies with the requirements of this revenue
procedure to account for distributor com-
missions using any of the three permissible
methods of accounting described in § 5 of
this revenue procedure. A taxpayer may
use any of these three methods to account
for the distributor commissions related to
each class of shares within each mutual
fund for which it acts as a distributor.
.04 A change in a taxpayer’s treatment
of distributor commissions to any of the
three permissible methods described in
§ 5 of this revenue procedure is a change
in method of accounting to which §§ 446
and 481 apply. Sections 446(e) and
1.446–1(e) provide that, except as other-
wise provided, a taxpayer must secure the
consent of the Commissioner before
changing a method of accounting for fed-
eral income tax purposes. Section
1.446–1(e)(3)(ii) authorizes the Commis-
sioner to prescribe administrative proce-
dures setting forth the limitations, terms,
and conditions deemed necessary to per-
mit a taxpayer to obtain consent to change
a method of accounting.
SECTION 4. SCOPE
This revenue procedure applies to a
taxpayer that chooses to account for dis-
tributor commissions under any of the
three permissible methods of accounting
for distributor commissions provided in
§ 5 of this revenue procedure. This rev-
enue procedure does not apply to amortiz-
able section 197 intangibles.
SECTION 5. PERMISSIBLE
METHODS OF ACCOUNTING
.01 DISTRIBUTION FEE PERIOD
METHOD.
(1) Description of Method. The treat-
ment of distributor commissions in accor-
dance with the distribution fee period
method is a permissible method of ac-
counting. Under the distribution fee pe-
riod method, a taxpayer must capitalize
distributor commissions paid or incurred
during the taxable year on the sale of
shares in a mutual fund and amortize
those amounts ratably over a specific re-
covery period determined by the number
of years for which the 12b–1 plan pro-
vides the taxpayer is to receive a distribu-
tion fee from the mutual fund as a result
of the sale of those shares (distribution fee
period). Amortization for a short taxable
year is based on the number of months in
the short taxable year (taking into account
the half-year convention if § 5.01(2)(b)
applies).
(2) Pooling Allowed.
(a) For purposes of accounting for dis-
tributor commissions under the distribu-
tion fee period method, a taxpayer may
establish one or more pools of commis-
sions. A pool may be established with re-
spect to distributor commissions related
to a class of shares of a mutual fund sold
in a single taxable year. A pool of distrib-
utor commissions may contain commis-
sions related to a class of mutual fund
shares sold in a single taxable year from
one or more mutual funds, provided the
distributor commissions for each class of
mutual fund shares is accounted for under
the distribution fee method. However, a
pool may only include distributor com-
missions related to a class of mutual fund
shares sold in a single taxable year with
the same distribution fee period and the
same compensation structure.
(b) A taxpayer that establishes annual
pools for purposes of using the distribu-
tion fee period method must compute the
amount of the amortization deduction
using a half-year convention.
(c) Distribution fees have the same
compensation structure if they are calcu-
lated on the basis of the same percentage
of the mutual fund’s average net assets.
(3) Termination of Right to Distribution
Fees.
(a) Basis recovery allowed. A taxpayer
that uses the distribution fee period
method described in this § 5.01 may ac-
count for the termination of its right to re-
ceive a distribution fee for a particular
share in a mutual fund by claiming in the
year of termination a loss or, for a sale of
the distributor’s right to all, or an undi-
vided interest in a part, of its future distri-
bution fees for the share, an offset against
sales proceeds. A taxpayer that uses pools
in connection with the distribution fee pe-
riod method described in this § 5.01 de-
termines its unrecovered basis in its right
to receive distribution fees for particular
shares in a prior year pool that are termi-
nated by multiplying its unrecovered
basis in the applicable pool of distributor
commissions as of the beginning of the
year by a fraction, the numerator of which
is the number of terminated shares for
which commissions were in the pool as of
the beginning of the year and the denomi-
nator of which is the number of shares for
which commissions were in the pool as of
the beginning of the year. To determine
the unrecovered basis for its right to re-
ceive distribution fees for a particular
share in a current year pool that is termi-
nated in the initial year (i.e., the year the
share giving rise to the right to receive
distribution fees is sold), the taxpayer
must multiply the unrecovered basis in
the applicable pool as of the end of the
year by a fraction, the numerator of which
is the number of shares terminated during
the year for which commissions in the
pool were paid or incurred during the year
and the denominator of which is the num-
ber of shares sold during the year for
which commissions in that pool were paid
or incurred during the year. The unrecov-
ered basis in the applicable pool of dis-
tributor commissions must be reduced by
the basis allocable to the terminated
shares, as determined in the preceding
two sentences, before calculating the
amortization deduction for the year. If a
taxpayer does not have sufficient infor-
mation to relate a termination event to a
specific pool, the taxpayer must treat the
termination event as relating to the earli-
est remaining pool in accordance with the
principles of § 1.1012–1(c)(1).
(b) Termination events. For purposes
of § 5.01(3)(a) of this revenue procedure,
a taxpayer’s right to a distribution fee for
a particular share terminates when the
taxpayer is no longer entitled to receive a
distribution fee related to that share in
subsequent years. Termination may occur
as a result of (i) a sale of the distributor’s
right to all future distribution fees for the
share, (ii) the redemption of the share by
the shareholder, or (iii) the conversion of
the share into another class of shares for

October 2, 20003122000–40 I.R.B.
which the taxpayer is not entitled to re-
ceive a distribution fee. If a taxpayer sells
an undivided interest in its right to all pre-
sent and future distribution fees associ-
ated with a share or a portion of a pool,
termination occurs in proportion to the in-
terest sold.
.02 5-YEAR METHOD.
(1) Description of Method. The treat-
ment of distributor commissions in accor-
dance with the 5-year method is a permis-
sible method of accounting. Under the
5-year method, a taxpayer must capitalize
distributor commissions paid or incurred
during the taxable year and amortize
those amounts ratably over a 5-year pe-
riod. Amortization for a short taxable
year is based on the number of months in
the short taxable year (taking into account
the half-year convention).
(2) Pooling Required.
(a) For purposes of accounting for dis-
tributor commissions under the 5-year
method, a taxpayer must establish one or
more pools of commissions. All commis-
sions related to a class of shares of a mu-
tual fund sold in a single taxable year
must be in the same pool. A pool of dis-
tributor commissions may contain com-
missions related to classes of mutual fund
shares from one or more mutual funds,
provided the distributor commissions for
each of the classes of mutual fund shares
are accounted for using the 5-year
method.
(b) A taxpayer that uses the 5-year
method must compute the amount of the
amortization deduction using a half-year
convention.
(3) Termination of Right to Distribution
Fees. A taxpayer that uses the 5-year
method described in this § 5.02 may not
claim a loss or an offset against sales pro-
ceeds for the unamortized portion of a
distributor commission as a result of a ter-
mination event for a particular share, as
described in § 5.01(3)(b) of this revenue
procedure. However, if the taxpayer ex-
periences a termination event with respect
to the distribution fees related to all the
shares in a pool, the taxpayer may claim a
loss or an offset against sales proceeds for
the unamortized portion of the distributor
commissions in that pool. In addition, if a
taxpayer sells an undivided interest in its
right to all present and future distribution
fees for all the shares in a pool, the tax-
payer experiences a termination event
with respect to the pool, but only in pro-
portion to the interest sold, and may claim
the corresponding loss or offset against
sales proceeds.
.03 USEFUL LIFE METHOD
(1) Description of Method. The treat-
ment of distributor commissions in accor-
dance with the useful life method is a per-
missible method of accounting. Under
the useful life method, a taxpayer must
capitalize distributor commissions paid or
incurred during the taxable year and re-
cover those amounts over their estimated
useful life. See§ 1.167(a)–1(b).
(2) Determination of Useful Life. The
recovery method and useful life of distrib-
utor commissions must be established by
taking into account all the facts and cir-
cumstances including, for example, (i) the
period during which the taxpayer is to re-
ceive distribution fees from a mutual fund
under the 12b–1 plan with respect to par-
ticular shares, and (ii) the experience of
the taxpayer regarding how long a typical
share burdened with a given distribution
fee remains outstanding after purchase.
See§ 1.167(a)–1(b).
(3) Pooling Allowed. For purposes of
accounting for distributor commissions
under the useful life method, a taxpayer
may establish one or more pools of com-
missions. A taxpayer that establishes an-
nual pools under the useful life method
must compute the amount of the amorti-
zation deduction using a half-year con-
vention.
(4) Retirement of Right to Distribution
Fees. The determination of whether or
not a taxpayer using the useful life
method may claim a loss is governed by
§1.167(a)–8. For example, if the useful
life of the distributor commissions under
the useful life method does not reflect any
retirements, including a termination of a
right to a distribution fee, the taxpayer
may claim a loss for the unamortized por-
tion of a distributor commission as a re-
sult of a retirement. If the useful life of
the distributor commissions under the
useful life method is an average useful
life that reflects retirements, the taxpayer
may not claim a loss for the unamortized
portion of a distributor commission as a
result of a retirement, regardless of
whether the distributor commission is ac-
counted for as a single asset or in a pool,
unless distributor commissions related to
all the shares in the pool are retired.
SECTION 6. CHANGE IN METHOD
OF ACCOUNTING
.01 Change to the Distribution Fee Pe-
riod Method, the 5-year Method, or the
Useful Life Method. A taxpayer that
wants to change its method of accounting
for distributor commissions for the tax-
able year that includes January 1, 2001, to
any of the three methods described in this
revenue procedure must follow the auto-
matic change in method of accounting
provisions in Rev. Proc. 99–49, 1999–52
I.R.B. 725, (or its successor) with the fol-
lowing modifications:
(1) A taxpayer that files a copy of the
Form 3115, Application for Change in
Accounting Method, to change its method
of accounting for distributor commissions
with the national office of the Internal
Revenue Service on or before April 2,
2001, is not subject to the scope limita-
tions in § 4.02 of Rev. Proc. 99–49, unless
the taxpayer’s method of accounting for
distributor commissions is an issue under
consideration before a federal court
within the meaning of § 3.09(3) of Rev.
Proc. 99–49. If the taxpayer is under ex-
amination, before an appeals office, or be-
fore a federal court at the time that a copy
of the Form 3115 is filed with the national
office, the taxpayer must provide a dupli-
cate copy of the Form 3115 to the exam-
ining agent, appeals officer, or counsel for
the government, as appropriate, at the
time the copy of the Form 3115 is filed.
The Form 3115 must contain the name(s)
and telephone number(s) of the examin-
ing agent, appeals officer, or counsel for
the government, as appropriate. If the
taxpayer’s method of accounting for dis-
tributor commissions is an issue pending
within the meaning of § 6.01(6) of this
revenue procedure at the time that a
Form 3115 is filed with the national of-
fice, the taxpayer also must provide to the
examining agent or appeals officer, as ap-
propriate, an executed closing agreement
substantially in the form set forth in AP-
PENDIX A of this revenue procedure.
(2) The change must be made using a
cut-off method and applies only to distrib-
utor commissions paid or incurred on or
after January 1, 2001. Because no items
are duplicated or omitted from income
when a cut-off method is used, a § 481(a)

