Internal Revenue Bulletin 1998-39 (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
Ct.D. 2065, page 7.
Treasury Regulation section 1.846–3(c)(3) reasonably inter-
prets that the term “reserve strengthening” is broad enough
to embrace all increases in the reserve’s amount. Atlantic
Mutual Insurance Company v. Commissioner of Inter-
nal Revenue.
T.D. 8780, page 14.
Final regulations under section 7623 of the Code relate to
rewards for information on violations of the internal revenue
laws.
Rev. Rul. 98–46, page 10.
Interest rates; underpayments and overpayments.The
rate of interest determined under section 6621 of the Code
for the calendar quarter beginning October 1, 1998, will be
7 percent for overpayments, 8 percent for underpayments,
and 10 percent for large corporate underpayments. The rate
of interest paid on the portion of a corporate overpayment
exceeding $10,000 is 5.5 percent.
Rev. Rul. 98–47, page 4.
Residential rental property.For purposes of section
142(d) and 145(d) of the Code, the ruling provides that the
availability of continual or frequent medical, nursing, or psy-
chiatric services in a facility for the residents of the facility
will cause the facility to be other than residential rental prop-
erty. Other non-housing services available in a facility for the
residents of the facility generally will not cause the facility to
be other than residential rental property.
Rev. Rul. 98–48, page 6.
LIFO; price indexes; department stores.The July 1998
Bureau of Labor Statistics price indexes are accepted for
use by department stores employing the retail inventory and
last-in, first-out inventory methods for valuing inventories for
tax years ended on, or with reference to, July 31, 1998.
EMPLOYEE PLANS
Notice 98–48, page 17.
Weighted average interest rate update.The weighted av-
erage interest rate for September 1998 and the resulting per-
missible range of interest rates used to calculate current lia-
bility for purposes of the full funding limitation of section
412(c)(7) of the Code are set forth.
ADMINISTRATIVE
REG–104565–97, page 21.
Proposed regulations under section 6402 of the Code relate
to the administration of the Tax Refund Offset Program
(TROP).
REG–115393–98, page 34.
Proposed regulations under section 408A of the Code relate
to Roth IRAs. A public hearing will be held on December 10,
1998.
REG–118926–97, page 23.
Proposed regulations under section 6038B of the Code re-
late to information reporting requirements for certain trans-
fers by United States persons to foreign partnerships. A pub-
lic hearing will be held on November 10, 1998.
REG–118966–97, page 29.
Proposed regulations under section 6038 of the Code relate
to information reporting requirements for certain United
States persons holding interests in controlled foreign partner-
ships. A public hearing will be held on November 10, 1998.
REG–209060–86, page 18.
Proposed regulations under section 6046A of the Code relate
to information reporting requirements for certain United
States persons who acquire or dispose of an interest in a for-
eign partnership, or whose interest in a foreign partnership
changes substantially. A public hearing will be held on Novem-
ber 10, 1998.
Internal Revenue
bbuulllleettiinn
Bulletin No. 1998–39
September 28, 1998
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
Department of the Treasury
Internal Revenue Service
Finding Lists begin on page 54.
Announcement of Disbarments and Suspensions begins on page 50.

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

The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi-
cial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly and may be obtained
from the Superintendent of Documents on a subscription
basis. Bulletin contents of a permanent nature are consoli-
dated semiannually into Cumulative Bulletins, which are sold
on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of in-
ternal management are not published; however, statements
of internal practices and procedures that affect the rights
and duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings
to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature
are deleted to prevent unwarranted invasions of privacy and
to comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have
the force and effect of Treasury Department Regulations,
but they may be used as precedents. Unpublished rulings
will not be relied on, used, or cited as precedents by Service
personnel in the disposition of other cases. In applying pub-
lished rulings and procedures, the effect of subsequent leg-
islation, regulations, court decisions, rulings, and proce-
dures must be considered, and Service personnel and oth-
ers concerned are cautioned against reaching the same con-
clusions in other cases unless the facts and circumstances
are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions, and Subpart B, Legislation and Related
Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and Sub-
parts. Also included in this part are Bank Secrecy Act Admin-
istrative Rulings. Bank Secrecy Act Administrative Rulings
are issued by the Department of the Treasury’s Office of the
Assistant Secretary (Enforcement).
Part IV.—Items of General Interest.
With the exception of the Notice of Proposed Rulemaking
and the disbarment and suspension list included in this part,
none of these announcements are consolidated in the Cumu-
lative Bulletins.
The first Bulletin for each month includes a cumulative index
for the matters published during the preceding months.
These monthly indexes are cumulated on a semiannual basis
and are published in the first Bulletin of the succeeding semi-
annual period, respectively.
3
Introduction
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

Section 103.—Interest on State
and Local Bonds
26 CFR 1.103–8(b): Residential rental property.
For purposes of sections 142(d) and 145(d) of the
Code, the ruling provides that the availability of con-
tinual or frequent medical, nursing, or psychiatric
services in a facility for the residents of the facility
will cause the facility to be other than residential
rental property. Other non-housing services available
in a facility for the residents of the facility generally
will not cause the facility to be other than residential
rental property. See Rev. Rul. 98–47, page 4.
Section 142.—Exempt Facility
Bond
26 CFR 1.103–8(b): Residential rental property.
For purposes of sections 142(d) and 145(d) of the
Code, the ruling provides that the availability of con-
tinual or frequent medical, nursing, or psychiatric
services in a facility for the residents of the facility
will cause the facility to be other than residential
rental property. Other non-housing services available
in a facility for the residents of the facility generally
will not cause the facility to be other than residential
rental property. See Rev. Rul. 98–47, page 4.
26 CFR 1.103–8: Interest on bonds to finance
certain exempt facilities.
(Also sections 145 and 103)
Residential rental property.For pur-
poses of section 142(d) and 145(d) of the
Code, the ruling provides that the avail-
ability of continual or frequent medical,
nursing, or psychiatric services in a facil-
ity for the residents of the facility will
cause the facility to be other than residen-
tial rental property. Other non-housing
services available in a facility for the resi-
dents of the facility generally will not
cause the facility to be other than residen-
tial rental property.
Rev. Rul. 98–47
ISSUE
Are the buildings described below resi-
dential rental property for purposes of
§ 142(d) and § 145(d) of the Internal Rev-
enue Code?
FACTS
Complex M provides housing units on a
non-transient basis for individuals who are
of retirement age or older. All of the units
in Complex M are available to members of
the general public. Complex M is com-
prised of Building X, Building Y, and
Building Z, each of which is composed of
similarly constructed housing units that
have separate and complete facilities for
living, sleeping, eating, cooking, bathing,
and sanitation. The cooking and eating
area contains a small refrigerator, a sink, a
pull-down table, and a two-burner stove
with an oven. Each unit is designed so that
the stove can be replaced with a full-sized
microwave oven if the physical or mental
frailties of the resident make it imprudent
to provide a functioning cooking stove.
Each resident enters into a lease ar-
rangement with Complex M. The amount
of the monthly payment under the lease
varies according to the level of care pro-
vided in the building in which the resident
resides, with Building Z commanding the
largest payment and Building X the
smallest payment. The monthly payment
is made in exchange for use of an individ-
ual unit, basic services and, with respect
to Buildings Y and Z, other services.
Under a lifetime lease payment option,
residents of Complex M may pay a fixed
monthly amount for the time they reside
in Complex M. The lifetime lease option
guarantees a resident the right to move to
a unit in Buildings Y or Z if the resident
requires additional care.
The basic services available to the resi-
dents in all three buildings include: laun-
dry; housekeeping; regular daily meals in
the common dining areas; 24 hour moni-
tored emergency call service using call
buttons and two-way communication de-
vices located in each room of a unit;
planned social activities; and scheduled
transportation to various sites in the vicin-
ity including commercial areas, shopping
centers, hospitals, and doctor’s offices.
Building X, Building Y, and Building Z
each contains a separate common dining
area. The dining area in each building
will be used exclusively by residents of
Complex M and visitors of those resi-
dents. The size of the dining area in any
building does not exceed that necessary to
serve the residents of the building and
their guests. The dining area serves the
special needs of the residents and pro-
vides the staff of Complex M an opportu-
nity to monitor the overall well-being, nu-
trition, and health of the residents.
Only the basic services are made avail-
able to residents of Building X. No other
services are included in the monthly pay-
ment. Continual or frequent nursing,
medical, or psychiatric services are not
made available in Building X.
The basic services and the Building Y
support services are made available to
residents of Building Y. The Building Y
support services are as follows: assis-
tance by medication management techni-
cians in medication management and in-
take; maintenance of detailed medication
records; consultation with a nurse as
needed about health concerns and med-
ication plans; assistance by non-medically
certified aides each day during waking
hours in activities of daily living that in-
clude getting in and out of bed and chairs,
walking, using the toilet, dressing, eating,
and bathing; and routine checks by staff
members of Building Y to insure the resi-
dents’ general well-being. Some residents
of Building Y have incapacitating infirmi-
ties that require continual assistance, but
do not require continual or frequent nurs-
ing, medical, or psychiatric services.
Continual or frequent nursing, medical, or
psychiatric services are not made avail-
able in Building Y.
The basic services and the Building Y
support services are made available to
residents of Building Z. In addition,
Building Z is staffed in the following
manner: registered nurses are on duty for
12 hours each day; licensed practical
nurses are on duty for 24 hours each day;
and licensed nurses’ aides are available 24
hours each day. The nurses and nurses’
aides are available to provide nursing care
for residents’ medical or psychiatric
needs. Thus, continual or frequent nurs-
ing, medical, or psychiatric services are
made available in Building Z.
Residents in Building X are required to
move into Buildings Y or Z or another fa-
cility outside of Complex M if, because of
physical or mental disability, they require
additional care beyond that offered by
Building X. Residents in Buildings X and
Y are required to move into Building Z or
another facility outside of Complex M if
they require continual or frequent nurs-
ing, medical, or psychiatric services.
September 28, 199841998–39 I.R.B.
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

LAW AND ANALYSIS
Under the general rule of § 103(a),
gross income does not include interest on
any state or local bond. Section
103(b)(1), however, provides that the ex-
clusion does not apply to any private ac-
tivity bond unless it is one of the qualified
bonds under § 141(e). Among these qual-
ified bonds are exempt facility bonds and
qualified § 501(c)(3) bonds.
Section 142(a) describes an exempt fa-
cility bond as any bond issued as part of
an issue of bonds if 95 percent or more of
the net proceeds of the issue are to be
used to provide listed types of projects or
facilities. Within the list, in § 142(a)(7),
are qualified residential rental projects.
Section 142(d) defines a qualified resi-
dential rental project as a project for resi-
dential rental property that houses occu-
pants who meet one of the alternative
income tests at all times throughout a
qualified project period. In the Tax Re-
form Act of 1986, 1986–3 (Vol. 1) C.B.
519–575 (the “1986 Act”), Congress reor-
ganized § 103 and § 103A of the Internal
Revenue Code of 1954 (the “1954 Code”)
regarding tax-exempt bonds into § 103
and §§ 141 through 150 of the Internal
Revenue Code of 1986. Congress in-
tended that to the extent not amended by
the 1986 Act, all principles of pre-1986
Act law would continue to apply to the re-
organized provisions. 2 H.R. Conf. Rep.
No. 841, 99th Cong., 2d Sess. II–686
(1986), 1986–3 (Vol. 4) C.B. 686. (Con-
ference Report). Because no Income Tax
Regulations have been promulgated under
§ 142(d), the regulations promulgated
pursuant to § 103(b)(4) of the 1954 Code
continue to apply to residential rental
property except as otherwise modified by
the 1986 Act and subsequent law.
Section 145(a) describes a qualified
§ 501(c)(3) bond as any bond issued as
part of an issue of bonds if all of the prop-
erty to be provided by the net proceeds of
the issue is to be owned by a § 501(c)(3)
organization or a governmental unit and
95 percent or more of the net proceeds of
the issue are used in a manner related to
the exempt purpose of the § 501(c)(3) or-
ganization. Under § 145(d)(1), however, a
bond generally is not a qualified
§ 501(c)(3) bond if net proceeds of the
issue are used directly or indirectly to pro-
vide residential rental property for family
units. Section 145(d)(2) provides certain
exceptions to § 145(d)(1). The legislative
history of § 145(d) indicates that the
phrase residential rental property for fam-
ily units in § 145(d) has the same meaning
as residential rental property under
§ 1.103–8(b) of the Income Tax Regula-
tions.
Under § 1.103–8(b)(4), a residential
rental project is residential rental property
that meets certain requirements including
occupancy requirements by low-income
tenants during the period when the units
must be continually rented or available for
rental. Residential rental property is a
building or structure, together with any
functionally related and subordinate facili-
ties, containing one or more similarly con-
structed units that are available to mem-
bers of the general public and used on
other than a transient basis. The regula-
tions also provide that hotels, motels, dor-
mitories, fraternity and sorority houses,
rooming houses, hospitals, nursing homes,
sanitariums, rest homes, and trailer parks
and courts for use on a transient basis are
not residential rental projects.
Section 1.103–8(b)(8) defines a “unit”
as any accommodation containing sepa-
rate and complete facilities for living,
sleeping, eating, cooking, and sanitation.
The regulations note that an example of a
unit would be a separate and distinct
apartment containing a living area, a
sleeping area, bathing and sanitation fa-
cilities, and cooking facilities equipped
with a cooking range, refrigerator, and
sink.
Additional insight into the meaning of
residential rental property can be found
under § 42, which provides the low-in-
come housing credit. 2 H.R. Conf. Rep.
No. 841, 99th Cong., 2d Sess. II–89
(1986), 1983–3 (Vol. 4) C.B. 89, states
that the phrase “residential rental prop-
erty” generally has the same meaning
under both § 42 and § 142(d).
Section 1.42–11(b) provides a distinc-
tion between residential rental properties
and health care facilities by focusing on
whether frequent nursing, medical, or
psychiatric services are provided to resi-
dents. Under that section, if continual or
frequent nursing, medical, or psychiatric
services are provided to residents, it is
presumed that the building is ineligible
for the credit as is the case with a hospital
or nursing home. The distinction drawn
in the regulations under § 42 regarding
the nature of the facility based on the fre-
quency of nursing, medical, or psychiatric
services available in the facility is also the
appropriate standard for determining
whether facilities are residential rental
property for purposes of § 142(d) and
§ 145(d).
For purposes of § 142(d) and § 145(d),
if a facility makes available continual or
frequent nursing, medical, or psychiatric
services, the facility will not be residen-
tial rental property under § 142(d) or
§ 145(d). In the case of a mixed use facil-
ity, the allocable portion of the facility in
which continual or frequent nursing, med-
ical, or psychiatric services are made
available will not be residential rental
property under § 142(d) or § 145(d).
As set forth in the facts above, Building
X, Building Y, and Building Z each con-
tains complete living units within the
meaning of § 1.103–8(b)(8), all of the liv-
ing units within the respective buildings
are available to the general public, and all
of the living units are used on a non-tran-
sient basis. Since Complex M also pro-
vides significant non-housing services to
residents of the three buildings (including
continual or frequent nursing, medical, or
psychiatric services to the residents of
Building Z), the analysis must consider
the nature and extent of the non-housing
services. In the case of Complex M, the
analysis must examine whether the build-
ings of Complex M are hospitals, nursing
homes, sanitariums, or rest homes rather
than residential rental property. For pur-
poses of § 142(d) and § 145(d), labels are
not determinative. The focus of these sec-
tions, their legislative histories, and the
applicable regulations thereunder, is
whether the facilities are, in substance,
residences or health care facilities. There-
fore, the nature and degree of the services
provided by the facility controls.
Significant non-housing services are
made available to residents of Building X
and Building Y, including meals and vari-
ous support services. The services avail-
able to residents of Building X and Build-
ing Y do not include continual or frequent
nursing, medical, or psychiatric services
although, under the lifetime lease option,
certain residents are assured that they will
receive continual or frequent nursing,
medical, or psychiatric services in Build-
ing Z if required. Thus, under the princi-
1998–39 I.R.B.5September 28, 1998

ples set forth above, Buildings X and Y
would be residential rental property.
Continual or frequent nursing, medical,
or psychiatric services are made available
to residents of Building Z in addition to
the same non-housing services that are
made available to residents of Building X
and Building Y. Thus, under the princi-
ples set forth above, Building Z would not
be a residential rental property.
HOLDING
Building X and Building Y are residen-
tial rental property for purposes of
§ 142(d) and § 145(d). Because continual
or frequent nursing, medical, or psychi-
atric services are made available in Build-
ing Z, Building Z is not residential rental
property for purposes of § 142(d) and
§ 145(d).
Neither Building X nor Building Y
would fail to be residential rental property
under § 142(d) or § 145(d) merely because
it was called a hospital, a sanitarium, a rest
home, or a nursing home. Similarly,
Building Z would not be residential rental
property under § 142(d) or § 145(d)
merely because it was called an assisted
living facility or an elderly care facility.
DRAFTING INFORMATION
The principal authors of this revenue
ruling are Harold N. Diamond and Timo-
thy L. Jones of the Office of Associate
Chief Counsel (Domestic) and Edwin G.
Oswald of the Department of the Trea-
sury. For further information regarding
this revenue ruling contact Harold N. Dia-
mond at 202-622-3980 (not a toll-free
call).
Section 145.—Qualified
501(c)(3) Bond
26 CFR 1.103–8(b): Residential rental property.
For purpose of sections 142(d) and 145(d) of the
Code, the ruling provides that the availability of
continual or frequent medical, nursing, or psychi-
atric services in a facility for the residents of the fa-
cility will cause the facility to be other than residen-
tial rental property. Other non-housing services
available in a facility for the residents of the facility
generally will not cause the facility to be other than
residential rental property. See Rev. Rul. 98–47,
page 4.
Section 472.—Last-in, First-out
Inventories
26 CFR 1.472–1: Last-in, first-out inventories.
LIFO; price indexes; department
stores.The July 1998 Bureau of Labor
Statistics price indexes are accepted for
use by department stores employing the
retail inventory and last-in, first-out in-
ventory methods for valuing inventories
for tax years ended on, or with reference
to, July 31, 1998.
Rev. Rul. 98–48
The following Department Store Inven-
tory Price Indexes for July 1998 were is-
sued by the Bureau of Labor Statistics.
The indexes are accepted by the Internal
Revenue Service, under § 1.472–1(k) of
the Income Tax Regulations and Rev.
Proc. 86–46, 1986–2 C.B. 739, for appro-
priate application to inventories of depart-
ment stores employing the retail inven-
tory and last-in, first-out inventory
methods for tax years ended on, or with
reference to, July 31, 1998.
The Department Store Inventory Price
Indexes are prepared on a national basis
and include (a) 23 major groups of depart-
ments, (b) three special combinations of
the major groups - soft goods, durable
goods, and miscellaneous goods, and (c) a
store total, which covers all departments,
including some not listed separately, ex-
cept for the following: candy, food,
liquor, tobacco, and contract departments.
September 28, 199861998–39 I.R.B.
BUREAU OF LABOR STATISTICS, DEPARTMENT STORE
INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS
(January 1941 = 100, unless otherwise noted)
Percent Change
GroupsJuly July from July 1997
1997 1998to July 1998
1
1. Piece Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .539.8547.71.5
2. Domestics and Draperies . . . . . . . . . . . . . . . . . . . . . . . . . . . . .656.1 626.7–4.5
3. Women’s and Children’s Shoes . . . . . . . . . . . . . . . . . . . . . . . .641.6642.30.1
4. Men’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .902.6906.50.4
5. Infants’ Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .637.9606.8–4.9
6. Women’s Underwear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .543.5573.15.4
7. Women’s Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .297.8307.63.3
8. Women’s and Girls’ Accessories . . . . . . . . . . . . . . . . . . . . . . .544.5539.3–1.0
9. Women’s Outerwear and Girls’ Wear . . . . . . . . . . . . . . . . . . .395.0389.3–1.4
10. Men’s Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .621.6613.4–1.3
11. Men’s Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .585.9589.30.6
12. Boys’ Clothing and Furnishings . . . . . . . . . . . . . . . . . . . . . . .495.9489.4–1.3
13. Jewelry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1003.9981.5–2.2
14. Notions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .797.5767.3–3.8
15. Toilet Articles and Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .905.7947.64.6
16. Furniture and Bedding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .662.8683.73.2

BUREAU OF LABOR STATISTICS, DEPARTMENT STORE
INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS (Continued)
(January 1941 = 100, unless otherwise noted)
Percent Change
GroupsJuly July from July 1997
1997 1998to July 1998
1
17. Floor Coverings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .598.2602.10.7
18. Housewares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .807.2825.52.3
19. Major Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .243.1238.3–2.0
20. Radio and Television . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75.971.6–5.7
21. Recreation and Education
2
. . . . . . . . . . . . . . . . . . . . . . . . . . .109.8104.3–5.0
22. Home Improvements
2
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132.7131.2–1.1
23. Auto Accessories
2
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .108.6107.5–1.0
Groups 1 - 15: Soft Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .594.9592.1–0.5
Groups 16 - 20: Durable Goods . . . . . . . . . . . . . . . . . . . . . . . . . .464.2464.90.2
Groups 21 - 23: Misc. Goods
2
. . . . . . . . . . . . . . . . . . . . . . . . . . . .112.5108.4–3.6
Store Total
3
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .549.8545.9–0.7
1
Absence of a minus sign before percentage change in this column signifies price increase.
2
Indexes on a January 1986=100 base.
3
The store total index covers all departments, including some not listed separately, except for the following: candy, food, liquor, to-
bacco, and contract departments.
1998–39 I.R.B.7September 28, 1998
DRAFTING INFORMATION
The principal author of this revenue
ruling is Stan Michaels of the Office of
Assistant Chief Counsel (Income Tax and
Accounting). For further information re-
garding this revenue ruling, contact Mr.
Michaels on (202) 622-4970 (not a toll-
free call).
Section 846— Discounted
Unpaid Losses Defined
Ct.D. 2065
SUPREME COURT
OF THE UNITED STATES
No. 97–147
ATLANTIC MUTUAL INSURANCE
CO. v. COMMISSIONER OF
INTERNAL REVENUE
523 U.S. (1998)
CERTIORARI TO THE UNITED
STATES COURT OF APPEALS FOR
THE THIRD CIRCUIT
April 21,1998
Syllabus
Before enactment of the Tax Reform
Act of 1986, the Internal Revenue Code
gave property and casualty (PC) insurers
a full deduction for “loss reserves: “ esti-
mated amounts of losses reported but not
yet paid, losses incurred but not yet re-
ported, and administrative costs of resolv-
ing claims. In each taxable year, not only
losses paid, but the full amount of the loss
reserves, reduced by the amount of the
loss reserves claimed for the prior taxable
year, were treated as a business expense.
Section 1023 of the 1986 Act required PC
insurers, beginning with the 1987 taxable
year, to discount unpaid losses to present
value when claiming them as a deduction.
Requiring insurers to subtract undis-
counted year-end 1986 reserves from dis-
counted year-end 1987 reserves in com-
puting 1987 losses would produce
artificially low deductions, so the Act in-
cluded a transitional rule requiring insur-
ers to discount 1986 reserves as well. This
rule changed the “method of accounting”
for computing taxable income. To avoid
requiring PC insurers to recognize as in-
come the difference between undis-
counted and discounted year-end 1986
loss reserves, the Act afforded them a
“fresh start,” to-wit, an exclusion from
taxable income of the difference between
undiscounted and discounted year-end
1023(e)(3)(A). It foreclosed the possibil-
ity that they would inflate reserves to ma-
nipulate the “fresh start” by excepting
“reserve strengthening” from the exclu-
sion. Sec. 1023(e)(3)(B). Treasury Regu-
lation Sec. 1.846–3(c)(3)(ii) defmes “re-
serve strengthening” to include any net
additions to reserves. Respondent Com-
missioner determined that petitioner, At-
lantic Mutual Insurance Co., and its sub-
sidiary, a PC insurer, made net additions
to loss reserves in 1986, reducing the
“fresh start” entitlement and resulting in a
tax deficiency. The Tax Court disagreed,
holding that “reserve strengthening”
refers to only those increases that result
from changes in computation methods or
assumptions. In reversing, the Third Cir-
cuit concluded that the Treasury regula-
tion’s definition of “reserve strengthen-
ing” is based on a permissible statutory
construction.
Held: The Treasury regulation repre-
sents a reasonable interpretation of the
term “reserve strengthening.” Neither
prior legislation nor industry use estab-
lishes the plain meaning Atlantic ascribes
to that term: reserve increases attributable
to changes in methods or assumptions.
Since the term is ambiguous, the question
is not whether the Treasury regulation
represents the best interpretation of the
statute, but whether it represents a reason-

able one. See Cottage Savings Assn.v.
Conunissioner,499 U.S. 554, 560–561.
As a purely linguistic matter, the phrase is
broad enough to embrace all increases in
the reserve’s amount, for whatever reason
and from whatever source. The provision
at issue is a limitation upon an extraordi-
nary deduction accorded to PC insurers.
There was no need for the deduction to be
microscopically fair, and the interpreta-
tion adopted in the Treasury regulation
seems to be a reasonable accommodation
of the competing interests of fairness, ad-
ministrability, and avoidance of abuse.
Given the hundreds (or, more likely, thou-
sands) of claims involved, claims re-
solved for less than estimated reserves
will tend to offset claims that settle for
more than estimated reserves. Any
discrepancy would not approach the unre-
alistic proportions claimed by Atlantic.
Pp.
111 F.3d 1056, affirmed.
SCALIA, J., delivered the opinion for a
unanimous Court.
SUPREME COURT
OF THE UNITED STATES
No. 97–147
ATLANTIC MUTUAL INSURANCE
CO. v. COMMISSIONER OF
INTERNAL REVENUE
CERTIORARI TO THE UNITED
STATES COURT OF APPEALS FOR
THE THIRD CIRCUIT
April 21, 1998
JUSTICE SCALIA delivered the opin-
ion of the Court.
Property and casualty insurance com-
panies maintain accounting reserves for
“unpaid losses.” Under the Tax Reform
Act of 1986, increases in loss reserves
that constitute “reserve strengthening” do
not qualify for a certain one-time tax ben-
efit. We must decide whether the term
“reserve strengthening” reasonably en-
compasses any increase in reserves, or
only increases that result from changes in
the methods or assumptions used to com-
pute them.
I
Atlantic Mutual Insurance Co. is the
common parent of an affiliated group of
corporations, including Centennial Insur-
ance Co., a property and casualty (PC) in-
surer. From 1985 to 1993, the two corpo-
rations (Atlantic) maintained what
insurers call “loss reserves.” Loss re-
serves are estimates of amounts insurers
will have to pay for losses that have been
reported but not yet paid, for losses that
have been incurred but not yet reported,
and for administrative costs of resolving
claims.
Before enactment of the Tax Reform
Act of 1986, Pub.L. 99–514, 100 Stat.
2085, the Internal Revenue Code gave PC
insurers a fall deduction for loss reserves
as “losses incurred.” In each taxable year,
not only losses paid, but the full amount
of the loss reserves, reduced by the
amount of the loss reserves claimed for
the prior taxable year, would be treated as
a business expense. 26 U.S.C. Secs.
832(b)(5) and (c)(4) (1982 ed.). This des-
ignation enabled the PC insurer to take, in
effect, a current deduction for future loss
payments without adjusting for the “time
value of money” — the fact that “‘ [a]
dollar today is worth more than a dollar
tomorrow,”’ D. Herwitz & M. Barrett, Ac-
counting for Lawyers 221 (2d ed. 1997).
Section 1023 of the 1986 Act amended
the Code to require PC insurers, for tax-
able years beginning after December 31,
1986, to discount unpaid losses to present
value when claiming them as a deduction.
100 Stat. 2399, 2404, 26 U.S.C. Secs.
832(b)(5)(A), 846 (1982 ed., Supp. V).
Absent a transitional rule, PC insurers
would have been left to subtract undis-
counted year-end 1986 reserves from dis-
counted year-end 1987 reserves for pur-
poses of computing losses incurred for
taxable year 1987 — producing artifi-
cially low deductions. The 1986 Act soft-
ened this consequence by requiring PC in-
surers, for purposes of that 1987 tax
computation, to discount 1986 reserves as
well. 100 Stat. 2404, note following 26
U.S.C. Sec. 846.
Because the requirement that PC insur-
ers discount 1986 reserves changed the
“method of accounting” for computing
taxable income, PC insurers, absent an-
other transitional rule, would have been
required to recognize as income the dif-
ference between undiscounted and dis-
counted year-end 1986 loss reserves. See
26 U.S.C. Sec. 481(a) (1988 ed.). To
avoid this consequence, Sec. 1023(e)-
(3)(A) ofthe 1986 Act afforded PC insur-
ers a “fresh start,” to-wit, an exclusion
from taxable income of the difference be-
tween undiscounted and discounted year-
end 1986 loss reserves. 100 Stat. 2404,
note following 26 U.S.C. Sec. 846. Of
course, the greater the 1986 reserves, the
greater the exclusion. Section 1023(e)-
(3)(B) of the 1986 Act foreclosed the pos-
sibility that insurers would inflate re-
serves to manipulate the “fresh start” by
excepting “reserve strengthening” from
the exclusion:
“(B) RESERVE STRENGTHEN-
ING IN YEARS AFTER 1985. —
Subparagraph (A) [the fresh-start
provision] shall not apply to any re-
serve strengthening in a taxable year
beginning in 1986, and such
strengthening shall be treated as oc-
curring in the taxpayer’s 1st taxable
year beginning after December 31,
1986.” 100 Stat. 2404, note follow-
ing 26 U.S.C. Sec. 846.
Regulations promulgated by the Treasury
Department set forth rules for determin-
ing the amount of “reserve strengthen-
ing”:
“(1) In general.The amount of reserve
strengthening (weakening) is the amount
that is determined under paragraph (c)(2)
or (3) to have been added to (subtracted
from) an unpaid loss reserve in a taxable
year beginning in 1986. For purposes of
section 1023 (e)(3)(B) of the 1986 Act,
the amount of reserve strengthening
(weakening) must be determined sepa-
rately for each unpaid loss reserve by ap-
plying the rules of this paragraph (c). This
determination is made without regard to
the reasonableness of the amount of the
unpaid loss reserve and without regard to
the taxpayer’s discretion, or lack thereof,
in establishing the amount of the unpaid
loss reserve.....
****
“(3) Accident years before 1986 — (i)
In general. For each taxable year begin-
ning in 1986, the amount of reserve
strengthening (weakening) for an unpaid
loss reserve for an accident year before
1986 is the amount by which the reserve
at the end of that taxable year exceeds (is
less than) —
(A) The reserve at the end of the imme-
diately preceding taxable year; reduced
by
September 28, 199881998–39 I.R.B.

