us-irs-announcements-irb-2002-36-pdf•Internal Revenue Bulletin 2002-36 (PDF rendition): IRS Announcements
Internal Revenue Bulletin 2002-36 (PDF rendition): IRS Announcements
us-irs-announcements-irb-2002-36-pdfInternal Revenue Bulletin 2002-36 (PDF rendition): IRS AnnouncementsGuidance
Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing. Whole bulletin rendition: numbered items are identified below; other legal material and publisher context remain included. This is not a new standalone advance release.
HIGHLIGHTS OF THIS ISSUE These synopses are intended only as aids to the reader in identifying the subject matter covered. They may not be relied upon as authoritative interpretations. INCOME TAX REG–136311–01, page 485. Proposed regulations explain when a foreign corporation en- gaged in the international operation of ships or aircraft may ex- clude its U.S. source income from gross income for U.S. federal income tax purposes. The rule applies if such a corporation is organized in a foreign country that grants an equivalent exemp- tion to corporations organized in the United States, and the for- eign corporation satisfies certain ownership requirements. A public hearing is scheduled for November 12, 2002. REG–208280–86 withdrawn. Notice 2002–55, page 481. Under Rev. Proc. 2002–41, certain employers in the pipeline con- struction industry may use an optional expense substantiation rule for certain employee business expenses. The Rev. Proc. is ef- fective for reimbursements paid on or after January 1, 2003. In response to employer comments, this notice provides that these employers may elect to implement the provisions of Rev. Proc. 2002–41 as of the date this notice is published in the Internal Revenue Bulletin. Notice 2002–59, page 481. Split-dollar life insurance arrangements. This notice ex- plains the standards for valuing current life insurance protec- tion under a split-dollar life insurance arrangement. This document also informs taxpayers that certain techniques being used to un- derstate the value of certain policy benefits distort the income, employment, or gift tax consequences of the arrangement and does not conform to, and is not permitted by, any published guid- ance. EXEMPT ORGANIZATIONS Announcement 2002–80, page 515. A list is provided of organizations now classified as private foun- dations. ESTATE TAX Notice 2002–59, page 481. Split-dollar life insurance arrangements. This notice ex- plains the standards for valuing current life insurance protec- tion under a split-dollar life insurance arrangement. This document also informs taxpayers that certain techniques being used to un- derstate the value of certain policy benefits distort the income, employment, or gift tax consequences of the arrangement and does not conform to, and is not permitted by, any published guid- ance. GIFT TAX Notice 2002–59, page 481. Split-dollar life insurance arrangements. This notice ex- plains the standards for valuing current life insurance protec- tion under a split-dollar life insurance arrangement. This document also informs taxpayers that certain techniques being used to un- derstate the value of certain policy benefits distort the income, employment, or gift tax consequences of the arrangement and does not conform to, and is not permitted by, any published guid- ance. EMPLOYMENT TAX Notice 2002–55, page 481. Under Rev. Proc. 2002–41, certain employers in the pipeline con- struction industry may use an optional expense substantiation rule for certain employee business expenses. The Rev. Proc. is ef- fective for reimbursements paid on or after January 1, 2003. In response to employer comments, this notice provides that these employers may elect to implement the provisions of Rev. Proc. 2002–41 as of the date this notice is published in the Internal Revenue Bulletin. Bulletin No. 2002–36 September 9, 2002 (Continued on the next page) Announcements of Disbarments and Suspensions begin on page 518. Finding Lists begin on page ii. ADMINISTRATIVE Notice 2002–60, page 482. Exclusion of gain from sale or exchange of principal resi- dence for taxpayers affected by the September 11, 2001, terrorist attacks. This notice informs taxpayers affected by the September 11, 2001, terrorist attacks of the circumstances un- der which they may qualify for the reduced maximum exclusion of gain on the sale or exchange of a principal residence pro- vided by section 121(c) of the Code. Rev. Proc. 2002–56, page 483. Low-income housing tax credit. This procedure publishes the amounts of unused housing credit carryovers allocated to quali- fied states under section 42(h)(3)(D) of the Code for calendar year 2002. Announcement 2002–78, page 514. This document explains what to do with the first copy you re- ceived of the Internal Revenue Bulletin (I.R.B. 2002–33), dated August 19, 2002. Announcement 2002–79, page 515. This document contains corrections to proposed regulations (REG–103823–99, 2002–27 I.R.B. 44) under section 167 of the Code that relate to deductions available to taxpayers using the income forecast method of depreciation. September 9, 20022002–36 I.R.B. The IRS Mission Provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. Introduction The Internal Revenue Bulletin is the authoritative instrument of the Commissioner of Internal Revenue for announcing official rul- ings and procedures of the Internal Revenue Service and for pub- lishing Treasury Decisions, Executive Orders, Tax Conventions, legislation, court decisions, and other items of general inter- est. It is published weekly and may be obtained from the Super- intendent of Documents on a subscription basis. Bulletin contents are consolidated semiannually into Cumulative Bulletins, which are sold on a single-copy basis. It is the policy of the Service to publish in the Bulletin all sub- stantive rulings necessary to promote a uniform application of the tax laws, including all rulings that supersede, revoke, modify, or amend any of those previously published in the Bulletin. All pub- lished rulings apply retroactively unless otherwise indicated. Pro- cedures relating solely to matters of internal management are not published; however, statements of internal practices and pro- cedures that affect the rights and duties of taxpayers are pub- lished. 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 taxpay- ers or technical advice to Service field offices, identifying de- tails 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 re- lied on, used, or cited as precedents by Service personnel in the disposition of other cases. In applying published rulings and pro- cedures, the effect of subsequent legislation, regulations, court decisions, rulings, and procedures must be considered, and Ser- vice personnel and others concerned are cautioned against reach- ing the same conclusions in other cases unless the facts and circumstances are substantially the same. The Bulletin is divided into four parts as follows: Part I.—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 Other Related Items, and Subpart B, Legisla- tion and Related Committee Reports. Part III.—Administrative, Procedural, and Miscellaneous. To the extent practicable, pertinent cross references to these sub- jects are contained in the other Parts and Subparts. Also in- cluded in this part are Bank Secrecy Act Administrative Rulings. Bank Secrecy Act Administrative Rulings are issued by the De- partment of the Treasury’s Office of the Assistant Secretary (En- forcement). 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 semiannual pe- riod, respectively. 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. 2002–36 I.R.B.September 9, 2002 This page is reserved for missing children Lucy Meadows. September 9, 20022002–36 I.R.B. Part III. Administrative, Procedural, and Miscellaneous Effective Date of Rev. Proc. 2002–41 Notice 2002–55 Rev. Proc. 2002–41, 2002–23 I.R.B. 1098, question and answer 3 defines the employers in the pipeline construction in- dustry that may provide an optional ex- pense substantiation rule for certain employee business expenses. Rev. Proc. 2002–41 is effective for reimbursements paid on or after January 1, 2003. Employers have asked whether the pro- visions of Rev. Proc. 2002–41 may be implemented prior to January 1, 2003. In response to these requests, this notice pro- vides that employers may elect to imple- ment the provisions of Rev. Proc. 2002–41 as of the date this notice is published in the Internal Revenue Bulletin. However, any employer that elects to implement the provisions of Rev. Proc. 2002–41 prior to January 1, 2003, is not also eligible for the relief provided under Rev. Rul. 2002–35, 2002–23 I.R.B. 1067, for any payments in any period following the date they elect to implement Rev. Proc. 2002–41. Rev. Rul. 2002–35 provides that under the authority of § 7805(b), a tax- payer that actually paid amounts separate from wages for the use of employee- provided equipment (such as the welding or mechanics rigs described in Situation 1 or the heavy truck described in Rev. Rul. 68–624, 1968–2 C.B. 424) and reported these payments on timely issued Forms 1099 for calendar years beginning before January 1, 2002, may continue to report these payments on Form 1099 for periods ending on or before December 31, 2002. Thus, an employer may not elect to reim- burse welding and mechanics rig expenses under Rev. Proc. 2002–41 on October 1, 2002, and also pay an additional amount separate from wages for such expenses and report the payments on Form 1099 for any periods on or after October 1, 2002. Drafting Information For further information regarding this no- tice, contact Joe Spires of the Office of Di- vision Counsel/Associate Chief Counsel (Tax Exempt and Government Entities) at (202) 622–6040 (not a toll-free call). Split-Dollar Life Insurance Arrangements Notice 2002–59 SECTION 1. PURPOSE This notice explains the standards for valuing current life insurance protection un- der a split-dollar life insurance arrange- ment. SECTION 2. BACKGROUND .01 Rev. Rul. 64–328, 1964–2 C.B. 11, held that the table of one-year premium rates set forth in Rev. Rul. 55–747, 1955–2 C.B. 228, commonly referred to as the “P.S. 58” rates, may be used to determine the value of the current life insurance protec- tion provided to an employee under a split- dollar life insurance arrangement. Rev. Rul. 66–110, 1966–1 C.B. 12, amplified Rev. Rul. 64–328 in this respect by holding that the insurer’s published premium rates for one-year term insurance may be used to measure the value of the current life in- surance protection if those rates are avail- able to all standard risks and are lower than the P.S. 58 rates. Rev. Rul. 67–154, 1967–1 C.B. 11, modified Rev. Rul. 66–110 by holding that an insurer’s published term rates must be available for initial issue in- surance (as distinguished from rates for divi- dend options) in order to be substituted for the P.S. 58 rates set forth in Rev. Rul. 55– 747. .02 Notice 2001–10, 2001–1 C.B. 459, revoked Rev. Rul. 55–747 and provided that, for taxable years beginning after De- cember 31, 2001, the Treasury Depart- ment and the Internal Revenue Service would no longer treat or accept the P.S. 58 rates set forth therein as a proper mea- sure of the value of current life insurance protection for Federal tax purposes. One concern expressed in Notice 2001–10 with regard to the P.S. 58 rates was that cer- tain taxpayers were using P.S. 58 rates to understate the economic benefits provided under certain split-dollar life insurance ar- rangements, a practice never authorized by published guidance. Notice 2001–10 set forth a new table of one-year term premiums, captioned as Table 2001, to determine the value of current life insurance protection on a single life pro- vided under a split-dollar life insurance ar- rangement for taxable years ending after January 29, 2001. Under Notice 2001– 10, Table 2001 is to serve as an “interim substitute” for the P.S. 58 rates. Notice 2001–10 also allowed taxpayers to con- tinue to determine the value of current life insurance protection by using the insur- er’s lower published premium rates that are available to all standard risks for initial is- sue one-year term insurance as set forth in Rev. Rul. 66–110, subject to additional limi- tations provided in that notice. .03 Notice 2002–8, 2002–4 I.R.B. 398, revokes Notice 2001–10 and provides that, pending the consideration of comments and publication of further guidance, Rev. Rul. 55–747 remains revoked, as provided in and with the transitional relief described in Part IV.B.1 of Notice 2001–10. For split-dollar life insurance arrangements entered into be- fore the effective date of future guidance, Notice 2002–8 allows taxpayers to use the premium rates in Table 2001 to determine the value of current life insurance protec- tion on a single life. Notice 2002–8 also provides that taxpayers should make ap- propriate adjustments to the Table 2001 rates if the life insurance protection covers more than one life. For arrangements entered into before the effective date of future guid- ance, Notice 2002–8 provides that, to the extent provided by Rev. Rul. 66–110, as amplified by Rev. Rul. 67–154, taxpayers may continue to determine the value of cur- rent life insurance protection by using the insurer’s lower published premium rates that are available to all standard risks for ini- tial issue one-year term insurance, sub- ject to certain express limitations. Thus, until the publication of further guidance and sub- ject to the narrow exception in Part III.1 of Notice 2002–8, taxpayers may value the current life insurance protection by using either the premium rates in Table 2001 or the insurer’s published premium rates (as described in the preceding sentence), pro- vided that those published premium rates are lower than the rates set forth in Table 2001 (hereinafter the “insurer’s lower pub- lished premium rates”). .04 On July 9, 2002, Treasury and the Service published proposed regulations re- lating to split-dollar life insurance arrange- ments (67 Fed. Reg. 45414). The proposed regulations reserve on the valuation of eco- 2002–36 I.R.B.481September 9, 2002 nomic benefits received under an equity split-dollar life insurance arrangement un- der the economic benefit regime. How- ever, for an equity split-dollar life insurance arrangement entered into on or before the date of publication of final regulations, in order for the parties to rely on the pro- posed regulations, the value of all eco- nomic benefits taken into account by the parties under the economic benefit regime must exceed the value of the current life in- surance protection (determined using the life insurance premium factor designated in guidance published in the Internal Rev- enue Bulletin), thereby reflecting the fact that such an arrangement provides the non- owner with economic benefits that are more valuable than current life insurance pro- tection. The proposed regulations provide no new guidance on the valuation of current life in- surance protection. In a footnote quoted im- mediately below, however, the preamble of those proposed regulations indicates that Part III.1 of Notice 2002–8 provides for only limited availability of the P.S. 58 rates for taxable years beginning after Decem- ber 31, 2001: Notice 2002–8 also provides that an employer and employee may con- tinue to use the P.S. 58 rates set forth in Rev. Rul. 55–747 (1955–2 C.B. 228), which was revoked by Notice 2001–10, only with respect to split- dollar life insurance arrangements en- tered into before January 28, 2002, in which a contractual arrangement be- tween the employer and employee provides that the P.S. 58 rates will be used to determine the value of the cur- rent life insurance protection pro- vided to the employee (or to the employee and one or more additional persons). Taxpayers may not use the P.S. 58 rates for“reverse”split-dollar life insurance arrangements or for split-dollar life insurance arrange- ments outside of the compensatory context. SECTION 3. VALUATION OF CURRENT LIFE INSURANCE PROTECTION .01 Treasury and the Service under- stand that, under certain split-dollar life in- surance arrangements (some of which are referred to as“reverse”split-dollar), one party holding a right to current life insur- ance protection uses inappropriately high current term insurance rates, prepayment of premiums, or other techniques to confer policy benefits other than current life in- surance protection on another party. The use of such techniques by any party to under- state the value of these other policy ben- efits distorts the income, employment, or gift tax consequences of the arrangement and does not conform to, and is not per- mitted by, any published guidance. .02 A party participating in a split-dollar life insurance arrangement may use the pre- mium rates in Table 2001 or the insurer’s lower published premium rates only for the purpose of valuing current life insurance protection for Federal tax purposes when, and to the extent, such protection is con- ferred as an economic benefit by one party on another party, determined without re- gard to consideration or premiums paid by such other party. (See, for example, ben- efits described in Rev. Rul. 64–328 (in the compensatory context), Rev. Rul. 78–420, 1978–2 C.B. 67 (in the gift context), and Rev. Rul. 79–50, 1979–1 C.B. 138 (in the corporation-shareholder context).) Thus, if one party has any right to current life in- surance protection, neither the premium rates in Table 2001 nor the insurer’s lower published premium rates may be relied upon to value such party’s current life insur- ance protection for the purpose of estab- lishing the value of any policy benefits to which another party may be entitled. For example, if a donor pays the pre- miums on a life insurance policy that is part of a split-dollar life insurance arrange- ment between the donor and a trust and, un- der the arrangement, the trust has the right to current life insurance protection, the cur- rent life insurance protection has been con- ferred as an economic benefit by the donor on the trust, and the donor is permitted to value such current life insurance protec- tion for Federal tax purposes using either the premium rates in Table 2001 or the in- surer’s lower published premium rates. In contrast, if a donor pays the premiums on a life insurance policy that is part of a split- dollar life insurance arrangement between the donor and a trust, and the donor (or the donor’s estate) has the right to current life insurance protection under the policy, nei- ther the premium rates in Table 2001 nor the insurer’s lower published premium rates may be relied upon to value the donor’s current life insurance protection for the pur- pose of establishing the value of the policy benefits conferred upon the trust for Fed- eral tax purposes. Similar results obtain if the trust pays for all or a portion of its share of the policy benefits provided under the split-dollar life insurance arrangement. SECTION 4. DRAFTING INFORMATION The principal author of this notice is Rebecca E. Asta of the Office of the As- sociate Chief Counsel (Financial Institu- tions and Products). For further information regarding this notice, contact Ms. Asta at (202) 622–3930 or Lane Damazo of the Of- fice of the Associate Chief Counsel (Passthroughs and Special Industries) at (202) 622–3090 (not toll-free calls). Reduced Maximum Exclusion of Gain From Sale or Exchange of Principal Residence for Taxpayers Affected by the September 11, 2001, Terrorist Attacks Notice 2002–60 This notice informs taxpayers affected by the September 11, 2001, terrorist at- tacks of the circumstances under which they may qualify for the reduced maximum ex- clusion of gain on the sale or exchange of a principal residence provided by§121(c) of the Internal Revenue Code for taxpay- ers who have not owned and used their principal residence for 2 of the 5 years pre- ceding the sale or exchange or who have applied§121 to the sale or exchange of a principal residence in the last 2 years. This treatment is consistent with the approach the Service intends to take in final regula- tions under§121. Reduced Maximum Exclusion by Reason of Unforeseen Circumstances Section 121 allows a taxpayer to ex- clude up to $250,000 ($500,000 for cer- tain joint returns) of gain realized on the sale or exchange of the taxpayer’s princi- pal residence. For the maximum exclu- sion to apply,§121(b) requires the taxpayer to have both owned and used the prop- erty as the taxpayer’s principal residence for at least 2 years during the 5-year period September 9, 20024822002–36 I.R.B. ending on the date of the sale or exchange. Section 121(b)(3) allows the taxpayer to ap- ply the maximum exclusion to only one sale or exchange in every two-year period end- ing on the date of the sale or exchange. Sec- tion 121(c) provides that a taxpayer who fails to meet any of these conditions by rea- son of a change in place of employment, health, or, to the extent provided in regu- lations, unforeseen circumstances, is en- titled to an exclusion in a reduced maximum amount. On October 10, 2000, a notice of pro- posed rulemaking (REG–105235–99, 2000–2 C.B. 447) under§121 was pub- lished in theFederal Register(65 FR 60136). The proposed regulations requested comments regarding what circumstances should qualify as unforeseen for purposes of the reduced maximum exclusion. Com- ments suggested that, among others, the death of the taxpayer’s spouse, man-made disasters, and acts of war should be con- sidered unforeseen circumstances. The fi- nal regulations will adopt these comments. The final regulations will also provide the Commissioner with the discretion to de- termine that other circumstances qualify as unforeseen for purposes of the reduced maximum exclusion. Recently, the Service has been asked whether taxpayers affected by the Septem- ber 11, 2001, terrorist attacks are entitled to exclude the gain from the sale of a principal residence in a reduced maximum amount by reason of unforeseen circum- stances. In response, the Commissioner has determined that taxpayers affected by the September 11, 2001, terrorist attacks are entitled to the reduced maximum exclu- sion. Therefore, a taxpayer may claim a re- duced maximum exclusion of gain on a sale or exchange of the taxpayer’s principal resi- dence by reason of unforeseen circum- stances if the taxpayer sells or exchanges the residence as a result of being affected by the attacks in one or more of the fol- lowing ways: (1) A qualified individual (as defined be- low) was killed, (2) The taxpayer’s principal residence was damaged (without regard to whether, under the taxpayer’s circumstances, the tax- payer is entitled to a casualty loss deduc- tion under§165(h)), (3) A qualified individual (as defined be- low) lost employment and became eligible for unemployment compensation (as de- fined in§85(b)), or (4) A qualified individual (as defined be- low) experienced a change in employment or self-employment that resulted in the tax- payer’s inability to pay reasonable basic liv- ing expenses for the taxpayer’s household (including amounts for food, clothing, hous- ing and related expenses, medical expenses, taxes, transportation, court-ordered pay- ments, and expenses reasonably neces- sary to production of income, but not for the maintenance of an affluent or luxuri- ous standard of living). For purposes of the preceding sentence, the term“qualified individual”means, as of September 11, 2001, (1) the taxpayer, (2) the taxpayer’s spouse, (3) a co-owner of the residence, or (4) a person whose princi- pal place of abode is in the same house- hold as the taxpayer. Taxpayers who qualify to claim a re- duced maximum exclusion under this no- tice and have filed their returns for taxable year 2001 may file amended returns to claim the exclusion. Computation of the Reduced Maximum Exclusion The reduced maximum exclusion is computed by multiplying the maximum dol- lar limitation of $250,000 ($500,000 for cer- tain joint filers) by a fraction. The numerator of the fraction is the shortest of the fol- lowing periods: (1) the period of time that the taxpayer owned the property during the 5-year period ending on the date of the sale or exchange, (2) the period of time that the taxpayer used the property as the taxpay- er’s principal residence during the 5-year period ending on the date of the sale or ex- change, or (3) the period of time between the date of a prior sale or exchange of prop- erty for which the taxpayer excluded gain under§121 and the date of the current sale or exchange. The numerator of the frac- tion may be expressed in days or months. The denominator of the fraction is 730 days or 24 months (depending on the measure of time used in the numerator). DRAFTING INFORMATION The principal author of this notice is Sara Paige Shepherd of the Office of the Asso- ciate Chief Counsel (Income Tax and Ac- counting). For further information regarding this notice, contact Ms. Shepherd at (202) 622–4960 (not a toll-free number). 26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement; determina- tion of correct tax liability. (Also Part I, § 42; 1.42–14.) Rev. Proc. 2002–56 SECTION 1. PURPOSE This revenue procedure publishes the amounts of unused housing credit carry- overs allocated to qualified states under §42(h)(3)(D) of the Internal Revenue Code for calendar year 2002. SECTION 2. BACKGROUND Rev. Proc. 92–31, 1992–1 C.B. 775, pro- vides guidance to state housing credit agen- cies of qualified states on the procedure for requesting an allocation of unused hous- ing credit carryovers under§42(h)(3)(D). Section 4.06 of Rev. Proc. 92–31 provides that the Internal Revenue Service will pub- lish in the Internal Revenue Bulletin the amount of unused housing credit carry- overs allocated to qualified states for a cal- endar year from a national pool of unused credit authority (the National Pool). This revenue procedure publishes these amounts for calendar year 2002. SECTION 3. PROCEDURE The unused housing credit carryover amount allocated from the National Pool by the Secretary to each qualified state for cal- endar year 2002 is as follows: 2002–36 I.R.B.483September 9, 2002 Qualified StateAmount Allocated Alabama$ 6,646 California51,364 Colorado6,577 Connecticut5,099 Florida24,410 Georgia12,482 Illinois18,583 Indiana9,103 Iowa4,352 Kansas4,012 Kentucky6,053 Maryland8,002 Massachusetts9,497 Minnesota7,403 Mississippi4,255 Missouri8,381 Nebraska2,551 New Hampshire1,875 New Jersey12,631 New York28,303 North Dakota945 Ohio16,932 Oregon5,170 Pennsylvania18,293 Rhode Island1,576 South Carolina6,049 Tennessee8,546 Texas31,748 Utah3,379 Vermont913 Virginia10,701 Washington8,915 West Virginia2,683 Wisconsin8,042 Wyoming736 SECTION 4. EFFECTIVE DATE This revenue procedure is effective for allocations of housing credit dollar amounts attributable to the National Pool compo- nent of a qualified state’s housing credit ceiling for calendar year 2002. DRAFTING INFORMATION The principal author of this revenue pro- cedure is Christopher J. Wilson of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue procedure, contact Mr. Wilson at (808) 539– 2874 or Susan Reaman at (202) 622–3040 (not toll-free calls). September 9, 20024842002–36 I.R.B. Part IV. Items of General Interest Notice of Proposed Rulemaking; Withdrawal of Previously Proposed Rules; and Notice of Public Hearing Exclusions From Gross Income of Foreign Corporations REG–136311–01 AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Withdrawal of previously proposed rules; notice of proposed rulemaking; and notice of public hearing. SUMMARY: This document contains new proposed rules implementing the portions of sections 883(a) and (c) of the Internal Revenue Code of 1986, as amended, that relate to the exclusion from gross income available to corporations organized in for- eign countries that grant equivalent exemp- tions to corporations organized in the United States for income derived from the inter- national operation of ships or aircraft. This document also provides notice of a pub- lic hearing on the proposed rules and with- draws the notice of proposed rulemaking (REG–208280–86, 2000–1 C.B. 654 [65 FR 6065]) published on February 8, 2000. DATES: Written or electronic comments, requests to speak, and outlines of topics to be discussed at the public hearing sched- uled for November 12, 2002, at 10 a.m. must be received by October 22, 2002. The notice of proposed rulemaking published on February 8, 2000, is withdrawn as of August 2, 2002. ADDRESSES: Send submissions to: CC: ITA:RU (REG–136311–01), room 5226, In- ternal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Mon- day through Friday between the hours of 8 a.m. and 5 p.m. to: CC:ITA:RU (REG– 136311–01), Courier’s Desk, Internal Rev- enue Service,1111Constitution Avenue, NW, Washington, DC. Alternatively, com- ments may be transmitted electronically via the Internet by submitting comments di- rectly to the IRS Internet site at: www.irs.gov/regs.The public hearing will be held in room 4718, Internal Revenue Building,1111Constitution Avenue, NW, Washington, DC. FORFURTHERINFORMATION CONTACT: Concerning the proposed rules, Patricia A. Bray, (202) 622–3880; concern- ing submissions, the hearing, and/or to be placed on the building access list to at- tend the hearing, Guy Traynor, (202) 622– 7180 (not toll-free numbers). SUPPLEMENTARY INFORMATION: Paperwork Reduction Act The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of Manage- ment and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the col- lection of information should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regu- latory Affairs, Washington, DC 20503, with copies to the IRS, Attn: IRS Reports Clear- ance Officer, W:CAR:MP:FP:S, Washing- ton, DC 20224. Comments on the collection of information should be received by Oc- tober 1, 2002. Comments are specifically requested concerning: Whether the proposed collection of in- formation is necessary for the proper per- formance of the functions of the IRS, including whether the information will have practical utility; The accuracy of the estimated burden as- sociated with the proposed collection of in- formation (see below); How the quality, utility and clarity of the information to be collected may be en- hanced; How the burden of complying with the proposed collection of information may be minimized, including through the applica- tion of automated collection techniques or other forms of information technology; and Estimates of capital or start-up costs and costs of operation, maintenance, and pur- chase of services to provide information. The collection of information in this pro- posed regulation is in§§1.883–1, 1.883–2, 1.883–3, 1.883–4 and 1.883–5. The infor- mation required in these sections will en- able a foreign corporation to determine if it is eligible to exclude its income from the international operation of a ship or ships or aircraft from gross income on its U.S. Fed- eral income tax return. The information re- quired in these sections will also enable the IRS to monitor compliance with the pro- visions of the proposed regulations with re- spect to the stock ownership requirements of§1.883–1(c)(2), and to make a prelimi- nary determination of whether the for- eign corporation is eligible to claim such an exemption and is accurately reporting in- come as required under section 6012. The collection of information and re- sponses to these collections of informa- tion are mandatory. The likely respondents are foreign corporations engaged in the in- ternational operation of a ship or ships or aircraft that wish to claim an exemption from U.S. tax under section 883, and cer- tain of their shareholders owning (directly or indirectly) a majority of the value of the shares of such corporations. Estimated total annual reporting/ recordkeeping burden on corporations:1400 hours. The estimated annual burden per re- spondent varies from 30 minutes to eight hours, depending on the circumstances of the foreign corporation, with an estimated average of one hour. Estimated number of respondents:1400. Estimated annual frequency of responses: Once. Estimated total annual reporting/ recordkeeping burden on shareholders: 22,500 hours. The estimated annual burden per re- spondent varies from zero minutes to eight hours, depending on the circumstances of the shareholder or intermediary, with an es- timated average of 90 minutes. Estimated number of respondents: 15,000. Estimated annual frequency of responses: Zero if the shareholder falls within a spe- cial rule that permits the foreign corpora- tion to use the address of record in the shareholder records. Once every three years if there is no change in reported shareholder informa- tion. Annually in years in which a change of information occurs. 