Internal Revenue Bulletin 1997-40 (PDF rendition): IRS Revenue Rulings

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

INCOME TAX
Rev. Rul. 97–41, page 4.
Federal rates; adjusted federal rates; adjusted feder-
al long-term rate, and the long-term exempt rate. For
purposes of sections 1274, 1288, 382, and other sections
of the Code, tables set forth the rates for October 1997.
EMPLOYEE PLANS
Notice 97–53, page 6.
Individual retirement accounts. This notice provides guid-
ance relating to penalty-free withdrawals from IRAs for high-
er education expenses.
EXEMPT ORGANIZATIONS
Announcement 97–99, page 7.
A list is given of organizations now classified as private foun-
dations.
ADMINISTRATIVE
Notice 97–55, page 6.
T.D. 8656, 1996–1 C.B. 329, relating to the imposition of
the accuracy-related penalty, is corrected.
Announcement 97–100, page 8.
T.D. 8722, 1997–29 I.R.B. 4, relating to the eligibility for
benefits under income tax treaties for payments to entities,
is corrected.
Internal Revenue
bbuulllleettiinn
Bulletin No. 1997–40
October 6, 1997
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 10.
Index for July–September begins on page 12.

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

The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi-
cial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly and may be obtained
from the Superintendent of Documents on a subscription
basis. Bulletin contents of a permanent nature are consoli-
dated semiannually into Cumulative Bulletins, which are sold
on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of in-
ternal management are not published; however, statements
of internal practices and procedures that affect the rights
and duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings
to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature
are deleted to prevent unwarranted invasions of privacy and
to comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have
the force and effect of Treasury Department Regulations,
but they may be used as precedents. Unpublished rulings
will not be relied on, used, or cited as precedents by Service
personnel in the disposition of other cases. In applying pub-
lished rulings and procedures, the effect of subsequent leg-
islation, regulations, court decisions, rulings, and proce-
dures must be considered, and Service personnel and oth-
ers concerned are cautioned against reaching the same con-
clusions in other cases unless the facts and circumstances
are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions, and Subpart B, Legislation and Related
Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and Sub-
parts. Also included in this part are Bank Secrecy Act Admin-
istrative Rulings. Bank Secrecy Act Administrative Rulings
are issued by the Department of the Treasury’s Office of the
Assistant Secretary (Enforcement).
Part IV.—Items of General Interest.
With the exception of the Notice of Proposed Rulemaking
and the disbarment and suspension list included in this part,
none of these announcements are consolidated in the Cumu-
lative Bulletins.
The first Bulletin for each month includes a cumulative index
for the matters published during the preceding months.
These monthly indexes are cumulated on a quarterly and
semiannual basis, and are published in the first Bulletin of the
succeeding quarterly and semiannual period, respectively.
3
Introduction
The contents of this publication are not copyrighted and may be reprinted freely. Acitation 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 6, 199741997–40 I.R.B.
Section 42.—Low-Income
Housing Credit
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 1997. See Rev. Rul. 97–41, on this page.
Section 280G.—Golden
Parachute Payments
Federal short-term, mid-term, and long-term
rates are set forth for the month of October 1997.
See Rev. Rul. 97–41, on this page.
Section 382.—Limitation on Net
Operating Loss Carryforwards
and CertainBuilt-In Losses
Following Ownership Change
The adjusted federal long-term rate is set forth
for the month of October 1997. See Rev. Rul. 97–41,
on this page.
Section 412.—Minimum Funding
Standards
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 1997. See Rev. Rul. 97–41, on this page.
Section 467.—Certain Payments
for the Use of Property or Ser-
vices
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 1997. See Rev. Rul. 97–41, on this page.
Section 468.—Special Rules for
Mining and Solid Waste Recla-
mation and Closing Costs
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 1997. See Rev. Rul. 97–41, on this page.
Section 482.—Allocation of In-
come and Deductions Among
Taxpayers
Federal short-term, mid-term, and long-term
rates are set forth for the month of October 1997.
See Rev. Rul. 97–41, on this page.
Section 483.—Interest on Cer-
tain Deferred Payments
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 1997. See Rev. Rul. 97–41, on this page.
Section 642.—Special Rules for
Credits and Deductions
Federal short-term, mid-term, and long-term
rates are set forth for the month of October 1997.
See Rev. Rul. 97–41, on this page.
Section 807.—Rules for Certain
Reserves
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 1997. See Rev. Rul. 97–41, on this page.
Section 846.—Discounted Un-
paid Losses Defined
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 1997. See Rev. Rul. 97–41, on this page.
Section 1274.—Determination
of Issue Price in the Case of
Certain Debt Instruments Issued
for Property
(Also Sections 42, 280G, 382, 412, 467, 468, 482,
483, 642, 807, 846, 1288, 7520, 7872.)
Federal rates; adjusted federal
rates; adjusted federal long-term rate,
and the long-term exempt rate.For
purposes of sections 1274, 1288, 382,
and other sections of the Code, tables set
forth the rates for October 1997.
Rev. Rul. 97–41
This revenue ruling provides various
prescribed rates for federal income tax
purposes for October 1997 (the current
month.) Table 1 contains the short-term,
mid-term, and long-term applicable fed-
eral rates (AFR) for the current month
for purposes of section 1274(d) of the In-
ternal Revenue Code. Table 2 contains
the short-term, mid-term, and long-term
adjusted applicable federal rates (ad-
justed AFR) for the current month for
purposes of section 1288(b). Table 3
sets forth the adjusted federal long-term
rate and the long-term tax-exempt rate
described in section 382(f). Table 4 con-
tains the appropriate percentages for de-
termining the low-income housing credit
described in section 42(b)(2) for build-
ings placed in service during the current
month. Finally, Table 5 contains the fed-
eral rate for determining the present
value of an annuity, an interest for life or
for a term of years, or a remainder or a
reversionary interest for purposes of sec-
tion 7520.
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
REV. RUL. 97–41 TABLE 1
Applicable Federal Rates (AFR) for October 1997
Period for Compounding
Annual SemiannualQuarterlyMonthly
Short-Term
AFR 5.84% 5.76% 5.72%5.69%
110% AFR6.44%6.34%6.29%6.26%
120% AFR7.03%6.91%6.85%6.81%
130% AFR7.63%7.49%7.42% 7.38%
Mid-Term
AFR6.34%6.24%6.19%6.16%
110% AFR6.98%6.86%6.80%6.76%
120% AFR7.63%7.49%7.42%7.38%
130% AFR8.27%8.11%8.03%7.98%
150% AFR9.58%9.36%9.25%9.18%
175% AFR11.22%10.92%10.77%10.68%

