Internal Revenue Bulletin 2002-38 (PDF rendition): IRS Announcements

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
Court Decision 2075, page 548.
Tax Liens. The Supreme Court has concluded that under sec-
tion 6321 of the Code the husband’s interests in the entireties
property constitute “property” or “rights to property” to which a
federal tax lien may attach. United States v. Craft.
Rev. Rul. 2002–58, page 541.
This ruling clarifies that amounts reimbursed under a self-insured
medical expense reimbursement plan for medical expenses in-
curred by an employee prior to the adoption of the plan are not
excludable from the gross income of the employee under sec-
tion 105(b) of the Code.
Rev. Rul. 2002–59, page 557.
Interest rates; underpayments and overpayments. The rate of in-
terest determined under section 6621 of the Code for the cal-
endar quarter beginning October 1, 2002, will be 6 percent for
overpayments (5 percent in the case of a corporation), 6 per-
cent for underpayments, and 8 percent for large corporate un-
derpayments. The rate of interest paid on the portion of a
corporate overpayment exceeding $10,000 will be 3.5 per-
cent.
T.D. 9013, page 542.
Final regulations under section 469 of the Code recharacterize
a percentage of certain portfolio income and expense as pas-
sive income and expense when a taxpayer engages in a lend-
ing transaction with a partnership or S corporation in which the
taxpaer owns a direct or indirect interest and the loan proceeds
are used in a passive activity.
Announcement 2002–83, page 564.
This document contains corrections to final regulations (T.D.
9003, 2002–32 I.R.B. 294) providing guidance to married indi-
viduals filing joint returns who seek relief from joint and several
liability.
EMPLOYEE PLANS
Rev. Rul. 2002–58, page 541.
This ruling clarifies that amounts reimbursed under a self-insured
medical expense reimbursement plan for medical expenses in-
curred by an employee prior to the adoption of the plan are not
excludable from the gross income of the employee under sec-
tion 105(b) of the Code.
Notice 2002–61, page 563.
Weighed average interest rate update. The weighted average in-
terest rate for September 2002 and the resulting permissible
range of interest rates used to calculate current liability for pur-
poses of the full funding limitation of section 412(c)(7) of the Code
are set forth.
EXEMPT ORGANIZATIONS
Announcement 2002–88, page 564.
A list is provided of organizations now classified as private foun-
dations.
Bulletin No. 2002–38
September 23, 2002
Announcements of Disbarments and Suspensions begin on page 564.
Finding Lists begin on page ii.

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 to 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 deci-
sions 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, Legislation and Related Commit-
tee 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.—Terms of General Interest.This part includes no-
tices of proposed rulemakings, disbarment 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.
September 23, 20022002–38 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 105.—Amounts
Received Under Accident and
Health Plans
Accident and health plans.This ruling clari-
fies that amounts reimbursed under a self-insured medi-
cal expense reimbursement plan for medical expenses
incurred by an employee prior to the adoption of the
plan are not excludable from the gross income of the
employee under section 105(b) of the Code.
Rev. Rul. 2002–58
ISSUE
Whether amounts reimbursed under a
self-insured medical expense reimburse-
ment plan for medical expenses incurred by
an employee prior to the establishment of
the plan are excludable from the gross in-
come of the employee under section 105(b)
of the Internal Revenue Code.
FACTS
Employer M establishes a self-insured
medical expense reimbursement plan on De-
cember 1 of a year. The plan provides that
it is effective as of January 1 of that year.
Under the plan, a participating employee is
eligible for reimbursement of medical ex-
penses incurred by the employee, the em-
ployee’s spouse, and dependents (as defined
in section 152) during the plan year (Janu-
ary 1 through December 31). Employee A
becomes a participant in the plan upon its
establishment on December 1.
Prior to the establishment of the plan,
Employee A had incurred medical expenses
that qualify for reimbursement under the
plan and submits those claims for reim-
bursement to the employer in December. M
reimburses A for the medical expenses in-
curred prior to the establishment of the plan
in accordance with the terms of the plan.
LAW AND ANALYSIS
Section 61(a) provides that, except as
otherwise provided by law, gross income
means all income from whatever source de-
rived.
Section 105(a) provides that, gener-
ally, amounts received by an employee
through accident or health insurance for per-
sonal injuries or sickness shall be included
in gross income to the extent such amounts
(1) are attributable to contributions by the
employer which were not includible in the
gross income of the employee or (2) are
paid by the employer.
However, section 105(b) provides an ex-
ception to the general rule of inclusion un-
der section 105(a). Section 105(b) provides
that gross income does not include amounts
paid, directly or indirectly, to the taxpayer
to reimburse the taxpayer for expenses in-
curred by him for the medical care (as de-
fined in section 213(d)) of the taxpayer, his
spouse, and his dependents (as defined in
section 152).
Section 105(e) provides that amounts re-
ceived under an accident or health plan for
employees will be treated as amounts re-
ceived through accident or health insur-
ance for purposes of sections 105(a) and (b).
