Internal Revenue Bulletin 1999-50 (PDF rendition): IRS Revenue Rulings

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INCOME TAX
Rev. Rul. 99–49, page 667.
CPI adjustments for below-market loans for 2000.The
amount that section 7872(g) of the Code permits a taxpayer
to lend to a qualified continuing care facility without incurring
imputed interest is adjusted for years 1987–2000. Rev. Rul.
98–59 supplemental and superseded.
Rev. Rul. 99–50, page 656.
Section 1274A inflation-adjusted numbers for 2000.
This ruling provides the dollar amounts, increased by the
2000 inflation adjustment, for section 1274A of the Code.
Rev. Rul. 98–58 supplemented and superseded.
Rev. Rul. 99–52, page 652.
1999 base period T-bill rate.The base period T-bill rate,
under section 995 of the Code, is 4.80 percent for the pe-
riod ending September 30, 1999.
Rev. Rul. 99–53, page 657.
Interest rates; underpayments and overpayments.The
rate of interest determined under section 6621 of the Code
for the calendar quarter beginning January 1, 2000, will be
8 percent for overpayments (7 percent in the case of a cor-
poration), 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.
T.D. 8844, page 661.
Final regulations clarify the tax consequences for an existing
entity that makes an election under section 7701 of the
Code to change its classification for federal tax purposes.
REG–110385–99, page 670.
Proposed regulations under section 7701 of the Code relate
to transactions involving certain foreign eligible entities. A
public hearing is scheduled for January 31, 2000.
EMPLOYEE PLANS
Rev. Rul. 99–51, page 652.
Nondiscrimination; duplicate benefits. This ruling pro-
vides that the duplication of benefits for highly compensated
employees may result in the failure of plans to satisfy the
nondiscrimination requirements of section 401(a)(4) of the
Code.
EMPLOYMENT TAX
Notice 99–56, page 668.
This notice provides tables that show the amount of an indi-
vidual’s income that is exempt from a notice of levy used to
collect delinquent tax in 2000.
ADMINISTRATIVE
Announcement 99–113, page 673.
This document contains a partial withdrawal of proposed reg-
ulations (REG–105162–97, 1997–2 C.B. 649) relating to
special basis adjustments under section 743 of the Code.
Announcement 99–114, page 674.
Publication 3386, Tax Guide for Veterans’ Organizations,
which provides general information regarding tax exemption
under section 501(c) of the Code, is now available.
Internal Revenue
bbuulllleettiinn
Bulletin No. 1999–50
December 13, 1999
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
Department of the Treasury
Internal Revenue Service
Finding Lists begin on page ii.

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

INSERT
PICTURES
HERE

Section 401.—Pension, Profit-
Sharing, Stock Bonus Plans, etc.
26 CFR 1.401(a)(4)–1: Nondiscrimination
requirements of section 401(a)(4).
Nondiscrimination; duplicate benefits.
This ruling provides that the duplication of
benefits for highly compensated employees
may result in the failure of plans to satisfy
the nondiscrimination requirements of sec-
tion 401(a)(4) of the Code.
Rev. Rul. 99–51
Employer A maintained one plan, Plan
X, a calendar year defined benefit plan,
benefiting all of A’s highly compensated
employees within the meaning of
§ 414(q) of the Internal Revenue Code of
1986 (HCEs) and all of A’s employees
who are not highly compensated employ-
ees (NHCEs). Under Plan X, each em-
ployee’s accrued benefit equals an annual
benefit commencing at normal retirement
age of one percent of average annual
compensation per year of service. A
“year of service” includes all years of ser-
vice with Employer A. There are no re-
lated or predecessor employers nor is ser-
vice under any other plan taken into
account under Plan X.
In November 1997, Plan X was
amended effective as of December 31,
1997 (the spin-off date) to become two
plans: Plan X-H covering Employer A’s
HCEs and Plan X-N covering Employer
A’s NHCEs. The assets and benefit liabil-
ities under Plan X as of the spin-off date
were allocated between Plan X-H and
Plan X-N in accordance with § 414(l).
Pursuant to the terms of the amendment,
NHCEs were excluded from participation
in Plan X-H and HCEs were excluded
from participation in Plan X-N. In addi-
tion, the amendment provided that there
would be no benefit accruals under Plan
X-H with respect to periods after the spin-
off date (i.e., Plan X-H was “frozen” as of
the spin-off date). Benefit accruals con-
tinued under Plan X’s original formula for
participants in Plan X-N.
Employer A later amended Plan X-N to
include the HCEs and to provide the
HCEs with an annual benefit commenc-
ing at normal retirement age equal to one
percent of average annual compensation
per year of service with Employer A. The
years of service included in the computa-
tion of the HCEs’ accrued benefit under
Plan X-H were included in the computa-
tion of their benefits under Plan X-N as
well. Benefits employees accrued under
Plan X-N were not offset by their accrued
benefits under Plan X-H.
Plan X, Plan X-H and Plan X-N are the
only plans that have been maintained by
Employer A, and none of these plans have
been top-heavy within the meaning of §
416 for any plan year.
Section 401(a)(4) provides that contri-
butions or benefits under a plan qualified
under § 401(a) must not discriminate in
favor of HCEs.
Section 1.401(a)(4)–1(c)(2) of the In-
come Tax Regulations provides that the
regulations under § 401(a)(4) must be in-
terpreted in a reasonable manner consis-
tent with the purpose of preventing dis-
crimination in favor of HCEs.
Section 1.401(a)(4)–5(a)(1)&(2) pro-
vides that, for determining whether the
timing of a plan amendment or series of
amendments has the effect of discriminat-
ing significantly in favor of HCEs, a plan
amendment includes the establishment or
termination of the plan, and any change in
the benefits, rights, features or benefit for-
mulas under the plan. Whether the timing
of a plan amendment or series of plan
amendments has the effect of discriminat-
ing significantly in favor of HCEs is de-
termined at the time the plan amendment
first becomes effective based on all rele-
vant facts and circumstances. These in-
clude the relative numbers of current
HCEs and NHCEs affected by the plan
amendment, the relative accrued benefits
of current HCEs and NHCEs before and
after the plan amendment and any addi-
tional benefits provided to current HCEs
and NHCEs under other plans.
Section 1.401(a)(4)–11(d)(2) provides
that, on the basis of all relevant facts and
circumstances, the manner in which em-
ployees’ service is credited for all pur-
poses under the plan must not discrimi-
nate in favor of HCEs.
Section 1.401(a)(4)–11(d)(3) provides
that, except as otherwise provided, ser-
vice for periods in which an employee did
not participate in the plan may not be
taken into account in determining whether
the plan satisfies § 401(a)(4).
Held, under the facts of this case there
is a duplication of service and benefits
that discriminates in favor of HCEs in vi-
olation of § 401(a)(4).
DRAFTING INFORMATION
The principal author of this revenue
ruling is Kenneth Conn of the Employee
Plans Division. For further information
regarding this revenue ruling, call the
Employee Plans Division’s taxpayer as-
sistance telephone service at (202) 622-
6074/6075 (not toll-free numbers) be-
tween 1:30 and 3:30 p.m. Eastern Time,
Monday through Thursday, or Mr. Conn
at (202) 622-6214 (also not a toll-free
number).
Section 483.—Interest on
Certain Deferred Payments
26 CFR 1.483–1: Computation of interest on
certain deferred payments.
As defined by section 1274A, the defi-
nitions for both “qualified debt instru-
ments” and “cash method debt instru-
ments” have dollar ceilings on the stated
principal amount. The limits to the stated
principal amount are adjusted for inflation
for sales or exchanges occurring in the
2000 calendar year. See Rev. Rul. 99–50,
page 656.
Section 995.—Taxation of DISC
Income to Shareholders
1999 base period T-bill rate.The
base period T-bill rate, under section 995
of the Code, is 4.80 percent for the period
ending September 30, 1999.
Rev. Rul. 99–52
Section 995(f)(l) of the Internal Revenue
Code provides that a shareholder of a DISC
shall pay interest each taxable year in an
amount equal to the product of the share-
holder’s DISC-related deferred tax liability
for the year and the “base period T-bill
rate.” Under section 995(f)(4), the base pe-
riod T-bill rate is the annual rate of interest
determined by the Secretary to be equiva-
December 13, 19996521999–50 I.R.B.
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

lent to the average investment yield of
United States Treasury bills with maturities
of 52 weeks which were auctioned during
the one-year period ending on September
30 of the calendar year ending with (or of
the most recent calendar year ending be-
fore) the close of the taxable year of the
shareholder. The base period T-bill rate for
the period ending September 30, 1999, is
4.80 percent.
Pursuant to section 6622 of the Code,
interest must be compounded daily. The
table below provides factors for com-
pounding the base period T-bill rate daily
for any number of days in the share-
holder’s taxable year (including a 52-53
week accounting period) for the 1999
base period T-bill rate. To compute the
amount of the interest charge for the
shareholder’s taxable year, multiply the
amount of the shareholder’s DISC-related
deferred tax liability (as defined in section
995(f)(2)) for that year by the base period
T-bill rate factor corresponding to the
number of days in the shareholder’s tax-
able year for which the interest charge is
being computed. Generally, one would
use the factor for 365 days. One would
use a different factor only if the share-
holder’s taxable year for which the inter-
est charge being determined is a short tax-
able year, if the shareholder uses the
52-53 week taxable year, or if the share-
holder’s taxable year is a leap year.
For the base period T-bill rates for the
periods ending in prior years, see:Rev.
Rul. 86–132, 1986–2 C.B. 137; Rev. Rul.
87–129, 1987-2 C.B. 196; Rev. Rul.
88–94, 1988–2 C.B. 301; Rev. Rul.
89–116, 1989–2 C.B. 197; Rev. Rul.
90–96, 1990–2 C.B. 188; Rev. Rul.
91–59, 1991–2 C.B. 347; Rev. Rul.
92–98, 1992–2 C.B. 201; Rev. Rul.
93–77, 1993–2 C.B. 253; Rev. Rul.
94–68, 1994–2 C.B. 177; Rev. Rul.
95–77, 1995–2 C.B. 122; Rev. Rul.
96–55, 1996–2 C.B. 57; Rev. Rul. 97–49,
1997–2 C.B. 89; and Rev. Rul. 98–54,
1998–56 I.R.B. 5.
DRAFTING INFORMATION
The principal author of this revenue
ruling is David Bergkuist of the Office of
the Associate Chief Counsel (Interna-
tional). For further information about this
revenue ruling, contact Mr. Bergkuist on
(202) 622-3850 (not a toll-free call).
1999 ANNUAL RATE
COMPOUNDED DAILY
4.80 PERCENT
DAYSFACTOR
1.000131507
2.000263031
3.000394572
4.000526131
5.000657707
6.000789301
7.000920911
8.001052539
9.001184184
10.001315847
11.001447527
12.001579224
13.001710939
14.001842670
15.001974420
16.002106186
17.002237970
18.002369771
19.002501590
20.002633425
21.002765279
22.002897149
23.003029037
24.003160942
25.003292865
26.003424805
27.003556762
28.003688736
29.003820728
30.003952738
31.004084764
32.004216808
33.004348870
34.004480948
35.004613045
36.004745158
37.004877289
38.005009437
39.005141603
40.005273786
41.005405986
42.005538204
43.005670439
44.005802692
4.80 PERCENT
DAYSFACTOR
45.005934962
46.006067249
47.006199554
48.006331876
49.006464215
50.006596572
51.006728947
52.006861338
53.006993748
54.007126174
55.007258618
56.007391080
57.007523558
58.007656055
59.007788568
60.007921099
61.008053648
62.008186214
63.008318797
64.008451398
65.008584016
66.008716652
67.008849305
68.008981976
69.009114664
70.009247369
71.009380092
72.009512833
73.009645591
74.009778366
75.009911159
76.010043969
77.010176797
78.010309642
79.010442504
80.010575384
81.010708282
82.010841197
83.010974130
84.011107080
85.011240047
86.011373032
87.011506035
88.011639055
89.011772092
90.011905147
91.012038220
1999–50 I.R.B.653December 13, 1999

December 13, 19996541999–50 I.R.B.
4.80 PERCENT
DAYSFACTOR
92.012171309
93.012304417
94.012437542
95.012570684
96.012703844
97.012837022
98.012970217
99.013103429
100.013236659
101.013369907
102.013503172
103.013636455
104.013769755
105.013903072
106.014036408
107.014169760
108.014303131
109.014436518
110.014569924
111.014703347
112.014836787
113.014970245
114.015103721
115.015237214
116.015370724
117.015504253
118.015637798
119.015771362
120.015904943
121.016038541
122.016172157
123.016305791
124.016439442
125.016573111
126.016706797
127.016840501
128.016974222
129.017107961
130.017241718
131.017375492
132.017509284
133.017643094
134.017776921
135.017910765
136.018044628
137.018178507
138.018312405
139.018446320
4.80 PERCENT
DAYSFACTOR
140.018580253
141.018714203
142.018848171
143.018982156
144.019116159
145.019250180
146.019384219
147.019518275
148.019652348
149.019786439
150.019920548
151.020054675
152.020188819
153.020322981
154.020457160
155.020591357
156.020725572
157.020859805
158.020994055
159.021128322
160.021262608
161.021396911
162.021531231
163.021665570
164.021799926
165.021934299
166.022068691
167.022203100
168.022337527
169.022471971
170.022606433
171.022740913
172.022875410
173.023009925
174.023144458
175.023279009
176.023413577
177.023548163
178.023682766
179.023817388
180.023952027
181.024086683
182.024221358
183.024356050
184.024490760
185.024625487
186.024760233
4.80 PERCENT
DAYSFACTOR
187.024894996
188.025029776
189.025164575
190.025299391
191.025434225
192.025569076
193.025703946
194.025838833
195.025973738
196.026108660
197.026243601
198.026378559
199.026513534
200.026648528
201.026783539
202.026918568
203.027053615
204.027188680
205.027323762
206.027458862
207.027593980
208.027729116
209.027864269
210.027999440
211.028134629
212.028269836
213.028405061
214.028540303
215.028675563
216.028810841
217.028946137
218.029081450
219.029216781
220.029352130
221.029487497
222.029622882
223.029758284
224.029893705
225.030029143
226.030164599
227.030300072
228.030435564
229.030571073
230.030706600
231.030842145
232.030977708
233.031113289