2002–36 I.R.B.485September 9, 2002 An agency may not conduct or spon- sor, and a person is not required to re- spond to, a collection of information unless the collection of information displays a valid control number assigned by the Office of Management and Budget. Books or records relating to a collec- tion of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103. Background and Explanation of Provisions I.Overview On February 8, 2000, the IRS and Trea- sury published a notice of proposed rule- making (REG–208280–86) in theFederal Register(65 FR 6065) under sections 883(a) and (c) (the 2000 proposed regula- tions). The 2000 proposed regulations, in accordance with section 883(a) and (c), gen- erally provide that a foreign corporation or- ganized in a qualified foreign country and engaged in the international operation of ships or aircraft shall exclude from its gross income for purposes of United States Fed- eral income taxation qualified income it de- rives from its international operation of ships or aircraft, provided that the corpo- ration satisfies certain ownership and re- lated documentation and filing requirements. The 2000 proposed regulations explain how to determine whether a foreign country is a qualified foreign country, what income is considered qualified income, and what ac- tivities constitute international operation of ships or aircraft. They also specify how a foreign corporation satisfies the owner- ship and related documentation require- ments. The IRS and Treasury held a public hearing regarding the 2000 proposed regu- lations on June 8, 2000, and received nu- merous comments in connection with the hearing and otherwise. In consideration of the substantial number of comments re- ceived, and due to the significant impact the regulations have on large segments of the shipping and air transport industries, the IRS and Treasury believe it is appropriate to re- propose the regulations in order to ad- dress those comments and to provide a further opportunity for comment both on the changes and more generally. Accordingly, this document withdraws the 2000 pro- posed regulations and provides new pro- posed regulations, which are referred to herein as the reproposed regulations. Part II of this preamble discusses the principal differences between the 2000 pro- posed regulations and the reproposed regu- lations and the reasons changes have been made. Part II.A provides background. Part II.B addresses comments on the 2000 pro- posed regulations relating to§1.883–1 (the general requirements for the exclusion). Part II.C addresses comments relating to §1.883–2 (the publicly traded test). Part II.D addresses comments relating to §1.883–3 (the CFC stock ownership test). Part II.E addresses comments relating to §1.883–4 (the qualified shareholder stock ownership test). Finally, Part II.F addresses comments relating to§1.883–5 (the effec- tive date of the 2000 proposed regulations). This preamble addresses each of the five sections of the reproposed regulations in or- der. Within each section, the preamble dis- cusses first the most significant differences between the 2000 proposed regulations and the reproposed regulations, including: (1) the qualification of participation in a pool, partnership, strategic alliance, joint oper- ating agreement, code-sharing arrange- ment or other joint venture as operation of ships or aircraft (see§1.883–1(e)(1) and (2) and Part II.B.1 of this preamble); (2) the qualification of certain lightering activity as international operation of ships (see§1.883– 1(f)(2)(ii) and Part II.B.2 of this preamble); (3) the treatment of certain income attrib- utable to the inland leg following the in- ternational carriage of passengers or cargo (see§1.883–1(g)(1)(v) and (vi) and (g)(2)(vi) and Part II.B.2 of this preamble); (4) the treatment of income from certain container usage in the United States (see §1.883–1(g)(1)(x) and (g)(2)(viii) and Part II.B.3 of this preamble); and (5) the revi- sion of certain aspects of the closely-held test for qualification of a foreign corpora- tion as a publicly traded corporation (see §1.883–2(d)(3) and Part II.C.2 of this pre- amble). II.Section 883(a) and (c): Exclusions From Gross Income of Foreign Corporations A.Background The reproposed regulations provide (as do the 2000 proposed regulations) that, in general, qualified income derived by a qualified foreign corporation from its in- ternational operation of ships or aircraft is excluded from gross income and exempt from United States Federal income tax. Sec- tion 1.883–1 of both the 2000 proposed regulations and the reproposed regulations provide general operational rules and defi- nitions to determine whether a foreign corporation is entitled to this exclusion and exemption, which are elaborated on in §§1.883–2 through 1.883–4. The preamble to the 2000 proposed regulations contains a detailed explanation of the provisions in the 2000 proposed regulations. That expla- nation is not repeated herein. Comments the IRS received on the 2000 proposed regu- lations and the consequent changes re- flected in the reproposed regulations are described herein. B.Comments relating to§1.883–1: exclusions of income from the international operation of ships or aircraft Section 1.883–1 of the 2000 proposed regulations provides, in accordance with section 883, that income derived from the international operation of ships or aircraft by a foreign corporation organized in a for- eign country that grants a reciprocal ex- emption to U.S. corporations shall be exempt from U.S. Federal income tax. In response to comments the IRS received con- cerning the 2000 proposed regulations, the reproposed regulations modify the rules of the 2000 proposed regulations regarding the definition ofinternational operation of ships and aircraftand the scope of income con- sidered derived from such operation. 1. Operation of Ships or Aircraft Section 1.883–1(e) of the 2000 pro- posed regulations provides generally that the termoperation of ships or aircraftincludes carriage of passengers or cargo for hire; time or voyage charter (full charter) of a ship, or wet lease of an aircraft; and bare- boat charter of a ship, or dry lease of an air- craft. The 2000 proposed regulations also include within the term the active partici- pation by a foreign corporation that is oth- erwise engaged in the operation of ships or aircraft in a pool, partnership, strategic al- liance, joint operating agreement, code- sharing arrangements or other joint venture, that is itself engaged in the operation of ships or aircraft. September 9, 20024862002–36 I.R.B. i. Investment in a pool, partnership, strategic alliance, joint operating agreement, code-sharing arrangement or other joint venture Commentators suggested modifying the definition ofoperation of ships or air- craftto permit an investor in a pool, part- nership, strategic alliance, joint operating agreement, code-sharing arrangement or other joint venture that is itself engaged in the operation of ships or aircraft to be treated as engaged in the operation of ships or aircraft, whether or not the investor is itself so engaged and whether or not its par- ticipation is active. This suggestion has been generally adopted in the reproposed regulations, with modifications. Under§1.883–1(e)(2) of the reproposed regulations, a foreign corpora- tion is considered engaged in the opera- tion of ships or aircraft with respect to its participation in a pool, partnership, strate- gic alliance, joint operating agreement, code- sharing arrangement or other joint venture, provided that such arrangement is a fis- cally transparent entity under the income tax laws of the United States and that it would be considered engaged in the operation of ships or aircraft if it were a foreign cor- poration. Alternatively, if the pool, strate- gic alliance, joint operating agreement, code- sharing arrangement or other joint venture does not rise to the level of a partnership or other entity under the income tax laws of the United States (e.g., it is a contrac- tual arrangement only that involves the car- riage of cargo or passengers for hire), a foreign corporation that participates in such a pool, strategic alliance, joint operating agreement, code-sharing arrangement or other joint venture will be considered en- gaged in the operation of ships or aircraft only if the foreign corporation is other- wise engaged in the operation of ships or aircraft under paragraph (e)(1). Thus, through participation in a fiscally transpar- ent entity, a foreign corporation may be con- sidered engaged in the operation of ships or aircraft even if it is not itself other- wise engaged in the operation of ships or aircraft. However, through participation in a contractual arrangement that is not a fis- cally transparent entity, a foreign corpora- tion may only be considered engaged in the operation of ships or aircraft with respect to activities under such contractual arrange- ment only if the foreign corporation is oth- erwise engaged in the operation of ships or aircraft. Section 1.883–1(e)(5)(iv) and (v) de- fines for these purposes the termsentityand fiscally transparent entity under the in- come tax laws of the United Statesrespec- tively. In general, an entity is fiscally transparent under the income tax laws of the United States with respect to a cat- egory of income if the entity would be con- sidered fiscally transparent under the income tax laws of the United States for purposes of§1.894–1 with respect to an item of in- come within that category of income. In the case of a foreign corporation that is considered engaged in the operation of ships or aircraft with respect to its partici- pation in certain fiscally transparent enti- ties,§1.883–1(h)(3)(ii) provides an exception to the general rule that a for- eign country that provides an exemption only through an income tax convention with the United States will not be considered to grant an equivalent exemption for pur- poses of section 883. Under the repro- posed regulations, a foreign corporation will be treated as organized in a foreign coun- try that grants an equivalent exemption for purposes of section 883 with respect to a category of income derived by or pursu- ant to a pool, partnership, strategic alli- ance, joint operating agreement, code- sharing arrangement or other joint venture, but only if treaty benefits are denied to the foreign corporation solely because the for- eign corporate interest holder’s jurisdic- tion (i.e., the treaty-partner jurisdiction) views the pool, partnership, strategic alli- ance, joint operating agreement, code- sharing arrangement or other joint venture as not fiscally transparent. ii. Space or slot charters Commentators also suggested modify- ing the definitionoperation of ships or air- craftto include space or slot chartering, which involves the leasing out of a cer- tain amount of space (but less than all of the space) on a ship or aircraft. In the con- text of passenger aircraft, such a charter may be referred to as a block seat sale or charter. In response to these comments and to clarify the concept of what it means for a foreign corporation to be engaged in the operation of ships or aircraft, the rules of the 2000 proposed regulations have been re- vised. Section 1.883–1(e)(1) of the reproposed regulations provides generally that a for- eign corporation is considered engaged in the operation of ships or aircraft only dur- ing the time it is an owner or lessee of an entire ship or aircraft and the foreign cor- poration (1) uses that ship or aircraft to carry passengers or cargo for hire; or (2) either (a) leases out the ship under a time or voyage charter (full charter), space or slot charter, or bareboat charter to a lessee or sublessee, provided the ship is used to carry passengers or cargo for hire; or (b) leases out the aircraft under a wet lease (full char- ter), space, slot, or block-seat charter, or dry lease to a lessee or sublessee, provided the aircraft is used to carry passengers or cargo for hire. In addition,§1.883–1(g)(1)(ix) clarifies that a foreign corporation that is engaged in the international operation of ships or aircraft within the meaning of §1.883–1(e) may derive income that is in- cidental to the operation of ships or air- craft by arranging by means of a space or slot charter for the carriage of cargo listed on a bill of lading or airway bill issued by the foreign corporation on the ship or air- craft of another corporation engaged in the international operation of ships or aircraft. Thus, the reproposed regulations gen- erally adopt the commentators’recommen- dations regarding space or slot chartering. A foreign corporation that has an owner- ship interest in an entire ship or an air- craft will be considered engaged in the operation of ships or aircraft if it space or slot charters the ship or block-seat char- ters the aircraft to another corporation that uses the ship or aircraft to carry passen- gers or cargo for hire. iii. Non-vessel operating common carriers The 2000 proposed regulations do not include within the list of activities consti- tuting the operation of ships or aircraft the activities of a non-vessel operating com- mon carrier (an NVOCC). Commentators suggested that NVOCCs should be treated as engaged in the operation of ships be- cause they are common carriers that issue bills of lading and have liability for the goods shipped under that bill of lading just as an ocean common carrier. The reproposed regulations do not adopt this suggestion. An NVOCC is not en- gaged in the operation of ships within the meaning of§1.883–1(e) because it does not 2002–36 I.R.B.487September 9, 2002 own an entire ship or use it in one of the listed activities in§1.883–1(e)(1). Sec- tion 883 does not apply simply because a corporation is a common carrier. There- fore, the activities of an NVOCC continue to be included on the§1.883–1(e)(3) list of activities that do not constitute the op- eration of ships or aircraft. 2. International Operation of Ships or Aircraft i. General definition Section 1.883–1(f) of the 2000 proposed regulations distinguishes the international operation of ships or aircraft from the do- mestic operation of ships or aircraft based largely upon the amendments made to sec- tion 863(c)(1) and (2) by the Technical and Miscellaneous Revenue Act of 1988 (TAMRA). In the legislative history to TAMRA, Congress directed that transpor- tation income derived solely from sources within the United States (section 863(c)(1) income) should not be exempt from U.S. income tax under section 883. Congress fur- ther provided that transportation income de- rived 50 percent from sources within the United States (section 863(c)(2) income) should be eligible for exemption from U.S. income tax under section 883. See S. Rep. No. 100–445, 100th Cong., 2d Sess. 241– 242 (1988). Section 863(c)(1) income is defined as income attributable to transportation that be- gins and ends in the United States. Sec- tion 863(c)(2) income is defined as income attributable to transportation that begins or ends in the United States, and that is not section 863(c)(1) income. The 2000 pro- posed regulations adopt this distinction be- tween section 863(c)(1) income and section 863(c)(2) income in defining the termin- ternational operationto mean the opera- tion of ships or aircraft on voyages or flights that begin or end in the United States and correspondingly end or begin in a foreign country. Commentators objected to this defini- tion. Several argued that the terminterna- tional operationshould be defined coextensively with the terminternational transport, as used in Article 8 of the OECD Model Income Tax Convention and in the 1996 United States Model Income Tax Con- vention. Nevertheless, the IRS and Treasury be- lieve that Congress meant the definition of international operationto correspond with the definition of section 863(c)(2) income. Section 863(c)(2) does not apply to trans- portation that begins and ends in the United States; it applies to transportation that be- gins or ends in the United States. There- fore, the reproposed regulations do not modify the definition ofinternational op- eration of ships or aircraftto include trans- portation that begins and ends in the United States (such as the U.S. inland legs fol- lowing international transport, discussed im- mediately below). The IRS and Treasury believe this interpretation to be consistent with the intent of Congress. ii. Inland leg of transportation The 2000 proposed regulations gener- ally do not include within the definition of international operation the inland leg of transportation of passengers or cargo be- fore or after an intermediate stop in the United States. Commentators criticized the exclusion of the inland leg in the 2000 proposed regu- lations as inconsistent with long-standing industry practice and other provisions of do- mestic law, such as the Shipping Act of 1984, Public Law 98–237, 2 (97 Stat. 67) (March 20, 1984), as amended, Public Law 105–258, Title 1, 101 (112 Stat. 1902) (Oct. 14, 1998), which considers certain inland transportation to form a part of interna- tional service. Commentators also sug- gested that the 2000 proposed regulations contradicted the established U.S. transpor- tation policy of promoting intermodal trans- portation (i.e., transportation by more than one form of carrier during a single jour- ney). After reviewing these comments, the IRS and Treasury have determined not to change the definition of international operation of ships or aircraft in the reproposed regula- tions. As explained above, in Part II.B.2.i, the language of section 883 and the legis- lative history of TAMRA, in the view of IRS and Treasury, do not permit the in- land leg of transportation to be consid- ered international operation of ships or aircraft. In recognition of the need to pro- mote efficient international transporta- tion, however, the IRS and Treasury have amended the rules of the 2000 proposed regulations to include income with respect to certain inland transportation as income from an activity incidental to the interna- tional operation of ships or aircraft, and thus eligible for exemption. See Part II.B.3, be- low. iii. Cruises to nowhere The 2000 proposed regulations gener- ally include within the definition of inter- national operation a round trip cruise that begins in the United States, stops at a for- eign port, and returns to the same or an- other U.S. port. Because the 2000 proposed regulations require a stop at a foreign in- termediate port, the 2000 proposed regu- lations effectively exclude from the definition of international operation of ships or aircraft a“cruise to nowhere”(i.e.,a cruise that begins and ends in the United States without stopping at a foreign port). Several commentators criticized the ex- clusion of cruises to nowhere. The repro- posed regulations, however, do not treat a cruise to nowhere as international opera- tion of ships or aircraft. Although a cruise to nowhere travels beyond the U.S. terri- torial limits, its passengers may embark and disembark only in the United States. A cruise to nowhere begins and ends its voy- age in the United States, within the mean- ing of section 863(c)(1), with respect to its passengers and thus should not constitute international operation of ships or aircraft. iv. Lightering The 2000 proposed regulations exclude from the definition of international opera- tion the activities of a lighter vessel that car- ries cargo to, or picks up cargo from, a vessel located beyond the territorial lim- its of the United States, and correspond- ingly loads or unloads that cargo at a U.S. port. Commentators recommended that lighter vessels that service host vessels engaged in international operation should be consid- ered engaged in international operation. Commentators relied for support on §1.954–6(b)(3)(iv), which treats a lighter vessel that services a host vessel used in for- eign commerce as also used in foreign com- merce for purposes of determining foreign base company shipping income. While the IRS and Treasury did not adopt the commentators’approach, the re- proposed regulations, unlike the 2000 pro- posed regulations, do not require that a ship be operated on voyages that begin or end in the United States and correspondingly September 9, 20024882002–36 I.R.B. end or begin in a foreign country. Instead, the reproposed regulations require simply that the ship or aircraft be operated on voy- ages or flights that begin or end in the United States and correspondingly end or begin outside the United States. In servic- ing a host vessel beyond the territorial lim- its of the United States, a lighter vessel begins its voyage outside the United States alongside the host vessel with respect to the cargo transported, and ends its voyage with respect to that cargo upon delivery of the cargo in the United States. Accordingly, un- der§1.883–1(f)(2)(ii) of the reproposed regulations, lightering activity that ex- tends beyond United States territorial wa- ters will constitute the international operation of a ship. 3. Activities Incidental to International Operation Section 1.883–1(g) of the 2000 pro- posed regulations provides that certain ac- tivities of an operator of a ship or aircraft are so closely related to the primary activ- ity of the international operation of ships or aircraft that income from those inciden- tal activities shall be considered income from the international operation of ships or aircraft, and thus eligible for exemption. i. Intermodal containers Section 1.883–1(g)(1)(v) of the 2000 proposed regulations provides that rental of containers during the international car- riage of goods by sea by the operator of a ship or by air by the operator of an air- craft is incidental to the international op- eration of ships or aircraft. By contrast, §1.883–1(g)(2)(iv) of the 2000 proposed regulations provides that the rental of con- tainers for a domestic leg of transporta- tion in connection with international carriage of cargo is not incidental to the interna- tional operation of ships or aircraft. As discussed above in Part II.B.2(ii), the reproposed regulations do not change the general definition of the terminternational operation of ships or aircraftto cover the inland leg. The IRS and Treasury, how- ever, recognize that intermodal transporta- tion is a critical adjunct to the international transportation of cargo. Accordingly,§1.883–1(g)(1)(x) of the reproposed regulations treats certain con- tainer rental activities in the United States as incidental to the international opera- tion of ships or aircraft. The reproposed regulations limit incidental treatment to the rental of containers for use in the United States for a period not exceeding five days beyond the original delivery date to the con- signee as stated on the bill of lading. The reproposed regulations also impose other limitations on incidental treatment, and no other rental of containers within the United States is considered incidental to the inter- national operation of ships or aircraft (e.g., the extended rental of containers for use by the customer for temporary warehousing of cargo). ii. Inland legs of transportation—cargo transport As discussed above, the 2000 proposed regulations may treat some inland legs of transportation of cargo as domestic be- cause the international transportation pro- vided by a ship or aircraft is considered to end when the cargo is transferred from the ship or aircraft and clears customs or is con- sidered to begin when the ship or aircraft is loaded at the United States port or air- port. Again as discussed above, commen- tators argued that this rule inhibits intermodal transportation. In recognition of this concern,§1.883– 1(g)(1)(v) of the reproposed regulations pro- vides that (i) if a foreign corporation engaged in the international operation of ships or aircraft issues a through bill of lad- ing, airway bill or similar document for the carriage of cargo from a port or airport out- side the United States to an intermediate port or airport in the United States and then to an inland destination within the United States, or from an inland point of origin in the United States to an intermediate U.S. port or airport and then to a destination out- side the United States, and (ii) to fulfill its common carrier obligations under the bill, the foreign corporation arranges through a related or unrelated corporation (either by subcontracting or otherwise) for carriage of cargo by air, ship, truck or rail between the U.S. port or airport and the inland point ei- ther preceding or following the interna- tional carriage of that cargo, then the activity of arranging for that transportation is in- cidental to its international operation of ships or aircraft, and income from such ac- tivity is thus eligible for exemption. The reproposed regulations do not pro- vide the same treatment where the bill of lading issued by the foreign corporation is solely for the international carriage of cargo between a U.S. port or airport where the cargo is loaded on or unloaded from the ship or aircraft and a point outside the United States. In such cases, arranging for further transportation of the cargo by an- other party on an inland leg is not inciden- tal to the international operation of ships or aircraft. See§1.883–1(g)(2)(vi). In addi- tion, if the qualified foreign corporation car- ries cargo between a U.S. inland point and a U.S. port or airport with its own trucks, buses or rail service preceding or follow- ing the international carriage of such cargo by the qualified foreign corporation, the ac- tivity is not incidental to its international operation of ships or aircraft. See§1.883– 1(g)(2)(vii). iii. Inland legs of transportation— passenger transport under a code-sharing arrangement Under the 2000 proposed regulations, passenger carriage is deemed to begin or end upon a change of aircraft. Pursuant to that rule, international transportation pro- vided by an air carrier ends when a pas- senger changes planes at a gateway city en route from a foreign point of origin to a U.S. destination, or begins when a passen- ger changes planes at a gateway city en route to a foreign destination. Thus, un- der the 2000 proposed regulations, an in- land leg of passenger transportation is not treated as international even if it follows in- ternational transportation and is pursuant to a through ticket sold by a foreign airline, for example, under a code-sharing arrange- ment with a U.S. airline or is pursuant to an interline ticket. Commentators argued that this rule would give rise to inefficiency, inhibit economies of scale from developing within the airline industry, and limit services avail- able to passengers desiring international travel. In recognition of these comments, §1.883–1(g)(1)(vi) of the reproposed regu- lations provides that the sale or issuance of an interline or code-sharing passenger ticket for the carriage of persons by air between the U.S. gateway and another U.S. city pre- ceding or following international transpor- tation is an activity incidental to the international operation of aircraft. This rule only applies, however, if all such flight seg- ments are provided pursuant to the passen- ger’s original invoice, ticket, or itinerary. 2002–36 I.R.B.489September 9, 2002 4. Activities not Incidental to International Operation of Ships or Aircraft i. Hotel accommodations Under the 2000 proposed regulations, the sale or arranging for train travel, land tour packages and port city hotels is not an ac- tivity incidental to the international opera- tion of ships or aircraft. Commentators suggested that an exception to that gen- eral rule be provided in the case of arrang- ing for hotels for the one night before or after the international carriage of a passen- ger. The reproposed regulations adopt this suggestion. It is not always possible for a cruise ship passenger to arrive at the port city on the morning of the scheduled de- parture or to arrange for a return flight home on the evening of the arrival back in port. Arranging for one night’s accommoda- tion in such situations is an adjunct to the operation of the cruise business. Thus, ar- ranging for one night in a hotel before or after a cruise is considered incidental to the international operation of ships under §1.883–1(g)(1)(vii) of the reproposed regu- lations. ii. Ground services and other services Under§1.883–1(g)(2)(vi) of the 2000 proposed regulations, services performed for parties other than passengers, consignors or consignees, such as ground services at ports or airports or ship or aircraft maintenance, are not considered incidental to the inter- national operation of ships or aircraft. Several commentators suggested that in- come from services other than ground ser- vices provided by an operator, such as crewing, operating casinos, fleet manage- ment, operating reservations systems, and marketing or administrative services to con- signors, consignees, as well as to mem- bers of the same pool, partnership, strategic alliance, joint operating agreement, code- sharing or other joint venture or joint op- erating arrangement, should be considered incidental. The IRS and Treasury believe that no clear international norm or standard has de- veloped regarding the appropriate treat- ment of such services. Accordingly, the reproposed regulations, in§1.883–1(g)(3), reserve on the treatment of ground ser- vices, maintenance and catering, as well as other services not mentioned as included among incidental activities. The IRS and Treasury solicit comments on the appro- priate rule. 5. Activities Incidental to the International Operation of Ships or Aircraft Performed by Pool, Partnership, Strategic Alliance, Joint Operating Agreement, Code-sharing Arrangement or Other Joint Venture The 2000 proposed regulations do not address whether activities performed by a pool, partnership, strategic alliance, joint op- erating agreement, code-sharing arrange- ment or other joint venture can be considered incidental to the international op- eration of ships or aircraft. Commentators argued that activities a foreign corporation would perform for it- self, absent such an arrangement or en- tity, should be incidental to the foreign corporation’s international operation of ships or aircraft, within the meaning of§1.883– 1(g). In response to these comments,§1.883– 1(g)(4) of the reproposed regulations broad- ens the scope of incidental activities. An activity may be considered incidental to the international operation of ships or aircraft by a foreign corporation, and income de- rived by the foreign corporation with re- spect to such activity is deemed to be income derived from the international op- eration of ships or aircraft, if the activity is performed by or pursuant to a pool, part- nership, strategic alliance, joint operating agreement, code-sharing arrangement or other joint venture in which such foreign corporation participates, if (i) the activity is incidental to the international operation of ships or aircraft by the pool, partner- ship, strategic alliance, joint operating agree- ment, code-sharing arrangement or other joint venture, provided the joint venture is itself engaged in the operation of ships or aircraft; or (ii) such activity would be in- cidental to the international operation of ships or aircraft by the foreign corpora- tion, if it performed such activity itself, and provided the foreign corporation is other- wise engaged in the operation of ships or aircraft. 6. Interaction With Income Tax Conventions i. Eligibility for benefits under both a treaty and this regulation Section 1.883–1(h)(3) of the 2000 pro- posed regulations contains special rules re- garding income tax conventions. Under the 2000 proposed regulations, if a corpora- tion is organized in a foreign country that offers an exemption under an income tax convention and also some other means, such as a diplomatic note pursuant to section 883, the foreign corporation must choose annu- ally whether to claim an exemption under section 894 and the income tax conven- tion, or under section 883. Commentators objected to this rule, stat- ing that there was no tax policy rationale for requiring a foreign corporation eli- gible for an exemption under both sec- tion 883 and an income tax convention to make an annual election to claim under one or the other. In response to these comments,§1.883– 1(h)(3)(i) of the reproposed regulations pro- vides that if the taxpayer is eligible to exempt income under both an applicable in- come tax convention and section 883, the taxpayer may claim an exemption under both the applicable income tax conven- tion and section 883 with respect to such category of income. As under the 2000 pro- posed regulations, however, such an elec- tion must be made with respect to all income of the foreign corporation from the international operation of ships or aircraft, and cannot be made separately with re- spect to different categories of income. ii. Regulation not intended to be used for interpretation of U.S. income tax conventions Many U.S. income tax conventions de- fine the terms regarding international trans- port used therein, such as the term international traffic, but some conven- tions do not define such terms. In gen- eral, conventions provide that undefined terms have the meaning provided by the do- mestic laws of the contracting state from which treaty benefits are claimed. The 2000 proposed regulations do not state specifi- cally whether the definitions and descrip- tions of terms used within those regulations should be used to interpret similar terms or concepts in income tax conventions or to September 9, 20024902002–36 I.R.B. delimit the scope of the exemption avail- able under treaties for profits from ship- ping and air transport. Treasury and IRS have received a num- ber of inquiries regarding whether terms used in the 2000 proposed regulations should be used to interpret terms and con- cepts in U.S. income tax conventions, most commonly with respect to the definition of international trafficand related terms and concepts in the shipping and air transport article (typically, Article 8 of the conven- tion). In response to these inquiries,§1.883– 1(h)(3)(iii) of the reproposed regulations clarifies that definitions provided in these regulations do not give meaning or pro- vide guidance regarding similar terms in U.S. income tax conventions or the scope of any treaty exemption. For example, the definition of the terminternational opera- tion of ships or aircraftwill not control the meaning of the termsinternational traffic andinternational transport, as used in U.S. income tax conventions. See H.R. Conf. Rep. No. 99–841, 99th Cong., 2d Sess. 599 (1986), reprinted in 1986–3C.B.vol.4,at 599 (“The conferees wish to clarify that the [conference] agreement’s provisions do not deny any benefits available under present law in an income tax treaty between the United States and a foreign country.”). 