(B) Claims paid and loss adjustment
expenses paid (“loss payments”) in the
taxable year beginning in 1986 with re-
spect to losses that are attributable to the
reserve.... Treas. Reg. 1.846–3(c), 26
CFR Sec. 1.846–3(c) (1997).
In short, any net additions to reserves
(with two exceptions not here at issue,
Sec. 1.846–3(c)(3)(ii)) constitute “reserve
strengthening” under the regulation.
The Commissioner of Internal Revenue
determined that Atlantic made net addi-
tions to reserves — “reserve strengthen-
ing” — during 1986, reducing the “fresh
start” entitlement by an amount that re-
sulted in a tax deficiency of $519,987.
The Tax Court disagreed, holding that At-
lantic had not strengthened its reserves.
“Reserve strengthening,” the Tax Court
held, refers only to increases in reserves
that result from changes in the methods or
assumptions used to compute them. (At-
lantic’s reserve increases, there is no dis-
pute, did not result from any such
change.) The United States Court of Ap-
peals for the Third Circuit reversed the
Tax Court, concluding that the Treasury
regulation’s definition of “reserve
strengthening” to include any net addi-
tions to reserves is based on a permissible
construction of the statute. 111 F.3d 1056
(1997). (It expressly disagreed with the
Eighth Circuit’s conclusion in Western
National Mutual Insurance Co.v. Com-
missioner,65 F.3d 90 (1995), that the
Treasury regulation is invalid.) We
granted certiorari. 522 U.S.
(1997).
II
The 1986 Act does not define “reserve
strengthening.” Atlantic contends that the
term has a plain meaning under the
statute: reserve increases attributable to
changes in methods or assumptions. If
that is what the term plainly means, At-
lantic must prevail, “for the court, as well
as the agency, must give effect to the un-
ambiguously expressed intent of Con-
gress.” Chevron U.S.A. Inc.v. Natural Re-
sources Defense Council, Inc.,467 U.S.
837, 842-843 (1984).
Atlantic contends that the plain mean-
ing of “reserve strengthening” can be dis-
cerned, first, from its use in the PC insur-
ance industry. It presented at trial two
expert reports which, by “constructing a
working definition of the term” that re-
quires “a material change in methodology
and/or assumptions,” App. 68, 74, purport
to demonstrate that Atlantic “did not
strengthen reserves,” id.at 99. Our task,
of course, is to determine not what the
term ought to mean, but what it does
mean. Atlantic’s first expert, before “con-
structing” a definition, expressly ac-
knowledged that “reserve strengthening”
is “not a well defined PC insurance or ac-
tuarial term of art to be found in PC actu-
arial, accounting, or insurance regulatory
literature.” Id.at 60. On this point, she
was in agreement with the Commis-
sioner’s experts: “In the property-casualty
industry, the term ‘reserve strengthening’
has various meanings, rather than a single
universal meaning,” id.at 124. If the ex-
pert reports establish anything, it is that
“reserve strengthening” does not have an
established meaning in the PC insurance
industry.
Atlantic next contends that a plain
meaning can be discerned from prior use
of the term in life insurance tax legisla-
tion. According to Atlantic, the term has
its roots in the Life Insurance Company
Income Tax Act of 1959, which provided
tax consequences for changes in the
“basis” for determining life insurance re-
serves. 73 Stat. 125, 26 U.S.C. Sec.
810(d) (1958 ed., Supp. 1). But that provi-
sion does not define, or for that matter
even use, the term “reserve strengthen-
ing.” Though the regulation that imple-
mented the provision uses the term “re-
serve strengthening” in a caption, Treas.
Reg. Sec. 1.810–3(a), 26 CFR Sec. 1.810-
3(a) (1997), its text does not mention the
term, and one of its Examples speaks only
of “reserve strengthening attributable to
the change in basis which occurred in
1959,” Sec. 1.810–3(b), Ex. 2. If, as At-
lantic argues, “basis” and “assumptions or
methodologies” are interchangeable
terms, Brief for Petitioner 17, n. 8, and a
change in basis is necessary for “reserve
strengthening,” it is redundant to say “re-
serve strengthening attributable to the
change in basis which occurred in 1959,”
much as it would be to say “a sunburn at-
tributable to the sun in 1959.” On At-
lantic’s assumptions, the more natural for-
mulation would have been simply
“reserve strengthening in 1959.” Thus,
the 1959 Act and implementing regulation
suggest, if anything, that a change in basis
is a sufficient, but not a necessary, condi-
tion for “reserve strengthening.”
Atlantic further contends that the term
“reserve strengthening” draws a plain
meaning from a provision of the Tax Re-
form Act of 1984 that accorded a “fresh
start” adjustment to life insurance re-
serves. Div. A., 98 Stat. 758, note follow-
ing 26 U.S.C. Sec. 801 (1984 Act). That
provision, like the “fresh start” adjust-
ment for PC insurers in the 1986 Act, said
that the “fresh start” would not apply to
reserve strengthening, specifically, “to
any reserve strengthening reported for
Federal income tax purposes after Sep-
tember 27, 1983, for a taxable year ending
before January 1, 1984.” 98 Stat. 759. Un-
like the 1986 Act, however, the 1984 Act
expressly provided that “reserve strength-
ening” would not be excluded from the
“fresh start” if the insurer “employs the
reserve practice used for purposes of the
most recent annual statement filed before
September 27, 1983....Ibid.If, as At-
lantic contends, reserve strengthening en-
compasses only reserve increases that re-
sult from a change in reserve practices
(viz., change in methods or assumptions),
the saving clause is superfluous. Thus, to
the extent the definition of “reserve
strengthening” in the life insurance con-
text is relevant to its meaning here (which
is questionable, see 111 F.3d at 1061–
1062), the 1984 Act, like the regulations
under the 1959 Act, tends to contradict,
rather than support, petitioner’s interpre-
tation. We conclude that neither prior leg-
islation nor industry use establishes the
plain meaning Atlantic ascribes to “re-
serve strengthening.”
III
Since the term “reserve strengthening”
is ambiguous, the task that confronts us is
to decide not whether the Treasury regula-
tion represents the best interpretation of
the statute, but whether it represents a rea-
sonable one. See Cottage Savings Assn. v.
Commissioner,499 U.S. 554, 560–561
(1991). We conclude that it does.
As a purely linguistic matter, the phrase
is certainly broad enough to embrace all
increases in (all “strengthening of”) the
amount of the reserve, for whatever rea-
son and from whatever source. Atlantic
contends that this interpretation is unrea-
sonable because, in theory, it produces ab-
surd results, as the following example
supposedly illustrates: assume that, in
1985, a PC insurer had four case reserves
1998–39 I.R.B.9September 28, 1998

of $500 each (total reserves of $2,000). If
two cases settled in 1986 for $750 each
($1,500 total), the remaining loss reserve
would be $1,000. Under the regulation,
according to Atlantic, the Commissioner
would find “reserve strengthening” of
$500 (1986 loss reserves ($1,000) less
(first year reserves ($2,000) less second
year payments ($1,500))), even though re-
serves did not increase. The Commis-
sioner denies this consequence, contend-
ing that, under the stipulation in this case,
the increase in the reserve would be “re-
duced to zero” by an offsetting adjustment
when the payment is made, and that ad-
justments in the IBNR reserve (reserve for
claims “incurred but not reported”) may
result from payments in excess of prior re-
serve amounts, offsetting changes in other
reserves. Brief for Respondent 36–39.
We need not resolve that dispute, be-
cause we agree with the Commissioner
that Atlantic’s horrific example is, in any
event, unrealistic. The property and casu-
alty insurer that had only four cases
would not be in business very long, with
or without the benefit of the tax adjust-
ment — or, if he would, his talents could
be put to better use in Las Vegas. The
whole point of the insurance business is to
spread the insured risk over a large num-
ber of cases, where experience and the
law of probabilities can be relied upon.
And where hundreds (or more likely thou-
sands) of claims are involved, claims re-
solved for less than estimated reserves
will tend to offset claims that settle for
more than estimated reserves. See Notice
of Proposed Rulemaking Discounted Un-
paid Losses, FI–139–86, 1991–2 Cum.
Bull. 946, 947 (“For most unpaid loss re-
serves . . . , any potential inaccuracies are
likely to offset each other in the aggre-
gate”). There may, to be sure, be some
discrepancy in one direction or the other,
but it would not approach the relative pro-
portions claimed by Atlantic. It should be
borne in mind that the provision at issue
here is a limitation upon an extraordinary
deduction accorded to PC insurers. There
was certainly no need for that deduction
to be microscopically fair, and the inter-
pretation adopted by the Treasury Regula-
tion seems to us a reasonable accommo-
dation — and one that the statute very
likely intended — of the competing inter-
ests of fairness, administrability, and
avoidance of abuse.
***
Because the Treasury regulation repre-
sents a reasonable interpretation of the
term “reserve strengthening,” we affirm
the judgment of the Court of Appeals.
It is so ordered.
Section 6621.— Determination
of Interest Rate
26 CFR 301.6621–1: Interest rate.
Interest rates; underpayments and
overpayments.The rate of interest deter-
mined under section 6621 of the Code for
the calendar quarter beginning October 1,
1998, will be 7 percent for overpayments,
8 percent for underpayments, and 10 per-
cent for large corporate underpayments.
The rate of interest paid on the portion of
a corporate overpayment exceeding
$10,000 is 5.5 percent.
Rev. Rul. 98–46
Section 6621 of the Internal Revenue
Code establishes different rates for inter-
est on tax overpayments and interest on
tax underpayments. Under § 6621(a)(1),
the overpayment rate is the sum of the
federal short-term rate plus 2 percentage
points, except the rate for the portion of a
corporate overpayment of tax exceeding
$10,000 for a taxable period is the sum of
the federal short-term rate plus 0.5 of a
percentage point for interest computations
made after December 31, 1994. Under
§ 6621(a)(2), the underpayment rate is the
sum of the federal short-term rate plus 3
percentage points.
Section 6621(c) provides that for pur-
poses of interest payable under § 6601 on
any large corporate underpayment, the
underpayment rate under § 6621(a)(2) is
determined by substituting “5 percentage
points” for “3 percentage points.” See
§ 6621(c) and § 301.6621–3 of the Regu-
lations on Procedure and Administration
for the definition of a large corporate un-
derpayment and for the rules for deter-
mining the applicable date. Section
6621(c) and § 301.6621–3 are generally
effective for periods after December 31,
1990.
Section 6621(b)(1) provides that the
Secretary will determine the federal short-
term rate for the first month in each calen-
dar quarter.
Section 6621(b)(2)(A) provides that the
federal short-term rate determined under
§ 6621(b)(1) for any month applies during
the first calendar quarter beginning after
such month.
Section 6621(b)(3) provides that the
federal short-term rate for any month is
the federal short-term rate determined
during such month by the Secretary in ac-
cordance with § 1274(d), rounded to the
nearest full percent (or, if a multiple of
1
⁄
2
of 1 percent, the rate is increased to the
next highest full percent).
Notice 88–59, 1988–1 C.B. 546, an-
nounced that, in determining the quarterly
interest rates to be used for overpayments
and underpayments of tax under § 6621,
the Internal Revenue Service will use the
federal short-term rate based on daily
compounding because that rate is most
consistent with § 6621 which, pursuant to
§ 6622, is subject to daily compounding.
Rounded to the nearest full percent, the
federal short-term rate based on daily
compounding determined during the
month of July 1998 is 5 percent. Accord-
ingly, an overpayment rate of 7 percent
and an underpayment rate of 8 percent are
established for the calendar quarter begin-
ning October 1, 1998. The overpayment
rate for the portion of a corporate over-
payment exceeding $10,000 for the calen-
dar quarter beginning October 1, 1998, is
5.5 percent. The underpayment rate for
large corporate underpayments for the
calendar quarter beginning October 1,
1998, is 10 percent. These rates apply to
amounts bearing interest during that cal-
endar quarter.
Interest factors for daily compound in-
terest for annual rates of 5.5 percent, 7
percent, 8 percent, and 10 percent are
published in Tables 16, 19, 21, and 25 of
Rev. Proc. 95–17, 1995–1 C.B. 556, 570,
573, 575, and 579.
Annual interest rates to be compounded
daily pursuant to § 6622 that apply for
prior periods are set forth in the tables ac-
companying this revenue ruling.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Raymond Bailey of the Office of
Assistant Chief Counsel (Income Tax and
Accounting). For further information re-
garding this revenue ruling, contact Mr.
Bailey on (202) 622-6226 (not a toll-free
call).
September 28, 1998101998–39 I.R.B.

TABLE OF INTEREST RATES
PERIODS BEFORE JUL. 1, 1975 - PERIODS ENDING DEC. 31, 1986
OVERPAYMENTS AND UNDERPAYMENTS
DAILY RATE TABLE
PERIODRATE IN 1995–1 C.B.
Before Jul. 1, 19756% Table 2, pg. 557
Jul. 1, 1975—Jan. 31, 1976 9% Table 4, pg. 559
Feb. 1, 1976—Jan. 31, 1978 7% Table 3, pg. 558
Feb. 1, 1978—Jan. 31, 1980 6% Table 2, pg. 557
Feb. 1, 1980—Jan. 31, 198212% Table 5, pg. 560
Feb. 1, 1982—Dec. 31, 198220% Table 6, pg. 560
Jan. 1, 1983—Jun. 30, 198316% Table 37, pg. 591
Jul. 1, 1983—Dec. 31, 198311% Table 27, pg. 581
Jan. 1, 1984—Jun. 30, 198411% Table 75, pg. 629
Jul. 1, 1984—Dec. 31, 198411% Table 75, pg. 629
Jan. 1, 1985—Jun. 30, 198513% Table 31, pg. 585
Jul. 1, 1985—Dec. 31, 198511% Table 27, pg. 581
Jan. 1, 1986—Jun. 30, 198610% Table 25, pg. 579
Jul. 1, 1986—Dec. 31, 1986 9% Table 23, pg. 577
1998–39 I.R.B.11September 28, 1998
TABLE OF INTEREST RATES
FROM JAN. 1, 1987 - PRESENT
OVERPAYMENTSUNDERPAYMENTS
RATE TABLE PGRATE TABLE PG
1995–1 C.B.1995–1 C.B.
Jan. 1, 1987—Mar. 31, 1987 8%21575 9% 23577
Apr. 1, 1987—Jun. 30, 1987 8%21575 9% 23577
Jul. 1, 1987—Sep. 30, 1987 8%21575 9% 23577
Oct. 1, 1987—Dec. 31, 1987 9%23577 10% 25579
Jan. 1, 1988—Mar. 31, 1988 10%73627 11% 75629
Apr. 1, 1988—Jun. 30, 1988 9%71625 10% 73627
Jul. 1, 1988—Sep. 30, 1988 9%71625 10% 73627
Oct. 1, 1988—Dec. 31, 1988 10%73627 11% 75629
Jan. 1, 1989—Mar. 31, 1989 10%25579 11% 27581
Apr. 1, 1989—Jun. 30, 1989 11%27581 12% 29583
Jul. 1, 1989—Sep. 30, 1989 11%27581 12% 29583
Oct. 1, 1989—Dec. 31, 1989 10%25579 11% 27581
Jan. 1, 1990—Mar. 31, 1990 10%25579 11% 27581
Apr. 1, 1990—Jun. 30, 1990 10%25579 11% 27581
Jul. 1, 1990—Sep. 30, 1990 10%25579 11% 27581
Oct. 1, 1990—Dec. 31, 1990 10%25579 11% 27581
Jan. 1, 1991—Mar. 31, 1991 10%25579 11% 27581
Apr. 1, 1991—Jun. 30, 1991 9%23577 10% 25579
Jul. 1, 1991—Sep. 30, 1991 9%23577 10% 25579
Oct. 1, 1991—Dec. 31, 1991 9%23577 10% 25579
Jan. 1, 1992—Mar. 31, 1992 8%69623 9% 71625
Apr. 1, 1992—Jun. 30, 1992 7%67621 8% 69623
Jul. 1, 1992—Sep. 30, 1992 7%67621 8% 69623

TABLE OF INTEREST RATES (Continued)
FROM JAN. 1, 1987 - PRESENT
OVERPAYMENTSUNDERPAYMENTS
RATE TABLE PGRATE TABLE PG
1995–1 C.B.1995–1 C.B.
Oct. 1, 1992—Dec. 31, 1992 6%65619 7% 67621
Jan. 1, 1993—Mar. 31, 1993 6%17571 7% 19573
Apr. 1, 1993—Jun. 30, 1993 6%17571 7% 19573
Jul. 1, 1993—Sep. 30, 1993 6%17571 7% 19573
Oct. 1, 1993—Dec. 31, 1993 6%17571 7% 19573
Jan. 1, 1994—Mar. 31, 1994 6%17571 7% 19573
Apr. 1, 1994—Jun. 30, 1994 6%17571 7% 19573
Jul. 1, 1994—Sep. 30, 1994 7%19573 8% 21575
Oct. 1, 1994—Dec. 31, 1994 8%21575 9% 23577
Jan. 1, 1995—Mar. 31, 1995 8%21575 9% 23577
Apr. 1, 1995—Jun. 30, 1995 9%23577 10% 25579
Jul. 1, 1995—Sep. 30, 1995 8%21575 9% 23577
Oct. 1, 1995—Dec. 31, 1995 8%21575 9% 23577
Jan. 1, 1996—Mar. 31, 1996 8%69623 9% 71625
Apr. 1, 1996—Jun. 30, 1996 7%67621 8% 69623
Jul. 1, 1996—Sep. 30, 1996 8%69623 9% 71625
Oct. 1, 1996—Dec. 31, 1996 8%69623 9% 71625
Jan. 1, 1997—Mar. 31, 1997 8%21575 9% 23577
Apr. 1, 1997—Jun. 30, 1997 8%21575 9% 23577
Jul. 1, 1997—Sep. 30, 1997 8%21575 9% 23577
Oct. 1, 1997—Dec. 31, 1997 8%21575 9% 23577
Jan. 1, 1998—Mar. 31, 1998 8%21575 9% 23577
Apr. 1, 1998—Jun. 30, 1998 7%19573 8% 21575
Jul. 1, 1998—Sep. 30, 1998 7%19573 8% 21575
Oct. 1, 1998—Dec. 31, 1998 7%19573 8% 21575
September 28, 1998121998–39 I.R.B.
TABLE OF INTEREST RATES FOR
LARGE CORPORATE UNDERPAYMENTS
FROM JANUARY 1, 1991 - PRESENT
RATE TABLEPG
1995–1 C.B.
Jan. 1, 1991—Mar. 31, 1991 13%31 585
Apr. 1, 1991—Jun. 30, 1991 12%29 583
Jul. 1, 1991—Sep. 30, 1991 12%29 583
Oct. 1, 1991—Dec. 31, 1991 12%29 583
Jan. 1, 1992—Mar. 31, 1992 11%75 629
Apr. 1, 1992—Jun. 30, 199210%73 627
Jul. 1, 1992—Sep. 30, 1992 10%73 627
Oct. 1, 1992—Dec. 31, 1992 9%71 625
Jan. 1, 1993—Mar. 31, 19939%23 577
Apr. 1, 1993—Jun. 30, 1993 9%23 577
Jul. 1, 1993—Sep. 30, 1993 9%23 577
Oct. 1, 1993—Dec. 31, 1993 9%23 577
Jan. 1, 1994—Mar. 31, 1994 9%23 577
Apr. 1, 1994—Jun. 30, 1994 9%23 577

TABLE OF INTEREST RATES FOR
LARGE CORPORATE UNDERPAYMENTS (Continued)
FROM JANUARY 1, 1991 - PRESENT
RATE TABLEPG
1995–1 C.B.
Jul. 1, 1994—Sep. 30, 1994 10%25 579
Oct. 1, 1994—Dec. 31, 1994 11%27 581
Jan. 1, 1995—Mar. 31, 1995 11%27 581
Apr. 1, 1995—Jun. 30, 1995 12%29 583
Jul. 1, 1995—Sep. 30, 1995 11%27 581
Oct. 1, 1995—Dec. 31, 1995 11%27 581
Jan. 1, 1996—Mar. 31, 1996 11%75 629
Apr. 1, 1996—Jun. 30, 1996 10%73 627
Jul. 1, 1996—Sep. 30, 1996 11%75 629
Oct. 1, 1996—Dec. 31, 1996 11%75 629
Jan. 1, 1997—Mar. 31, 1997 11%27 581
Apr. 1, 1997—Jun. 30, 1997 11%27 581
Jul. 1, 1997—Sep. 30, 1997 11%27 581
Oct. 1, 1997—Dec. 31, 1997 11%27 581
Jan. 1, 1998—Mar. 31, 1998 11%27 581
Apr. 1, 1998—Jun. 30, 1998 10%25 579
Jul. 1, 1998—Sep. 30, 1998 10%25 579
Oct. 1, 1998—Dec. 31, 1998 10%25 579
1998–39 I.R.B.13September 28, 1998
TABLE OF INTEREST RATES FOR CORPORATE
OVERPAYMENTS EXCEEDING $10,000
FROM JANUARY 1, 1995 - PRESENT
RATE TABLE PG
1995–1 C.B.
Jan. 1, 1995—Mar. 31, 19956.5% 18 572
Apr. 1, 1995—Jun. 30, 19957.5% 20 574
Jul. 1, 1995—Sep. 30, 1995 6.5% 18 572
Oct. 1, 1995—Dec. 31, 1995 6.5% 18 572
Jan. 1, 1996—Mar. 31, 19966.5% 66 620
Apr. 1, 1996—Jun. 30, 1996 5.5% 64 618
Jul. 1, 1996—Sep. 30, 1996 6.5% 66 620
Oct. 1, 1996—Dec. 31, 19966.5% 66 620
Jan. 1, 1997—Mar. 31, 1997 6.5% 18 572
Apr. 1, 1997—Jun. 30, 1997 6.5% 18 572
Jul. 1, 1997—Sep. 30, 1997 6.5% 18 572
Oct. 1, 1997—Dec. 31, 1997 6.5% 18 572
Jan. 1, 1998—Mar. 31, 19986.5% 18 572
Apr. 1, 1998—Jun. 30, 1998 5.5% 16 570
Jul. 1. 1998—Sep. 30, 1998 5.5% 16 570
Oct. 1, 1998—Dec. 31, 1998 5.5% 16 570

Section 7623—Expenses of
Detection of Underpayments
and Fraud, Etc.
26 CFR 301.7623–1: Rewards for information
relating to violations of internal revenue laws.
T.D. 8780
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 301 and 602
Rewards for Information
Relating to Violations of Internal
Revenue Laws
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regula-
tions.
SUMMARY: This document contains
final regulations relating to rewards for
information that relates to violations of
the internal revenue laws. The regula-
tions reflect changes to the law made by
the Taxpayer Bill of Rights 2 and affect
persons that are eligible to receive an in-
formant reward.
DATES: Effective date:These regula-
tions are effective August 21, 1998.
Applicability date:For dates of applic-
ability, see §301.7623-1(g).
FOR FURTHER INFORMATION CON-
TACT: Judith A. Lintz (202) 622-4940
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information con-
tained in these final regulations have been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act (44
U.S.C. 3507) under control number
1545–1534. Responses to these collec-
tions of information are voluntary with re-
spect to the provision of information re-
lating to violations of the internal revenue
laws, but are required to obtain a benefit
with respect to filing a claim for reward.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it dis-
plays a valid control number.
The estimated annual burden per re-
spondent varies from 2 to 4 hours, de-
pending on individual circumstances,
with an estimated average of 3 hours.
Comments concerning the accuracy of
this burden estimate and suggestions for
reducing this burden should be sent to the
Internal Revenue Service,Attn: IRS Re-
ports Clearance Officer, OP:FS:FP, Wash-
ington, DC 20224, and to the Office of
Management and Budget,Attn: Desk
Officer for the Department of the Trea-
sury, Office of Information and Regula-
tory Affairs, Washington, DC 20503.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
This document contains amendments to
the Regulations on Procedure and Admin-
istration (26 CFR Part 301) under section
7623 relating to rewards for information
that relates to violations of the internal
revenue laws. This section was amended
by section 1209 of the Taxpayer Bill of
Rights 2 (TBOR 2) (Public Law 104–168,
110 Stat. 1452 (1996)).
On October 14, 1997, final and tempo-
rary regulations (TD 8737) relating to in-
formant rewards under section 7623 were
published in the Federal Register(62
F.R. 53230). A notice of proposed rule-
making (REG–252936–96) cross-refer-
encing the temporary regulations was
published in the Federal Registerfor the
same day (62 F.R. 53274).
No written comments responding to the
notice were received. No public hearing
was requested or held. The proposed reg-
ulations under section 7623 are adopted
as revised by this Treasury decision, and
the corresponding temporary regulations
are removed. The revisions are discussed
below.
Explanation of Provisions
The amendments made by TBOR 2 to
section 7623 provide that the Secretary
may pay rewards for information that
leads to the detection and bringing to trial
and punishment persons guilty of violat-
ing the internal revenue laws or conniving
at the same, and for information that leads
to the detection of underpayments of tax.
In addition, the amendments to section
7623 provide that rewards will be paid
from the proceeds of amounts (other than
interest) collected by reason of the infor-
mation provided.
Following the publication of the pro-
posed regulations, it was determined that
the regulations should clarify that rewards
may also be paid in situations where in-
formation leads to the denial of a claim
for refund. Therefore, the final regula-
tions provide that proceeds of amounts
(other than interest) collected by reason of
the information provided include both ad-
ditional amounts collected because of the
information provided and amounts col-
lected prior to receipt of the information if
the information leads to the denial of a
claim for refund that otherwise would
have been paid.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in EO 12866.
Therefore, a regulatory assessment is not
required. It has also been determined that
section 553(b) of the Administrative Pro-
cedure Act (5 U.S.C. chapter 5) does not
apply to these regulations.
It is hereby certified that the regulations
in this document will not have a significant
economic impact on a substantial number
of small entities. This certification is based
on a determination that in the past approxi-
mately 10,000 persons have filed claims
for reward on an annual basis. Of these
persons, almost all have been individuals.
Accordingly, a regulatory flexibility analy-
sis under the Regulatory Flexibility Act (5
U.S.C. chapter 6) is not required.
Pursuant to section 7805(f) of the Inter-
nal Revenue Code, the notice of proposed
rulemaking preceding these regulations
was submitted to the Small Business Ad-
ministration for comment on its impact on
small businesses.
Drafting Information
The principal author of these regula-
tions is Judith A. Lintz, Office of Assis-
tant Chief Counsel (Income Tax and Ac-
counting). However, other personnel
September 28, 1998141998–39 I.R.B.

from the IRS and Treasury Department
participated in their development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 301 and
602 are amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.7623–1 is revised
to read as follows:
§301.7623–1 Rewards for information
relating to violations of internal revenue
laws.
(a) In general.In cases where rewards
are not otherwise provided for by law, a
district or service center director may ap-
prove a reward, in a suitable amount, for
information that leads to the detection of
underpayments of tax, or the detection
and bringing to trial and punishment of
persons guilty of violating the internal
revenue laws or conniving at the same.
The rewards provided for by section 7623
and this section will be paid from the pro-
ceeds of amounts (other than interest) col-
lected by reason of the information pro-
vided. For purposes of section 7623 and
this section, proceeds of amounts (other
than interest) collected by reason of the
information provided include both addi-
tional amounts collected because of the
information provided and amounts col-
lected prior to receipt of the information if
the information leads to the denial of a
claim for refund that otherwise would
have been paid.
(b) Eligibility to file claim for reward—
(1) In general. Any person, other than
certain present or former federal employ-
ees described in paragraph (b)(2) of this
section, that submits, in the manner de-
scribed in paragraph (d) of this section,
information relating to the violation of an
internal revenue law is eligible to file a
claim for reward under section 7623 and
this section.
(2) Federal employees.No person who
was an officer or employee of the Depart-
ment of the Treasury at the time the indi-
vidual came into possession of informa-
tion relating to violations of the internal
revenue laws, or at the time the individual
divulged such information, is eligible for
a reward under section 7623 and this sec-
tion. Any other current or former federal
employee is eligible to file a claim for re-
ward if the information provided came to
the individual’s knowledge other than in
the course of the individual’s official
duties.
(3) Deceased informants.A claim for
reward may be filed by an executor, ad-
ministrator, or other legal representative
on behalf of a deceased informant if, prior
to the informant’s death, the informant
was eligible to file a claim for such re-
ward under section 7623 and this section.
Certified copies of the letters testamen-
tary, letters of administration, or other
similar evidence must be attached to the
claim for reward on behalf of a deceased
informant in order to show the authority
of the legal representative to file the
claim.
(c) Amount and payment of reward.
All relevant factors, including the value
of the information furnished in relation to
the facts developed by the investigation of
the violation, will be taken into account
by a district or service center director in
determining whether a reward will be
paid, and, if so, the amount of the reward.
The amount of a reward will represent
what the district or service center director
deems to be adequate compensation in the
particular case, generally not to exceed
fifteen percent of the amounts (other than
interest) collected by reason of the infor-
mation. Payment of a reward will be
made as promptly as the circumstances of
the case permit, but not until the taxes,
penalties, or fines involved have been col-
lected. However, if the informant waives
any claim for reward with respect to an
uncollected portion of the taxes, penalties,
or fines involved, the claim may be im-
mediately processed. Partial reward pay-
ments, without waiver of the uncollected
portion of the taxes, penalties, or fines in-
volved, may be made when a criminal
fine has been collected prior to comple-
tion of the civil aspects of a case, and also
when there are multiple tax years in-
volved and the deficiency for one or more
of the years has been paid in full. No per-
son is authorized under this section to
make any offer, or promise, or otherwise
to bind a district or service center director
with respect to the payment of any reward
or the amount of the reward.
(d) Submission of information.A per-
son that desires to claim a reward under
section 7623 and this section may submit
information relating to violations of the
internal revenue laws, in person, to the of-
fice of a district director, preferably to a
representative of the Criminal Investiga-
tion Division. Such information may also
be submitted in writing to the Commis-
sioner of Internal Revenue, Attention:
Assistant Commissioner (Criminal Inves-
tigation), 1111 Constitution Avenue, NW.,
Washington, DC 20224, to any district di-
rector, Attention: Chief, Criminal Investi-
gation Division, or to any service center
director. If the information is submitted
in person, either orally or in writing, the
name and official title of the person to
whom it is submitted and the date on
which it is submitted must be included in
the formal claim for reward.
(e) Identification of informant.No
unauthorized person will be advised of
the identity of an informant.
(f) Filing claim for reward.An infor-
mant that intends to claim a reward under
section 7623 and this section should notify
the person to whom the information is sub-
mitted of such intention, and must file a
formal claim on Form 211, Application for
Reward for Original Information, signed
by the informant in the informant’s true
name, as soon as practicable after the sub-
mission of the information. If other than
the informant’s true name was used in fur-
nishing the information, satisfactory proof
of identity as that of the informant must be
included with the claim for reward.
(g) Effective date.This section is ap-
plicable with respect to rewards paid after
January 29, 1997.
§301.7623–1T [Removed]
Par. 3. Section 301.7623–1T is re-
moved.
PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 4. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 5. In §602.101, paragraph (c) is
amended by removing the entry for
1998–39 I.R.B.15September 28, 1998

301.7623–1T from the table and by revising
the entry for 301.7623–1 to read as follows:
§602.101 OMB Control numbers.
* * * * *
(c) * * *
CFR part or section Current OMB
where identified and control No.
described
* * * * *
301.7623–1 . . . . . . . . . . . . . .1545–0409
1545–1534
* * * * *
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
Approved July 20, 1998.
Donald C. Lubick,
Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on
August 20, 1998, 8:45 a.m., and published in the
issue of the Federal Register for August 21, 1998, 63
F.R. 44777)
September 28, 1998161998–39 I.R.B.