4.80 PERCENT
DAYSFACTOR
234.031248887
235.031384503
236.031520138
237.031655790
238.031791459
239.031927147
240.032062852
241.032198576
242.032334317
243.032470076
244.032605853
245.032741648
246.032877460
247.033013291
248.033149139
249.033285005
250.033420889
251.033556791
252.033692711
253.033828649
254.033964604
255.034100578
256.034236569
257.034372578
258.034508605
259.034644650
260.034780713
261.034916794
262.035052892
263.035189009
264.035325143
265.035461296
266.035597466
267.035733654
268.035869860
269.036006084
270.036142326
271.036278586
272.036414864
273.036551159
274.036687473
275.036823804
276.036960154
277.037096521
278.037232906
279.037369310
280.037505731
4.80 PERCENT
DAYSFACTOR
281.037642170
282.037778627
283.037915102
284.038051595
285.038188106
286.038324635
287.038461182
288.038597746
289.038734329
290.038870930
291.039007548
292.039144185
293.039280840
294.039417512
295.039554203
296.039690911
297.039827638
298.039964382
299.040101144
300.040237925
301.040374723
302.040511540
303.040648374
304.040785226
305.040922097
306.041058985
307.041195892
308.041332816
309.041469758
310.041606719
311.041743697
312.041880694
313.042017708
314.042154741
315.042291791
316.042428860
317.042565946
318.042703051
319.042840173
320.042977314
321.043114473
322.043251649
323.043388844
324.043526057
325.043663288
326.043800536
327.043937803
328.044075088
4.80 PERCENT
DAYSFACTOR
329.044212391
330.044349712
331.044487052
332.044624409
333.044761784
334.044899177
335.045036589
336.045174018
337.045311466
338.045448931
339.045586415
340.045723917
341.045861437
342.045998975
343.046136531
344.046274105
345.046411697
346.046549307
347.046686936
348.046824582
349.046962247
350.047099930
351.047237630
352.047375349
353.047513086
354.047650841
355.047788615
356.047926406
357.048064216
358.048202043
359.048339889
360.048477753
361.048615635
362.048753535
363.048891453
364.049029390
365.049167344
366.049305317
367.049443308
368.049581317
369.049719344
370.049857389
371.049995453
1999–50 I.R.B.655December 13, 1999

Section 1274.—Determination
of Issue Price in the Case of
Certain Debt Instruments Issued
for Property
26 CFR 1.1274A–1: Special rules for certain
transactions where stated principal amount does
not exceed $2,800,000.
As defined by section 1274A, the defi-
nitions for both “qualified debt instru-
ments” and “cash method debt instru-
ments” have dollar ceilings on the stated
principal amount. The limits to the stated
principal amount are adjusted for inflation
for sales or exchanges occurring in the
2000 calendar year. See Rev. Rul. 99-50,
on this page.
Section 1274A.—Special Rules
for Certain Transactions Where
Stated Principal Amount Does
Not Exceed $2,800,000
(Also, sections 1274, 483; 1.1274A–1, 1.483–1.)
Section 1274A inflation-adjusted
numbers for 2000.This ruling provides
the dollar amounts, increased by the 2000
inflation adjustment, for section 1274A of
the Code. Rev. Rul. 98–58 supplemented
and superseded.
Rev. Rul. 99–50
This revenue ruling provides the dol-
lar amounts, increased by the 2000 in-
flation adjustment, for § 1274A of the
Internal Revenue Code.
BACKGROUND
In general, §§ 483 and 1274 determine
the principal amount of a debt instrument
given in consideration for the sale or ex-
change of nonpublicly traded property. In
addition, any interest on a debt instrument
subject to § 1274 is taken into account
under the original issue discount provi-
sions of the Code. Section 1274A, how-
ever, modifies the rules under §§ 483 and
1274 for certain types of debt instru-
ments.
In the case of a “qualified debt instru-
ment,” the discount rate used for purposes
of §§ 483 and 1274 may not exceed 9 per-
cent, compounded semiannually. Section
1274A(b) defines a qualified debt instru-
ment as any debt instrument given in con-
sideration for the sale or exchange of
property (other than new § 38 property
within the meaning of § 48(b), as in effect
on the day before the date of enactment of
the Revenue Reconciliation Act of 1990)
if the stated principal amount of the in-
strument does not exceed the amount
specified in § 1274A(b). For debt instru-
ments arising out of sales or exchanges
before January 1, 1990, this amount is
$2,800,000.
In the case of a “cash method debt in-
strument,” as defined in § 1274A(c), the
borrower and lender may elect to use the
cash receipts and disbursements method
of accounting. In particular, for any cash
method debt instrument, § 1274 does not
apply, and interest on the instrument is ac-
counted for by both the borrower and the
lender under the cash method of account-
ing. A cash method debt instrument is a
qualified debt instrument that meets the
following additional requirements: (A) In
the case of instruments arising out of sales
or exchanges before January 1, 1990, the
stated principal amount does not exceed
$2,000,000; (B) the lender does not use an
accrual method of accounting and is not a
dealer with respect to the property sold or
exchanged; (C) § 1274 would have ap-
plied to the debt instrument but for an
election under § 1274A(c); and (D) an
election under § 1274A(c) is jointly made
with respect to the debt instrument by the
borrower and lender. Section 1.1274A–
1(c)(1) of the Income Tax Regulations
provides rules concerning the time for,
and manner of, making this election.
Section 1274A(d)(2) provides that, for
any debt instrument arising out of a sale
or exchange during any calendar year
after 1989, the dollar amounts stated in
§ 1274A(b) and § 1274A(c)(2)(A) are in-
creased by the inflation adjustment for the
calendar year. Any increase due to the in-
flation adjustment is rounded to the near-
est multiple of $100 (or, if the increase is
a multiple of $50 and not of $100, the in-
crease is increased to the nearest multiple
of $100). The inflation adjustment for
any calendar year is the percentage (if
any) by which the CPI for the preceding
calendar year exceeds the CPI for calen-
dar year 1988. Section 1274A(d)(2)(B)
December 13, 19996561999–50 I.R.B.
Rev. Rul. 99–50 Table 1
Inflation-Adjusted Amounts Under § 1274A
Calendar Year1274A(b) Amount1274A(c)(2)(A) Amount
of Sale (qualified debt (cash method debt
or Exchange instrument)instrument)
1990$2,933,200 $2,095,100
1991$3,079,600$2,199,700
1992$3,234,900$2,310,600
1993$3,332,400$2,380,300
1994$3,433,500$2,452,500
1995$3,523,600$2,516,900
1996$3,622,500$2,587,500
1997$3,723,800$2,659,900
1998$3,823,100$2,730,800
1999$3,885,500$2,775,400
2000$3,960,100$2,828,700
Note:These inflation adjustments were computed using the All-Urban, Consumer Price Index, 1982-1984 base, published by
the Bureau of Labor Statistics.

1999–50 I.R.B.657December 13, 1999
defines the CPI for any calendar year as
the average of the Consumer Price Index
as of the close of the 12-month period
ending on September 30 of that calendar
year.
INFLATION-ADJUSTED AMOUNTS
For debt instruments arising out of
sales or exchanges after December 31,
1989, the inflation-adjusted amounts
under § 1274A are shown in Table 1.
EFFECT ON OTHER DOCUMENTS
Rev. Rul. 98–58, 1998–52 I.R.B. 6 is
supplemented and superseded.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Courtney Shepardson the Office
of the Assistant Chief Counsel (Financial
Institutions and Products). For further in-
formation regarding this revenue ruling
contact Ms. Shepardson on (202) 622-
3930 (not a toll-free call).
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 January 1,
2000, will be 8 percent for overpayments
(7 percent in the case of a corporation), 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. 99–53
Section 6621 of the Internal Revenue
Code establishes the rates for interest on
tax overpayments and tax underpayments.
Under § 6621(a)(1), the overpayment rate
beginning January 1, 2000, is the sum of
the federal short-term rate plus 3 percent-
age points (2 percentage points in the case
of a corporation), 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 com-
putations 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)(2)(B) provides that in
determining the addition to tax under §
6654 for failure to pay estimated tax for
any taxable year, the federal short-term
rate that applies during the third month
following such taxable year also applies
during the first 15 days of the fourth
month following such taxable year.
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 October 1999 is 5 percent. Ac-
cordingly, an overpayment rate of 8 per-
cent (7 percent in the case of a corpora-
tion) and an underpayment rate of 8
percent are established for the calendar
quarter beginning January 1, 2000. The
overpayment rate for the portion of a cor-
porate overpayment exceeding $10,000
for the calendar quarter beginning Janu-
ary 1, 2000, is 5.5 percent. The underpay-
ment rate for large corporate underpay-
ments for the calendar quarter beginning
January 1, 2000, is 10 percent. These
rates apply to amounts bearing interest
during that calendar quarter.
The 8 percent rate also applies to esti-
mated tax underpayments for the first cal-
endar quarter in 2000 and for the first 15
days in April 2000.
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 64, 67, 69, and 73 of
Rev. Proc. 95–17, 1995–1 C.B. 556, 618,
621, 623, and 627.
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).

December 13, 19996581999–50 I.R.B.
TABLE OF INTEREST RATES
PERIODS BEFORE JUL. 1, 1975 – PERIODS ENDING DEC. 31, 1986
OVERPAYMENTS AND UNDERPAYMENTS
In 1995–1 C.B.
PERIODRATEDAILY RATE TABLE
Before Jul. 1, 19756%Table 2, pg. 557
Jul. 1, 1975—Jan. 31, 19769%Table 4, pg. 559
Feb. 1, 1976—Jan. 31, 19787%Table 3, pg. 558
Feb. 1, 1978—Jan. 31, 19806%Table 2, pg. 557
Feb. 1, 1980—Jan. 31, 1982 12%Table 5, pg. 560
Feb. 1, 1982—Dec. 31, 1982 20%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, 1984 11%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
TABLE OF INTEREST RATES
FROM JAN. 1, 1987 – Dec. 31, 1998
OVERPAYMENTSUNDERPAYMENTS
1995–1 C.B. 1995–1 C.B.
RATE TABLE PGRATE TABLE PG
Jan. 1, 1987—Mar. 31, 19878%21 575 9% 23577
Apr. 1, 1987—Jun. 30, 19878%215759%23577
Jul. 1, 1987—Sep. 30, 19878%215759%23577
Oct. 1, 1987—Dec. 31, 19879%2357710%25579
Jan. 1, 1988—Mar. 31, 198810%7362711%75629
Apr. 1, 1988—Jun. 30, 19889%7162510%73627
Jul. 1, 1988—Sep. 30, 19889%7162510%73627
Oct. 1, 1988—Dec. 31, 1988 10%7362711%75629
Jan. 1, 1989—Mar. 31, 1989 10%2557911%27581
Apr. 1, 1989—Jun. 30, 1989 11%2758112%29583
Jul. 1, 1989—Sep. 30, 1989 11%2758112%29583
Oct. 1, 1989—Dec. 31, 198910%2557911%27581
Jan. 1, 1990—Mar. 31, 199010%2557911%27581
Apr. 1, 1990—Jun. 30, 1990 10%2557911%27581
Jul. 1, 1990—Sep. 30, 1990 10%2557911%27581
Oct. 1, 1990—Dec. 31, 1990 10%2557911%27581
Jan. 1, 1991—Mar. 31, 199110%2557911%27581
Apr. 1, 1991—Jun. 30, 19919%2357710%25579
Jul. 1, 1991—Sep. 30, 1991 9%2357710%25579
Oct. 1, 1991—Dec. 31, 19919%2357710%25579
Jan. 1, 1992—Mar. 31, 19928%696239%71625
Apr. 1, 1992—Jun. 30, 19927%676218%69623
Jul. 1, 1992—Sep. 30, 19927%676218%69623
Oct. 1, 1992—Dec. 31, 1992 6%656197%67621
Jan. 1, 1993—Mar. 31, 1993 6%175717%19573
Apr. 1, 1993—Jun. 30, 1993 6%175717%19573
Jul. 1, 1993—Sep. 30, 19936%175717%19573