2000–40 I.R.B.313October 2, 2000
adjustment described in § 5.03 of Rev.
Proc. 99–49 is not necessary. See § 2.06
of Rev. Proc. 99–49.
(3) The year of change is the taxable
year that includes January 1, 2001.
(4) Section 6.02(2)(a) of Rev. Proc.
99–49 is modified to allow the required
copy of the Form 3115 to be filed with the
national office before the first day of the
year of change if the taxpayer properly
files a Form 3115 under this revenue pro-
cedure.
(5) In order to assist the Internal Rev-
enue Service in processing changes in
method of accounting under this revenue
procedure, and to ensure proper handling,
§ 6.02(3)(a) of Rev. Proc. 99–49 is modi-
fied to require that a Form 3115 filed
under this revenue procedure include the
statement: “Automatic Change Filed
Under [insert section number] of Rev.
Proc. 2000–38.” This statement must be
legibly printed or typed at the top of any
Form 3115 filed under this revenue proce-
dure.
(6) For purposes of this revenue proce-
dure, the taxpayer’s method of accounting
for distributor commissions is an issue
pending if the Service has given the tax-
payer written notification indicating an
adjustment is being made or will be pro-
posed with respect to the taxpayer’s
method of accounting for distributor com-
missions. This will normally occur after
the Service has gathered information suf-
ficient to determine that a proposed ad-
justment is appropriate and justified, al-
though the exact amount of the adjust-
ment may not yet be determined.
.02 Audit Protection. If a taxpayer
complies with the requirements of this
revenue procedure for changing its
method of accounting for distributor com-
missions to any of the three methods of
accounting described in this revenue pro-
cedure, the treatment of distributor com-
missions will not be raised as an issue in
any taxable year before the year of change
and, if the treatment of distributor com-
missions has already been raised as an
issue in a taxable year before the year of
change, the treatment of distributor com-
missions will not be further pursued.
.03 Changes Not Made under this Rev-
enue Procedure. A taxpayer that wants to
change from a method of currently de-
ducting distributor commissions to a
method of capitalizing and amortizing
distributor commissions under any of the
three methods described in this revenue
procedure for any taxable year other than
the taxable year that includes January 1,
2001, must follow the automatic change
in method of accounting provisions in
Rev. Proc. 99–49. However, this change
must be made on a cut-off basis as de-
scribed in § 2.06 of Rev. Proc. 99–49. A
change from one method of amortizing
described in this revenue procedure to an-
other method of amortizing described in
this revenue procedure, and a change
from pooling to single asset, or vice versa,
under the distribution fee period method
or the useful life method, must be made in
accordance with the automatic change in
method of accounting provisions in § 2.02
of the APPENDIX of Rev. Proc. 99–49.
A change in the useful life of distributor
commissions under the distribution fee
period method or the useful life method is
not a change in method of accounting.
See§ 1.446–1(e)(2)(ii)(b).
SECTION 7. EFFECTIVE DATE
This revenue procedure is effective Oc-
tober 2, 2000.
SECTION 8. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 99–49 is modified and am-
plified to include this accounting method
change in the APPENDIX.
DRAFTING INFORMATION
The principal author of this revenue
procedure is John Moriarty of the Office
of Associate Chief Counsel (Income Tax
and Accounting). For further information
about this revenue procedure, contact
John Moriarty at (202) 622–4950 (not a
toll-free call).

October 2, 20003142000–40 I.R.B.
APPENDIX A
Department of the Treasury–Internal Revenue Service
Closing Agreement on Final Determination
Covering Specific Matters
Under § 7121 of the Internal Revenue Code of 1986,
[Taxpayer’s name, address, telephone number, and identifying number]
(“the taxpayer”) and the Commissioner of Internal Revenue make the following closing agreement:
WHEREAS, the taxpayer is a distributor of open-end regulated investment companies (“mutual funds”).
WHEREAS, the taxpayer is an accrual basis taxpayer.
WHEREAS, the taxpayer incurs commissions on the sale of shares in the mutual funds for which the taxpayer is to
receive a distribution fee under Rule 12b–1 (17 C.F.R. § 270.12b–1). For purposes of this closing agreement, the
term “distributor commissions” has the meaning ascribed to it in Rev. Proc. 2000–38.
WHEREAS, the taxpayer seeks to account for distributor commissions under one of the methods described in Rev.
Proc. 2000–38 and has filed a Form 3115 requesting permission to change its method of accounting for distributor
commissions in accordance with Rev. Proc. 2000–38 and the Commissioner is relying on that Form 3115 in pro-
ceeding with this closing agreement.
NOW IT IS HEREBY DETERMINED AND AGREED for federal income tax purposes:
1. That the taxpayer changes its present method of accounting for distributor commissions for purposes of filing
federal tax returns to the [Insert name of method] method described in Rev. Proc. 2000–38 effective for the taxable
year which includes January 1, 2001 (“year of change”). The Commissioner consents to that change in method of
accounting.
2. That the execution of this agreement does not signify the Commissioner’s agreement with the useful life or
recovery method selected by the taxpayer. In accordance with § 601.204(c) of the Statement of Procedural Rules,
in examining returns involving the adoption of either the useful life method or the distribution fee period method
the Commissioner will ascertain whether the representations on which the change in method of accounting is
based, including representations related to the useful life of the distributor commissions, reflect an accurate state-
ment of the material facts.
3. That the taxpayer’s change in accounting method for distributor commissions must be made using a cut-off
method without an adjustment under § 481(a).
4. That the Commissioner accepts the taxpayer’s reported method of accounting for distributor commissions for
all taxable years prior to the year of change.
5. That this agreement does not preclude the taxpayer from requesting, nor the Service from requiring, a change
in the taxpayer’s method of accounting for distributor commissions for years after the year of change.
This agreement is final and conclusive except:
(1) The matter it relates to may be reopened in the event of fraud, malfeasance or misrepresentation of a mate-
rial fact;
(2) It is subject to the Internal Revenue Code Sections that expressly provide that effect be given to their pro-
visions (including any stated exception for I.R.C. § 7122) notwithstanding any law or rule of law; and
(3) If it relates to a tax period ending after the date of this agreement, it is subject to any law enacted after the
agreement date, that applies to the tax period.