Drafting Information
The principal author of this notice is
Donna Prestia of the Employee Plans Di-
vision. For further information regarding
this notice, call (202) 622-6076 between
2:30 and 3:30 p.m. Eastern time (not a
toll-free number). Ms. Prestia’s number
is (202) 622-7473 (also not a toll-free
number).
1998–39 I.R.B.17September 28, 1998
Weighted Average Interest Rate
Update
Notice 98–48
Notice 88–73 provides guidelines for
determining the weighted average interest
rate and the resulting permissible range of
interest rates used to calculate current lia-
bility for the purpose of the full funding
limitation of § 412(c)(7) of the Internal
Revenue Code as amended by the Om-
nibus Budget Reconciliation Act of 1987
and as further amended by the Uruguay
Round Agreements Act, Pub. L. 103–465
(GATT).
The average yield on the 30-year Trea-
sury Constant Maturities for August 1998
is 5.54 percent.
The following rates were determined
for the plan years beginning in the month
shown below.
Part III. Administrative, Procedural, and Miscellaneous
90% to 106%90% to 110%
WeightedPermissiblePermissible
MonthYearAverageRangeRange
September19986.465.82 to 6.855.82 to 7.11

Notice of Proposed Rulemaking
and Notice of Public Hearing
Return Requirement for United
States Persons Owning Interests
in Foreign Partnerships
REG–209060–86
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing and notice of public hearing.
SUMMARY: This document contains
proposed regulations under section
6046A of the Internal Revenue Code re-
lating to return requirements for certain
United States persons who acquire or dis-
pose of an interest in a foreign partner-
ship, or whose interest in a foreign part-
nership changes substantially. These
proposed regulations would provide guid-
ance to United States persons who must
file such a return. This document also
provides notice of a public hearing on
these proposed regulations.
DATES: Written comments must be re-
ceived by November 9, 1998. Outlines of
topics to be discussed at the public hear-
ing scheduled for November 10, 1998, at
10 a.m., must be received by October 20,
1998.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (REG–209060–86),
room 5226, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington, DC 20044. Submissions may be
hand delivered between the hours of 8
a.m. and 5 p.m. to CC:DOM:CORP:R
(REG–209060–86), Courier’s Desk, In-
ternal Revenue Service, 1111 Constitution
Avenue NW, Washington, DC. Alterna-
tively, taxpayers may submit comments
electronically via the Internet by selecting
the “Tax Regs” option of the IRS Home
Page, or by submitting comments directly
to the IRS Internet site at: http://www.irs.
ustreas.gov/prod/tax_regs/comments.html.
A public hearing has been scheduled to
be held in room 2615, Internal Revenue
Building, 1111 Constitution Avenue NW,
Washington, DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations,
Christopher Kelley, 202-622-3860; con-
cerning the hearing and submissions of
written comments, Michael Slaughter,
202-622-7190 (not toll-free calls).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information con-
tained in this notice of proposed rulemak-
ing has been submitted to the Office of
Management and Budget for review in ac-
cordance with the Paperwork Reduction
Act of 1995 (44 U.S.C. 3507(d)). Com-
ments on the collection of information
should be sent to the Office of Manage-
ment and Budget,Attention: Desk Offi-
cer for the Department of the Treasury,
Office of Information and Regulatory Af-
fairs, Washington, DC 20503, with copies
to the Internal Revenue Service,Atten-
tion: IRS Reports Clearance Officer
OP:FS:FP, Washington, DC 20224. Com-
ments on the collection of information
must be received by November 9, 1998.
Comments are specifically requested on:
Whether the proposed collection of in-
formation is necessary for the proper per-
formance of the functions of the IRS, in-
cluding whether the information will have
practical utility;
The accuracy of the estimated burden
associated with the proposed collection of
information (see below);
How the quality, utility, and clarity of
the information to be collected may be en-
hanced;
How the burden of complying with the
proposed collection of information may
be minimized, including through the ap-
plication of automated collection tech-
niques or other forms of information tech-
nology; and
Estimates of the capital or start-up
costs of operation, maintenance, and pur-
chase of services to provide information.
The collection of information in these
regulations is in §1.6046A–1. This infor-
mation is required by the IRS to identify
United States persons with significant in-
terests in foreign partnerships and to en-
sure the correct reporting of items with re-
spect to these interests. The collection of
information is mandatory. The likely re-
spondents will be individuals and busi-
nesses or other for-profit organizations.
The burden of complying with the pro-
posed collection of information required
to be reported on Form 8865 is reflected
in the burden for Form 8865.
The burden of complying with the pro-
posed collection of information in
§1.6046A–1(f)(1)(ii) is as follows:
Estimated total annual reporting bur-
den: 250 hours.
Estimated annual burden per respon-
dent: .25 hours to 1 hour, with an average
of .5 hours.
Estimated number of respondents:
500.
Estimated frequency of responses: On
occasion.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it dis-
plays a valid control number assigned by
the Office of Management and Budget.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
Taxpayer Relief Act of 1997
In the Taxpayer Relief Act of 1997
(TRA 1997), Public Law 105–34 (111
Stat. 983 (1997)), Congress significantly
modified the information reporting re-
quirements with respect to foreign part-
nerships under sections 6038, 6038B and
6046A (and also amended section
6501(c)(8) to provide that the statute of
limitations on the assessment of tax under
section 6038, 6038B and 6046A does not
expire until three years after the informa-
tion required under those sections is re-
ported). These regulations under section
6046A are being proposed along with reg-
ulations under sections 6038 (reporting
with respect to certain foreign partner-
ships) and 6038B (reporting of certain
transfers to foreign partnerships). The
IRS is also developing a comprehensive
September 28, 1998181998–39 I.R.B.
Part IV. Items of General Interest

1998–39 I.R.B.19September 28, 1998
form (Form 8865) for reporting under all
of these provisions. A draft version of the
form will be issued for public comment
while the proposed regulations are out-
standing.
Section 6046A
Section 6046A was added to the Inter-
nal Revenue Code (Code) by section 405
of the Tax Equity and Fiscal Responsibil-
ity Act of 1982 (TEFRA), Public Law 97–
248 (96 Stat. 669 (1982)), and, prior to
amendment by TRA 1997, required re-
porting of acquisitions and dispositions of
interests in foreign partnerships as well as
of substantial changes in proportional in-
terests in such partnerships. Section 1143
of TRA 1997, Public Law 105–34 (111
Stat. 983 (1997)), amended section
6046A, to provide that reporting is re-
quired only when the interest acquired,
disposed of, or substantially changed is at
least a 10-percent interest in the partner-
ship.
Explanation of Provisions
Filing Requirement
The proposed regulations require a
United States person to report the infor-
mation required under section 6046A with
respect to a “reportable event” on Form
8865, “Information Return of U.S. Per-
sons With Respect To Certain Foreign
Partnerships”. The proposed regulations
follow the statute and define a reportable
event to mean (1) an acquisition by a
United States person of at least a 10-per-
cent interest in a foreign partnership, (2) a
disposition by a United States person of at
least a 10-percent interest in a foreign
partnership, or (3) a change in a United
States person’s proportional interest in a
foreign partnership that is equivalent to at
least a 10-percent interest in the partner-
ship. However, the proposed regulations
exclude from the definition of a re-
portable event any acquisition of an inter-
est in, or change in proportional interest
in a foreign partnership resulting from a
transfer by a partner also subject to the re-
porting requirements under section
6038B.
Under section 6046A(d), a 10-percent
interest is defined by cross-reference to
section 6038(e)(3)(C) and regulations is-
sued under that provision, and means di-
rect or indirect ownership of a interest
equal to 10 percent of the capital interest
or profits interest in a partnership, and an
interest to which 10 percent of the deduc-
tions or losses of a partnership are allo-
cated.
Partnerships Excluded From Application
of Subchapter K
The reporting requirements of this sec-
tion shall not apply in respect of any for-
eign partnership which is an eligible part-
nership described in §1.761–2(a) that has
validly elected pursuant to §1.761–
2(b)(2)(i) to be wholly excluded from the
application of subchapter K. Nor shall the
reporting requirements of these proposed
regulations apply to any foreign partner-
ship validly deemed to have wholly
elected out of the provisions of subchapter
K as specified in §1.761–2(b)(2)(ii). Tax-
payers are reminded, however, that a pre-
condition to being an “electing-out” part-
nership is that, as provided in
§1.761–2(a)(1), “[t]he members of such
organization must be able to compute their
income without the necessity of comput-
ing partnership taxable income.” The IRS
and Treasury are concerned that in certain
cases the necessary books and records are
not being maintained to allow verification
that such computations can indeed be
made without regard to the partnership. If
it appears that, in the absence of a report-
ing requirement under this section, the
members of the “electing-out” partnership
cannot make such separate computations,
this exception to the reporting require-
ments will be reconsidered.
Exception for Certain International
Satellite Partnerships
The proposed regulations contain an
exception to the filing requirement for
certain international satellite partnerships.
Section 406 of TEFRA provides that sec-
tion 6031 and 6046A do not apply to the
International Telecommunications Satel-
lite Organization, the International Mar-
itime Satellite Organization, or any orga-
nization which is a successor of either
organization. Although the International
Maritime Satellite Organization has been
subsequently renamed the International
Mobile Satellite Organization, no legisla-
tion has been enacted that would elimi-
nate the exception provided by section
406 of TEFRA.
Time and Place for Filing Return
Section 6046A(c) provides that any re-
turn required by section 6046A(a) must
be filed on or before the 90th day after the
day on which the United States person be-
comes liable to file it, or on or before a
later day prescribed in regulations. After
section 6046A was enacted, the IRS an-
nounced that the regulations would pro-
vide that any return would be considered
timely filed if filed on or before the 90th
day following the date of publication of
the regulations, even if the date of filing
was more than 90 days after a reportable
event. Announcement 83–5 (1983–2
I.R.B. 31). Thus, no returns under section
6046A have been required to be filed to
date.
Rather than require a return to be made
within a specified period after a re-
portable event, under the proposed regu-
lations a return under section 6046A
would generally be required to be filed
with the United States person’s income
tax return for the taxable year during
which a reportable event occurs (or on the
Form 8865 for the foreign partnership’s
taxable year in which the reportable event
occurs (filed in accordance with
§§1.6038–3(e) and (h)) if the United
States person is also required to report
under proposed regulation §1.6038–3(a)).
However, a return for a reportable event
would not be required to be filed before
the 90th day after the event. A reportable
event occurring within 90 days of the due
date for a taxpayer’s return may be re-
ported on a Form 8865 filed with that re-
turn, or may be reported on a separate
Form 8865 filed with the taxpayer’s re-
turn for the next taxable year. If required
by the instructions to Form 8865, a dupli-
cate return under section 6046A must also
be filed.
In certain circumstances, the proposed
regulations would also eliminate the need
for two or more United States persons to
file Form 8865 with respect to the same
reportable event in the case of attribution
of ownership.
Effective Dates
The proposed regulations are generally
effective for reportable events occurring
on or after January 1, 1998. The proposed
regulations would relieve a United States
person from having to file a return under

section 6046A for reportable events oc-
curring prior to January 1, 1998. Further-
more, the return period for reportable
events occurring on or before the date that
final regulations are published in the Fed-
eral Registerwould generally be ex-
tended for one taxable year.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in EO
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 pro-
posed regulations. It is hereby certified
that the collection of information con-
tained in these proposed regulations will
not have a significant economic impact on
a substantial number of small entities.
This certification is based on the fact that
the amount of time required to complete
the form and file the information required
under these regulations is brief and will
not have a significant impact on those
small entities that are required to provide
notification. Furthermore, the number of
small entities that will be required to file
the form is not significant. Accordingly, a
Regulatory Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. Pursuant to
section 7805(f) of the Internal Revenue
Code, these regulations will be submitted
to the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on their impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be give to any written comments
(preferably a signed original and eight (8)
copies) that are submitted timely to the
Internal Revenue Service. All comments
will be made available for public inspec-
tion and copying.
A public hearing has been scheduled
for Tuesday, November 10, 1998, at 10
a.m., in room 2615, Internal Revenue
Building, 1111 Constitution Avenue NW,
Washington, DC. Because of access re-
strictions, visitors will not be admitted be-
yond the Internal Revenue Building lobby
more than 15 minutes before the hearing
starts.
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 the topics to
be discussed (preferably a signed original
and eight (8) copies) by October 20, 1998.
A period of 10 minutes will be allotted
for each person 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 proposed
regulations is Christopher Kelley of the
Office of Associate Chief Counsel (Inter-
national). 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
part 1 is amended by adding an entry in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.6046A–1 also issued under 26
U.S.C. 6046A. * * *
Par. 2. Section 1.6046A–1 is added to
read as follows:
§1.6046A–1 Return requirement for
United States persons owning interests in
foreign partnerships.
(a) Return requirement—(1) General
rule.If a reportable event occurs with re-
spect to the interest of a United States per-
son in a foreign partnership, the United
States person is required to report the
event on Form 8865, “Information Return
of U.S. Persons With Respect To Certain
Foreign Partnerships”, except as provided
in paragraphs (b)(1)(ii), (e), (g) or (h) of
this section.
(2) Separate return for each partner-
ship. If a United States person is required
under section 6046A and this section to
report an event with respect to an interest
in more than one foreign partnership, the
United States person must file a separate
return for each partnership.
(b) Definitions—(1) Reportable
event—(i) General rule.For purposes of
section 6046A and this section, a re-
portable eventmeans—
(A) An acquisition by a United States
person of at least a 10-percent interest in a
foreign partnership;
(B) A disposition by a United States
person of at least a 10-percent interest in a
foreign partnership; or
(C) Any change in a United States per-
son’s proportional interest in a foreign
partnership that is equivalent to at least a
10-percent interest in the partnership.
(ii) Exception.If a United States per-
son acquires an interest in a foreign part-
nership (or the amount of such interest
changes) as a result of a transfer subject to
the reporting requirements under section
6038B, the United States person will not
be required to also report the acquisition
(or change) under section 6046A(a).
(2) 10-percent interest.Under section
6046A and this section, a 10-percent in-
terestin a partnership is an interest de-
scribed in section 6038(e)(3)(C) and the
regulations thereunder.
(3) United States person. United States
personmeans a person described in sec-
tion 7701(a)(30).
(4) Foreign partnership. Foreign part-
nershipmeans any partnership that is a
foreign partnership under sections
7701(a)(2) and (5).
(c) Content of return.In respect of ac-
quisitions and dispositions of, and
changes in interest described in section
6046A(a), the return must contain infor-
mation in such form or manner as Form
8865 (and its accompanying instructions)
prescribes with respect to reportable
events, including–-
(1) The name, address, and taxpayer
identification number of the United States
person required to file the return;
(2) The name, address, and taxpayer
identification number, if any, of the for-
eign partnership;
(3) The name of the country under the
laws of which the foreign partnership was
organized, and the date of formation;
(4) For each reportable event, the date
of the event, the type of event (acquisi-
tion, disposition, or change in partnership
interest), and the United States person’s
September 28, 1998201998–39 I.R.B.

percentage interest in the foreign partner-
ship before and after the event; and
(5) For an acquisition, disposition or
change affecting the United States per-
son’s interest in partnership capital, prof-
its, losses, or deductions, the fair market
value of the interest acquired, disposed of,
or changed.
(d) Time and manner for filing
returns—(1) General rule.Except as pro-
vided in paragraph (d)(2) of this section,
the Form 8865 must be filed with the in-
come tax return (including a partnership
return of income) of the United States
person for the taxable year in which the
reportable event occurs, and must be filed
by the due date (including extensions) of
the income tax return.
(2) Exceptions—(i) United States per-
son also required to file under §1.6038-
3(a).If the United States person required
to file under this section is also required
to file under §1.6038–3(a) for the period
in which the reportable event occurred,
then the United States person must report
under this section on the Form 8865 for
the foreign partnership’s annual account-
ing period in which the reportable event
occurred (not its own taxable year) and
file with its income tax return for that year
as provided in §1.6038–3(e) and (h).
(ii) Reportable event less than 90 days
before the due date of the United States
person’s income tax return.If the date of
a reportable event is less than 90 days be-
fore the due date of the United States per-
son’s income tax return for the taxable
year in which the reportable event oc-
curred, the United States person may file
the Form 8865 in respect of that re-
portable event with its income tax return
for that taxable year, or may file a sepa-
rate Form 8865 in respect of that re-
portable event with its income tax return
for the next taxable year.
(3) Duplicate returns.If required by
the instructions to Form 8865, a duplicate
Form 8865 (including attachments and
schedules) must also be filed.
(e) Persons excepted from filing
return—(1) Requirements.A United
States person otherwise required to file a
return under this section with respect to a
foreign partnership need not file a return
provided all of the following conditions
are met—
(i) The person does not directly own an
interest in the foreign partnership;
(ii) The person is required to file a re-
turn solely by reason of attribution of
ownership from a United States person
(as determined under the rules of section
6038(e)(3) and the regulations thereun-
der); and
(iii) A person from whom ownership is
attributed furnishes all of the information
required under this section with respect to
the reportable event.
(2) Statement required.A United States
person who does not furnish an informa-
tion return under the provisions of para-
graph (e)(1) of this section must file a
statement with the person’s income tax re-
turn—
(i) Indicating that the filing require-
ment has been or will be satisfied;
(ii) Identifying the person who has or
will file the return;
(iii) Identifying the IRS Service Center
where the return was or will be filed; and
(iv) Providing any additional informa-
tion as Form 8865 and the accompanying
instructions may require.
(f) Method of Reporting.Except as
otherwise provided on Form 8865, or the
accompanying instructions, any amounts
required to be reported under section
6046A and this section must be expressed
in United States dollars, with a statement
of the exchange rates used. All state-
ments required on or with Form 8865 pur-
suant to this section must be in the Eng-
lish language.
(g) Reporting under this section not re-
quired of partnerships excluded from the
application of subchapter K—(1) Elec-
tion to be wholly excluded.The reporting
requirements of this section will not apply
to any United States person in respect of
an eligible partnership as described in
§1.761–2(a) in which that United States
person is a partner, if such partnership has
validly elected to be excluded from all of
the provisions of subchapter K of chapter
1 of the Internal Revenue Code in the
manner specified in §1.761–2(b)(2)(i).
(2) Deemed excluded.The reporting re-
quirements of this section will not apply
to any United States person in respect of
an eligible partnership as described in
§1.761–2(a) in which that United States
person is a partner, if such partnership is
validly deemed to have elected to be ex-
cluded from all of the provisions of sub-
chapter K of chapter 1 of the Internal
Revenue Code in accordance with the
provisions of §1.761–2(b)(2)(ii).
(h) Exclusion for satellite organiza-
tions. The return requirement of section
6046A does not apply to the International
Telecommunications Satellite Organiza-
tion (or a successor organization) or the
International Mobile Satellite Organiza-
tion (or any other organization that is a
successor to the International Maritime
Satellite Organization).
(i) Failure to comply with reporting re-
quirements—(1) Failure to comply.A
failure to comply with the requirements of
section 6046A includes—
(i) The failure to report at the proper
time and in the proper manner any infor-
mation required to be reported under the
rules of this section; and
(ii) The provision of false or inaccurate
information in purported compliance with
the requirements of this section.
(2) Penalties.For penalties for failure
to comply with the reporting requirements
of section 6046A and this section, see sec-
tions 6679 and 7203.
(3) Statute of limitations.For excep-
tions to the limitations on assessment and
collection in the event of a failure to pro-
vide information under section 6046A,
see section 6501(c)(8).
(j) Effective date—(1) General rule.
This section applies to reportable events
occurring on or after January 1, 1998.
(2) Reportable event prior to issuance
of final regulations.If a reportable event
occurs on or before the date final regula-
tions on this subject are published in the
Federal Register,the Form 8865 may be
filed with the United States person’s
timely filed (including extensions) in-
come tax return for the taxable year im-
mediately following the taxable year in
which the reportable event occurs.
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on
September 8, 1998, 8:45 a.m., and published in the
issue of the Federal Register for September 9, 1998,
63 F.R. 48154)
Notice of Proposed Rulemaking
Revision of the Tax Refund
Offset Program
REG–104565–97
1998–39 I.R.B.21September 28, 1998

AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing.
SUMMARY: This document contains
proposed regulations relating to the ad-
ministration of the Tax Refund Offset
Program (TROP). This action is neces-
sary because TROP, which is currently
administered by the IRS, is being merged
into the centralized administrative offset
program known as the Treasury Offset
Program (TOP), which is administered by
the Financial Management Service
(FMS). These regulations will affect
State and Federal agencies that participate
in TROP.
DATES: Written comments and requests
for a public hearing must be received by
November 30, 1998.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (REG–04565–97),
room 5226, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington, DC 20044. Submissions may be
hand delivered between the hours of 8
a.m. and 5 p.m. to: CC:DOM:CORP:R
(REG–104565–97), Courier’s Desk, In-
ternal Revenue Service, 1111 Constitution
Ave., NW, Washington, DC. Alterna-
tively, taxpayers may submit comments
electronically via the Internet by selecting
the “Tax Regs” option on the IRS Home
Page, or by submitting comments directly
to the IRS internet site at http://www.irs.
ustreas.gov/prod/tax_regs/comments.html.
FOR FURTHER INFORMATION CON-
TACT: John J. McGreevy, (202) 622-
4910 (not toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed
amendments to the Procedure and Admin-
istration Regulations (26 CFR part 301)
relating to section 6402(c) and (d). The
proposed regulations contain revised ef-
fective dates for the regulations under
section 6402(c) and (d).
Explanation of Provisions
Section 6402(c) provides, in general,
that the amount of any overpayment to be
refunded to the person making the over-
payment must be reduced by the amount
of any past-due support (as defined in sec-
tion 464(c) of the Social Security Act)
owed by that person of which the Secre-
tary has been notified by a State in accor-
dance with section 464 of the Social Se-
curity Act.
Section 6402(d) provides, in general,
that upon receiving notice from any Fed-
eral agency that a named person owes a
past-due, legally enforceable debt to that
agency, the Secretary must reduce the
amount of any overpayment payable to
that person by the amount of the debt, pay
the amount by which the overpayment is
reduced to the agency, and notify the per-
son making the overpayment that the
overpayment has been reduced.
The IRS currently makes offsets pur-
suant to section 6402(c) and (d) according
to regulations prescribed under those sec-
tions. See §§301.6402–5 and 301.6402–6
of the Regulations on Procedure and Ad-
ministration.
Section 31001(v)(2) and (w) of the
Debt Collection Improvement Act of
1996 (110 Stat. 1321–375), amended 42
U.S.C. 664(a)(2)(A) and 31 U.S.C.
3720A(h), respectively, to clarify that the
disbursing agency of the Treasury Depart-
ment may conduct tax refund offsets. The
disbursing agency of the Treasury Depart-
ment is the FMS.
The IRS and FMS have agreed that the
Tax Refund Offset Program (TROP),
which is currently administered by the
IRS, will be merged into the centralized
administrative offset program known as
the Treasury Offset Program (TOP),
which is administered by the FMS. The
merger of the two programs is intended to
maximize and improve the Treasury De-
partment’s government-wide collection of
nontax debts, including those subject to
offset against the debtor’s Federal tax re-
fund. The full merger of TROP with TOP
is expected to occur by January 1, 1999.
Interim rules concerning the manner in
which the FMS will administer the collec-
tion of nontax federal debts after the
merger of TROP with TOP were published
by the FMS in the Federal Registeron
June 25, 1997 (62 F.R. 34175) (codified at
31 CFR Part 285) effective for refunds
payable after January 1, 1998. The regula-
tions proposed in this document provide
an ending effective date for §301.6402-6
to accommodate the beginning effective
date of the FMS regulations. Accordingly,
§301.6402–6 will not apply to refunds
payable after January 1, 1998.
A notice of proposed rulemaking con-
cerning the manner in which the FMS will
administer the collection of past-due child
support payments was published by the
FMS in the Federal Registeron August
4, 1998 (63 F.R. 41688) (which when fi-
nalized will be codified at 31 CFR Part
285), effective for refunds payable after
January 1, 1999. The regulations in this
document provide an ending effective
date for §301.6402–5 to accommodate the
expected beginning date for the full
merger of TROP with TOP. Accordingly,
it is expected that §301.6402–5 will not
apply to refunds payable after January 1,
1999.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in EO
12866. Therefore, a regulatory assess-
ment is not required. It also has 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 regulation does not
impose a collection of information on
small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply.
Pursuant to section 7805(f) of the Internal
Revenue Code, this notice of proposed
rulemaking will be submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on its
impact on small business.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any electronic or
written comments (a signed original and
eight (8) copies of written comments) that
are submitted timely to the IRS. All com-
ments will be available for public inspec-
tion and copying. A public hearing may
be scheduled if requested in writing by a
person that timely submits written com-
ments. If a public hearing is scheduled,
notice of the date, time, and place for the
hearing will be published in the Federal
Register.
September 28, 1998221998–39 I.R.B.

Drafting Information
The principal author of these regula-
tions is John J. McGreevy, Office of As-
sistant Chief Counsel (Income Tax and
Accounting). However, other personnel
from the IRS and the Treasury Depart-
ment participated in the development of
the regulations.
*****
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 301 is pro-
posed to be amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read in part as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.6402–5 is amended
by adding paragraph (h) to read as fol-
lows:
§301.6402–5 Offset of past-due support
against overpayments.
* * * * *
(h) Effective dates.This section ap-
plies to refunds payable on or before Jan-
uary 1, 1999. For the rules applicable
after January 1, 1999, see 31 CFR part
285.
Par. 3. Section 301.6402–6 is amended
by revising paragraph (n) to read as fol-
lows:
§301.6402–6 Offset of past-due, legally
enforceable debt against overpayment.
* * * * *
(n) Effective dates.This section ap-
plies to refunds payable under section
6402 after April 15, 1992, and on or be-
fore January 1, 1998. For the rules ap-
plicable after January 1, 1998, see 31
CFR part 285.
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on
August 28, 1998, 8:45 a.m., and published in the
issue of the Federal Register for August 31, 1998, 63
F.R. 46205)
Notice of Proposed Rulemaking
and Notice of Public Hearing
Notice of Certain Transfers to
Foreign Partnerships and
Foreign Corporations
REG–118926–97
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing and notice of public public hearing.
SUMMARY: This document contains
proposed regulations under section 6038B
of the Internal Revenue Code on informa-
tion reporting requirements for certain
transfers by United States persons to for-
eign partnerships. The proposed regula-
tions would implement the amendments
made by the Taxpayer Relief Act of 1997
that require a United States person who
transfers property to a foreign partnership
to furnish certain information with respect
to such transfers. This document also
contains proposed regulations that would
amend the information reporting require-
ments for certain transfers by United
States persons to foreign corporations to
require the reporting of the transfer of
cash. The proposed regulations would
provide guidance to United States persons
who must furnish this information. This
document also provides notice of a public
hearing on these proposed regulations.
DATES: Written comments must be re-
ceived by November 9, 1998. Outlines of
topics to be discussed at the public hearing
scheduled for November 10, 1998, at 10
a.m., must be received by October 20,
1998.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (REG–118926–97),
room 5226, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington, DC 20044. Submissions may be
hand delivered between the hours of 8
a.m. and 5 p.m. to CC:DOM:CORP:R
(REG–118926–97), Courier’s Desk, In-
ternal Revenue Service, 1111 Constitution
Avenue NW, Washington, DC. Alterna-
tively, taxpayers may submit comments
electronically via the Internet by selecting
the “Tax Regs” option of the IRS Home
Page, or by submitting comments directly
to the IRS Internet site at: http://www.irs.
ustreas.gov/prod/tax_regs/comments.html.
A public hearing has been scheduled to
be held in room 2615, Internal Revenue
Building, 1111 Constitution Avenue NW,
Washington, DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning transfers of cash to
foreign corporations, Philip L. Tretiak,
and concerning transfers to foreign part-
nerships, Christopher Kelley, 202-622-
3860; concerning the hearing and submis-
sions of written comments, Michael
Slaughter, 202-622-7190 (not toll-free
calls).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information con-
tained in this notice of proposed rulemak-
ing has been submitted to the Office of
Management and Budget for review in ac-
cordance with the Paperwork Reduction
Act of 1995 (44 U.S.C. 3507(d)). Com-
ments on the collection of information
should be sent to the Office of Manage-
ment and Budget,Attention: Desk Offi-
cer for the Department of the Treasury,
Office of Information and Regulatory Af-
fairs, Washington, DC 20503, with copies
to the Internal Revenue Service,Atten-
tion: IRS Reports Clearance Officer
OP:FS:FP, Washington, DC 20224. Com-
ments on the collection of information
must be received by November 9, 1998.
Comments are specifically requested on:
Whether the proposed collection of in-
formation is necessary for the proper per-
formance of the functions of the IRS, in-
cluding whether the information will have
practical utility;
The accuracy of the estimated burden
associated with the proposed collection of
information (see below);
How the quality, utility, and clarity of
the information to be collected may be en-
hanced;
How the burden of complying with the
proposed collection of information may
be minimized, including through the ap-
plication of automated collection tech-
niques or other forms of information tech-
nology; and
Estimates of the capital or start-up
costs of operation, maintenance, and pur-
chase of services to provide information.
1998–39 I.R.B.23September 28, 1998