1999–50 I.R.B.659December 13, 1999
TABLE OF INTEREST RATES—Continued
FROM JAN. 1, 1987 – Dec. 31, 1998
OVERPAYMENTSUNDERPAYMENTS
1995–1 C.B. 1995–1 C.B.
RATE TABLE PGRATE TABLE PG
Oct. 1, 1993—Dec. 31, 19936%175717%19573
Jan. 1, 1994—Mar. 31, 19946%175717%19573
Apr. 1, 1994—Jun. 30, 19946%175717%19573
Jul. 1, 1994—Sep. 30, 19947%195738%21575
Oct. 1, 1994—Dec. 31, 19948%215759%23577
Jan. 1, 1995—Mar. 31, 19958%215759%23577
Apr. 1, 1995—Jun. 30, 19959%2357710%25579
Jul. 1, 1995—Sep. 30, 19958%215759%23577
Oct. 1, 1995—Dec. 31, 19958%215759%23577
Jan. 1, 1996—Mar. 31, 19968%696239%71625
Apr. 1, 1996—Jun. 30, 19967%676218%69623
Jul. 1, 1996—Sep. 30, 19968%696239%71625
Oct. 1, 1996—Dec. 31, 19968%696239%71625
Jan. 1, 1997—Mar. 31, 19978%215759%23577
Apr. 1, 1997—Jun. 30, 19978%215759%23577
Jul. 1, 1997—Sep. 30, 19978%215759%23577
Oct. 1, 1997—Dec. 31, 19978%215759%23577
Jan. 1, 1998—Mar. 31, 19988%215759%23577
Apr. 1, 1998—Jun. 30, 19987%195738%21575
Jul. 1, 1998—Sep. 30, 19987%195738%21575
Oct. 1, 1998—Dec. 31, 19987%195738%21575
TABLE OF INTEREST RATES
FROM JANUARY 1, 1999 – PRESENT
NONCORPORATE OVERPAYMENTS AND UNDERPAYMENTS
1995–1 C.B
RATETABLEPAGE
Jan. 1, 1999—Mar. 31, 19997%19573
Apr. 1, 1999—Jun. 30, 19998%21575
Jul. 1, 1999—Sep. 30, 19998%21575
Oct. 1, 1999—Dec. 31, 19998%21575
Jan. 1, 2000—Mar. 31, 20008%69623
TABLE OF INTEREST RATES
FROM JANUARY 1, 1999 – PRESENT
CORPORATE OVERPAYMENTS AND UNDERPAYMENTS
OVERPAYMENTSUNDERPAYMENTS
1995–1 C.B.1995–1 C.B.
RATETABLEPGRATETABLEPG
Jan. 1, 1999—Mar. 31, 19996%175717%19573
Apr. 1, 1999—Jun. 30, 19997%195738%21575
Jul. 1, 1999—Sep. 30, 19997%195738%21575
Oct. 1, 1999—Dec. 31, 19997%195738%21575
Jan. 1, 2000—Mar. 31, 20007%676218%69623

TABLE OF INTEREST RATES FOR
LARGE CORPORATE UNDERPAYMENTS
FROM JANUARY 1, 1991 - PRESENT
1995–1 C.B.
RATETABLEPG
Jan. 1, 1991—Mar. 31, 199113%31585
Apr. 1, 1991—Jun. 30, 199112%29583
Jul. 1, 1991—Sep. 30, 199112%29583
Oct. 1, 1991—Dec. 31, 199112%29583
Jan. 1, 1992—Mar. 31, 199211%75629
Apr. 1, 1992—Jun. 30, 199210%73627
Jul. 1, 1992—Sep. 30, 199210%73627
Oct. 1, 1992—Dec. 31, 19929%71625
Jan. 1, 1993—Mar. 31, 19939%23577
Apr. 1, 1993—Jun. 30, 19939%23577
Jul. 1, 1993—Sep. 30, 19939%23577
Oct. 1, 1993—Dec. 31, 19939%23577
Jan. 1, 1994—Mar. 31, 19949%23577
Apr. 1, 1994—Jun. 30, 19949%23577
Jul. 1, 1994—Sep. 30, 199410%25579
Oct. 1, 1994—Dec. 31, 199411%27581
Jan. 1, 1995—Mar. 31, 199511%27581
Apr. 1, 1995—Jun. 30, 199512%29583
Jul. 1, 1995—Sep. 30, 199511%27581
Oct. 1, 1995—Dec. 31, 199511%27581
Jan. 1, 1996—Mar. 31, 199611%75629
Apr. 1, 1996—Jun. 30, 199610%73627
Jul. 1, 1996—Sep. 30, 199611%75629
Oct. 1, 1996—Dec. 31, 199611%75629
Jan. 1, 1997—Mar. 31, 199711%27581
Apr. 1, 1997—Jun. 30, 199711%27581
Jul. 1, 1997—Sep. 30, 199711%27581
Oct. 1, 1997—Dec. 31, 199711%27581
Jan. 1, 1998—Mar. 31, 199811%27581
Apr. 1, 1998—Jun. 30, 199810%25579
Jul. 1, 1998—Sep. 30, 199810%25579
Oct. 1, 1998—Dec. 31, 199810%25579
Jan. 1, 1999—Mar. 31, 19999%23577
Apr. 1, 1999—Jun. 30, 199910%25579
Jul. 1, 1999—Sep. 30, 199910%25579
Oct. 1, 1999—Dec. 31, 199910%25579
Jan. 1, 2000—Mar. 31, 200010%73627
December 13, 19996601999–50 I.R.B.

TABLE OF INTEREST RATES FOR CORPORATE
OVERPAYMENTS EXCEEDING $10,000
FROM JANUARY 1, 1995 – PRESENT
1995–1 C.B
RATETABLEPG
Jan. 1, 1995—Mar. 31, 19956.5% 18572
Apr. 1, 1995—Jun. 30, 19957.5%20574
Jul. 1, 1995—Sep. 30, 19956.5%18572
Oct. 1, 1995—Dec. 31, 19956.5%18572
Jan. 1, 1996—Mar. 31, 19966.5%66620
Apr. 1, 1996—Jun. 30, 19965.5%64618
Jul. 1, 1996—Sep. 30, 19966.5%66620
Oct. 1, 1996—Dec. 31, 19966.5%66620
Jan. 1, 1997—Mar. 31, 19976.5%18572
Apr. 1, 1997—Jun. 30, 19976.5%18572
Jul. 1, 1997—Sep. 30, 19976.5%18572
Oct. 1, 1997—Dec. 31, 19976.5%18572
Jan. 1, 1998—Mar. 31, 19986.5%18572
Apr. 1, 1998—Jun. 30, 19985.5%16570
Jul. 1. 1998—Sep. 30, 19985.5%16570
Oct. 1, 1998—Dec. 31, 19985.5%16570
Jan. 1, 1999—Mar. 31, 19994.5%14568
Apr. 1, 1999—Jun. 30, 19995.5%16570
Jul. 1, 1999—Sep. 30, 19995.5%16570
Oct. 1, 1999—Dec. 31, 19995.5%16570
Jan. 1, 2000—Mar. 31, 20005.5%64618
1999–50 I.R.B.661December 13, 1999
Section 7701.—Definitions
26 CFR 301.7701–3: Classification of certain
business entities.
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 301
T.D. 8844
Treatment of Changes in
Elective Entity Classification
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations describing how elective
changes in classification will be treated
for federal tax purposes. The final regula-
tions affect business entities and their
members. The final regulations provide
guidance to taxpayers who elect to change
an entity’s classification for federal tax
purposes.
DATES: Effective Date:These regula-
tions are effective November 29, 1999.
Applicability Dates:These regulations
apply on or after November 29, 1999.
However, taxpayers may choose to apply
certain provisions in these regulations be-
fore November 29, 1999 as specified in
§301.7701–2(e) and §301.7701–3(g)(4).
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations, Dan
Carmody, (202) 622-3080 (not a toll-free
number); concerning international issues,
Mark Harris, (202) 622-3860 (not a toll-
free number).
SUPPLEMENTARY INFORMATION:
Background
On October 28, 1997, proposed amend-
ments to the regulations (REG–105162–97,
1997–2 C.B. 649) under §§301.6109–1,
301.7701–2, and 301.7701–3 were pub-
lished in the Federal Register(62 F.R.
55768). A number of comments were re-
ceived on the proposed regulations. The
public hearing scheduled for February 24,
1998, was canceled because no one re-
quested to speak. After considering the
submitted comments, the IRS and Treasury
adopt the proposed amendments to the reg-
ulations under §§301.6109–1, 301.7701–2,
and 301.7701–3 as revised by this Treasury
decision.
Explanation of Provisions
I. Characterization of Elective Changes
in Classification
There are four possible changes in clas-
sification of an eligible entity by election
under §301.7701–3: (i) a partnership
elects to be an association taxable as a

corporation (association); (ii) an associa-
tion elects to be a partnership; (iii) an as-
sociation elects to be disregarded as an
entity separate from its owner (disre-
garded entity); and (iv) a disregarded en-
tity elects to be an association. The pro-
posed regulations provide a form that
each elective conversion would be treated
as having for federal tax purposes. Under
the proposed regulations, there is only
one form for each elective conversion,
and taxpayers could not elect to have a
different form apply to the elective con-
version.
A. Elective Conversions Treated as
Having One Form
Commentators recommended that tax-
payers be allowed to choose which form
to apply to an elective conversion. This
would allow taxpayers to avoid having to
take the actual steps of a conversion to
produce the most favorable tax results. A
commentator suggested that the lack of
choice in the proposed regulations is in-
consistent with the intent of the check-the-
box regulations, which adopted an elective
regime for classifying eligible entities.
Because elective conversions are trans-
actions without actual form, the IRS and
Treasury believe that it is appropriate to
provide that only one transaction form
will be applied to each type of elective
conversion. Furthermore, while the
check-the-box regulations provide an
elective regime for classifying eligible en-
tities, the elective regime was not in-
tended to substitute for actual transactions
in all situations. Instead, the purpose of
implementing the regime was to simplify
an area of the law where legal distinctions
previously drawn in determining an en-
tity’s classification were no longer mean-
ingful. While the factors considered
under prior law did not meaningfully dis-
tinguish between business organizations,
taxpayers still were required to expend
considerable resources to ensure that they
obtained the classification they desired.
Small business organizations often lacked
the resources and expertise to achieve
their desired tax classification. This was
viewed as unfair. The IRS was also ex-
pending considerable resources providing
guidance on these classification issues.
These same concerns generally are not
present in determining the form of a con-
version transaction. Therefore, the final
regulations maintain only one form for
each type of elective conversion.
B. Form of Conversion From Association
to Partnership
The proposed regulations provide that
an elective conversion of an association to
a partnership is deemed to have the fol-
lowing form: The association distributes
all of its assets and liabilities to its share-
holders in liquidation of the association,
and immediately thereafter, the share-
holders contribute all of the distributed
assets and liabilities to a newly formed
partnership.
A commentator suggested that the pro-
posed form for an elective conversion of
an association to a partnership may not
minimize the tax consequences of such a
conversion under certain circumstances.
The commentator suggested that the pro-
posed form should be available as an elec-
tion, but that the default form should be a
deemed transfer of assets and liabilities
from the electing corporation to a newly
formed partnership for interests in the
partnership followed immediately by a
liquidation of the electing corporation.
The IRS and Treasury believe that
under current law a voluntary formless
change from an association to a partner-
ship should be treated as a liquidation of
the corporation followed by a contribu-
tion of assets to the partnership. See Rev.
Rul. 63–107 (1963–2 C.B. 71). More-
over, if the assets were deemed con-
tributed by the electing corporation to the
partnership for partnership interests fol-
lowed by a liquidation of the corporation,
the application of section 704(c) (contri-
bution of appreciated property), section
708 (partnership termination), and section
754 (elective adjustments to the basis of
partnership assets) could be somewhat
complex and difficult for taxpayers and
the IRS to administer. Therefore, the pro-
posed form for the elective conversion of
an association to a partnership is adopted
without change.
C. Timing of Elective Changes in
Classification
The proposed regulations provide that a
classification election takes effect at the
start of the day for which the election is
effective. Any transactions that are
deemed to occur because of a change in
classification are treated as occurring im-
mediately before the close of the day be-
fore the effective date of the election. The
owners of the entity when the election is
effective may be different from the own-
ers of the entity when the conversion
transactions are deemed to occur. To en-
sure that the taxpayers who recognize the
tax consequences of a conversion election
approve of the election, the proposed reg-
ulations require that the election be signed
by every owner on the date of the deemed
conversion transactions.
A commentator indicated that pur-
chasers who wish to make a classification
election effective as of their first day of
ownership may endure a burden in obtain-
ing the consents of previous owners. The
commentator recommended that the
deemed conversion transactions be
treated as occurring at the start of the day
for which the election is effective, elimi-
nating the need to obtain the consent of
prior owners. Under this suggestion, pur-
chasers of an association who wish to
elect partnership treatment effective as of
the first day of ownership would be
treated as owning both stock and partner-
ship interests on that first day of owner-
ship. This would result in the purchasers
being responsible for a corporate return
for their transitory period of corporate
ownership. See §1.6012–2.
The IRS and Treasury intended that the
proposed timing rule generally would be
beneficial for taxpayers. The IRS and
Treasury believe that any burden imposed
by this rule is outweighed by the transac-
tional flexibility that this rule provides.
Accordingly, the suggested change to the
timing rule is not adopted.
Another commentator noted a conflict
between the proposed timing rule and the
deemed transactions under section 338.
Section 338 allows a purchasing corpora-
tion to treat its stock purchase of another
corporation as an asset purchase. Under
section 338, a purchasing corporation
may elect to treat the target corporation as
(1) selling its assets at fair market value
on the acquisition date, and (2) a new cor-
poration that purchased all of the assets at
the beginning of the day after the acquisi-
tion date. If the purchaser also makes a
classification election for the target effec-
tive for the purchaser’s first day of owner-
ship, the timing of the deemed liquidation
under §301.7701–3(g)(1) would conflict
December 13, 19996621999–50 I.R.B.