2000–40 I.R.B.315October 2, 2000
By Signing, the parties certify that they have read and agreed to the terms of this document.
Taxpayer (other than individual):
By:Date:
Title:
Commissioner of Internal Revenue
By:Date:
Title:
Instructions
This agreement must be signed and filed in triplicate. (All copies must have original signatures.) The original and
copies of the agreement must be identical. The name of the taxpayer must be stated accurately. The agreement may
relate to one or more years.
If an attorney or agent signs the agreement for the taxpayer, the power of attorney (or a copy) authorizing that per-
son to sign must be attached to the agreement. If the agreement is made for a year when a joint income tax return
was filed by a husband and wife, it should be signed by or for both spouses. One spouse may sign as agent for the
other if the document (or a copy) specifically authorizing that spouse to sign is attached to the agreement.
If the fiduciary signs the agreement for a decedent or an estate, an attested copy of the letters testamentary or the
court order authorizing the fiduciary to sign, and a certificate of recent date that the authority remains in full force
and effect must be attached to the agreement. If a trustee signs, a certified copy of the trust instrument or a certified
copy of extracts from that instrument must be attached showing:
(1) the date of the instrument;
(2) that it is or is not of record in any court;
(3) the names of the beneficiaries;
(4) the appointment of the trustee, the authority granted, and other information necessary to show that the author-
ity extends to Federal tax matters; and
(5) that the trust has not been terminated, and that the trustee appointed is still acting. If a fiduciary is a party,
Form 56, Notice Concerning Fiduciary Relationship, is ordinarily required.
If the taxpayer is a corporation, the agreement must be dated and signed with the name of the corporation, the sig-
nature and title of an authorized officer or officers, or the signature of an authorized attorney or agent. It is not nec-
essary that a copy of an enabling corporate resolution be attached.
Use additional pages if necessary, and identify them as part of this agreement.
Please see Revenue Procedure 68–16, C. B. 1968 1, page 770, for a detailed description of practices and proce-
dures applicable to most closing agreements.
I have examined the specific matters involved and recommend
the acceptance of the proposed agreement
(Receiving Officer)(Date)
(Title)
I have examined the specific matters involved and recommend
the acceptance of the proposed agreement
(Reveiwing Officer)(Date)
(Title)

October 2, 20003162000–40 I.R.B.
Notice of Proposed Rulemaking
and Notice of Public Hearing
Guidance Under Subpart F
Relating to Partnerships
REG–112502–00
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
SUMMARY: A notice of proposed rule-
making and notice of proposed rulemak-
ing by cross-reference to temporary regu-
lations published in the Federal Register
on March 26, 1998, providing guidance
under subpart F relating to partnerships
and branches, were withdrawn by a notice
of proposed rulemaking published in the
Federal Registeron July 13, 1999. This
document also provides notice of a public
hearing on these proposed regulations.
DATES: Written comments and outlines of
oral comments to be discussed at the public
hearing scheduled for December 5, 2000,
must be received by November 14, 2000.
ADDRESSES: Send submissions to:
CC:M&SP:RU (REG–112502–00), room
5226, Internal Revenue Service, POB
7604, Ben Franklin Station, Washington
DC 20044. Submissions may be hand de-
livered Monday through Friday between
the hours of 8 a.m. and 5 p.m. to:
CC:M&SP:RU (REG–112502–00),
Courier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW., Washing-
ton DC. Alternatively, taxpayers may sub-
mit comments electronically via the Inter-
net by selecting the “Tax Regs” option on
the IRS Home Page, or by submitting com-
ments directly to the IRS Internet site at
http://www.irs.ustreas.gov/tax_regs/com-
ments.html. The public hearing will be
held in room 4718, Internal Revenue Build-
ing, 1111 Constitution Avenue NW., Wash-
ington, DC 20224.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations, Va-
lerie Mark, (202) 622-3840; concerning
submissions of comments, the hearing,
and/or to be placed on the building access
list to attend the hearing, Treena Garrett,
(202) 622-7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
On March 26, 1998 (63 F.R. 14613),
the IRS issued proposed regulations
(REG–104537–97,1998–1 C.B. 892)
which contained two sets of provisions,
one relating to the treatment under sub-
part F of a controlled foreign corpora-
tion’s (CFC’s) distributive share of part-
nership income (including a clarification
of the manufacturing exception under the
foreign base company sales income rules)
and the other relating to hybrid branch
transactions. The provisions relating to
hybrid branch transactions were also is-
sued as temporary regulations (T.D. 8767,
1998–1 C.B. 875). Congress and taxpay-
ers raised concerns about the proposed
and temporary regulations relating to hy-
brid branch transactions. To respond to
these concerns, on July 6, 1998, Treasury
and the IRS issued Notice 98–35 (1998–2
C.B. 34), which announced that they
would withdraw the proposed regulations
and remove the temporary regulations.
Notice 98–35 also announced that Trea-
sury and the IRS would issue two new
separate sets of proposed regulations.
One proposed regulation would contain
hybrid branch rules. The other proposed
regulation would contain rules pertaining
to the treatment under subpart F of a
CFC’s distributive share of partnership in-
come. On July 13, 1999, in furtherance of
Notice 98–35, Treasury and the IRS pub-
lished REG–113909–98 (1999–30 I.R.B.
125 [64 F.R. 37727]), which withdrew the
proposed regulations and issued new pro-
posed regulations containing the hybrid
branch provisions with new dates of ap-
plicability to give Congress and the Trea-
sury more time to evaluate the issues
raised by these provisions. On the same
date, T.D. 8827 (1999–30 I.R.B. 120 [64
F.R. 37677]) removed the temporary reg-
ulations relating to hybrid branch transac-
tions. Treasury and the IRS are now
proposing the regulations relating to the
subpart F treatment of a CFC’s distribu-
tive share of partnership income.
This document substantially restates
the former proposed regulations relating
to the treatment of a CFC’s distributive
share of partnership income under subpart
F. These new proposed regulations, how-
ever, do not contain the provisions of the
former proposed regulations that clarified
the manufacturing exception under sub-
part F. Regulations clarifying the manu-
facturing exception will be proposed at a
later date.
Explanation of Provisions
These proposed regulations clarify the
appropriate treatment under subpart F of
certain partnership items that had been the
subject of Brown Group, Inc. v. Commis-
sioner, 77 F.3d 217 (8th Cir. 1996), vacat-
ing and remanding 104 T.C. 105 (1995).
In Brown Group, a Cayman Islands part-
nership with a Cayman Islands CFC part-
ner earned commission income from pur-
chasing footwear in Brazil on behalf of
the CFC’s U.S. parent. This commission
income would have been subpart F in-
come, specifically foreign base company
sales income under section 954(d), to the
CFC if it had earned this commission in-
come directly and under the same circum-
stances in which the partnership earned
this income. The Tax Court applied an
aggregate theory of partnerships and held
that the CFC’s distributive share of this
commission income was foreign base
company sales income. The Eighth Cir-
cuit, vacating and remanding the Tax
Court’s decision, applied an entity theory
of partnerships and held that the CFC’s
distributive share of this commission in-
come was not foreign base company sales
income.
In response to the Eighth Circuit’s
opinion, the IRS announced that it in-
tended to issue regulations under subpart
F to clarify its position that whether a
CFC partner’s distributive share of part-
nership income is subpart F income gen-
erally is determined at the CFC partner
level. See Notice 96–39 (1996–2 C.B.
209).
The proposed regulations would pro-
vide guidance for the treatment under
subpart F of a CFC partner’s distributive
share of subpart F income. The regula-
tions would provide general rules to de-
termine whether a CFC partner’s distribu-
tive share of partnership income falls
within, not only foreign base company
sales income, the category of income at
Part IV. Items of General Interest