The collection of information in these
regulations is in §§1.6038B–1(b) and
1.6038B–2. This information is required
by the IRS to identify United States per-
sons who contribute property to foreign
partnerships and to ensure the correct re-
porting of items with respect to those
partnerships. The collection of informa-
tion is mandatory. The likely respondents
will be individuals and businesses or
other for-profit organizations.
The burden of complying with the pro-
posed collection of information required
to be reported on Form 8865 is reflected
in the burden for Form 8865.
The burden of complying with the pro-
posed collection of information required
to be reported on Form 926 is reflected in
the burden for Form 926.
The burden of complying with the pro-
posed collection of information in
§1.6038B–2(f)(2) is as follows:
Estimated total annual reporting bur-
den: 250 hours.
Estimated annual burden per respon-
dent: 0.25 hours to 1 hour, with an aver-
age of 0.5 hours.
Estimated number of respondents: 500.
Estimated frequency of responses:
Once per year.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it dis-
plays a valid control number assigned by
the Office of Management and Budget.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
Taxpayer Relief Act of 1997
In the Taxpayer Relief Act of 1997
(TRA 1997), Public Law 105–34 (111
Stat. 983 (1997)), Congress significantly
modified the information reporting re-
quirements with respect to foreign part-
nerships under sections 6038, 6038B and
6046A (and also amended section
6501(c)(8) to provide that the statute of
limitations on the assessment of tax under
section 6038, 6038B and 6046A does not
expire until three years after the informa-
tion required under those sections is re-
ported). Certain of these modifications
also affect reporting requirements with re-
spect to foreign corporations. These regu-
lations under section 6038B are being
proposed along with regulations under
sections 6038 (reporting with respect to
certain foreign partnerships) and 6046A
(reporting of certain ownership interests
in foreign partnerships). The IRS is also
developing a comprehensive form (Form
8865) for reporting under all of these pro-
visions. A draft version of the form will
be issued for public comment while the
proposed regulations are outstanding.
Section 6038B and Transfers to Foreign
Corporations
Section 6038B, as enacted in 1984,
provided that United States persons that
made certain transfers of property to for-
eign corporations were required to report
those transfers in the manner prescribed
by regulations. Prior to the enactment of
TRA 1997, section 6038B imposed a
penalty for failure to comply with the reg-
ulations equal to 25 percent of the gain re-
alized on the exchange, unless the failure
was due to reasonable cause and not to
willful neglect. Thus, in the case of a
transfer of cash or other unappreciated
property to a foreign corporation, no
penalty was imposed under section 6038B
if the transfer was not reported.
Section 1144(c) of TRA 1997 modified
the penalty applicable to the failure to fur-
nish information required to be reported
under section 6038B. The modified
penalty is equal to 10 percent of the fair
market value of the property at the time of
the transfer.
In response to TRA 1997, Treasury and
the IRS issued final regulations under sec-
tion 6038B (TD 8770 at 63 F.R. 33568;
June 19, 1998), in conjunction with regu-
lations under section 367(a), to clarify that
transfers to corporations of unappreciated
property other than cash that occur on or
after July 20, 1998, generally are required
to be reported in accordance with
§1.6038B–1(b). The preamble to the final
regulations stated that rules regarding
transfers of cash to foreign corporations
would be provided in future regulations.
Section 6038B and Transfers to Foreign
Partnerships
Prior to the enactment of TRA 1997,
section 1491 imposed an excise tax on
certain transfers of property by United
States persons to foreign corporations,
partnerships, estates, or trusts. The tax
was equal to 35 percent of the fair market
value of the property transferred in excess
of adjusted basis and any gain recognized
on the transfer (built-in gain). Section
1494(c), effective for transfers made after
August 20, 1996, imposed a further
penalty for a failure to report.
Section 1131(a) of TRA 1997 repealed
sections 1491 through 1494. Section
1144 of TRA 1997 amended section
6038B to require a United States person
who transfers property to a foreign part-
nership to report the transfer in the time
and manner provided in regulations. The
1997 amendments apply to transfers of
property made after August 5, 1997. No-
tice 98–17 (1998–11 C.B. 6) provided the
manner of reporting a transfer under sec-
tion 6038B made after August 5, 1997,
and before January 1, 1998.
Explanation of Provisions
Reporting of Cash Transfers to Foreign
Corporations
These proposed regulations provide
that transfers of cash to foreign corpora-
tions are required to be reported if the
U.S. transferor holds, immediately after
the transfer, directly or indirectly, a 10-
percent interest in the foreign corporation,
or the amount of the cash transferred by
the transferor or any related person to
such foreign corporation or a related for-
eign corporation during the 12-month pe-
riod ending on the date of the transfer ex-
ceeds $100,000. The transfer of cash to a
foreign corporation will not be required to
be reported unless made in a taxable year
beginning after the date that final regula-
tions requiring reporting are published in
the Federal Register.
The IRS and Treasury invite comments
on these requirements and the corre-
sponding requirement for foreign partner-
ships, including a description of the types
of transfers which could appropriately be
excepted (for example, capital contribu-
tions and returns of cash made as part of
the normal course of business operations).
Reporting of Transfers to Foreign
Partnerships
The proposed regulations would imple-
ment the rules of section 6038B by gener-
September 28, 1998241998–39 I.R.B.

ally requiring that a United States person
that transfers property (including cash) to
a foreign partnership in a contribution de-
scribed in section 721 in exchange for a
partnership interest, file a return on Form
8865 “Information Return of U.S. Persons
With Respect To Certain Foreign Partner-
ships”, reporting the transfer. Under the
statutory exceptions in section
6038B(b)(1), a United States person must
report such a contribution only if (1) the
United States person holds (immediately
after the transfer), directly or indirectly, at
least a 10-percent interest in the partner-
ship, or (2) the value of the property
transferred (when added to the value of
the property transferred by such person to
the partnership within the preceding 12
months) exceeds $100,000 (including the
value of property transferred in any trans-
fer not described in section 721, a princi-
pal purpose of which is the avoidance of
the reporting requirements of these regu-
lations). The proposed regulations would
also require a transferor, if still a partner,
to notify the IRS when a foreign partner-
ship disposes of appreciated property con-
tributed by the transferor. This informa-
tion will help in determining whether
built-in gain has been properly allocated
to and recognized by the U.S. transferor.
The proposed regulations provide that
certain indirect transferors need not report
under this section if certain conditions are
met.
A 10-percent interest is defined by
cross-reference to section 6046A(d),
which in turn cross-references section
6038(e)(3)(C) and regulations issued
under that provision. The term means di-
rect or indirect ownership of an interest
equal to 10 percent of the capital interest
or profits interest in a partnership, and an
interest to which 10 percent of the deduc-
tions or losses of a partnership are
allocated.
Partnerships Excluded From Application
of Subchapter K
The reporting requirements of this sec-
tion shall not apply in respect of any for-
eign partnership which is an eligible part-
nership described in §1.761–2(a) that has
validly elected pursuant to §1.761–2(b)-
(2)(i) to be wholly excluded from the ap-
plication of subchapter K. Nor shall the
reporting requirements of these proposed
regulations apply to any foreign partner-
ship validly deemed to have wholly
elected out of the provisions of subchap-
ter K as specified in §1.761–2(b)(2)(ii).
Taxpayers are reminded, however, that a
precondition to being an “electing-out”
partnership is that, as provided in §1.761–
2(a)(1), “[t]he members of such organiza-
tion must be able to compute their income
without the necessity of computing part-
nership taxable income.” The IRS and
Treasury are concerned that in certain
cases the necessary books and records are
not being maintained to allow verification
that such computations can indeed be
made without regard to the partnership. If
it appears that, in the absence of a report-
ing requirement under this section, the
members of the “electing-out” partnership
cannot make such separate computations,
this exception to the reporting require-
ments will be reconsidered.
Reporting of Cash Transfers to Foreign
Partnerships
The proposed regulations require the
reporting of a cash transfer to a foreign
partnership in a contribution otherwise re-
quired to be reported under section 6038B
and these regulations. Such transfers
were required to be reported under Notice
98–17. Reporting of cash transfers will
help to ensure that any earnings and ap-
preciation attributable to the cash are re-
ported by the U.S. transferor, and help to
prevent United States persons from avoid-
ing the rules applicable to foreign trusts.
As noted above with respect to cash con-
tributions to foreign corporations, Trea-
sury and the IRS are interested in receiv-
ing comments on specific issues in
addition to general comments on this re-
quirement.
Information Required
The proposed regulations would re-
quire a United States person to provide
certain information with respect to prop-
erty transferred in a reportable contribu-
tion. Appreciated property and intangible
property must be listed item by item on
the Form 8865. Other items of property
may be aggregated and listed according to
the following categories: (1) inventory;
(2) other tangible trade or business prop-
erty; (3) cash; (4) securities; and (5) other
property.
The proposed regulations provide that a
United States person reporting a transfer
to a foreign partnership under section
6038B must identify the other partners in
the partnership. This allows the IRS, for
example, to determine whether built-in
gain is being properly allocated to and rec-
ognized by the U.S. transferor under sec-
tion 704(c). The proposed regulations ex-
cept from this rule a United States person
only required to report because of a trans-
fer of cash, if the transferor holds less than
a 10-percent interest in the partnership im-
mediately following the transfer.
Time and Place for Filing
The proposed regulations would re-
quire Form 8865 to be filed with the
United States person’s income tax return
(including a partnership return of income)
for the year in which the reportable con-
tribution occurs. However, if the trans-
feror is also required to report under pro-
posed regulation §1.6038–3(a), then the
transfer must be reported on the Form
8865 (and filed in accordance with
§§1.6038–3(e) and (h)) for the foreign
partnership’s taxable year in which the re-
portable contribution occurs. Addition-
ally, if required by the instructions to
Form 8865, a duplicate Form 8865 must
also be filed. The proposed regulations
would provide alternative filing deadlines
with respect to reportable contributions
that occur on or before the date final regu-
lations on this subject are published in the
Federal Register(see Effective Dates
portion of this preamble).
Failure to Provide Information
Section 6038B(c)(1) and the proposed
regulations provide that a failure by the
transferor to properly report a transfer that
is required to be reported under section
6038B and these regulations is subject to
a penalty equal to 10 percent of the fair
market value of the property transferred.
This penalty is subject to a $100,000 limit
under section 6038B(c)(3), unless the
failure is due to intentional disregard. In
addition, the transferor must recognize
gain (reduced by gain recognized, with
respect to that property, by the transferor
after the transfer) as if the property had
been sold for its fair market value at the
time of the transfer. In addition, section
6501(c)(8) keeps the statute of limitations
open with respect to the transferor in the
case of a failure to report. Any adjust-
1998–39 I.R.B.25September 28, 1998

ments to the basis of the partnership or
any partner (direct or indirect) as a result
of the gain recognized under this provi-
sion, shall be made as though the gain
was recognized in the year in which the
failure to report was finally determined.
Section 6038B(c)(2) and the proposed
regulations provide a reasonable cause
exception to the penalty and gain recogni-
tion provisions.
Effective Dates
The amendments to the regulations on
the reporting of cash transfers to foreign
corporations apply to taxable years be-
ginning after these regulations are pub-
lished as final regulations in the Federal
Register.
The proposed regulations on the report-
ing of transfers to foreign partnerships
apply to transfers made on or after Janu-
ary 1, 1998. Notice 98–17 (1998–11
I.R.B. 6) provides reporting requirements
for transfers made after August 5, 1997,
and before January 1, 1998. The pro-
posed regulations would permit United
States persons who made transfers in that
period to rely on either Notice 98–17 or
the final regulations.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in EO
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 pro-
posed regulations. It is hereby certified
that the collection of information con-
tained in these proposed regulations will
not have a significant economic impact on
a substantial number of small entities.
This certification is based on the fact that
the amount of time required to complete
the form and file the information required
under these regulations is brief and will
not have a significant impact on those
small entities that are required to provide
notification. Furthermore, the number of
small entities that will be required to file
the form is not significant. Accordingly, a
Regulatory Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. Pursuant to
section 7805(f) of the Internal Revenue
Code, these regulations will be submitted
to the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on their impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be give to any written comments
(preferably a signed original and eight (8)
copies) that are submitted timely to the
IRS. All comments will be made avail-
able for public inspection and copying.
A public hearing has been scheduled for
Tuesday, November 10, 1998, at 10 a.m.,
in room 2615, Internal Revenue Building,
1111 Constitution Avenue NW, Washing-
ton, DC. Because of access restrictions,
visitors will not be admitted beyond the
Internal Revenue Building lobby more
than 15 minutes before the hearing starts.
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 the topics to
be discussed (preferably a signed original
and eight (8) copies) by October 20, 1998.
A period of 10 minutes will be allotted
for each person 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 authors of these proposed
regulations are Christopher Kelley and
Philip Tretiak of the Office of Associate
Chief Counsel (International). However,
other personnel from the IRS and Trea-
sury Department participated in their de-
velopment.
*****
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
part 1 is amended by adding an entry in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.6038B–1 also issued under 26
U.S.C. 6038B.
Section 1.6038B–2 also issued under 26
U.S.C. 6038B. * * *
Par. 2. Section 1.6038B–1 is amended
as follows:
1. The section heading is revised.
2. Paragraph (b)(1)(i), first sentence, is
revised.
3. The text of paragraph (b)(3) is
added.
4. Paragraph (c), first sentence, is re-
vised
5. Paragraph (g) is revised.
The additions and revisions read as fol-
lows:
§1.6038B–1 Reporting of certain
transfers to foreign corporations.
* * * * *
(b) Time and manner of reporting—(1)
In general—(i) Reporting procedure.
Except for stock or securities qualifying
under the special reporting rule of para-
graph (b)(2) of this section, or cash,
which is subject to special rules contained
in paragraph (b)(3) of this section, any
U.S. person that makes a transfer de-
scribed in section 6038B(a)(1)(A), 367(d)
or (e)(1) is required to report pursuant to
section 6038B and the rules of this section
and must attach the required information
to Form 926 “Return by Transferor of
Property to a Foreign Corporation”.* * *
* * * * *
(3) Special rule for transfers of cash.
A U.S. person that transfers cash must re-
port the transfer of cash to a foreign cor-
poration if—
(i) Such U.S. person holds (immedi-
ately after the transfer) directly or indi-
rectly (determined under the rules of sec-
tions 318(a) and 6038(e)(2)) at least 10
percent of the total voting power or the
total value of the foreign corporation; or
(ii) The amount of cash transferred by
such person or any related person (deter-
mined under section 267(b)) to such for-
eign corporation or a related foreign cor-
poration during the 12-month period
ending on the date of the transfer exceeds
$100,000.
* * * * *
(c) Information required with respect
to transfers described in section
6038B(a)(1)(A).A U.S. person that trans-
fers property to a foreign corporation in
September 28, 1998261998–39 I.R.B.

an exchange described in section
6038B(a)(1)(A) (including cash and other
unappreciated property) must provide the
following information, in paragraphs la-
beled to correspond with the number or
letter set forth in this paragraph (c) and
§1.6038B–1T(c)(1) through
(5). * * *
* * * * *
(g) Effective dates.This section ap-
plies to transfers occurring on or after
July 20, 1998, except the first sentence of
paragraph (b)(1)(i), paragraph (b)(3), and
the first sentence of paragraph (c) apply to
taxable years beginning after the date that
final regulations are published in the Fed-
eral Register.See §1.6038B–1T for
transfers occurring prior to July 20, 1998.
Par. 6. Section 1.6038B–2 is added to
read as follows:
§1.6038B–2 Reporting of certain
transfers to foreign partnerships.
(a) Reporting requirements—(1) Re-
quirement to report transfers. Any
United States person that makes a transfer
to a foreign partnership in a contribution
described in section 721 is required to re-
port pursuant to section 6038B and the
rules of this section by filing Form 8865
“Information Return of U.S. Persons With
Respect To Certain Foreign Partnerships”
attached to the transferor’s income tax re-
turn (including a partnership return of in-
come) for the taxable year that includes
the date of the transfer by the due date (in-
cluding extensions) for that return, if—
(i) The United States person holds (im-
mediately after the transfer) directly or in-
directly at least a 10-percent interest in
the partnership; or
(ii) The value of the property trans-
ferred, when added to the value of the
property transferred by such person or
any related person (described in section
267(b) or 707(b)(1)) to such partnership
or a related partnership (described in sec-
tion 707(b)(1)(B)) during the 12-month
period ending on the date of the transfer,
exceeds $100,000. For purposes of deter-
mining the relevant amounts, there shall
also be taken into account the value of
any property transferred in a transfer not
subject to section 721, where a principal
purpose of such transfer was the avoid-
ance of these reporting requirements.
(2) Requirement to report disposi-
tions—(i) In general.If a United States
person was required to report a transfer to
a foreign partnership under paragraph
(b)(1) of property with a fair market value
in excess of basis (built-in gain property),
and the partnership disposes of the prop-
erty while such United States person re-
mains a partner, that United States person
must report the disposition by filing Form
8865. The form must be attached to, and
filed by the due date (including exten-
sions) of, the transferor’s income tax re-
turn for the year in which the disposition
occurred.
(ii) Disposition of property in non-
recognition transaction.If a foreign part-
nership disposes of contributed built-in
gain property in a nonrecognition transac-
tion and substituted basis property is re-
ceived in exchange, and the substituted
basis property has built-in gain under
§1.704–3(a)(8), the transferor must report
the disposition of the substituted basis
property in the same manner as provided
for the contributed property.
(3) Returns to be made—(i) Separate
returns for each partnership.If a United
States person transfers property to more
than one foreign partnership in a taxable
year, a separate return must be made by
the United States for each partnership.
(ii) Duplicate form to be filed.If re-
quired by the instructions to Form 8865, a
duplicate Form 8865 (including attach-
ments and schedules) must also be filed.
(4) Time for filing when transferor also
required to report under §1.6038–3(a).If
the United States person required to file
under this section is also required to file
under §1.6038–3(a) for the period in
which the transfer occurs, then the United
States person must report under this sec-
tion on the Form 8865 for the foreign
partnership’s annual accounting period in
which the transfer occurred (not its own
taxable year) and file with its income tax
return for that year as provided in
§§1.6038–3(e) and (h).
(b) Relief for indirect transferors—(1)
Requirements.A United States person
otherwise required to file a return under
this section with respect to a transfer to a
foreign partnership need not file a return if
all of the following conditions are met—
(i) The person does not directly own an
interest in the foreign partnership;
(ii) The person is required to file a re-
turn solely by reason of attribution of
ownership from a United States person
(as determined under the rules of section
6038(e)(3) and the regulations thereun-
der); and
(iii) A United States person from whom
the ownership is attributed files all of the
information required under section 6038B
and this section with respect to the trans-
fer.
(2) Statement required.A United
States person who does not furnish an in-
formation return under the provisions of
paragraph (b)(1) of this section must file a
statement with the person’s income tax re-
turn—
(i) Indicating that the filing require-
ment has been or will be satisfied;
(ii) Identifying the person who has or
will file the return;
(iii) Identifying the IRS Service Center
where the return was or will be filed; and
(iv) Providing any additional informa-
tion as Form 8865 and the accompanying
instructions may require.
(c) Information required with respect to
transfers of property.In respect of trans-
fers described in section 6038B(a)(1)(B),
the return must contain information in
such form or manner as Form 8865 (and
its accompanying instructions) prescribes
with respect to reportable events, includ-
ing—
(1) The name, address, and U.S. tax-
payer identification number of the United
States person making the transfer;
(2) The name, U.S. taxpayer identifica-
tion number (if any), and address of the
transferee foreign partnership, and the
type of entity and country under whose
laws the partnership was created or orga-
nized;
(3) A general description of the trans-
fer, and of any wider transaction of which
it forms a part, including the date of trans-
fer;
(4) The names and addresses of the
other partners in the foreign partnership,
unless the transfer is solely of cash and
the transferor holds less than a 10-percent
interest in the transferee foreign partner-
ship immediately after the transfer;
(5) A description of the partnership in-
terest received by the United States per-
son, including a change in partnership in-
terest;
(6) A separate description of each item
of contributed property that is appreciated
property subject to the allocation rules of
section 704(c)(except to the extent that
1998–39 I.R.B.27September 28, 1998

the property is permitted to be aggregated
in making allocations under section
704(c)), or is intangible property, includ-
ing its estimated fair market value and ad-
justed basis.
(7) A description of other contributed
property, not specified in paragraph (c)(6)
of this section, aggregated by the follow-
ing categories (with, in each case, a brief
description of the property)—
(i) Stock in trade of the transferor (in-
ventory);
(ii) Tangible property (other than stock
in trade) used in a trade or business of the
transferor;
(iii) Cash;
(iv) Stock, notes receivable and
payable, and other securities; and
(v) Other property.
(d) Information required with respect to
dispositions of property.In respect of dis-
positions, the return must contain infor-
mation in such form or manner as Form
8865 (and its accompanying instructions)
prescribes with respect to reportable
events, including–-
(1) The date and manner of disposi-
tion;
(2) The gain and depreciation recap-
ture amounts, if any, realized by the part-
nership; and
(3) Any such amounts allocated to the
United States person.
(e) Method of reporting.Except as oth-
erwise provided on Form 8865, or the ac-
companying instructions, all amounts re-
ported as required under this section must
be expressed in United States currency,
with a statement of the exchange rates
used. All statements required on or with
Form 8865 pursuant to this section must
be in the English language.
(f) Reporting under this section not re-
quired of partnerships excluded from the
application of subchapter K—(1) Elec-
tion to be wholly excluded.The reporting
requirements of this section will not apply
to any United States person in respect of
an eligible partnership as described in
§1.761–2(a) in which that United States
person is a partner, if such partnership has
validly elected to be excluded from all of
the provisions of subchapter K of chapter
1 of the Internal Revenue Code in the
manner specified in §1.761–2(b)(2)(i).
(2) Deemed excluded.The reporting re-
quirements of this section will not apply
to any United States person in respect of
an eligible partnership as described in
§1.761–2(a) in which that United States
person is a partner, if such partnership is
validly deemed to have elected to be ex-
cluded from all of the provisions of sub-
chapter K of chapter 1 of the Internal
Revenue Code in accordance with the
provisions of §1.761–2(b)(2)(ii).
(g) Deemed contributions.If by reason
of an adjustment under section 482 or oth-
erwise, a contribution required to be re-
ported under section 6038B(a)(1)(B) and
this section is deemed to have been made,
the information required to be reported
will be furnished timely if filed by the due
date (including extensions) of, the taxable
year during which the adjustment is made.
(h) Failure to comply with reporting re-
quirements—(1) Consequences of failure.
If a United States person is required to file
a return under paragraph (a) of this sec-
tion and fails to comply with the reporting
requirements of section 6038B and this
section, then—
(i) The United States person is subject
to a penalty equal to 10 percent of the fair
market value of the property at the time of
the contribution;
(ii) The United States person will rec-
ognize gain (reduced by the amount of
any gain recognized, with respect to that
property, by the transferor after the trans-
fer) as if the contributed property had
been sold for fair market value at the time
of the contribution; and
(iii) Adjustments to the basis of the
partnership and any relevant partner as a
result of gain being recognized under this
provision will be made as though the gain
was recognized in the year in which the
failure to report was finally determined.
(2) Failure to comply.A failure to
comply with the requirements of section
6038B includes—
(i) The failure to report at the proper
time and in the proper manner any infor-
mation required to be reported under the
rules of this section; and
(ii) The provision of false or inaccurate
information in purported compliance with
the requirements of this section.
(3) Reasonable cause exception.
Under section 6038B(c)(3) and this sec-
tion, the provisions of paragraph (h)(1) of
this section will not apply if the transferor
shows that a failure to comply was due to
reasonable cause and not willful neglect.
The transferor may attempt to do so by
providing a written statement to the dis-
trict director having jurisdiction of the
taxpayer’s return for the year of the trans-
fer, setting forth the reasons for the failure
to comply. Whether a failure to comply
was due to reasonable cause will be deter-
mined by the district director under all
facts and circumstances.
(4) Limitation on penalties.The
penalty under paragraph (h)(1)(i) of this
section with respect to any transfer cannot
exceed $100,000, unless the failure to
comply with respect to such transfer was
due to intentional disregard.
(5) Statute of limitations.For excep-
tions to the limitations on assessment and
collection in the event of a failure to pro-
vide information under section 6038B,
see section 6501(c)(8).
(i) Definitions—(1) 10-percent interest.
10-percent interest is defined in sections
6046A(d) and 6038(e)(3)(C) and the reg-
ulations thereunder.
(2) United States person.United States
person is defined in section 7701(a)(30).
(3) Foreign partnership. Foreign part-
nership is defined in section 7701(a)(2)
and (5).
(4) Substituted basis property.Substi-
tuted basis property is defined in section
7701(a)(42).
(5) Value of the property transferred.
Under section 6038B and this section, the
value of the property transferred is the fair
market value of the property at the time of
its transfer.
(j) Effective dates—(1) In general.
This section applies to transfers made on
or after January 1, 1998. However, for a
transfer made prior to the date final regu-
lations are published in the Federal Reg-
ister,Form 8865 will be considered
timely filed with respect to a transfer if
filed with the taxpayer’s income tax re-
turn for the first taxable year beginning
after the date that final regulations are
published in the Federal Register.
(2) Transfers after August 5, 1997 and
before January 1, 1998.A United States
person who made a transfer of property
required to be reported under section
6038B prior to the effective date of these
regulations may satisfy its reporting re-
quirements by reporting in accordance
with the provisions of this section.
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
September 28, 1998281998–39 I.R.B.

(Filed by the Office of the Federal Register on
September 8, 1998, 8:45 a.m., and published in the
issue of the Federal Register for September 9, 1998,
63 F.R. 48148)
Notice of Proposed Rulemaking
and Notice of Public Hearing
Information Reporting With
Respect to Certain Foreign
Partnerships
REG–118966–97
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing and notice of public hearing.
SUMMARY: This document contains
proposed regulations under section 6038
of the Internal Revenue Code providing
information reporting requirements for
certain United States persons holding in-
terests in controlled foreign partnerships.
The proposed regulations reflect changes
to the law made by the Taxpayer Relief
Act of 1997. These proposed regulations
would provide guidance to United States
persons who must file such a return. This
document also provides notice of a public
hearing on these proposed regulations.
DATES: Written comments must be re-
ceived by November 9, 1998. Outlines of
topics to be discussed at the public hear-
ing scheduled for November 10, 1998, at
10 a.m., must be received by October 20,
1998.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (REG–118966–97),
room 5226, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington, DC 20044. In the alternative, sub-
missions may be hand delivered between
the hours of 8 a.m. and 5 p.m. to:
CC:DOM:CORP:R (REG–118966–97),
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue NW,
Washington, DC. Alternatively, taxpayers
may submit comments electronically via
the Internet by selecting the “Tax Regs”
option on the IRS Home Page, or by sub-
mitting comments directly to the IRS In-
ternet site at http://www.irs.ustreas.
gov/prod/tax_regs/comments.html.
A public hearing has been scheduled to
be held in room 2615, Internal Revenue
Building, 1111 Constitution Avenue NW,
Washington, DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the proposed regula-
tions, Victoria Scotto Balacek, 202-622-
3860; concerning submissions and
requests for a hearing, Michael Slaughter,
202-622-7190 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information con-
tained in this notice of proposed rulemak-
ing has been submitted to the Office of
Management and Budget for review in ac-
cordance with the Paperwork Reduction
Act of 1995 (44 U.S.C. 3507(d)). Com-
ments on the collection of information
should be sent to the Office of Manage-
ment and Budget, Attention: Desk Offi-
cer for the Department of the Treasury,
Office of Information and Regulatory Af-
fairs, Washington, DC 20503, with
copies to the Internal Revenue Service,
Attention: IRS Reports Clearance Officer
OP:FS:FP, Washington, DC 20224.
Comments on the collection of informa-
tion must be received by November 9,
1998. Comments are specifically re-
quested on:
Whether the proposed collection of in-
formation is necessary for the proper per-
formance of the functions of the IRS, in-
cluding whether the information will have
practical utility;
The accuracy of the estimated burden
associated with the proposed collection of
information (see below);
How the quality, utility, and clarity of
the information to be collected may be en-
hanced;
How the burden of complying with the
proposed collection of information may
be minimized, including through the ap-
plication of automated collection tech-
niques or other forms of information tech-
nology; and
Estimates of the capital or start-up
costs of operation, maintenance, and pur-
chase of services to provide information.
The collection of information in these
regulations is in §1.6038–3. This infor-
mation is required by the IRS to identify
foreign partnerships which are controlled
by United States persons and verify
amounts reported by the partners. The
collection of information is mandatory.
The likely respondents will be individuals
and businesses or other for-profit organi-
zations.
The burden of complying with the pro-
posed collection of information required
to be reported on Form 8865 is reflected
in the burden for Form 8865.
The burden of complying with the pro-
posed collection of information in
§1.6038–3(c)(3) is as follows:
Estimated total annual reporting bur-
den: 250 hours.
Estimated annual burden per respon-
dent: .25 hours to 1 hour, with an average
of .5 hours.
Estimated number of respondents:
500.
Estimated frequency of responses: An-
nually.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it dis-
plays a valid control number assigned by
the Office of Management and Budget
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
Taxpayer Relief Act of 1997
In the Taxpayer Relief Act of 1997
(TRA 1997), Public Law 105–34 (111
Stat. 983 (1997)), Congress significantly
modified the information reporting re-
quirements with respect to foreign part-
nerships under sections 6038, 6038B and
6046A (and also amended section
6501(c)(8) to provide that the statute of
limitations on the assessment of tax under
sections 6038, 6038B and 6046A does not
expire until three years after the informa-
tion required under those sections is re-
ported). These regulations under section
6038 are being proposed along with regu-
lations under sections 6038B (reporting of
certain transfers to foreign partnerships)
and 6046A (reporting of certain owner-
ship interests in foreign partnerships).
1998–39 I.R.B.29September 28, 1998

The IRS is also developing a comprehen-
sive form (Form 8865) for reporting
under all of these provisions. A draft ver-
sion of the form will be issued for public
comment while the proposed regulations
are outstanding.
Section 6038
Prior to TRA 1997, reporting in respect
of foreign partnerships was governed by
section 6031 of the Internal Revenue
Code (Code). Regulations had been pro-
posed, but never finalized, that would
have required reporting by foreign part-
nerships where United States persons
were allocated 25 percent or more of cer-
tain items. Section 1141 of TRA 1997,
amended section 6031 to provide that a
foreign partnership is required to file an
annual return of partnership income
(Form 1065) only if the partnership has
gross income from sources within the
United States, or gross income that is ef-
fectively connected with the conduct of a
U.S. trade or business. Section 1142 of
TRA 1997, amended section 6038 to re-
quire information reporting by certain
United States persons with direct or indi-
rect interests in controlled foreign part-
nerships. Thus, these changes moved the
statutory authority to require annual re-
porting on a foreign partnership because
of the ownership interests of United
States persons from section 6031 to sec-
tion 6038, and moved the reporting oblig-
ation in respect of foreign partnerships
from the partnership to the partner level.
Explanation of Provisions
Section 6038 requires certain United
States persons that own interests in con-
trolled foreign partnerships to provide in-
formation with respect to the interests as
prescribed by the Secretary. The pro-
posed regulations implement the statute
by requiring taxpayers to furnish the IRS
with annual information.
Reporting Requirements
The proposed regulations implement
the rules of section 6038 by requiring a
United States person that controls a for-
eign partnership to file an annual informa-
tion return with respect to the foreign
partnership (Form 8865). Pursuant to
section 6038(e)(3), the proposed regula-
tions define control as direct or indirect
ownership of more than a 50-percent in-
terest in the partnership. The constructive
ownership rules of section 267(c) (other
than paragraph (3)) are applied to deter-
mine ownership interests (taking into ac-
count that such rules refer to corporations
and not to partnerships).
A 50-percent interest in a partnership is
defined as an interest equal to 50 percent
of the capital interest, 50 percent of the
profits interest, or, exercising the regula-
tory authority under section 6038(e)-
(3)(A)(ii), an interest to which 50 percent
of the deductions or losses are allocated.
Defining control by reference to losses or
deductions, as well as capital and profits,
is appropriate, because a partner with a
greater than 50-percent allocation of these
items has a level of control sufficient to
provide a significant amount of informa-
tion about the partnership. Furthermore,
in the case of such allocations, certain in-
formation is required to ensure that the
rules of Code provisions such as section
704(b) (determination of distributive
share) are being followed.
To relieve taxpayers of unnecessary fil-
ing burdens, the regulations provide ex-
ceptions from the general rule that a con-
trolling partner must provide information
to the IRS on Form 8865. If more than
one United States person is required to re-
port as a controlling partner, then one
such controlling partner may file the re-
quired information in lieu of all such part-
ners having to file separately. However, a
controlling partner with respect only to
losses or deductions may only satisfy this
requirement if there are no controlling
partners with respect to capital or profits.
The controlling partners not required to
file, must file the statement required by
the regulations with their tax return indi-
cating that the filing requirement will be
met by another person and identifying
that person.
Pursuant to section 6038(a)(5), the pro-
posed regulations provide that each
United States person that owns at least a
10-percent interest in a foreign partner-
ship that is controlled by United States
persons holding at least 10-percent inter-
ests must file an annual information re-
turn with respect to the partnership. In
accordance with the statute, however,
such 10-percent partners will not be re-
quired to report such information where
there is a United States person that is a
controlling partner. The proposed regula-
tions define a 10-percent interest in a part-
nership as an interest equal to 10 percent
of the capital or profits interest, and an in-
terest to which 10 percent of the deduc-
tions or losses are allocated.
Because no one United States person
controls the partnership, Form 8865 will
require less information to be reported than
it will for controlling United States part-
ners, and will be more similar to the infor-
mation contained in Schedule K-1 to Form
1065. If there is a controlling partner (and,
thus, any other 10-percent partners are not
required to file), the controlling partner
must, generally, file the information that
would otherwise have been required from
such 10-percent partners.
Exceptions to Filing Requirements
The proposed regulations provide that
certain United States persons that are in-
direct partners need not file under section
6038 so long as the United States person
from whom ownership is attributed does
file the information, and the indirect part-
ner files a statement with its income tax
return identifying the United States per-
son that will meet the filing requirements.
The reporting requirements of this sec-
tion shall not apply in respect of any for-
eign partnership which is an eligible part-
nership described in §1.761–2(a) that has
validly elected pursuant to §1.761–
2(b)(2)(i) to be wholly excluded from the
application of subchapter K. Nor shall
the reporting requirements of these pro-
posed regulations apply to any foreign
partnership validly deemed to have
wholly elected out of the provisions of
subchapter K as specified in §1.761–
2(b)(2)(ii). Taxpayers are reminded,
however, that a precondition to being an
“electing-out” partnership is that, as pro-
vided in §1.761–2(a)(1), “[t]he members
of such organization must be able to com-
pute their income without the necessity of
computing partnership taxable income.”
The IRS and Treasury are concerned that
in certain cases the necessary books and
records are not being maintained to allow
verification that such computations can
indeed be made without regard to the
partnership. If it appears that, in the ab-
sence of a reporting requirement under
this section, the members of the “electing-
out” partnership cannot make such sepa-
rate computations, this exception to the
September 28, 1998301998–39 I.R.B.