REV. RUL. 97–41 TABLE 2
Adjusted AFR for October 1997
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
adjusted AFR3.98%3.94%3.92%3.91%
Mid-term
adjusted AFR4.46% 4.41%4.39%4.37%
Long-term
adjusted AFR5.27%5.20%5.17%5.14%
REV. RUL. 97–41 TABLE 1 — (Continued)
Applicable Federal Rates (AFR) for October 1997
Period for Compounding
Annual SemiannualQuarterlyMonthly
Long-Term
AFR6.68%6.57%6.52%6.48%
110% AFR7.36%7.23%7.17%7.12%
120% AFR8.04%7.88%7.80%7.75%
130% AFR8.72%8.54%8.45%8.39%
1997–40 I.R.B.5October 6, 1997
REV. RUL. 97–41 TABLE 3
Rates Under Section 382 for October 1997
Adjusted federal long-term rate for the current month5.27%
Long-term tax-exempt rate for ownership changes during the current month (the highest of the
adjusted federal long-term rates for the current month and the prior two months.) 5.33%
REV. RUL. 97–41 TABLE 4
Appropriate Percentages Under Section 42(b)(2) for October 1997
Appropriate percentage for the 70% present value low-income housing credit8.53%
Appropriate percentage for the 30% present value low-income housing credit3.66%
REV. RUL. 97–41 TABLE 5
Rate Under Section 7520 for October 1997
Applicable federal rate for determining the present value of an annuity, an interest for life or a
term of years, or a remainder or reversionary interest7.6%
Section 1288.—Treatment of
Original Issue Discount on
Tax-Exempt Obligations
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 1997. See Rev. Rul. 97–41, page 4.
Section 7520.—Valuation
Tables
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 1997. See Rev. Rul. 97–41, page 4.
Section 7872.—Treatment of
Loans With Below-Market
Interest Rates
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 1997. See Rev. Rul. 97–41, page 4.