2000–40 I.R.B.317October 2, 2000
issue in Brown Group, but any category
of subpart F income. These regulations
also would provide guidance about the
treatment of a CFC partner’s distributive
share of foreign personal holding com-
pany income, foreign base company sales
income, foreign base company services
income, and earnings invested in United
States property under certain specific pro-
visions of subpart F.
The proposed regulations are based on
the authority of subchapter K and subpart
F and the policies underlying those provi-
sions. The legislative history of subchap-
ter K provides that a partnership distribu-
tive share should be characterized by
using the approach that best serves the In-
ternal Revenue Code or regulations sec-
tion at issue.
To allow a CFC to avoid subpart F
treatment for items of income through the
simple expedient of receiving them as dis-
tributive shares of partnership income,
rather than directly, is contrary to the in-
tent of subpart F. Subpart F was intended
to limit deferral of U.S. income tax on
passive income received by CFCs, as well
as on certain other kinds of easily trans-
ferable income.
Under these proposed regulations,
gross income would be characterized at
the partnership level, as, for example,
sales income. If any part of the partner-
ship’s gross income would be subpart F
income if received directly by partners
that are CFCs, it must be separately taken
into account by each partner, under sec-
tion 702. Thus, to the extent the sepa-
rately stated income is subpart F income
at the CFC partner level, it will be taken
into account in determining the CFC’s
total subpart F income for the taxable year
and U.S. shareholders of the CFC will
currently include their pro rata share of
this income in gross income to the extent
provided under the rules of subpart F.
The regulations under section 702
would be clarified to expressly provide
that an item must be separately taken into
account when, if separately taken into ac-
count by any partner, the item would re-
sult in an income tax liability for that part-
ner, or any other person, different from
that which would result if the partner did
not take the item into account separately.
This clarification incorporates into the
regulations Rev. Rul. 86–138 (1986–2
C.B. 84), which holds that a subsidiary
partnership in a multi-tiered arrangement
must separately state items which, if sepa-
rately taken into account by any partner of
any partnership in the multi-tiered
arrangement, would affect the income tax
liability of that partner.
The regulations under section 952 also
would be clarified to expressly include
within the definition of subpart F income
a CFC’s distributive share of any item of
gross income of a partnership to the ex-
tent the income would have been subpart
F income if received by the CFC partner
directly. Comments are requested as to
whether this rule should apply for owner-
ship interests that fall below certain
thresholds.
The proposed regulations would pro-
vide further that, generally, in determin-
ing whether a distributive share of part-
nership income is subpart F income,
whether an entity is a related person and
whether an activity takes place in or out-
side the CFC’s country of incorporation is
determined with respect to the CFC part-
ner and not the partnership. Applying
these rules to the Brown Group facts, the
income would be characterized at the
partnership level as commission income
from the purchase of shoes in Brazil on
behalf of the U.S. parent for sale in the
U.S. Each partner would be required to
separately take into account its distribu-
tive share of this commission income. It
would then be determined at the CFC
partner level that the shoes were manufac-
tured and sold for use outside of the
CFC’s country of incorporation (Cayman
Islands), and that the U.S. parent was a re-
lated person with respect to the CFC.
Thus, the CFC’s distributive share of
commission income would be foreign
base company sales income.
The proposed regulations also would
address whether a CFC’s distributive
share of partnership income can qualify
for the exceptions from foreign personal
holding company income treatment that
are based on the activities performed by
the CFC in connection with the property
through which it earns the income. The
proposed regulations would provide that
an exception requiring activity would
generally apply if the exception would
have applied to the income if the CFC it-
self had directly earned the income taking
into account only the property and activi-
ties of the partnership. This requirement
is not met if the partnership can qualify
for the exception only by taking into ac-
count the separate activities of its part-
ners. Thus, for example, if the partner-
ship earns rental income from leasing real
property that it owns and with respect to
which it performs active and substantial
management functions, the CFC partner’s
distributive share of the rental income can
be excluded from subpart F income under
the active rents exception of section
954(c)(2)(A) if the rental income is
earned from a person that is not a related
person with respect to the CFC partner.
However, if the partnership owns the real
property but the CFC contracts to perform
the management functions, the rental in-
come is not excludible under this excep-
tion.
These proposed regulations would clar-
ify how the manufacturing exception of
§1.954–3(a)(4) applies in the context of
the distributive share rules. The proposed
regulations would provide that the manu-
facturing activities of a partnership may
be taken into account under the distribu-
tive share rules when the partnership sells
the property that it manufactures. As pre-
viously noted, the general rules would
provide that income that could be foreign
base company sales income at the CFC
partner level is separately stated and that
determinations as to relatedness and the
relevant country are made at the partner
level. Consistent with the general rules
outlined above, these regulations would
allow a CFC’s distributive share of sales
income to be excluded, under the manu-
facturing exception of §1.954–3(a)(4),
when the partnership manufactures the
property that it sells (without regard to the
activities of the CFC partner or any other
person).
The general rule, described above,
would determine whether a CFC partner’s
distributive share of partnership income is
foreign base company services income
when the income is earned from perform-
ing services for or on behalf of a person
that is a related person with respect to the
CFC partner. These proposed regulations
also would describe how the substantial
assistance rule of §1.954–4(b)(1)(iv) ap-
plies when the CFC earns services income
through a partnership. When the partner-
ship is performing services for a person
unrelated to the CFC partner but the CFC
partner, or a related person, provides sub-

October 2, 20003182000–40 I.R.B.
stantial assistance to the partnership con-
tributing to the performance of those ser-
vices, the CFC partner and the partnership
would be regarded as separate entities and
the substantial assistance provided to the
partnership by the CFC partner, or a re-
lated person, would cause the CFC’s part-
ner’s distributive share of the services in-
come to be treated as foreign base
company services income. Treasury and
the IRS are considering applying similar
principles to branches of CFCs. Com-
ments are requested on this issue.
Finally, consistent with Rev. Rul.
90–112 (1990–2 C.B. 186), the regula-
tions would provide that, for purposes of
section 956, a CFC partner’s investment
in U.S. property includes the U.S. prop-
erty held by a partnership to the extent of
the CFC’s interest in the partnership.
Comments are requested as to whether,
for purposes of section 956, a CFC part-
ner’s interest in a partnership should be
based on the CFC’s capital interest in the
partnership, the CFC’s interest in partner-
ship profits, or another standard, such as
the facts and circumstances relating to the
CFC’s interest in the partnership.
Treasury is currently conducting a
study to review the provisions of subpart
F. The study may examine the foreign
base company rules, contract manufactur-
ing, and the use of hybrid partnerships
under subpart F. Although comments will
be sought separately on the study, com-
ments received on these regulations will
be reviewed in connection with the study.
Proposed Effective Date
These regulations are proposed to
apply for taxable years of a controlled for-
eign corporation beginning on or after the
date the final regulations are published in
the Federal Register. For prior periods,
the IRS will rely on principles and author-
ities under subpart F and subchapter K to
apply an aggregate approach, (including
§1.701–2(e) and (f) of the regulations for
periods for which it is applicable).
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in Exec-
utive Order 12866. Therefore, a regula-
tory assessment is not required. It has
also been determined that section 553(b)
of the Administrative Procedures Act (5
U.S.C. chapter 5) does not apply to these
regulations, and, because the regulation
does not impose a collection of informa-
tion on small entities, the Regulatory
Flexibility Act (5 U.S.C. chapter 6) does
not apply. Pursuant to section 7805(f) of
the Code, this notice of proposed rule-
making will be submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on its
impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any written com-
ments (preferably a signed original and
eight (8) copies) that are timely submitted
to the IRS. All comments will be avail-
able for public inspection and copying.
The IRS and Treasury specifically request
comments on the clarity of these proposed
regulations and how they may be made
easier to understand.
A public hearing has been scheduled
for December 5, 2000, at 10 a.m., in room
4718, Internal Revenue Building, 1111
Constitution Avenue NW., Washington
DC. Due to building security procedures,
visitors must enter at the 10th Street en-
trance, located between Constitution and
Pennsylvania Avenues, NW. In addition,
all visitors must present photo identifica-
tion to enter the building. Because of ac-
cess restrictions, visitors will not be ad-
mitted beyond the immediate entrance
area more than 15 minutes before the
hearing starts. For information about
having your name placed on the building
access list to attend the hearing, see the
“FOR FURTHER INFORMATION
CONTACT” section of this preamble.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing.
Persons that wish to present oral com-
ments at the hearing must submit written
comments and an outline of topics to be
discussed and time to be devoted to each
topic (signed original and eight (8)
copies) by November 14, 2000.
A period of 10 minutes will be allotted
to each person for making comments.
An agenda showing the scheduling of
the speakers will be prepared after the
deadline for receiving outlines has
passed. Copies of the agenda will be
available free of charge at the hearing.
Drafting Information
The principal author of these regula-
tions is Valerie Mark of the Office of the
Associate Chief Counsel (International),
IRS. However, other personnel from the
IRS and Treasury Department partici-
pated in their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
26 CFR part 1 continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2 Section §1.702–1 is amended as
follows:
1. Paragraph (a)(8)(ii) is revised.
2. Paragraph (c)(1)(iii) is amended by
removing the word “and”.
3. Paragraph (c)(1)(iv) is amended by
removing the period at the end and adding
“; and” in its place.
4. Paragraph (c)(1)(v) is added.
The addition and revision read as fol-
lows:
§1.702–1 Income and credits of partner.
(a) * * *
(8) * * *
(ii) Each partner must also take into ac-
count separately the partner’s distributive
share of any partnership item which, if
separately taken into account by any part-
ner, would result in an income tax liability
for that partner, or for any other person,
different from that which would result if
that partner did not take the item into ac-
count separately. Thus, if any partner is a
controlled foreign corporation, as defined
in section 957, items of income that
would be gross subpart F income if sepa-
rately taken into account by the controlled
foreign corporation must be separately
stated for all partners. Under section
911(a), if any partner is a bona fide resi-
dent of a foreign country who may ex-
clude from gross income the part of the
partner’s distributive share which quali-
fies as earned income, as defined in sec-
tion 911(b), the earned income of the part-
nership for all partners must be separately
stated. Similarly, all relevant items of in-