with the timing of the deemed transac-
tions required by section 338.
To address the issue, the final regula-
tions specify that if section 338 applies,
an election to convert the target corpora-
tion’s classification cannot be effective
before the day after the acquisition date of
the target corporation. Additionally, the
deemed liquidation and conversion under
§301.7701–3(g)(1) will occur immedi-
ately after the completion of the section
338 transactions. These rules follow the
approach of §1.338–2(c)(1)(i), which pro-
vides that when a target corporation liqui-
dates on the acquisition date, the liquida-
tion is treated as occurring on the
following day and immediately after the
deemed purchase of assets. If a taxpayer
makes an election under section 338
(without a section 338(h)(10) election) re-
garding a target corporation that is subse-
quently deemed liquidated under these
final regulations, the target corporation
must file a final or deemed sale return as a
C corporation reflecting the deemed sale.
See §1.338–1(e).
Commentators also expressed concern
over the effect the proposed timing rule
would have on a sequence of elections
when a number of corporations are owned
through a single ownership chain. If the
elections are all effective for the same
date, the effect of the interaction of the
timing rule with section 332 is unclear.
For example, P corporation owns 100 per-
cent of the interest of an eligible entity
classified as an association (S1), which
owns directly 100 percent of the interest
of an eligible entity classified as an asso-
ciation (S2). P wants to convert S1 and
S2 to disregarded entities on the same
day; however, if both deemed liquidations
are treated as occurring simultaneously, it
is not clear that section 332 nonrecogni-
tion treatment would be available for both
liquidations. The final regulations clarify
that in such a situation, unless another
order is specified for the elections, S1 will
be treated as liquidating into P immedi-
ately before S2 liquidates into P.
Commentators suggested that this situ-
ation could be addressed by allowing tax-
payers to make elections effective by the
hour, instead of only at the start of the
day. The IRS and Treasury believe that
the clarification in the final regulations
appropriately addresses the treatment of
successive elections. Therefore, the final
regulations maintain the rule that conver-
sion elections take effect at the start of the
day on which the election is effective.
II. Taxpayer Identifying Numbers and
Disregarded Entities
The proposed regulations provide clari-
fication of the rules regarding taxpayer
identifying numbers (TINs). The pro-
posed regulations restate the rule that
when an entity’s classification changes
under §301.7701–3, it retains its em-
ployer identification number (EIN). The
proposed regulations also clarified the
rule that a disregarded entity must use its
owner’s TIN for federal tax purposes.
Furthermore, when a disregarded entity
becomes respected as a separate entity, it
must use its own EIN and not the TIN of
the single owner.
One commentator asked for clarifica-
tion regarding the use of TINs and EINs
in the proposed regulations. TINs include
EINs, social security numbers (SSNs),
and IRS individual taxpayer identification
numbers (ITINs). The regulations require
that a disregarded entity report under the
owner’s TIN. The regulations refer to a
taxpayer’s TIN because the term TIN en-
compasses not only an EIN, but also an
SSN and an ITIN.
Another commentator suggested that
the proposed regulations were too restric-
tive and prohibited a disregarded entity
from applying for and receiving its own
TIN. The regulations do not prevent a
single member disregarded entity from
applying for and receiving its own TIN.
The regulations merely provide that, ex-
cept as otherwise provided in regulations
or other guidance, the single owner disre-
garded entity must use the owner’s TIN
for federal tax purposes and not the EIN
of the disregarded entity. Notice 99–6
(1999–3 I.R.B. 1) provides guidance on
the limited circumstances under which a
disregarded entity may use its own EIN.
III. Rules for Foreign Entities
These final regulations also contain
rules relating to certain foreign entities.
A. Foreign Per Se Entities
The final check-the-box regulations
provided a list of the names of certain for-
eign business entities that are treated as
corporations for federal tax purposes. In
response to comments from taxpayers, the
proposed regulations clarified those pro-
visions. Specifically, clarifications were
made with respect to certain business en-
tities formed in Finland, Malaysia, Malta,
Mexico, and Norway. These final regula-
tions adopt the proposed regulation’s clar-
ifications.
These final regulations also clarify the
treatment of an entity formed in Trinidad
and Tobago that is specified in the final
check-the-box regulations. Prior to April
1997, Trinidad and Tobago’s Companies
Act distinguished between public and pri-
vate limited companies. Effective April
1997, Trinidad and Tobago’s Companies
Act was amended and now only provides
for limited companies (and no longer pro-
vides for private limited companies). Ac-
cordingly, these final regulations have
been modified to take into account that
change. The effective date of these final
regulations with regard to an entity
formed in Trinidad and Tobago has been
modified so as not to disadvantage tax-
payers who relied on the final check-the-
box regulations. These final regulations
provide that the rule with regard to an en-
tity formed in Trinidad and Tobago will
be effective on or after November 29,
1999. Accordingly, this rule only affects
those entities which were formed (or
made affirmative elections) on or after
November 29, 1999.
These regulations also clarify the ex-
ception to per se corporate treatment for
Canadian companies and corporations.
When the final check-the-box regulations
were promulgated, the only company or
corporation that could be formed where
the liability of all of its members was un-
limited pursuant to any federal or provin-
cial statute (as opposed to through side
agreements of the members), was a Nova
Scotia Unlimited Liability Company
(NSULC). However, in order to avoid
changing the regulations if any other
province, or the federal government, sub-
sequently allowed for the formation of
unlimited liability companies by statute,
these regulations did not specifically list
the NSULC. In response to questions
from taxpayers, the regulation is clarified,
with effect from January 1, 1997, by
specifically naming the NSULC, while
still providing for any other unlimited lia-
bility company that might subsequently
be allowed by any other federal or provin-
cial statute.
1999–50 I.R.B.663December 13, 1999

B. Foreign Eligible Entities
Proposed regulations that provide a
special rule for certain foreign eligible en-
tities are published in REG–110385–99
on page 000. In addition, the IRS and
Treasury are still studying what, if any,
consequences occur when a foreign eligi-
ble entity that is not relevant for federal
tax purposes files an entity classification
election. The IRS and Treasury continue
to request comments on this topic.
IV. Changes in Number of Members of an
Entity
The proposed regulations provide that
an entity’s classification may change as a
result of a change in the number of its
members. Specifically, an eligible entity
classified as a partnership will become a
disregarded entity when the entity’s mem-
bership is reduced to one member, and a
disregarded entity will be classified as a
partnership when the entity has more than
one member. The final regulations adopt
these provisions without substantive
change. Guidance on the federal tax con-
sequences of such changes has been pro-
vided in Rev. Rul. 99–5 (1999–6 I.R.B. 8)
and Rev. Rul. 99–6 (1999–6 I.R.B. 6).
Effective Date
These regulations are applicable on or
after November 29, 1999. In response to
comments, however, the final regulations
include a provision allowing taxpayers to
apply the regulations retroactively for
elective entity conversions that occurred
before November 29, 1999. Taxpayers
may apply the final regulations retroac-
tively only if all taxpayers involved in the
transaction follow the regulations. The
rules contained in §301.6109–1(h) are ap-
plicable as of January 1, 1997. Certain
changes to §301.7701–2(b)(8) may be ap-
plied before the effective date as specified
in §301.7701–2(e).
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assess-
ment is not required. It 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 these regulations do
not impose a collection of information on
small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply.
Therefore, a Regulatory Flexibility
Analysis is not required. Pursuant to sec-
tion 7805(f) of the Internal Revenue
Code, the notice of proposed rulemaking
preceding these regulations was submit-
ted to the Chief Counsel for Advocacy of
the Small Business Administration for
comment on its impact on small business.
Drafting Information
The principal authors of these regula-
tions are Dan Carmody and Jeff Erickson,
Office of Chief Counsel (Passthroughs
and Special Industries) and Mark Harris
and Philip Tretiak, Office of Associate
Chief Counsel (International). However,
other personnel from the IRS and Trea-
sury Department participated in their de-
velopment.
*****
Amendments to the Regulations
Accordingly, 26 CFR part 301 is
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 301.6109-1 is amended
as follows:
1. Paragraph (d)(2)(ii) is removed and
reserved.
2. Paragraph (h) is redesignated as
paragraph (i) and the first sentence of
newly designated paragraph (i)(1) is
amended by removing the language
“paragraph (h)” and adding “paragraph
(i)” in its place.
3. A new paragraph (h) is added.
The addition reads as follows:
§301.6109–1 Identifying numbers.
* * * * *
(h) Special rules for certain entities
under §301.7701-3—(1) General rule.
Any entity that has an employer identifi-
cation number (EIN) will retain that EIN
if its federal tax classification changes
under §301.7701–3.
(2) Special rules for entities that are
disregarded as entities separate from
their owners—(i) When an entity becomes
disregarded as an entity separate from its
owner. Except as otherwise provided in
regulations or other guidance, a single
owner entity that is disregarded as an en-
tity separate from its owner under
§301.7701–3, must use its owner’s tax-
payer identifying number (TIN) for fed-
eral tax purposes.
(ii) When an entity that was disre-
garded as an entity separate from its
owner becomes recognized as a separate
entity.If a single owner entity’s classifica-
tion changes so that it is recognized as a
separate entity for federal tax purposes,
and that entity had an EIN, then the entity
must use that EIN and not the TIN of the
single owner. If the entity did not already
have its own EIN, then the entity must ac-
quire an EIN and not use the TIN of the
single owner.
(3) Effective date.The rules of this
paragraph (h) are applicable as of January
1, 1997.
* * * * *
Par. 3. Section 301.7701–2 is amended
as follows:
1. Paragraph (b)(8)(i) is amended by
revising the entries for Finland, Malta,
Norway, and Trinidad and Tobago.
2. Paragraph (b)(8)(ii)(A) is redesig-
nated as paragraph (b)(8)(ii)(A)(1) and is
revised.
3. Paragraph (b)(8)(ii)(B) is redesig-
nated as paragraph (b)(8)(ii)(A)(2).
4. Paragraph (b)(8)(ii) heading and in-
troductory text are redesignated as para-
graph (b)(8)(ii)(A) heading and introduc-
tory text, and a new paragraph heading is
added for paragraph (b)(8)(ii).
5. Paragraphs (b)(8)(ii)(A)(3) and
(b)(8)(ii)(B) are added.
6. Paragraphs (b)(8)(iii), (b)(8)(iv), and
(e) are revised.
The revisions and additions read as fol-
lows:
§301.7701–2 Business entities;
definitions.
* * * * *
(b) * * *
(8) * * *
(i) * * *
December 13, 19996641999–50 I.R.B.

Finland, Julkinen Osakeyhtio/Publikt Ak-
tiebolag
* * * * *
Malta, Public Limited Company
* * * * *
Norway, Allment Aksjeselskap
* * * * *
Trinidad and Tobago, Limited Company
* * * * *
(ii) Clarification of list of corporations
in paragraph (b)(8)(i) of this section—
(A) Exceptions in certain cases. * * *
* * * * *
(1) With regard to Canada, a Nova Sco-
tia Unlimited Liability Company (or any
other company or corporation all of
whose owners have unlimited liability
pursuant to federal or provincial law).
* * * * *
(3) With regard to Malaysia, a
Sendirian Berhad.
(B) Inclusions in certain cases. With
regard to Mexico, the term Sociedad
Anonima includes a Sociedad Anonima
that chooses to apply the variable capital
provision of Mexican corporate law (So-
ciedad Anonima de Capital Variable).
(iii) Public companies. For purposes of
paragraph (b)(8)(i) of this section, with
regard to Cyprus, Hong Kong, and Ja-
maica, the term Public Limited Company
includes any Limited Company that is not
defined as a private company under the
corporate laws of those jurisdictions. In
all other cases, where the term Public
Limited Company is not defined, that
term shall include any Limited Company
defined as a public company under the
corporate laws of the relevant jurisdic-
tion.
(iv) Limited companies. For purposes
of this paragraph (b)(8), any reference to
a Limited Company includes, as the case
may be, companies limited by shares and
companies limited by guarantee.
* * * * *
(e) Effective date. Except as otherwise
provided in this paragraph (e), the rules of
this section apply as of January 1, 1997.
The reference to the Finnish, Maltese, and
Norwegian entities in paragraph (b)(8)(i)
of this section is applicable on November
29, 1999. The reference to the Trinida-
dian entity in paragraph (b)(8)(i) of this
section applies to entities formed on or
after November 29, 1999. Any Maltese or
Norwegian entity that becomes an eligible
entity as a result of paragraph (b)(8)(i) of
this section in effect on November 29,
1999, may elect by February 14, 2000, to
be classified for federal tax purposes as an
entity other than a corporation retroactive
to any period from and including January
1, 1997. Any Finnish entity that becomes
an eligible entity as a result of paragraph
(b)(8)(i) of this section in effect on No-
vember 29, 1999, may elect by February
14, 2000, to be classified for federal tax
purposes as an entity other than a corpora-
tion retroactive to any period from and in-
cluding September 1, 1997.
Par. 4. Section 301.7701-3 is amended
as follows:
1. A sentence is added at the end of
paragraph (c)(1)(iii).
2. A sentence is added at the end of
paragraph (c)(1)(iv).
3. Paragraph (c)(2)(iii) is added.
4. A heading is added to paragraph
(d)(1).
5. Paragraph (f) is redesignated as
paragraph (h) and newly designated para-
graph (h)(1) is revised.
6. Paragraphs (f) and (g) are added.
The revision and additions read as fol-
lows:
§301.7701-3 Classification of certain
business entities.
* * * * *
(c) * * *
(1) * * *
(iii) Effective date of election. * * * If a
purchasing corporation makes an election
under section 338 regarding an acquired
subsidiary, an election under paragraph
(c)(1)(i) of this section for the acquired
subsidiary can be effective no earlier than
the day after the acquisition date (within
the meaning of section 338(h)(2)).
(iv) Limitation. * * * An election by a
newly formed eligible entity that is effec-
tive on the date of formation is not con-
sidered a change for purposes of this para-
graph (c)(1)(iv).
* * * * *
(2) * * *
(iii) Changes in classification. For
paragraph (c)(2)(i) of this section, if an
election under paragraph (c)(1)(i) of this
section is made to change the classifica-
tion of an entity, each person who was an
owner on the date that any transactions
under paragraph (g) of this section are
deemed to occur, and who is not an owner
at the time the election is filed, must also
sign the election. This paragraph
(c)(2)(iii) applies to elections filed on or
after November 29, 1999.
(d) Special rules for foreign eligible en-
tities—(1) Definition of relevance.* * *
* * * * *
(f) Changes in number of members of
an entity—(1) Associations. The classifi-
cation of an eligible entity as an associa-
tion is not affected by any change in the
number of members of the entity.
(2) Partnerships and single member
entities. An eligible entity classified as a
partnership becomes disregarded as an
entity separate from its owner when the
entity’s membership is reduced to one
member. A single member entity disre-
garded as an entity separate from its
owner is classified as a partnership when
the entity has more than one member. If
an elective classification change under
paragraph (c) of this section is effective at
the same time as a membership change
described in this paragraph (f)(2), the
deemed transactions in paragraph (g) of
this section resulting from the elective
change preempt the transactions that
would result from the change in member-
ship.
(3) Effect on sixty month limitation. A
change in the number of members of an
entity does not result in the creation of a
new entity for purposes of the sixty month
limitation on elections under paragraph
(c)(1)(iv) of this section.
(4) Examples. The following examples
illustrate the application of this paragraph
(f):
Example 1. A, a U.S. person, owns a domestic el-
igible entity that is disregarded as an entity separate
from its owner. On January 1, 1998,B, a U.S. per-
son, buys a 50 percent interest in the entity from A.
Under this paragraph (f), the entity is classified as a
partnership when Bacquires an interest in the entity.
However, Aand Belect to have the entity classified
as an association effective on January 1, 1998.
Thus, Bis treated as buying shares of stock on Janu-
1999–50 I.R.B.665December 13, 1999