October 6, 199761997–40 I.R.B.
Penalty-Free Withdrawals From
IRAs for Higher Education
Expenses
Notice 97–53
Section 203 of the Taxpayer Relief Act
of 1997 provides that the 10-percent addi-
tional tax on early distributions from indi-
vidual retirement arrangements (IRAs)
does not apply to certain distributions for
educational expenses after 1997. This
Notice provides guidance concerning the
effective date of this provision.
In general, section 72(t) of the Internal
Revenue Code imposes an additional 10-
percent tax on amounts withdrawn from a
qualified retirement plan (including an
IRA) before age 59
1
⁄
2
subject to certain
exceptions. Section 203 of the Taxpayer
Relief Act of 1997 added certain educa-
tional expenses to the list of exceptions to
the 10-percent additional tax. The excep-
tion for educational expenses is limited to
the qualified higher education expenses of
the taxpayer, the taxpayer’s spouse, or
any child or grandchild of the taxpayer or
spouse.
Section 203 is effective for IRAdistrib-
utions made after December 31, 1997,
with respect to expenses paid after that
date, for education provided in academic
periods beginning after that date. An
“academic period” includes a semester,
trimester, quarter, or other academic term
designated by the educational institution.
For this purpose, an academic period be-
gins on the first day of classes, and does
not include periods of orientation, coun-
seling or vacation.
For example, assume the 1997-1998
schedule of a college or university divides
the academic year into two semesters; the
first semester begins in September 1997,
and the second semester begins in January
1998. The benefits are not available for
the September semester. The benefits of
section 203 would be available, however,
for the qualified expenses for the semester
that begins in January 1998, provided the
IRAdistribution is made after December
31, 1997 and the expenses are paid after
that date. This result applies to students
who are enrolled in both semesters as well
as to students whose enrollment begins
only with the January semester.
For further information concerning the
term “academic period” contact Monice
Rosenbaum of the Office of Associate
Chief Counsel (Employee Benefits and
Exempt Organizations) at (202) 622-6070
(not a toll-free call). For other informa-
tion concerning this Notice contact Cathy
Vohs of the Office of Associate Chief
Counsel (Employee Benefits and Exempt
Organizations) at (202) 622-6030 (not a
toll-free call).
Section 6662—Imposition of the
Accuracy-Related Penalty;
Correction
Notice 97–55
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Correcting amendment.
SUMMARY: This document contains a
correction to final regulations (T.D.
8656[1996–1 C.B. 329]) in the Code of
Federal Regulations, which were pub-
lished in the Federal Registeron Friday,
February 9, 1996 (61 FR 4876). The final
regulations provide guidance on the im-
position of the accuracy related penalty.
EFFECTIVE DATE: February 9, 1996.
FOR FURTHER INFORMATION CON-
TACT: Lisa G. Sams (202) 622-3880 (not
a toll-free number).
SUPPLEMENTARYINFORMATION:
Background
The final regulations that are the sub-
ject of these corrections are under section
6662 of the Internal Revenue Code.
Need for Correction
As published, T.D. 8656 contains an
error that may prove to be misleading and
is in need of clarification.
* * * * *
Accordingly, 26 CFR part 1 is cor-
rected by making the following correcting
amendment:
PART1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
§ 1.6662–6 [Corrected]
Par. 2. In § 1.6662-6, paragraph (d)(2)-
(ii)(E) is amended by removing the lan-
guage “§1.482–1(e)(2)(ii)(B)” from the
last sentence and adding the language
“§1.482–1(e)(2)(iii)(B)” in its place.
Cynthia E. Grigsby,
Chief, Regulations Unit,
Assistant Chief Counsel (Corporate).
(Filed by the Office of the Federal Register on Sep-
tember 4, 1997, 8:45 a.m., and published in the issue
of the Federal Register for September 5, 1997, 62
F.R. 46877)
Part III. Administrative, Procedural, and Miscellaneous