7. Substantiation and Reporting Requirements For a foreign corporation to be consid- ered a qualified foreign corporation un- der§1.883–1(c), the 2000 proposed regulations require that the corporation iden- tify on its return each category of quali- fied income for which it claims an exemption and provide a reasonable esti- mate of the amount of qualified income for each such category. Commentators criticized this require- ment on the ground that many foreign cor- porations, such as foreign airlines, do not keep books and records based on U.S. gen- erally accepted accounting principles re- flecting each separate item of income. Commentators also complained that for- eign corporations could not determine with- out significant administrative burden how much income would be from sources within the United States under U.S. income tax principles. In response to these comments,§1.883– 1(c)(3) of the reproposed regulations pro- vides that a reasonable estimate of each category of qualified income for which an exemption is claimed must be provided to the extent such amounts are readily deter- minable. This standard is consistent with the general standards in§1.6012–2(g)(1)(i) for information included on returns filed by for- eign corporations that claim an exemp- tion from income tax by reason of U.S. domestic law or a U.S. income tax con- vention. C.Comments relating to§1.883–2: treatment of publicly-traded corporations Section 883(c)(1) provides that a for- eign corporation shall not be eligible for the exclusion of income from the international operation of ships or aircraft if 50 per- cent or more of the value of its stock is owned by individuals who are not resi- dents of a qualified foreign country. Sec- tion 883(c)(3) provides, however, that this rule shall not apply to any foreign corpo- ration whose stock is primarily and regu- larly traded on an established securities market in either the United States or a quali- fied foreign country. Section 1.883–2 of the 2000 proposed regulations provides rules regarding sec- tion 883(c)(3). As explained more fully in the preamble to those regulations, the branch profits tax rules under§1.884– 5(d) provide the framework for§1.883– 2. Section 1.883–2(d) of the 2000 proposed regulations defines the termregularly traded. For the stock of a foreign corpo- ration to be considered regularly traded, one or more classes of the corporation’s stock that in the aggregate represent 80 percent or more of the total combined voting power of all classes of stock of such corporation entitled to vote must be listed on an estab- lished securities market. In addition, the 2000 proposed regulations provide that a class of stock cannot be counted for pur- poses of meeting the regularly traded re- quirement if one or more persons who own at least 5 percent of the value of the out- standing shares of the class of stock (5- percent shareholders) own in the aggregate 50 percent or more of the value of stock in the class. As discussed below, in response to com- ments received, the reproposed regula- tions modify the 2000 proposed regulations rules regarding the 80 percent listing re- quirement and the rules for closely-held classes of stock. The reproposed regula- tions do not, however, modify the rules re- garding the reporting (on the corporation’s Form 1120F) of the names of any 5-percent shareholders upon which the foreign cor- poration intends to rely to satisfy section 883(c). Moreover, the reproposed regula- tions do not adopt a suggestion regarding the treatment for purposes of the stock own- ership test of section 883(c)(1) of share- holders in a publicly-traded class of stock of a non-publicly traded corporation. 1. Regularly Traded Listing Threshold Under the 2000 proposed regulations, in accordance with Section 883(c)(3)(A), the stock of a foreign corporation must be regu- larly traded for the foreign corporation to satisfy the publicly traded test. To deter- mine whether the foreign corporation’s stock is regularly traded,§1.883–2(d) of the 2000 proposed regulations generally adopts the threshold used in connection with the branch profits tax rules of§1.884– 5(d)(4)(i)(A). Under§1.883–2(d), the stock of a corporation is regularly traded if one or more classes of stock of the corpora- tion are listed on an established securities market in the United States or in a quali- fied foreign country, and those classes, in the aggregate, represent 80 percent or more of the total combined voting power of all classes of stock of such corporation en- titled to vote and of the total value of the stock (provided also that certain trading re- quirements are satisfied). Commentators objected to the 80 per- cent listing requirement. Commentators sug- gested that in cases where a corporation has an initial public offering of a new class of stock, or where a founding family retains voting control through a separate class of stock from the publicly traded class, the 80 percent listing requirement could make it impossible for the corporation to be regu- larly traded, even where the listed class or classes are widely held and actively traded. For example, commentators posited that a foreign government’s minority interest of 25 percent held in a separate unlisted class over the time period required for privati- zation of a national airline would disqualify the airline, even if its stock were other- wise widely held and actively traded. In response to these comments,§1.883– 2(d)(1) of the reproposed regulations re- duces the 80 percent listing requirement to 50 percent. The lower percentage corre- sponds more closely with recent U.S. treaty 2002–36 I.R.B.491September 9, 2002 policy regarding the publicly traded test contained in the Limitation on Benefits ar- ticles of certain U.S. income tax conven- tions. This modification of the general regularly traded test also mitigates some commentators’concerns regarding the closely-held test, as explained below in Part II.C.2. 2. Closely-held Classes of Stock Section 1.883–2(d)(3) of the 2000 pro- posed regulations disqualifies a class of stock from being relied on to satisfy the publicly traded test if, at any time during the taxable year, one or more 5-percent shareholders of that class of stock (deter- mined without regard to the attribution rules in§1.883–4) owns, in the aggregate, 50 percent or more of the total value of that class of stock. The 2000 proposed regula- tions, however, provide an exception to this disqualification. An otherwise qualifying closely-held class of stock still can meet the regularly traded test if the foreign corpo- ration can establish that more than 50 per- cent of the value of the outstanding shares of that class of stock are owned or treated as owned by persons who are qualified shareholders for more than half the num- ber of days during the taxable year. These rules are based upon the closely-held test provided in§1.884–5(d)(4)(iii) with re- spect to the branch profits tax. Several commentators suggested that the legislative history of section 883 does not support the adoption of a closely-held test. Commentators pointed out a number of statutory distinctions between sections 883 and 884 in advocating deletion of the closely-held test in its entirety. Other commentators contended that the closely-held rules effectively eliminate the publicly traded test as a viable alternative to the qualified shareholder stock owner- ship test for closely-held corporations that otherwise meet the listing and trading re- quirements. These commentators felt it would be administratively impossible to identify and document that qualified share- holders hold more than 50 percent of the value of the outstanding shares of a class of stock because the corporation would not be able to collect sufficient information from individuals owning shares through the widely-held block of stock or from custo- dians such as financial institutions hold- ing shares on behalf of customers. These commentators therefore requested that the closely-held test be deleted, or that the widely-held block be treated as owned by qualified shareholders, such that the for- eign corporation only would have to look to the qualified 5-percent shareholders of the closely-held block to prove up the dif- ference between the percentage owned by the widely-held block and 50 percent. The reproposed regulations take into ac- count the principal concerns of the com- mentators. While the reproposed regulations retain the closely-held test and do not change substantially the definition of a closely-held class of stock, the reproposed regulations broaden the exception in §1.883–2(d)(3)(ii). Under the reproposed regulations, a class of stock will not be treated as closely-held if the foreign cor- poration can establish that qualified share- holders, applying the attribution rules of §1.883–4(c), own enough shares of the closely-held block of stock to preclude non- qualified shareholders in the closely-held block of stock from owning 50 percent or more of the total value of the class of stock for more than half the number of days dur- ing the taxable year. A foreign corpora- tion may establish that a class of stock meets this exception if it obtains documen- tation described in§1.883–4(d) from those qualified shareholders owning shares in the closely-held block of stock whom the for- eign corporation has relied upon to meet the exception. This change broadens the ex- ception to the closely-held test by allow- ing a foreign corporation to prove that a class of shares is not closely-held using in- formation solely from shareholders within the closely-held block of stock. In addition,§1.883–2(d)(3)(iii)(B) of the reproposed regulations provides that an in- vestment company will not be treated as a 5-percent shareholder for purposes of the closely-held test if no person owning an in- terest in the investment company owns, af- ter application of the attribution rules of §1.883–4(c), 5 percent or more of the value of the outstanding shares of the class of stock of the foreign corporation seeking qualified foreign corporation status. This rule prevents a corporation from having a closely-held class of stock simply because an investment company that meets the above requirements causes a class of stock of that corporation to be owned more than 50 percent in the aggregate by 5-percent shareholders. Finally, the reproposed regulations in §1.883–4(d)(3)(viii) adopt the suggestion of one commentator that an otherwise publicly-traded foreign corporation seek- ing qualified foreign corporation status or a publicly-traded shareholder corporation that is traded on an established securities market in the United States may rely on its latest SEC Form 13G filing (Statement of Beneficial Ownership by Certain Persons) for the taxable year to determine if the class of stock being considered has a 5-percent shareholder. The IRS and Treasury be- lieve these changes to the 2000 proposed regulations will facilitate compliance with the closely-held test. 3. Publicly-traded Classes of Stock of a Non-publicly Traded Corporation Regulations under section 884 regard- ing the branch profits tax provide that a publicly traded class of stock is treated as owned by individuals who are residents of a qualified foreign country. Such a provi- sion might be relevant as well in the con- text of section 883 if one or more classes of the corporation’s stock are publicly traded but the corporation itself is not consid- ered publicly traded. If these other classes were treated as owned by qualified share- holders, the foreign corporation might be more likely to satisfy section 883(c), as pro- vided in§§1.883–1(c)(2) and 1.883–4. Commentators recommended that the re- proposed regulations adopt the rule of the branch profit regulations. The reproposed regulations, however, do not adopt this suggestion. The IRS and Treasury believe that the reduction in the listing threshold from 80 percent to 50 per- cent and the change in the exception to the closely-held test provide sufficient lati- tude for foreign corporations seeking to comply with the publicly traded test. More- over, as discussed below in Part II.E.1, the reproposed regulations adopt commenta- tors’suggestions regarding the treatment of certain institutional 5-percent sharehold- ers for purposes of§1.883–4 which should also ease compliance. 4. Identification of 5-percent Qualified Shareholders on Return Sections 1.883–2(f) and 1.883–4(e) of the 2000 proposed regulations require that the foreign corporation identify on its Form 1120F,“U.S. Income Tax Return of a For- September 9, 20024922002–36 I.R.B. eign Corporation,”its qualified sharehold- ers that own, or are treated as owning within the meaning of§1.883–4(c), 5 percent or more of the stock of the foreign corpora- tion and upon which the foreign corpora- tion intends to rely to satisfy the stock ownership test of§1.883–1(c)(2). Commentators were concerned that the identity of such qualified shareholders might be disclosed. Although the name of a 5-percent shareholder is return informa- tion that is not subject to disclosure un- der section 6110, commentators believed that such information might nevertheless be- come public, for example, in the context of taxpayer litigation. They also expressed con- cern that there could be spontaneous ex- changes of information with treaty partners that do not have the same non-disclosure restrictions as the United States. Some com- mentators suggested that the documenta- tion instead be made available to a third party for use by the Commissioner upon re- quest. The reproposed regulations do not adopt these suggestions, in the interest of sound tax administration. The IRS and Treasury believe that there exist sufficient safe- guards in our treaties and in the Internal Revenue Code to prevent the unintended disclosure of the identity of qualified 5-percent shareholders relied upon to sat- isfy the requirements of§§1.883–2(f) and 1.883–4(e). D.Comments relating to §1.883–3—treatment of controlled foreign corporations Section 883(c)(2) provides that the stock ownership test of section 883(c)(1) shall not apply to controlled foreign corporations (CFCs). Under the 2000 proposed regula- tions, a CFC is considered to satisfy the CFC exception of section 883(c)(1) if it meets the requirements of§1.883–3. To meet those requirements, a CFC must, among other things, pass the income in- clusion test of§1.883–3(b). The income in- clusion test contained in the 2000 proposed regulations requires that more than 50 per- cent of the subpart F income derived by the CFC from the international operation of ships or aircraft be includible in the gross income of one or more U.S. citizens, in- dividual residents of the United States, or domestic corporations. For example, a CFC owned by a domestic partnership, the part- ners of which are residents of foreign coun- tries, would not meet the income inclusion test. One commentator argued that the in- come inclusion test was too restrictive be- cause it could deny qualified foreign corporation status to CFCs legitimately owned and controlled by U.S. sharehold- ers. For example, a foreign corporation owned by U.S. citizens who are family members could be a CFC as a result of the constructive ownership rules of section 958(b), but fail the income inclusion test be- cause not all the family members own di- rectly or indirectly, under section 958(a), 10 percent or more of the CFC’s voting stock, and thus may not be required to include in their gross income the subpart F income of the CFC. The CFC exception of the 2000 pro- posed regulations has not been changed sub- stantively in these reproposed regulations. The Conference report accompanying the legislation that added the CFC exception provides with respect to the exception that “corporations are not considered residents of countries that exempt U.S. persons un- less 50 percent or more of the ultimate in- dividual owners are U.S. shareholders of controlled foreign corporations”. H.R. Conf. Rep. No. 99–841, 99th Cong., 2d Sess. 598 (1986), reprinted in 1986–3 C.B. vol. 4, at 598 (1986). The intent of the CFC excep- tion therefore is for the general owner- ship requirement 883(c)(1) to apply unless the foreign corporation is a CFC and 50 percent or more of the subpart F income of that corporation derived from the interna- tional operation of ships or aircraft is in- cludible by U.S. citizens, individual residents or domestic corporations. The reproposed regulations do clarify the operation of the income inclusion test by specifying with greater precision than the 2000 proposed regulations that the income inclusion test only applies to subpart F in- come derived from the international op- eration of ships and aircraft. E.Comments relating to §1.883–4—qualified shareholder stock ownership test As noted above, section 883(c)(1) pro- vides that a foreign corporation shall not be eligible for the exclusion of income from the international operation of ships or air- craft if 50 percent or more of the value of its stock is owned by individuals who are not residents of a qualified foreign coun- try. Section 1.882–4 of the 2000 proposed regulations provides detailed rules regard- ing this statutory requirement. In response to comments the IRS re- ceived regarding those provisions of the 2000 proposed regulations, the reproposed regulations modify the rules regarding the permissible categories of qualified share- holders, the requirements for establishing qualified shareholder status under an in- come tax convention, the attribution of own- ership in the case of taxable non-stock corporations, and the preparation of own- ership statements from foreign govern- ments. As discussed below, however, the reproposed regulations generally do not modify the 2000 proposed regulations with respect to the treatment of bearer shares or with respect to the attribution of owner- ship of discretionary trusts. 1. Qualified Shareholders Under the 2000 proposed regulations, a foreign corporation may satisfy the stock ownership test of§1.883–1(c)(2) if it meets the qualified shareholder stock ownership test of§1.883–4.The qualified shareholder stock ownership test generally requires more than 50 percent ownership by qualified shareholders. Section 1.883–4(b) of the 2000 proposed regulations provides a list of persons who can be qualified sharehold- ers. Several commentators requested the in- clusion of additional categories of quali- fied shareholders. One commentator suggested that foreign airlines covered by a bilateral air services agreement between the United States and another country should be deemed to satisfy the owner- ship requirements of§1.883–4(a) because these agreements require substantial own- ership and effective control by nationals of the other country. In response to this com- ment, the reproposed regulations add share- holders of such airlines to the list of qualifiedshareholdersin§1.883– 4(b)(1)(i)(F), subject to certain conditions. Other commentators suggested that the list of qualified shareholders include a mu- tual fund, money market manager, regu- lated investment company, open and closed- end fund, investment partnership or other type of investment vehicle available to the public and subject to regulation by the Se- curities and Exchange Commission. Such entities have great difficulty in demon- 2002–36 I.R.B.493September 9, 2002 strating that more than 50 percent of the value of their shares is owned, or treated as owned, by qualified shareholders. The reproposed regulations do not adopt these suggestions. The IRS and Treasury recognize the difficulty in proving owner- ship of such entities, but many owners of such entities may in fact be U.S. residents or other non-qualified shareholders. How- ever,§1.883–4(d)(3)(viii) of the repro- posed regulations does permit a publicly traded corporation to rely on its Form 13G “Statement of Beneficial Ownership by Cer- tain Persons”to identify 5-percent share- holders for purposes of the documentation requirements of§1.883–2(e). Certain of these entities may be able to rely upon this section without additional compliance bur- den because they are already required to file Form 13G and identify 5-percent share- holders. 2. Bearer Shares Section 1.883–4(b)(1)(ii) of the 2000 proposed regulations provides that a share- holder is a qualified shareholder only if the shareholder does not own its interest in the foreign corporation through bearer shares, either directly or by applying the attribu- tion rules of§1.883–4(c). Several commentators criticized this rule. They contended that the restriction on the use of bearer shares raises concerns of fun- damental fairness and that the IRS should not attempt to regulate the personal prop- erty rights of nonresident alien individu- als. These commentators suggested that the rule should be deleted or substantially modi- fied to allow the use of bearer shares whose ownership can be substantiated to the sat- isfaction of the Commissioner. Due to the difficulty of reliably dem- onstrating the true ownership of such shares, the reproposed regulations do not adopt this suggestion, in the interest of sound tax ad- ministration. 3. Certain Limitation on Benefits Article Restrictions in Income Tax Conventions Applied to Shareholders Under§1.883–4(b)(3)(i) of the 2000 proposed regulations, a shareholder resi- dent in a treaty country is not a qualified shareholder by virtue of the treaty exemp- tion unless the foreign corporation of which it is a shareholder would be able to sat- isfy, if it were organized in the treaty coun- try, any additional requirement imposed by the shipping and air transport article or the limitation on benefits article of the treaty upon which the shareholder relies. Commentators objected to this rule be- cause it effectively prevents many for- eign corporations, especially airlines, from relying on ownership resident in a treaty country to obtain a section 883 exemp- tion. Commentators also argued that the pro- vision would act as a significant and inappropriate barrier to joint venture cor- porations with owners or partners resi- dent in treaty countries. In response to these comments, the re- proposed regulations modify the 2000 pro- posed regulations, so that if a shareholder relies on an income tax convention to dem- onstrate residence in a qualified foreign country, the shareholder alone must sat- isfy the residence requirements and limi- tation on benefits requirements of the convention. The reproposed regulations thus eliminate the requirement that the corpo- ration seeking qualified foreign corpora- tion status itself must satisfy any additional requirements. 4. Taxable Non-stock Corporations The 2000 proposed regulations, in §1.883–4(c), provide for attribution of own- ership through various entities for pur- poses of the closely-held test in§1.883– 2(d)(3)(ii) and the stock ownership test in §1.883–4(a). Several commentators called for addi- tional guidance on attribution of owner- ship in the case of taxable non-stock corporations entitled to deduct amounts dis- tributed for charitable purposes. The reproposed regulations address this request for guidance in§1.883–4(c)(5). Un- der this provision, if a taxable non-stock corporation is entitled in its country of or- ganization to deduct from its taxable in- come amounts distributed for charitable purposes, the corporation may deem a re- cipient of such charitable distributions to be a shareholder owning stock in the same pro- portion as the amount received in the tax- able year bears to the total income of the corporation in that taxable year. Whether each such recipient is a qualified share- holder then may be determined under §1.883–4(b) or under the special rules of §1.883–4(d)(3)(vii). 5. Discretionary Trusts The 2000 proposed regulations, in §1.883–4(c)(3)(i), adopt the attribution rules for discretionary trusts contained in the branch profits tax regulations under§1.884– 5(b)(2)(iii)(A). If a beneficiary’s actuarial interest in a nongrantor trust cannot be de- termined, then stock held by the trust will not be attributed to any beneficiary un- less all beneficiaries with an interest in the stock are qualified shareholders. One commentator recommended that the regulations instead follow Notice 97–19, 1997–1 C.B. 394, which provides guid- ance for purposes of section 877 in deter- mining the net worth of an individual beneficiary of a trust. Notice 97–19 gen- erally attributes all interests in a trust based on relevant facts and circumstances, in or- der to assure that an individual will not avoid the application of section 877 by al- leging he or she has no actuarially deter- minable interest in a trust. The reproposed regulations do not adopt this suggestion because of the substan- tially different purpose of the trust attribu- tion rules under section 877 as opposed to section 883. The purpose of those rules is to attribute trust income to United States persons using constructive attribution. The purpose of the trust attribution rules un- der section 883 is to determine whether a foreign corporation is a qualified foreign corporation by virtue of the residence of its shareholders. This difference in purpose pre- vents effective use of the section 877 meth- odology. 6. Substantiation of Stock Ownership Section 1.883–4(b)(1)(iii) of the 2000 proposed regulations provides that a share- holder is a qualified shareholder only if the shareholder provides to the foreign corpo- ration the documentation required in §1.883–4(d), and the foreign corporation meets the reporting requirements of §1.883–4(e) with respect to such share- holder. Several commentators argued that the re- quirement that the foreign corporation ob- tain ownership statements was excessive, at least with respect to foreign corpora- tions that do not have U.S. branches. Other commentators suggested that certain quali- fied professionals and financial institu- tions be authorized to provide ownership statements on behalf of foreign govern- September 9, 20024942002–36 I.R.B. ments. They noted that, as drafted, practi- cal compliance with the procedures may be difficult in countries where ownership of a shipping company, for example, is held by several state enterprises, some of which have begun the privatization process or are in transition to privatization and where any state supervision or control may be re- mote from the shipping company. The reproposed regulations under §1.883–4(d) generally retain the struc- ture and substance of the 2000 proposed regulations with respect to the substantia- tion of stock ownership. However,§1.883– 4(d)(4)(ii) of the reproposed regulations, regarding ownership statements from for- eign governments, permits foreign corpo- rations with shareholders that are foreign governments to engage accounting or law firms or financial institutions to prepare cer- tificates as to ultimate beneficial interest with respect to the aggregate government investment in the stock of the foreign cor- poration. F. Comments related to §1.883–5—effective date Section 1.883–5 of the 2000 proposed regulations provides that the regulations will apply to taxable years of the foreign cor- poration ending 30 days or more after the date the regulations are published as final regulations in theFederal Register A number of commentators argued that compliance with the 2000 proposed regu- lations would require foreign corporations to develop new accounting and record- keeping conventions and procedures. Some commentators therefore suggested that the effective date be extended to taxable years beginning 30 days or more after the date these regulations are published as final regu- lations in theFederal Register. Other com- mentators suggested that the regulations should not be effective earlier than six months or one year after the publication date of the final regulations. In response to these suggestions, the re- proposed regulations provide that they will apply to taxable years of a foreign corpo- ration beginning 30 days or more after the date these regulations are published as fi- nal regulations in theFederal Register. In addition, when the reproposed regu- lations are published as final, taxpayers will be permitted to elect to apply the provi- sions of§§1.883–1 through 1.883–4, as fi- nalized, to any open taxable year beginning after 1986. Such election shall apply to the taxable year of the election and to all sub- sequent taxable years. Notwithstanding this election, the substantiation and reporting re- quirements of§1.883–1(c)(3) (relating to the substantiation and reporting required to be treated as a qualified foreign corpora- tion) and§§1.883–2(f), 1.883–3(d) and 1.883–4(e) (relating to additional informa- tion to be included in the return to dem- onstrate whether the foreign corporation satisfies the stock ownership test) will not apply to any years beginning before the ef- fective date of the final regulations. How- ever, if a foreign corporation complies with the proposed regulations, including the sub- stantiation and reporting rules, such com- pliance will be considered substantial evidence that the foreign corporation is a qualified foreign corporation. Special Analysis It has been determined that this notice of proposed rulemaking is not a signifi- cant regulatory action as defined in Ex- ecutive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Ad- ministrative Procedure Act (5 U.S.C. chap- ter 5) does not apply to these regulations, and because this notice of proposed rule- making does not impose a collection of in- formation on U.S. small entities, the regulatory Flexibility Act (5 U.S.C. chap- ter 6) does not apply. Pursuant to section 7805(f) of the Code, this notice of pro- posed rulemaking will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business. Comments and Public Hearing Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments (a signed original and eight (8) copies) that are submitted timely to the IRS. The IRS and Treasury request comments on the clarity of the proposed rule and how it may be made easier to understand. All comments will be made available for public inspec- tion and copying. A public hearing has been scheduled for November 12, 2002, at 10 a.m., in room 4718, Internal Revenue Building,1111Con- stitution Ave., NW, Washington, DC. All visitors must present photo identification to enter the building at the Constitution Avenue entrance. Because of access re- strictions, visitors will not be admitted be- yond the immediate entrance area more than 30 minutes before the hearing starts. For in- formation about having your name placed on the building access list to attend the hear- ing, see the“FOR FURTHER INFORMA- TION CONTACT”section of this preamble. The rules of 26 CFR 601.601(a)(3) ap- ply to this hearing.Persons who wish to present oral comments at the hearing must submit written comments and an outline of the topics to be discussed and the time to be devoted to each topic (signed original and eight (8) copies) by October 22, 2002. 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 dead- line for receiving outlines has passed. Cop- ies of the agenda will be available free of charge at the hearing. Drafting Information The principal author of these proposed regulations is Patricia A. Bray of the Of- fice of the Associate Chief Counsel (Inter- national). However, other personnel from the IRS and Treasury Department partici- pated in their development. ***** Withdrawal of Proposed Amendments Accordingly, under the authority of 26 U.S.C. 7805, the proposed amendment to 26 CFR Part 1 that was published in the Federal Registeron Tuesday, February 8, 2000, (65 FR 6065) is withdrawn as of Au- gust 2, 2002. Proposed Amendments to the Regulations Accordingly, 26 CFR part 1 is proposed to be amended as follows: PA RT 1—INCOME TAXES Paragraph 1. The authority citation for part 1 is amended by adding entries in nu- merical order to read as follows: Authority: 26 U.S.C. 7805*** Section 1.883–1 is also issued under 26 U.S.C. 883. Section 1.883–2 is also issued under 26 U.S.C. 883. Section 1.883–3 is also issued under 26 U.S.C. 883. 