ary 1, 1998. (Under paragraph (c)(1)(iv) of this sec-
tion, this election is treated as a change in classifica-
tion so that the entity generally cannot change its
classification by election again during the sixty
months succeeding the effective date of the elec-
tion.) Under paragraph (g)(1) of this section, Ais
treated as contributing the assets and liabilities of
the entity to the newly formed association immedi-
ately before the close of December 31, 1997. Be-
cause A does not retain control of the association as
required by section 351, A’s contribution will be a
taxable event. Therefore, under section 1012, the
association will take a fair market value basis in the
assets contributed by A, and Awill have a fair mar-
ket value basis in the stock received. Awill have no
additional gain upon the sale of stock to B, and B
will have a cost basis in the stock purchased from A.
Example 2. (i) On April 1, 1998, Aand B, U.S.
persons, form X, a foreign eligible entity. Xis
treated as an association under the default provisions
of paragraph (b)(2)(i) of this section, and Xdoes not
make an election to be classified as a partnership. A
subsequently purchases all of B’s interest in X.
(ii) Under paragraph (f)(1) of this section, Xcon-
tinues to be classified as an association. X, however,
can subsequently elect to be disregarded as an entity
separate from A. The sixty month limitation of para-
graph (c)(1)(iv) of this section does not prevent X
from making an election because Xhas not made a
prior election under paragraph (c)(1)(i) of this sec-
tion.
Example 3. (i) On April 1, 1998, Aand B, U.S.
persons, form X, a foreign eligible entity. Xis
treated as an association under the default provisions
of paragraph (b)(2)(i) of this section, and Xdoes not
make an election to be classified as a partnership.
On January 1, 1999, Xelects to be classified as a
partnership effective on that date. Under the sixty
month limitation of paragraph (c)(1)(iv) of this sec-
tion, Xcannot elect to be classified as an association
until January 1, 2004 (i.e., sixty months after the ef-
fective date of the election to be classified as a part-
nership).
(ii) On June 1, 2000, Apurchases all of B’s inter-
est in X. After A’s purchase of B’s interest, Xcan no
longer be classified as a partnership because Xhas
only one member. Under paragraph (f)(2) of this
section, Xis disregarded as an entity separate from A
when A becomes the only member of X. X, how-
ever, is not treated as a new entity for purposes of
paragraph (c)(1)(iv) of this section. As a result, the
sixty month limitation of paragraph (c)(1)(iv) of this
section continues to apply to X, and Xcannot elect to
be classified as an association until January 1, 2004
(i.e., sixty months after January 1, 1999, the effec-
tive date of the election by Xto be classified as a
partnership).
(5) Effective date. This paragraph (f)
applies as of November 29, 1999.
(g) Elective changes in classification—
(1) Deemed treatment of elective
change—(i) Partnership to association.
If an eligible entity classified as a partner-
ship elects under paragraph (c)(1)(i) of
this section to be classified as an associa-
tion, the following is deemed to occur:
The partnership contributes all of its as-
sets and liabilities to the association in ex-
change for stock in the association, and
immediately thereafter, the partnership
liquidates by distributing the stock of the
association to its partners.
(ii) Association to partnership. If an
eligible entity classified as an association
elects under paragraph (c)(1)(i) of this
section to be classified as a partnership,
the following is deemed to occur: The as-
sociation distributes all of its assets and li-
abilities to its shareholders in liquidation
of the association, and immediately there-
after, the shareholders contribute all of the
distributed assets and liabilities to a newly
formed partnership.
(iii) Association to disregarded entity.
If an eligible entity classified as an associ-
ation elects under paragraph (c)(1)(i) of
this section to be disregarded as an entity
separate from its owner, the following is
deemed to occur: The association distrib-
utes all of its assets and liabilities to its
single owner in liquidation of the associa-
tion.
(iv) Disregarded entity to an associa-
tion. If an eligible entity that is disre-
garded as an entity separate from its
owner elects under paragraph (c)(1)(i) of
this section to be classified as an associa-
tion, the following is deemed to occur:
The owner of the eligible entity con-
tributes all of the assets and liabilities of
the entity to the association in exchange
for stock of the association.
(2) Effect of elective changes. The tax
treatment of a change in the classification
of an entity for federal tax purposes by
election under paragraph (c)(1)(i) of this
section is determined under all relevant
provisions of the Internal Revenue Code
and general principles of tax law, includ-
ing the step transaction doctrine.
(3) Timing of election—(i) In general.
An election under paragraph (c)(1)(i) of
this section that changes the classification
of an eligible entity for federal tax pur-
poses is treated as occurring at the start of
the day for which the election is effective.
Any transactions that are deemed to occur
under this paragraph (g) as a result of a
change in classification are treated as oc-
curring immediately before the close of
the day before the election is effective.
For example, if an election is made to
change the classification of an entity from
an association to a partnership effective on
January 1, the deemed transactions speci-
fied in paragraph (g)(1)(ii) of this section
(including the liquidation of the associa-
tion) are treated as occurring immediately
before the close of December 31 and must
be reported by the owners of the entity on
December 31. Thus, the last day of the as-
sociation’s taxable year will be December
31 and the first day of the partnership’s
taxable year will be January 1.
(ii) Coordination with section 338
election. A purchasing corporation that
makes a qualified stock purchase of an el-
igible entity taxed as a corporation may
make an election under section 338 re-
garding the acquisition if it satisfies the
requirements for the election, and may
also make an election to change the clas-
sification of the target corporation. If a
taxpayer makes an election under section
338 regarding its acquisition of another
entity taxable as a corporation and makes
an election under paragraph (c) of this
section for the acquired corporation (ef-
fective at the earliest possible date as pro-
vided by paragraph (c)(1)(iii) of this sec-
tion), the transactions under paragraph (g)
of this section are deemed to occur imme-
diately after the deemed asset purchase by
the new target corporation under section
338.
(iii) Application to successive elections
in tiered situations. When elections under
paragraph (c)(1)(i) of this section for a se-
ries of tiered entities are effective on the
same date, the eligible entities may spec-
ify the order of the elections on Form
8832. If no order is specified for the elec-
tions, any transactions that are deemed to
occur in this paragraph (g) as a result of
the classification change will be treated as
occurring first for the highest tier entity’s
classification change, then for the next
highest tier entity’s classification change,
and so forth down the chain of entities
until all the transactions under this para-
graph (g) have occurred. For example,
Parent, a corporation, wholly owns all of
the interest of an eligible entity classified
as an association (S1), which wholly
owns another eligible entity classified as
an association (S2), which wholly owns
another eligible entity classified as an as-
sociation (S3). Elections under paragraph
(c)(1)(i) of this section are filed to classify
S1, S2, and S3 each as disregarded as an
entity separate from its owner effective on
the same day. If no order is specified for
the elections, the following transactions
are deemed to occur under this paragraph
December 13, 19996661999–50 I.R.B.

(g) as a result of the elections, with each
successive transaction occurring on the
same day immediately after the preceding
transaction: S1 is treated as liquidating
into Parent, then S2 is treated as liquidat-
ing into Parent, and finally S3 is treated as
liquidating into Parent.
(4) Effective date. This paragraph (g)
applies to elections that are filed on or
after November 29, 1999. Taxpayers may
apply this paragraph (g) retroactively to
elections filed before November 29, 1999
if all taxpayers affected by the deemed
transactions file consistently with this
paragraph (g).
(h) Effective date—(1) In general. Ex-
cept as otherwise provided in this section,
the rules of this section are applicable as
of January 1, 1997.
* * * * *
Robert E. Wenzel,
Deputy Commissioner of
Internal Revenue.
Approved November 2, 1999.
Jonathan Talisman,
Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on
November 26, 1999, 8:45 a.m., and published in the
issue of the Federal Register for November 29,
1999, 64 F.R. 66580)
Section 7872.—Treatment of
Loans with Below-Market
Interest Rates
CPI adjustments for below-market
loans for 2000. The amount that section
7872(g) of the Code permits a taxpayer to
lend to a qualified continuing care facility
without incurring imputed interest is ad-
justed for years 1987-2000. Rev. Rul. 98-
59 supplemented and superseded.
Rev. Rul. 99–49
This revenue ruling publishes the
amount that § 7872(g) of the Internal
Revenue Code permits a taxpayer to lend
to a qualifying continuing care facility
without incurring imputed interest. The
amount is adjusted for inflation for the
years after 1986.
Section 7872 generally treats loans
bearing a below-market interest rate as if
they bore interest at the market rate.
Section 7872(g)(1) provides that, in
general, § 7872 does not apply for any
calendar year to any below-market loan
made by a lender to a qualified continuing
care facility pursuant to a continuing care
contract if the lender (or the lender's
spouse) attains age 65 before the close of
the year.
Section 7872(g)(2) provides that, in the
case of loans made after October 11,
1985, and before 1987, § 7872(g)(1) ap-
plies only to the extent that the aggregate
outstanding amount of any loan to which
§ 7872(g) applies (determined without re-
gard to § 7872(g)(2)), when added to the
aggregate outstanding amount of all other
previous loans between the lender (or the
lender's spouse) and any qualified contin-
uing care facility to which § 7872(g)(1)
applies, does not exceed $90,000.
Section 7872(g)(5) provides that, for
loans made during any calendar year after
1986 to which § 7872(g)(1) applies, the
$90,000 limit specified in § 7872(g)(2) is
increased by an inflation adjustment. The
inflation adjustment for any calendar year
is the percentage (if any) by which the
Consumer Price Index (CPI) for the pre-
ceding calendar year exceeds the CPI for
calendar year 1985. Section 7872(g)(5)
states that the CPI for any calendar year is
the average of the CPI as of the close of
the 12-month period ending on September
30 of that calendar year.
Table 1 sets forth the amount speci-
fied in § 7872(g)(2) of the Code. The
amount is increased by the inflation ad-
justment for the years 1987-2000.
EFFECT ON OTHER DOCUMENTS
Rev. Rul. 98–59, 1998–52 I.R.B. 8, is
supplemented and superseded.
DRAFTING INFORMATION
The author of this revenue ruling is
Courtney Shepardson of the Office of As-
sistant Chief Counsel (Financial Institu-
tions and Products). For further informa-
tion regarding this revenue ruling, contact
Ms. Shepardson on (202) 622-3930 (not a
toll-free call).
1999–50 I.R.B.667December 13, 1999
REV. RUL. 99–49 TABLE 1
Limit under 7872(g)(2)
YearAmount
Before 1987$ 90,000
1987$ 92,200
1988$ 94,800
1989$ 98,800
1990$103,500
1991$108,600
1992$114,100
1993$117,500
1994$121,100
1995$124,300
1996$127,800
1997$131,300
1998$134,800
1999$137,000
2000$139,700
Note: These inflation adjustments
were computed using the All-Urban,
Consumer Price Index 1982-1984
base, published by the Bureau of
Labor Statistics.