1997–40 I.R.B.7October 6, 1997
Foundations Status of Certain
Organizations
Announcement 97–99
The following organizations have
failed to establish or have been unable to
maintain their status as public charities or
as operating foundations. Accordingly,
grantors and contributors may not, after
this date, rely on previous rulings or des-
ignations in the Cumulative List of Orga-
nizations (Publication 78), or on the pre-
sumption arising from the filing of notices
under section 508(b) of the Code. This
listing does notindicate that the organiza-
tions have lost their status as organiza-
tions described in section 501(c)(3), eligi-
ble to receive deductible contributions.
Former Public Charities.The following
organizations (which have been treated as
organizations that are not private founda-
tions described in section 509(a) of the
Code) are now classified as private foun-
dations:
Academy of Comedy Arts & Sciences,
Los Angeles, CA
AGainer Technical & Assistance
Foundation, New York, NY
Allen South Fork Preserve, Palos Verdes
Estates, CA
Barrasco Sebania Anastatica, San Diego,
CA
Caliban Incorporated, Laguna Beach, CA
Community Legal Services, Inc.,
Beverly Farms, MA
Community Mediators and Arbitrators,
Inc., New York, NY
Community Uplift Through
Perseverance, Inc., New York, NY
Connecticut Chapter of the American
Chestnut Foundation, Inc., Haddam,
CT
Crossroads Quilters Guild, Inc., Ipswich,
MA
Crotona Terrace Housing Development
Fund Company, Inc., Bronx, NY
Cultural Computing Foundation
Incorporated, New York, NY
Curious Group Ensemble, Inc., New
York, NY
D.A.R.E. Massachusetts, Braintree, MA
Dare to Care Fund Foster Parent
Association of Broome County,
Castle Creek, NY
Diabetic Cure Foundation, Inc., New
Rochelle, NY
Dubois Group ACaucus of Concerned
Black Professionals, San Bruno, CA
Florida Foundation for Research in
Spinal Disorders Inc., Gainesville, FL
FWRTFund, Inc., Boston, MA
Garmendia Gardens Housing Develop-
ment Fund Corporation, Bronx, NY
Gay Lesbian Alliance of Danbury, Inc.,
Danbury, CT
Genesee County Citizens Crime
Prevention Advisory Board, Batavia, NY
Global Action Plan International, Inc.,
Woodstock, NY
Global Jewish Assistance and Relief
Network, Brooklyn, NY
Great Basin Society for Parenteral and
Enternal Nutrition, Carson City, NV
Greater Boston Relief Society, Inc.,
Malden, MA
Griffith Sandiford Family Assistance
Fund, Inc., Brooklyn, NY
Haitian American Education and
Development Association, Inc.,
Malden, MA
Haitian American Solidarity Corp.,
Rosedale, NY
Haiti Communications Project Fund,
Boston, MA
Happiness is Sharing Charities, Inc.,
Valhalla, NY
Harlem Economic Foundation, Inc., New
York, NY
Harmonia Dance, Inc., New York, NY
Harvest House, Inc., Charlestown, ME
Hawk and Handsaw Theatre Company,
Inc., New York, NY
Health Care We Gotta Have It, Inc.,
Philadelphia, PA
Health on Earth, Wakefield, RI
Heart to Heart-American Jewish Society
for Distinguished Children, Inc.,
Monsey, NY
HEATin the Central Valley, Fresno, CA
Helderberg Ambulance Squad, Inc., East
Berne, NY
Hells Kitchen Aids Project, Inc., New
York, NY
Helpline Hand House, Belfast, ME
Helpline Soul Rescue Ministry, Inc.,
Long Beach, NY
Heritage of Pride, New York, NY
High Mountain Health Center, Ltd.,
Webster, MA
Hispanic Employees of Restaurants
Outstanding Service, Burbank, CA
Homers Kids, Ltd., Macedon, NY
Horse Trails Conservancy, Inc., New
York, NY
Housing Network Rhode Island
Association of Nonprofit Housing
Developers, Providence, RI
Humanities Preservation Corporation,
New York, NY
Icorojoy-Yemenite Heritage Foundation,
Inc., Brooklyn, NY
I Have a Dream-New Haven, Inc., New
Haven, CT
International Communications
Association, Inc., New York, NY
Italian Businessmen’s Foundation, Inc.,
Portland, OR
Jabualu-Nur Foundation, Wyandanch,
NY
JB Williams Charitable Foundation,
Longmeadow, MA
Jesucristo Es El Senor Ministries, New
Haven, CT
JLB, Inc., Cold Springs, NY
John Stamatakis Trust, Watertown, MA
Joseph Haggerty Childrens Fund, New
York, NY
Joshua House, Inc., Sidney Center, NY
Jurupa 12 Step Recovery, Inc., Riverside,
CA
Kalgidhar Trust, Jackson, MS
Keep Me Company, Inc., Jamaica Plains,
MA
Keep Kids Lead Free, Inc., Stamford, CT
Kids Toy Lending Club, Lincoln, MA
Kiruv Rechokim Fund, Inc., Brooklyn,
NY
KQC Foundation, Inc., Boston, MA
LAImage Academy, Honolulu, HI
Miles Ahead Ministries, San Diego, CA
National Association of Small Business
International Trade Educators, Dallas,
TX
New Foundation Ministries, Inc., Benton,
LA
Nu Vision Modeling and Entertainment,
Inc., Los Angeles, CA
Ocean Challenge of Southern California,
Inc., Torrance, CA
Parents Association for Scholarship and
Sensitivity, Orange, CA
Pentucket Activities Association, Inc.,
West Newbury, MA
Progressive Educational Initiatives,
Providence, RI
Read It Believe It & Do It, Berkeley, CA
Real Colegio Complutense, Inc.,
Cambridge, MA
Part IV. Items of General Interest