2002–36 I.R.B.495September 9, 2002 Section 1.883–4 is also issued under 26 U.S.C. 883. Section 1.883–5 is also issued under 26 U.S.C. 883.*** Par. 2. Section 1.883–0 is added to read as follows: §1.883–0 Outline of major topics. This section lists the major paragraphs contained in§§1.883–1 through 1.883–5. §1.883–0 Outline of major topics. §1.883–1 Exclusion of income from the international operation of ships or aircraft. (a) General rule. (b) Qualified income. (c) Qualified foreign corporation. (1) General rule. (2) Stock ownership test. (3) Substantiation and reporting require- ments. (i) General rule. (ii) Further documentation. (4) Commisioner’s discretion to cure de- fects in documentation. (d) Qualified foreign country. (e) Operation of ships or aircraft. (1) General rule. (2) Pool, partnership, strategic alliance, joint operating agreement, code-sharing arrange- ment or other joint venture. (3) Activities not considered operation of ships or aircraft. (4) Examples. (5) Definitions. (i) Bareboat charter. (ii) Code-sharing arrangement. (iii) Dry lease. (iv) Entity. (v) Fiscally transparent entity under the in- come tax laws of the United States. (iv) Full charter. (vii) Nonvessel operating common car- rier. (viii) Space or slot charter. (ix) Time charter. (x) Voyage charter. (xi) Wet lease. (f) International operation of ships or air- craft. (1) General rule. (2) Determining whether income is de- rived from international operation of ships or aircraft. (i) International carriage of passengers. (A) General rule. (B) Round trip travel on ships. (ii) International carriage at cargo. (iii) Bareboat charter of ships or dry lease of aircraft used in international operation of ships or aircraft. (A) Ratio based on use. (B) Ratio based on gross income. (g) Activities incidental to the interna- tional operation of ships or aircraft. (1) General rule. (2) Activities not considered incidental to the international operation of ships or air- craft. (3) Services. (i) Ground services, maintenance, and ca- tering. (iii) Other services. (4) Activities involved in a pool, partner- ship, strategic alliance, joint operating agree- ment, code-sharing arrangement or other joint venture. (h) Equivalent exemption. (1) General rule. (2) Determining equivalent exemptions for each category of income. (3) Special rules with respect to income tax conventions. (i) General rule. (ii) Participation in certain joint ventures. (iii) Independent interpretation of income tax conventions. (4) Exemptions not qualifying as equiva- lent exemptions. (i) General rule. (ii) Reduced tax rate or time limited ex- emption. (iii) Inbound or outbound freight tax. (iv) Exemptions for limited types of cargo. (v) Territorial tax systems. (vi) Countries that tax on a residence ba- sis. (vii) Exemptions within categories of in- come. (i) Treatment of possessions. (j) Expenses related to qualified income. §1.883–2 Treatment of publicly-traded corporations. (a) General rule. (b) Established securities market. (1) General rule. (2) Exchanges with multiple tiers. (3) Computation of dollar value of stock traded. (4) Over-the-counter market. (5) Discretion to determine that an ex- change does not qualify as an established securities market. (c) Primarily traded. (d) Regularly traded. (1) General rule. (2) Classes of stock traded on a domestic established securities market treated as meeting trading requirements. (3) Closely-held classes of stock not treated as meeting trading requirements. (i) General rule. (ii) Exception. (iii) Five-percent shareholders. (A) Related persons (B) Investment companies. (4) Anti-abuse rule. (5) Example. (e) Substantiation that a foreign corpora- tion is publicly traded. (1) General rule. (2) Availability and retention of documents for inspection. (f) Reporting requirements. §1.883–3 Treatment of controlled foreign corporations. (a) General rule. (b) Income inclusion test. (1) General rule. (2) Examples. (c) Substantiation of CFC stock owner- ship. (1) General rule. (2) Documentation from certain United States shareholders. (i) General rule. (ii) Availability and retention of documents for inspection. (d) Reporting requirements. §1.883–4 Qualified shareholder stock ownership test. (a) General rule. (b) Qualified shareholder. (1) General rule. (2) Residence of individual shareholders. (i) General rule. (ii) Tax home. (3) Certain income tax convention restric- tions applied to shareholders. (4) Not-for-profit organizations. (5) Pension funds. (i) Pension fund defined. (ii) Government pension funds. (iii) Non-government pension funds. (iv) Beneficiary of a pension fund. (c) Rules for determining constructive own- ership. (1) General rules for attribution. (2) Partnerships. September 9, 20024962002–36 I.R.B. (i) General rule. (ii) Partners resident in the same country. (iii) Examples. (3) Trusts and estates. (i) Beneficiaries. (ii) Grantor trusts. (4) Corporations that issue stock. (5) Taxable non-stock corporations. (6) Mutual insurance companies and simi- lar entities. (7) Computation of beneficial interests in non-government pension funds. (d) Substantiation of stock ownership. (1) General rule. (2) Application of general rule. (i) Ownership statements. (ii) Three-year period of validity. (3) Special rules. (i) Substantiating residence of certain share- holders. (ii) Special rule for registered sharehold- ers owning less than one percent of widely- held corporations. (iii) Special rule for beneficiaries of pen- sion funds. (A) Government pension fund. (B) Non-government pension fund. (iv) Special rule for stock owned by publicly-traded corporations. (v) Special rule for not-for-profit organi- zations. (vi) Special rule for a foreign airline cov- ered by an air services agreement. (vii) Special rule for taxable non-stock cor- porations. (viii) Special rule for closely-held corpo- rations traded in the United States. (4) Ownership statements from sharehold- ers. (i) Ownership statements from individu- als. (ii) Ownership statements from foreign gov- ernments. (iii) Ownership statements from publicly- traded corporate shareholders. (iv) Ownership statements from not-for- profit organizations. (v) Ownership statements from intermedi- aries. (A) General rule. (B) Ownership statements from widely- held intermediaries with registered share- holders owning less than one percent of such widely-held intermediary. (C) Ownership statements from pension funds. (1) Ownership statements from govern- ment pension funds. (2) Ownership statements from non- government pension funds. (3) Time for making determinations. (D) Ownership statements from taxable non- stock corporations. (5) Availability and retention of documents for inspection. (e) Reporting requirements. §1.883–5 Effective date. (a) General rule. (b) Election for retroactive application. (c) Transitional information reporting rule. Par. 3.§1.883–1 is revised to read as follows: §1.883–1 Exclusion of income from the international operation of ships or aircraft. (a)General rule. Qualified income de- rived by a qualified foreign corporation from its international operation of ships or aircraft is excluded from gross income and exempt from United States Federal in- come tax. Paragraph (b) of this section de- fines the termqualified income. Paragraph (c) of this section defines the termquali- fied foreign corporation.Paragraph (f) of this section defines the terminternational operation of ships or aircraft. (b)Qualified income.Qualified income is income derived from the international op- eration of ships or aircraft that— (1) Is properly includible in any of the income categories described in paragraph (h)(2) of this section; and (2) Is the subject of an equivalent ex- emption, as defined in paragraph (h) of this section, granted by the qualified foreign country, as defined in paragraph (d) of this section, in which the foreign corporation seeking qualified foreign corporation sta- tus is organized. (c)Qualified foreign corporation—(1) General rule. A qualified foreign corpora- tion is a corporation that is organized in a qualified foreign country and considered en- gaged in the international operation of ships or aircraft. The termcorporationis de- fined in section 7701(a)(3) and the regu- lations thereunder. Paragraph (d) of this section defines the termqualified foreign country. Paragraph (e) of this section de- fines the termoperation of ships or air- craft, and paragraph (f) of this section defines the terminternational operation of ships or aircraft. To be a qualified for- eign corporation, the corporation must sat- isfy the stock ownership test of paragraph (c)(2) of this section and satisfy the sub- stantiation and reporting requirements de- scribed in paragraph (c)(3) of this section. A corporation may be a qualified foreign corporation with respect to one category of qualified income but not with respect to an- other such category. See paragraph (h)(2) of this section for a discussion of the cat- egories of qualified income. (2)Stock ownership test. To be a quali- fied foreign corporation, a foreign corpo- ration must satisfy the publicly-traded test of§1.883–2(a), the CFC stock owner- ship test of§1.883–3(a), or the qualified shareholder stock ownership test of§1.883– 4(a). (3)Substantiation and reporting requirements—(i)General rule.Tobea qualified foreign corporation, a foreign cor- poration must include the following infor- mation in its Form ll20F,“U.S. Income Tax Return of a Foreign Corporation,”in the manner prescribed by such form and its ac- companying instructions— (A) The corporation’s name and ad- dress (including mailing code); (B) The corporation’s U.S. taxpayer iden- tification number; (C) The foreign country in which the corporation is organized; (D) The applicable authority for an equivalent exemption, for example, cita- tion of a statute in the country where the corporation is organized, a diplomatic note between the United States and such coun- try, Rev. Rul. 2001–48, 2001–42 I.R.B. 324, (October 15, 2001) as amended from time to time (see§601.601(d)(2) of this chap- ter), or, in the case of a corporation de- scribed in paragraph (h)(3)(ii) of this section, an income tax convention between the United States and such country; (E) The category or categories of quali- fied income for which an exemption is be- ing claimed; (F) A reasonable estimate of the amount of income in each category of qualified in- come for which the exemption is claimed, to the extent such amounts are readily de- terminable; (G) Any other information required un- der§§1.883–2(f), 1.883–3(d), or 1.883– 4(e), as applicable; and (H) Any other relevant information specified by the Form 1120F and its ac- companying instructions. 2002–36 I.R.B.497September 9, 2002 (ii)Further documentation. If the Com- missioner requests in writing that the for- eign corporation document or substantiate representations made under paragraph (c)(3)(i) of this section, or under§1.883– 2(f), 1.883–3(d) or 1.883–4(e), the for- eign corporation must provide the documentation or substantiation within 60 days following the written request. If the foreign corporation does not provide the documentation and substantiation requested within the 60-day period, but demonstrates that the failure was due to reasonable cause and not willful neglect, the Commissioner may grant the foreign corporation a 30- day extension to provide the documenta- tion or substantiation. Whether a failure to obtain the documentation or substantia- tion in a timely manner was due to rea- sonable cause and not willful neglect shall be determined by the Commissioner after considering all the facts and circumstances. (4)Commissioner’s discretion to cure de- fects in documentation.The Commissioner retains the discretion to cure any defects in the documentation where the Commis- sioner is satisfied that the foreign corpo- ration would otherwise be a qualified foreign corporation. (d)Qualified foreign country. A quali- fied foreign country is a foreign country that grants to corporations organized in the United States an equivalent exemption, as described in paragraph (h) of this section, for the category of qualified income, as de- scribed in paragraph (h)(2) of this sec- tion, derived by the foreign corporation seeking qualified foreign corporation sta- tus. A foreign country may be a qualified foreign country with respect to one cat- egory of qualified income but not with re- spect to another such category. (e)Operation of ships or aircraft—(1) General rule. Except as provided in para- graph (e)(2) of this section, a foreign cor- poration is considered engaged in the operation of ships or aircraft only during the time it is an owner or lessee of one or more entire ships or aircraft and uses such ships or aircraft in one or more of the fol- lowing activities— (i) Carriage of passengers or cargo for hire; (ii) In the case of a ship, the leasing out of the ship under a time or voyage char- ter (full charter), space or slot charter, or bareboat charter, as those terms are de- fined in paragraph (e)(5) of this section, pro- vided the ship is used to carry passengers or cargo for hire; and (iii) In the case of aircraft, the leasing out of the aircraft under a wet lease (full charter), space, slot, or block-seat charter, or dry lease, as those terms are defined in paragraph (e)(5) of this section, provided the aircraft is used to carry passengers or cargo for hire. (2)Pool, partnership, strategic alli- ance, joint operating agreement, code- sharing arrangement or other joint venture. A foreign corporation is considered en- gaged in the operation of ships or aircraft with respect to its participation in a pool, partnership, strategic alliance, joint oper- ating agreement, code-sharing arrange- ment or other joint venture that is either— (i) An entity, as defined in paragraph (e)(5)(iv) of this section, that is a fiscally transparent entity under the income tax laws of the United States, as defined in para- graph (e)(5)(v) of this section, with re- spect to the category of income derived from such operation, and that would be con- sidered engaged in the operation of ships or aircraft under paragraph (e)(1) of this sec- tion if it were a foreign corporation; or (ii) A pool, strategic alliance, joint op- erating agreement, code-sharing arrange- ment or other joint venture that is not an entity, as defined in paragraph (e)(5)(iv) of this section, involving one or more activi- ties described in paragraphs (e)(1)(i) through (iii) of this section, but only if the for- eign corporation is otherwise engaged in the operation of ships or aircraft under para- graph (e)(1) of this section. (3)Activities not considered operation of ships or aircraft.Activities that do not constitute operation of ships or aircraft in- clude, but are not limited to— (i) The activities of a nonvessel-operating common carrier, as defined in paragraph (e)(5)(vii) of this section; (ii) Ship or aircraft management; (iii) Obtaining crews for ships or air- craft operated by another party; (iv) Acting as a ship’s agent; (v) Ship or aircraft brokering; (vi) Freight forwarding; (vii) The activities of travel agents and tour operators; (viii) Rental by a container leasing com- pany of containers and related equipment; and (ix) The activities of a concessionaire. (4)Examples. The rules of paragraphs (e)(1) through (3) of this section are illus- trated by the following examples: Example 1. Three tiers of charters—(i)Facts.A, B, and C are foreign corporations. A purchases a ship. A and B enter into a bareboat charter of the ship for a term of 20 years, and B, in turn, enters into a time charter of the ship with C for a term of 5 years. Un- der the time charter, B is responsible for the com- plete operation of the ship, including providing the crew and maintenance. C uses the ship during the term of the time charter to carry its customers’freight be- tween U.S. and foreign ports. C owns no ships. (ii)Analysis. Because A is the owner of the en- tire ship and leases out the ship under a bareboat char- ter to B, and because the sublessor, C, uses the ship to carry cargo for hire, A is considered engaged in the operation of a ship under paragraph (e)(1) of this sec- tion during the term of the time charter. B leases in the entire ship from A and leases out the ship under a time charter to C, who uses the ship to carry cargo for hire. Therefore, B is considered engaged in the op- eration of a ship under paragraph (e)(1) of this sec- tion during the term of the time charter. C time charters the entire ship from B and uses the ship to carry its customers’freight during the term of the charter. There- fore, C is also engaged in the operation of a ship un- der paragraph (e)(1) of this section during the term of the time charter. Example 2. Partnership with contributed ship- ping assets—(i)Facts. X, Y, and Z, each a foreign corporation, enter into a partnership, P. P is a fis- cally transparent entity under the income tax laws of the United States, as defined in paragraph (e)(5)(iv) and (v) of this section, with respect to all relevant cat- egories of income. Under the terms of the partner- ship agreement, each partner contributes all of the ships in its fleet to P in exchange for interests in the part- nership and shares in the P profits from the interna- tional carriage of cargo. The partners share in the overall management of P, but each partner, acting in its capacity as partner, continues to crew and man- age all ships previously in its fleet. (ii)Analysis. P owns the ships contributed by the partners and uses these ships to carry cargo for hire. Therefore, if P were a foreign corporation, it would be considered engaged in the operation of ships within the meaning of paragraph (e)(1) of this section. Ac- cordingly, because P is a fiscally transparent entity un- der the income tax laws of the United States, as defined in paragraph (e)(5)(v) of this section, X, Y, and Z are each considered engaged in the operation of ships through P, within the meaning of paragraph (e)(2)(i) of this section, with respect to their distribu- tive share of income from P’s international carriage of cargo. Example 3. Joint venture with chartered in ships— (i)Facts.Foreign corporation A owns a number of for- eign subsidiaries involved in various aspects of the shipping business, including S1, S2, S3, and S4. S4 is a foreign corporation that provides cruises but does not own any ships. S1, S2, and S3 are foreign cor- porations that own cruise ships. S1, S2, S3, and S4 form joint venture JV, in which they are all interest holders, to conduct cruises. JV is fiscally transpar- ent under the income tax laws of the United States, as defined in paragraph (e)(5)(v) of this section, with respect to its income from the carriage of passen- gers. Under the terms of the joint venture, S1, S2, and S3 each enter into time charter agreements with JV, September 9, 20024982002–36 I.R.B. pursuant to which S1, S2, and S3 retain control of the navigation and management of the individual ships, and JV will use the ships to carry passengers for hire. The overall management of the cruise line will be pro- vided by S4. (ii)Analysis. S1, S2, and S3 each owns ships and time charters those ships to JV, which uses the ships to carry passengers for hire. Accordingly, S1, S2, and S3 are each considered engaged in the operation of ships under paragraph (e)(1) of this section. JV leases in entire ships by means of the time charters, and JV uses those ships to carry passengers on cruises. Thus, JV would be engaged in the operation of ships within the meaning of paragraph (e)(1) of this section if it were a foreign corporation. Therefore, although S4 does not directly own or lease in a ship, S4 also is en- gaged in the operation of ships, within the meaning of paragraph (e)(2)(i) of this section, with respect to its participation in JV. (5)Definitions—(i)Bareboat charter.A bareboat charter is a contract for the use of a ship or aircraft whereby the lessee is in complete possession, control, and com- mand of the ship or aircraft. For example, in a bareboat charter, the lessee is respon- sible for the navigation and management of the ship or aircraft, the crew, supplies, re- pairs and maintenance, fees, insurance, charges, commissions and other expenses connected with the use of the ship or air- craft. The lessor of the ship bears none of the expense or responsibility of operation of the ship or aircraft. (ii)Code-sharing arrangement.A code- sharing arrangement is an arrangement in which one air carrier puts its identifica- tion code on the flight of another carrier. This arrangement allows the first carrier to hold itself out as providing service in mar- kets where it does not otherwise operate or where it operates infrequently. Code-sharing arrangements can range from a very lim- ited agreement between two carriers in- volving only one market to agreements involving multiple markets and alliances be- tween or among international carriers which also include joint marketing, baggage han- dling, one-stop check-in service, sharing of frequent flyer awards, and other services. For rules involving the sale of code-sharing tickets, see paragraph (g)(1)(vi) of this sec- tion. (iii)Dry lease. A dry lease is the bare- boat charter of an aircraft. (iv)Entity. For purposes of this para- graph (e), an entity is any person that is treated by the United States as other than an individual for U.S. Federal income tax purposes. The term includes disregarded en- tities. (v)Fiscally transparent entity under the income tax laws of the United States. For purposes of this paragraph (e), an entity is fiscally transparent under the income tax laws of the United States with respect to a category of income if the entity would be considered fiscally transparent under the in- come tax laws of the United States for pur- poses of§1.894–1 with respect to an item of income within that category of income. (vi)Full charter. Full charter (or full rental) means a time charter or a voyage charter of a ship or a wet lease of an air- craft but during which the full crew and management are provided by the lessor. (vii)Nonvessel operating common car- rier. A nonvessel operating common car- rier is an entity that does not exercise control over any part of a vessel, but holds itself out to the public as providing trans- portation for hire, issues bills of lading, as- sumes responsibility or is liable by law as a common carrier for safe transportation of shipments, and arranges in its own name with other common carriers, including those engaged in the operation of ships, for the performance of such transportation. (viii)Space or slot charter. A space or slot charter is a contract for use of a cer- tain amount of space (but less than all of the space) on a ship or aircraft, and may be on a time or voyage basis. When used in connection with passenger aircraft this sort of charter may be referred to as the sale of block seats. (ix)Time charter. A time charter is a contract for the use of a ship or aircraft for a specific period of time, during which the lessor of the ship or aircraft retains con- trol of the navigation and management of the ship or aircraft (i.e., the lessor contin- ues to be responsible for the crew, sup- plies, repairs and maintenance, fees and insurance, charges, commissions and other expenses connected with the use of the ship or aircraft). (x)Voyage charter. A voyage charter is a contract similar to a time charter except that the ship or aircraft is chartered for a specific voyage or flight rather than for a specific period of time. (xi)Wet lease. A wet lease is the time or voyage charter of an aircraft. (f)International operation of ships or aircraft—(1)General rule. The termin- ternational operation of ships or aircraft means the operation of ships or aircraft, as defined in paragraph (e) of this section, with respect to the carriage of passengers or cargo on voyages or flights that begin or end in the United States, as determined un- der paragraph (f)(2) of this section. The term does not include the carriage of pas- sengers or cargo on a voyage or flight that begins and ends in the United States, even if the voyage or flight contains a segment extending beyond the territorial limits of the United States, unless the passenger disem- barks or the cargo is unloaded outside the United States. Operation of ships or air- craft beyond the territorial limits of the United States does not constitute in itself international operation of ships or aircraft. (2)Determining whether income is de- rived from international operation of ships or aircraft.Whether income is derived from international operation of ships or aircraft is determined on a passenger by passen- ger basis (as provided in paragraph (f)(2)(i) of this section) and on an item-of-cargo by item-of-cargo basis (as provided in para- graph (f)(2)(ii) of this section). In the case of the bareboat charter of a ship or the dry lease of an aircraft, whether the charter in- come for a particular period is derived from international operation of ships or aircraft is determined by reference to how the ship or aircraft is used by the lowest-tier les- see in the chain of lessees (as provided in paragraph (f)(2)(iii) of this section). (i)Internationalcarriageof passengers—(A)General rule. Except in the case of a round trip described in para- graph (f)(2)(i)(B) of this section, income de- rived from the carriage of a passenger will be income from international operation of ships or aircraft if the passenger is car- ried between a beginning point in the United States and an ending point outside the United States, or vice versa. Carriage of a passenger will be treated as ending at the passenger’s final destination even if, en route to the passenger’s final destination, a stop is made at an intermediate point for refueling, maintenance, or other business reasons, provided the passenger does not change ships or aircraft at the intermedi- ate point. Similarly, carriage of a passen- ger will be treated as beginning at the passenger’s point of origin even if, en route to the passenger’s final destination, a stop is made at an intermediate point, provided the passenger does not change ships or air- craft at the intermediate point. Carriage of a passenger will be treated as beginning or ending at a U.S. or foreign intermediate point if the passenger changes ships or air- craft at that intermediate point. 2002–36 I.R.B.499September 9, 2002 (B)Round trip travel on ships.Inthe case of income from the carriage of a pas- senger on a ship that begins its voyage in the United States, calls on one or more for- eign intermediate ports, and returns to the same or another U.S. port, such income from carriage of a passenger on the en- tire voyage will be treated as income de- rived from international operation of ships or aircraft under paragraph (f)(2)(i)(A) of this section. This result obtains even if such carriage includes one or more intermedi- ate stops at a U.S. port or ports and even if the passenger does not disembark at the foreign intermediate point. (ii)International carriage of cargo. In- come from the carriage of cargo will be in- come derived from international operation of ships or aircraft if the cargo is carried between a beginning point in the United States and an ending point outside the United States, or vice versa. Carriage of cargo will be treated as ending at the fi- nal destination of the cargo even if, en route to that final destination, a stop is made at a U.S. intermediate point, provided the cargo is transported to its ultimate desti- nation on the same ship or aircraft. If the cargo is transferred to another ship or air- craft, the carriage of the cargo may nev- ertheless be treated as ending at its final destination, if the same taxpayer trans- ports the cargo to and from the U.S. inter- mediate point and the cargo does not pass through customs at the U.S. intermediate point. Similarly, carriage of cargo will be treated as beginning at the cargo’s point of origin, even if en route to its final desti- nation a stop is made at a U.S. intermedi- ate point, provided the cargo is transported to its ultimate destination on the same ship or aircraft. If the cargo is transferred to an- other ship or aircraft at the U.S. interme- diate point, the carriage of the cargo may nevertheless be treated as beginning at the point of origin, if the same taxpayer trans- ports the cargo to and from the U.S. inter- mediate point and the cargo does not pass through customs at the U.S. intermediate point. Repackaging, recontainerization, or any other activity involving the unload- ing of the cargo at the U.S. intermediate point does not change these results, pro- vided the same taxpayer transports the cargo to and from the U.S. intermediate point and the cargo does not pass through customs at the U.S. intermediate point. A lighter ves- sel that carries cargo to, or picks up cargo from, a vessel located beyond the territo- rial limits of the United States and corre- spondingly loads or unloads that cargo at a U.S. port, carries cargo between a point in the United States and a point outside the United States. However, a lighter vessel that carries cargo to, or picks up cargo from, a vessel located within the territorial limits of the United States, and correspondingly loads or unloads that cargo at a U.S. port, is not engaged in international operation of ships or aircraft. Income from the car- riage of military cargo on a voyage that be- gins in the United States, stops at a foreign intermediate port or a military preposition- ing location, and returns to the same or an- other U.S. port without unloading its cargo at the foreign intermediate point, will nev- ertheless be treated as derived from inter- national operation of ships or aircraft. (iii)Bareboat charter of ships or dry lease of aircraft used in international op- eration of ships or aircraft. If a qualified foreign corporation bareboat charters a ship or dry leases an aircraft to a lessee, and the lowest tier lessee in the chain of owner- ship uses such ship or aircraft for the in- ternational carriage of passengers or cargo for hire, as described in paragraphs (f)(2)(i) and (ii) of this section, then the amount of charter income attributable to the period the ship or aircraft is used by the lowest tier lessee is income from international opera- tion of ships or aircraft. The foreign cor- poration must adopt a reasonable method consistently applied for determining the amount of the charter income that is at- tributable to such international operation of ships or aircraft. Two reasonable methods for determining the amount of charter in- come attributable to international opera- tion of ships or aircraft are the following: (A)Ratio based on use. Multiply the amount of charter income by a fraction, the numerator of which is the total number of days of uninterrupted travel on voyages or flights of such ship or aircraft between the United States and the farthest point or points where cargo or passengers are loaded en route to, or discharged en route from, the United States during the smaller of the tax- able year or the particular charter period, and the denominator of which is the total number of days in the smaller of the tax- able year or the particular charter period. For this purpose, the number of days dur- ing which the ship or aircraft is not gen- erating transportation income, within the meaning of section 863(c)(2), are not in- cluded in the numerator of the fraction. For example, the numerator of the fraction does not include days during which the ship or aircraft is out of service while being re- paired or maintained or days during which the ship is not being used to carry cargo or persons for hire. (B)Ratio based on gross income. Mul- tiply the amount of charter income by a fraction, the numerator of which is the U.S. source gross transportation income, as that term is defined in section 887(b), earned from the operation of the vessel or air- craft by the lowest tier lessee during the smaller of the taxable year or the particu- lar charter period, and the denominator of which is the total gross income of the les- see from the operation of the ship or air- craft during the smaller of the taxable year or the particular charter period. An alloca- tion based on the net income of such les- see, however, will not be considered reasonable for purposes of this paragraph (f)(2)(iii)(B). (g)Activities incidental to the interna- tional operation of ships or aircraft—(1) General rule. Certain activities of a for- eign corporation engaged in the interna- tional operation of ships or aircraft are so closely related to the international opera- tion of ships or aircraft that they are con- sidered incidental to such operation, and income derived by the foreign corpora- tion from its performance of these inciden- tal activities is deemed to be income derived from the international operation of ships or aircraft. Examples of such activities include— (i) Temporary investment