Tables for Figuring Amount Exempt from Levy on Wages, Salary, and Other Income
Notice 99–56
1. Table for Figuring Amount Exempt from Levy on Wages, Salary, and Other Income (Forms 668–W,
668–W(c), & 668-W(c)(DO)) 2000
Publication 1494, shown below, provides tables which show the amount of an individual's income that is exempt from a notice of
levy used to collect delinquent tax in 2000.
(Amounts are for each pay period.)
December 13, 19996681999–50 I.R.B.
Part III. Administrative, Procedural, and Miscellaneous
Filing Status: Single
Number of Exemptions Claimed on Statement
Pay Period123456More Than 6
Daily27.6938.4649.2360.0070.7781.5416.92 plus 10.77 for
each exemption
Weekly138.46192.31246.15300.00353.85407.6984.62 plus 53.85 for
each exemption
Biweekly276.92384.62492.31600.00707.69815.38169.23 plus 107.69 for
each exemption
Semi-monthly300.00416.67533.33650.00766.67883.33183.33 plus 116.67 for
each exemption
Monthly600.00833.331066.671300.001533.331766.67366.67 plus 233.33 for
each exemption
Filing Status: Unmarried Head of Household
Number of Exemptions Claimed on Statement
Pay Period123456More Than 6
Daily35.5846.3557.1267.8878.6589.4224.81 plus 10.77 for
each exemption
Weekly177.88231.73285.58339.42393.27447.12124.04 plus 53.85 for
each exemption
Biweekly355.77463.46571.15678.85786.54894.23248.08 plus 107.69 for
each exemption
Semi-monthly385.42502.08618.75735.42852.08968.75268.75 plus 116.67 for
each exemption
Monthly770.831004.171237.501470.831704.171937.50537.50 plus 233.33 for
each exemption

2. Table for Figuring Additional Exempt Amount for Taxpayers at Least 65 Years Old and/or Blind
Additional Exempt Amount
Examples
These tables show the amount exempt from a levy on wages, salary, and other income. For example:
1. A single taxpayer who is paid weekly and claims three exemptions (including one for the taxpayer) has $246.15 exempt from levy.
2. If the taxpayer in number 1 is over 65 and writes 1 in the ADDITIONAL STANDARD DEDUCTION space on Parts 3, 4,
& 5 of the levy, $267.30 is exempt from this levy ($246.15 plus $21.15).
3. A taxpayer who is married, files jointly, is paid bi-weekly, and claims two exemptions (including one for the taxpayer) has
$498.08 exempt from levy.
4. If the taxpayer in number 3 is over 65 and has a spouse who is blind, this taxpayer should write 2 in the ADDITIONAL
STANDARD DEDUCTION space on Parts 3, 4, & 5 of the levy. Then, $563.46 is exempt from this levy ($498.08 plus $65.38).
1999–50 I.R.B.669December 13, 1999
Filing Status: Married Filing Joint (and Qualifying Widow(er)s)
Number of Exemptions Claimed on Statement
Pay Period123456More Than 6
Daily39.0449.8160.5871.3582.1292.8828.27 plus 10.77 for
each exemption
Weekly195.19249.04302.88356.73410.58464.42141.35 plus 53.85 for
each exemption
Biweekly390.38498.08605.77713.46821.15928.85282.69 plus 107.69 for
each exemption
Semi-monthly422.92539.58656.25772.92889.581006.25306.25 plus 116.67 for
each exemption
Monthly845.831079.171312.501545.831779.172012.50612.50 plus 233.33 for
each exemption
Filing Status: Married Filing Separate
Number of Exemptions Claimed on Statement
Pay Period123456More Than 6
Daily24.9035.6746.4457.2167.9878.7514.13 plus 10.77 for
each exemption
Weekly124.52178.37232.21286.06339.90393.7570.67 plus 53.85 for
each exemption
Biweekly249.04356.73464.42572.12679.81787.50141.35 plus 107.69 for
each exemption
Semi-monthly269.79386.46503.13619.79736.46853.13153.13 plus 116.67 for
each exemption
Monthly539.58772.921006.251239.581472.921706.25306.25 plus 233.33 for
each exemption
Filing Status*DailyWklyBi-WklySemi-MoMonthly
Single or 14.2321.1542.3145.8391.67
Head of Household28.4642.3184.6291.67183.33
Any Other13.2716.3532.6935.4270.83
Filing Status26.5432.6965.3870.83141.67
39.8149.0498.08106.25212.50
413.0865.38130.77141.67283.33
* ADDITIONAL STANDARD DEDUCTION claimed on Parts 3, 4, & 5 of levy.

Notice of Proposed Rulemaking
and Notice of Public Hearing
Changes in Entity Classification:
Special Rule for Certain Foreign
Eligible Entities
REG–110385–99
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing and notice of public hearing.
SUMMARY: This document contains
proposed regulations addressing certain
transactions that occur within a specified
period of time before or after a change in
entity classification. The proposed regu-
lations prevent, in limited circumstances,
the use of changes in entity classification
to alter a taxpayer’s Federal tax conse-
quences. Under these regulations, a
change in classification by a foreign eligi-
ble entity that was originally classified as
an association taxable as a corporation
(and, but for this regulation, would be
classified as an entity disregarded as an
entity separate from its owner) will be in-
validated in certain limited circum-
stances. This document also contains a
notice of public hearing on these pro-
posed regulations.
DATES: Written comments must be re-
ceived by February 28, 2000. Requests to
speak (with outlines of oral comments) at
the public hearing scheduled for January
31, 2000, must be submitted by January
10, 2000.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (REG-110385-99),
room 5228, 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-110385-99),
Courier's Desk, Internal Revenue Service,
1111 Constitution Avenue NW., Washing-
ton, DC. Alternatively, taxpayers may
submit comments electronically via the
Internet by selecting the “Tax Regs” op-
tion of the IRS Home Page, or by submit-
ting comments directly to the IRS Internet
site at: http://www.irs.ustreas.gov/
prod/tax_regs/regslist.html. The public
hearing will be held in room 2615, Inter-
nal Revenue Building, 1111 Constitution
Avenue, NW., Washington, DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations, Mark
D. Harris, (202) 622-3860 (not a toll-free
number); concerning submissions and the
hearing, LaNita VanDyke, (202) 622-
7180 (not a toll-free number).
Supplementary Information:
Background
This document proposes to amend the
current Procedure and Administration
Regulations (26 CFR Part 301) relating to
the classification of entities for Federal
tax purposes. On December 18, 1996, the
IRS and the Treasury Department pub-
lished final regulations (61 FR 66584) re-
lating to the classification of business or-
ganizations under section 7701. The
regulations (the check-the-box regula-
tions) replaced the increasingly formalis-
tic entity classification rules with a sim-
pler, elective regime. The new rules were
designed to ease administrative burdens
for taxpayers and the government. They
were not, however, intended to change the
application of substantive Internal Rev-
enue Code (Code) provisions.
In the preamble to the check-the-box
regulations, the IRS and Treasury ex-
pressed concern about potential improper
uses of the check-the-box regulations in-
volving partnerships:
[I]n light of the increased flexibility under an
elective regime for the creation of organizations
classified as partnerships, Treasury and the IRS will
continue to monitor carefully the uses of partner-
ships in the international context and will take ap-
propriate action when partnerships are used to
achieve results that are inconsistent with the policies
and rules of particular Code provisions or of U.S.
tax treaties.
On October 28, 1997, the IRS and
Treasury issued a notice of proposed rule-
making (62 FR 55768) under section
7701. These regulations specify the tax
consequences resulting from an election
to change the Federal tax classification of
an eligible entity (the conversion regula-
tions). The conversion regulations also
provide that the tax consequences of an
elective change in the classification of an
entity for Federal tax purposes are deter-
mined under all relevant provisions of the
Code and general principles of tax law,
including the step transaction doctrine.
Those final regulations are issued else-
where in this issue of the Federal Regis-
ter.
As indicated in the preamble to the
check-the-box regulations, the IRS and
Treasury have been monitoring the man-
ner in which taxpayers have used the
check-the-box regulations since their en-
actment. The focus has been to determine
whether taxpayers use the regulations in a
manner inconsistent with the application
of any Code provisions, and, if so, what,
if any, action is appropriate. The pream-
ble to the check-the-box regulations cited
the use of partnerships as a primary con-
cern. However, it has become apparent to
the IRS and Treasury that taxpayers may
attempt to use entities that are disregarded
as entities separate from their owners
(disregarded entities), in addition to part-
nerships, to achieve results, in relation to
certain transactions, that are inconsistent
with the policies and rules of particular
Code sections or tax treaties. These regu-
lations are intended to address inappropri-
ate Federal tax consequences that would
otherwise result from certain of these
transactions under a number of interna-
tional provisions of the Code. These pro-
visions include the rules governing source
of income under sections 861 through
865, foreign tax credit limitation cate-
gories under section 904, the disposition
of ownership interests under Subpart F
(sections 951 through 964), and outbound
transfers under section 367 (in this last
case, leading to a different result than that
outlined in the example in the preamble to
the section 367(a) regulations (63 FR
33550)).
The IRS and Treasury considered sev-
eral responses to these transactions and
determined that a special rule completely
revoking the entity’s classification as a
disregarded entity was the most equitable
and administrable approach. Of the re-
sponses considered, the IRS and Treasury
believe that this approach also gives the
greatest certainty to all parties involved in
the transactions covered by this rule.
Explanation of Provisions
This special rule is limited in scope. It
only applies to “extraordinary transac-
December 13, 19996701999–50 I.R.B.
Part IV. Items of General Interest

tions” (such as sales of a part or whole in-
terest) that occur within a period com-
mencing one day before and ending 12
months after the date that a foreign eligi-
ble entity changed its classification to dis-
regarded entity status, provided that the
entity had been classified as an associa-
tion taxable as a corporation within the
12-month period prior to the extraordi-
nary transaction. The rule also applies to
certain “shelf” entities that might be used
in an attempt to circumvent the 12-month
rule. In these cases, the entity would not
be treated as a disregarded entity, and in-
stead would be classified as an associa-
tion taxable as a corporation for all pur-
poses. The regulations provide rules
specifying from what date this classifica-
tion as an association taxable as a corpo-
ration will be applicable. Examples of
these provisions are included in the regu-
lations.
This special rule will not apply to an
extraordinary transaction if a taxpayer es-
tablishes to the satisfaction of the Com-
missioner that the classification as a disre-
garded entity does not materially alter the
Federal tax consequences of the extraor-
dinary transaction.
The IRS and Treasury do not intend
that this regulation will invalidate an en-
tity classification election in the absence
of a separate extraordinary transaction,
even though the deemed consequences of
such election under the conversion regu-
lations may constitute an extraordinary
transaction. In the preamble to the con-
version regulations, however, the IRS and
Treasury requested comments on the ap-
propriate tax consequences of an entity
classification election made by a foreign
eligible entity that is not relevant for Fed-
eral tax purposes (e.g., with respect to the
basis of property or earnings and profits
of the entity). No comments have been
received. The IRS and Treasury continue
to study and solicit comments on this im-
portant issue and are considering whether,
in certain circumstances, the election,
combined with another event whereby the
entity becomes relevant, should be con-
sidered to be inappropriate and, therefore,
invalid under these regulations.
If an entity made a classification elec-
tion pursuant to §301.7701–3(c) to be dis-
regarded, and that election was consid-
ered a change in classification, that entity
would normally be subject to the 60-
month limitation on elections under
§301.7701–3(c)(1)(iv). However, if that
classification election under
§301.7701–3(c) is invalid under this regu-
lation, then the election to be a disre-
garded entity shall not constitute an elec-
tion for all Federal tax purposes,
including the limitation on elections
under §301.7701–3(c)(1)(iv).
These regulations do not prevent the
Commissioner from applying all applica-
ble common law doctrines to any extraor-
dinary transaction to which this rule ap-
plies, in any administrative or judicial
proceeding (and create no inference as to
the treatment of such transactions occur-
ring prior to the effective date of these
regulations). Conversely, the Commis-
sioner may also provide administrative re-
lief from these regulations by published
guidance.
The IRS and Treasury will continue to
monitor potentially improper uses of the
check-the-box regulations involving part-
nerships and disregarded entities, and will
take appropriate action when such uses
achieve results that are inconsistent with
the policies and rules of particular Code
provisions or of U.S. tax treaties.
This special rule does not apply to the
transactions described in the proposed
regulations on hybrid branch transactions
published in the Federal Register on July
13, 1999 (64 FR 37727), issued pursuant
to Notice 98–35 (1998–27 IRB 35).
These proposed regulations apply only to
dispositions of interests in disregarded en-
tities in extraordinary transactions.
The IRS and Treasury request com-
ments with respect to the special rule con-
tained herein. In particular, the IRS and
Treasury request comments on the spe-
cific types of transactions which should
be excluded from the application of the
special rule. When this proposed regula-
tion is finalized, the IRS and Treasury in-
tend to issue guidance that will identify
specific transactions that will be excluded
from the application of this special rule.
Grandfathered Foreign Per Se Entities
The check-the-box regulations allowed
for certain corporations under
§301.7701–2(b)(8)(i) to be treated as
partnerships if certain conditions enumer-
ated in §301.7701–2(d)(1) were satisfied.
However, upon the occurrence of certain
events, such an entity’s “grandfathered
status” could be terminated. See
§301.7701–2(d)(3)(i). The IRS and Trea-
sury are concerned that taxpayers have
been trafficking in these types of entities.
Accordingly, these proposed regulations
would add a new provision to
§301.7701–2(d)(3)(i) which terminates an
entity’s “grandfather status” when one or
more persons, who were not owners of
the entity as of November 29, 1999, be-
come owners of 50 percent or more of the
interests in the entity.
Relevance
The check-the-box regulations provide
a special rule when the Federal tax classi-
fication of a foreign eligible entity is no
longer relevant. The rule states that if the
classification of a foreign eligible entity
which was previously relevant for Federal
tax purposes ceases to be relevant for
sixty consecutive months, the entity’s
classification will initially be determined
under the default classification when the
classification of the foreign eligible entity
again becomes relevant (hereinafter 60-
month rule). Several practitioners have
requested guidance on whether the act of
filing an entity classification election
(Form 8832, Entity Classification Elec-
tion) causes an entity to be relevant for
purposes of the 60-month rule. Practi-
tioners also have requested clarification
regarding whether a newly formed for-
eign eligible entity, that has never been
relevant, is subject to the 60-month rule.
These proposed regulations provide
that if a foreign eligible entity files an en-
tity classification election, it is considered
relevant on the effective date of the elec-
tion for purposes of the 60-month rule.
However, if the foreign eligible entity is
otherwise not relevant within the meaning
of §301.7701–3(d)(1)(i), then for pur-
poses of applying the 60-month rule the
entity will be considered to be not rele-
vant on the day after the date the entity
classification election was effective.
The preamble to the conversion regula-
tions stated that a foreign eligible entity
that is not relevant has a Federal tax clas-
sification. The proposed regulations clar-
ify that such an entity is subject to the 60-
month rule. However, the proposed
regulations provide an exception for a for-
eign eligible entity that was never rele-
vant (within the meaning of
§301.7701–3(d)(1)) during its existence.
1999–50 I.R.B.671December 13, 1999