reporting requirements will be reconsid-
ered.
Information Required
The proposed regulations require cer-
tain United States persons to provide in-
formation relating to the foreign partner-
ship on Form 8865 (or successor form).
The form will require controlling partners
of foreign partnerships to report informa-
tion concerning the income and assets of
the partnership, certain transactions with
the partnership, the names of the partners
in the partnership, and other specified in-
formation. The form will require a part-
ner holding at least a 10-percent interest
in a controlled foreign partnership (where
there is no United States person that is a
controlling partner) to report information
with respect only to its own interest in the
partnership.
Time and Place for Filing
The proposed regulations require Form
8865 to be filed with the United States
person’s income tax return (including a
partnership return of income) for the tax-
able year in which the partnership’s an-
nual accounting period ends. If required
by the instructions to Form 8865, a dupli-
cate Form 8865 must also be filed.
Failure to Provide Information
As described in section 6038(b), the
proposed regulations provide that a fail-
ure to comply with the reporting require-
ments of section 6038 will result in a
penalty of $10,000 for each annual ac-
counting period. Additional penalties
apply for failure to comply after notifica-
tion by the IRS, up to a total of $50,000
for each annual accounting period. Also,
as provided in section 6038(c), the pro-
posed regulations additionally provide a
penalty of reducing the United States per-
son’s foreign tax credit (also with further
penalties for continued failure to report
after notification).
Effective Dates
The proposed regulations would apply
for annual accounting periods beginning
after the date that these regulations are
published as final regulations in the Fed-
eral Register.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in EO
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 pro-
posed regulations. It is hereby certified
that the collection of information con-
tained in these proposed regulations will
not have a significant economic impact on
a substantial number of small entities.
This certification is based on the fact that
the amount of time required to complete
the form and file the information required
under these regulations is brief and will
not have a significant impact on those
small entities that are required to provide
notification. Furthermore, the number of
small entities that will be required to file
the form is not significant. Accordingly, a
Regulatory Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. Pursuant to
section 7805(f) of the Internal Revenue
Code, these regulations will be submitted
to the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on their impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be give to any written comments
(preferably a signed original and eight (8)
copies) that are submitted timely to the
Internal Revenue Service. All comments
will be made available for public inspec-
tion and copying.
A public hearing has been scheduled
for Tuesday, November 10, 1998, at 10
a.m., in room 2615, Internal Revenue
Building, 1111 Constitution Avenue, NW,
Washington, DC. Because of access re-
strictions, visitors will not be admitted be-
yond the Internal Revenue Building lobby
more than 15 minutes before the hearing
starts.
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 by November 9, 1998, and an
outline of the topics to be discussed (a
signed original and eight (8) copies) by
October 20, 1998.
A period of 10 minutes will be allotted
for each person 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 this regulation
is Victoria Scotto Balacek, Office of the
Associate Chief Counsel (International).
However, other personnel from the IRS
and Treasury Department participated in
its 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
part 1 is amended by adding an entry in
numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.6038–3 is also issued under
26 U.S.C. 6038.* * *
Par. 2. Section 1.6038–3 is added to
read as follows:
§1.6038–3 Information returns required
of United States persons with respect to
foreign partnerships.
(a) Persons required to make return—
(1) Controlling partners.Every United
States person that controls a foreign part-
nership must file an annual information
return on Form 8865 “Information Return
of U.S. Persons With Respect To Certain
Foreign Partnerships” containing so much
of the information described in paragraph
(f) of this section, and such other informa-
tion, as the form (or accompanying in-
structions) may prescribe. The informa-
tion required to be filed by such
controlling partner will include such in-
formation regarding any other United
States persons that are 10-percent or
greater partners in the foreign partnership
as Form 8865 may require. (For excep-
tions to this rule, see paragraph (c) of this
section.)
1998–39 I.R.B.31September 28, 1998

(2) Certain 10-percent partners.
Every United States person that holds a
10-percent or greater interest in a foreign
partnership controlled by United States
persons holding at least 10-percent inter-
ests must complete and file an annual in-
formation return on Form 8865 contain-
ing so much of the information described
in paragraph (f) of this section, and such
other information, as the form (or accom-
panying instructions) may prescribe. (For
exceptions to this rule, see paragraph (c)
of this section.) However, no such person
will be required to file under this section
if a United States person is a controlling
partner of such partnership.
(3) Separate returns for each partner-
ship. A United States person required to
report under this paragraph (a) must file a
separate annual information return for each
foreign partnership with respect to which
the person has a reporting obligation.
(b) Ownership determinations—(1)
Control.A person (or persons) is deemed
to be in control of a partnership if that
person (or persons) owns, directly or indi-
rectly, more than a 50-percent interest in
the partnership (a controlling partner).
(2) 50-percent interest.A 50-percent
interest in a partnership is an interest
equal to 50 percent of the capital interest,
50 percent of the profits interest, or an in-
terest to which 50 percent of the deduc-
tions or losses are allocated.
(3) 10-percent interest.A 10-percent
interest in a partnership is an interest
equal to 10 percent of the capital interest,
10 percent of the profits interest, or an in-
terest to which 10 percent of the deduc-
tions or losses are allocated.
(4) Attribution rules.For purposes of
determining an interest in a partnership,
the rules of section 267(c) (other than sec-
tion 267(c)(3)) apply (taking into account
such rules refer to corporations and not to
partnerships).
(5) Determination of amount of inter-
est.Whether a person has a 50-percent
interest, or a 10-percent interest, as de-
scribed in paragraphs (b)(2) and (3) of
this section, will be determined for each
taxable year by reference to the agree-
ment of the partners relating to such inter-
ests during the taxable year.
(c) Exceptions when more than one
partner is required to file duplicative in-
formation—(1) More than one control-
ling partner—(i) In general.If, with re-
spect to the same foreign partnership for
the same annual accounting period, more
than one United States person is required
to file an information return under para-
graph (a)(1) of this section by reason of
being a controlling partner, then in lieu of
all such controlling partners making sepa-
rate returns, only one return from one of
the controlling partners will be required.
However, a return by a United States per-
son that is a controlling partner by reason
of an interest to which losses or deduc-
tions are allocated may only satisfy this
exception if there is no United States per-
son that is a controlling partner by reason
of an interest in capital or profits.
(ii) Manner of reporting.The return
must be filed with the income tax return
of the person making the return in the
manner provided by Form 8865 and the
accompanying instructions. The return
must contain all of the information which
would have been required to be reported
by this section if separate information re-
turns had been filed.
(iii) Controlling partners not required
to file. Those partners not required to file
under paragraph (c)(1)(i) of this section
must file the statement required by para-
graph (c)(3) of this section.
(2) Certain indirect owners excepted
from furnishing information.Any United
States person required to file an informa-
tion return under this section need not fur-
nish a return, if all of the following condi-
tions are met—
(i) The person does not directly own
any interest in the foreign partnership;
(ii) The person is required to file the in-
formation return solely by reason of attri-
bution of ownership from a United States
person under paragraph (b)(4) of this sec-
tion; and
(iii) The United States person from
whom the ownership interest is attributed
files all of the information required under
this section.
(3) Statement required.A United
States person that does not furnish an in-
formation return under the provisions of
paragraph (c)(1) or (2) of this section
must file a statement with the person’s in-
come tax return—
(i) Indicating that the filing require-
ment has been or will be satisfied;
(ii) Identifying the person required to
file the return;
(iii) Identifying the IRS Service Center
where the return is required to be filed;
and
(iv) Providing any additional informa-
tion as Form 8865 and the accompanying
instructions may require.
(d) Reporting under this section not re-
quired of partnerships excluded from the
application of subchapter K—(1) Elec-
tion to be wholly excluded.The reporting
requirements of this section will not apply
to any United States person in respect of
an eligible partnership as described in
§1.761–2(a) in which that United States
person is a partner, if such partnership has
validly elected to be excluded from all of
the provisions of subchapter K of chapter
1 of the Internal Revenue Code in the
manner specified in §1.761–2(b)(2)(i).
(2) Deemed excluded.The reporting re-
quirements of this section will not apply
to any United States person in respect of
an eligible partnership as described in
§1.761–2(a) in which that United States
person is a partner, if such partnership is
validly deemed to have elected to be ex-
cluded from all of the provisions of sub-
chapter K of chapter 1 of the Internal
Revenue Code in accordance with the
provisions of §1.761–2(b)(2)(ii).
(e) Period covered by return.The in-
formation required under this section
must be furnished for the annual account-
ing period of the foreign partnership end-
ing with or within the United States per-
son’s taxable year. The partnership’s
annual accounting period is the annual pe-
riod on the basis of which it regularly
computes its income in keeping its books.
(See section 706 for the partnership’s tax-
able year.)
(f) Contents of return.The return re-
quired to be filed under this section must
contain information in such form or man-
ner as Form 8865 (and its accompanying
instructions) prescribes with respect to
each foreign partnership, including–-
(1) The name, address, and employer
identification number, if any, of the part-
nership;
(2) The nature of the partnership’s busi-
ness and principal place where conducted;
(3) The date of organization and coun-
try under whose laws the partnership was
organized;
(4) A balance sheet showing assets, lia-
bility, and capital of the partnership as of
the end of the annual accounting period;
September 28, 1998321998–39 I.R.B.

(5) A summary of the outstanding own-
ership interests in the partnership;
(6) A summary showing the total
amount of transactions between the part-
nership and the person required to file the
return, any other partnership or corpora-
tion controlled by that person, or any
United States person owning at the time
of the transaction at least a 10-percent in-
terest in the foreign partnership;
(7) The amount of the partnership’s for-
eign income taxes paid or accrued;
(8) A statement of the partnership’s in-
come for the annual accounting period;
(9) A statement of the partners’ distrib-
utive share items of income, gain, losses,
deductions and credits; and
(10) A statement of income, gain,
losses, deductions and credits allocated to
each United States person holding at least
a 10-percent interest in the foreign part-
nership.
(g) Method of reporting.Except as
otherwise provided on Form 8865 or the
accompanying instructions, all amounts
required to be furnished on the informa-
tion return must be expressed in United
States dollars with a statement of the ex-
change rates used. All statements re-
quired on or with Form 8865 pursuant to
this section must be in the English lan-
guage.
(h) Time and place for filing return—
(1) In general. Form 8865 must be filed
with the United States person’s income
tax return (including a partnership return
of income) on or before the due date re-
quired by law (including extensions) of
that return.
(2) Duplicate return. If required by
the instructions to Form 8865, a duplicate
Form 8865 must also be filed.
(i) Definition of United States person.
The term United States person is defined
in section 7701(a)(30).
(j) Failure to comply with reporting re-
quirement—(1) Dollar amount penalty—
(i) In general.Any United States person
required to file an information return
under Section 6038 and paragraph (a) of
this section that fails to comply (as de-
fined in paragraph (j)(3) of this section)
with the applicable reporting require-
ments of this section, must pay a penalty
of $10,000 for each annual accounting pe-
riod of each foreign partnership with re-
spect to which the failure occurs.
(ii) Increase in penalty. If a failure to
comply with the applicable reporting re-
quirements of section 6038 and this sec-
tion continues for more than 90 days after
the date on which the district director
mails notice of the failure to the United
States person required to file Form 8865,
the person must pay an additional penalty
of $10,000 for each 30-day period (or
fraction thereof) during which the failure
continues after the 90-day period has ex-
pired.
(iii) Limitation.The additional penalty
imposed on any United States person by
section 6038(b)(2) and paragraph
(j)(1)(ii) of this section is limited to a
maximum of $50,000 for each partnership
for each annual accounting period with
respect to which the failure occurs.
(2) Penalty of reducing foreign tax
credit—(i) Effect on foreign tax credit.
Failure to comply with the reporting re-
quirements of section 6038 and this sec-
tion may cause a reduction of foreign tax
credits under section 901 (taxes of foreign
countries and of possessions of the United
States). In applying section 901 to a
United States person for any taxable year
within which its foreign partnership’s an-
nual accounting period ended, the amount
of taxes paid (and deemed paid under sec-
tions 902 and 960) by the United States
person will be reduced by 10 percent if
the person fails to comply. However, no
tax deemed paid under section 904(c) will
be reduced under the provisions of this
paragraph (j)(2)(i).
(ii) Reduction for continued failure.If
a failure to comply with the reporting re-
quirements of section 6038 and this sec-
tion continues for more than 90 days after
the date on which the district director
mails notice of the failure to the person
required to file Form 8865, then the
amount of the reduction in paragraph
(j)(2)(i) of this section will be 10 percent,
plus an additional 5 percent for each 3-
month period (or fraction thereof) during
which the failure continues after the 90-
day period has expired.
(iii) Limitation on reduction.The
amount of the reduction under paragraph
(j)(2)(ii) of this section for each failure to
furnish information required under this
section will not exceed the greater of
$10,000, or the income of the foreign
partnership for its annual accounting pe-
riod with respect to which the failure oc-
curs.
(iv) Offset for dollar amount penalty
imposed.The total amount of the reduc-
tion which, but for this paragraph
(j)(2)(iv), may be made under this para-
graph (j)(2) with respect to any separate
failure, may not exceed the maximum
amount of the reductions which may be
imposed, reduced (but not below zero) by
the dollar amount penalty imposed by
paragraph (j)(1) of this section with re-
spect to the failure.
(3) Failure to comply.A failure to
comply is separately determined for each
foreign partnership for which a United
States person has a reporting obligation.
A failure to comply with the requirements
of section 6038 includes—
(i) The failure to report at the proper
time and in the proper manner any infor-
mation required to be reported under the
rules of this section; or
(ii) The provision of false or inaccurate
information in purported compliance with
the requirements of this section.
(4) Reasonable cause limitation.The
time prescribed for furnishing informa-
tion under paragraph (h) of this section,
and the beginning of the 90-day period
after the district director mails notice
under paragraphs (j)(1)(ii) and (2)(ii) of
this section, will be treated as being not
earlier than the last day on which reason-
able cause existed for failure to furnish
the information. The United States per-
son may show reasonable cause by pro-
viding a written statement to the district
director having jurisdiction of the per-
son’s return for the year of the transfer,
setting forth the reasons for the failure to
comply. Whether a failure to comply was
due to reasonable cause will be deter-
mined by the district director under all
facts and circumstances.
(5) Statute of limitations.For excep-
tions to the limitations on assessment and
collection in the event of a failure to pro-
vide information under section 6038, see
section 6501(c)(8).
(k) Effective date. This section applies
to annual accounting periods of a partner-
ship beginning on or after the date final
regulations on this subject are published
in theFederal Register.
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
1998–39 I.R.B.33September 28, 1998

(Filed by the Office of the Federal Register on
September 8, 1998, 8:45 a.m., and published in the
issue of the Federal Register for September 9, 1998,
63 F.R. 48144)
Notice of Proposed Rulemaking
and Notice of Public Hearing
Roth IRAs
REG–115393–98
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing and notice of public hearing.
SUMMARY: This document contains
proposed regulations relating to Roth
IRAs. Roth IRAs were created by the
Taxpayer Relief Act of 1997 as a new
type of IRA that individuals can use be-
ginning in 1998. The proposed regula-
tions reflect changes relating to Roth
IRAs contained in the Internal Revenue
Service Restructuring and Reform Act of
1998. The proposed regulations affect in-
dividuals establishing Roth IRAs, benefi-
ciaries under Roth IRAs, and trustees,
custodians or issuers of Roth IRAs. This
document also provides notice of a public
hearing on these proposed regulations.
DATES: Written comments must be re-
ceived by December 2, 1998. Outlines of
topics to be discussed at the public hear-
ing scheduled for Thursday, December
10, 1998, at 10 a.m. must be received by
Thursday, November 19, 1998.
ADDRESSES: Send submissions to
CC:DOM:CORP:R (REG–115393–98),
room 5226, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington DC 20044. Submissions may be
hand delivered between the hours of 8
a.m. and 5 p.m. to: CC:DOM:CORP:R
(REG–106177–97), Courier’s Desk, In-
ternal Revenue Service, 1111 Constitution
Avenue NW, Washington DC. Alterna-
tively, taxpayers may submit comments
electronically via the Internet by selecting
the “Tax Regs” option on the IRS Home
Page, or by submitting comments directly
to the IRS Internet site at http://www.irs.
ustreas.gov/prod/tax_regs/comments.html.
The public hearing will be held in room
2615, Internal Revenue Building, 1111
Constitution Avenue NW, Washington,
DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the proposed regula-
tions, Cathy A. Vohs, (202) 622-6030;
concerning the public hearing, Michael
Slaughter (202) 622-7180 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information con-
tained in this notice of proposed rulemak-
ing have been submitted to the Office of
Management and Budget for review in ac-
cordance with the Paperwork Reduction
Act of 1995 (44 U.S.C. 3507(d)). Com-
ments on the collection of information
should be sent to the Office of Manage-
ment and Budget, Attn: Desk Officer for
the Department of the Treasury, Office of
Information and Regulatory Affairs,
Washington DC 20503, with copies to the
Internal Revenue Service,Attn: IRS Re-
ports Clearance Officer, OP:FS:FP, Wash-
ington, DC 20224. Comments on the col-
lections of information should be received
by November 2, 1998. Comments are
specifically requested concerning:
Whether the proposed collections of in-
formation are necessary for the proper
performance of the functions of the IRS,
including whether the information will
have practical utility;
The accuracy of the estimated burden
associated with the proposed collections
of information;
How the quality, utility, and clarity of
the information to be collected may be en-
hanced;
How the burden of complying with the
proposed collections of information may
be minimized, including through the ap-
plication of automated collection tech-
niques or other forms of information tech-
nology; and
Estimates of capital or start-up costs and
costs of operation, maintenance, and pur-
chase of service to provide information.
The collections of information in these
proposed regulations are in §§1.408A–2,
1.408A–4, 1.408A–5, and 1.408A–7.
This information is required by the IRS to
comply with the provisions of the Tax-
payer Relief Act of 1997, and in particu-
lar, with section 408A(b), (c), and (d).
This information will be used by individ-
uals and businesses or other for-profit in-
stitutions, and not-for-profit institutions,
such as trustees, custodians or issuers of
Roth IRAs, in establishing Roth IRAs and
recharacterizing IRA contributions. This
information will also be used by: (1) the
IRS and individuals converting traditional
IRAs to Roth IRAs to calculate the
amount includible in gross income on ac-
count of such conversions, (2) the IRS
and individuals receiving distributions
from Roth IRAs to calculate the amount
includible in gross income on account of
such distributions, (3) the IRS and indi-
viduals recharacterizing IRA contribu-
tions to properly account for such rechar-
acterizations, and (4) the IRS and trustees,
custodians or issuers of Roth IRAs to
properly report (a) the amount of contri-
butions to and distributions from Roth
IRAs, and (b) recharacterizations of IRA
contributions (including Roth IRA contri-
butions). The collections of information
are required to obtain the benefit of hav-
ing a Roth IRA. The likely respondents
and/or recordkeepers are individuals, and
trustees, custodians, or issuers of Roth
IRAs. The burden for (1) calculating the
amount includible in gross income on ac-
count of conversions and Roth IRA distri-
butions, and (2) accounting for recharac-
terizations is reflected in the burden for
Form 8606. The burden for electing to
continue the 4-year spread of income in-
clusion (only applicable to certain spousal
beneficiaries) is reflected in the burden
for either Form 8606 or Form 1040,
whichever is applicable. The burden for
reporting contributions is reflected in the
burden for Form 5498. The burden for re-
porting distributions is reflected in the
burden for Form 1099–R.
Estimated total annual reporting/record-
keeping burden: 125,000 hours (50,000
hours for designating an IRA as a Roth
IRA, plus 75,000 hours for recharacteriz-
ing an IRA contribution).
Estimated average annual burden per re-
spondent/recordkeeper: 1 minute for des-
ignating an IRA as a Roth IRA and 30
minutes for recharacterizing an IRA con-
tribution.
Estimated number of respondents/record-
keepers: 3,150,000 (3,000,000 respon-
dents for designating an IRA as a Roth
IRA, plus 150,000 respondents for rechar-
acterizing an IRA contribution).
September 28, 1998341998–39 I.R.B.

Estimated annual frequency of responses:
on occasion.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it dis-
plays a valid control number assigned by
the Office of Management and Budget.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
Section 408A of the Internal Revenue
Code (Code), which was added by section
302 of the Taxpayer Relief Act of 1997,
Public Law 105–34 (111 Stat. 788), estab-
lishes the Roth IRA as a new type of indi-
vidual retirement plan, effective for tax-
able years beginning on or after January
1, 1998. The provisions of section 408A
were amended by the Internal Revenue
Service Restructuring and Reform Act of
1998, Public Law 105–206 (112 Stat.
685).
A Roth IRA generally is treated under
the Code like a traditional IRA with sev-
eral significant exceptions. Similar to tra-
ditional IRAs, income on undistributed
amounts accumulated under a Roth IRA is
exempt from Federal income tax, and
contributions to Roth IRAs are subject to
specific limitations. Unlike traditional
IRAs, contributions to Roth IRAs cannot
be deducted from gross income, but quali-
fied distributions from Roth IRAs are ex-
cludable from gross income. These pro-
posed regulations set forth specific rules
for Roth IRAs in accordance with the pro-
visions of section 408A.
Explanation of Provisions
General Provisions and Establishment of
Roth IRAs
Proposed §1.408A–1 contains general
provisions regarding Roth IRAs, and pro-
posed §1.408A–1 contains provisions re-
garding the establishment of Roth IRAs.
As described in proposed §1.408A–1, a
Roth IRA is treated for Federal tax pur-
poses in the same manner as an individual
retirement plan except as otherwise pro-
vided in section 408A and the proposed
regulations. Thus, all the rules of section
408 and the regulations under section 408
apply to Roth IRAs to the extent they are
not inconsistent with section 408A or
these proposed regulations.
Section 408A(b) defines a Roth IRA as
an individual retirement plan which is
designated at the time of its establishment
as a Roth IRA. That section also grants
the Secretary of the Treasury authority to
prescribe the manner for designating an
individual retirement plan as a Roth IRA.
Proposed §1.408A–2 provides that a Roth
IRA instrument must clearly designate the
IRA as a Roth IRA, and that designation
cannot later be changed. Thus, a taxpayer
may not designate an IRA as a Roth IRA
and later redesignate the Roth IRA as a
traditional IRA or otherwise treat the Roth
IRA as though it were a traditional IRA
for Federal tax purposes.
Regular Contributions
Proposed §1.408A–3 sets forth rules
regarding regular (i.e., non-conversion)
contributions to a Roth IRA. Unlike con-
tributions to traditional IRAs, contribu-
tions to Roth IRAs are not deductible
under any circumstances. A taxpayer’s
regular contributions to all his or her Roth
IRAs for a year are limited to the lesser of
$2,000 or the taxpayer’s compensation for
that year. As with traditional IRAs, a spe-
cial rule for married taxpayers permits
one spouse to treat the other spouse’s
compensation as his or her own for pur-
poses of the limit on regular contribu-
tions. The limit is reduced by any
amounts that the taxpayer contributes for
that year to an individual retirement plan
other than a Roth IRA (although employer
contributions, including elective contribu-
tions, to a SEP or SIMPLE IRA Plan do
not reduce the contribution limit). Addi-
tionally, the contribution limit (deter-
mined without regard to any reduction for
traditional IRA contributions) is phased
out for modified adjusted gross income
between $95,000 and $110,000 for single
taxpayers, between $150,000 and
$160,000 for married taxpayers filing
joint returns, and between $0 and $10,000
for married taxpayers filing separate re-
turns. Any contribution in excess of the
contribution limit is subject to the 6-per-
cent excise tax under section 4973 unless
it is distributed to the taxpayer (with allo-
cable net income) under section 408(d)(4)
by the Federal income tax return due date
(with extensions) for the year of the con-
tribution.
The proposed regulations define the
terms compensation and modified ad-
justed gross income. The definition of
compensation is the same as that applica-
ble under section 219(f)(1) for determin-
ing the amount, if any, that a taxpayer
may contribute to a traditional IRA. This
definition does not include amounts trans-
ferred from one individual to another by
gift (for example, a gift from a parent to a
child). The definition of modified ad-
justed gross income is based on the defin-
ition of adjusted gross income applicable
under section 219(g)(3)(A) for determin-
ing the amount, if any, that a taxpayer
may deduct for a contribution to a tradi-
tional IRA where the taxpayer is an active
participant in an employee plan. How-
ever, the definition of modified adjusted
gross income applicable to Roth IRAs
provides that any amount includible in
gross income because of a Roth IRA con-
version is disregarded in determining
modified adjusted gross income. Addi-
tionally, for taxable years beginning after
December 31, 2004, modified adjusted
gross income does not include the amount
of any required minimum distribution
from an IRA for purposes of determining
conversion eligibility.
As with traditional IRAs, regular con-
tributions to a Roth IRA may be made as
late as the Roth IRA owner’s Federal in-
come tax return due date (not including
extensions) for the taxable year to which
they relate. Thus, Roth IRA contributions
may be made by most taxpayers for tax-
able year 1998 at any time until April 15,
1999. Unlike traditional IRAs, contribu-
tions to a Roth IRA may be made after the
Roth IRA owner has reached age 70
1
⁄
2
.
Conversions
Proposed §1.408A–4 provides rules re-
garding Roth IRA conversions. In gen-
eral, a taxpayer whose modified adjusted
gross income does not exceed $100,000
may “convert” an amount held in a non-
Roth IRA (i.e., a traditional IRA or SIM-
PLE IRA) to a Roth IRA. The conversion
may be made in one of three ways: (1) a
distribution from a non-Roth IRA may be
rolled over to a Roth IRA within 60 days;
(2) an amount in a non-Roth IRA of one
financial institution may be transferred in
a trustee-to-trustee transfer to a Roth IRA
1998–39 I.R.B.35September 28, 1998

of a different financial institution; or (3)
an amount in a non-Roth IRA may be
transferred to a Roth IRA of the same fi-
nancial institution. (In the third case, no
physical transfer of assets is necessary,
but the instrument governing the non-
Roth IRA must, of course, be replaced by
a Roth IRA instrument.) The conversion
amount must be a qualified rollover con-
tribution under section 408A(e) and,
therefore, must satisfy section 408(d)(3)
(other than the one-rollover-per-year rule
of that section). Any amount distributed
from a non-Roth IRA prior to the 1998
taxable year may not be contributed to a
Roth IRA as a conversion contribution.
In the case of a conversion made by
means of a distribution and rollover con-
tribution, the $100,000 limit applies to the
year in which the distribution from the
non-Roth IRA is made. For married tax-
payers, the $100,000 limit applies to the
joint modified adjusted gross income of
the couple, and a married taxpayer filing a
separate return is not allowed to convert
regardless of modified adjusted gross in-
come (although a taxpayer who has lived
apart from his or her spouse for the entire
taxable year is treated as not married for
these purposes).
The proposed regulations provide that
amounts held in a SEP IRA or a SIMPLE
IRA may be converted to a Roth IRA. In
the case of a SIMPLE IRA, a conversion
may be done only after the expiration of
the 2-year period described in section
72(t)(6). See Q&A I-2 of Notice 98–4
(1998–2 I.R.B. 25). Once a SEP IRA or
SIMPLE IRA has been converted to a
Roth IRA, the SEP IRA or the SIMPLE
IRA becomes a Roth IRA and ceases to be
part of a SEP or a SIMPLE IRA Plan;
thus, no SEP or SIMPLE IRA Plan contri-
butions may be made to the Roth IRA.
Amounts held in retirement plans other
than IRAs—such as section 401(a) quali-
fied plans and section 403(b) annuity con-
tracts—cannot be directly converted to a
Roth IRA.
Any amount converted from a non-
Roth IRA to a Roth IRA is treated as dis-
tributed from the non-Roth IRA and
rolled over to the Roth IRA regardless of
the actual means by which the conversion
is effected. The conversion amount is
generally includible in gross income for
the year of the conversion under sections
408(d)(1) and 408(d)(2). For this pur-
pose, in the case of a conversion effected
by an actual distribution and rollover con-
tribution (rather than a trustee-to-trustee
transfer or a transfer between IRAs of the
same financial institution), the year of the
distribution from the non-Roth IRA is the
year that the conversion amount is in-
cludible in gross income.
The conversion amount generally is not
subject to the 10-percent additional tax
under section 72(t). However, section
408A(d)(3)(F) provides that the 10-per-
cent tax applies to a distribution of a con-
version amount made within the 5-tax-
able-year period beginning with the
taxable year in which the conversion to
which it is attributable was made. Addi-
tionally, the proposed regulations provide
that a taxpayer’s conversion of an amount
from a non-Roth IRA from which the tax-
payer was receiving a series of substan-
tially equal periodic payments under sec-
tion 72(t)(2)(A)(iv) will not be treated as
a modification of that series under section
72(t)(4) and thus will not trigger recapture
of the section 72(t) tax on previous distri-
butions from the non-Roth IRA as long as
the series of substantially equal periodic
payments is continued under the Roth
IRA (or if section 72(t)(4) would other-
wise not apply).
Taxpayers making conversions during
1998 are eligible for a 4-year spread
under which a conversion amount can be
included in income ratably over taxable
years 1998 through 2001 rather than
solely in 1998. Special rules apply to this
4-year spread if a taxpayer dies before in-
clusion of the full conversion amount. In
such a case, any remaining includible por-
tion of the conversion amount generally
must be included in the taxpayer’s gross
income for the taxable year that includes
the date of his or her death. However, if
the taxpayer’s surviving spouse is the sole
beneficiary of all the taxpayer’s Roth
IRAs (as determined under the aggrega-
tion rule of section 408A(d)(4)(A)), the
spouse may elect to continue application
of the 4-year spread. Finally, the distribu-
tion of any amount attributable to a 1998
conversion to which the 4-year spread ap-
plies will accelerate the inclusion of any
amount otherwise deferred to a later tax-
able year.
A required minimum distribution may
not be converted to a Roth IRA because
section 408(d)(3)(E) prohibits the rollover
of any such distribution. Under the pro-
posed regulations, if a non-Roth IRA
owner has reached age 70
1
⁄
2
, any amount
distributed (or treated as distributed be-
cause of a conversion) from the IRA for
that year consists of the required mini-
mum distribution to the extent that an
amount equal to the required minimum
distribution for that year has not yet been
distributed (or treated as distributed).
Thus, if a taxpayer who is required to re-
ceive a minimum distribution of $10,000
from his or her non-Roth IRA for a tax-
able year attempts to convert $11,000 to a
Roth IRA prior to receiving the required
minimum distribution, $10,000 of the
conversion amount would be treated as
the required minimum distribution and
would be ineligible for conversion. This
result is not affected by the means
through which the taxpayer effects the
conversion or by whether an amount
greater than or equal to $10,000 remains
in the taxpayer’s non-Roth IRA after the
conversion.
Recharacterizations of IRA Contributions
Proposed §1.408A–5 provides special
rules for the recharacterization of IRA
contributions (including Roth IRA regular
and conversion contributions). Section
408A(d)(6) provides that, except as other-
wise provided by the Secretary of the
Treasury, an IRA contribution that is
transferred to another IRA in a trustee-to-
trustee transfer on or before the Federal
income tax return due date (with exten-
sions) for the taxable year of the contribu-
tion is treated as made to the transferee
IRA and not the transferor IRA. Section
408A(d)(6) requires that the transfer in-
clude allocable net income on the contri-
bution and that no deduction be allowed
for the contribution to the transferor IRA.
This statutory provision was intended to
permit a taxpayer who had converted an
amount held in a non-Roth IRA to a Roth
IRA and later discovered that his or her
modified adjusted gross income for the
year of the conversion exceeded $100,000
to correct the conversion by retransferring
the converted amount to a non-Roth IRA.
The proposed regulations interpret section
408A(d)(6) liberally to provide broad re-
lief to taxpayers who wish to change the
nature of an IRA contribution (and not
only to allow taxpayers to correct Roth
IRA conversions for which they were in-
September 28, 1998361998–39 I.R.B.