2000–40 I.R.B.319October 2, 2000
come or deduction of the partnership must
be separately stated for all partners in de-
termining the applicability of section 183
(relating to activities not engaged in for
profit) and the recomputation of tax there-
under for any partner. This paragraph
(a)(8)(ii) applies to taxable years begin-
ning on or after the date final regulations
are published in the Federal Register.
* * * * *
(c) * * *
(1) * * *
(v) In determining whether the de min-
imisor full inclusion rules of section
954(b)(3) apply.
* * * * *
Par. 3. In §1.952–1, paragraph (g) is
added to read as follows:
§1.952–1 Subpart F income defined.
* * * * *
(g) Treatment of distributive share of
partnership income— (1) In general. A
controlled foreign corporation’s distributive
share of any item of income of a partner-
ship is income that falls within a category
of subpart F income described in section
952(a) to the extent the item of income
would have been income in such category
if received by the controlled foreign corpo-
ration directly. For specific rules regarding
the treatment of a distributive share of part-
nership income under certain provisions of
subpart F, see §§1.954–1(g), 1.954–2(a)(5),
1.954–3(a)(6), and 1.954–4(b)(2)(iii).
(2) Example. The application of this
paragraph (g) may be illustrated by the
following example:
Example. CFC, a controlled foreign corporation, is
an 80-percent partner in PRS, a foreign partnership.
PRS earns $100 of interest income that is not export fi-
nancing interest, as defined in section 954(c)(2)(B),
from a person unrelated to CFC. This interest income
would have been foreign personal holding company
income to CFC, under section 954(c), if it had re-
ceived this income directly. Accordingly, CFC’s dis-
tributive share of this interest income, $80, is foreign
personal holding company income.
(3) Effective date. This paragraph (g)
applies to taxable years of a controlled
foreign corporation beginning on or after
the date final regulations are published in
the Federal Register.
Par. 4. In §1.954–1, paragraph (g) is
added to read as follows:
§1.954–1 Foreign base company income.
* * * * *
(g) Distributive share of partnership
income—(1) Application of related per-
son and country of organization tests.
Unless otherwise provided, to determine
the extent to which a controlled foreign
corporation’s distributive share of any
item of gross income of a partnership
would have been subpart F income if re-
ceived by it directly, under §1.952–1(g),
if a provision of subpart F requires a de-
termination of whether an entity is a re-
lated person, within the meaning of sec-
tion 954(d)(3), or whether an activity
occurred within or outside the country
under the laws of which the controlled
foreign corporation is created or orga-
nized, this determination shall be made by
reference to such controlled foreign cor-
poration and not by reference to the part-
nership.
(2) Examples. The application of para-
graph (g)(1) of this section is illustrated
by the following examples:
Example 1. CFC, a controlled foreign corpora-
tion organized in Country A, is an 80-percent part-
ner in Partnership, a partnership organized in Coun-
try A. All of the stock of CFC is owned by USP, a
U.S. corporation. Partnership earns commission in-
come from purchasing Product O on behalf of USP,
from unrelated manufacturers in Country B, for sale
in the United States. To determine whether CFC’s
distributive share of Partnership’s commission in-
come is foreign base company sales income under
section 954(d), CFC is treated as if it purchased
Product O on behalf of USP. Under section
954(d)(3), USP is a related person with respect to
CFC. Thus, with respect to CFC, the sales income
is deemed to be derived from the purchase of per-
sonal property on behalf of a related person. Be-
cause the property purchased is both manufactured
and sold for use outside of Country A, CFC’s coun-
try of organization, CFC’s distributive share of the
sales income is foreign base company sales income.
Example 2. (i) CFC1, a controlled foreign corpo-
ration organized in Country A, is an 80-percent
partner in Partnership, a partnership organized in
Country B. CFC2, a controlled foreign corporation
organized in Country B, owns the remaining 20 per-
cent interest in Partnership. CFC1 and CFC2 are
owned by a common U.S. parent, USP. CFC2 man-
ufactures Product A in Country B. Partnership
earns sales income from purchasing Product A from
CFC2 and selling it to third parties located in Coun-
try B that are not related persons with respect to
CFC1 or CFC2. To determine whether CFC1’s dis-
tributive share of Partnership’s sales income is for-
eign base company sales income under section
954(d), CFC1 is treated as if it purchased Product A
from CFC2 and sold it to third parties in Country B.
Under section 954(d)(3), CFC2 is a related person
with respect to CFC1. Thus, with respect to CFC1,
the sales income is deemed to be derived from the
purchase of personal property from a related per-
son. Because the property purchased is both manu-
factured and sold for use outside of Country A,
CFC1’s country of organization, CFC1’s distribu-
tive share of the sales income is foreign base com-
pany sales income.
(ii) To determine whether CFC2’s distributive
share of Partnership’s sales income is foreign base
company sales income, CFC2 is treated as if it di-
rectly sold Product A to third parties within Country
B. Because Product A is both manufactured and
sold for use within CFC2’s country of organization,
CFC2’s distributive share of Partnership’s sales in-
come is not foreign base company sales income.
(3) Effective date. This paragraph (g)
applies to taxable years of a controlled
foreign corporation beginning on or after
the date final regulations are published in
the Federal Register.
Par. 5. In §1.954–2, paragraph (a)(5) is
added to read as follows:
§1.954–2 Foreign personal holding
company income.
(a) * * *
(5) Special rules applicable to distribu-
tive share of partnership income. (i) [Re-
served]
(ii) Certain other exceptions applicable
to foreign personal holding company in-
come. To determine the extent to which a
controlled foreign corporation’s distributive
share of an item of income of a partnership
is foreign personal holding company in-
come, the exceptions contained in section
954(c) that are based on whether the con-
trolled foreign corporation is engaged in the
active conduct of a trade or business, in-
cluding section 954(c)(2), (h) and (i), and
paragraphs (b)(2) and (6), (e)(1)(ii) and
(3)(ii), (iii) and (iv), (f)(1)(ii), (g)(2)(ii), and
(h)(3)(ii) of this section, shall apply only if
any such exception would have applied to
exclude the income from foreign personal
holding company income if the controlled
foreign corporation had earned the income
directly, determined by taking into account
only the activities of, and property owned
by, the partnership and not the separate ac-
tivities or property of the controlled foreign
corporation or any other person.
(iii) [Reserved]
(iv) Effective date. This paragraph (a)(5)
applies to taxable years of a controlled for-
eign corporation beginning on or after the
date final regulations are published in the
Federal Register.
* * * * *
Par. 6. In §1.954–3, paragraph (a)(6) is
added to read as follows:§1.954–3 Foreign
base company sales income.
(a) * * *
(6) Special rule applicable to distribu-
tive share of partnership income—(i) In
general. To determine the extent to which
a controlled foreign corporation’s distribu-