Such entity’s classification will initially
be determined pursuant to the provisions
of §301.7701–3(b)(2) when the entity
first becomes relevant.
Proposed Effective Date
Except as otherwise specified, these
regulations are proposed to apply as of the
date final regulations are published in the
Federal Register.
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, and because these regulations
do not impose a collection of information
on small entities, the Regulatory Flexibil-
ity Act (5 U.S.C. chapter 6) does not
apply. Therefore, a Regulatory Flexibility
Analysis is not required. Pursuant to sec-
tion 7805(f) of the Code, this notice of
proposed rulemaking will be submitted to
the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment 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. The IRS and Treasury request
comments on the clarity of the proposed
regulation and how it may be made easier
to understand. All comments will be
available for public inspection and copy-
ing.
A public hearing has been scheduled
for January 31, 2000, beginning 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 timely
written comments and an outline of the
topics to be discussed and the time to be
devoted to each topic by (preferably a
signed original and eight (8) copies) Janu-
ary 10, 2000. However, comments not to
be presented at the hearing must be sub-
mitted by February 28, 2000.
A period of 10 minutes will be allotted
to each person for making comments.
An agenda showing the scheduling of
the speakers will be prepared after the
deadline for receiving outlines has
passed. Copies of the agenda will be
available free of charge at the hearing.
Drafting Information
The principal author of these regula-
tions is Mark D. Harris, Office of Associ-
ate Chief Counsel (International). How-
ever, other personnel from the IRS and
Treasury Department participated in their
development.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 301 is pro-
posed to be amended as follows:
PART 301--PROCEDURE AND
ADMINISTRATION
Par. 1. The authority citation for part
301 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.7701–2 is amended
by:
1. Removing the language “or” at the
end of paragraph (d)(3)(i)(B).
2. Removing the period at the end of
paragraph (d)(3)(i)(C) and adding “; or”
in its place.
3. Adding paragraph (d)(3)(i)(D).
4. Adding a sentence at the end of
paragraph (e).
The additions read as follows:
§301.7701–2 Business entities; defini-
tions.
* * * * *
(d) * * *
(3) * * *
(i) * * *
(D) The date any person or persons,
who were not owners of the entity as of
November 29, 1999, own in the aggregate
a 50 percent or greater interest in the en-
tity.
* * * * *
(e) Effective date. * * * However, para-
graph (d)(3)(i)(D) of this section applies
on or after the date final regulations are
published in the Federal Register.
Par. 3. Section 301.7701–3 is amended
as follows:
1. The text of paragraph (d)(1) follow-
ing the paragraph heading is redesignated
as paragraph (d)(1)(i), and a paragraph
heading is added for paragraph (d)(1)(i).
2. Paragraph (d)(1)(ii) is added.
3. Paragraph (d)(2) is revised.
4. Paragraphs (d)(3) and (d)(4) are
added.
5. Paragraph (h) is redesignated as
paragraph (i).
6. A new paragraph (h) is added.
The revision and addition reads as fol-
lows:
§301.7701–3 Classification of certain
business entities.
* * * * *
(d) Special rules for foreign eligible en-
tities—(1) Definition of relevance—(i)
General rule. * * *
(ii) Deemed relevance—(A) General
rule.For purposes of this section, except
as provided in paragraph (d)(1)(ii)(B) of
this section, a foreign eligible entity that
files Form 8832 (Entity Classification
Election) shall be deemed to be relevant
only on the date the entity classification
election is effective.
(B) Exception. If a foreign eligible en-
tity is relevant within the meaning of
paragraph (d)(1)(i) of this section, then
the rule in paragraph (d)(1)(ii)(A) of this
section shall not apply.
(2) Entities that were never relevant. If
a foreign eligible entity’s Federal tax clas-
sification has never been relevant (as de-
fined in paragraph (d)(1) of this section),
then the entity’s classification will ini-
tially be determined pursuant to the provi-
sions of paragraph (b)(2) of this section
when the entity first becomes relevant (as
defined in paragraph (d)(1)(i) of this sec-
tion).
(3) Special rule when classification is
no longer relevant. If the classification of
a foreign eligible entity is not relevant for
sixty consecutive months, the entity’s
classification will initially be determined
under the default classification when the
classification of the foreign eligible entity
becomes relevant. The date that the clas-
sification of a foreign entity is not rele-
vant is the date an event occurs that
causes the classification to no longer be
relevant, or, if no event occurs in a tax-
December 13, 19996721999–50 I.R.B.

able year that causes the classification to
be relevant, then the date is the first day
of that taxable year.
(4) Effective date. Paragraphs (d)(1)(ii),
(d)(2), and (d)(3) of this section apply on
or after the date final regulations are pub-
lished in the Federal Register.
* * * * *
(h) Special rule when foreign entities
that are disregarded as entities separate
from their owner are used in an extraordi-
nary transaction—(1) General rule—(i)
When an eligible entity becomes disre-
garded as an entity separate from its
owner. Notwithstanding any other provi-
sion of this section, a foreign eligible en-
tity classified as an entity that is disre-
garded as an entity separate from its
owner, will instead be classified as an as-
sociation taxable as a corporation, if—
(A) A 10-percent or greater interest in
the foreign eligible entity is sold, ex-
changed, transferred or otherwise dis-
posed of in one or more transactions (col-
lectively, extraordinary transactions) that
occur (or are treated as occurring) in the
period commencing one day before and
ending 12 months after the effective date
of that foreign eligible entity’s change in
classification to an entity that is disre-
garded as an entity separate from its
owner; and
(B) The foreign eligible entity was pre-
viously classified as an association tax-
able as a corporation at any time within
the 12-month period prior to the date of
the commencement of the extraordinary
transaction.
(ii) Period of reclassification. If para-
graph (h)(1)(i) of this section applies, the
foreign eligible entity shall be treated as
an association taxable as a corporation
(and no intervening Federal tax classifica-
tion will be valid) from and including the
date that the foreign eligible entity ceased
to be classified as an association taxable
as a corporation.
(2) Shelf entities—(i) Acquisition of as-
sets from another entity. A foreign eligi-
ble entity, classified as an entity that is
disregarded as an entity separate from its
owner, will instead be classified as an as-
sociation taxable as a corporation, if—
(A) It acquires the assets of one or
more foreign business entities (which
were classified as associations taxable as
corporations at any time within the 12-
month period prior to the date of the com-
mencement of the extraordinary transac-
tion) in a transaction or series of related
transactions in which gain or loss is not
recognized (for Federal tax purposes), in
whole or in part (acquisition transaction);
(B) After the acquisition transaction (or
transactions), the acquired assets com-
prise more than 80 percent of the value of
the assets of the entity that is disregarded
as an entity separate from its owner; and
(C) Such entity is subsequently in-
volved in an extraordinary transaction
within 12 months of the date on which the
acquisition transaction (or the last of such
transactions) is completed.
(ii) Calculation of value of entities.For
purposes of calculating the ratio of assets
under paragraph (h)(2)(i)(B) of this sec-
tion, cash and marketable securities of an
entity shall not be included to the extent
that the cash and marketable securities ex-
ceed the reasonable needs of that entity’s
business.
(iii) Period of reclassification. If para-
graph (h)(2)(i) of this section applies, the
foreign eligible entity shall be treated as
an association taxable as a corporation
from and including the date of the acqui-
sition transaction, or, if the acquisition
transaction involves a series of related
transactions, the date of the last of such
transactions.
(3) Exception. The rules in paragraphs
(h)(1) and (2) of this section will not
apply to an extraordinary transaction if a
taxpayer establishes to the satisfaction of
the Commissioner that the classification
as an entity that is disregarded as an entity
separate from its owner does not materi-
ally alter the Federal tax consequences of
the extraordinary transaction. The Com-
missioner may also provide exceptions to
paragraphs (h)(1) and (2) of this section
by published guidance (see
§601.601(d)(2) of this chapter).
(4) Examples. The following examples
illustrate the rules of this paragraph (h).
These examples assume that all foreign
entities (FC) are eligible entities that are
classified as associations taxable as cor-
porations, and all U.S. entities (P) are cor-
porations, unless otherwise specified.
The examples are as follows:
Example 1. (i) Facts.P owns 100 percent of
FC1. P plans to sell FC1. An entity classification
election under paragraph (c) of this section is made
for FC1 such that FC1 is now classified as an entity
disregarded as an entity separate from its owner (P).
P sells FC1 to an unrelated third party within 12
months of the effective date of the entity classifica-
tion election.
(ii) Result. The sale of FC1, an entity that is dis-
regarded as an entity separate from its owner which
was previously classified as an association taxable
as a corporation, is an extraordinary transaction, and
because it occurred within 12 months of the effec-
tive date of the entity classification election, it is
subject to the rule of paragraph (h)(1) of this section.
Under paragraph (h)(1) of this section, the entity
classification election to treat FC1 as an entity that is
disregarded as an entity separate from its owner is
invalid, and FC1 remains classified as an association
taxable as a corporation as if there had been no elec-
tion to be disregarded as an entity separate from its
owner. Therefore, P is taxed as if it sold the stock of
FC1, and not the assets of FC1.
Example 2. (i) Facts. The facts are the same as
Example 1, except that an entity classification elec-
tion is not made for FC1. P wishes to avoid the re-
sult in Example 1, and not be subject to paragraph
(h)(1) of this section. P had formed FC2 two years
before the date of the extraordinary transaction. At
that time, P had elected for FC2 to be treated as an
entity that is disregarded as an entity separate from
P. Since that time, FC2 has conducted no business
activities and has held no assets. P causes FC1 to
merge into FC2 (under foreign law), with FC2 sur-
viving, in a transaction in which gain or loss is not
recognized for Federal tax purposes. On the same
day, P sells FC2 to an unrelated third party.
(ii) Result.The sale of FC2 is an extraordinary
transaction. Furthermore, despite the fact that FC2
was formed two years before the date of the extraor-
dinary transaction, paragraph (h)(2) of this section
treats FC2 as an association taxable as a corporation.
This is because more than 80 percent of FC2's post-
merger assets were acquired from FC1. Thus, the
extraordinary transaction is subject to the rule of
paragraph (h)(2) of this section, and has the same re-
sult as Example 1.
(5) Effective date. This paragraph (h)
applies on or after the date final regula-
tions are published in the Federal Regis-
ter.
* * * * *
Charles O. Rossotti,
Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on
November 26, 1999, 8:45 a.m., and published in the
issue of the Federal Register for November 29,
1999, 64 F.R. 66591)
Special Basis Rules for
Transfer of Property by a
Partnership to a
Corporation
Announcement 99–113
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Partial withdrawal of proposed
1999–50 I.R.B.673December 13, 1999

regulations.
SUMMARY: This document partially
withdraws certain proposed regulations
relating to special basis adjustments under
section 743. The withdrawal is in re-
sponse to the publication of subsequent
proposed regulations (REG–209682–94)
addressing the same subject matter.
FOR FURTHER INFORMATION CON-
TACT: Daniel Carmody at (202) 622-
3080 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On October 28, 1997, the IRS pub-
lished in the Federal Register (62 FR
55768) proposed regulations under sec-
tion 743 of the Internal Revenue Code
(the proposed regulations). Section
1.743–2 of the proposed regulations ad-
dresses the effect of the special basis ad-
justment under section 743 for partner-
ships that participate in section 351
exchanges. This issue is addressed in the
proposed regulations published in the
Federal Register on January 29, 1998 (63
FR 4408), which contain general guid-
ance on basis adjustments under section
743. Therefore, this document withdraws
§1.743–2 of the proposed regulations
published in the Federal Register on Oc-
tober 28, 1997 (62 FR 55768).
Withdrawal of Proposed Amendments to
the Regulations
Accordingly, under the authority of 26
U.S.C. 7805, proposed amendments to 26
CFR part 1 relating to §1.743–2 are with-
drawn.
* * * * *
Robert E. Wenzel,
Deputy Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on
November 26, 1999, 8:45 a.m., and published in the
issue of the Federal Register for November 29,
1999, 64 F.R. 66591)
Announcement 99–114
Publication 3386, relating to veterans’
organizations that are recognized as tax
exempt under section 501(c) of the Inter-
nal Revenue Code or that are considering
applying for recognition of tax exemp-
tion, is now available.
Publication 3386, Tax Guide for Veter-
ans’ Organizations, provides general in-
formation regarding tax exemption under
section 501(a) of the Code for unrelated
business income, contributions to veter-
ans’ organizations, recordkeeping, filing
requirements, and group rulings.
You may obtain Publication 3386 by call-
ing the IRS at 1-800-829-3676 or through
the Internet at www/irs/gov/bus-info/eo.
December 13, 19996741999–50 I.R.B.