eligible). Moreover, the proposed regula-
tions make application of section
408A(d)(6) elective by the taxpayer and
permit the taxpayer to recharacterize all
or any portion of an IRA contribution.
Under the proposed regulations, a tax-
payer may elect whether to recharacterize
a contribution made to one type of IRA by
having it transferred in a trustee-to-trustee
transfer to a different type of IRA. As
with a conversion, a recharacterization
can be effected simply by transferring
IRA assets between two IRAs of a single
financial institution. Regardless of how
effected, a recharacterization transfer is
not considered a rollover for purposes of
the one-rollover-per-year rule of section
408(d)(3). The taxpayer makes the elec-
tion to recharacterize by notifying both
the transferor IRA trustee and the trans-
feree IRA trustee and by providing certain
information to these trustees (including a
direction to make the transfer). Notifica-
tion to the trustees constitutes the tax-
payer’s election to apply section
408A(d)(6), and the taxpayer cannot re-
voke or modify that election after the
recharacterization transfer has been made.
A recharacterized contribution will be
treated for Federal income tax purposes as
having been contributed to the transferee
IRA (rather than the transferor IRA) on
the same date and for the same taxable
year that the contribution was initially
made to the transferor IRA. In effect, the
transferee IRA “steps into the shoes” of
the transferor IRA with respect to the tax-
payer’s original contribution.
The recharacterization transfer must in-
clude allocable earnings on the original
contribution, and the proposed regulations
provide that the rules of Treasury Regula-
tions §1.408–4(c)(2)(ii) apply for deter-
mining such allocable earnings. If the
original contribution has experienced net
losses as of the time of the recharacteriza-
tion, the transfer of the entire original con-
tribution less such losses will generally
constitute a transfer of the entire contribu-
tion. The taxpayer must treat the contribu-
tion as made to the transferee IRA on his
or her Federal income tax return for the
year to which the original contribution (to
the transferor IRA) relates.
Amounts that cannot be recharacterized
include amounts paid into an IRA by tax-
free rollover or transfer (other than a
rollover or transfer from a traditional IRA
to a SIMPLE IRA) and employer contri-
butions under a SIMPLE IRA Plan or a
SEP. The proposed regulations also pro-
vide that, once an amount has been con-
tributed to an IRA, any tax-free rollover
or transfer of that amount to another IRA
may be disregarded in applying the
recharacterization rules. Thus, for exam-
ple, if a taxpayer contributes $2,000 to a
Roth IRA during a taxable year and rolls
that contribution over to another Roth
IRA during the following taxable year, the
rollover between Roth IRAs is disre-
garded, and the taxpayer may recharacter-
ize the $2,000 Roth IRA contribution by
having it transferred from the second
Roth IRA to a traditional IRA in accor-
dance with section 408A(d)(6) and the
proposed regulations.
Distributions
Proposed §1.408A–6 provides rules for
the treatment of Roth IRA distributions.
Under section 408A(d), qualified distrib-
utions from a Roth IRA are not includible
in gross income. A qualified distribution
is a distribution that is both (1) made after
the end of the 5-taxable-year period that
begins with the first taxable year for
which an individual first makes any regu-
lar or conversion contribution to a Roth
IRA and (2) made at any time after the
Roth IRA owner has reached age 59
1
⁄
2
,
made to a beneficiary (or to the Roth IRA
owner’s estate) after the Roth IRA
owner’s death, attributable to the Roth
IRA owner’s being disabled within the
meaning of section 72(m)(7), or made for
a first-time home purchase to which sec-
tion 72(t)(2)(F) applies. The proposed
regulations provide that any distribution
from a Roth IRA made to the surviving
spouse of a Roth IRA owner who has
elected to treat the Roth IRA as his or her
own in accordance with the terms of the
trust instrument or under Q&A–4 of Pro-
posed Treasury Regulations §1.408–8 is
not treated as made after the Roth IRA
owner’s death.
The proposed regulations provide that
the 5-taxable-year period for determining
whether a distribution is a qualified distri-
bution is not recalculated when a Roth
IRA owner dies. Thus, if a Roth IRA
owner contributes an amount to a Roth
IRA in 1998 and dies in 2004, a distribu-
tion made to a beneficiary in 2004 will be
a qualified distribution. Generally, the
5-taxable-year period with respect to a
beneficiary’s inherited Roth IRA is deter-
mined independently of the 5-taxable-
year period for any Roth IRA of which the
beneficiary is the owner. However, if the
beneficiary of a Roth IRA is the surviving
spouse of the Roth IRA owner and if the
surviving spouse owns his or her own
Roth IRA, the 5-taxable-year period for
both the Roth IRA of which the surviving
spouse is the beneficiary and the Roth
IRA of which the surviving spouse is the
owner ends with the earlier of the 5-tax-
able-year periods for the two Roth IRAs.
A Roth IRA distribution other than a
qualified distribution is generally includi-
ble in the taxpayer’s gross income to the
extent that the distribution, when added to
all prior distributions from the taxpayer’s
Roth IRAs (whether or not those distribu-
tions were qualified distributions) ex-
ceeds the taxpayer’s total contributions to
all his or her Roth IRAs. To the extent in-
cludible in gross income, such a distribu-
tion will also be subject to the 10-percent
additional tax of section 72(t) unless there
is an applicable exception under that sec-
tion. Such a distribution, however, will
not be includible in gross income if it is
rolled over to another Roth IRA in accor-
dance with section 408(d)(3). Also, a dis-
tribution of an excess contribution under
section 408(d)(4) is not includible in
gross income (although the allocable net
income that must be distributed with the
excess contribution is includible in gross
income for the taxable year of the excess
contribution).
The proposed regulations provide ag-
gregation and ordering rules for Roth
IRAs in accordance with section
408A(d)(4). Under these rules, a Roth
IRA is not aggregated with a non-Roth
IRA, but all a taxpayer’s Roth IRAs are
aggregated with each other. Roth IRA dis-
tributions are treated as made first from
Roth IRA contributions and second from
earnings. Distributions that are treated as
made from contributions are treated as
made first from regular contributions and
then from conversion contributions on a
first-in, first-out basis. A distribution allo-
cable to a particular conversion contribu-
tion is treated as consisting first of the por-
tion (if any) of the conversion contribution
that was includible in gross income by
reason of the conversion.
1998–39 I.R.B.37September 28, 1998

The proposed regulations provide that,
in applying these aggregation and order-
ing rules: all distributions from all of a
taxpayer’s Roth IRAs during a taxable
year are aggregated; all regular contribu-
tions made for the same taxable year to all
the individual’s Roth IRAs are aggregated
and added to the undistributed total regu-
lar contributions for prior taxable years;
all conversion contributions received dur-
ing the same taxable year by all the indi-
vidual’s Roth IRAs are aggregated (with a
special rule for a conversion contribution
made by distribution during 1998 and
rollover during 1999 to which the 4-year
spread applies); and rollovers between
Roth IRAs are disregarded. The proposed
regulations also provide special rules for
applying the aggregation and ordering
rules in the case of recharacterizations
under section 408A(d)(6). Distributions
of excess contributions and allocable net
income pursuant to section 408(d)(4) are
treated differently under the ordering
rules. Specifically, an excess contribution
that is distributed under section 408(d)(4)
is treated as though it was never con-
tributed, and any allocable net income
thereon is includible in gross income for
the taxable year of the contribution with-
out regard to whether the taxpayer still
has undistributed basis in his or her Roth
IRAs. The proposed regulations provide
that, for purposes of these ordering rules,
different types of contributions are allo-
cated pro rata among multiple Roth IRA
beneficiaries after the Roth IRA owner’s
death.
Unlike traditional IRAs, the pre-death
minimum distribution rules of sections
408(a)(6) and 408(b)(3) (which incorpo-
rate the rules of section 401(a)(9)) do not
apply to Roth IRAs. Under the proposed
regulations, on the death of a Roth IRA
owner, the rules in Proposed Treasury
Regulations §1.408–8 apply as though the
Roth IRA owner died before his or her re-
quired beginning date. Thus, the entire
amount of the Roth IRA must generally
be distributed within five years of the
Roth IRA owner’s death unless it is dis-
tributed over the life expectancy of a des-
ignated beneficiary beginning prior to the
end of the calendar year following the
year of the owner’s death. The proposed
regulations also provide that, where the
sole beneficiary of a Roth IRA is the Roth
IRA owner’s surviving spouse, the spouse
may delay distributions until the Roth
IRA owner would have reached age 70
1
⁄
2
or may treat the Roth IRA as his or her
own. Under the proposed regulations,
section 401(a)(9) applies separately to
Roth IRAs and other retirement plans; it
also applies separately to Roth IRAs in-
herited by a beneficiary from one dece-
dent and any other Roth IRAs of which
the beneficiary is either the beneficiary of
another decedent or the owner.
The proposed regulations provide that
section 3405 withholding applies to distri-
butions from Roth IRAs and to Roth IRA
conversions (although transition relief is
provided for 1998 conversions effected
by means of direct transfers of funds be-
tween IRAs). The proposed regulations
provide that the basis of property distrib-
uted from a Roth IRA is its fair market
value as of the date of the distribution and
that any amount distributed from a Roth
IRA and contributed to a retirement plan
other than a Roth IRA is not a rollover
contribution under section 408(d)(3) or a
qualified rollover contribution under sec-
tion 408A(e). The proposed regulations
also provide that a transfer of a Roth IRA
by gift would constitute an assignment of
the Roth IRA, with the effect that the as-
sets of the Roth IRA would be deemed to
be distributed to the Roth IRA owner and,
accordingly, treated as no longer held in a
Roth IRA.
Reporting Requirements
Proposed 1.408A–7 sets out the report-
ing requirements applicable to Roth
IRAs. In general, Roth IRA trustees (in-
cluding custodians and issuers) are sub-
ject to the same reporting requirements
that apply to trustees of traditional IRAs.
However, the instructions to applicable
Federal tax forms modify the information
generally required from Roth IRA trustees
(as well as Roth IRA owners) in certain
circumstances. For example, conversions
require the filing of a Form 1099–R and a
Form 8606. The proposed regulations in-
clude special rules for reporting of rechar-
acterization transactions. Trustees are
permitted to rely on reasonable represen-
tations of a Roth IRA owner or distributee
in discharging their reporting obligations.
The IRS is issuing additional guidance
on the reporting requirements applicable
to Roth IRAs and on other changes in the
laws relating to IRAs. This guidance will
be in the form of a notice published in the
Internal Revenue Bulletin.
Reliance
Taxpayers may rely on these proposed
regulations for guidance pending the is-
suance of final regulations. If, and to the
extent, future guidance is more restrictive
than the guidance in these proposed regu-
lations, the future guidance will be ap-
plied without retroactive effect.
Proposed Effective Date
These regulations are applicable to tax-
able years beginning on or after January
1, 1998, the effective date for section
408A.
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 also
has been determined that section 553(b)
of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these
regulations. Further, it is hereby certified,
pursuant to sections 603(a) and 605(b) of
the Regulatory Flexibility Act, that the
collection of information in these regula-
tions will not have a significant economic
impact on a substantial number of small
entities. The cost of the collection infor-
mation is insignificant because the pri-
mary reporting burden is on the individual
and not the small entity. Therefore the
collection of information will not have a
substantial economic impact. Therefore,
a regulatory flexibility analysis under the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. Pursuant to
section 7805(f) of the Internal Revenue
Code, this notice of proposed rulemaking
will be submitted to the Chief Counsel for
Advocacy of the Small Business Admin-
istration 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 submitted timely
to the IRS. All comments will be avail-
able for public inspection and copying.
September 28, 1998381998–39 I.R.B.

A public hearing has been scheduled
for Thursday, December 10, 1998, begin-
ning at 10 a.m. in room 2615 of the Inter-
nal Revenue Building, 1111 Constitution
Avenue, NW, Washington, DC. Because
of access restrictions, visitors will not be
admitted beyond the Internal Revenue
Building lobby more than 15 minutes be-
fore the hearing starts.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing.
Persons who wish to present oral com-
ments at the hearing must submit written
comments and an outline of the topics to
be discussed and the time to be devoted to
each topic (preferably a signed original
and eight (8) copies) by Thursday, No-
vember 19, 1998.
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 the proposed
regulations is Cathy A. Vohs, Office of
Associate Chief Counsel (Employee Ben-
efits and Exempt Organizations). How-
ever, other personnel from the IRS and
Treasury Department participated 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
part 1 is amended by adding entries in nu-
merical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
§1.408A–1 also issued under 26 U.S.C.
408A.
§1.408A–2 also issued under 26 U.S.C.
408A.
§1.408A–3 also issued under 26 U.S.C.
408A.
§1.408A–4 also issued under 26 U.S.C.
408A.
§1.408A–5 also issued under 26 U.S.C.
408A.
§1.408A–6 also issued under 26 U.S.C.
408A.
§1.408A–7 also issued under 26 U.S.C.
408A.
§1.408A–8 also issued under 26 U.S.C.
408A.
§1.408A–9 also issued under 26 U.S.C.
408A. * * *
Par. 2. An undesignated centerheading
and §§1.408A–0 through 1.408A–9 are
added to read as follows:
Roth IRAs; Questions and Answers
§1.408A-0 Table of contents.
This table of contents lists the regula-
tions relating to Roth IRAs under section
408A of the Internal Revenue Code as fol-
lows:
§1.408A–1 Roth IRAs in general.
§1.408A–2 Establishing a Roth IRA.
§1.408A–3 Contributions to Roth IRAs.
§1.408A–4 Converting amounts to Roth
IRAs.
§1.408A–5 Recharacterized contribu-
tions.
§1.408A–6 Distributions.
§1.408A–7 Reporting.
§1.408A–8 Definitions.
§1.408A–9 Effective date.
§1.408A–1 Roth IRAs in general.
Q-1 What is a Roth IRA?
A-1. (a) A Roth IRA is a new type of
individual retirement plan that individuals
can use, beginning in 1998. Roth IRAs
are described in section 408A, which was
added by the Taxpayer Relief Act of 1997
(TRA 97), Public Law 105–34 (111 Stat.
788).
(b) Roth IRAs are treated like tradi-
tional IRAs except where the Internal
Revenue Code specifies different treat-
ment. For example, aggregate contribu-
tions (other than by a conversion or other
rollover) to all an individual’s Roth IRAs
are not permitted to exceed $2,000 for a
taxable year. Further, income earned on
funds held in a Roth IRA is generally not
taxable. Similarly, the rules of section
408(e), such as the loss of exemption of
the account where the owner engages in a
prohibited transaction, apply to Roth
IRAs in the same manner as to traditional
IRAs.
Q-2. What are the significant differ-
ences between traditional IRAs and Roth
IRAs?
A-2. There are several significant dif-
ferences between traditional IRAs and
Roth IRAs under the Internal Revenue
Code. For example, eligibility to con-
tribute to a Roth IRA is subject to special
modified AGI (adjusted gross income)
limits; contributions to a Roth IRA are
never deductible; qualified distributions
from a Roth IRA are not includible in
gross income; the required minimum dis-
tribution rules under section 408(a)(6)
and (b)(3) (which generally incorporate
the provisions of section 401(a)(9)) do not
apply to a Roth IRA during the lifetime of
the owner; and contributions to a Roth
IRA can be made after the owner has at-
tained age 70
1
⁄
2
.
§1.408A–2 Establishing a Roth IRA.
Q-1. Who can establish a Roth IRA?
A-1. Except as provided in A-3 of this
section, only an individual can establish a
Roth IRA. In addition, in order to be eli-
gible to contribute to a Roth IRA for a
particular year, an individual must satisfy
certain compensation requirements and
adjusted gross income limits (see
§1.408A–3 A-3).
Q-2. How is a Roth IRA established?
A-2. A Roth IRA can be established
with any bank, insurance company, or
other person authorized in accordance
with §1.408–2(e) to serve as a trustee
with respect to IRAs. The document es-
tablishing the Roth IRA must clearly des-
ignate the IRA as a Roth IRA, and this
designation cannot be changed at a later
date. Thus, an IRA that is designated as a
Roth IRA cannot later be treated as a tra-
ditional IRA. However, see §1.408A–5
of this section for rules for recharacteriz-
ing certain IRA contributions.
Q-3. Can an employer or an association
of employees establish a Roth IRA to hold
contributions of employees or members?
A-3. Yes. Pursuant to section 408(c),
an employer or an association of employ-
ees can establish a trust to hold contribu-
tions of employees or members made
under a Roth IRA. Each employee’s or
member’s account in the trust is treated as
a separate Roth IRA that is subject to the
generally applicable Roth IRA rules. The
employer or association of employees
may do certain acts otherwise required by
an individual, for example, establishing
and designating a trust as a Roth IRA.
Q-4. What is the effect of a surviving
spouse of a Roth IRA owner treating an
IRA as his or her own?
1998–39 I.R.B.39September 28, 1998

A-4. If the surviving spouse of a Roth
IRA owner treats a Roth IRA as his or her
own as of a date, from that date forward,
the Roth IRA is treated as though it were
established for the benefit of the surviving
spouse and not the original Roth IRA
owner. Thus, for example, the surviving
spouse is treated as the Roth IRA owner
for purposes of applying the minimum
distribution requirements under section
408(a)(6) and (b)(3). Similarly, the sur-
viving spouse is treated as the Roth IRA
owner rather than a beneficiary for pur-
poses of determining the amount of any
distribution from the Roth IRA that is in-
cludible in gross income and whether the
distribution is subject to the 10-percent
additional tax under section 72(t).
§1.408A–3 Contributions to Roth IRAs.
Q-1. What types of contributions are
permitted to be made to a Roth IRA?
A-1. There are two types of contribu-
tions that are permitted to be made to a
Roth IRA: regular contributions and quali-
fied rollover contributions (including con-
version contributions). The term regular
contributions means contributions other
than qualified rollover contributions.
Q-2. When are contributions permitted
to be made to a Roth IRA?
A-2. (a) The provisions of section
408A are effective for taxable years be-
ginning on or after January 1, 1998.
Thus, the first taxable year for which con-
tributions are permitted to be made to a
Roth IRA by an individual is the individ-
ual’s taxable year beginning in 1998.
(b) Regular contributions for a particu-
lar taxable year must generally be con-
tributed by the due date (not including ex-
tensions) for filing a Federal income tax
return for that taxable year. (See
§1.408A–5 regarding recharacterization
of certain contributions.)
Q-3. What is the maximum aggregate
amount of regular contributions an indi-
vidual is eligible to contribute to a Roth
IRA for a taxable year?
A-3. (a) The maximum aggregate
amount that an individual is eligible to
contribute to all his or her Roth IRAs as a
regular contribution for a taxable year is
the same as the maximum for traditional
IRAs: $2,000 or, if less, that individual’s
compensation for the year.
(b) For Roth IRAs, the maximum
amount described in paragraph (a) of this
A-3 is phased out between certain levels
of modified AGI. For an individual who
is not married, the dollar amount is
phased out ratably between modified AGI
of $95,000 and $110,000; for a married
individual filing a joint return, between
modified AGI of $150,000 and $160,000;
and for a married individual filing sepa-
rately, between modified AGI of $0 and
$10,000. For this purpose, a married indi-
vidual who has lived apart from his or her
spouse for the entire taxable year and who
files separately is treated as not married.
Under section 408A(c)(3)(A), in applying
the phase-out, the maximum amount is
rounded up to the next higher multiple of
$10 and is not reduced below $200 until
completely phased out.
(c) If an individual makes regular con-
tributions to both traditional IRAs and
Roth IRAs for a taxable year, the maxi-
mum limit for the Roth IRA is the lesser
of—
(1) The amount described in paragraph
(a) of this A-3 reduced by the amount
contributed to traditional IRAs for the
taxable year; and
(2) The amount described in paragraph
(b) of this A-3. Employer contributions,
including elective deferrals, made under a
SEP or SIMPLE IRA Plan on behalf of an
individual (including a self-employed in-
dividual) do not reduce the amount of the
individual’s maximum regular contribu-
tion.
(d) The rules in this A-3 are illustrated
by the following examples:
Example 1.In 1998, unmarried, calendar-year
taxpayer B, age 60, has modified AGI of $40,000
and compensation of $5,000. For 1998, B can con-
tribute a maximum of $2,000 to a traditional IRA, a
Roth IRA or a combination of traditional and Roth
IRAs.
Example 2.The facts are the same as in Example
1.However, assume that B violates the maximum
regular contribution limit by contributing $2,000 to
a traditional IRA and $2,000 to a Roth IRA for 1998.
The $2,000 to B’s Roth IRA would be an excess
contribution to B’s Roth IRA for 1998 because an
individual’s contributions are applied first to a tradi-
tional IRA, then to a Roth IRA.
Example 3.The facts are the same as in Example
1,except that B’s compensation is $900. The maxi-
mum amount B can contribute to either a traditional
IRA or a Roth (or a combination of the two) for
1998 is $900.
Example 4.In 1998, unmarried, calendar-year
taxpayer C, age 60, has modified AGI of $100,000
and compensation of $5,000. For 1998, C con-
tributes $800 to a traditional IRA and $1,200 to a
Roth IRA. Because C’s $1,200 Roth IRA contribu-
tion does not exceed the phased-out maximum Roth
IRA contribution of $1,340 and because C’s total
IRA contributions do not exceed $2,000, C’s Roth
IRA contribution does not exceed the maximum per-
missible contribution.
Q-4. How is compensation defined for
purposes of the Roth IRA contribution
limit?
A-4. For purposes of the contribution
limit described in A-3 of this section, an
individual’s compensation is the same as
that used to determine the maximum con-
tribution an individual can make to a tra-
ditional IRA. This amount is defined in
section 219(f)(1) to include wages, com-
missions, professional fees, tips, and
other amounts received for personal ser-
vices, as well as taxable alimony and sep-
arate maintenance payments received
under a decree of divorce or separate
maintenance. Compensation also in-
cludes earned income as defined in sec-
tion 401(c)(2), but does not include any
amount received as a pension or annuity
or as deferred compensation. In addition,
under section 219(c), a married individual
filing a joint return is permitted to make
an IRA contribution by treating his or her
spouse’s higher compensation as his or
her own, but only to the extent that the
spouse’s compensation is not being used
for purposes of the spouse making a con-
tribution to a Roth IRA or a deductible
contribution to a traditional IRA.
Q-5. What is the significance of modi-
fied AGI and how is it determined?
A-5. Modified AGI is used for pur-
poses of the phase-out rules described in
A-3 of this section and for purposes of the
$100,000 modified AGI limitation de-
scribed in §1.408A–4 A–2(a) (relating to
eligibility for conversion). As defined in
section 408A(c)(3)(C)(i), modified AGI is
the same as adjusted gross income under
section 219(g)(3)(A) (used to determine
the amount of deductible contributions
that can be made to a traditional IRA by
an individual who is an active participant
in an employer-sponsored retirement
plan), except that any conversion is disre-
garded in determining modified AGI. For
example, the deduction for contributions
to an IRA is not taken into account for
purposes of determining adjusted gross
income under section 219 and thus does
not apply in determining modified AGI
for Roth IRA purposes.
Q-6. Is a required minimum distribu-
tion from an IRA for a year included in in-
September 28, 1998401998–39 I.R.B.

come for purposes of determining modi-
fied AGI?
A-6. (a) Yes. For taxable years begin-
ning before January 1, 2005, any required
minimum distribution from an IRA under
section 408(a)(6) and (b)(3) (which gen-
erally incorporate the provisions of sec-
tion 401(a)(9)) is included in income for
purposes of determining modified AGI.
(b) For taxable years beginning after
December 31, 2004, and solely for pur-
poses of the $100,000 limitation applica-
ble to conversions, modified AGI does
not include any required minimum distri-
butions from an IRA under section
408(a)(6) and (b)(3).
Q-7. Does an excise tax apply if an in-
dividual exceeds the aggregate regular
contribution limits for Roth IRAs?
A-7. Yes. Section 4973 imposes an an-
nual 6-percent excise tax on aggregate
amounts contributed to Roth IRAs that
exceed the maximum contribution limits
described in A-3 of this section. Any con-
tribution that is distributed, together with
net income, from a Roth IRA on or before
the tax return due date (plus extensions)
for the taxable year of the contribution is
treated as not contributed. Net income
described in the previous sentence is in-
cludible in gross income for the taxable
year in which the contribution is made.
Section 4973 applies separately to an in-
dividual’s Roth IRAs and other IRAs.
§1.408A–4 Converting amounts to Roth
IRAs.
Q-1. Can an individual convert an
amount in his or her traditional IRA to a
Roth IRA?
A-1. (a) Yes. An amount in a tradi-
tional IRA may be converted to an
amount in a Roth IRA if two requirements
are satisfied. First, the IRA owner must
satisfy the modified AGI limitation de-
scribed in A-2(a) of this section and, if
married, the joint filing requirement de-
scribed in A-2(b) of this section. Second,
the amount contributed to the Roth IRA
must satisfy the definition of a qualified
rollover contribution in section 408A(e)
(i.e., it must satisfy the requirements for a
rollover contribution as defined in section
408(d)(3), except that the one-rollover-
per-year limitation in section 408(d)(3)-
(B) does not apply).
(b) An amount can be converted by any
of three methods—
(1) An amount distributed from a tradi-
tional IRA is contributed (rolled over) to a
Roth IRA within 60 days after the distrib-
ution;
(2) An amount in a traditional IRA is
transferred in a trustee-to-trustee transfer
from the trustee of the traditional IRA to
the trustee of the Roth IRA; or
(3) An amount in a traditional IRA is
transferred to a Roth IRA maintained by
the same trustee.
(c) Any converted amount is treated as
a distribution from the traditional IRA and
a qualified rollover contribution to the
Roth IRA for purposes of section 408 and
section 408A, even if the conversion is
accomplished by means of a trustee-to-
trustee transfer or a transfer between
IRAs of the same trustee.
Q-2. What are the modified AGI limi-
tation and joint filing requirements for
conversions?
A-2. (a) An individual with modified
AGI in excess of $100,000 for a taxable
year is not permitted to convert an amount
to a Roth IRA during that taxable year.
This $100,000 limitation applies to the
taxable year that the funds are paid from
the traditional IRA, rather than the year
they are contributed to the Roth IRA.
(b) If the individual is married, he or
she is permitted to convert an amount to a
Roth IRA during a taxable year only if the
individual and the individual’s spouse file
a joint return for the taxable year that the
funds are paid from the traditional IRA.
In this case, the modified AGI subject to
the $100,000 limit is the modified AGI
derived from the joint return using the
couple’s combined income. The only ex-
ception to this joint filing requirement is
for an individual who has lived apart from
his or her spouse for the entire taxable
year. If the married individual has lived
apart from his or her spouse for the entire
taxable year, then such individual can
treat himself or herself as not married for
purposes of this paragraph, file a separate
return and be subject to the $100,000
limit on his or her separate modified AGI.
In all other cases, a married individual fil-
ing a separate return is not permitted to
convert an amount to a Roth IRA, regard-
less of the individual’s modified AGI.
Q-3. Is a remedy available to an indi-
vidual who, intending to make a conver-
sion, contributes amounts from a tradi-
tional IRA to a Roth IRA, but who is
ineligible to make a conversion (a failed
conversion)?
A-3. (a) Yes. See §1.408A–5 for rules
permitting a failed conversion amount to
be recharacterized as a contribution to a
traditional IRA. If the requirements in
§1.408A–5 are satisfied, the failed con-
version amount will be treated as having
been contributed to the traditional IRA
and not to the Roth IRA.
(b) If the contribution is not recharac-
terized in accordance with §1.408A–5,
the contribution will be treated as a regu-
lar contribution to the Roth IRA and, thus,
an excess contribution subject to the ex-
cise tax under section 4973 to the extent
that it exceeds the individual’s regular
contribution limit. Additionally, the dis-
tribution from the traditional IRA will not
be eligible for the 4-year spread and will
be subject to the additional tax under sec-
tion 72(t) (unless an exception under that
section applies).
Q-4. Do any special rules apply to a
conversion of an amount in an individ-
ual’s SEP IRA or SIMPLE IRA to a Roth
IRA?
A-4. (a) An amount in an individual’s
SEP IRA can be converted to a Roth IRA
on the same terms as an amount in any
other traditional IRA.
(b) An amount in an individual’s SIM-
PLE IRA can be converted to a Roth IRA
on the same terms as a conversion from a
traditional IRA, except that an amount dis-
tributed from a SIMPLE IRA during the 2-
year period described in section 72(t)(6),
which begins on the date that the individ-
ual first participated in any SIMPLE IRA
Plan maintained by the individual’s em-
ployer, cannot be converted to a Roth
IRA. Pursuant to section 408(d)(3)(G), a
distribution of an amount from an individ-
ual’s SIMPLE IRA during this 2-year pe-
riod is not eligible to be rolled over into an
IRA that is not a SIMPLE IRA and thus
cannot be a qualified rollover contribu-
tion. This 2-year period of section
408(d)(3)(G) applies separately to the con-
tributions of each of an individual’s em-
ployers maintaining a SIMPLE IRA Plan.
(c) Once an amount in a SEP IRA or
SIMPLE IRA has been converted to a
Roth IRA, it is treated as a contribution to
a Roth IRA for all purposes. Future con-
tributions under the SEP or under the
SIMPLE IRA Plan may not be made to
the Roth IRA.
1998–39 I.R.B.41September 28, 1998