October 6, 199781997–40 I.R.B.
Santa Ana Public Library Auxiliary,
Santa Ana, CA
Something Familiar, Inc., New York, NY
South Bay Classic, Inc., Torrance, CA
Valley Partnership for a Drug Free
Community, Palm Desert, CA
Valley Youth Conference, Inc.,
Chatsworth, CA
Vancouver Amateur Hockey Association,
Vancouver, WA
Wrentham Elementary Parent Teacher
Organization, Inc., Wremtham, MA
If an organization listed above submits
information that warrants the renewal of its
classification as a public charity or as a pri-
vate operating foundation, the Internal
Revenue Service will issue a ruling or de-
termination letter with the revised classifi-
cation as to foundation status. Grantors and
contributors may thereafter rely upon such
ruling or determination letter as provided
in section 1.509(a)–7 of the Income Tax
Regulations. It is not the practice of the
Service to announce such revised classifi-
cation of foundation status in the Internal
Revenue Bulletin.
Guidance Regarding Claims for
Certain Income Tax Convention
Benefits; Correction
Announcement 97–100
AGENCY: Internal Revenue Service,
Treasury.
ACTION: Correction to temporary regu-
lations.
SUMMARY: This document contains
corrections to temporary regulations (T.D.
8722 [1997–29 I.R.B. 4]) which were
published in the Federal Registeron
Wednesday, July 2, 1997 (62 F.R. 35673).
The temporary regulations relate to the el-
igibility for benefits under income tax
treaties for payments to entities.
EFFECTIVE DATE: July 2, 1997.
FOR FURTHER INFORMATION CON-
TACT: Elizabeth Karzon, (202) 622-
3880 (not a toll-free number).
SUPPLEMENTARYINFORMATION:
Background
The temporary regulations that are sub-
ject to these corrections are under section
894 of the Internal Revenue Code.
Need for Correction
As published, the temporary regula-
tions (T.D. 8722) contain errors that may
prove to be misleading and are in need of
clarification.
Correction of Publication
Accordingly, the publication of the
temporary regulations (T.D. 8722) which
are the subject of F.R. Doc. 97–17467 is
corrected as follows:
1. On page 35673, column 1, in the pre-
amble in the caption “FOR FURTHER
INFORMATION CONTACT”, line 2, the
language “Elizabeth Karzon, (202) 622-
3860 (not a” is corrected to read “Eliza-
beth Karzon, (202) 622-3880 (not a”.
§ 1.894–1T[Corrected]
2. On page 35676, column 3, § 1.894–
1T, paragraph (d)(1), line 5 from the bot-
tom of the column, the language “a resi-
dent of the jurisdiction only to the” is cor-
rected to read “a resident of the
jurisdiction to the”.
3. On page 35677, column 1, § 1.894–
1T, paragraph (d)(1), line 9, the language
“a resident of such jurisdiction only if” is
corrected to read “a resident of such juris-
diction if”.
4. On page 35679, column 2, § 1.894–
1T, paragraph (d)(6), paragraph (i) of Ex-
ample 11., line 16, the language “holder,
is a corporation organized in Country” is
corrected to read “holder, is a business or-
ganization organized in Country”.
5. On page 35679, column 3, § 1.894–
1T, paragraph (d)(6), paragraph (ii) of Ex-
ample 11., line 15, the language “jurisdic-
tion. F, however, may claim the” is
corrected to read “jurisdiction. F, how-
ever, is entitled to the”.
5. On page 35679, column 3, § 1.894–
1T, paragraph (d)(6), paragraph (ii) of Ex-
ample 11., line 20, the language “of X, be-
cause X qualifies as a resident of X” is
corrected to read “of X, because F quali-
fies as a resident of X”.
Cynthia E. Grigsby,
Chief, Regulations Unit,
Assistant Chief Counsel (Corporate).