of working capital funds to be used in the interna- tional operation of ships or aircraft by the foreign corporation; (ii) Sale of tickets by the foreign cor- poration engaged in the international op- eration of ships for the international carriage of passengers by ship on behalf of an- other corporation engaged in the interna- tional operation of ships; (iii) Sale of tickets by the foreign cor- poration engaged in the international op- eration of aircraft for the international carriage of passengers by air on behalf of another corporation engaged in the inter- national operation of aircraft; (iv) Contracting with concessionaires for performance of services onboard during the September 9, 20025002002–36 I.R.B. international operation of the foreign cor- poration’s ships or aircraft; (v) Providing through a related or un- related corporation (either by subcontract- ing or otherwise) for the carriage of cargo preceding or following the international car- riage of cargo under a through bill of lad- ing, airway bill or similar document; (vi) To the extent not described in para- graph (g)(1)(iii) of this section, the sale or issuance by the foreign corporation en- gaged in the international operation of air- craft of interline or code-sharing tickets for the carriage of persons by air between a U.S. gateway and another U.S. city pre- ceding or following international carriage of passengers, provided that all such flight segments are provided pursuant to the pas- senger’s original invoice, ticket or itiner- ary; (vii) Arranging for port city hotel ac- commodations within the United States for a passenger for the one night before or af- ter the international carriage of that pas- senger by the foreign corporation engaged in the international operation of ships; (viii) Bareboat charter of ships or dry lease of aircraft normally used by the for- eign corporation in international opera- tion of ships or aircraft but currently not needed, if the ship or aircraft is used by the lessee for international carriage of cargo or passengers; (ix) Arranging by means of a space or slot charter for the carriage of cargo listed on a bill of lading or airway bill or simi- lar document issued by the foreign corpo- ration on the ship or aircraft of another corporation engaged in the international op- eration of ships or aircraft; and (x) Rental of containers by the foreign corporation for use in the United States for a period not exceeding five days beyond the original delivery date by the foreign cor- poration to the consignee as stated on the bill of lading, provided that— (A) The consignee takes delivery in the United States; (B) The container is owned by or leased to the foreign corporation; and (C) The container is identified (for ex- ample, by a 4 digit alpha code and serial number) on a bill of lading or attached manifest or similar document issued by the foreign corporation that provides for the transportation of cargo between points not solely within the United States. (2)Activities not considered incidental to the international operation of ships or aircraft. Examples of activities that are not considered incidental to the international op- eration of ships or aircraft include— (i) The sale of or arranging for train travel, bus transfers, or land tour pack- ages; (ii) Arranging for port city hotel accom- modations within the United States other than as provided in paragraph (g)(1)(vii) of this section; (iii) The sale of airline tickets or cruise tickets other than as provided in paragraph (g)(1)(ii), (iii), or (vi) of this section; (iv) The sale or rental of real property; (v) Treasury activities involving the in- vestment of excess funds or funds await- ing repatriation, even if derived from the international operation of ships or aircraft; (vi) The carriage of passengers or cargo on ships or aircraft on domestic legs of transportation not treated as either interna- tional operation of ships or aircraft under paragraph (f) of this section or as an ac- tivity that is incidental to such operation un- der paragraph (g)(1) of this section; (vii) The carriage of cargo by bus, truck or rail by a foreign corporation between a U.S. inland point and a U.S. gateway port or airport preceding or following the in- ternational carriage of such cargo by the for- eign corporation; and (viii) Rental of containers attributable to the use of a container within the United States other than as provided in paragraph (g)(1)(x) of this section. (3)Services—(i)Ground services, main- tenance and catering. [Reserved] (ii)Other services. [Reserved] (4)Activities involved in a pool, part- nership, strategic alliance, joint operat- ing agreement, code-sharing arrangement or other joint venture. Notwithstanding para- graph (g)(1) of this section, an activity is considered incidental to the international op- eration of ships or aircraft by a foreign cor- poration, and income derived by the foreign corporation with respect to such activity is deemed to be income derived from the in- ternational operation of ships or aircraft, if the activity is performed by or pursuant to a pool, partnership, strategic alliance, joint operating agreement, code-sharing arrange- ment or other joint venture in which such foreign corporation participates, provided that— (i) Such activity is incidental to the in- ternational operation of ships or aircraft by the pool, partnership, strategic alliance, joint operating agreement, code-sharing arrange- ment or other joint venture, and provided that it is described in paragraph (e)(2)(i) of this section; or (ii) Such activity would be incidental to the international operation of ships or air- craft by the foreign corporation, if it per- formed such activity itself, and provided the foreign corporation is engaged in the op- eration of ships or aircraft under para- graph (e)(1) of this section. (h)Equivalent exemption—(1)Gen- eral rule. A foreign country grants an equivalent exemption when it exempts from taxation income from the international op- eration of ships or aircraft derived by cor- porations organized in the United States. Whether a foreign country provides an equivalent exemption must be determined separately with respect to each category of income, as provided in paragraph (h)(2) of this section. An equivalent exemption may be available for income derived from the international operation of ships even though income derived from the international op- eration of aircraft may not be exempt, and vice versa. For rules regarding foreign cor- porations organized in countries that pro- vide exemptions only through an income tax convention, see paragraph (h)(3) of this sec- tion. An equivalent exemption may exist where the foreign country— (i) Generally imposes no tax on income, including income from the international op- eration of ships or aircraft; (ii) Specifically provides a domestic law tax exemption for income derived from the international operation of ships or aircraft, either by statute, decree, or otherwise; or (iii) Exchanges diplomatic notes with the United States, or enters into an agreement with the United States, that provides for a reciprocal exemption for purposes of sec- tion 883. (2)Determining equivalent exemptions for each category of income. Whether a for- eign country grants an equivalent exemp- tion must be determined separately with respect to income from the international op- eration of ships and income from the in- ternational operation of aircraft for each category of income listed in (i) through (vii) of this paragraph (h)(2). If an exemption is unavailable in the foreign country for a par- ticular category of income, the foreign 2002–36 I.R.B.501September 9, 2002 country is not considered to grant an equivalent exemption with respect to that category of income. Income in that cat- egory is not considered to be the subject of an equivalent exemption and thus is not eli- gible for exemption from income tax in the United States, even though the foreign country may grant an equivalent exemp- tion for other categories of income. The fol- lowing categories of income derived from the international operation of ships or air- craft may be exempt from United States in- come tax if an equivalent exemption is available— (i) Income from the carriage of passen- gers and cargo; (ii) Time or voyage (full) charter in- come of a ship or wet lease income of an aircraft; (iii) Bareboat charter income of a ship or dry charter income of an aircraft; (iv) Incidental bareboat charter income or incidental dry lease income; (v) Incidental container-related income; (vi) Income incidental to the interna- tional operation of ships or aircraft other than incidental income described in para- graph (h)(2)(iv) and (v) of this section; (vii) Capital gains derived by a quali- fied foreign corporation engaged in the in- ternational operation of ships or aircraft from the sale, exchange or other disposi- tion of a ship, aircraft, container or re- lated equipment or other moveable property used by that qualified foreign corporation in the international operation of ships or air- craft; and (viii) Income from participation in a pool, partnership, strategic alliance, joint op- erating agreement, code-sharing arrange- ment, international operating agency, or other joint venture described in paragraph (e)(2) of this section. (3)Special rules with respect to income tax conventions—(i)General rule. Ex- cept as provided in paragraph (h)(3)(ii) of this section, if a corporation is organized in a foreign country that provides an ex- emption only through an income tax con- vention with the United States, the foreign corporation is not organized in a foreign country that grants an equivalent exemp- tion. Rather, the foreign corporation must satisfy the terms of that convention to re- ceive a benefit under the convention, and the foreign corporation may not claim an exemption under section 883. If the cor- poration is organized in a foreign country that offers an exemption under an income tax convention and also by some other means, such as by diplomatic note or do- mestic statutory law, the foreign corpora- tion may choose annually whether to claim an exemption under section 883 based upon the equivalent exemption provided by such other means, under the income tax con- vention, or under both the income tax con- vention and section 883. Any such choice will apply with respect to all qualified in- come of the corporation from the interna- tional operation of ships or aircraft and cannot be made separately with respect to different categories of such income. If a for- eign corporation bases its claim for an ex- emption on section 883, the foreign corporation must satisfy all of the require- ments of this section to qualify for an ex- emption from U.S. income tax. See§1.883– 4(b)(3) for rules regarding satisfying the ownership test of paragraph (c)(2) of this section using shareholders resident in a for- eign country that offers an exemption un- der an income tax convention. (ii)Participation in certain joint ven- tures. Notwithstanding paragraph (h)(3)(i) of this section, if a corporation is orga- nized in a foreign country that provides an exemption only through an income tax con- vention with the United States, the for- eign corporation will be treated as organized in a foreign country that grants an equiva- lent exemption under section 883 with re- spect to a category of income derived through participation in a pool, partner- ship, strategic alliance, joint operating agree- ment, code-sharing arrangement or other joint venture described in paragraph (e)(2) of this section, but only where treaty ben- efits would be available under the treaty but for the treatment of the pool, partnership, strategic alliance, joint operating agree- ment, code-sharing arrangement or other joint venture as not fiscally transparent with respect to that category of income under the income tax laws of the foreign country in which the foreign corporate interest holder is organized for purposes of§1.894– 1(d)(3)(iii)(A). (iii)Independent interpretation of in- come tax conventions.Nothing in this sec- tion and§§1.883–2 through 1.883–5 affects the rights or obligations under any income tax convention. The definitions provided in this section and§§1.883–2 through 1.883–5 shall neither give meaning to similar terms used in income tax conventions nor pro- vide guidance regarding the scope of any exemption provided by such conventions. (4)Exemptions not qualifying as equiva- lent exemptions—(i)General rule. Cer- tain types of exemptions provided to corporations organized in the United States by foreign countries do not satisfy the equivalent exemption requirements of this section. The following paragraphs pro- vide descriptions of some of the types of exemptions that do not qualify as equiva- lent exemptions for purposes of this sec- tion. (ii)Reduced tax rate or time limited ex- emption. The exemption granted by the for- eign country’s law or income tax convention must be a complete exemption. The ex- emption may not constitute merely a re- duction to a non-zero rate of tax levied against the income of corporations orga- nized in the United States derived from the international operation of ships or aircraft or a temporary reduction to a zero rate of tax, such as in the case of a tax holiday. (iii)Inbound or outbound freight tax. With respect to the carriage of cargo, the foreign country must provide an exemp- tion from tax for income from transport- ing freight both inbound and outbound. For example, a foreign country that imposes tax only on outbound freight will not be treated as granting an equivalent exemption for in- come from transporting freight inbound into that country. (iv)Exemptions for limited types of cargo. A foreign country must provide an exemption from tax for income from trans- porting all types of cargo. For example, if a foreign country were generally to im- pose tax on income from the international carriage of cargo but were to provide a statutory exemption for income from trans- porting agricultural products, the foreign country would not be considered to grant an equivalent exemption with respect to in- come from the international carriage of cargo, including agricultural products. (v)Territorial tax systems. A foreign country with a territorial tax system will be treated as granting an equivalent exemp- tion if it treats all income derived from the international operation of ships or aircraft derived by a U.S. corporation as entirely foreign source and therefore not subject to tax, including income derived from a voy- age or flight that begins or ends in that for- eign country. September 9, 20025022002–36 I.R.B. (vi)Countries that tax on a residence ba- sis. A foreign country that provides an equivalent exemption to corporations or- ganized in the United States but also im- poses a residence-based tax on certain corporations organized in the United States may nevertheless be considered to grant an equivalent exemption if the residence-based tax is imposed only on a corporation or- ganized in the United States that main- tains its center of management and control or other comparable attributes in that for- eign country. If the residence-based tax is imposed on corporations organized in the United States and engaged in the interna- tional operation of ships or aircraft that are not managed and controlled in that for- eign country, the foreign country shall not be treated as a qualified foreign country and shall not be considered to grant an equiva- lent exemption for purposes of this sec- tion. (vii)Exemptions within categories of in- come. A foreign country must provide an exemption from tax for all income in a cat- egory of income, as defined in paragraph (h)(2) of this section. For example, a coun- try that exempts income from the bare- boat charter of passenger aircraft but not the bareboat charter of cargo aircraft does not provide an equivalent exemption. How- ever, an equivalent exemption may be avail- able for income derived from the international operation of ships even though income derived from the international op- eration of aircraft may not be exempt, and vice versa. (i)Treatment of possessions. For pur- poses of this section, a possession of the United States will be treated as a foreign country. A possession of the United States will be considered to grant an equivalent exemption and will be treated as a quali- fied foreign country if it applies a mirror system of taxation. If a possession does not apply a mirror system of taxation, the pos- session may nevertheless be a qualified for- eign country if, for example, it provides for an equivalent exemption through its inter- nal law. A possession applies the mirror sys- tem of taxation if the United States Internal Revenue Code of 1986, as amended, ap- plies in the possession with the name of the possession used instead of“United States” where appropriate. (j)Expenses related to qualified income. If a qualified foreign corporation derives qualified income from the international op- eration of ships or aircraft as well as in- come that is not qualified income, and the non-qualified income is effectively con- nected with the conduct of a trade or busi- ness within the United States, the foreign corporation may not deduct from such non- qualified income any amount otherwise al- lowable as a deduction from qualified income, if that qualified income is ex- cluded under this section. See section 265(a)(1). Par. 4. Sections 1.883–2 through 1.883–5 are added to read as follows: §1.883–2 Treatment of publicly-traded corporations. (a)General rule. A foreign corpora- tion satisfies the stock ownership test of §1.883–1(c)(2) if it is considered a publicly- traded corporation and satisfies the sub- stantiation and reporting requirements of paragraphs (e) and (f) of this section. To be considered a publicly-traded corporation, the stock of the foreign corporation must be pri- marily traded and regularly traded, as de- fined in paragraphs (c) and (d) of this section, respectively, on one or more es- tablished securities markets, as defined in paragraph (b) of this section, in either the United States or any qualified foreign coun- try. (b)Established securities market—(1) General rule. For purposes of this sec- tion, the termestablished securities mar- ketmeans, for any taxable year— (i) A foreign securities exchange that is officially recognized, sanctioned, or super- vised by a governmental authority of the qualified foreign country in which the mar- ket is located, and has an annual value of shares traded on the exchange exceeding $1 billion during each of the three calendar years immediately preceding the begin- ning of the taxable year; (ii) A national securities exchange that is registered under section 6 of the Secu- rities Act of 1934 (15 U.S.C. 78f); (iii) A United States over-the-counter market, as defined in paragraph (b)(4) of this section; (iv) Any exchange designated under a Limitation on Benefits article in a United States income tax convention; and (v) Any other exchange that the Secre- tary may designate by regulation or other- wise. (2)Exchanges with multiple tiers.Ifan exchange in a foreign country has more than one tier or market level on which stock may be separately listed or traded, each such tier shall be treated as a separate exchange. (3)Computation of dollar value of stock traded. For purposes of paragraph (b)(1)(i) of this section, the value in U.S. dollars of shares traded during a calendar year shall be determined on the basis of the dollar value of such shares traded as reported by the International Federation of Stock Ex- changes located in Paris, or, if not so re- ported, then by converting into U.S. dollars the aggregate value in local currency of the shares traded using an exchange rate equal to the average of the spot rates on the last day of each month of the calendar year. (4)Over-the-counter market. An over- the-counter market is any market reflected by the existence of an interdealer quota- tion system. An interdealer quotation sys- tem is any system of general circulation to brokers and dealers that regularly dissemi- nates quotations of stocks and securities by identified brokers or dealers, other than by quotation sheets that are prepared and dis- tributed by a broker or dealer in the regu- lar course of business and that contain only quotations of such broker or dealer. (5)Discretion to determine that an ex- change does not qualify as an established securities market.The Commissioner may determine that a securities exchange that otherwise meets the requirements of para- graph (b) of this section does not qualify as an established securities market, if— (i) The exchange does not have adequate listing, financial disclosure, or trading re- quirements (or does not adequately en- force such requirements); or (ii) There is not clear and convincing evidence that the exchange ensures the ac- tive trading of listed stocks. (c)Primarily traded. For purposes of this section, stock of a corporation is prima- rily traded in a country on one or more es- tablished securities markets, as defined in paragraph (b) of this section, if, with re- spect to each class of stock described in paragraph (d)(1)(i) of this section (relat- ing to classes of stock relied on to meet the regularly traded test)— (1) The number of shares in each such class that are traded during the taxable year on all established securities markets in that country exceeds (2) The number of shares in each such class that are traded during that year on es- tablished securities markets in any other single country. 2002–36 I.R.B.503September 9, 2002 (d)Regularly traded—(1)General rule. For purposes of this section, stock of a cor- poration is regularly traded on one or more established securities markets, as defined in paragraph (b) of this section, if— (i) One or more classes of stock of the corporation that, in the aggregate, repre- sent more than 50 percent of the total com- bined voting power of all classes of stock of such corporation entitled to vote and of the total value of the stock of such corpo- ration are listed on such market or mar- kets during the taxable year; and (ii) With respect to each class relied on to meet the more than 50 percent require- ment of paragraph (d)(1)(i) of this section— (A) Trades in each such class are ef- fected, other than inde minimisquanti- ties, on such market or markets on at least 60 days during the taxable year (or 1/6 of the number of days in a short taxable year); and (B) The aggregate number of shares in each such class that are traded on such mar- ket or markets during the taxable year are at least 10 percent of the average number of shares outstanding in that class during the taxable year (or, in the case of a short taxable year, a percentage that equals at least 10 percent of the average number of shares outstanding in that class during the taxable year multiplied by the number of days in the short taxable year, divided by 365). (2)Classes of stock traded on a domes- tic established securities market treated as meeting trading requirements. A class of stock that is traded during the taxable year on an established securities market lo- cated in the United States shall be consid- ered to meet the trading requirements of paragraph (d)(1)(ii) of this section if the stock is regularly quoted by dealers mak- ing a market in the stock. A dealer makes a market in a stock only if the dealer regu- larly and actively offers to, and in fact does, purchase the stock from, and sell the stock to, customers who are not related persons (as defined in section 954(d)(3)) with re- spect to the dealer in the ordinary course of a trade or business. (3)Closely-held classes of stock not treated as meeting trading requirements— (i)General rule. Except as provided in para- graph (d)(3)(ii) of this section, a class of stock of a foreign corporation that other- wise meets the requirements of paragraph (d)(1) or (2) of this section shall not be treated as meeting such requirements for a taxable year if, at any time during the tax- able year, one or more persons who own at least 5 percent of the vote and value of the outstanding shares of the class of stock, as determined under paragraph (d)(3)(iii) of this section (each a 5-percent shareholder), own, in the aggregate, 50 percent or more of the vote and value of the outstanding shares of the class of stock. If one or more 5-percent shareholders own, in the aggre- gate, 50 percent or more of the vote and value of the outstanding shares of the class of stock, such shares held by the 5-percent shareholders will constitute a closely-held block of stock. (ii)Exception.Paragraph (d)(3)(i) of this section shall not apply to a class of stock if the foreign corporation can establish that qualified shareholders, as defined in §1.883–4(b), applying the attribution rules of§1.883–4(c), own sufficient shares in the closely-held block of stock to preclude non- qualified shareholders in the closely-held block of stock from owning 50 percent or more of the total value of the class of stock of which the closely-held block is a part for more than half the number of days dur- ing the taxable year. Any shares that are owned, after application of the attribution rules in§1.883–4(c), by a qualified share- holder shall not also be treated as owned by a non-qualified shareholder in the chain of ownership for purposes of the preced- ing sentence. A foreign corporation must ob- tain the documentation described in §1.883–4(d) from the qualified sharehold- ers relied upon to satisfy this exception. However, no person shall be treated for pur- poses of this paragraph (d)(3) as a quali- fied shareholder if such person holds an interest in the class of stock directly or in- directly through bearer shares. (iii)Five-percent shareholders—(A)Re- lated persons. Solely for purposes of de- termining whether a person is a 5-percent shareholder, persons related within the meaning of section 267(b) shall be treated as one person. In determining whether two or more corporations are members of the same controlled group under section 267(b)(3), a person is considered to own stock owned directly by such person, stock owned through the application of section 1563(e)(1), and stock owned through the ap- plication of section 267(c). In determin- ing whether a corporation is related to a partnership under section 267(b)(10), a per- son is considered to own the partnership in- terest owned directly by such person and the partnership interest owned through the application of section 267(e)(3). (B)Investment companies. For purposes of this paragraph (d)(3), an investment com- pany registered under the Investment Com- pany Act of 1940, as amended, shall not be treated as a 5-percent shareholder if no per- son owns both 5 percent or more of the value of the outstanding interests in the in- vestment company (applying the attribu- tion rules of§1.883–4(c)) and 5 percent or more of the value of the shares of the class of stock of the foreign corporation seek- ing qualified foreign corporation status (ap- plying the attribution rules of§1.883– 4(c)). (4)Anti-abuse rule. Trades between or among related persons described in sec- tion 267(b), as modified by paragraph (d)(3)(iii) of this section, and trades con- ducted in order to meet the requirements of paragraph (d)(1) of this section shall be dis- regarded. A class of stock shall not be treated as meeting the trading requirements of paragraph (d)(1) of this section if there is a pattern of trades conducted to meet the requirements of that paragraph. For ex- ample, trades between two persons that oc- cur several times during the taxable year may be treated as an arrangement or a pat- tern of trades conducted to meet the trad- ing requirements of paragraph (d)(1)(ii) of this section. (5)Example. The closely-held test in paragraph (d)(3) of this section is illus- trated by the following example: Example.Closely-held exception—(i)Facts.Xis a foreign corporation organized in a qualified for- eign country and engaged in the international opera- tion of ships. X has one class of stock, which is primarily traded on an established securities market in the qualified foreign country. The stock of X meets the regularly traded requirements of paragraph (d)(1)(ii) of this section without regard to paragraph (d)(3)(i) of this section. A, B, C and D are four members of the corporation’s founding family who each own, dur- ing the entire taxable year, 25 percent of the stock of Hold Co, a company that issues registered shares. Hold Co, in turn, owns 60 percent of the stock of X dur- ing the entire taxable year. The remaining 40 per- cent of the stock of X is not owned by any 5-percent shareholder, as determined under paragraph (d)(3)(iii) of this section. A, B, and C are not residents of a quali- fied foreign country, but D is a resident of a quali- fied foreign country. (ii)Analysis. Because Hold Co owns 60 percent of the stock of X for more than half the number of days during the taxable year, Hold Co is a 5-percent shareholder that owns 50 percent or more of the value of the stock of X. Thus, the shares owned by Hold Co constitute a closely-held block of stock. Under para- September 9, 20025042002–36 I.R.B. graph (d)(3)(i) of this section, the stock of X will not be regularly traded within the meaning of paragraph (d)(1) of this section unless X can establish, under paragraph (d)(3)(ii) of this section, that qualified share- holders within the closely-held block of stock own suf- ficient shares in the closely-held block of stock to preclude non-qualified shareholders in the closely- held block of stock from owning 50 percent or more of the value of the outstanding shares in the class of stock for more than half the number of days during the taxable year. A, B, and C are not qualified share- holders within the meaning of§1.883–4(b) because they are not residents of a qualified foreign country, but D is a resident of a qualified foreign country and therefore is a qualified shareholder. D owns 15 per- cent of the outstanding shares of X through Hold Co (25 percent x 60 percent = 15 percent) while A, B, and C in the aggregate own 45 percent of the out- standing shares of X through Hold Co. D, therefore, owns sufficient shares in the closely-held block of stock to preclude the non-qualified shareholders in the closely-held block of stock, A, B and C, from own- ing 50 percent or more of the value of the class of stock (60 percent - 15 percent = 45 percent) of which the closely-held block is a part. Provided that X ob- tains from D the documentation described in§1.883– 4(d), X’s sole class of stock meets the exception in paragraph (d)(3)(ii) of this section and will not be dis- qualified from the regularly traded test by virtue of paragraph (d)(3)(i) of this section. (e)Substantiation that a foreign corpo- ration is publicly traded—(1)General rule. A foreign corporation that relies on the pub- licly traded test of this section to meet the stock ownership test of§1.883–1(c)(2) must substantiate that the stock of the foreign cor- poration is primarily and regularly traded on one or more established securities mar- kets, as that term is defined in paragraph (b) of this section. If one of the classes of stock on which the foreign corporation re- lies to meet this test is closely-held within the meaning of paragraph (d)(3)(i) of this section, the foreign corporation must ob- tain an ownership statement described in §1.883–4(d) from each qualified share- holder and intermediary that it relies upon to satisfy the exception to the closely- held test, but only to the extent such state- ment would be required if the foreign corporation were relying on the qualified shareholder stock ownership test of §1.883–4 with respect to those shares of stock. The foreign corporation must also maintain and provide to the Commissioner upon request a list of its shareholders of record and any other relevant information known to the foreign corporation support- ing its entitlement to an exemption under this section. (2)Availability and retention of docu- ments for inspection. The documentation de- scribed in paragraph (e)(1) of this section must be retained by the corporation seek- ing qualified foreign corporation status un- til the expiration of the statute of limitations for the taxable year of the foreign corpo- ration to which the documentation relates. Such documentation must be made avail- able for inspection by the Commissioner at such time and such place as the Commis- sioner may request in writing. (f)Reporting requirements. A foreign corporation relying on this section to sat- isfy the stock ownership test of§1.883– 1(c)(2) must provide the following information in addition to the informa- tion required in§1.883–1(c)(3) to be in- cluded in its Form 1120F for the taxable year. The information must be current as of the end of the corporation’s taxable year and must include the following— (1) The name of the country in which the stock is primarily traded; (2) The name of the established secu- rities market or markets on which the stock is listed; (3) A description of each class of stock relied upon to meet the requirements of paragraph (d) of this section, including