Q-5. Can amounts in other kinds of re-
tirement plans be converted to a Roth
IRA?
A-5. No. Only amounts in another
IRA can be converted to a Roth IRA. For
example, amounts in a qualified plan or
annuity plan described in section 401(a)
or 403(a) cannot be converted directly to
a Roth IRA. Also, amounts held in an an-
nuity contract or account described in sec-
tion 403(b) cannot be converted directly
to a Roth IRA.
Q-6. Can an individual who has at-
tained at least age 70
1
⁄
2
by the end of a cal-
endar year convert an amount distributed
from a traditional IRA during that year to
a Roth IRA before receiving his or her re-
quired minimum distribution with respect
to the traditional IRA for the year of the
conversion?
A-6. (a) No. In order to be eligible for
a conversion, an amount first must be eli-
gible to be rolled over. Section 408(d)(3)
prohibits the rollover of a required mini-
mum distribution. If a minimum distribu-
tion is required for a year with respect to
an IRA, the first dollars distributed during
that year are treated as consisting of the
required minimum distribution until an
amount equal to the required minimum
distribution for that year has been distrib-
uted.
(b) As provided in A–1(c) of this sec-
tion, any amount converted is treated as a
distribution from a traditional IRA and a
rollover contribution to a Roth IRA and
not as a trustee-to-trustee transfer for pur-
poses of section 408 and section 408A.
Thus, in a year for which a minimum dis-
tribution is required (including the calen-
dar year in which the individual attains
age 70
1
⁄
2
), an individual may not convert
the assets of an IRA (or any portion of
those assets) to a Roth IRA to the extent
that the required minimum distribution
for the traditional IRA for the year has not
been distributed.
(c) If a required minimum distribution
is contributed to a Roth IRA, it is treated
as having been distributed, subject to the
normal rules under section 408(d)(1) and
(2), and then contributed as a regular con-
tribution to a Roth IRA. The amount of
the required minimum distribution is not a
conversion contribution.
Q-7. What are the tax consequences
when an amount is converted to a Roth
IRA?
A-7. (a) Any amount that is converted
to a Roth IRA is includible in gross in-
come as a distribution according to the
rules of section 408(d)(1) and (2) for the
taxable year in which the amount is dis-
tributed or transferred from the traditional
IRA. Thus, any portion of the distribution
or transfer that is treated as a return of
basis under section 408(d)(1) and (2) is
not includible in gross income as a result
of the conversion.
(b) The 10-percent additional tax under
section 72(t) generally does not apply to
the taxable conversion amount. But see
§1.408A–6 A-5 for circumstances under
which the taxable conversion amount
would be subject to the additional tax
under section 72(t).
(c) Pursuant to section 408A(e), a con-
version is not treated as a rollover for pur-
poses of the one-rollover-per-year rule of
section 408(d)(3)(B).
Q-8. Is there an exception to the in-
come-inclusion rule described in A-7 of
this section for 1998 conversions?
A-8. Yes. In the case of a distribution
(including a trustee-to-trustee transfer)
from a traditional IRA on or before De-
cember 31, 1998, that is converted to a
Roth IRA, instead of having the entire
taxable conversion amount includible in
income in 1998, an individual includes in
gross income for 1998 only one quarter of
that amount and one quarter of that
amount for each of the next 3 years. This
4-year spread also applies if the conver-
sion amount was distributed in 1998 and
contributed to the Roth IRA within 60
days, but after December 31, 1998. How-
ever, see §1.408A–6 A-6 for special rules
requiring acceleration of inclusion if an
amount subject to the 4-year spread is dis-
tributed from the Roth IRA before 2001.
Q-9. Is the taxable conversion amount
included in income for all purposes?
A-9. Except as provided below, any
taxable conversion amount includible in
gross income for a year as a result of the
conversion (regardless of whether the in-
dividual is using a 4-year spread) is in-
cluded in income for all purposes. Thus,
for example, it is counted for purposes of
determining the taxable portion of social
security payments under section 86 and
for purposes of determining the phase-out
of the $25,000 exemption under section
469(i) relating to the disallowance of pas-
sive activity losses from rental real estate
activities. However, as provided in
§1.408A–3 A-5, the taxable conversion
amount (and any resulting change in other
elements of adjusted gross income) is dis-
regarded for purposes of determining
modified AGI for section 408A.
Q-10. Can an individual who makes a
1998 conversion elect not to have the 4-
year spread apply and instead have the
full taxable conversion amount includible
in gross income for 1998?
A-10. Yes. Instead of having the tax-
able conversion amount for a 1998 con-
version included over 4 years as provided
under A-8 of this section, an individual
can elect to include the full taxable con-
version amount in income for 1998. The
election is made on Form 8606 and can-
not be made or changed after the due date
(including extensions) for filing the 1998
Federal income tax return.
Q-11. What happens when an individ-
ual who is using the 4-year spread dies
before the full taxable conversion amount
has been included in gross income?
A-11. (a) If an individual who is using
the 4-year spread described in A-8 of this
section dies before the full taxable con-
version amount has been included in
gross income, then the remainder must be
included in the individual’s gross income
for the taxable year that includes the date
of death.
(b) However, if the sole beneficiary of
all the decedent’s Roth IRAs is the dece-
dent’s spouse, then the spouse can elect to
continue the 4-year spread. Thus, the
spouse can elect to include in gross income
the same amount that the decedent would
have included in each of the remaining
years of the 4-year period. Where the
spouse makes such an election, the amount
includible under the 4-year spread for the
taxable year that includes the date of the
decedent’s death remains includible in the
decedent’s gross income and is reported on
the decedent’s final Federal income tax re-
turn. The election is made on either Form
8606 or Form 1040, in accordance with the
instructions to the applicable form, for the
taxable year that includes the decedent’s
date of death and cannot be changed after
the due date (including extensions) for fil-
ing the Federal income tax return for the
spouse’s taxable year that includes the
decedent’s date of death.
Q-12. Can an individual convert a tra-
ditional IRA to a Roth IRA if he or she is
September 28, 1998421998–39 I.R.B.

receiving substantially equal periodic
payments within the meaning of section
72(t)(2)(A)(iv) from that traditional IRA?
A. Yes. Not only is the conversion
amount itself not subject to the early dis-
tribution tax under section 72(t), but the
conversion amount is also not treated as a
distribution for purposes of determining
whether a modification within the mean-
ing of section 72(t)(4)(A) has occurred.
However, if the original series of substan-
tially equal periodic payments does not
continue to be distributed in substantially
equal periodic payments from the Roth
IRA after the conversion, the series of
payments will have been modified and, if
this modification occurs within 5 years of
the first payment or prior to the individual
becoming disabled or attaining age 59
1
⁄
2
,
the taxpayer will be subject to the recap-
ture tax of section 72(t)(4)(A).
Q-13. Can a 1997 distribution from a
traditional IRA be converted to a Roth
IRA in 1998?
A-13. No. An amount distributed from
a traditional IRA in 1997 that is con-
tributed to a Roth IRA in 1998 would not
be a conversion contribution. See A-3 of
this section regarding the remedy for a
failed conversion.
§1.408A–5 Recharacterized
contributions.
Q-1. Can an IRA owner recharacterize
certain contributions (i.e., treat a contri-
bution made to one type of IRA as made
to a different type of IRA) for a taxable
year?
A-1. (a) Yes. In accordance with sec-
tion 408A(d)(6), except as otherwise pro-
vided in this section, if an individual
makes a contribution to an IRA (the
FIRST IRA) for a taxable year and then
transfers the contribution (or a portion of
the contribution) in a trustee-to-trustee
transfer from the trustee of the FIRST
IRA to the trustee of another IRA (the
SECOND IRA), the individual can elect
to treat the contribution as having been
made to the SECOND IRA, instead of to
the FIRST IRA, for Federal tax purposes.
A transfer between the FIRST IRA and
the SECOND IRA will not fail to be a
trustee-to-trustee transfer merely because
both IRAs are maintained by the same
trustee.
(b) This recharacterization election can
be made only if the trustee-to-trustee
transfer from the FIRST IRA to the SEC-
OND IRA is made on or before the due
date (including extensions) for filing the
individual’s Federal income tax return for
the taxable year for which the contribu-
tion was made to the FIRST IRA. For
purposes of this section, a conversion that
is accomplished through a rollover of a
distribution from a traditional IRA in a
taxable year that, within 60 days after the
distribution, is contributed to a Roth IRA
in the next taxable year is treated as a con-
tribution for the earlier taxable year.
Q-2. What is the proper treatment of
the net income attributable to the contri-
bution that is being recharacterized?
A-2. (a) The net income attributable to
the contribution that is being recharacter-
ized must be transferred to the SECOND
IRA along with the contribution.
(b) If the amount of the contribution
being recharacterized was contributed to a
separate IRA and no distributions or addi-
tional contributions have been made from
or to that IRA at any time, then the contri-
bution is recharacterized by the trustee of
the FIRST IRA transferring the entire ac-
count balance of the FIRST IRA to the
trustee of the SECOND IRA. In this case,
the net income (or loss) attributable to the
contribution being recharacterized is the
difference between the amount of the
original contribution and the amount
transferred.
(c) If paragraph (b) of this A-2 does not
apply, then the net income attributable to
the contribution is calculated in the man-
ner prescribed by §1.408–4(c)(2)(ii).
Q-3. What is the effect of recharacter-
izing a contribution made to the FIRST
IRA as a contribution made to the SEC-
OND IRA?
A-3. The contribution that is being
recharacterized as a contribution to the
SECOND IRA is treated as having been
originally contributed to the SECOND
IRA on the same date and (in the case of a
regular contribution) for the same taxable
year that the contribution was made to the
FIRST IRA. Thus, for example, no de-
duction would be allowed for a contribu-
tion to the FIRST IRA, and any net in-
come transferred with the recharacterized
contribution is treated as earned in the
SECOND IRA, and not the FIRST IRA.
Q-4. Can an amount contributed to an
IRA in a tax-free transfer be recharacter-
ized under A-1 of this section?
A-4. No. If an amount is contributed
to the FIRST IRA in a tax-free transfer,
the amount cannot be recharacterized as a
contribution to the SECOND IRA under
A-1 of this section. However, if an
amount is erroneously rolled over or
transferred from a traditional IRA to a
SIMPLE IRA, the contribution can subse-
quently be recharacterized as a contribu-
tion to another traditional IRA.
Q-5. Can an amount contributed by an
employer under a SIMPLE IRA Plan or a
SEP be recharacterized under A-1 of this
section?
A-5. No. Employer contributions (in-
cluding elective deferrals) under a SIM-
PLE IRA Plan or a SEP cannot be rechar-
acterized as contributions to another IRA
under A-1 of this section.
Q-6. How does a taxpayer make the
election to recharacterize a contribution to
an IRA for a taxable year?
A-6. (a) An individual makes the elec-
tion described in this section by notifying,
on or before the date of the transfer, both
the trustee of the FIRST IRA and the
trustee of the SECOND IRA, that the in-
dividual has elected to treat the contribu-
tion as having been made to the SECOND
IRA, instead of the FIRST IRA, for Fed-
eral tax purposes. The notification of the
election must include the following infor-
mation: the type and amount of the con-
tribution to the FIRST IRA that is to be
recharacterized; the date on which the
contribution was made to the FIRST IRA
and the year for which it was made; a di-
rection to the trustee of the FIRST IRA to
transfer, in a trustee-to-trustee transfer,
the amount of the contribution and net in-
come allocable to the contribution to the
trustee of the SECOND IRA; and the
name of the trustee of the FIRST IRA and
the trustee of the SECOND IRA and any
additional information needed to make
the transfer.
(b) The election and the trustee-to-
trustee transfer must occur on or before
the due date (including extensions) for fil-
ing the individual’s Federal income tax
return for the taxable year for which the
recharacterized contribution was made to
the FIRST IRA, and the election cannot
be revoked after the transfer. An individ-
ual who makes this election must report
the recharacterization, and must treat the
contribution as having been made to the
SECOND IRA, instead of the FIRST
1998–39 I.R.B.43September 28, 1998

IRA, on the individual’s Federal income
tax return for the taxable year described in
the preceding sentence in accordance with
the applicable Federal tax forms and in-
structions.
Q-7. If an amount is initially con-
tributed to an IRA for a taxable year, then
is moved (with net income attributable to
the contribution) in a tax-free transfer to
another IRA (the FIRST IRA for purposes
of A-1 of this section), can the tax-free
transfer be disregarded, so that the initial
contribution that is transferred from the
FIRST IRA to the SECOND IRA is
treated as a recharacterization of that ini-
tial contribution?
A-7. Yes. In applying section
408A(d)(6), tax-free transfers between
IRAs are disregarded. Thus, if a contribu-
tion to an IRA for a year is followed by
one or more tax-free transfers between
IRAs prior to the recharacterization, then
for purposes of section 408A(d)(6), the
contribution is treated as if it remained in
the initial IRA. Consequently, an individ-
ual may elect to recharacterize an initial
contribution made to the initial IRA that
was involved in a series of tax-free trans-
fers by making a trustee-to-trustee trans-
fer from the last IRA in the series to the
SECOND IRA. In this case the contribu-
tion to the SECOND IRA is treated as
made on the same date (and for the same
taxable year) as the date the contribution
being recharacterized was made to the ini-
tial IRA.
Q-8. If a contribution is recharacter-
ized, is the recharacterization treated as a
rollover for purposes of the one-rollover-
per-year limitation of section 408(d)-
(3)(B)?
A-8. No, recharacterizing a contribu-
tion under A-1 of this section is never
treated as a rollover for purpose of the
one-rollover-per-year limitation of section
408(d)(3)(B), even if the contribution
would have been treated as a rollover con-
tribution by the SECOND IRA if it had
been made directly to the SECOND IRA,
rather than as a result of a recharacteriza-
tion of a contribution to the FIRST IRA.
Q-9. Are there examples to illustrate
the rules in this section?
A-9. The rules in this section are illus-
trated by the following examples:
Example 1.In 1998, Individual C converts the
entire amount in his traditional IRA to a Roth IRA.
Individual C thereafter determines that his modified
AGI for 1998 exceeded $100,000 so that he was in-
eligible to have made a conversion in that year. Ac-
cordingly, prior to the due date (plus extensions) for
filing the individual’s Federal income tax return for
1998, he decides to recharacterize the conversion
contribution. He instructs the trustee of the Roth
IRA (FIRST IRA) to transfer in a trustee-to-trustee
transfer the amount of the contribution, plus net in-
come, to the trustee of a new traditional IRA (SEC-
OND IRA). The individual notifies the trustee of
the FIRST IRA and the trustee of the SECOND IRA
that he is recharacterizing his IRA contribution (and
provides the other information described in A-6 of
this section). On the individual’s Federal income tax
return for 1998, he treats the original amount of the
conversion as having been contributed to the SEC-
OND IRA and not the Roth IRA. As a result, for
Federal tax purposes, the contribution is treated as
having been made to the SECOND IRA and not to
the Roth IRA. The result would be the same if the
conversion amount had been transferred in a tax-free
transfer to another Roth IRA prior to the recharacter-
ization.
Example 2.In 1998, an individual makes a
$2,000 regular contribution for 1998 to his tradi-
tional IRA (FIRST IRA). Prior to the due date (plus
extensions) for filing the individual’s Federal income
tax return for 1998, he decides that he would prefer
to contribute to a Roth IRA instead. The individual
instructs the trustee of the FIRST IRA to transfer in a
trustee-to-trustee transfer the amount of the contribu-
tion, plus attributable net income, to the trustee of a
Roth IRA (SECOND IRA). The individual notifies
the trustee of the FIRST IRA and the trustee of the
SECOND IRA that he is recharacterizing his $2,000
contribution for 1998 (and provides the other infor-
mation described in A-6 of this section). On the indi-
vidual’s Federal income tax return for 1998, he treats
the $2,000 as having been contributed to the Roth
IRA for 1998 and not to the traditional IRA. As a re-
sult, for Federal tax purposes, the contribution is
treated as having been made to the Roth IRA for
1998 and not to the traditional IRA. The result
would be the same if the conversion amount had
been transferred in a tax-free transfer to another tra-
ditional IRA prior to the recharacterization.
Example 3.The facts are the same as in Example
2,except that the $2,000 regular contribution is ini-
tially made to a Roth IRA and the recharacterizing
transfer is made to a traditional IRA. On the indi-
vidual’s Federal income tax return for 1998, he
treats the $2,000 as having been contributed to the
traditional IRA for 1998 and not the Roth IRA. As a
result, for Federal tax purposes, the contribution is
treated as having been made to the traditional IRA
for 1998 and not the Roth IRA. The result would be
the same if the contribution had been transferred in a
tax-free transfer to another Roth IRA prior to the
recharacterization, except that the only Roth IRA
trustee the individual must notify is the one actually
making the recharacterization transfer.
Example 4.In 1998, an individual receives a dis-
tribution from traditional IRA 1 and contributes the
entire amount to traditional IRA 2 in a rollover con-
tribution described in section 408(d)(3). In this
case, the individual cannot elect to recharacterize the
contribution by transferring the contribution
amount, plus net income, to a Roth IRA, because an
amount contributed to an IRA in a tax-free transfer
cannot be recharacterized. However, the individual
may convert (other than by recharacterization) the
amount in traditional IRA 2 to a Roth IRA at any
time, provided the requirements of §1.408A–4 A-1
are satisfied.
§1.408A–6 Distributions.
Q-1. How are distributions from Roth
IRAs taxed?
A-1. (a) The taxability of a distribution
from a Roth IRA generally depends on
whether or not the distribution is a quali-
fied distribution. This A-1 provides rules
for qualified distributions and certain
other nontaxable distributions. A-4 of
this section provides rules for the taxabil-
ity of distributions that are not qualified
distributions.
(b) A distribution from a Roth IRA is
not includible in the owner’s gross in-
come if it is a qualified distribution or to
the extent that it is a return of the owner’s
contributions to the Roth IRA (deter-
mined in accordance with A-8 of this sec-
tion). A qualified distribution is one that
is both—
(1) Made after a 5-taxable-year period
(defined in A-2 of this section); and
(2) Made on or after the date on which
the owner attains age 59
1
⁄
2
, made to a ben-
eficiary or the estate of the owner on or
after the date of the owner’s death, attrib-
utable to the owner’s being disabled
within the meaning of section 72(m)(7),
or to which section 72(t)(2)(F) applies
(exception for first-time home purchase).
(c) An amount distributed from a Roth
IRA will not be included in gross income
to the extent it is rolled over to another
Roth IRA on a tax-free basis under the
rules of sections 408(d)(3) and 408A(e).
(d) Excess contributions that are re-
turned to the Roth IRA owner in accor-
dance with section 408(d)(4) (corrective
distributions) are not includible in gross
income, but any net income required to be
distributed under section 408(d)(4) to-
gether with the excess contribution is in-
cludible in gross income for the taxable
year in which the excess contribution was
made.
Q-2. When does the 5-taxable-year pe-
riod described in A-1 of this section (re-
lating to qualified distributions) begin and
end?
A-2. The 5-taxable-year period de-
scribed in A-1 of this section begins on
the first day of the individual’s taxable
year for which the first regular contribu-
September 28, 1998441998–39 I.R.B.

tion is made to any Roth IRA of the indi-
vidual or, if earlier, the first day of the in-
dividual’s taxable year in which the first
conversion contribution is made to any
Roth IRA of the individual. The 5-tax-
able-year period ends on the last day of
the individual’s fifth consecutive taxable
year beginning with the taxable year de-
scribed in the preceding sentence. For ex-
ample, if an individual whose taxable
year is the calendar year makes a first-
time regular Roth IRA contribution any
time between January 1, 1998, and April
15, 1999, for 1998, the 5-taxable-year pe-
riod begins on January 1, 1998. Thus,
each Roth IRA owner has only one 5-tax-
able-year period described in A-1 of this
section for all the Roth IRAs of which he
or she is the owner. Further, because of
the requirement of the 5-taxable-year pe-
riod, no qualified distributions can occur
before taxable years beginning in 2003.
Q-3. If a distribution is made to an in-
dividual who is the sole beneficiary of his
or her deceased spouse’s Roth IRA and
the individual is treating the Roth IRA as
his or her own, can the distribution be a
qualified distribution based on being
made to a beneficiary on or after the
owner’s death?
A-3. No. If a distribution is made to
an individual who is the sole beneficiary
of his or her deceased spouse’s Roth IRA
and the individual is treating the Roth
IRA as his or her own, then, in accordance
with §1.408A–2 A-4, the distribution is
treated as coming from the individual’s
own Roth IRA and not the deceased
spouse’s Roth IRA. Therefore, for pur-
poses of determining whether the distrib-
ution is a qualified distribution, it is not
treated as made to a beneficiary on or
after the owner’s death.
Q-4. How is a distribution from a Roth
IRA taxed if it is not a qualified distribu-
tion?
A-4. A distribution that is not a quali-
fied distribution, and is neither con-
tributed to another Roth IRA in a quali-
fied rollover contribution nor constitutes a
corrective distribution, is includible in the
owner’s gross income to the extent that
the amount of the distribution, when
added to the amount of all previous distri-
butions from the owner’s Roth IRAs
(whether or not they were qualified distri-
butions), exceeds the owner’s contribu-
tions to all his or her Roth IRAs. For pur-
poses of this A-4, any amount distributed
as a corrective distribution is treated as if
it was never contributed.
Q-5. Will the additional tax under 72(t)
apply to the amount of a distribution that
is not a qualified distribution?
A-5. (a) The 10-percent additional tax
under section 72(t) will apply (unless the
distribution is excepted under section
72(t)) to any distribution from a Roth IRA
includible in gross income.
(b) The 10-percent additional tax under
section 72(t) also applies to a nonquali-
fied distribution, even if it is not then in-
cludible in gross income, to the extent it is
allocable to a conversion contribution, if
the distribution is made within the 5-tax-
able-year period beginning with the first
day of the individual’s taxable year in
which the conversion contribution was
made. The 5-taxable-year period ends on
the last day of the individual’s fifth con-
secutive taxable year beginning with the
taxable year described in the preceding
sentence. For purposes of applying the
tax, only the amount of the conversion in-
cludible in gross income as a result of the
conversion is taken into account. The ex-
ceptions under section 72(t) also apply to
such a distribution.
(c) The 5-taxable-year period described
in this A-5 for purposes of determining
whether section 72(t) applies to a distribu-
tion allocable to a conversion contribution
is separately determined for each conver-
sion contribution, and need not be the
same as the 5-taxable-year period used for
purposes of determining whether a distri-
bution is a qualified distribution under A-
1(b) of this section. For example, if a cal-
endar-year taxpayer who received a
distribution from a traditional IRA on De-
cember 31, 1998, makes a conversion
contribution by contributing the distrib-
uted amount to a Roth IRA on February
25, 1999 in a qualifying rollover contribu-
tion and makes a regular contribution for
1998 on the same date, the 5-taxable-year
period for purposes of this A-5 begins on
January 1, 1999, while the 5-taxable-year
period for purposes of A-1(b) of this sec-
tion begins on January 1, 1998.
Q-6. Is there a special rule for taxing
distributions allocable to a 1998 conver-
sion?
A-6. Yes. In the case of a distribution
from a Roth IRA in 1998, 1999 or 2000 of
amounts allocable to a 1998 conversion
with respect to which the 4-year spread
for the resultant income inclusion applies
(see §1.408A–4 A-8), any income de-
ferred as a result of the election to years
after the year of the distribution is accel-
erated so that it is includible in gross in-
come in the year of the distribution up to
the amount of the distribution allocable to
the 1998 conversion (determined under
A-8 of this section). This amount is in ad-
dition to the amount otherwise includible
in the owner’s gross income for that tax-
able year as a result of the conversion.
However, this rule will not require the in-
clusion of any amount to the extent it ex-
ceeds the total amount of income required
to be included over the 4-year period.
The acceleration of income inclusion de-
scribed in this A-6 applies in the case of a
surviving spouse who elects to continue
the 4-year spread in accordance with
§1.408A–4 A-11(b).
Q-7. Is the 5-taxable-year period de-
scribed in A-1 of this section redeter-
mined when a Roth IRA owner dies?
A-7. (a) No. The beginning of the 5-
taxable-year period described in A-1 of
this section is not redetermined when the
Roth IRA owner dies. Thus, in determin-
ing the 5-taxable-year period, the period
the Roth IRA is held in the name of a ben-
eficiary, or in the name of a surviving
spouse who treats the decedent’s Roth
IRA as his or her own, includes the period
it was held by the decedent.
(b) The 5-taxable-year period for a
Roth IRA held by an individual as a bene-
ficiary of a deceased Roth IRA owner is
determined independently of the 5-tax-
able-year period for the beneficiary’s own
Roth IRA. However, if a surviving
spouse treats the Roth IRA as his or her
own, the 5-taxable-year period with re-
spect to any of the surviving spouse’s
Roth IRAs (including the one that the sur-
viving spouse treats as his or her own)
ends at the earlier of the end of either the
5-taxable-year period for the decedent or
the 5-taxable-year period applicable to the
spouse’s own Roth IRAs.
Q-8. How is it determined whether an
amount distributed from a Roth IRA is al-
located to regular contributions, conver-
sion contributions, or earnings?
A-8. (a) Any amount distributed from
an individual’s Roth IRA is treated as
made in the following order (determined
as of the end of a taxable year and ex-
1998–39 I.R.B.45September 28, 1998

hausting each category before moving to
the following category)—
(1) From regular contributions;
(2) From conversion contributions, on
a first-in-first-out basis; and
(3) from earnings.
(b) To the extent a distribution is
treated as made from a particular conver-
sion contribution, it is treated as made
first from the portion, if any, that was in-
cludible in gross income as a result of the
conversion.
Q-9. Are there special rules for deter-
mining the source of distributions under
A-8 of this section?
A-9. Yes. For purposes of determining
the source of distributions, the following
rules apply:
(a) All distributions from all an individ-
ual’s Roth IRAs made during a taxable
year are aggregated.
(b) All regular contributions made for
the same taxable year to all the individ-
ual’s Roth IRAs are aggregated and added
to the undistributed total regular contribu-
tions for prior taxable years. Regular
contributions for a year include contribu-
tions made in the following taxable year
that are identified as made for the taxable
year. For example, a regular contribution
made in 1999 for 1998 is aggregated with
the contributions made in 1998 for 1998.
(c) All conversion contributions re-
ceived during the same taxable year by all
the individual’s Roth IRAs are aggre-
gated. Notwithstanding the preceding
sentence, all conversion contributions
made by an individual during 1999 that
were distributed from a traditional IRA in
1998 and with respect to which the 4-year
spread applies are treated for purposes of
A-8(b) of this section as contributed to the
individual’s Roth IRAs prior to any other
conversion contributions made by the in-
dividual during 1999.
(d) A distribution from an individual’s
Roth IRA that is rolled over to another
Roth IRA of the individual is disregarded
for purposes of determining the amount of
both contributions and distributions.
(e) Any amount distributed as a correc-
tive distribution (including net income),
as described in A-1(d) of this section, is
disregarded in determining the amount of
contributions, earnings, and distributions.
(f) If an individual recharacterizes a
contribution made to a traditional IRA
(FIRST IRA) by transferring the contribu-
tion to a Roth IRA (SECOND IRA) in ac-
cordance with §1.408A–5, then, pursuant
to §1.408A–5 A-3, the contribution to the
Roth IRA is taken into account for the
same taxable year for which it would have
been taken into account if the contribution
had originally been made to the Roth IRA
and had never been contributed to the tra-
ditional IRA. Thus, the contribution to
the Roth IRA is treated as contributed to
the Roth IRA on the same date and for the
same taxable year that the contribution
was made to the traditional IRA.
(g) If an individual recharacterizes a
regular or conversion contribution made
to a Roth IRA (FIRST IRA) by transfer-
ring the contribution to a traditional IRA
(SECOND IRA) in accordance with
§1.408A–5, then pursuant to §1.408A–5
A-3, the contribution to the Roth IRA and
the recharacterizing transfer are disre-
garded in determining the amount of both
contributions and distributions for the tax-
able year with respect to which the origi-
nal contribution was made to the Roth
IRA.
(h) Pursuant to §1.408A–5 A-3, the ef-
fect of income or loss (determined in ac-
cordance with §1.408A–5 A-2) occurring
after the contribution to the FIRST IRA is
disregarded in determining the amounts
described in paragraphs (f) and (g) of this
A-9. Thus, for purposes of paragraphs (f)
and (g), the amount of the contribution is
determined based on the original contri-
bution.
Q-10. Are there examples to illustrate
the ordering rules described in A-8 and A-
9 of this section?
A-10. Yes. The following examples il-
lustrate these ordering rules:
Example 1.In 1998, individual B converts
$80,000 in his traditional IRA to a Roth IRA. B has
a basis of $20,000 in the conversion amount and so
must include the remaining $60,000 in gross in-
come. He decides to spread the $60,000 income by
including $15,000 in each of the 4 years 1998-2001,
under the rules of §1.408A–4 A-8. B also makes a
regular contribution of $2,000 in 1998. If a distribu-
tion of $2,000 is made to B anytime in 1998, it will
be treated as made entirely from the regular contri-
butions, so there will be no Federal income tax con-
sequences as a result of the distribution.
Example 2.The facts are the same as in Example
1,except that the distribution made in 1998 is
$5,000. The distribution is treated as made from
$2,000 of regular contributions and $3,000 of con-
version contributions that were includible in gross in-
come. As a result, B must include $18,000 in gross
income for 1998: $3,000 as a result of the accelera-
tion of amounts that otherwise would have been in-
cluded in later years under the 4-year-spread rule and
$15,000 includible under the regular 4-year-spread
rule. In addition, because the $3,000 is allocable to a
conversion made within the previous 5 taxable years,
the 10-percent additional tax under section 72(t)
would apply to this $3,000 distribution as if it were
includible in gross income for 1998, unless an excep-
tion applies. Under the 4-year-spread rule, B would
now include in gross income $15,000 for 1999 and
2000, but only $12,000 for 2001, because of the ac-
celerated inclusion of the $3,000 distribution.
Example 3.The facts are the same as in Example
1,except that B makes an additional $2,000 regular
contribution in 1999 and he does not take a distribu-
tion in 1998. In 1999, the entire balance in the ac-
count, $90,000 ($84,000 of contributions and $6,000
of earnings), is distributed to B. The distribution is
treated as made from $4,000 of regular contribu-
tions, $60,000 of conversion contributions that were
includible in gross income, $20,000 of conversion
contributions that were not includible in gross in-
come, and $6,000 of earnings. Because a distribu-
tion has been made within the 4-year-spread period,
B must accelerate the income inclusion under the 4-
year-spread rule and must include in gross income
the $45,000 remaining under the 4-year-spread rule
in addition to the $6,000 of earnings. Because
$60,000 of the distribution is allocable to a conver-
sion made within the previous 5 taxable years, it is
subject to the 10-percent additional tax under sec-
tion 72(t) as if it were includible in gross income for
1999, unless an exception applies. The $6,000 allo-
cable to earnings would be subject to the tax under
section 72(t), unless an exception applies. Under the
4-year-spread rule, no amount would be includible
in gross income for 2000 or 2001 because the entire
amount of the conversion that was includible in
gross income has already been included.
Example 4.The facts are the same as in Example
1,except that B also makes a $2,000 regular contri-
bution in each year 1999 through 2002 and he does
not take a distribution in 1998. A distribution of
$85,000 is made to B in 2002. The distribution is
treated as made from the $10,000 of regular contri-
butions (the total regular contributions made in the
years 1998-2002), $60,000 of conversion contribu-
tions that were includible in gross income, and
$15,000 of conversion contributions that were not
includible in gross income. As a result, no amount
of the distribution is includible in gross income;
however, because the distribution is allocable to a
conversion made within the previous 5 years, the
$60,000 is subject to the 10-percent additional tax
under section 72(t) as if it were includible in gross
income for 2002, unless an exception applies.
Example 5. The facts are the same as in Example
4,except no distribution occurs in 2002. In 2003,
the entire balance in the account, $170,000 ($90,000
of contributions and $80,000 of earnings), is distrib-
uted to B. The distribution is treated as made from
$10,000 of regular contributions, $60,000 of conver-
sion contributions that were includible in gross
income, $20,000 of conversion contributions that
were not includible in gross income, and $80,000 of
earnings. As a result, for 2003, B must include in
gross income the $80,000 allocable to earnings,
unless the distribution is a qualified distribution; and
if it is not a qualified distribution, the $80,000 would
be subject to the 10-percent additional tax under sec-
tion 72(t), unless an exception applies.
September 28, 1998461998–39 I.R.B.