October 2, 20003202000–40 I.R.B.
tive share of any item of gross income of a
partnership would have been foreign base
company sales income if received by it di-
rectly, under §1.952–1(g), the property sold
will be considered to be manufactured, pro-
duced or constructed by the controlled for-
eign corporation, within the meaning of
paragraph (a)(4) of this section, only if the
manufacturing exception of paragraph
(a)(4) of this section would have applied to
exclude the income from foreign base com-
pany sales income if the controlled foreign
corporation had earned the income directly,
determined by taking into account only the
activities of, and property owned by, the
partnership and not the separate activities
or property of the controlled foreign corpo-
ration or any other person.
(ii) Example. The application of para-
graph (a)(6)(i) of this section is illustrated
by the following example:
Example. CFC, a controlled foreign corporation
organized under the laws of Country A, is an 80-per-
cent partner in Partnership X, a partnership organized
under the laws of Country B. Partnership X performs
activities in Country B that would constitute the manu-
facture of Product O, within the meaning of paragraph
(a)(4) of this section, if performed directly by CFC.
Partnership X, through its sales offices in Country B,
then sells Product O to Corp D, a corporation that is a
related person with respect to CFC, within the mean-
ing of section 954(d)(3),for use within Country B.
CFC’s distributive share of Partnership X’s sales in-
come is not foreign base company sales income be-
cause the manufacturing exception of paragraph (a)(4)
of this section would have applied to exclude the in-
come from foreign base company sales income if CFC
had earned the income directly. (The branch rule of
paragraph (b) of this section does not apply to these
facts).
(iii) Effective date. This paragraph (a)(6)
applies to taxable years of a controlled for-
eign corporation beginning on or after the
date final regulations are published in the
Federal Register.
* * * * *
Par. 7. In §1.954–4, paragraph (b)(2)(iii)
is added to read as follows:
§1.954–4 Foreign base company services
income.
* * * * *
(b) * * *
(2) * * *
(iii) Special rule applicable to distrib-
utive share of partnership income. A
controlled foreign corporation’s distribu-
tive share of a partnership’s services in-
come will be deemed to be derived from
services performed for or on behalf of a
related person, within the meaning of
section 954(e)(1)(A), if the partnership is
a related person with respect to the con-
trolled foreign corporation, under section
954(d)(3), and, in connection with the
services performed by the partnership,
the controlled foreign corporation, or a
person that is a related person with re-
spect to the controlled foreign corpora-
tion, provided assistance that would have
constituted substantial assistance con-
tributing to the performance of such ser-
vices, under paragraph (b)(2)(ii) of this
section, if furnished to the controlled for-
eign corporation by a related person.
This paragraph (b)(2)(iii) applies to tax-
able years of a controlled foreign corpo-
ration beginning on or after the date final
regulations are published in the Federal
Register.
* * * * *
Par. 8. In §1.956–2, paragraph (a)(3) is
added to read as follows:
§1.956–2 Definition of United States
property.
(a) * * *
(3) Property owned through partnership.
For purposes of section 956, if a controlled
foreign corporation is a partner in a partner-
ship that owns property that would be
United States property, within the meaning
of paragraph (a)(1) of this section, if owned
directly by the controlled foreign corpora-
tion, the controlled foreign corporation will
be treated as holding an interest in the prop-
erty equal to its interest in the partnership
and such interest will be treated as an inter-
est in United States property. This para-
graph (a)(3) applies to taxable years of a
controlled foreign corporation beginning
on or after the date final regulations are
published in the Federal Register.
* * * * *
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
(Filed by the Office of the Federal Register on Sep-
tember 19, 2000, 8:45 a.m., and published in the issue
of the Federal Register for September 20, 2000, 65
F.R. 56836)
TOLL-FREE NUMBER FOR THE
APPEALS OFFICER (CUSTOMER
SERVICE/OUTREACH) PROGRAM
Announcement 2000–80
This document informs the public of
the new Appeals Officer (Customer Ser-
vice/Outreach) program. Appeals now
has a toll-free number for contacting an
Appeals Officer (Customer Service/Out-
reach) who will provide assistance with
an Appeals tax matter. Previously, An-
nouncement 99–98, 1999–42 I.R.B. 520,
listed telephone numbers which were not
toll-free.
The toll-free number for contacting an
Appeals Officer (Customer Service/Out-
reach) is 1-877-457-5055.The new toll-
free system will automatically send the
call to the nearest Appeals Officer (Cus-
tomer Service/Outreach). This new ser-
vice emphasizes Appeal’s commitment to
advancing its customer service program
under the Internal Revenue Service Re-
structuring and Reform Act of 1998, Pub.
L. No. 105-206, 112 Stat. 685, Appeals
Policy Statement P–8–1, and Treasury Di-
rective 63–01.
Appeals presently has an Appeals Offi-
cer (Customer Service/Outreach) in each
of the thirty-three Appeals Offices nation-
wide. A list of the office locations ap-
pears at the end of this announcement.
The duties of the Appeals Officer (Cus-
tomer Service/Outreach) include:
1) Serving as proponents of the Ap-
peals process;
2) Providing assistance to taxpayers
during their administrative appeal;
3) Handling taxpayers’ complaints re-
garding Appeals;
4) Participating in National Problem
Solving Days;
5) Coordinating with Taxpayer Advo-
cate Service representatives on Ap-
peals matters;
6) Performing Appeals education and
outreach with the public, as well as
other IRS functions;
7) Ensuring that taxpayer rights are not
abridged; and
8) Identifying problems and trends, in-
cluding analyzing customer survey
and balanced measures results.
The Appeals Officers (Customer Ser-
vice/Outreach) endorse the Commis-
sioner’s concept for modernizing the In-
ternal Revenue Service to focus on:
1) Service to Each Taxpayer
2) Service to All Taxpayers
3) Productivity Through a Quality
Work Environment

2000–40 I.R.B.321October 2, 2000
Please call 1-877-457-5055whenever
you need assistance with an Appeals tax
matter.
Appeals on the World-Wide Web
For further information on the Appeals or-
ganization, visit the recently updated Ap-
peals section of the IRS Web Site at
www.irs.gov/prod/ind_info/appeals. In-
cluded are links to information on:
• Appeals Redesign and Program De-
velopment-An introduction to the
Appeals organization;
• Appeals Expectations-Yours and
Ours-A review of mutual commit-
ments for the Appeals Process;
• Alternative Dispute Resolution Pro-
grams- Are you having trouble re-
solving your Appeals case?;
• Appeal Rights-IRS publications
providing detailed information on
what can be appealed;
• Appeals Officer (Customer Ser-
vice/Outreach) Program-How to
contact nationwide Appeals Officers
(Customer Service/Outreach) and
their role in the Appeals process;
• Other Appeals Programs - Collec-
tion Appeals, Innocent Spouse,
Bankruptcy, Offer-In-Compromise,
and Industry Specialization; and
• Other Sites-Various sites and pub-
lications including the new IRS or-
ganization, tax law questions, U.S.
Tax Court Site, where to get assis-
tance.
Drafting Information
The principal author of this announce-
ment is Thomas C. Louthan, Director,
Strategic Planning and Communications
(Appeals). For further information re-
garding this announcement contact Mr.
Louthan at (202) 694-1842 or Darlene M.
Marshall at (202) 694-1875 (not toll-free
calls).

October 2, 20003222000–40 I.R.B.
Appeals Officer (Customer Service/Outreach) Program
[Office Location]
Toll-Free Number: 1-877-457-5055
Phoenix, AZ
Laguna Niguel, CA
Los Angeles, CA
San Francisco, CA
San Jose, CA
Denver, CO
East Hartford, CT
Ft. Lauderdale, FL
Jacksonville, FL
Atlanta, GA
Chicago, IL
Indianapolis, IN
New Orleans, LA
Boston, MA
Baltimore, MD
Detroit, MI
St. Paul, MN
St. Louis, MO
Greensboro, NC
Newark, NJ
Buffalo, NY
Hempstead, NY
New York, NY
Cleveland, OH
Oklahoma City, OK
Philadelphia, PA
Nashville, TN
Austin, TX
Dallas, TX
Houston, TX
Richmond, VA
Seattle, WA
Milwaukee, WI

2000–40 I.R.B.iOctober 2, 2000
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously
published ruling and points out an essen-
tial difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it ap-
plies to both A and B, the prior ruling is
modified because it corrects a published
position. (Compare with amplified and
clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. A ruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is super-
seded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be pub-
lished that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current use and for-
merly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
Definition of Terms

October 2, 2000ii2000–40 I.R.B.
Numerical Finding List
1
Bulletins 2000–27 through 2000–39
Announcements:
2000–57, 2000–28 I.R.B. 115
2000–58, 2000–30 I.R.B. 135
2000–59, 2000–29 I.R.B. 120
2000–60, 2000–31 I.R.B. 149
2000–61, 2000–30 I.R.B. 136
2000–62, 2000–30 I.R.B. 137
2000–63, 2000–31 I.R.B. 149
2000–64, 2000–31 I.R.B. 149
2000–65, 2000–31 I.R.B. 150
2000–66, 2000–32 I.R.B. 160
2000–67, 2000–32 I.R.B. 160
2000–68, 2000–32 I.R.B. 161
2000–69, 2000–33 I.R.B. 183
2000–70, 2000–34 I.R.B. 204
2000–72, 2000–35 I.R.B. 226
2000–73, 2000–35 I.R.B. 230
2000–74, 2000–35 I.R.B. 230
2000–75, 2000–37 I.R.B. 268
2000–76, 2000–36 I.R.B. 260
2000–77, 2000–36 I.R.B. 260
2000–79, 2000–39 I.R.B. 303
Court Decisions:
2068, 2000–28 I.R.B. 109
Notices:
2000–33, 2000–27 I.R.B. 97
2000–34, 2000–33 I.R.B. 172
2000–35, 2000–29 I.R.B. 118
2000–36, 2000–33 I.R.B. 173
2000–37, 2000–29 I.R.B. 118
2000–38, 2000–33 I.R.B. 174
2000–39, 2000–30 I.R.B. 132
2000–40, 2000–30 I.R.B. 134
2000–41, 2000–33 I.R.B. 177
2000–42, 2000–39 I.R.B. 302
2000–43, 2000–35 I.R.B. 209
2000–44, 2000–36 I.R.B. 255
2000–45, 2000–36 I.R.B. 256
2000–46, 2000–37 I.R.B. 265
2000–48, 2000–37 I.R.B. 265
2000–49, 2000–37 I.R.B. 266
2000–50, 2000–38 I.R.B. 291
2000–51, 2000–38 I.R.B. 291
2000–52, 2000–38 I.R.B. 292
2000–53, 2000–38 I.R.B. 293
Proposed Regulations:
REG–209038–89, 2000–34 I.R.B. 191
REG–105316–98, 2000–27 I.R.B. 98
REG–110311–98, 2000–36 I.R.B. 258
REG–116495–99, 2000–33 I.R.B. 179
REG–103735–00, 2000–36 I.R.B. 258
REG–103736–00, 2000–36 I.R.B. 258
REG–108522–00, 2000–34 I.R.B. 187
Railroad Retirement Quarterly Rate:
2000–28, I.R.B. 112
2000–29, I.R.B. 117
Revenue Procedures:
2000–28, 2000–27 I.R.B. 60
2000–29, 2000–28 I.R.B. 113
2000–30, 2000–28 I.R.B. 113
2000–31, 2000–31 I.R.B. 146
Revenue Procedures—continued:
2000–32, 2000–33 I.R.B. 172
2000–33, 2000–36 I.R.B. 257
2000–34, 2000–34 I.R.B. 186
2000–35, 2000–35 I.R.B. 211
2000–36, 2000–37 I.R.B. 267
Revenue Rulings:
2000–32, 2000–27 I.R.B. 1
2000–33, 2000–31 I.R.B. 142
2000–34, 2000–29 I.R.B. 116
2000–35, 2000–31 I.R.B. 138
2000–36, 2000–31 I.R.B. 140
2000–37, 2000–32 I.R.B. 156
2000–38, 2000–32 I.R.B. 157
2000–39, 2000–34 I.R.B. 184
2000–40, 2000–35 I.R.B. 208
2000–41, 2000–36 I.R.B. 248
2000–42, 2000–39 I.R.B. 297
2000–47, 2000–37 I.R.B. 264
Treasury Decisions:
8886, 2000–27 I.R.B. 3
8888, 2000–27 I.R.B. 3
8889, 2000–30 I.R.B. 124
8890, 2000–30 I.R.B. 122
8891, 2000–32 I.R.B. 152
8892, 2000–32 I.R.B. 158
8893, 2000–31 I.R.B. 143
8894, 2000–33 I.R.B. 162
8896, 2000–36 I.R.B. 249
8897, 2000–36 I.R.B. 234
8898, 2000–38 I.R.B. 276
8899, 2000–38 I.R.B. 288
8900, 2000–38 I.R.B. 279
8901, 2000–38 I.R.B. 272
1
A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 2000–1 through 2000–26
is in Internal Revenue Bulletin 2000–27, dated July
3, 2000.