the number of shares issued and outstanding as of the close of the taxable year; (4) For each class of stock relied upon to meet the requirements of paragraph (d) of this section, if one or more 5-percent shareholders, as described in paragraph (d)(3)(iii) of this section, own in the ag- gregate 50 percent or more of the value of the outstanding shares of that class of stock at any time during the taxable year— (i) The highest total percentage of the value of the class of stock that is owned by 5-percent shareholders, as described in para- graph (d)(3)(iii) of this section, at any time during the taxable year; (ii) For each qualified shareholder who owns or is treated as owning stock in the closely-held block upon whom the corpo- ration intends to rely to satisfy the excep- tion to the closely-held test of paragraph (d)(3)(ii) of this section— (A) The name of each such shareholder; (B) The percentage of the total value of the class of stock held by each such share- holder; (C) The address of record of each such shareholder; (D) The country of residence of each such shareholder, determined under§1.883– 4(b)(2) (residence of individual sharehold- ers) or§1.883–4(d)(3) (special rules for residence of certain shareholders); (E) The portion of the taxable year of the corporation during which the stock was closely-held without regard to the excep- tion in paragraph (d)(3)(ii) of this sec- tion; and (5) Any other relevant information speci- fied by Form 1120F and its accompany- ing instructions. §1.883–3 Treatment of controlled foreign corporations. (a)General rule. A foreign corpora- tion satisfies the stock ownership test of §1.883–1(c)(2) if it is a controlled for- eign corporation (CFC), as defined in sec- tion 957(a), and satisfies the income inclusion test in paragraph (b) of this sec- tion and the substantiation and reporting re- quirements of paragraphs (c) and (d) of this section, respectively. A CFC that fails the income inclusion test of paragraph (b) of this section will not be a qualified for- eign corporation unless it meets either the publicly traded test of§1.883–2(a) or the qualified shareholder stock ownership test of§1.883–4(a). (b)Income inclusion test—(1)General rule. A CFC shall not be considered to sat- isfy the requirements of paragraph (a) of this section unless more than 50 percent of the CFC’s adjusted net foreign base company income (as defined in§1.954–1(d) and as increased or decreased by section 952(c)) derived from the international operation of ships or aircraft is includible in the gross income of one or more United States citi- zens, individual residents of the United States or domestic corporations, pursuant to section 951(a)(1)(A) or another provi- sion of the Internal Revenue Code, for the taxable years of such persons in which the taxable year of the CFC ends. (2)Examples. The income inclusion test of paragraph (b)(1) of this section is illus- trated in the following examples: Example 1. Ship Co is a CFC organized in a quali- fied foreign country. All of Ship Co’s income is for- eign base company shipping income that is derived from the international operation of ships. All of its shares are owned by a domestic partnership that is a United States shareholder for purposes of section 951(b). All of the partners in the domestic partner- ship are citizens and residents of foreign countries. Ship Co fails the income inclusion test of paragraph (b)(1) of this section because no amount of Ship Co’s sub- part F income that is adjusted net foreign base com- pany income derived from the international operation of ships is includible under any provision of the In- ternal Revenue Code in the gross income of one or 2002–36 I.R.B.505September 9, 2002 more United States citizens, individual residents of the United States or domestic corporations. Therefore, Ship Co must satisfy the qualified shareholder stock own- ership test of§1.883–4(a), in order to satisfy the stock ownership test of§1.883–1(c)(2) and to be consid- ered a qualified foreign corporation. Example 2. Ship Co is a CFC organized in a quali- fied foreign country. All of Ship Co’s income is for- eign base company shipping income that is derived from the international operation of ships. Corp A, a domestic corporation, owns 50 percent of the value of the stock of Ship Co. X, a domestic partnership, owns the remaining 50 percent of the value of the stock of Ship Co. A United States citizen is a part- ner owning a 10 percent income interest in X. Indi- vidual partners owning 80 percent of X are citizens and residents of foreign countries. There are no spe- cial allocations of partnership income. Ship Co sat- isfies the income inclusion test of paragraph (b)(1) of this section because 55 percent (50 percent + (10 per- cent x 50 percent)) of the subpart F income that is ad- justed net foreign base company income derived from the international operation of ships would be includ- ible in the gross income of U.S. citizens, individual residents of the United States or domestic corpora- tions. If Ship Co satisfies the substantiation and re- porting requirements of paragraphs (c) and (d) of this section, it will meet the stock ownership test of §1.883–1(c)(2). (c)Substantiation of CFC stock ownership—(1)General rule. A foreign cor- poration that relies on this section to sat- isfy the stock ownership test of§1.883– 1(c)(2) must substantiate all the facts necessary to satisfy the Commissioner that it qualifies under the income inclusion test of paragraph (b)(1) of this section. For pur- poses of the income inclusion test, if the CFC has one or more United States share- holders, as defined in section 951(b), that are domestic partnerships, estates, or trusts, thepro ratashare of the subpart F income includible in the gross income of such shareholders will only be treated as includ- ible in the income of any partner, benefi- ciary or other interest owner of such United States shareholder that is a United States citizen, resident of the United States or a domestic corporation if the CFC obtains the documentation described in paragraph (c)(2) of this section. (2)Documentation from certain United States shareholders—(i)General rule.A CFC only meets the documentation re- quirements of paragraph (c)(1) of this sec- tion if the CFC obtains the following documentation with respect to each United States shareholder, as defined in section 951(b), that is a partnership, estate or trust, for the taxable year of the shareholder which ends with or within the taxable year of the CFC— (A) A copy of the Form 5471,“Infor- mation Return of U.S. Persons With Re- spect to Certain Foreign Corporations,” filed with the controlling United States shareholder’s return; (B) A written statement, signed under penalties of perjury by a person autho- rized to sign the U.S. Federal tax return of each such United States shareholder, pro- viding the following information with re- spect to each United States citizen, individual resident of the United States or domestic corporation that is a partner, ben- eficiary or other interest owner of each such United States shareholder and upon whom the CFC intends to rely to satisfy the in- come inclusion test of paragraph (b)(1) of this section— (1) The name, address from the CFC’s corporate records (that is a specific street address and not a non-residential address, such as a post office box or in care of a fi- nancial intermediary or stock transfer agent), and taxpayer identification number of the interest owner; (2) The interest owner’s proportionate in- terest in the United States shareholder that reflects that owner’s share of subpart F in- come required to be included in income on such interest owner’s U.S. Federal income tax return; (3) The percentage of the vote and the percentage of the value of shares of the CFC owned by each such interest owner pursuant to the attribution rules in§1.883– 4(c)(2)(i); and (C) Any other information as specified in guidance published by the Internal Rev- enue Service (see§601.601(d)(2) of this chapter). (ii)Availability and retention of docu- ments for inspection. The documentation de- scribed in paragraph (c)(2)(i) of this section must be retained by the corporation seek- ing qualified foreign corporation status (the CFC) until the expiration of the statute of limitations for the taxable year of the CFC to which the documentation relates. Such documentation must be made available for inspection by the Commissioner at such place as the Commissioner may request in writing. (d)Reporting requirements. A foreign corporation that relies on the CFC test of this section to satisfy the stock ownership test of§1.883–1(c)(2) must provide the fol- lowing information in addition to the in- formation required in§1.883–1(c)(3) to be included in its Form 1120F for the tax- able year. The information must be cur- rent as of the end of the corporation’s taxable year and must include the following— (1) The name, address from the CFC’s corporate records (that is a specific street address and not a non-residential address, such as a post office box or in care of a fi- nancial intermediary or stock transfer agent), and taxpayer identification number of each United States shareholder, as defined in sec- tion 951(b), of the CFC; (2) The percentage of the vote and value of the shares of the CFC that is owned by each United States shareholder, as defined in section 951(b); (3) If one or more of the United States shareholders is a domestic partnership, es- tate or trust, the name, address, taxpayer identification number and percentage of the vote and the percentage of the value of shares of the CFC owned (as determined under§1.883–4(c)(2)(i)) by each interest owner of each such United States share- holder that is a United States citizen, in- dividual resident of the United States or a domestic corporation; and (4) Any other relevant information speci- fied by Form 1120F and its accompany- ing instructions. §1.883–4 Qualified shareholder stock ownership test. (a)General rule. A foreign corpora- tion satisfies the stock ownership test of §1.883–1(c)(2) if more than 50 percent of the value of its outstanding shares is owned, or treated as owned by applying the attri- bution rules of paragraph (c) of this sec- tion, for at least half of the number of days in the foreign corporation’s taxable year by one or more qualified shareholders, as de- fined in paragraph (b) of this section. A shareholder may be a qualified shareholder with respect to one category of income while not being a qualified shareholder with respect to another. A foreign corporation will not be considered to satisfy the stock own- ership test of§1.883–1(c)(2) pursuant to this section unless the foreign corpora- tion meets the substantiation and report- ing requirements of paragraphs (d) and (e) of this section. (b)Qualified shareholder—(1)Gen- eral rule. A shareholder is a qualified share- holder only if the shareholder— September 9, 20025062002–36 I.R.B. (i) With respect to the category of in- come for which the foreign corporation is seeking an exemption, is— (A) An individual not described in para- graph (b)(1)(i)(E) or (F) of this section, who is a resident, as described in paragraph (b)(2) of this section, of a qualified for- eign country, as defined in§1.883–1(d); (B) The government of a qualified for- eign country (or a political subdivision or local authority of such country); (C) A foreign corporation that is orga- nized in a qualified foreign country and meets the publicly traded test of§1.883– 2(a); (D) A not-for-profit organization de- scribed in paragraph (b)(4) of this section that is not a pension fund as defined in paragraph (b)(5) of this section and that is organized in a qualified foreign country; (E) An individual beneficiary of a pen- sion fund (as defined in paragraph (b)(5)(iv) of this section) that is administered in or by a qualified foreign country, who is treated as a resident under paragraph (d)(3)(iii) of this section, of a qualified foreign coun- try; or (F) a shareholder of a foreign corpora- tion that is an airline covered by a bilat- eral Air Services Agreement in force between the United States and the quali- fied foreign country in which the airline is organized, provided the United States has not waived the ownership requirement in the Air Services Agreement, or that the ownership requirement has not otherwise been made ineffective; (ii) Does not own its interest in the for- eign corporation through bearer shares, ei- ther directly or by applying the attribution rules of paragraph (c) of this section; and (iii) Provides to the foreign corpora- tion the documentation required in para- graph (d) of this section and the foreign corporation meets the reporting require- ments of paragraph (e) of this section with respect to such shareholder. (2)Residence of individual share- holders—(i)General rule. Except for an in- dividual described in paragraph (b)(1)(i)(E) or (F) of this section, an individual is a resi- dent of a qualified foreign country only if the individual is fully liable to tax as a resi- dent in such country (e.g., an individual who is liable to tax on a remittance basis in a foreign country will not be treated as a resident of that country) and, in addition— (A) The individual has a tax home, within the meaning of paragraph (b)(2)(ii) of this section, in that qualified foreign country for 183 days or more of the tax- able year; or (B) The individual is treated as a resi- dent of a qualified foreign country based on special rules pursuant to paragraph (d)(3) of this section. (ii)Tax home. For purposes of this sec- tion, an individual’s tax home is consid- ered to be located at the individual’s regular or principal (if more than one regular) place of business. If the individual has no regu- lar or principal place of business because of the nature of his business (or lack of a business), then the individual’s tax home is located at his regular place of abode in a real and substantial sense. If an individual has no regular or principal place of busi- ness and no regular place of abode in a real and substantial sense in a qualified for- eign country for 183 days or more of the taxable year, that individual does not have a tax home for purposes of this section. A foreign estate or trust, as defined in sec- tion 7701(a)(31), does not have a tax home for purposes of this section. See paragraph (c)(3) of this section for alternative rules in the case of trusts or estates. (3)Certain income tax convention re- strictions applied to shareholders. For pur- poses of paragraph (b)(1) of this section, a shareholder described in paragraph (b)(1) of this section may be considered a resi- dent of, or organized in, a qualified for- eign country if that foreign country provides an exemption by means of an income tax convention with the United States, but only if the shareholder demonstrates that it is treated as a resident of that country under the convention and qualifies for benefits un- der any Limitation on Benefits article, and that the convention provides an exemp- tion for the relevant category of income. If the convention has a requirement in the shipping and air transport article other than residence, such as place of registration or documentation of the ship or aircraft, the shareholder is not required to demonstrate that the corporation seeking qualified for- eign corporation status could satisfy any such additional requirement. (4)Not-for-profit organizations. The term not-for-profit organizationmeans an orga- nization that meets the following requirements— (i) It is a corporation, association tax- able as a corporation, trust, fund, founda- tion, league or other entity operated exclusively for religious, charitable, edu- cational, or recreational purposes, and not organized for profit; (ii) It is generally exempt from tax in its country of organization by virtue of its not- for-profit status; and (iii) Either— (A) More than 50 percent of its annual support is expended on behalf of persons described in paragraph (b)(1)(i)(A) of this section (see paragraph (d)(3)(v) of this sec- tion for rules regarding the residence of in- dividual beneficiaries); or (B) More than 50 percent of its annual support is derived from persons described in paragraph (b)(1)(i)(A) of this section (see paragraph (d)(3)(v) of this section for rules regarding the residence of individual sup- porters). (5)Pension funds—(i)Pension fund de- fined. The termpension fundshall mean a government pension fund or a non- government pension fund, as those terms are defined, respectively, in paragraphs (b)(5)(ii) and (iii) of this section, that is a trust, fund, foundation, or other entity that is estab- lished exclusively for the benefit of em- ployees or former employees of one or more employers, the principal purpose of which is to provide retirement, disability, and death benefits to beneficiaries of such entity and persons designated by such ben- eficiaries in consideration for prior ser- vices rendered. (ii)Government pension funds. A gov- ernment pension fund is a pension fund that is a controlled entity of a foreign sover- eign within the principles of§1.892– 2T(c)(1) (relating to pension funds established for the benefit of employees or former employees of a foreign govern- ment). (iii)Non-government pension funds.A non-government pension fund is a pen- sion fund that— (A) Is administered in a foreign coun- try and is subject to supervision or regu- lation by a governmental authority (or other authority delegated to perform such super- vision or regulation by a governmental au- thority) in such country; 2002–36 I.R.B.507September 9, 2002 (B) Is generally exempt from income taxation in its country of administration; (C) Has 100 or more beneficiaries; and (D) The trustees, directors or other ad- ministrators of which pension fund pro- vide the documentation required in paragraph (d) of this section. (iv)Beneficiary of a pension fund. The termbeneficiary of a pension fundshall mean any person who has made contribu- tions to a pension fund, as that term is de- fined in paragraph (b)(5)(i) of this section, or on whose behalf contributions have been made, and who is currently receiving re- tirement, disability, or death benefits from the pension fund or can reasonably be ex- pected to receive such benefits in the fu- ture, whether or not the person’s right to receive benefits from the fund has vested. See paragraph (c)(7) of this section for rules regarding the computation of stock own- ership through non-government pension funds. (c)Rules for determining constructive ownership—(1)General rules for attribu- tion. For purposes of applying paragraph (a) of this section and the exception to the closely-held test in§1.883–2(d)(3)(ii), stock owned by or for a corporation, partner- ship, trust, estate, or mutual insurance com- pany or similar entity shall be treated as owned proportionately by its sharehold- ers, partners, beneficiaries, grantors, or other interest holders, as provided in paragraphs (c)(2) through (7) of this section. The pro- portionate interest rules of this paragraph (c) shall apply successively upward through a chain of ownership, and a person’s pro- portionate interest shall be computed for the relevant days or period taken into account in determining whether a foreign corpora- tion satisfies the requirements of para- graph (a) of this section. Stock treated as owned by a person by reason of this para- graph (c) shall be treated as actually owned by such person for purposes of this sec- tion. An owner of an interest in an asso- ciation taxable as a corporation shall be treated as a shareholder of such associa- tion for purposes of this paragraph (c). No attribution will apply to an interest held di- rectly or indirectly through bearer shares. (2)Partnerships—(i)General rule.A partner shall be treated as having an inter- est in stock of a foreign corporation owned by a partnership in proportion to the least of— (A) The partner’s percentage distribu- tive share of the partnership’s dividend in- come from the stock; (B) The partner’s percentage distribu- tive share of gain from disposition of the stock by the partnership; or (C) The partner’s percentage distribu- tive share of the stock (or proceeds from the disposition of the stock) upon liquida- tion of the partnership. (ii)Partners resident in the same coun- try. For purposes of this paragraph, all quali- fied shareholders that are partners in a partnership and that are residents of, or or- ganized in, the same qualified foreign coun- try shall be treated as one partner. Thus, the percentage distributive shares of dividend income, gain and liquidation rights of all qualified shareholders that are partners in a partnership and that are residents of, or organized in, the same qualified foreign country are aggregated prior to determin- ing the least of the three percentages set out in paragraph (c)(2)(i) of this section. For the meaning of the termresident, see para- graph (b)(2) of this section. (iii)Examples. The rules of paragraph (c)(2)(ii) of this section are illustrated by the following examples: Example 1. Stock held solely by qualified share- holders through a partnership. Country X grants an equivalent exemption. A and B are individual resi- dents of Country X and are qualified shareholders within the meaning of paragraph (b)(1) of this sec- tion. A and B are the sole partners of Partnership P. P’s only asset is the stock of Corporation Z, a Coun- try X corporation seeking a reciprocal exemption un- der this section. A’s distributive share of P’s income and gain on the disposition of P’s assets is 80 per- cent, but A’s distributive share of P’s assets (or the pro- ceeds therefrom) on P’s liquidation is 20 percent. B’s distributive share of P’s income and gain is 20 per- cent and B is entitled to 80 percent of the assets (or proceeds therefrom) on P’s liquidation. Under the at- tribution rules of paragraph (c)(2)(ii) of this section, A and B will be treated as a single partner owning in the aggregate 100 percent of the stock of Z owned by P. Example 2. Stock held by both qualified and non- qualified shareholders through a partnership. As- sume the same facts as inExample 1except that C, an individual who is not a resident of a qualified for- eign country, is also a partner in P and that C’s dis- tributive share of P’s income is 60 percent. The distributive shares of A and B are the same as inEx- ample 1, except that A’s distributive share of in- come is 20 percent. Under the attribution rules of paragraph (c)(2)(ii) of this section, qualified share- holders A and B will be treated as a single partner owning in the aggregate 40 percent of the stock of Z owned by P (i.e., the lowest aggregate percentage of A and B’s distributive shares of dividend income (40 percent), gain (100 percent), and liquidation rights (100 percent) with respect to the Z stock). Thus, only 40 percent of the Z stock is treated as owned by quali- fied shareholders. Example 3. Stock held through tiered partner- ships. Country X grants an equivalent exemption. A and B are individual residents of Country X and are qualified shareholders within the meaning of para- graph (b)(1) of this section. A and B are the sole part- ners of Partnership P. P is a partner in Partnership P1, which owns the stock of Corporation Z, a Country X corporation seeking a reciprocal exemption under this section. Assume that P’s distributive share of the divi- dend income, gain and liquidation rights with re- spect to the Z stock held by P1 is 40 percent. Assume that of the remaining partners of P1 only D is a quali- fied shareholder. D’s distributive share of P1’s divi- dend income and gain is 15 percent; D’s distributive share of P1’s assets on liquidation is 25 percent. Un- der the attribution rules of paragraph (c)(2)(ii) of this section, A and B, treated as a single partner, will own 40 percent of the Z stock owned by P1 (100 per- cent x 40 percent) and D will be treated as owning 15 percent of the Z stock owned by P1 (the least of D’s dividend income (15 percent), gain (15 percent), and liquidation rights (25 percent) with respect to the Z stock). Thus, 55 percent of the Z stock owned by P1 is treated as owned by qualified shareholders. (3)Trusts and estates—(i)Beneficia- ries. In general, an individual shall be treated as having an interest in stock of a foreign corporation owned by a trust or es- tate in proportion to the individual’s actu- arial interest in the trust or estate, as provided in section 318(a)(2)(B)(i), ex- cept that an income beneficiary’s actu- arial interest in the trust will be determined as if the trust’s only asset were the stock. The interest of a remainder beneficiary in stock will be equal to 100 percent minus the sum of the percentages of any inter- est in the stock held by income beneficia- ries. The ownership of an interest in stock owned by a trust shall not be attributed to any beneficiary whose interest cannot be de- termined under the preceding sentence, and any such interest, to the extent not attrib- uted by reason of this paragraph (c)(3)(i), shall not be considered owned by a ben- eficiary unless all potential beneficiaries with respect to the stock are qualified share- holders. In addition, a beneficiary’s actu- arial interest will be treated as zero to the extent that someone other than the benefi- ciary is treated as owning the stock under paragraph (c)(3)(ii) of this section. A sub- stantially separate and independent share of a trust, within the meaning of section 663(c), shall be treated as a separate trust for purposes of this paragraph (c)(3)(i), pro- vided that payment of income, accumu- lated income or corpus of a share of one beneficiary (or group of beneficiaries) can- not affect the proportionate share of in- September 9, 20025082002–36 I.R.B. come, accumulated income or corpus of another beneficiary (or group of beneficia- ries). (ii)Grantor trusts. A person is treated as the owner of stock of a foreign corpo- ration owned by a trust to the extent that the stock is included in the portion of the trust that is treated as owned by the per- son under sections 671 through 679 (relat- ing to grantors and others treated as substantial owners). (4)Corporations that issue stock.A shareholder of a corporation that issues stock shall be treated as owning stock of a foreign corporation that is owned by such corporation on any day in a proportion that equals the value of the stock owned by such shareholder to the value of all stock of such corporation. If, however, there is an agree- ment, express or implied, that a share- holder of a corporation will not receive distributions from the earnings of stock owned by the corporation, the shareholder will not be treated as owning that stock owned by the corporation. (5)Taxable non-stock corporations.A taxable non-stock corporation that is en- titled in its country of organization to de- duct from its taxable income amounts distributed for charitable purposes may deem a recipient of such charitable distri- butions to be a shareholder of such tax- able non-stock corporation in the same proportion as the amount that such benefi- ciary receives in the taxable year bears to the total income of such taxable non-stock corporation in the taxable year. Whether each such recipient is a qualified share- holder may then be determined under para- graph (b) of this section or under the special rules of paragraph (d)(3)(vii) of this sec- tion. (6)Mutual insurance companies and similar entities. Stock held by a mutual in- surance company, mutual savings bank, or similar entity (including an association tax- able as a corporation that does not issue stock interests) shall be considered owned proportionately by the policy holders, de- positors, or other owners in the same pro- portion that such persons share in the surplus of such entity upon liquidation or dissolution. (7)Computation of beneficial interests in non-government pension funds. Stock held by a pension fund shall be consid- ered owned by the beneficiaries of the fund equally on apro-ratabasis if— (i) The pension fund meets the require- ments of paragraph (b)(5)(iii) of this sec- tion; (ii) The trustees, directors or other ad- ministrators of the pension fund have no knowledge, and no reason to know, that a pro-rataallocation of interests of the fund to all beneficiaries would differ signifi- cantly from an actuarial allocation of in- terests in the fund (or, if the beneficiaries’ actuarial interest in the stock held directly or indirectly by the pension fund differs from the beneficiaries’actuarial interest in the pension fund, the actuarial interests computed by reference to the beneficia- ries’actuarial interest in the stock); (iii) Either— (A) Any overfunding of the pension fund would be payable, pursuant to the govern- ing instrument or the laws of the foreign country in which the pension fund is ad- ministered, only to, or for the benefit of, one or more corporations that are organized in the country in which the pension fund is ad- ministered, individual beneficiaries of the pension fund or their designated beneficia- ries, or social or charitable causes (the re- duction of the obligation of the sponsoring company or companies to make future con- tributions to the pension fund by reason of overfunding shall not itself result in such overfunding being deemed to be payable to or for the benefit of such company or com- panies); or (B) The foreign country in which the pension fund is administered has laws that are designed to prevent overfunding of a pension fund and the funding of the pen- sion fund is within the guidelines of such laws; or (C) The pension fund is maintained to provide benefits to employees in a particu- lar industry, profession, or group of indus- tries or professions and employees of at least 10 companies (other than compa- nies that are owned or controlled, directly or indirectly, by the same interests) con- tribute to the pension fund or receive ben- efits from the pension fund; and (iv) The trustees, directors or other ad- ministrators provide the relevant documen- tation as required in paragraph (d) of this section. (d)Substantiation of stock ownership— (1)General rule. A foreign corporation that relies on this section to satisfy the stock ownership test of§1.883–1(c)(2), must es- tablish all the facts necessary to satisfy the Commissioner that more than 50 percent of the value of its shares is owned, or treated as owned applying paragraph (c) of this sec- tion, by qualified shareholders. A foreign corporation cannot meet this requirement with respect to any stock that is issued in bearer form. A shareholder that holds shares in the foreign corporation either directly or indirectly in bearer form cannot be a quali- fied shareholder. (2)Application of general rule—(i) Ownership statements. Except as provided in paragraph (d)(3) of this section, a per- son shall only be treated as a qualified shareholder of a foreign corporation if— (A) For the relevant period, the person completes an ownership statement described in paragraph (d)(4) of this section or has a valid ownership statement in effect under paragraph (d)(2)(ii) of this section; (B) In the case of a person owning stock in the foreign corporation indirectly through one or more intermediaries (including mere legal owners or recordholders acting as nominees), each intermediary in the chain of ownership between that person and the foreign corporation seeking qualified for- eign corporation status completes an inter- mediary ownership statement described in paragraph (d)(4)(v) of this section or has a valid intermediary ownership statement in effect under paragraph (d)(2)(ii) of this section; and (C) The foreign corporation seeking qualified foreign corporation status ob- tains the statements described in paragraphs (d)(2)(i)(A) and (B) of this section. (ii)Three-year period of validity. The ownership statements required in para- graph (d)(2)(i) of this section shall re- main valid until the earlier of the last day of the third calendar year following the year in which the ownership statement is signed, or the day that a change of circumstance oc- curs that makes any information on the ownership statement incorrect. For ex- ample, an ownership statement signed on September 30, 2000, remains valid through December 31, 2003, unless a change of cir- cumstance occurs that makes any informa- tion on the ownership statement incorrect. (3)Special rules—(i)Substantiating resi- dence of certain shareholders. A foreign corporation seeking qualified foreign cor- poration status or an intermediary that is a direct or indirect shareholder of such for- eign corporation may substantiate the resi- dence of certain shareholders, for purposes 2002–36 I.R.B.509September 9, 2002 of paragraph (b)(2)(i)(B) of this section, un- der one of the following special rules in paragraphs (d)(3)(ii) through (viii) of this section, in lieu of obtaining the owner- ship statements required in paragraph (d)(2)(i) of this section from such share- holders. (ii)Special rule for registered share- holders owning less than one percent of widely-held corporations. A foreign cor- poration with at least 250 registered share- holders, that is not a publicly-traded