Section 1.105–5(a) of the Income Tax Regu-
lations provides that an accident or health
plan is an arrangement for the payment of
amounts to employees in the event of per-
sonal injuries or sickness.
In Rev. Rul. 71–403, 1971–2 C.B. 91,
an employer established a plan for its em-
ployees that qualified as an accident and
health plan. All of the employees were cov-
ered under the plan and had an enforce-
able right to be reimbursed for medical
expenses from and after the inception of the
plan, but not before the inception of the
plan. A number of the employees were ab-
sent from work on account of personal in-
jury or sickness when the plan went into
effect. The ruling held that reimbursements
to employees for medical expenses in-
curred after the inception of the employ-
er’s accident and health plan were
excludable from gross income even though
the employees were unable to work be-
cause of injury or sickness when the plan
went into effect.
InAmerican Family Mutual Insurance
Co. v. U.S., 815 F. Supp. 1206 (W.D. Wis.
1992), the employer established a medi-
cal expense reimbursement plan to which
section 105 applied. The plan was estab-
lished in November and made retroactive
to January 1 of that same year. Employ-
ees were reimbursed for medical expenses
incurred before the plan was established.
The court concluded that the retroactive ac-
cident and health plan was invalid. Thus,
reimbursements of medical expenses in-
curred prior to the establishment of the plan
were includible in the employee’s gross in-
come and not excludable under section
105(b).
InWollenberg v. U.S., 75 F. Supp. 2d
1032 (D. Neb. 1999), a calendar year ac-
cident and health plan was established in
December of the calendar plan year. The
plan was effective from January of the plan
year. The court held that reimbursements for
medical expenses incurred prior to the es-
tablishment of the medical expense reim-
bursement plan were not excludable under
section 105(b).
A self-insured medical expense reim-
bursement plan is treated as accident and
health insurance under section 105(e). Thus,
medical expense reimbursements that are
paid under a plan are excludable from the
employee’s gross income under section
105(b). However, reimbursements of medi-
cal expenses incurred prior to the estab-
lishment of a plan are not paid or received
under an accident or health plan. There-
fore, those amounts are not excludable from
an employee’s gross income under sec-
tion 105(b).
HOLDING
Amounts reimbursed under a self-insured
medical expense reimbursement plan for
medical expenses incurred by an employee
prior to the establishment of the plan are
not excludable from the gross income of the
employee under section 105(b).
EFFECT ON OTHER REVENUE
RULINGS
None
DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Shoshanna Chaiton of the office of
Division Counsel/Associate Chief Coun-
sel (Tax Exempt and Government Enti-
ties). For further information regarding this
revenue ruling, contact her at (202) 622–
6080 (not a toll-free call).
2002–38 I.R.B.541September 23, 2002

Section 469.—Passive
Activity Losses and Credits
Limited
26 CFR 1.469–7: Treatment of self-charged items
of interest income and deduction.
T.D. 9013
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Limitations on Passive Activity
Losses and Credits—
Treatment of Self-charged
Items of Income and Expense
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: These regulations provide
guidance on the treatment of self-charged
items of income and expense under sec-
tion 469. The regulations recharacterize a
percentage of certain portfolio income and
expense as passive income and expense
(self-charged items) when a taxpayer en-
gages in a lending transaction with a part-
nership or an S corporation (passthrough
entity) in which the taxpayer owns a di-
rect or indirect interest and the loan pro-
ceeds are used in a passive activity. Similar
rules apply to lending transactions between
two identically owned passthrough enti-
ties. These final regulations affect taxpay-
ers subject to the limitations on passive
activity losses and credits.
DATES:Effective Date:These regulations
are effective August 21, 2002.
Applicability Date:For dates of appli-
cability of these regulations, see§1.469–11
of these regulations.
FORFURTHERINFORMATION
CONTACT: Danielle M. Grimm at (202)
622–3070 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained
in these final regulations has been reviewed
and approved by the Office of Manage-
ment and Budget in accordance with the Pa-
perwork Reduction Act (44 U.S.C. 3507)
under control number 1545–1244. Re-
sponses to this collection of information are
required to obtain the benefit of self-charged
treatment of income and expense under sec-
tion 469.
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.
The estimated annual burden per re-
spondent varies from 5 minutes to 15 min-
utes, depending on individual circumstances,
with an estimated average of 6 minutes.
Comments concerning the accuracy of
this burden estimate and suggestions for re-
ducing this burden should be sent to theIn-
ternal Revenue Service, Attn: IRS Reports
Clearance Officer, W:CAR:MP:FP:S Wash-
ington, DC 20224, and to theOffice of
Management and Budget, Attn: Desk Of-
ficer for the Department of the Treasury, Of-
fice of Information and Regulatory Affairs,
Washington, DC 20503.