(Filed by the Office of the Federal Register on Sep-
tember 4, 1997, 8:45 a.m., and published in the issue
of the Federal Register for September 5, 1997, 62
F.R. 46876)

1997–40 I.R.B.9October 6, 1997
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 Abut not
to B, and the new ruling holds that it ap-
plies to both Aand 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. Aruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is super-
seded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be pub-
lished that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current use and for-
merly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C.—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedral Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
Definition of Terms

October 6, 1997101997–40 I.R.B.
Numerical Finding List
1
Bulletins 1997–27 through 1997–39
Announcements:
97–61, 1997–29 I.R.B. 13
97–67, 1997–27 I.R.B. 37
97–68, 1997–28 I.R.B. 13
97–69, 1997–28 I.R.B. 13
97–70, 1997–29 I.R.B. 14
97–71, 1997–29 I.R.B. 15
97–72, 1997–29 I.R.B. 15
97–73, 1997–30 I.R.B. 86
97–74, 1997–31 I.R.B.16
97–75, 1997–32 I.R.B. 28
97–76, 1997–32 I.R.B. 28
97–77, 1997–33 I.R.B. 58
97–78, 1997–34 I.R.B. 11
97–79, 1997–35 I.R.B. 8
97–80, 1997–34 I.R.B. 12
97–81, 1997–34 I.R.B. 12
97–82, 1997–34 I.R.B. 12
97–83, 1997–34 I.R.B. 13
97–84, 1997–34 I.R.B. 13
97–85, 1997–35 I.R.B. 8
97–86, 1997–35 I.R.B. 9
97–87, 1997–35 I.R.B. 9
97–88, 1997–35 I.R.B. 9
97–89, 1997–36 I.R.B. 10
97–90, 1997–36 I.R.B. 10
97–91, 1997–37 I.R.B. 25
97–92, 1997–37 I.R.B. 26
97–93, 1997–36 I.R.B. 11
97–94, 1997–36 I.R.B. 12
97–95, 1997–36 I.R.B. 12
97–96, 1997–39 I.R.B.15
97–97, 1997–38 I.R.B. 22
97–98, 1997–39 I.R.B. 15
Court Decisions:
2061, 1997–31 I.R.B. 5
2062, 1997–32 I.R.B. 8
Delegation Orders:
172 (Rev. 5), 1997–28 I.R.B. 6
Notices:
97–37, 1997–27 I.R.B. 4
97–38, 1997–27 I.R.B. 8
97–39, 1997–27 I.R.B. 8
97–40, 1997–28 I.R.B. 6
97–41, 1997–28 I.R.B. 6
97–42, 1997–29 I.R.B. 12
97–43, 1997–30 I.R.B. 9
97–44, 1997–31 I.R.B. 15
97–45, 1997–33 I.R.B. 7
97–46, 1997–34 I.R.B. 10
97–47, 1997–35 I.R.B. 5
97–48, 1997–35 I.R.B. 5
97–49, 1997–36 I.R.B. 8
97–50, 1997–37 I.R.B. 21
97–51, 1997–38 I.R.B. 20
97–52, 1997–38 I.R.B. 20
Railroad Retirement Quarterly Rate:
1997–28 I.R.B. 5
Proposed Regulations:
REG–104893–97, 1997–29 I.R.B. 13
REG–105160–97, 1997–37 I.R.B. 22
REG–106043–97, 1997–37 I.R.B. 24
REG–107644–97, 1997–32 I.R.B. 24
REG–208151–91, 1997–38 I.R.B. 21
Revenue Procedures:
97–32, 1997–27 I.R.B. 9
97–32A, 1997–34 I.R.B. 10
97–33, 1997–30 I.R.B. 10
97–34, 1997–30 I.R.B.14
97–35, 1997–33 I.R.B. 11
97–36, 1997–33 I.R.B. 14
97–37, 1997–33 I.R.B. 18
97–38, 1997–33 I.R.B. 43
97–39, 1997–33 I.R.B. 48
97–40, 1997–33 I.R.B. 50
97–41, 1997–33 I.R.B. 5
97–42, 1997–33 I.R.B. 57
97–43, 1997–39 I.R.B. 12
Revenue Rulings:
97–27, 1997–27 I.R.B. 4
97–28, 1997–28 I.R.B. 4
97–29, 1997–28 I.R.B. 4
97–30, 1997–31 I.R.B.12
97–31, 1997–32 I.R.B.4
97–32, 1997–33 I.R.B. 4
97–33, 1997–34 I.R.B. 4
97–34, 1997–34 I.R.B. 14
97–35, 1997–35 I.R.B. 4
97–36, 1997–36 I.R.B. 5
97–37, 1997–37 I.R.B.15
97–38, 1997–38 I.R.B.14
97–39, 1997–39 I.R.B. 4
97–40, 1997–39 I.R.B. 8
Treasury Decisions:
8722, 1997–29 I.R.B. 4
8723, 1997–30 I.R.B. 4
8724, 1997–36 I.R.B. 4
8725, 1997–37 I.R.B. 16
8726, 1997–34 I.R.B. 7
8727, 1997–34 I.R.B. 5
8728, 1997–37 I.R.B. 4
8729, 1997–38 I.R.B. 4
8730, 1997–38 I.R.B. 16
1
Acumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 1997–1 through 1997–26
will be found in Internal Revenue Bulletin 1997–27,
dated July 7, 1997.