corporation, as described in§1.883–2(a widely-held corporation), is not required to obtain an ownership statement from an in- dividual shareholder owning less than one percent of the widely-held corporation at all times during the taxable year if the require- ments of (A) and (B) of this paragraph (d)(3)(ii) are satisfied. If the widely-held for- eign corporation is the foreign corpora- tion seeking qualified foreign corporation status, or an intermediary that meets the documentation requirements of paragraphs (d)(4)(v)(A) and (B) of this section, the widely-held foreign corporation may treat the address of record in its ownership records as the residence of any less than one percent individual shareholder if— (A) The individual’s address of record is a specific street address and not a non- residential address, such as a post office box or in care of a financial intermediary or stock transfer agent; and (B) The officers and directors of the widely-held corporation neither know nor have reason to know that the individual does not reside at that address. (iii)Special rule for beneficiaries of pen- sion funds—(A)Government pension fund. An individual who is a beneficiary of a gov- ernment pension fund, as defined in para- graph (b)(5)(ii) of this section, may be treated as a resident of the country in which the pension fund is administered if the pen- sion fund satisfies the documentation re- quirements of paragraphs (d)(4)(v)(A) and (C)(1) of this section. (B)Non-government pension fund.An individual who is a beneficiary of a non- government pension fund, as described in paragraph (b)(5)(iii) of this section, may be treated as a resident of the country of the beneficiary’s address as it appears on the records of the fund, provided it is not a non- residential address, such as a post office box or an address in care of a financial inter- mediary, and provided none of the trust- ees, directors or other administrators of the pension fund know, or have reason to know, that the beneficiary is not an individual resi- dent of such foreign country. The rules of this paragraph (d)(3)(iii)(B) shall apply only if the non-government pension fund satis- fies the documentation requirements of para- graphs (d)(4)(v)(A) and (C)(2) of this section. (iv)Special rule for stock owned by publicly-traded corporations. Any stock in a foreign corporation seeking qualified for- eign corporation status that is owned by a publicly-traded corporation will be treated as owned by an individual resident in the country where the publicly-traded corpo- ration is organized if the foreign corpora- tion receives the statement described in paragraph (d)(4)(iii) of this section from the publicly-traded corporation and copies of any relevant ownership statements from shareholders of the publicly-traded corpo- ration relied on to satisfy the exception to the closely-held test of§1.883–2(d)(3)(ii), as required in paragraph (d)(2)(i) of this sec- tion. (v)Special rule for not-for-profit orga- nizations. For purposes of meeting the own- ership requirements of paragraph (a) of this section, a not-for-profit organization may rely on the addresses of record of its indi- vidual beneficiaries and supporters to de- termine the residence of an individual beneficiary or supporter, within the mean- ing of paragraph (b)(2)(i)(B) of this sec- tion, to the extent required under paragraph (b)(4) of this section, provided that— (A) The addresses of record are not non- residential addresses such as a post office box or in care of a financial intermedi- ary; (B) The officers, directors or adminis- trators of the organization do not know or have reason to know that the individual ben- eficiaries or supporters do not reside at that address; and (C) The foreign corporation seeking qualified foreign corporation status re- ceives the statement required in paragraph (d)(4)(iv) of this section from the not-for- profit organization. (vi)Special rule for a foreign airline covered by an air services agreement. A for- eign airline that is covered by a bilateral Air Services Agreement in force between the United States and the qualified foreign country in which the airline is organized may rely exclusively on the Air Services Agreement currently in effect and will not have to otherwise substantiate its owner- ship under this section, provided that the United States has not waived the owner- ship requirements in the agreement or that the ownership requirements have not oth- erwise been made ineffective. Such an air- line will be treated as owned by qualified shareholders resident in the country where the foreign airline is organized. (vii)Special rule for taxable non-stock corporations. Any stock in a foreign cor- poration seeking qualified foreign corpo- ration status that is owned by a taxable non- stock corporation will be treated as owned, in any taxable year, by the recipients of dis- tributions made during that taxable year, as set out in paragraph (c)(5) of this section. The taxable non-stock corporation may treat the address of record in its distribution records as the residence of any recipient if— (A) An individual recipient’s address is in a qualified foreign country and is a spe- cific street address and not a non-residential address, such as a post office box or in care of a financial intermediary or stock trans- fer agent; (B) The address of a non-individual re- cipient’s principal place of business is in a qualified foreign country; (C) The officers and directors of the tax- able non-stock corporation neither know nor have reason to know that the recipients do not reside or have their principal place of business at such addresses; and (D) The foreign corporation receives the statement described in paragraph (d)(4)(v) (D) of this section from the taxable non- stock corporation intermediary. (viii)Special rule for closely-held cor- porations traded in the United States.To demonstrate that a class of stock is not closely-held for purposes of§1.883– 2(d)(3)(i), a foreign corporation whose stock is traded on an established securities mar- ket in the United States may rely on its most current SEC Form 13G filing (State- ment of Beneficial Ownership by Certain Persons) for the taxable year to identify its 5-percent shareholders in each class of stock relied upon to meet the regularly traded test, without having to make any independent in- vestigation to determine the identity of the 5-percent shareholder. However, if any class of stock is determined to be closely-held within the meaning of§1.883–2(d)(3)(i), the publicly traded corporation cannot sat- September 9, 20025102002–36 I.R.B. isfy the requirements of§1.883–2(e) un- less it obtains sufficient documentation described in this paragraph (d) to demon- strate that the requirements of§1.883– 2(d)(3)(ii) are met with respect to the 5-percent shareholders. (4)Ownershipstatementsfrom shareholders—(i)Ownership statements from individuals. An ownership statement from an individual is a written statement signed by the individual under penalties of perjury stating— (A) The individual’s name, permanent address, and country where the individual is fully liable to tax as a resident, if any; (B) If the individual was not a resi- dent of the country for the entire taxable year of the foreign corporation seeking qualified foreign corporation status, each of the foreign countries in which the indi- vidual resided and the dates of such resi- dence during the taxable year of such foreign corporation; (C) If the individual directly owns stock in the corporation seeking qualified for- eign corporation status, the name of the cor- poration, the number of shares in each class of stock of the corporation that are so owned, and the period of time during the taxable year of the foreign corporation dur- ing which the individual owned the stock; (D) If the individual directly owns an in- terest in a corporation, partnership, trust, es- tate or other intermediary that directly or indirectly owns stock in the corporation seeking qualified foreign corporation sta- tus, the name of the intermediary, the num- ber and class of shares or amount and nature of the interest of the individual in such intermediary, and the period of time during the taxable year of the corporation seeking qualified foreign corporation sta- tus during which the individual held such interest; (E) To the extent known by the indi- vidual, a description of the chain of own- ership through which the individual owns stock in the corporation seeking qualified foreign corporation status, including the name and address of each intermediary standing between the intermediary described in paragraph (d)(4)(i)(D) of this section and the foreign corporation and whether this in- terest is owned either directly or indirectly through bearer shares; and (F) Any other information as specified in guidance published by the Internal Rev- enue Service (see§601.601(d)(2) of this chapter). (ii)Ownership statements from foreign governments. An ownership statement from a foreign government that is a qualified shareholder is a written statement— (A) Signed by any one of the following— (1) An official of the governmental au- thority, agency or office who has supervi- sory authority with respect to the government’s ownership interest and who is authorized to sign such a statement on behalf of the authority, agency or office; or (2) The competent authority of the for- eign country (as defined in the income tax convention between the United States and the foreign country); or (3) An income tax return preparer that, for purposes of this paragraph (d)(4)(ii) only, shall mean a firm of licensed or certified public accountants, a law firm whose prin- cipals or members are admitted to prac- tice in one or more states, territories or possessions of the United States or the country of such government, or a bank or other financial institution licensed to do business in such foreign country and hav- ing assets at least equivalent to 50 mil- lion U.S. dollars and who is authorized to represent the government or governmen- tal authority; and (B) That provides— (1) The title of the official or other per- son signing the statement; (2) The name and address of the gov- ernment authority, agency or office that has supervisory authority and, if applicable, the income tax preparer which has prepared such ownership statement; (3) The information described in para- graphs (d)(4)(i)(C) through (F) of this sec- tion(asifthelanguageapplied “government”instead of“individual”) with respect to the government’s direct or indi- rect ownership of stock in the corpora- tion seeking qualified resident status; (4) In the case of an ownership state- ment prepared by an income tax return pre- parer, a statement under penalties of perjury identifying the documentation relied upon in the conduct of due diligence for the tax- able year to determine the aggregate gov- ernment investment in the stock of the shipping or aircraft company in prepara- tion of such ownership statement attached to a valid power of attorney to represent the taxpayer for the taxable year; and (5) Any other information as specified in guidance published by the Internal Rev- enue Service (see§601.601(d)(2) of this chapter). (iii)Ownership statements from publicly- traded corporate shareholders. An owner- ship statement from a publicly-traded corporation that is a direct or indirect owner of the corporation seeking qualified for- eign corporation status is a written state- ment, signed under penalties of perjury by a person that would be authorized to sign a tax return on behalf of the shareholder corporation containing the following information— (A) The name of the country in which the stock is primarily traded; (B) The name of the established secu- rities market or markets on which the stock is listed; (C) A description of each class of stock relied upon to meet the requirements of §1.883–2(d)(1), including the number of shares issued and outstanding as of the close of the taxable year; (D) For each class of stock relied upon to meet the requirements of§1.883–2(d)(1), if one or more 5-percent shareholders, as defined in§1.883–2(d)(3)(i), own in the ag- gregate 50 percent or more of the value of the outstanding shares of that class of stock at any time during the taxable year, state— (1) The highest total percentage of the value of the class of stock that is owned by such 5-percent shareholders; (2) For each qualified shareholder who owns or is treated as owning stock in the closely-held block upon whom the corpo- ration intends to rely to satisfy the excep- tion to the closely-held test of§1.883– 2(d)(3)(ii)— (i) The name of each such shareholder; (ii) The percentage of the total value of the class of stock held by each such share- holder; (iii) The address of record of each such shareholder; (iv) The country of residence of each such shareholder, determined under para- graph (b)(2) or (d)(3) of this section; and (E) The portion of the taxable year of the corporation during which the stock was closely-held without regard to the excep- tion in§1.883–2(d)(3)(ii); 2002–36 I.R.B.511September 9, 2002 (F) The information described in para- graphs (d)(4)(i)(C) through (F) of this sec- tion (as if the language applied“publicly- traded corporation”instead of“individual”) with respect to the publicly-traded corpo- ration’s direct or indirect ownership of stock in the corporation seeking qualified resi- dent status; and (G) Any other information as speci- fied in guidance published by the Internal Revenue Service (see§601.601(d)(2) of this chapter). (iv)Ownership statements from not-for- profit organizations. An ownership state- ment from a not-for-profit organization (other than a pension fund as defined in paragraph (b)(5) of this section) is a writ- ten statement signed by a person autho- rized to sign a tax return on behalf of the organization under penalties of perjury stating— (A) The name, permanent address, and principal location of the activities of the or- ganization (if different from its perma- nent address); (B) The information described in para- graphs (d)(4)(i)(C) through (F) of this sec- tion (as if the language applied“not-for- profit organization”instead of“individual”); (C) A representation that the not-for- profit organization satisfies the require- ments of paragraph (b)(4) of this section; and (D) Any other information as speci- fied in guidance published by the Internal Revenue Service (see§601.601(d)(2) of this chapter). (v)Ownershipstatementsfrom intermediaries—(A)General rule. The for- eign corporation seeking qualified for- eign corporation status under the shareholder stock ownership test must obtain an inter- mediary ownership statement from each in- termediary standing in the chain of ownership between it and the qualified shareholders on whom it relies to meet this test. An intermediary ownership statement is a written statement signed under penal- ties of perjury by the intermediary (if the intermediary is an individual) or a person who would be authorized to sign a tax re- turn on behalf of the intermediary (if the intermediary is not an individual) contain- ing the following information— (1) The name, address, country of resi- dence, and principal place of business (in the case of a corporation or partnership) of the intermediary, and, if the intermediary is a trust or estate, the name and perma- nent address of all trustees or executors (or equivalent under foreign law), or if the in- termediary is a pension fund, the name and permanent address of place of administra- tion of the intermediary; (2) The information described in para- graphs (d)(4)(i)(C) through (F) of this section (as if the language applied“inter- mediary”instead of“individual”); (3) If the intermediary is a nominee for a shareholder or another intermediary, the name and permanent address of the share- holder, or the name and principal place of business of such other intermediary; (4) If the intermediary is not a nomi- nee for a shareholder or another interme- diary, the name and country of residence (within the meaning of paragraph (b)(2) of this section) and the proportionate inter- est in the intermediary of each direct share- holder, partner, beneficiary, grantor, or other interest holder (or if the direct holder is a nominee, of its beneficial shareholder, part- ner, beneficiary, grantor, or other interest holder), on which the foreign corporation seeking qualified foreign corporation sta- tus intends to rely to satisfy the require- ments of paragraph (a) of this section. In addition, such intermediary must obtain from all such persons an ownership state- ment that includes the period of time dur- ing the taxable year for which the interest in the intermediary was owned by the share- holder, partner, beneficiary, grantor or other interest holder. For purposes of this para- graph (d)(4)(v)(A), the proportionate in- terest of a person in an intermediary is the percentage interest (by value) held by such person, determined using the principles for attributing ownership in paragraph (c) of this section; (5) If the intermediary is a widely-held corporation with registered shareholders owning less than one percent of the stock of such widely-held corporation, the state- ment set out in paragraph (d)(4)(v)(B) of this section, relating to ownership state- ments from widely-held intermediaries with registered shareholders owning less than one percent of such widely-held intermediar- ies; (6) If the intermediary is a pension fund, within the meaning of paragraph (b)(5) of this section, the statement set out in para- graph (d)(4)(v)(C) of this section, relat- ing to ownership statements from pension funds; (7) If the intermediary is a taxable non- stock corporation, within the meaning of paragraph (c)(5) of this section, the state- ment set out in paragraph (d)(4)(v)(D) of this section, relating to ownership state- ments from intermediaries that are tax- able non-stock corporations; and (8) Any other information as specified in guidance published by the Internal Rev- enue Service (see§601.601(d)(2) of this chapter). (B)Ownership statements from widely- held intermediaries with registered share- holders owning less than one percent of such widely-held intermediary. An owner- ship statement from an intermediary that is a corporation with at least 250 registered shareholders, but that is not a publicly- traded corporation within the meaning of §1.883–2, and that relies on paragraph (d)(3)(ii) of this section, relating to the spe- cial rule for registered shareholders own- ing less than one percent of widely-held corporations, must provide the following in- formation in addition to the information re- quired in paragraph (d)(4)(v)(A) of this section— (1) The aggregate proportionate inter- est by country of residence in the widely- held corporation of such registered shareholders or other interest holders whose address of record is a specific street ad- dress and not a non-residential address, such as a post office box or in care of a finan- cial intermediary or stock transfer agent; and (2) A representation that the officers and directors of the widely-held intermediary neither know nor have reason to know that the individual shareholder does not reside at his or her address of record in the cor- porate records; and (3) Any other information as specified in guidance published by the Internal Rev- enue Service (see§601.601(d)(2) of this chapter). (C)Ownership statements from pen- sion funds—(1)Ownership statements from government pension funds. A government pension fund (as defined in paragraph (b)(5)(ii) of this section) that relies on para- graph (d)(3)(iii) of this section (relating to the special rules for pension funds) gener- ally must provide the documentation re- quired in paragraph (d)(4)(v)(A) of this section, and, in addition, the government pension fund must also provide the fol- lowing information— September 9, 20025122002–36 I.R.B. (i) The name of the country in which the plan is administered; (ii) A representation that the fund is es- tablished exclusively for the benefit of em- ployees or former employees of a foreign government, or employees or former em- ployees of a foreign government and non- governmental employees or former employees that perform or performed gov- ernmental or social services; (iii) A representation that the funds that comprise the trust are managed by trust- ees who are employees of, or persons ap- pointed by, the foreign government; (iv) A representation that the trust form- ing part of the pension plan provides for re- tirement, disability, or death benefits in consideration for prior services rendered; (v) A representation that the income of the trust satisfies the obligations of the for- eign government to the participants under the plan, rather than inuring to the ben- efit of a private person; and (vi) Any other information as speci- fied in guidance published by the Internal Revenue Service (see§601.601(d)(2) of this chapter). (2)Ownership statements from non- government pension funds. The trustees, di- rectors, or other administrators of the non- government pension fund, as defined in paragraph (b)(5)(iii) of this section, that rely on paragraph (d)(3)(iii) of this section, re- lating to the special rules for pension funds, generally must provide the pension fund’s intermediary ownership statement described in paragraph (d)(4)(v)(A) of this section. In addition, the non-government pension fund mustalsoprovidethefollowing information— (i) The name of the country in which the pension fund is administered; (ii) A representation that the pension fund is subject to supervision or regulation by a governmental authority (or other author- ity delegated to perform such supervision or regulation by a governmental author- ity) in such country, and, if so, the name of the governmental authority (or other au- thority delegated to perform such supervi- sion or regulation); (iii) A representation that the pension fund is generally exempt from income taxa- tion in its country of administration; (iv) The number of beneficiaries in the pension plan; (v) The aggregate percentage interest of beneficiaries by country of residence based on addresses shown on the books and records of the fund, provided the addresses are not nonresidential addresses, such as a post office box or an address in care of a financial intermediary, and provided none of the trustees, directors or other adminis- trators of the pension fund know, or have reason to know, that the beneficiary is not a resident of such foreign country; (vi) A representation that the pension fund meets the requirements of paragraph (b)(5)(iii) of this section; (vii) A representation that the trustees, directors or other administrators of the pen- sion fund have no knowledge, and no rea- son to know, that apro-rataallocation of interests of the fund to all beneficiaries would differ significantly from an actu- arial allocation of interests in the fund (or, if the beneficiaries’actuarial interest in the stock held directly or indirectly by the pen- sion fund differs from the beneficiaries’s ac- tuarial interest in the pension fund, the actuarial interests computed by reference to the beneficiaries’actuarial interest in the stock); (viii) A representation that any over- funding of the pension fund would be pay- able, pursuant to the governing instrument or the laws of the foreign country in which the pension fund is administered, only to, or for the benefit of, one or more corpo- rations that are organized in the country in which the pension fund is administered, in- dividual beneficiaries of the pension fund or their designated beneficiaries, or social or charitable causes (the reduction of the obligation of the sponsoring company or companies to make future contributions to the pension fund by reason of overfund- ing shall not itself result in such overfund- ing being deemed to be payable to or for the benefit of such company or compa- nies); or that the foreign country in which the pension fund is administered has laws that are designed to prevent overfunding of a pension fund and the funding of the pen- sion fund is within the guidelines of such laws; or that the pension fund is main- tained to provide benefits to employees in a particular industry, profession, or group of industries or professions, and that em- ployees of at least 10 companies (other than companies that are owned or controlled, di- rectly or indirectly, by the same interests) contribute to the pension fund or receive benefits from the pension fund; and (ix) Any other information as speci- fied in guidance published by the Internal Revenue Service (see§601.601(d)(2) of this chapter). (3)Time for making determinations. The determinations required to be made under this paragraph (d)(4)(v)(C) shall be made using information shown on the records of the pension fund for a date during the for- eign corporation’s taxable year to which the determination is relevant. (D)Ownership statements from tax- able non-stock corporations. An owner- ship statement from an intermediary that is a taxable non-stock corporation must pro- vide the following information in addi- tion to the information required in paragraph (d)(4)(v)(A) of this section— (1) With respect to paragraph (d)(4)(v) (A)(7) of this section, for each benefi- ciary that is treated as a qualified share- holder, the name, address of residence (in the case of an individual beneficiary, the ad- dress must be a specific street address and not a non-residential address, such as a post office box or in care of a financial inter- mediary; in the case of a non-individual beneficiary, the address of the principal place of business) and percentage that is the same proportion as the amount that the ben- eficiary receives in the tax year bears to the total net income of the taxable non-stock corporation in the tax year; (2) A representation that the officers and directors of the taxable non-stock corpo- ration neither know nor have reason to know that the individual beneficiaries do not reside at the address listed in paragraph (d)(4)(v)(D)(1) of this section or that any other non-individual beneficiary does not conduct its primary activities at such ad- dress or in such country of residence; and (3) Any other information as specified in guidance published by the Internal Rev- enue Service (see§601.601(d)(2) of this chapter). (5)Availability and retention of docu- ments for inspection. The documentation de- scribed in paragraphs (d)(3) and (4) of this section must be retained by the corpora- tion seeking qualified foreign corporation status (the foreign corporation) until the ex- piration of the statute of limitations for the taxable year of the foreign corporation to which the documentation relates. Such documentation must be made available for 2002–36 I.R.B.513September 9, 2002 inspection by the Commissioner at such time and place as the Commissioner may request in writing. (e)Reporting requirements. A foreign corporation relying on the qualified share- holder stock ownership test of this sec- tion to meet the stock ownership test of §1.883–1(c)(2) must provide the follow- ing information in addition to the informa- tion required in§1.883–1(c)(3) to be included in its Form 1120F,“U.S. Income Tax Return of a Foreign Corporation”for each taxable year. The information should be current as of the end of the corpora- tion’s taxable year. The information must include the following— (1) A representation that more than 50 percent of the value of the outstanding shares of the corporation is owned (or treated as owned by reason of paragraph (c) of this section) by qualified shareholders for each category of income for which the ex- emption is claimed; (2) With respect to each individual quali- fied shareholder owning 5 percent or more of the foreign corporation, applying the at- tribution rules of paragraph (c) of this sec- tion, and relied upon to meet the 50 percent ownership test of paragraph (a) of this sec- tion, the name and street address, as rep- resented on each such individual’s ownership statement; (3) With respect to all qualified share- holders relied upon to satisfy the 50 per- cent ownership test of paragraph (a) of this section, the total percentage of the value of the outstanding shares owned, applying the attribution rules of paragraph (c) of this sec- tion, by all qualified shareholders resi- dent in a qualified foreign country, by country; and (4) Any other relevant information speci- fied by the Form 1120F and its accompa- nying instructions. §1.883–5 Effective date. (a)General rule. Sections 1.883–1 through 1.883–4 apply to taxable years of a foreign corporation seeking qualified for- eign corporation status beginning 30 days or more after the date these regulations are published as final regulations in theFed- eral Register. (b)Election for retroactive applica- tion. When these regulations are published as final regulations, taxpayers will be per- mitted to elect to apply§§1.883–1 through 1.883–4, as finalized, for any open tax- able year of the foreign corporation begin- ning after December 31, 1986, except that the substantiation and reporting require- ments of§1.883–1(c)(3) (relating to the substantiation and reporting required to be treated as a qualified foreign corporation) or§§1.883–2(f), 1.883–3(d) and 1.883– 4(e) (relating to additional information to be included in the return to demonstrate whether the foreign corporation satisfies the stock ownership test) will not apply to any year beginning before the applicable date of the final regulations. Such election shall apply to the taxable year of the election and to all subsequent taxable years prior to the effective date of this regulation. Pending fi- nalization of these regulations, if a for- eign corporation complies with the proposed regulations, it will be considered substan- tial evidence that the foreign corporation is a qualified foreign corporation. (c)Transitional information reporting rule. For taxable years of the foreign cor- poration beginning 30 days or more after the date these regulations are published as final regulations in theFederal Register, and until such time as the Form 1120F and its instructions are revised to conform to §§1.883–1 through 1.883–4, the informa- tion required in§1.883–1(c)(3) and §1.883–2(f), 1.883–3(d) or 1.883–4(e), as applicable, must be included on a written statement signed under penalties of per- jury by a person authorized to sign the re- turn, attached to the Form 1120F, and filed with the return. Robert E. Wenzel, Deputy Commissioner of Internal Revenue. (Filed by the Office of the Federal Register on July 31, 2002, 8:45 a.m., and published in the issue of the Federal Regis- ter for August 2, 2002, 67 F.R. 50509) Internal Revenue Bulletin (I.R.B.)