2000–40 I.R.B.iiiOctober 2, 2000
Finding List of Current Actions on
Previously Published Items
1
Bulletins 2000–27 through 2000–39
Notices:
87–76
Obsoleted by
T.D. 8897, 2000–36 I.R.B. 234
88–24
Obsoleted by
T.D. 8897, 2000–36 I.R.B. 234
88–86
Obsoleted by
T.D. 8897 (section V), 2000–36 I.R.B. 234
Proposed Regulations:
FI–42–90
Withdrawn by
Announcement 2000–63, 2000–31 I.R.B. 149
IA–38–93
Withdrawn by
Announcement 2000–68, 2000–32 I.R.B. 161
REG–107644–98
Corrected by
Announcement 2000–66, 2000–32 I.R.B. 160
Revenue Procedures:
88–23
Superseded by
Rev. Proc. 2000–35, 2000–35 I.R.B. 211
98–50
Modified and superseded by
Rev. Proc. 2000–31, 2000–31 I.R.B. 146
98–51
Modified and superseded by
Rev. Proc. 2000–31, 2000–31 I.R.B. 146
99–18
Modified by
Rev. Proc. 2000–29, 2000–28 I.R.B. 113
99–34
Superseded by
Rev. Proc. 2000–28, 2000–27 I.R.B. 60
Treasury Decisions:
8873
Corrected by
Announcement 2000–74, 2000–35 I.R.B. 230
8883
Corrected by
Announcement 2000–57, 2000–28 I.R.B. 115
8884
Corrected by
Announcement 2000–73, 2000–35 I.R.B. 230
1
A cumulative list of current actions on previously
published items in Internal Revenue Bulletins
2000–1 through 2000–26 is in Internal Revenue
Bulletin 2000–27, dated July 3, 2000.

October 2, 2000iv2000–40 I.R.B.
Index
Internal Revenue Bulletins
2000–27 Through 2000–39
The abbreviation and number in paren-
thesis following the index entry refer to
the specific item; numbers in roman and
italic type following the parenthesis refer
to the Internal Revenue Bulletin in which
the item may be found and the page
number on which it appears.
Key to Abbreviations:
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
Accrued benefits, involuntary cash-out of
(TD 8891) 32, 152
Cafeteria plans (Ann 65) 31, 150
Determination letters, volume submitter
plans (Ann 77) 36, 260
Elective deferrals, section 403(b) plans
(RR 35) 31, 138
Full funding limitations, weighted aver-
age interest rate for:
July 2000 (Notice 40) 30, 134
August 2000 (Notice 46) 37, 265
September 2000 (Notice 42) 39, 302
Letter rulings, determination letters, and
information letters issued by the Office
of Chief Counsel (Notice 35) 29, 118
Loans to plan participants (TD 8894) 33,
162; (REG–116495–99) 33, 179
New technologies in retirement plans,
notices and consents (Ann 74) 35, 230
Nonqualified deferred compensation:
Cash or deferred arrangements (RR
33) 31, 142
State and local governments or tax-
exempt organizations (Notice 38)
33, 174
Proposed Regulations:
26 CFR 1.72(p)–1, amended; loans to
plan participants (REG–116495–99)
33, 179
Protected benefits, direct rollover (RR
36) 31, 140
Prototype plans, automatic enrollment
features (Ann 60) 31, 149
Qualified retirement plans, optional
forms of benefit (TD 8900) 38, 279
Regulations:
26 CFR 1.72–17A, amended;
1.72(p)–1, added; loans to plan par-
ticipants (TD 8894) 33, 162
26 CFR 1.411(d)–4, amended; quali-
fied retirement plans, optional forms
of benefit (TD 8900) 38, 279
26 CFR 31.3121(b)(7)–2, amended;
accrued benefits, involuntary cash-
out of (TD 8891) 32, 152
26 CFR 35.3405–1, correction; new
technologies in retirement plans
(Ann 74) 35, 230
EMPLOYMENT TAX
Comprehensive case resolution program
(Notice 43) 35, 209
Nonqualified deferred compensation,
state and local governments or tax-
exempt organizations (Notice 38) 33,
174
Railroad retirement, rate determination,
quarterly:
April 1, 2000, 28, 112
July 1, 2000, 29, 117
ESTATE TAX
Actuarial tables for valuation of annu-
ities, interests for life or term of years,
and remainder or reversionary interests
(TD 8886) 27, 3
Charitable remainder trusts sample
forms, revision (Notice 37) 29, 118
Regulations:
26 CFR 20.2031–0, –7, amended;
20.2031–7T, removed; 20.7520–1,
amended; 20.7520–1T, removed;
actuarial tables for valuation of
annuities, interests for life or term
of years, and remainder or rever-
sionary interests (TD 8886) 27, 3
EXCISE TAX
Taxable fuel, measurement of (Notice
33) 27, 97
EXEMPT
ORGANIZATIONS
Forms:
8871, Political Organization Notice of
Section 527 Status (Notice 36) 33,
173
8872, Political Organization Report of
Contributions and Expenditures
(Notice 41) 33, 177
Letter rulings, determination letters, and
information letters issued by the Office
of Chief Counsel (Notice 35) 29, 118
List of organizations classified as private
foundations (Ann 61) 30, 136; (Ann
67) 32,160; (Ann 70) 34,204; (Ann
75) 37, 268; (Ann 79) 39, 303
Political organizations:
Contributions and expenditures, Form
8872 (Notice 41) 33, 177
Notice of section 527 status, Form
8871 (Notice 36) 33, 173
Proposed revenue ruling on reporting
requirements (Ann 72) 35, 226
Revocations (Ann 62) 30, 137; (Ann 69)
33,183
GIFT TAX
Actuarial tables for valuation of annu-
ities, interests for life or term of years,
and remainder or reversionary interests
(TD 8886) 27, 3
Adequate disclosure, status of limitations
(RP 34) 34, 186
Regulations:
26 CFR 25.2512–0, –5, amended;
25.2512–5T, removed; 25.7520–1,
amended; 25.7520–1T, removed;
actuarial tables for valuation of annu-
ities, interests for life or term of years,
and remainder or reversionary inter-
ests (TD 8886) 27, 3
26 CFR 25.2702–3, amended; special
valuation rules, grantor retained
annuity trust (GRAT) and unitrust
(GRUT) (TD 8899) 38,288
Special valuation rules, grantor retained
annuity trust (GRAT) and unitrust
(GRUT) (TD 8899) 38, 288
EMPLOYEE PLANS—
cont.