Example 6. Individual C converts $20,000 to a
Roth IRA in 1998 and $15,000 (in which amount C
had a basis of $2,000) to another Roth IRA in 1999.
No other contributions are made. In 2003, a $30,000
distribution, that is not a qualified distribution, is
made to C. The distribution is treated as made from
$20,000 of the 1998 conversion contribution and
$10,000 of the 1999 conversion contribution that
was includible in gross income. As a result, for
2003, no amount is includible in gross income; how-
ever, because $10,000 is allocable to a conversion
contribution made within the previous 5 taxable
years, that amount is subject to the 10-percent addi-
tional tax under section 72(t) as if the amount were
includible in gross income for 2003, unless an
exception applies. The result would be the same
whichever of C’s Roth IRAs made the distribution.
Example 7.The facts are the same as in Example
6,except that the distribution is a qualified distribu-
tion. The result is the same as in Example 6,except
that no amount would be subject to the 10-percent
additional tax under section 72(t), because, to be a
qualified distribution, the distribution must be made
on or after the date on which the owner attains age
59
1
⁄
2
, made to a beneficiary or the estate of the owner
on or after the date of the owner’s death, attributable
to the owner’s being disabled within the meaning of
section 72(m)(7), or to which section 72(t)(2)(F)
applies (exception for a first-time home purchase).
Under section 72(t)(2), each of these conditions is
also an exception to the tax under section 72(t).
Example 8. Individual D makes a $2,000 regular
contribution to a traditional IRA on January 1, 1999,
for 1998. On April 15, 1999, when the $2,000 has
increased to $2,500, D recharacterizes the contribu-
tion by transferring the $2,500 to a Roth IRA (pur-
suant to §1.408A– A-1). In this case, D’s regular
contribution to the Roth IRA for 1998 is $2,000. The
$500 of earnings is not treated as a contribution to
the Roth IRA. The results would be the same if the
$2,000 had decreased to $1,500 prior to the rechar-
acterization.
Example 9. In December 1998, individual E
receives a distribution from his traditional IRA of
$300,000 and in January 1999 he contributes the
$300,000 to a Roth IRA as a conversion contribu-
tion. In April 1999, when the $300,000 has
increased to $350,000, E recharacterizes the conver-
sion contribution by transferring the $350,000 to a
traditional IRA. In this case, E’s conversion contri-
bution for 1998 is $0, because the $300,000 conver-
sion contribution and the earnings of $50,000 are
disregarded. The results would be the same if the
$300,000 had decreased to $250,000 prior to the
recharacterization. Further, since the conversion is
disregarded, the $300,000 is not includible in gross
income in 1998.
Q-11. If the owner of a Roth IRA dies
prior to the end of the 5-taxable-year pe-
riod described in A-1 of this section (re-
lating to qualified distributions) or prior
to the end of the 5-taxable-year period de-
scribed in A-5 of this section (relating to
conversions), how are different types of
contributions in the Roth IRA allocated to
multiple beneficiaries?
A-11. Each type of contribution is allo-
cated to each beneficiary on a pro-rata
basis. Thus, for example, if a Roth IRA
owner dies in 1999, when the Roth IRA
contains a regular contribution of $2,000,
a conversion contribution of $6,000 and
earnings of $1,000, and the owner leaves
his Roth IRA equally to four children,
each child will receive one quarter of each
type of contribution. Pursuant to the or-
dering rules in A-8 of this section, an im-
mediate distribution of $2,000 to one of
the children will be deemed to consist of
$500 of regular contributions and $1,500
of conversion contributions.
Q-12. How do the withholding rules
under section 3405 apply to Roth IRAs?
A-12. Distributions from a Roth IRA
are distributions from an individual retire-
ment plan for purposes of section 3405
and thus are designated distributions un-
less one of the exceptions in section
3405(e)(1) applies. Pursuant to section
3405 (a) and (b), nonperiodic distribu-
tions from a Roth IRA are subject to
10-percent withholding by the payor and
periodic payments are subject to with-
holding as if the payments were wages.
However, an individual can elect to have
no amount withheld in accordance with
section 3405(a)(2) and (b)(2).
Q-13. Do the withholding rules under
section 3405 apply to conversions?
A-13. Yes. A conversion by any
method described in §1.408A–4 A-1 is
considered a designated distribution sub-
ject to section 3405. However, a conver-
sion occurring in 1998 by means of a
trustee-to-trustee transfer of an amount
from a traditional IRA to a Roth IRA es-
tablished with the same or a different
trustee is not required to be treated as a
designated distribution for purposes of
section 3405. Consequently, no withhold-
ing is required with respect to such a con-
version (without regard to whether or not
the individual elected to have no with-
holding).
Q-14. What minimum distribution
rules apply to a Roth IRA?
A-14. (a) No minimum distributions
are required to be made from a Roth IRA
under section 408(a)(6) and (b)(3) (which
generally incorporate the provisions of
section 401(a)(9)) while the owner is
alive. The post-death minimum distribu-
tion rules under section 401(a)(9)(B) that
apply to traditional IRAs, with the excep-
tion of the at-least-as-rapidly rule de-
scribed in section 401(a)(9)(B)(i), also
apply to Roth IRAs.
(b) The minimum distribution rules
apply to the Roth IRA as though the Roth
IRA owner died before his or her required
beginning date. Thus, generally, the en-
tire interest in the Roth IRA must be dis-
tributed by the end of the fifth calendar
year after the year of the owner’s death
unless the interest is payable to a desig-
nated beneficiary over a period not
greater than that beneficiary’s life ex-
pectancy and distribution commences be-
fore the end of the calendar year follow-
ing the year of death. If the sole
beneficiary is the decedent’s spouse, such
spouse may delay distributions until the
decedent would have attained age 70_ or
may treat the Roth IRA as his or her own.
(c) Distributions to a beneficiary that
are not qualified distributions will be in-
cludible in the beneficiary’s gross income
according to the rules in A-4 of this sec-
tion.
Q-15. Does section 401(a)(9) apply
separately to Roth IRAs and individual
retirement plans that are not Roth IRAs?
A-15. Yes. An individual required to
receive minimum distributions from his
or her own traditional or SIMPLE IRA
cannot choose to take the amount of the
minimum distributions from any Roth
IRA. Similarly, an individual required to
receive minimum distributions from a
Roth IRA cannot choose to take the
amount of the minimum distributions
from a traditional or SIMPLE IRA. In ad-
dition, an individual required to receive
minimum distributions as a beneficiary
under a Roth IRA can only satisfy the
minimum distributions for one Roth IRA
by distributing from another Roth IRA if
the Roth IRAs were inherited from the
same decedent.
Q-16. How is the basis of property dis-
tributed from a Roth IRA determined for
purposes of a subsequent disposition?
A-16. The basis of property distributed
from a Roth IRA is its fair market value
(FMV) on the date of distribution,
whether or not the distribution is a quali-
fied distribution. Thus, for example, if a
distribution consists of a share of stock in
XYZ Corp. with an FMV of $40.00 on the
date of distribution, for purposes of deter-
mining gain or loss on the subsequent sale
of the share of XYZ Corp. stock, it has a
basis of $40.00.
1998–39 I.R.B.47September 28, 1998

Q-17. What is the effect of distributing
an amount from a Roth IRA and con-
tributing it to another type of retirement
plan other than a Roth IRA?
A-17. Any amount distributed from a
Roth IRA and contributed to another type
of retirement plan (other than a Roth IRA)
is treated as a distribution from the Roth
IRA that is neither a rollover contribution
for purposes of section 408(d)(3) nor a
qualified rollover contribution within the
meaning of section 408A(e) to the other
type of retirement plan. This treatment
also applies to any amount transferred
from a Roth IRA to any other type of re-
tirement plan unless the transfer is a
recharacterization described in §1.408A–5.
Q-18. Can an amount be transferred
directly from an education IRA to a Roth
IRA (or distributed from an education
IRA and rolled over to a Roth IRA)?
A-18. No amount may be transferred
directly from an education IRA to a Roth
IRA. A transfer of funds (or distribution
and rollover) from an education IRA to a
Roth IRA constitutes a distribution from
the education IRA and a regular contribu-
tion to the Roth IRA (rather than a quali-
fied rollover contribution to the Roth
IRA).
Q-19. What are the Federal income tax
consequences of a Roth IRA owner trans-
ferring his or her Roth IRA to another in-
dividual by gift?
A-19. A Roth IRA owner’s transfer of
his or her Roth IRA to another individual
by gift constitutes an assignment of the
owner’s rights under the Roth IRA. At
the time of the gift, the assets of the Roth
IRA are deemed to be distributed to the
owner and, accordingly, are treated as no
longer held in a Roth IRA. In the case of
any such gift of a Roth IRA made prior to
October 1, 1998, if the entire interest in
the Roth IRA is reconveyed to the Roth
IRA owner prior to January 1, 1999, the
Internal Revenue Service will treat the
gift and reconveyance as never having oc-
curred for estate tax, gift tax, and genera-
tion-skipping tax purposes and for pur-
poses of this A-19.
§1.408A–7 Reporting.
Q-1. What reporting requirements
apply to Roth IRAs?
A-1. Generally, the reporting require-
ments applicable to IRAs other than Roth
IRAs also apply to Roth IRAs, except
that, pursuant to section 408A(d)(3)(D),
the trustee of a Roth IRA must include on
Forms 1099–R and 5498 additional infor-
mation as described in the instructions
thereto. Any conversion of amounts from
an IRA other than a Roth IRA to a Roth
IRA is treated as a distribution for which a
Form 1099–R must be filed by the trustee
maintaining the non-Roth IRA. In addi-
tion, the owner of such IRAs must report
the conversion by completing Form 8606.
In the case of a recharacterization de-
scribed in §1.408A–5 A-1, IRA owners
must report such transactions in the man-
ner prescribed in the instructions to the
applicable Federal tax forms.
Q-2. Can a trustee rely on reasonable
representations of a Roth IRA contributor
or distributee for purposes of fulfilling re-
porting obligations?
A-2. A trustee maintaining a Roth IRA
is permitted to rely on reasonable repre-
sentations of a Roth IRA contributor or
distributee for purposes of fulfilling re-
porting obligations.
§1.408A–8 Definitions.
Q-1. Are there any special definitions
that govern in applying the provisions of
§§1.408A–1 through 1.408A–7 and this
section?
A-1. Yes, the following definitions
govern in applying the provisions of
§§1.408A–1 through 1.408A–7 and this
section. Unless the context indicates oth-
erwise, the use of a particular term ex-
cludes the use of the other terms.
(a) Different types of IRAs—(1) IRA.
Sections 408(a) and (b), respectively, de-
scribe an individual retirement account
and an individual retirement annuity. The
term IRA means an IRA described in ei-
ther section 408(a) or (b), including each
IRA described in paragraphs (a)(2)
through (5) of this A-1. However, the
term IRA does not include an education
IRA described in section 530.
(2) Traditional IRA.The term tradi-
tional IRA means an individual retirement
account or individual retirement annuity
described in section 408(a) or (b), respec-
tively. This term includes a SEP IRA but
does not include a SIMPLE IRA or a Roth
IRA.
(3) SEP IRA. Section 408(k) describes
a simplified employee pension (SEP) as
an employer-sponsored plan under which
an employer can make contributions to
IRAs established for its employees. The
term SEP IRA means an IRA that receives
contributions made under a SEP. The
term SEP includes a salary reduction SEP
(SARSEP) described in section 408(k)(6).
(4) SIMPLE IRA.Section 408(p) de-
scribes a SIMPLE IRA Plan as an em-
ployer-sponsored plan under which an
employer can make contributions to SIM-
PLE IRAs established for its employees.
The term SIMPLE IRA means an IRA to
which the only contributions that can be
made are contributions under a SIMPLE
IRA Plan or rollovers or transfers from
another SIMPLE IRA.
(5) Roth IRA.The term Roth IRA
means an IRA that meets the requirements
of section 408A.
(b) Other defined terms or phrases—
(1) 4-year spread. The term 4-year
spread is described in §1.408A–4 A-8.
(2) Conversion.The term conversion
means a transaction satisfying the require-
ments of §1.408A–4 A-1.
(3) Conversion amount or conversion
contribution.The term conversion
amount or conversion contribution is the
amount of a distribution and contribution
with respect to which a conversion de-
scribed in §1.408A–4 A-1 is made.
(4) Modified AGI.The term modified
AGI is defined in §1.408A–3 A-5.
(5) Recharacterization.The term
recharacterization means a transaction de-
scribed in §1.408A–5 A-1.
(6) Recharacterized amount or rechar-
acterized contribution.The term rechar-
acterized amount or recharacterized con-
tribution means an amount or contribution
treated as contributed to an IRA other
than the one to which it was originally
contributed pursuant to a recharacteriza-
tion described in §1.408A–5 A-1.
(7) Taxable conversion amount. The
term taxable conversion amount means
the portion of a conversion amount in-
cludible in income on account of a con-
version, determined under the rules of
section 408(d)(1) and (2).
(8) Tax-free transfer.The term tax-free
transfer means a tax-free rollover de-
scribed in section 402(c), 402(e)(6),
403(a)(4), 403(a)(5), 403(b)(8), 403(b)(10)
or 408(d)(3), or a tax-free trustee-to-
trustee transfer.
(9) Treat an IRA as his or her own.The
phrase treat an IRA as his or her own
means to treat an IRA of a surviving
September 28, 1998481998–39 I.R.B.

spouse for which one is the beneficiary as
his or her own IRA after the death of the
IRA owner in accordance with the terms
of the IRA instrument or in the manner
provided in the regulations under section
408(a)(6) or (b)(3).
(10) Trustee.The term trustee includes
a custodian or issuer (in the case of an an-
nuity) of an IRA (except where the con-
text clearly indicates otherwise).
§1.408A–9 Effective date.
Q-1. To what taxable years do
§§1.408A–1 through 1.408A–8 apply?
A-1 Sections 1.408A–1 through
1.408A-8 apply to taxable years begin-
ning on or after January 1, 1998.
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
(Filed by the Office of Federal Register on August
31, 1998, 11:11 a.m., and published in the issue of
the Federal Register for September 3, 1998, 63 F.R.
46937)
1998–39 I.R.B.49September 28, 1998

September 28, 1998501998–39 I.R.B.
NameAddressDesignationEffective Date
Galt, Edward G.Monterey, CACPAOctober 25, 1997
Lopez, Andrew L.Albuquerque, NMCPADecember 11, 1997
Branch, Jimmie L.Jacksonville, FLCPAJanuary 15, 1998
Harrison, Rebecca A.Carmichael, CAEnrolled AgentMarch 4, 1998
Mayer, Robert J.Wexford, PACPAJune 4, 1998
Announcement of the Disbarment and Suspension of Attorneys, Certified
Public Accountants, Enrolled Agents, and Enrolled Actuaries From
Practice Before the Internal Revenue Service
Under 330, Title 31 of the United
States Code, the Secretary of the Trea-
sury, after due notice and opportunity for
hearing, is authorized to suspend or dis-
bar from practice before the Internal Rev-
enue Service any person who has vio-
lated the rules and regulations governing
the recognition of attorneys, certified
public accountants, enrolled agents, or
enrolled actuaries to practice before the
Internal Revenue Service.
Attorneys, certified public accountants,
enrolled agents, and enrolled actuaries are
prohibited in any Internal Revenue Service
matter from directly or indirectly employ-
ing, accepting assistance from, being em-
ployed by, or sharing fees with, any practi-
tioner disbarred or suspended from prac-
tice before the Internal Revenue Service.
To enable attorneys, certified public ac-
countants, enrolled agents, and enrolled
actuaries to identify such disbarred or sus-
pended practitioners, the Director
of Practice will announce in the Internal
Revenue Bulletin the names and ad-
dresses of practitioners who have been
suspended from such practice, their desig-
nation as attorney, certified public ac-
countant, enrolled agent, or enrolled actu-
ary, and date or period of suspension. This
announcement will appear in the weekly
Bulletin at the earliest practicable date
after such action and will continue to ap-
pear in the weekly Bulletins for five suc-
cessive weeks or for as many weeks as is
practicable for each attorney, certified
public accountant, enrolled agent, or en-
rolled actuary so suspended or disbarred
and will be consolidated and published in
the Cumulative Bulletin.
After due notice and opportunity for
hearing before an administrative law
judge, the following individuals have
been disbarred from further practice be-
fore the Internal Revenue Service:

1998–39 I.R.B.51September 28, 1998
Under title 31 of the Code of Federal
Regulations, section 10.76, the Director
of Practice is authorized to immediately
suspend from practice before the Internal
Revenue Service any practitioner who,
within five years from the date the expe-
dited proceeding is instituted, (1) has had
a license to practice as an attorney, certi-
fied public accountant, or actuary sus-
pended or revoked for cause; or (2) has
been convicted of any crime under title 26
of the United States Code or, of a felony
under title 18 of the United States Code
involving dishonesty or breach of trust.
Attorneys, certified public accountants,
enrolled agents, and enrolled actuaries are
prohibited in any Internal Revenue Service
matter from directly or indirectly employ-
ing, accepting assistance from, being em-
ployed by, or sharing fees with, any practi-
tioner disbarred or suspended from practice
before the Internal Revenue Service.
To enable attorneys, certified public ac-
countants, enrolled agents, and enrolled ac-
tuaries to identify practitioners under expe-
dited suspension from practice before the
Internal Revenue Service, the Director of
Practice will announce in the Internal Rev-
enue Bulletin the names and addresses of
practitioners who have been suspended
from such practice, their designation as at-
torney, certified public accountant, en-
rolled agent, or enrolled actuary, and date
or period of suspension. This announce-
ment will appear in the weekly Bulletin at
the earliest practicable date after such ac-
tion and will continue to appear in the
weekly Bulletins for five successive weeks
or for as many weeks as is practicable for
each attorney, certified public accountant,
enrolled agent, or enrolled actuary so sus-
pended and will be consolidated and pub-
lished in the Cumulative Bulletin.
The following individuals have been
placed under suspension from practice be-
fore the Internal Revenue Service by virtue
of the expedited proceeding provisions of
the applicable regulations:
Announcement of the Expedited Suspension of Attorneys, Certified Public
Accountants, Enrolled Agents, and Enrolled Actuaries From Practice
Before the Internal Revenue Service
NameAddressDesignationDate of Suspension
Clark, SheilaHouston, TXCPAIndefinite from April 21, 1998
Kimes, Larry W.Austin, TXAttorneyIndefinite from May 5, 1998
Braiteman, SheldonBaltimore, MDAttorneyIndefinite from June 5, 1998
Pollack, MichaelGuttenberg, NJAttorneyIndefinite from June 11, 1998
Eichenbaum, IrvingHuntingdon Valley, PACPAIndefinite from August 4, 1998
Corley, Francis R.Irmo, SCCPAIndefinite from August 4, 1998
Scott, RichardLincoln, NEAttorneyIndefinite from August 4, 1998
Wilson, Douglas D.Roanoke, VAAttorneyIndefinite from August 4, 1998
Watkins, Brian R.Lincoln, NEAttorneyIndefinite
Congdon Jr., Byron E.San Bernadino, CAAttorneyIndefinite from August 4, 1998
Abrams, RobertElmsford, NYCPAIndefinite from August 4, 1998
Robinson, DoaneRapid City, SDCPAIndefinite from August 4, 1998
Szarwark, ErnestNashville, TNAttorneyIndefinite from August 4, 1998
Roberts, MarkNorman, OKCPAIndefinite from August 4, 1998
Wood, Randall K.Springfield, MOAttorneyIndefinite from August 5, 1998
Chappell, Ronald L.Antelope, CACPAIndefinite from August 12, 1998

September 28, 1998521998–39 I.R.B.
NameAddressDesignationDate of Suspension
Makula, John G.Park Ridge, ILCPAApril 1, 1998 to March 31, 2003
Slomski, MichaelGross Pointe Woods, MICPAApril 1, 1998 to March 31, 2001
Bozeman Jr., T. AlvinSylvester, GACPAMay 22, 1998 to November 21, 1999
Parness, Richard A.Westfield, NJCPAJune 1, 1998 to December 31, 1998
Register, BillyHavana, FLCPAIndefinite from July 10, 1998
Cooper, Michael E.Edina, MNCPAAugust 19, 1998 to February 18, 1999
Minello, Michael J.Clarks Summit, PACPAAugust 28, 1998 to April 27, 2001
Holden, William W.Fairfield, CTCPASeptember 1, 1998 to March 31, 1999
Freeman, SamuelBedford, NHCPASeptember 1, 1998 to August 31, 1999
Anders, KevinWilliamport, MDCPASeptember 1, 1998 to August 31, 2001
Breed, Robert M.Concord, MACPASeptember 1, 1998 to February 28, 2001
Sandirk, Paula BrooksChehalis, WACPANovember 1, 1998 to April 30, 2000
Neuhaus Jr., GeorgeBrewster, NYCPANovember 1, 1998 to April 30, 2000
Announcement of the Consent Voluntary Suspension of Attorneys,
Certified Public Accountants, Enrolled Agents, and Enrolled Actuaries
From Practice Before the Internal Revenue Service
Under 31 Code of Federal Regulations,
Part 10, an attorney, certified public ac-
countant, enrolled agent, or enrolled ac-
tuary, in order to avoid the institution or
conclusion of a proceeding for his disbar-
ment or suspension from practice before
the Internal Revenue Service, may offer
his consent to suspension from such prac-
tice. The Director of Practice, in his dis-
cretion, may suspend an attorney, certi-
fied public accountant, enrolled agent, or
enrolled actuary in accordance with the
consent offered.
Attorneys, certified public accountants,
enrolled agents, and enrolled actuaries are
prohibited in any Internal Revenue Ser-
vice matter from directly or indirectly em-
ploying, accepting assistance from, being
employed by, or sharing fees with any
practitioner disbarred or suspended from
practice before the Internal Revenue Ser-
vice.
To enable attorneys, certified public ac-
countants, enrolled agents, and enrolled
actuaries to identify practitioners under
consent suspension from practice before the
Internal Revenue Service, the Director
of Practice will announce in the Internal
Revenue Bulletin the names and ad-
dresses of practitioners who have been
suspended from such practice, their desig-
nation as attorney, certified public ac-
countant, enrolled agent, or enrolled actu-
ary, and date or period of suspension. This
announcement will appear in the weekly
Bulletin at the earliest practicable date
after such action and will continue to ap-
pear in the weekly Bulletins for five suc-
cessive weeks or for as many weeks as is
practicable for each attorney, certified
public accountant, enrolled agent, or en-
rolled actuary so suspended and will be
consolidated and published in the Cumu-
lative Bulletin.
The following individuals have been
placed under consent suspension from
practice before the Internal Revenue Ser-
vice:

1998–39 I.R.B.53September 28, 1998
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously
published ruling and points out an essen-
tial difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it ap-
plies to both A and B, the prior ruling is
modified because it corrects a published
position. (Compare with amplified and
clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. A ruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is super-
seded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be pub-
lished that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current use and for-
merly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C.—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedral Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
Definition of Terms

September 28, 1998541998–39 I.R.B.
Numerical Finding List
1
Bulletins 1998–29 through 38
Announcements:
98–62, 1998–29 I.R.B. 13
98–68, 1998–29 I.R.B. 14
98–69, 1998–30 I.R.B. 16
98–70, 1998–30 I.R.B. 17
98–71, 1998–30 I.R.B. 17
98–72, 1998–31 I.R.B.14
98–73, 1998–31 I.R.B.14
98–74, 1998–31 I.R.B.15
98–75, 1998–31 I.R.B.15
98–76, 1998–32 I.R.B.64
98–77, 1998–34 I.R.B.30
98–78, 1998–34 I.R.B.30
98–79, 1998–34 I.R.B.31
98–80, 1998–34 I.R.B.32
98–81, 1998–36 I.R.B.35
98–82, 1998–35 I.R.B. 17
98–83, 1998–36 I.R.B. 36
98–84, 1998–38 I.R.B.30
98–85, 1998–38 I.R.B.30
98–86, 1998–38 I.R.B.31
Court Decisions:
2063, 1998–36 I.R.B. 13
2064, 1998–37 I.R.B. 4
Notices:
98–36, 1998–29 I.R.B. 8
98–37, 1998–30 I.R.B.13
98–38, 1998–34 I.R.B.7
98–39, 1998–33 I.R.B.11
98–40, 1998–35 I.R.B. 7
98–41, 1998–33 I.R.B.12
98–42, 1998–33 I.R.B.12
98–43, 1998–33 I.R.B.13
98–44, 1998–34 I.R.B.7
98–45, 1998–35 I.R.B.7
98–46, 1998–36 I.R.B. 21
98–47, 1998–37 I.R.B. 8
98–49, 1998–38 I.R.B.5
Railroad Retirement Quarterly Rate:
1998–31 I.R.B. 7
Proposed Regulations:
REG–209446–82, 1998–36 I.R.B. 24
REG–209813–96, 1998–35 I.R.B. 9
REG–246256–96, 1998–34 I.R.B.9
REG–104641–97, 1998–29 I.R.B. 9
REG–106177–97, 1998–37 I.R.B.33
REG–115446–97, 1998–36 I.R.B. 23
REG–116608–97, 1998–29 I.R.B. 12
REG–119227–97, 1998–30 I.R.B. 13
REG–110332–98, 1998–33 I.R.B.18
REG–110403–98, 1998–29 I.R.B.11
Revenue Procedures:
98–40, 1998–32 I.R.B. 6
98–41, 1998–32 I.R.B. 7
98–42, 1998–28 I.R.B. 9
98–43, 1998–29 I.R.B. 8
98–44, 1998–32 I.R.B. 11
98–45, 1998–34 I.R.B.8
98–46, 1998–36 I.R.B. 21
Revenue Procedures—Continued
98–47, 1998–37 I.R.B. 8
98–48, 1998–38 I.R.B.7
98–49, 1998–37 I.R.B. 9
98–50, 1998–38 I.R.B.8
98–51, 1998–38 I.R.B.20
98–52, 1998–37 I.R.B. 12
Revenue Rulings:
98–34, 1998–31 I.R.B. 12
98–35, 1998–30 I.R.B. 4
98–36, 1998–31 I.R.B.6
98–37, 1998–32 I.R.B.5
98–38, 1998–32 I.R.B.4
98–39, 1998–33 I.R.B.4
98–40, 1998–33 I.R.B.4
98–41, 1998–35 I.R.B.6
98–42, 1998–35 I.R.B. 5
98–43, 1998–36 I.R.B. 9
98–44, 1998–37 I.R.B.4
98–45, 1998–38 I.R.B.4
Treasury Decisions:
8771, 1998–29 I.R.B. 6
8772, 1998–31 I.R.B. 8
8773, 1998–29 I.R.B. 4
8774, 1998–30 I.R.B. 5
8775, 1998–31 I.R.B.4
8776, 1998–33 I.R.B.6
8777, 1998–34 I.R.B.4
8778, 1998–36 I.R.B. 4
8779, 1998–36 I.R.B. 11
1
A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 1998–1 through 1998–28
will be found in Internal Revenue Bulletin 1998–29,
dated July 20, 1998.

1998–39 I.R.B.55September 28, 1998
Finding List of Current Action on
Previously Published Items
1
Bulletins 1998–29 through 38
*Denotes entry since last publication
Notices:
87–13
Modified by
98–49, 1998–38 I.R.B. 5
87–16
Modified by
98–49, 1998–38 I.R.B. 5
Revenue Procedures:
83–58
Obsoleted by
98–37, 1998–32 I.R.B. 5
97–60
Superseded by
98–50, 1998–38 I.R.B. 8
97–61
Superseded by
98–51, 1998–38 I.R.B. 20
Revenue Rulings:
57–271
Obsoleted by
98–37, 1998–32 I.R.B. 5
67–301
Modified by
98–41, 1998–35 I.R.B. 6
70–225
Obsoleted by
98–44, 1998–37 I.R.B. 4
71–277
Obsoleted by
98–37, 1998–32 I.R.B. 5
71–434
Obsoleted by
98–37, 1998–32 I.R.B. 5
71–574
Obsoleted by
98–37, 1998–32 I.R.B. 5
72–75
Obsoleted by
98–37, 1998–32 I.R.B. 5
72–120
Obsoleted by
98–37, 1998–32 I.R.B. 5
72–121
Obsoleted by
98–37, 1998–32 I.R.B. 5
72–122
Obsoleted by
98–37, 1998–32 I.R.B. 5
74–77
Obsoleted by
98–37, 1998–32 I.R.B. 5
75–19
Obsoleted by
98–37, 1998–32 I.R.B. 5
76–562
Obsoleted by
98–37, 1998–32 I.R.B. 5
Revenue Rulings—Continued
77–214
Obsoleted by
98–37, 1998–32 I.R.B. 5
79–106
Obsoleted by
98–37, 1998–32 I.R.B. 5
83–113
Obsoleted by
98–37, 1998–32 I.R.B. 5
85–143
Obsoleted by
98–37, 1998–32 I.R.B. 5
88–8
Obsoleted by
98–37, 1998–32 I.R.B. 5
88–76
Obsoleted by
98–37, 1998–32 I.R.B. 5
88–79
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–4
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–5
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–6
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–30
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–38
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–49
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–50
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–53
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–81
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–91
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–92
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–93
Obsoleted by
98–37, 1998–32 I.R.B. 5
94–5
Obsoleted by
98–37, 1998–32 I.R.B. 5
Revenue Rulings—Continued
94–6
Obsoleted by
98–37, 1998–32 I.R.B. 5
94–30
Obsoleted by
98–37, 1998–32 I.R.B. 5
94–51
Obsoleted by
98–37, 1998–32 I.R.B. 5
94–79
Obsoleted by
98–37, 1998–32 I.R.B. 5
95–2
Obsoleted by
98–37, 1998–32 I.R.B. 5
95–9
Obsoleted by
98–37, 1998–32 I.R.B. 5
97–37
Obsoleted by
98–39, 1998–33 I.R.B. 4
1
A cumulative finding list for previously published
items mentioned in Internal Revenue Bulletins
1998–1 through 1998–28 will be found in Internal
Revenue Bulletin 1998–29, dated July 20, 1998.

Notes
September 28, 1998561998–39 I.R.B.

Notes
1998–39 I.R.B.57September 28, 1998

Notes
September 28, 1998581998–39 I.R.B.

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