—2002–33, August 19, 2002; Correction Announcement 2002–78 This document explains what to do with a second copy you received of I.R.B. 2002– 33, dated August 19, 2002. Summary The Internal Revenue Bulletin (I.R.B. 2002–33), dated August 19, 2002, may con- tain misprints. Because of problems with the printer, copies of this weekly bulletin con- taining errors were published and distrib- uted. The articles within the bulletin contain punctuation mark misprints. These mis- prints appear throughout the bulletin. We have corrected, reprinted, and re- shipped I.R.B. 2002–33, dated August 19, 2002. A quick way to determine whether the copy you received contains these misprints is to go to Table 1 on page 327. If, under “Table 1” it reads...Then you have ... “Rev. Rul. 2002–51”A correct copy of the bulletin. Anything elseAn incorrect copy of the bulletin and should discard this ver- sion. We apologize for any inconvenience or misunderstanding this may have caused. September 9, 20025142002–36 I.R.B. Guidance on Cost Recovery Under the Income Forecast Method; Correction Announcement 2002–79 AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Correction to notice of proposed rulemaking and notice of public hearing. SUMMARY: This document contains a correction to a notice of proposed rule- making (REG–103823–99, 2002–27 I.R.B. 44) that was published in theFederal Reg- isteron Friday, May 31, 2002 (67 FR 38025), relating to deductions available to taxpayers using the income forecast method of depreciation. FORFURTHERINFORMATION CONTACT: Bernard P. Harvey (202) 622– 3110 (not a toll-free number). SUPPLEMENTARY INFORMATION: Background The notice of proposed rulemaking (REG–103823–99) that is the subject of this correction is under section 167 of the In- ternal Revenue Code. Need for Correction As published, the notice of proposed rulemaking (REG–103823–99) contains an error that may prove to be misleading and is in need of clarification. Correction of Publication Accordingly, the publication of the no- tice of proposed rulemaking and notice of public hearing (REG–103823–99), which was the subject of FR Doc. 02–13578, is corrected as follows: §1.167(n)–6 [Corrected] On page 38035, column 1,§1.167(n)– 6(c)(2)(ii), line 5, the language“income) in any taxable year prior”is corrected to read “income) in any prior taxable year”. LaNita VanDyke, Acting Chief, Regulations Unit, Associate Chief Counsel (Income Tax & Accounting). (Filed by the Office of the Federal Register on August 5, 2002, 8:45 a.m., and published in the issue of the Federal Regis- ter for August 6, 2002, 67 F.R. 50840) Foundations Status of Certain Organizations Announcement 2002–80 The following organizations have failed to establish or have been unable to main- tain their status as public charities or as op- erating foundations. Accordingly, grantors and contributors may not, after this date, rely on previous rulings or designations in the Cumulative List of Organizations (Pub- lication 78), or on the presumption aris- ing from the filing of notices under section 508(b) of the Code. This listing doesnot indicate that the organizations have lost their status as organizations described in sec- tion 501(c)(3), eligible to receive deduct- ible contributions. Former Public Charities.The follow- ing organizations (which have been treated as organizations that are not private foun- dations described in section 509(a) of the Code) are now classified as private foundations: 2D New Jersey Brigade, Inc., Cedar Grove, NJ Adam Community Development Corp., New Orleans, LA Advocates of Christ Ministries, Inc., Baton Rouge, LA Advoguard, Inc., Rockland, MA African-American Family Circle, Inc., Teaneck, NJ Allens Health Care Center, Salisbury, NC Alliance for the Mentally Ill of Dorchester Mattpan Roxbury, Inc., Roxbury, MA American Conflict Resolution Institute, Sacramento, CA American Foundation for the Disabled of Chernobyl, Inc., Brookline, MA American Friends of Ohr Shlomo, Inc., West Hempstead, NY American Friends of the College of Management, Inc., New York, NY American Museum of Ukiyo-E Pacific Palisades, CA Americare Research Institute, Inc., Miami, FL Amici Del Nord Cultural Foundation, Inc., New York, NY Anderson Field Land Trust, Albuquerque, NM Arts Reaching Through Society, Jamaica Plain, MA Asian American Broadcast Network, Inc., Boston, MA Bay State Clippers Soccer Club, Plymouth, MA Beautillion of Greater Springfield, Inc., Springfield, MA Begin Again, Inc., Newburyport, MA Blue Mountain Union School Endowment Fund, Wells River, VT BMM Boston Convention, Inc., Medfield, MA Boston Links Charitable Fund, Inc., Boston, MA Bow Soccer Club, Inc., Bow, NH Boylston Education Foundation, Inc., Boylston, MA Buena Vista Community Development Corporation, Nashville, TN Buffalo Historical Society, Buffalo, ND C. A. D. A. Coalition Against Domestic Abuse, Inc., Kingston, TN Calaveras County Youth Park Assoc., Angeles Camp, CA California D.A.R.E. Officers Association, Hayward, CA Caloyeras Hellenic Foundation, Gardena, CA Cape & Islands Children’s Charity, Inc., Hyannisport, MA Cape & Islands Prevention Partnership, Inc., Barnstable, MA CDGS Family Network, Schaumberg, IL Center for Ancient Iranian Studies, Newton, MA Center for Enlightened Living, Inc., W. Harwich, MA Center for Global Education and Development, Inc., Boston, MA Charleston Area Tennis Association, South Charleston, WV Chauncy House Community Corporation, Boston, MA Chet Moore Educational Foundation, Oakdale, CA Childrens Fund of San Bernardino, San Bernardino, CA Chillicothe Choral Club, Chillicothe, OH Chinese Womens Association of New England, Waltham, MA Christian Church News and Events, Greensboro, NC Christmas in Action Inc., River Oaks Texas, River Oaks, TX 2002–36 I.R.B.515September 9, 2002 Christopher Hattie Scholarship Fund, Peterborough, NH City of Burnet Police Activities League, Inc., Burnet, TX Comforting Arms Society, Pittsburg, CA Community Resource Management, Inc., Lynn, MA Consumer and Business Debt Counseling Services, Incorporated, Braintree, MA Council of Armenian American Nurses, Belmont, MA Creative Outlet-A Theater Company, Los Angeles, CA Cuff Link Museum, Conway, NH Cushing Manor Community Support Facility, Inc., Dorchester, MA Daniel J. Mueller Gift of Love Foundation, Inc., Medway, MA Dean Sueltenfuss Journalism Scholarship Trust, Boerne, TX Delaware Alliance of Professions for the Homeless, Inc., Wilmington, DE Denison Community Housing Corporation, Denison, TX Dickinson County Kinship, Inc., Spirit Lake, IA Dierdre Foundation, Austin, TX Dignity-Fall River, Dartmouth, MA Discovery Foundation, Inc., Tuscaloosa, AL Do N It 4 The Kidz, Inc., Los Angeles, CA Dorchester Nazarene Compassionate Center, Inc., Dorchester, MA Drug Abuse Resistance Education, Plaistow, NH Easthampton Learning Foundation, Easthampton, MA Ecobridge, San Francisco, CA Eddie Mandell Scholarship Fund, Inc., Boston, MA Evergreen Review, Inc., New York, NY Exeter Area Association for the Arts, Inc., Exeter, NH Fair Foods, Inc., Dorchester, MA Family Peace Project, Inc., St. Johnsbury, VT Fire Cracker–The Worcester Autonomy Center, Inc., Worcester, MA First Coast Endocrinology Foundation, Inc., Miami, FL Florida Gulf Coast Amateur Hockey Association, Inc., Naples, FL For Kids Only, Newport Beach, CA Foundation for Advanced Emotional Intel- ligence and Leadership, Ottsville, PA Friends of Cranberry Hospice, Inc., Duxbury, MA Friends of St. Johns, Portland, OR Friends of the Adolphus Sterne Home, Inc., Nacogdoches, TX Gate Chili Color Guard Parents, Inc., Rochester, NY Good Samaritan, Houston, TX Gospel Ministries, San Antonio, TX Grace Street Performing Arts Center, Richmond, VA Grandville County Partnership for Young Children, Inc., Henderson, NC Granite State Quality Council, Inc., Manchester, NH Greeley Preservation Housing Corporation, Greeley, CO Green Mountain Vietnam-Era Veterans Assistance Corporation, Bennington, UT Hands of Charity, St. Albans, VT Henry’s Home Charitable Foundation, Ipswich, MA Heriditary Neurological Disease Centre, Inc., Wichita, KS Holy Cross Senior Housing Corp., Colchester, VT Hope Center, Manchester, NH Hope Eternal Springs, Inc., Fort Worth, TX Hot Tin Roof Foundation of Marthas Vineyard, Inc., Edgartown, MA Hull Youth Football Association, Inc., Hull, MA Huntington Summer Youth Program, Huntington, TX Institute for Applied Sciences, Williston, VT Interculture Foundation of America, Inc., Plantation, FL International Foundation for Cancer, Inc., Boston, MA Irish Cultural Society, Mountain View, CA Island Gymnastics Training School, Inc., West Tisbury, MA Jackson Hole Crusade, Jackson, WY John J. Barton Apartments Resident Council, Inc., Indianapolis, IN Joseph A. Ferrarra Scholarship Fund, Inc., Garden City, NY Joseph A. Heidrick Sr. Foundation, Woodland, CA Joseph V. Street Ministries, Bedford, NH Kettle of Fish, Dover, NH Khmer Association of Greater Lawrence, Inc., Methuen, MA Kings Court Foundation, Pasadena, CA La Puente Enterprises, Inc., Alamosa, CO Latino Outreach Council, Inc., San Luis Obispo, CA Lawrence-150th Anniversary Celebration, Inc., North Andover, MA Lev Shlomo Tr., New York, NY Lifelong Striders, Inc., Kenne, NH Lone Star Resource & Development Center, Morton, TX Louisiana Alliance for the Blind, Inc., Lake Charles, LA Main Street Action Association, Inc., Great Barrington, MA Maine Photo Corporation, Scarborough, ME Mary Quinn Foundation, Inc., Lancaster, MA Massachusetts Action for Women, Boston, MA M C Foundation, Cicero, IL Mifal Ozer Dalim, Inc., Monroe, NY Miller Community Association, Glendale, CA Moody Toys For Tots, Pellcity, AL Mulvane Volunteer Emergency Medical Support Association, Mulvane, KS Mustang Parents & Central Teachers of Central Elementary, Gonzales, LA Names Project Southeastern Massachusetts Chapter, Inc., North Dartmouth, MA Nancys House, Inc., Cleveland, TN National Affordable Housing Foundation Portland, Inc., Boston, MA National Association of Consumer Advocates Charitable Fund, Inc., Boston, MA National Association of Engineering Student Councils, Inc., Buffalo, NY N.B.C.-U.S.A. Housing Inc., Twenty-Eight, Newark, OH Necub, Inc., Boston, MA New Awakening, Ltd., Indianapolis, IN New Democracy, Brighton, MA New Horizons Outreach, Ventura, CA New Lyric Theater Project, Inc., New York, NY New Way of Life, Inc., Philadelphia, PA North Carolina Eastern Star Foundation, Mooresville, SC North Salem Baseball and Softball Association, Inc., North Salem, NY Northeast Civic Association, Inc., Indianapolis, IN Northern Illinois Heart Institute, Inc., Elgin, IL Northwest Common, Inc., Cambridge, MA Open House, Bothell, WA Opportunities for Encouragement, Inc., Dallas, TX Optimal Performance Institute, Sunnyvale, CA Our Temple of Salvation, San Fernando, CA People of World Economic Rehabilitation, Inc., Jamaica, NY September 9, 20025162002–36 I.R.B. Pete and Lela Stavros Education Foundation, Oklahoma City, OK Phobics United Foundation, E. Boston, MA Playground Improvement Project-PIP, Tewksbury, MA Porter Hills Home Health Care, Grand Rapids, MI Portuguese-American Business Association, Inc., Boston, MA Power Play, Hazel Crest, IL Project Safety Net Economic Development Corporation, Indianapolis, IN Project Teen Aid Family Services, Inc., Brooklyn, NY PSI Scholarship Foundation Corporation, Irving, TX Quincy Telecommunications Corporation, Inc., Quincy, MA Ramapo Valley Baseball Association, Inc., Ridgewood, NJ Randolph Chinese American Neighborhood Development Org., Inc., Randolph, MA Reliance Landscaping, Parmelee, SD Resource Center for Youth and Their Allies, Inc., Jamaica Plains, MA Retec American Foundation, Inc., Cambridge, MA Romanian Childrens Fund, Westminster, CO Rose of Sharon Ministry, Houston, TX San Bernardino Riverside Counties Native American Community Council, Fontana, CA Sandglass for Puppetry & Theater Research, Ltd., Putney, VT Santa Clara County Peace Officers Campership Program, San Jose, CA Sara Jevo Center for the Media Project, Inc., Boxford, MA Sardius Corporation, Colchester, VT Shea Park, Casar, NC Shiloh Resource Center, Hilton, NY Sister Lakes, Inc., Laconia, NH Sola Scriptura Project, La Quinta, CA Somerville Charter School Foundation, Somerville, MA Songs of Deliverance, Incorporated, Los Angeles, CA Sophias Circle, Inc., Park Ridge, IL South Toms River Community Club, Inc., Beachwood, NJ Spirit of Lindenbergh-A Colorado Nonprofit Corporation, Greeley, CO Spirit Tree, Gahanna, OH Squam Blue and Green Group, Holderness, NH Standing Proud Conductive Learning Center, Inc., Jacksonville, FL Starbucks Foundation, Seattle, WA Stephens Community Center Association, Mechanic Falls, ME Stone Alliance Farm, Inc., Johnson, VT Substance Abuse, Family in Care, Arlington, TX Summerdale Court, Inc., Pittsburgh, PA T & E Productions, Inc., Boca Raton, FL TCB New Hope Housing, Inc., Boston, MA Team Michigan, Inc., Birmingham, MI Texas Association for the Gifted and Talented Foundation, Austin, TX That’s Entertainment Youth Players of Greater Lynn Company, Inc., Swampscott, MA Theatre at Large, Inc., Newton, MA Thee Players, Inc., Bradford, MA Touched by Love Ministries, Inc., Sierra Madre, CA Traditional Abenaki of Mazipskwik and Related Bands, Highgate Center, VT Transamerica Bike Relay, Incorporated, Arlington, MA Triad of Washoe County Nevada, Sparks, NV Vermont Institute for Environmental Health, Worcester, VT Vermont Patent & Trademark Depository Library, Burlington, VT Veterans Guild, Inc., New Salem, MA Vietnamese Buddhist Association of Rochester, Rochester, NY War Chest, Cincinnati, OH Ward Four Neighborhood Association of Quincy, Inc., Quincy, MA Warren Apartments Corporation, Boston, MA White Pond Productions, Inc., Concord, MA Whiting Farms Tenant Association, Inc., Springfield, MA Wildlife Resource Network, Arnold, MO William H. Davis Youth & Enrichment Center, Inc., Memphis, TN Wings Youth Empowerment Services, Carlsbad, CA Winthrop Community Development Corporation, Winthrop, MA Womens Resource Center of Kitsap County, Bremerton, WA Word Magic, Inc., Vineyard Haven, MA World Cannabis Foundation, Los Angeles, CA World Citizen Foundation, Inc., New York, NY World Congress of Colon Therapeutics, Inc., Phoenix, AZ World Village Foundation, San Francisco, CA Youth With a Mission Greater Boston, Inc., Boston, MA If an organization listed above submits information that warrants the renewal of its classification as a public charity or as a pri- vate operating foundation, the Internal Rev- enue Service will issue a ruling or determination letter with the revised clas- sification as to foundation status. Grant- ors and contributors may thereafter rely upon such ruling or determination letter as provided in section 1.509(a)–7 of the In- come Tax Regulations. It is not the prac- tice of the Service to announce such revised classification of foundation status in the In- ternal Revenue Bulletin. 2002–36 I.R.B.517September 9, 2002 Announcement of Disciplinary Actions Involving Attorneys, Certified Public Accountants, Enrolled Agents, and Enrolled Actuaries—Suspensions, Disbarments, and Resignations Under Title 31, Code of Federal Regu- lations, Part 10, attorneys, certified pub- lic accountants, enrolled agents, and enrolled actuaries may not accept assistance from, or assist, any person who is under disbar- ment or suspension from practice before the Internal Revenue Service if the assistance relates to a matter constituting practice be- fore the Internal Revenue Service and may not knowingly aid or abet another person to practice before the Internal Revenue Ser- vice during a period of suspension, disbar- ment, or ineligibility of such other person. To enable attorneys, certified public ac- countants, enrolled agents, and enrolled ac- tuaries to identify persons to whom these restrictions apply, the Director of Practice will announce in the Internal Revenue Bul- letin their names, their city and state, their professional designation, the effective date of disciplinary action, and the period of sus- pension. This announcement will appear in the weekly Bulletin at the earliest practi- cable date after such action and will con- tinue to appear in the weekly Bulletins for five successive weeks. Suspensions From Practice Before the Internal Revenue Service After Notice and an Opportunity for a Proceeding Under Title 31, Code of Federal Regu- lations, Part 10, after notice and an oppor- tunity for a proceeding before an administrative law judge, the following in- dividuals have been placed under suspen- sion from practice before the Internal Revenue Service: NameAddressDesignationEffective Date McKnight, James A.Tequesta, FLEnrolled AgentApril 12, 2001 to October 11, 2002 Donnelly, EdwardMelville, NYCPAApril 17, 2002 to July 16, 2003 Disbarments From Practice Before the Internal Revenue Service After Notice and an Opportunity for a Proceeding Under Title 31, Code of Federal Regu- lations, Part 10, after notice and an oppor- tunity for a proceeding before an administrative law judge, the following in- dividuals have been disbarred from prac- tice before the Internal Revenue Service: NameAddressDesignationEffective Date Schmeiser, Larry W.Limon, COAttorneySeptember 1, 2000 Sayre, Charles L.Ann Arbor, MIAttorneyJanuary 2, 2001 Young, DennisLewiston, IDCPAJanuary 2, 2001 Buckley, Francis M.Marlborough, CTAttorneyJanuary 18, 2001 Dugovich, Frank A.Middleburg Heights, OHCPAJanuary 29, 2001 Kiss, Philip M.Liberyville, ILEnrolled AgentMarch 1, 2001 Mellner, MichaelScranton, PACPAJune 11, 2001 Davis, Jerry A.Leonard, TXCPAJune 13, 2001 September 9, 20025182002–36 I.R.B. NameAddressDesignationEffective Date Thornton, John L.Fayetteville, ARCPAJune 21, 2001 Campbell, David G.Reading, PAAttorneyJuly 10, 2001 Schlabach, John J.Colbert, WACPAJuly 16, 2001 Belin, LeonSouthfield, MICPAAugust 7, 2001 Simpson, JamesElmhurst, ILAttorneySeptember 24, 2001 Berg, Richard L.Vadnais Heights, MNCPAOctober 3, 2001 Riesenmy, DavidJoplin, MOAttorneyOctober 15, 2001 Andrade, RodrigoEl Paso, TXEnrolled AgentNovember 20, 2001 Miller, Larry CharlesPhiladelphia, PAAttorneyJanuary 10, 2002 Melton, Andrew I.Detroit, MICPAFebruary 13, 2002 Daily, J. MichaelClearwater, FLCPAMarch 29, 2002 Klimkowski, Joseph R.Florham, NJCPAMarch 29, 2002 Greene, William M.Center Sandwich, NHAttorneyMarch 29, 2002 Bart, AdrianTulsa, OKCPAApril 17, 2002 Consent Suspensions From Practice Before the Internal Revenue Service Under Title 31, Code of Federal Regu- lations, Part 10, an attorney, certified pub- lic accountant, enrolled agent, or enrolled actuary, in order to avoid the institution or conclusion of a proceeding for his or her disbarment or suspension from practice before the Internal Revenue Service, may offer his or her consent to suspension from such practice. The Director of Practice, in his discretion, may suspend an attorney, cer- tified public accountant, enrolled agent or enrolled actuary in accordance with the con- sent offered. The following individuals have been placed under consent suspension from prac- tice before the Internal Revenue Service: NameAddressDesignationDate of Suspension McDaniel III, Troy J.Atlanta, GACPAIndefinite from June 6, 2000 Levine, PaulLos Angeles, CACPAFebruary 1, 2001 to January 31, 2003 Hammons, Patrick B.Mesa, AZEnrolled AgentFebruary 1, 2001 to January 31, 2004 Price, Russell S.Washington, DCCPAFebruary 17, 2001 to August 16, 2003 2002–36 I.R.B.519September 9, 2002 NameAddressDesignationDate of Suspension Donohue, Robert M.Ellicott City, MDCPAMay 15, 2001 to May 14, 2005 Havranek, Ronald J.Deerfield, ILCPAJuly 30, 2001 to July 29, 2003 Harding III, Leon H.Roanoke, VACPAIndefinite from August 7, 2001 Noone, PatrickOrland Park, ILCPAAugust 23, 2001 to February 22, 2004 Sefton, David L.Austin, TXCPAAugust 31, 2001 to February 27, 2003 Zuccarelli, SilvioCoconut Creek, FLEnrolled AgentSeptember 18, 2001 to December 17, 2004 DeFazio, James P.Sacramento, CACPAOctober 1, 2001 to March 31, 2003 Levenson, Martin J.New York, NYCPAOctober 15, 2001 to April 14, 2004 Donchatz, CharlesColumbia, SCCPAOctober 25, 2001 to October 24, 2004 Smith, Virga A.Rochester, INCPANovember 1, 2001 to October 31, 2003 Fuller, Don B.Minneapolis, MNAttorneyNovember 15, 2001 to November 14, 2004 Retzlaff, Gene A.Hortonville, WIEnrolled AgentIndefinite from December 27, 2001 September 9, 20025202002–36 I.R.B. NameAddressDesignationDate of Suspension Kime, Robert L.Collinsville, ILCPADecember 6, 2001 to December 5, 2003 King, John C.Wichita, KSAttorneyJanuary 1, 2002 to June 30, 2003 Carter, Lloyd C.St. George, UTCPAJanuary 15, 2002 to October 14, 2002 Dennis, Paul J.Milwaukee, WIEnrolled AgentJanuary 28, 2002 to January 27, 2005 Jones, Ricky A.Greenfield, OHCPAMarch 15, 2002 to March 14, 2003 Price, Richard A.Novato, CACPAMay 1, 2002 to April 30, 2005 Burnett, Bradley P.Wheat Ridge, COAttorneyMay 1, 2002 to April 30, 2004 Leone, AnthonyDes Plaines, ILCPAApril 1, 2002 to September 30, 2003 Groskin, Lawrence J.Tuxedo Park, NYAttorneyMay 1, 2002 to April 30, 2003 Homnick, CorySan Diego, CACPAJune 1, 2002 to May 31, 2003 Herring, Chester L.University Park, ILCPAJune 1, 2002 to November 30, 2003 Cutcher, Edward W.Clinton, OHCPAJune 1, 2002 to February 28, 2003 2002–36 I.R.B.521September 9, 2002 NameAddressDesignationDate of Suspension Gisser, Arthur S.Glenwood Landing, NYCPAJuly 1, 2002 to December 31, 2002 Garlikov, Mark B.Dayton, OHAttorneyJuly 1, 2002 to October 30, 2005 Foust, John FranklinDes Moines, IACPAJuly 1, 2002 to June 30, 2003 Byock, Matthew I.Red Bank, NJCPAAugust 1, 2002 to March 31, 2003 Expedited Suspensions From Practice Before the Internal Revenue Service Under Title 31, Code of Federal Regu- lations, Part 10, the Director of Practice is authorized to immediately suspend from practice before the Internal Revenue Ser- vice any practitioner who, within five years from the date the expedited proceeding is instituted (1) has had a license to practice as an attorney, certified public accoun- tant, or actuary suspended for revoked for cause or (2) has been convicted of cer- tain crimes. The following individuals have been placed under suspension from practice be- fore the Internal Revenue Service by vir- tue of the expedited proceeding provisions: NameAddressDesignationDate of Suspension Brenner, William A.Grahamsville, NYAttorneyIndefinite from February 2, 2001 Pope, Ray P.Pensacola, FLAttorneyIndefinite from February 23, 2001 Dudnick, Howard A.Princeton, NYCPAIndefinite from June 25, 2001 Griffiths, Brian D.North Andover, MACPAIndefinite from June 25, 2001 Yerardi, Michael J.East Walpole, MAAttorneyIndefinite from June 25, 2001 Cheesman, Michael S.Mill Creek, WACPAIndefinite from July 20, 2001 September 9, 20025222002–36 I.R.B. NameAddressDesignationDate of Suspension Devereaux, RossJackson, MICPAIndefinite from July 20, 2001 Gaskill, ToddLompoc, CAAttorneyIndefinite from July 20, 2001 Gross, Peter SamKerrville, TXAttorneyIndefinite from July 20, 2001 Hausman, StanleyLivingston, NJAttorneyIndefinite from July 20, 2001 Jones, Peter C.Seattle, WACPAIndefinite from July 20, 2001 Koss, Lewis M.Calabasas, CAAttorneyIndefinite from July 20, 2001 Maxey, MichaelMishawaka, INCPAIndefinite from July 20, 2001 Meaney, Richard A.Harwich Port, MAAttorneyIndefinite from July 20, 2001 Shaver, Howard D.Leawood, KSAttorneyIndefinite from July 20, 2001 Sims, ThomasTonka Bay, MNCPAIndefinite from July 20, 2001 Wallin, HansArthur, NDAttorneyIndefinite from July 20, 2001 Freeman, Dale L.North Royalton, OHCPAIndefinite from August 6, 2001 Huffman, Richard E.Riverside, CACPAIndefinite from August 6, 2001 Lawrence, William E.Salinas, CACPAIndefinite from August 6, 2001 Marks, William J.New York, NYCPAIndefinite from August 6, 2001 2002–36 I.R.B.523September 9, 2002 NameAddressDesignationDate of Suspension Parker, GeorgeHonolulu, HIAttorneyIndefinite from August 6, 2001 Pham, Van LuongHouston, TXEnrolled AgentIndefinite from August 6, 2001 Pirro, Jr., Albert J.Rye, NYAttorneyIndefinite from August 6, 2001 Pollacheck, Mark E.Califon, NJEnrolled AgentIndefinite from August 6, 2001 Price, Padget C.Corona, CAAttorneyIndefinite from August 6, 2001 Ragusa, SebastianHicksville, NYAttorneyIndefinite from August 6, 2001 Ranum, Karl M.Stillwater, MNAttorneyIndefinite from August 6, 2001 Ross, Daniel P.Ashtabula, OHCPAIndefinite from August 6, 2001 Shea, Michael P.Myrtle Beach, SCCPAIndefinite from August 6, 2001 Tatman, Elizabeth A.Mission Viejo, CACPAIndefinite from August 6, 2001 Taylor, Murray E.Houston, TXCPAIndefinite from August 6, 2001 Truex, Anthony J.Port Hueneme, CACPAIndefinite from August 6, 2001 Utterback, Thomas M.Gerald, MOAttorneyIndefinite from August 6, 2001 Zauft, Steven J.San Antonio, TXAttorneyIndefinite from August 6, 2001 Hancock, George B.New Bern, NCCPAIndefinite from June 24, 2002 September 9, 20025242002–36 I.R.B. NameAddressDesignationDate of Suspension Nadale, Richard D.Petaluma, CACPAIndefinite from June 24, 2002 Resignations of Enrolled Agents Under Title 31, Code of Federal Regu- lations, Part 10, an enrolled agent, in or- der to avoid the institution or conclusion of a proceeding for his or her disbarment or suspension from practice before the Inter- nal Revenue Service, may offer his or her resignation as an enrolled agent. The Di- rector of Practice, in his discretion, may ac- cept the offered resignation. The Director of Practice has accepted of- fers of resignation as an enrolled agent from the following individuals: NameAddressDate of Resignation Fuener, Donald C.Springfield, ILEffective December 31, 2001 Clark, Robert A.Chico, CAEffective January 1, 2002 Sarmiento, Romulo B.San Francisco, CAEffective March 31, 2002 Goetz, Roger H.Waseca, MNEffective June 24, 2002 2002–36 I.R.B.525September 9, 2002 Definition of Terms Revenue rulings and revenue procedures (hereinafter referred to as“rulings”) that have an effect on previous rulings use the following defined terms to describe the effect: Amplifieddescribes 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 withmodified, below). Clarifiedis 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. Modifiedis used where the substance of a previously published position is being changed. Thus, if a prior ruling held that a principle applied to A but not to B, and the new ruling holds that it applies to both A and B, the prior ruling is modified because it corrects a pub- lished position. (Compare withamplified andclarified, above). Obsoleteddescribes a previously pub- lished ruling that is not considered deter- minative with respect to future transac- tions. This term is most commonly used in a ruling that lists previously published 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. Revokeddescribes situations where the position in the previously published rul- ing is not correct and the correct position is being stated in the new ruling. Supersededdescribes 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 period 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 andsupersededdescribes 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. Supplementedis used in situations in which a list, such as a list of the names of countries, is published in a ruling and that list is expanded by adding further names in subsequent rulings. After the original ruling has been supplemented several times, a new ruling may be published that includes the list in the original ruling and the additions, and supersedes all prior rul- ings in the series. Suspendedis 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 formerly used will appear in material published in the Bulletin. A—Individual. Acq.—Acquiescence. B—Individual. BE—Beneficiary. BK—Bank. B.T.A.—Board of Tax Appeals. C—Individual. C.B.—Cumulative Bulletin. CFR—Code of Federal Regulations. CI—City. COOP—Cooperative. Ct.D.—Court Decision. CY—County. D—Decedent. DC—Dummy Corporation. DE—Donee. Del. Order—Delegation Order. DISC—Domestic International Sales Corporation. DR—Donor. E—Estate. EE—Employee. E.O.—Executive Order. ER—Employer. ERISA—Employee Retirement Income Security Act. EX—Executor. F—Fiduciary. FC—Foreign Country. FICA—Federal Insurance Contributions Act. FISC—Foreign International Sales Company. FPH—Foreign Personal Holding Company. F.R.—Federal Register. FUTA—Federal Unemployment Tax Act. FX—Foreign Corporation. G.C.M.—Chief Counsel’s Memorandum. GE—Grantee. GP—General Partner. GR—Grantor. IC—Insurance Company. I.R.B.—Internal Revenue Bulletin. LE—Lessee. LP—Limited Partner. LR—Lessor. M—Minor. Nonacq.—Nonacquiescence. O—Organization. P—Parent Corporation. PHC—Personal Holding Company. PO—Possession of the U.S. PR—Partner. PRS—Partnership. PTE—Prohibited Transaction Exemption. Pub. L.—Public Law. REIT—Real Estate Investment Trust. Rev. Proc.—Revenue Procedure. Rev. Rul.—Revenue Ruling. S—Subsidiary. S.P.R.—Statements of Procedural Rules. Stat.—Statutes at Large. T—Target Corporation. T.C.—Tax Court. T.D.—Treasury Decision. TFE—Transferee. TFR—Transferor. T.I.R.—Technical Information Release. TP—Taxpayer. TR—Trust. TT—Trustee. U.S.C.—United States Code. X—Corporation. Y—Corporation. Z—Corporation. September 9, 2002i2002–36 I.R.B. Numerical Finding List 1 Bulletin 2002–26 through 2002–35 Announcements: 2002–59, 2002–26 I.R.B.28 2002–60, 2002–26 I.R.B.28 2002–61, 2002–27 I.R.B.72 2002–62, 2002–27 I.R.B.72 2002–63, 2002–27 I.R.B.72 2002–64, 2002–27 I.R.B.72 2002–65, 2002–29 I.R.B.182 2002–66, 2002–29 I.R.B.183 2002–67, 2002–30 I.R.B.237 2002–68, 2002–31 I.R.B.283 2002–69, 2002–31 I.R.B.283 2002–70, 2002–31 I.R.B.284 2002–71, 2002–32 I.R.B.323 2002–72, 2002–32 I.R.B.323 2002–73, 2002–33 I.R.B.387 2002–74, 2000–33 I.R.B.387 2002–75, 2002–34 I.R.B.416 2002–76, 2002–35 I.R.B.471 2002–77, 2002–35 I.R.B.471 Notices: 2002–42, 2002–27 I.R.B.36 2002–43, 2002–27 I.R.B.38 2002–44, 2002–27 I.R.B.39 2002–45, 2002–28, I.R.B.93 2002–46, 2002–28 I.R.B.96 2002–47, 2002–28 I.R.B.97 2002–48, 2002–29 I.R.B.130 2002–49, 2002–29 I.R.B.130 2002–50, 2002–28 I.R.B.98 2002–51, 2002–29 I.R.B.131 2002–52, 2002–30 I.R.B.187 2002–53, 2002–30 I.R.B.187 2002–54, 2002–30 I.R.B.189 2002–56, 2002–32 I.R.B.319 2002–57, 2002–33 I.R.B.379 2002–58, 2002–35 I.R.B.432 Proposed Regulations: REG–248110–96, 2002–26 I.R.B.19 REG–110311–98, 2002–28 I.R.B.109 REG–103823–99, 2002–27 I.R.B.44 REG–103829–99, 2002–27 I.R.B.59 REG–103735–00, 2002–28 I.R.B.109 REG–106457–00, 2002–26 I.R.B.23 REG–106871–00, 2002–30 I.R.B.190 REG–106876–00, 2002–34 I.R.B.392 REG–106879–00, 2002–34 I.R.B.402 REG–107524–00, 2002–28 I.R.B.110 REG–115285–01, 2002–27 I.R.B.62 REG–115781–01, 2002–33 I.R.B.380 REG–116644–01, 2002–31 I.R.B.268 REG–123345–01, 2002–32 I.R.B.321 REG–126024–01, 2002–27 I.R.B.64 REG–164754–01, 2002–30 I.R.B.212 REG–165868–01, 2002–31 I.R.B.270 REG–106359–02, 2002–34 I.R.B.405 Proposed Regulations:—Continued REG–122564–02, 2002–26 I.R.B.25 REG–123305–02, 2002–26 I.R.B.26 REG–124256–02, 2002–33 I.R.B.383 REG–133254–02, 2002–34 I.R.B.412 Revenue Procedures: 2002–43, 2002–28 I.R.B.99 2002–44, 2002–26 I.R.B.10 2002–45, 2002–27 I.R.B.40 2002–46, 2002–28 I.R.B.105 2002–47, 2002–29 I.R.B.133 2002–49, 2002–29 I.R.B.172 2002–50, 2002–29 I.R.B.173 2002–51, 2002–29 I.R.B.175 2002–52, 2002–31 I.R.B.242 2002–53, 2002–31 I.R.B.253 2002–54, 2002–35 I.R.B.432 2002–55, 2002–35 I.R.B.435 Revenue Rulings: 2002–38, 2002–26 I.R.B.4 2002–39, 2002–27 I.R.B.33 2002–40, 2002–27 I.R.B.30 2002–41, 2002–28 I.R.B.75 2002–42, 2002–28 I.R.B.76 2002–43, 2002–28 I.R.B.85 2002–44, 2002–28 I.R.B.84 2002–45, 2002–29 I.R.B.116 2002–46, 2002–29 I.R.B.117 2002–47, 2002–29 I.R.B.119 2002–48, 2002–31 I.R.B.239 2002–49, 2002–32 I.R.B.288 2002–50, 2002–32 I.R.B.292 2002–51, 2002–33 I.R.B.327 2002–52, 2002–34 I.R.B.388 2002–53, 2002–35 I.R.B.427 Treasury Decisions: 8997, 2002–26 I.R.B.6 8998, 2002–26 I.R.B.1 8999, 2002–28 I.R.B.78 9000, 2002–28 I.R.B.87 9001, 2002–29 I.R.B.128 9002, 2002–29 I.R.B.120 9003, 2002–32 I.R.B.294 9004, 2002–33 I.R.B.331 9005, 2002–32 I.R.B.290 9006, 2002–32 I.R.B.315 9007, 2002–33 I.R.B.349 9008, 2002–33 I.R.B.335 9009, 2002–33 I.R.B.328 9010, 2002–33 I.R.B.341 9011, 2002–33 I.R.B.356 9012, 2002–34 I.R.B.389 9014, 2002–35 I.R.B.429 1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2002–1 through 2002–25 is in Internal Revenue Bulletin 2002–26, dated July 1, 2002. 2002–36 I.R.B.iiSeptember 9, 2002 Finding List of Current Actions on Previously Published Items 1 Bulletin 2002–26 through 2002–35 Announcements: 98–99 Superseded by Rev. Proc. 2002–44, 2002–26 I.R.B.10 2000–4 Modified by Ann. 2002–60, 2002–26 I.R.B.28 2001–9 Superseded by Rev. Proc. 2002–44, 2002–26 I.R.B.10 Proposed Regulations: REG–209114–90 Corrected by Ann. 2002–65, 2002–29 I.R.B.182 REG–209813–96 Withdrawn by REG–106871–00, 2002–30 I.R.B.190 REG–103823–99 Corrected by Ann. 2002–67, 2002–30 I.R.B.237 REG–105885–99 Corrected by Ann. 2002–67, 2002–30 I.R.B.237 REG–105369–00 Clarified by Notice 2002–52, 2002–30 I.R.B.187 Corrected by Ann. 2002–67, 2002–30 I.R.B.237 REG–118861–00 Corrected by Ann. 2002–67, 2002–30 I.R.B.237 REG–126100–00 Withdrawn by REG–133254–02, 2002–34 I.R.B.412 REG–136193–01 Corrected by Ann. 2002–67, 2002–30 I.R.B.237 REG–161424–01 Corrected by Ann. 2002–67, 2002–30 I.R.B.237 REG–165706–01 Corrected by Ann. 2002–67, 2002–30 I.R.B.237 REG–102740–02 Corrected by Ann. 2002–67, 2002–30 I.R.B.237 REG–123305–02 Corrected by Ann. 2002–69, 2002–31 I.R.B.283 Revenue Procedures: 91–23 Modified and superseded by Rev. Proc. 2002–52, 2002–31 I.R.B.242 91–26 Modified and superseded by Rev. Proc. 2002–52, 2002–31 I.R.B.242 95–18 Superseded by Rev. Proc. 2002–51, 2002–29 I.R.B.175 96–13 Modified and superseded by Rev. Proc. 2002–52, 2002–31 I.R.B.242 96–14 Modified and superseded by Rev. Proc. 2002–52, 2002–31 I.R.B.242 96–53 Amplified by Rev. Proc. 2002–52, 2002–31 I.R.B.242 2001–12 Obsoleted by T.D. 9004, 2002–33 I.R.B.331 2001–17 Modified and superseded by Rev. Proc. 2002–47, 2002–29 I.R.B.133 2001–26 Superseded by Rev. Proc. 2002–53, 2002–31 I.R.B.253 2002–9 Modified and amplified by Rev. Proc. 2002–46, 2002–28 I.R.B.105 Amplified, clarified, and modified by Rev. Proc. 2002–54, 2002–35 I.R.B.432 2002–13 Modified by Rev. Proc. 2002–45, 2002–27 I.R.B.40 2002–19 Amplified and clarified by Rev. Proc. 2002–54, 2002–35 I.R.B.432 Revenue Rulings: 54–571 Obsoleted by T.D. 9010, 2002–33 I.R.B.341 55–606 Obsoleted by T.D. 9010, 2002–33 I.R.B.341 59–328 Obsoleted by T.D. 9010, 2002–33 I.R.B.341 64–36 Obsoleted by T.D. 9010, 2002–33 I.R.B.341 Revenue Rulings—Continued: 65–129 Obsoleted by T.D. 9010, 2002–33 I.R.B.341 67–197 Obsoleted by T.D. 9010, 2002–33 I.R.B.341 69–259 Modified and superseded by Rev. Rul. 2002–50, 2002–32 I.R.B.292 69–595 Obsoleted in part by T.D. 9010, 2002–33 I.R.B.341 70–608 Obsoleted in part by T.D. 9010, 2002–33 I.R.B.341 73–232 Obsoleted by T.D. 9010, 2002–33 I.R.B.341 76–225 Revoked by REG–115781–01, 2002–33 I.R.B.380 77–53 Obsoleted by T.D. 9010, 2002–33 I.R.B.341 85–50 Obsoleted by T.D. 2002–33 I.R.B.341 92–17 Amplified by Rev. Rul. 2002–49, 2002–32 I.R.B.288 92–75 Clarified by Rev. Proc. 2002–52, 2002–31 I.R.B.242 93–70 Obsoleted by T.D. 9010, 2002–33 I.R.B.341 94–76 Amplified by Rev. Rul. 2002–42, 2002–28 I.R.B.76 Treasury Decisions: 8997 Corrected by Ann. 2002–68, 2002–31 I.R.B.283 8999 Corrected by Ann. 2002–71, 2002–32 I.R.B.323 1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2002–1 through 2002–25 is in Internal Revenue Bulletin 2002–26, dated July 1, 2002. September 9, 2002iii2002–36 I.R.B. This page is reserved for missing children Daffany Tullas. 2002–36 I.R.B.September 9, 2002 This page is reserved for missing children Vinyette Teague. September 9, 20022002–36 I.R.B. This page is reserved for missing children Michelle Otter. 2002–36 I.R.B.September 9, 2002
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