1999–50 I.R.B.iDecember 13, 1999
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

December 13, 1999ii1999–50 I.R.B.
Numerical Finding List
1
Bulletins 1999–27 through 1999–49
Announcements:
99–47, 1999–28 I.R.B. 29
99–64, 1999–27 I.R.B.7
99–65, 1999–27 I.R.B. 9
99–66, 1999–27 I.R.B. 9
99–67, 1999–28 I.R.B. 31
99–68, 1999–28 I.R.B. 31
99–69, 1999–28 I.R.B. 33
99–70, 1999–29 I.R.B. 118
99–71, 1999–31 I.R.B. 223
99–72, 1999–30 I.R.B. 132
99–73, 1999–30 I.R.B. 133
99–74, 1999–30 I.R.B. 133
99–75, 1999–30 I.R.B. 134
99–76, 1999–31 I.R.B. 223
99–77, 1999–32 I.R.B. 243
99–78, 1999–31 I.R.B. 229
99–79, 1999–31 I.R.B. 229
99–80, 1999–34 I.R.B. 310
99–81, 1999–32 I.R.B. 244
99–82, 1999–32 I.R.B. 244
99–83, 1999–32 I.R.B. 245
99–84, 1999–33 I.R.B. 248
99–85, 1999–33 I.R.B. 248
99–86, 1999–35 I.R.B. 332
99–87, 1999–35 I.R.B. 333
99–88, 1999–36 I.R.B. 407
99–89, 1999–36 I.R.B. 408
99–90, 1999–36 I.R.B. 409
99–91, 1999–37 I.R.B. 421
99–92, 1999–38 I.R.B. 433
99–93, 1999–36 I.R.B. 409
99–94, 1999–39 I.R.B. 437
99–95, 1999–42 I.R.B. 520
99–96, 1999–41 I.R.B. 504
99–97, 1999–41 I.R.B.505
99–98, 1999–42 I.R.B. 520
99–99, 1999–42 I.R.B. 522
99–100, 1999–42 I.R.B. 522
99–101, 1999–43 I.R.B. 544
99–102, 1999–43 I.R.B. 545
99–103, 1999–43 I.R.B. 546
99–104, 1999–44 I.R.B. 555
99–105, 1999–44 I.R.B. 555
99–106, 1999–45 I.R.B. 561
99–107, 1999–45 I.R.B. 561
99–108, 1999–46 I.R.B. 573
99–109, 1999–46 I.R.B. 573
99–110, 1999–46 I.R.B. 574
99–111, 1999–47 I.R.B. 587
99–112, 1999–49 I.R.B. 649
Notices:
99–34, 1999–35 I.R.B. 323
99–35, 1999–28 I.R.B.26
99–37, 1999–30 I.R.B. 124
99–38, 1999–31 I.R.B. 138
99–39, 1999–34 I.R.B.313
99–40, 1999–35 I.R.B. 324
99–41, 1999–35 I.R.B. 325
99–42, 1999–35 I.R.B. 325
99–43, 1999–36 I.R.B. 344
99–44, 1999–35 I.R.B. 326
99–45, 1999–37 I.R.B. 415
99–46, 1999–37 I.R.B. 415
Notices—Continued
99–47, 1999–36 I.R.B. 391
99–48, 1999–38 I.R.B. 429
99–49, 1999–39 I.R.B. 436
99–50, 1999–40 I.R.B. 444
99–51, 1999–40 I.R.B. 447
99–52, 1999–43 I.R.B. 525
99–53, 1999–46 I.R.B.565
99–54, 1999–47 I.R.B.579
99–55, 1999–49 I.R.B. 638
Proposed Regulations:
REG–252487–96, 1999–34 I.R.B. 303
REG–101519–97, 1999–29 I.R.B. 114
REG–107069–97, 1999–36 I.R.B. 346
REG–121063–97, 1999–43 I.R.B. 540
REG–106010–98, 1999–40 I.R.B. 493
REG–106527–98, 1999–34 I.R.B. 304
REG–108287–98, 1999–28 I.R.B.27
REG–113526–98, 1999–37 I.R.B. 417
REG–113909–98, 1999–30 I.R.B. 125
REG–116733–98, 1999–36 I.R.B. 392
REG–116991–98, 1999–32 I.R.B. 242
REG–121946–98, 1999–36 I.R.B. 403
REG–103841–99, 1999–49 I.R.B. 639
REG–104939–99, 1999–49 I.R.B. 643
REG–105237–99, 1999–35 I.R.B. 331
REG–105327–99, 1999–29 I.R.B. 117
REG–105565–99, 1999–37 I.R.B. 419
REG–115932–99, 1999–47 I.R.B. 583
REG–116125–99, 1999–44 I.R.B. 552
Railroad Retirement Quarterly Rate:
1999–45 I.R.B. 560
1999–46 I.R.B.563
Revenue Procedures:
99–28, 1999–29 I.R.B.109
99–29, 1999–31 I.R.B. 138
99–30, 1999–31 I.R.B. 221
99–31, 1999–34 I.R.B. 280
99–32, 1999–34 I.R.B. 296
99–33, 1999–34 I.R.B. 301
99–34, 1999–40 I.R.B. 450
99–35, 1999–41 I.R.B. 501
99–36, 1999–42 I.R.B. 509
99–37, 1999–42 I.R.B. 517
99–38, 1999–43 I.R.B. 525
99–39, 1999–43 I.R.B. 532
99–40, 1999–46 I.R.B. 565
99–41, 1999–46 I.R.B. 566
99–42, 1999–46 I.R.B. 568
99–43, 1999–47 I.R.B.579
99–44, 1999–48 I.R.B.598
99–45, 1999–49 I.R.B.603
99–46, 1999–49 I.R.B.605
99–47, 1999–48 I.R.B.624
Revenue Rulings:
99–29, 1999–27 I.R.B.3
99–30, 1999–28 I.R.B. 24
99–31, 1999–37 I.R.B. 410
99–32, 1999–31 I.R.B. 135
99–33, 1999–34 I.R.B. 251
99–34, 1999–33 I.R.B. 247
99–35, 1999–34 I.R.B. 278
99–36, 1999–35 I.R.B. 319
99–37, 1999–36 I.R.B. 336
Revenue Rulings—Continued
99–38, 1999–36 I.R.B. 335
99–39, 1999–38 I.R.B. 424
99–40, 1999–40 I.R.B. 441
99–41, 1999–40 I.R.B. 439
99–42, 1999–41 I.R.B. 497
99–43, 1999–42 I.R.B. 506
99–44, 1999–44 I.R.B. 549
99–45, 1999–45 I.R.B. 558
99–46, 1999–45 I.R.B. 557
99–47, 1999–48 I.R.B.588
99–48, 1999–49 I.R.B.600
Treasury Decisions:
8822, 1999–27 I.R.B.5
8823, 1999–29 I.R.B. 34
8824, 1999–29 I.R.B. 62
8825, 1999–28 I.R.B. 19
8826, 1999–29 I.R.B. 107
8827, 1999–30 I.R.B.120
8828, 1999–30 I.R.B.120
8829, 1999–32 I.R.B.235
8830, 1999–38 I.R.B. 430
8831, 1999–34 I.R.B.264
8832, 1999–35 I.R.B. 315
8833, 1999–36 I.R.B. 338
8834, 1999–34 I.R.B.251
8835, 1999–35 I.R.B.317
8836, 1999–37 I.R.B. 411
8837, 1999–38 I.R.B. 426
8838, 1999–38 I.R.B. 424
8839, 1999–41 I.R.B. 498
8840, 1999–47 I.R.B. 575
8841, 1999–48 I.R.B. 593
8842, 1999–47 I.R.B. 576
8843, 1999–48 I.R.B. 590
1
A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 1999–1 through 1999–26
is in Internal Revenue Bulletin 1999–27, dated July
6, 1999.

1999–50 I.R.B.iiiDecember 13, 1999
Finding List of Current Action on
Previously Published Items
1
Bulletins 1999–27 through 1999–49
Announcements:
99–5
Modified by
Ann. 99–106, 1999–45 I.R.B. 561
99–57
Modified by
Ann. 99–104, 1999–44 I.R.B. 555
99–59
Corrected by
Ann. 99–67, 1999–28 I.R.B. 31
Notices:
83–10
Modified by
Notice 99–44, 1999–35 I.R.B. 326
96–64
Modified by
Notice 99–40, 1999–35 I.R.B. 324
97–26
Modified by
Notice 99–41, 1999–35 I.R.B. 325
97–50
Modified and superseded by
Notice 99–41, 1999–35 I.R.B. 325
97–73
Modified by
Notice 99–37, 1999–30 I.R.B. 124
98–7
Modified by
Notice 99–37, 1999–30 I.R.B. 124
98–46
Modified by
Notice 99–37, 1999–30 I.R.B. 124
98–47
Modified and superseded by
Notice 99–41, 1999–35 I.R.B. 325
98–54
Modified by
Notice 99–37, 1999–30 I.R.B. 124
98–59
Modified by
Notice 99–37, 1999–30 I.R.B. 124
Proposed Regulations:
REG–208156–91
Corrected by
Ann. 99–65, 1999–27 I.R.B. 9
Revenue Procedures:
65–17
Superseded by
Rev. Proc. 99–32, 1999–34 I.R.B. 296
65–31
Superseded by
Rev. Proc. 99–32, 1999–34 I.R.B. 296
70–23
Superseded by
Rev. Proc. 99–32, 1999–34 I.R.B. 296
Revenue Procedures—Continued
71–35
Superseded by
Rev. Proc. 99–32, 1999–34 I.R.B. 296
72–22
Superseded by
Rev. Proc. 99–32, 1999–34 I.R.B. 296
72–46
Superseded by
Rev. Proc. 99–32, 1999–34 I.R.B. 296
72–48
Superseded by
Rev. Proc. 99–32, 1999–34 I.R.B. 296
72–53
Superseded by
Rev. Proc. 99–32, 1999–34 I.R.B. 296
89–48
Obsoleted (after Jan. 31, 2000) by
Notice 99–42, 1999–35 I.R.B. 325
89–49
Obsoleted (after Jan. 31, 2000) by
Notice 99–42, 1999–35 I.R.B. 325
96–9
Superseded by
Rev. Proc. 99–28, 1999–29 I.R.B. 109
96–17
Modified by
Rev. Proc. 99–39, 1999–43 I.R.B. 532
96–47
Amplified and superseded by
Rev. Proc. 99–40, 1999–46 I.R.B. 565
97–19
Modified by
Notice 99–41, 1999–35 I.R.B. 325
97–47
Amplified, clarified, modified, and superseded by
Rev. Proc. 99–39, 1999–43 I.R.B. 532
98–10
Modified by
Rev. Proc. 99–45, 1999–49 I.R.B. 603
98–22
Clarified and supplemented by
Rev. Proc. 99–31, 1999–34 I.R.B. 280
98–35
Superseded by
Rev. Proc. 99–29, 1999–31 I.R.B. 138
98–37
Superseded by
Rev. Proc. 99–34, 1999–40 I.R.B. 450
98–63
Modified by Ann. 99–7 and superseded by
Rev. Proc. 99–38, 1999–43 I.R.B. 525
99–19
Modified and superseded by
Rev. Proc. 99–43, 1999–47 I.R.B. 579
99–29
Corrected by
Ann. 99–112, 1999–49 I.R.B. 649
Revenue Rulings:
77–475
Modified and superseded by
Rev. Rul. 99–40, 1999–40 I.R.B. 441
82–80
Superseded by
Rev. Proc. 99–32, 1999–34 I.R.B. 296
Revenue Rulings—Continued
84–58
Modified and superseded by
Rev. Rul. 99–40, 1999–40 I.R.B. 441
88–98
Modified and superseded by
Rev. Rul. 99–40, 1999–40 I.R.B. 441
88–225
Modified by
Rev. Rul. 99–44, 1999–48 I.R.B. 598
99–23
Corrected by
Ann. 99–89, 1999–36 I.R.B. 408
Treasury Decisions:
8476
Corrected by
Ann. 99–74, 1999–30 I.R.B. 133
8742
Corrected by
Ann. 99–73, 1999–30 I.R.B. 133
8793
Corrected by
Ann. 99–75, 1999–30 I.R.B. 134
8805
Corrected by
Ann. 99–66, 1999–27 I.R.B. 9
8806
Corrected by
Ann. 99–84, 1999–33 I.R.B. 248
8819
Corrected by
Ann. 99–47, 1999–28 I.R.B. 29
8823
Corrected by
Ann. 99–86, 1999–35 I.R.B. 332
8825
Corrected by
Ann. 99–100, 1999–42 I.R.B. 522
8827
Corrected by
Ann. 99–111, 1999–47 I.R.B. 587
1
A cumulative finding list of actions published in
Internal Revenue Bulletins 1999–1 through 1999–26
is in Internal Revenue Bulletin 1999–27, dated July
6, 1999.

INSERT
PICTURES
HERE

INTERNAL REVENUE BULLETIN
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Bulletin is sold on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the
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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
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HOW TO ORDER
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detach entire page, and mail to the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402. Please
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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, OP:FS:FP:P:1, Room 5617, 1111 Constitution Avenue NW, Washington,
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