2000–40 I.R.B.vOctober 2, 2000
INCOME TAX
Acquisition of corporate indebtedness
(RP 33) 36, 257
Actuarial tables for valuation of annu-
ities, interests for life or term of years,
and remainder or reversionary interests
(TD 8886) 27, 3
Bad debt reserves of thrift institutions
(Ann 63) 31, 149
Capitalization, business expenses, farm-
ing (Notice 45) 36, 256
Charitable remainder trusts sample
forms, revision (Notice 37) 29, 118
Claims for certain income tax convention
benefits, guidance on (TD 8889) 30,
124
Collateralized debt obligations (CDOs),
reporting requirements (TD 8888) 27, 3
Comprehensive case resolution program
(Notice 43) 35, 209
Consolidated returns, limitations on the
use of certain credits (Ann 73) 35, 230
Corporate reorganizations, continuity of
interest (TD 8898) 38, 276
Corporations, disposition of stock in a
taxable transaction (Ann 57) 28, 115
Credits:
Enhanced oil recovery credit, 2000 infla-
tion adjustment (Notice 51) 38, 291
Low-income housing credit, carry-
overs to qualified states, 2000
National Pool (RP 36) 37, 267
Renewable electricity production cred-
it, 2000 inflation adjustment (Notice
52) 38, 292
Targeted Jobs Tax Credit, settlement
initiative (Ann 58) 30, 135
Debt roll-ups, election to treat certain
debt substitutions as realization events
(RP 29) 28, 113
Deductions, travel expenses, per diem
rates (Notice 48) 37, 265
Depletion, applicable percentages, oil
and gas production (Notice 50) 38,
291
Foreign sales corporations, Form 1120-
FSC, Schedule P (Notice 49) 37, 266
Foreign trusts:
Transfers of:
Appreciated property to
(REG–108522–00) 34, 187
Property to trusts with U.S. benefi-
ciaries (REG–209038–89) 34, 191
Forms:
1040, e-fileprogram (RP 31) 31, 146
1096, 1098, 1099, 5498, and W-2G,
substitute forms specifications (RP
28) 27, 60
1120-FSC, Schedule P, foreign sales
corporations (Notice 49) 37, 266
8871, Political Organization Notice of
Section 527 Status (Notice 36) 33,
173
8872, Political Organization Report of
Contributions and Expenditures
(Notice 41) 33, 177
W-2, W-3; planned changes to (Ann
76) 36, 260
Fringe benefits, aircraft valuation formu-
la (RR 40) 35, 208
Gross income, de minimispremiums,
treatment of (RP 30) 28, 113
Individual retirement arrangements,
returned or recharacterized contribu-
tions, net income calculation (Notice
39) 30, 132
Information reporting, payments and
reimbursements of qualified tuition
and related expenses (REG–105316-
98) 27, 98
Information returns, magnetic media fil-
ing requirements (REG–105316-98)
27, 98
Insurance companies:
Differential earnings rate and recom-
puted differential earnings rate for
mutual life insurance companies
(RR 37) 32, 156
Foreign companies, minimum effec-
tively connected net investment
income (RP 32) 33, 172
Interest:
Investment:
Federal short-term, mid-term, and
long-term rates for:
July 2000 (RR 32) 27, 1
August 2000 (RR 38) 32,157
September 2000 (RR 41) 36, 248
Rates:
Underpayments and overpayments,
quarter beginning October 1, 2000
(RR 42) 39, 297
Inventory:
LIFO:
Price indexes, department stores, for:
May 2000 (RR 34) 29, 116
June 2000 (RR 39) 34,184
July 2000 (RR 47) 37, 264
Dollar-value LIFO and inventory price
index computation (IPIC) methods
(Ann 66) 32, 160
Letter rulings, determination letters, and
information letters issued by the Office
of Chief Counsel (Notice 35) 29, 118
Loss deductions, challenge of, Blue
Cross Blue Shield organizations
(Notice 34) 33, 172
Marginal properties, oil and gas produc-
tion, depletion, applicable percentages
(Notice 50) 38, 291
Private foundations, organizations now
classified as (Ann 61) 30, 136; (Ann
67) 32,160; (Ann 70) 34,204; (Ann
75) 37,268; (Ann 79) 39,303
Proposed Regulations:
26 CFR 1.679–1, –2, –3, –4, –5, –6,
–7, added; 1.958–1, –2, amended;
foreign trusts with U.S. beneficia-
ries (REG–209038–89) 34, 191
26 CFR 1.684–1, –2, –3, –4, –5, added;
tax on transfers of appreciated prop-
erty to foreign trusts and foreign
estates (REG–108522–00) 34, 187
26 CFR 1.6011–4, amended; 301–6111
–2, amended; 301–6112–1, amend-
ed; tax shelters, disclosure rules,
registration and list maintenance
requirements, additional guidance of
(REG–110311–98, REG–103735–00,
REG–103736–00) 36, 258
26 CFR 1.6050S–0, –1, –2, added;
301.6011–2, amended; information
reporting, payments and reimburse-
ments of qualified tuition and relat-
ed expenses (REG–105316-98) 27,
98
Publications:
515, changes in tables 1 and 2 for
Denmark treaty (Ann 59) 29, 120
901, changes in tables 1 and 2 for
Denmark treaty (Ann 59) 29, 120
1212, supplemental information on
short-term Treasury bills (Ann 64)
31, 149
Real estate mortgage investment conduits
(REMICs), reporting requirements
(TD 8888) 27, 3
Regulations:
26 CFR 1.110–1, added; 1.602.101,
amended; short-term leases, qualified
lessee construction allowances for
(TD 8901) 38, 272
26 CFR 1.162–12, amended; 1.263A–0,
–1, amended; 1.263A–0T, removed;
1.263A–4, revised; 1.263A–4T,
removed; 1.471–6, amended; uniform
capitalization applied to farming busi-
INCOME TAX—cont.INCOME TAX—cont.

October 2, 2000vi2000–40 I.R.B.
ness (TD 8897) 36, 234
26 CFR 1.170A–12, amended;
1.170A–12T, removed; 1.642(c)–6,
amended; 1.642(c)–6T, removed;
1.664–4, amended; 1.664–4T,
removed; 1.7520–1, amended;
1.7520–1T, removed; actuarial tables
for valuation of annuities, interests for
life or term of years, and remainder or
reversionary interests (TD 8886) 27, 3
26 CFR 1.368–1, amended; 1.368–1T,
removed; corporate reorganizations;
continuity of interest (TD 8898) 38,
276
26 CFR 1.401(a)–20, amended;
1.401(a)(4)–4, amended; 1.401(a)
(26)–4, –6, amended; 1.411(a)–7,
–11, amended; 1.411(a)–7T, –11T,
removed; 1.411(d)–4, amended;
1.417(e)–1, amended; accrued bene-
fits, involuntary cash-out of (TD
8891) 32, 152
26 CFR 1.472–8, correction; dollar-
value LIFO regulations, inventory
price index computation (IPIC)
method (Ann 66) 32, 160
26 CFR 1.643(h)–1, amended;
1.671–2(e), revised; 1.671-2T,
removed; 1.672(f)–2, –3, –4, –5,
amended; definition of grantor (TD
8890) 30, 122
26 CFR 1.894–1, revised; guidance
regarding claims for certain income
tax convention benefits (TD 8889)
30, 124
26 CFR 1.1032–3, correction; disposi-
tion of stock in a taxable transaction
(Ann 57) 28, 115
26 CFR 1.1502–3, correction; consoli-
dated returns, limitations on the use
of certain credits (Ann 73) 35, 230
26 CFR 1.6011–4T, amended; 301–
6111–2T, amended; 301–6112–1T,
amended; tax shelters, disclosure
rules, registration and list mainte-
nance requirements, additional guid-
ance on (TD 8896) 36, 249
26 CFR 1.6012–7T, removed;
1.6061–2T, removed; 1.6065–2T,
removed; 602.101(c), amended;
telefile voice signature test (TD
8892) 32, 158
26 CFR 1.6049–7, amended; real estate
mortgage investment conduits; report-
ing requirements and other administra-
tive matters (TD 8888) 27, 3
26 CFR 1.6695–1, amended;
1.6695–1T, removed; requirement to
retain copy of return or claim signed
by preparer (TD 8893) 31, 143
Retention of return or claim signed by
tax preparer (TD 8893) 31, 143
Revocations, exempt organizations (Ann
62) 30, 137; (Ann 69) 33,183
Schedule P (Form 1120-FSC), foreign
sales corporations (Notice 49) 37, 266
Separate return limitation year (SRLY)
losses (Notice 53) 38, 293
Short-term leases, qualified lessee con-
struction allowances for (TD 8901) 38,
272
Substitute forms, 1096, 1098, 1099,
5498, and W-2G, rules and specifica-
tions (RP 28) 27, 60
Tax claims in bankruptcy court (CD
2068) 28, 109
Tax shelters:
Avoidance using artificially high basis
(Notice 44) 36, 255
Disclosure rules, registration and list
maintenance requirements, addition-
al guidance on (TD 8896) 36, 249;
(REG–110311–98, REG–103735–00,
REG–103736–00) 36, 258
Telefile voice signature test:
Notice of proposed rulemaking with-
drawn (Ann 68) 32, 161
Temporary regulations removed (TD
8892) 32, 158
Treaties:
Denmark, Publications 515 and 901
(Ann 59) 29, 120
Withholding rates, tax treaty benefits
(TD 8889) 30, 124
Trusts, definition of grantor (TD 8890)
30,122
Uniform captialization applied to farm-
ing business (TD 8897) 36, 234
Withholding certificate, guidance for
obtaining (RP 35) 35, 211
INCOME TAX—cont.INCOME TAX—cont.

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