1997–40 I.R.B.11October 6, 1997
Finding List of Current Action on
Previously Published Items
1
Bulletins 1997–27 through 1997–39
*Denotes entry since last publication
Revenue Procedures:
96–36
Superseded by
97–34, 1997–30 I.R.B. 14
96–42
Superseded by
97–27, 1997–27 I.R.B. 9
97–32
Modified and amplified by
97–32A, 1997–34 I.R.B. 10
Revenue Rulings:
89–42
Supplemented by
97–31, 1997–32 I.R.B. 4
93–76
Clarified, modified, partially
obsoleted, and superceded by
97–39, 1997–39 I.R.B 4
94–7
Clarified, modified, partially
obsoleted, and superceded by
97–39, 1997–39 I.R.B 4
1
Acumulative finding list for previously published
items mentioned in Internal Revenue Bulletins
1997–1 through 1997–26 will be found in Internal
Revenue Bulletin 1997–27, dated July 7, 1997.

October 6, 1997121997–40 I.R.B.
Index
Internal Revenue Bulletins
1997–27 Through 1997–39
For the index of items published during
the first six months of 1997, see I.R.B.
1997–27, dated July 7, 1997.
The abbreviation and number in paren-
thesis following the index entry refer to
the specific item; numbers in roman and
italic type following the parenthesis refer
to the Internal Revenue Bulletin in which
the item may be found and the page
number on which it appears.
Key to Abbreviations:
RRRevenue Ruling
RPRevenue Procedure
TDTreasury Decision
CDCourt Decision
PLPublic Law
EOExecutive Order
DODelegation Order
TDOTreasury Department Order
TCTax Convention
SPRStatement of Procedural
Rules
PTEProhibited Transaction
Exemption
EMPLOYMENT TAX
Penalty:
Guidance regarding waiver of failure to
deposit penalty for certain taxpayers
required to begin using electronic
funds transfer on or after July 1,
1997 (Notice 43) 30, 86
Railroad retirement:
Rate determination; quarterly (July 1,
1997) 28, 5
Regulations:
26 CFR 31.0–1(a), 31.0–3(f), amended;
31.6302–1(h), added; 31.6302–1(i),
redesignated; 31.6302–1T, removed;
31.6302(c)–3, amended; 31.6302–3T,
removed; federal tax deposits by elec-
tronic funds transfer (TD 8723) 30, 4
26 CFR 301.6634–1, 301.6601–1,
301.6651–1, 1.6013–2(b)(1),
amended; 301.6656–3, added;
301.7122–1(e), revised; 301.7430–0,
–1, –2, –4, –5, amended; 301.7430–6,
revised; miscellaneous sections af-
fected by TBOR 2 and PRWORA
1996 (TD 8725) 37, 16
ESTATE TAX
Marital or charitable bequests (CtD 2062)
32, 8
26 CFR 301.6634–1, 301.6601–1,
301.6651–1, 1.6013–2(b)(1), amended;
301.6656–3, added; 301.7122–1(e), re-
vised; 301.7430–0, –1, –2, –4, –5,
amended; 301.7420–6, revised; miscel-
laneous sections affected by TBOR 2
and PRWORA1996 (TD 8725) 37, 16
EXCISE TAX
Group health plans; access, portability,
and renewability requirements; correc-
tion (Notice 41) 28, 6
Regulations:
26 CFR 40.6302(c)–1, amended;
40.6302(c)–1T, removed; federal tax
deposits by electronic funds transfer
(TD 8723) 30, 4
26 CFR 301.6634–1, 301.6601–1,
301.6651–1, 1.6013–2(b)(1), amended;
301.6656–3, added; 301.7122–1(e), re-
vised; 301.7430–0, –1, –2, –4, –5,
amended; 301.7420– 6, revised; mis-
cellaneous sections affected by TBOR
2 and PRWORA1996 (TD 8725)
37, 16
GIFTTAX
Regulations:
26 CFR 301.6634–1, 301.6601–1,
301.6651–1, 1.6013–2(b)(1), amended;
301.6656–3, added; 301.7122–1(e), re-
vised; 301.7430–0, –1, –2, –4, –5,
amended; 301.7420–6, revised; miscel-
laneous sections affected by TBOR 2
and PRWORA1996 (TD 8725) 37, 16
INCOMETAX
Allocation of interest expense among tax-
payer’s expenditures (Notice 46) 34, 10
Calculation of partner’s limited deficit
restoration obligation (RR 38) 38, 14
Changes to RP96–11 (Notice 48) 37, 5
Consent to change accounting method to
comply with section 475 mark-to-mar-
ket rules (RP43) 39, 12
Depreciation:
Retail motor fuels outlet (RR29) 28, 4
Elections into mark-to-market account-
ing (Notice 37) 27, 8
Electing Small Business Trust (ESBT)
qualification (Notice 49) 36, 8
Electronic or magnetic media filing:
Specifications for 1997 Forms 1098,
1099, 5498, and W–2G (RP34) 30, 14
Employee plans:
Funding:
Full funding limitations, weighted av-
erage interest rate, July 1997 (Notice
44) 31, 15; August 1997 (Notice 47)
35, 5; September 1997 (Notice 51)
38, 20
Highly compensated employee, defini-
tion (Notice 45) 33, 7
Organizations, functions, and authority
delegations; director, Employee Plans
Division (DO 172(Rev. 5)) 28, 6
Remedial amendment period extension
(RP41) 33, 51
Enhanced oil recovery credit for 1997
(Notice 39) 27, 8
Extension of time to file, Form 926 (No-
tice 42) 29, 12
Forms 1096, 1098, 1099 series, 5498,
W–2G:
Reproduction of forms; RP97–32, mod-
ified and amplified (RP97–32A) 34,
10;Requirements for reproducing
paper substitutes (RP27) 27, 9
Fringe benefits aircraft valuation formula
(RR 33) 34, 4
Interest:
Investment:
Federal short-term, mid-term, and
long-term rates for July 1997 (RR 27)
27, 4; August 1997 (RR 30) 31, 12;
September 1997 (RR 36) 36, 5
Rates:
Underpayments and overpayments
for calendar quarter beginning Oc-
tober 1, 1997 (RR 40) 39, 8
International operation of ships and air-
craft; income exempt from tax (RR 31)
32, 4
Inventories:
LIFO:
Price indexes, department stores,
May 1997 (RR 28) 28, 4; June
1997 (RR 32) 33, 4; July 1997 (RR
37) 37, 15
Late S corporation elections (RP40) 33,
50
Low-income housing:
Bond factor amounts, July–September
1997 (RR 34) 34, 4
Tax credit (RP42) 33, 57
Marginal production rates for 1997 (No-
tice 38) 27, 8

Mark-to-market accounting method for
dealers in securities (RR 39) 39, 4
Methods of accounting:
Automatic consent to change (RP37)
33, 18
Last-in, first-out inventory method (RP
36) 33, 14
Original issue discount (RP39) 33, 48
Package design costs (RP35) 33, 11
Warranty contracts (RP38) 33, 43
Mutual life insurance companies; differ-
ential earnings rate (RR 35) 35, 4
Private delivery services; timely filing or
payment (Notice 50) 37, 21
Proposed regulations:
26 CFR 1.263A–0, amended; rules for
property produced in a farming busi-
ness (REG–208151–91) 38,
21
26 CFR 1.401(b)–1; remedial amend-
ment period (REG–106043–97) 37, 24
26 CFR 1.411(d)–4, amended; permitted
elimination of preretirement optional
forms benefit (REG–107644–97)
32, 24
26 CFR 1.465–27, added; qualified
nonrecourse financing under section
465(b)(6) (REG–105160–97) 37, 22
26 CFR 1.894–1(d), added; guidance
regarding claims for certain income
tax convention (REG–104893–97)
29, 13
Punitive damages for personal injuries
(CtD 2061) 31, 5
Qualified state tuition programs (Notice
52) 38, 20
Regulations:
26 CFR 1.61–4, 1.162–12(a), 1.263A–
1, 1.471–6, amended; 1.263A–4T, re-
vised; rules for property produced in
a farming business (TD 8729) 38, 4
26 CFR 1.263A–0, –1, –15, amended;
1.263A, added; 1.263A–7T, re-
moved; procedure for changing a
method of accounting under section
263A(TD 8728) 37, 4
26 CFR 1.302–2, amended; 1.1059-
(e)(1), added; extraordinary divi-
dends (TD 8724) 36, 4
26 CFR 1.401(b)–1, amended; 1.401-
(b)–1T, added; remedial amendment
period (TD 8727) 34, 5
26 CFR 1.501(c)(5)–1, amended; tax-
exempt organizations, requirements
(TD 8726) 34, 7
26 CFR 1.704–3, 1.1245–1, amended;
allocations of depreciation recapture
among partners in a partnership (TD
8730) 38, 16
26 CFR 1.894–1T(a) through (c),
added; guidance regarding claims for
certain income tax convention (TD
8722) 29, 4
26 CFR 1.6302–1, –2, amended;
1.6302–1T, –2T, –3T, –4T, removed;
1.6302–3(c), revised; 1.6302–4,
added; federal tax deposits by elec-
tronic funds transfer (TD 8723) 30, 4
26 CFR 301.6334–1, 301.6601–1,
301.6651–1, 1.6013–2(b)(1), amended;
301.6656–3, added; 301.7122–1(e), re-
vised; 301.7430–0, –1, –2, –4, –5,
amended; 301.7430–6, revised; miscel-
laneous sections affected by TBOR 2
and PRWORA1996 (TD 8725) 37, 16
Tax forms and instructions:
Electronic Federal Tax Payment Sys-
tem (EFTPS); electronic remittance
system for federal tax deposits and
payments (RP33) 30, 10
Treatment of Hong Kong and China (No-
tice 40) 28, 6
1997–40 I.R.B.13October 6, 1997

Notes
October 6, 1997141997–40 I.R.B.

1997–40 I.R.B.15October 6, 1997

INTERNAL REVENUE BULLETIN
The Introduction on page 3 describes the purpose and content of this publication. The weekly Internal Revenue Bulletin is sold
on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superintendent of
Documents when their subscriptions must be renewed.
CUMULATIVE BULLETINS
The contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are
sold on a single copy basis and are not included as part of the subscription to the Internal Revenue Bulletin. Subscribers to the week-
ly Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of print
and are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from the
Superintendent of Documents.
HOW TO ORDER
Check the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance,
detach entire page, and mail to the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402. Please
allow two to six weeks, plus mailing time, for delivery.
WE WELCOME COMMENTS ABOUT THE
INTERNAL REVENUE BULLETIN
If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we
would be pleased to hear from you. You can e-mail us your suggestions or comments through the IRS Internet Home Page
(www.irs.ustreas.gov) or write to the IRS Bulletin Unit, T:FP:F:CD, Room 5560, 1111 Constitution Avenue NW, Washington, DC
20224. You can also leave a recorded message 24 hours a day, 7 days a week at 1–800–829–9043.
Superintendent of Documents
U.S. Government Printing Office
Washington, DC 20402
Official Business
Penalty for Private Use, $300
First Class Mail
Postage and Fees Paid
GPO
Permit No. G–26

1997–40 I.R.B.17October 6, 1997
INTERNAL REVENUE BULLETIN
The Introduction on page 3 describes the purpose and content of this publication. The weekly Internal Revenue Bulletin is sold
on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superintendent of
Documents when their subscriptions must be renewed.
CUMULATIVE BULLETINS
The contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are
sold on a single copy basis and are not included as part of the subscription to the Internal Revenue Bulletin. Subscribers to the week-
ly Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of print
and are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from the
Superintendent of Documents.
HOW TO ORDER
Check the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance,
detach entire page, and mail to the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402. Please
allow two to six weeks, plus mailing time, for delivery.
WE WELCOME COMMENTS ABOUT THE
INTERNAL REVENUE BULLETIN
If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we
would be pleased to hear from you. You can e-mail us your suggestions or comments through the IRS Internet Home Page
(www.irs.ustreas.gov) or write to the IRS Bulletin Unit, T:FP:F:CD, Room 5560, 1111 Constitution Avenue NW, Washington, DC
20224. You can also leave a recorded message 24 hours a day, 7 days a week at 1–800–829–9043.
Internal Revenue Service
Washington, DC 20224
Official Business
Penalty for Private Use, $300
First Class Mail
Postage and Fees Paid
IRS
Permit No. G–48