Books or records relating to this 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
Section 469(a)(1)(A) of the Internal Rev-
enue Code (Code) provides that if aggre-
gate losses from passive activities exceed
aggregate income from passive activities for
the taxable year, the excess losses are not
allowable for that taxable year. Under sec-
tion 469(e)(1), passive activity income does
not include income from interest, divi-
dends, annuities, and royalties not derived
in the ordinary course of a trade or busi-
ness. However, under the rules of§1.163–
8T, if borrowed funds are used in a passive
activity, the interest expense is treated as
a passive activity deduction. Consequently,
in certain lending transactions, a taxpayer
may have interest income that is charac-
terized as portfolio income under section
469(e)(1) and interest expense that is char-
acterized as a passive activity deduction un-
der§1.163–8T. The legislative history of
section 469 indicates that this result is in-
appropriate because the items of interest in-
come and expense are essentially“self-
charged”and thus lack economic
significance.
On April 5, 1991, the IRS published in
theFederal Registera notice of proposed
rulemaking (PS–39–89, 1991–1 C.B. 983
[56 FR 14034]) proposing amendments to
26 CFR part 1 under section 469 of the
Code relating to the treatment of self-
charged items of income and expense for
purposes of applying the limitations on pas-
sive activity losses and passive activity cred-
its.
A number of public comments were re-
ceived and a public hearing was held on
September 6, 1991. Given the significant
period of time that had elapsed since the
former comment period, additional com-
ments were solicited in Notice 2001–47
(2001–36 I.R.B. 212). After consideration
of all of the comments received, the pro-
posed regulations are adopted, as revised by
this Treasury decision.
Explanation of Revisions and
Summary of Comments
The proposed regulations provide self-
charged treatment for items of interest in-
come and interest expense in lending
transactions between a taxpayer and a
passthrough entity in which the taxpayer
holds a direct or qualifying indirect inter-
est. Several commentators suggested that the
regulations should also apply to lending
transactions between related passthrough en-
tities such as brother-sister entities in which
the taxpayer owns interests because such
transactions also may result in mismatched
income and expense for purposes of sec-
tion 469. In response to the suggestions, the
self-charged rules are extended to identi-
cally owned passthrough entities. This ex-
tension is limited to identically owned
entities because of concerns regarding the
difficulty of identifying self-charged items
in transactions between less closely re-
lated or unrelated entities.
Certain commentators requested the re-
moval of the qualifying indirect interest rule
in the proposed regulations. The qualify-
ing indirect interest rule provides that a tax-
payer must have at least a 10-percent
indirect interest in a passthrough entity to
qualify for self-charged treatment. Com-
mentators noted that a taxpayer that owns
less than a 10 percent interest neverthe-
less may receive large amounts of self-
September 23, 20025422002–38 I.R.B.

charged income and expense. This
suggestion has been adopted. Accordingly,
the regulations no longer contain the quali-
fying indirect interest rule.
Noting that Congress authorized the Sec-
retary to identify other situations in which
self-charged treatment is appropriate, sev-
eral commentators suggested that self-
charged treatment be extended to other
transactions involving rental real estate ac-
tivities, such as the payment of manage-
ment fees and salaries. After publication of
the proposed regulations, Congress con-
sidered the impact of section 469 on rental
real estate transactions and enacted spe-
cific relief in section 469(c)(7) for certain
real estate professionals for taxable years
beginning after 1993. There was no indi-
cation in the legislative history of section
469(c)(7) that Congress considered addi-
tional relief for real estate transactions nec-
essary or desirable. Moreover, there is less
justification for the complexity of a self-
charged rule in this area after the enact-
ment of section 469(c)(7) because that
change substantially reduced the number of
real estate transactions that would benefit
from a self-charged rule. Accordingly, the
regulations do not extend the self-charged
treatment to other transactions involving
rental real estate. A number of comments
suggested that the regulations clarify
whether the self-charged rules apply to guar-
anteed payments to a partner for the use of
capital. Section 1.469–2(e)(2)(ii) of the regu-
lations treats these payments as interest in-
come. Accordingly, the regulations clarify
that lending transactions include guaran-
teed payments for the use of capital un-
der section 707(c).
Some comments requested clarifica-
tion on the types of interest eligible for self-
charged treatment. The comments noted that
the examples in the regulations may be in-
terpreted as precluding certain types of in-
terest because the introductory language
states that the lending transactions described
in the examples do not result in foregone
interest (within the meaning of section
7872(e)(2)), original issue discount (within
the meaning of section 1273), or total un-
stated interest (within the meaning of sec-
tion 483(b)). Accordingly, the regulations
clarify that the examples assume, solely for
purposes of simplifying the presentation,
that the lending transactions do not in-
volve foregone interest, original issue dis-
count, or total unstated interest.
A few comments responded to the no-
tice of proposed rulemaking’s solicitation
for suggestions on the proper treatment of
items recognized in different taxable years.
One comment suggested the use of a sus-
pense account. Under this suggestion, in the
year in which the taxpayer identifies the
corresponding item of self-charged income
or expense, that item would be netted
against the self-charged item in the sus-
pense account. Another comment suggested
that where the recognition of passive in-
terest expense precedes the recognition of
passive income, the taxpayer could elect to
treat the income as passive when ultimately
recognized. Another suggestion was to al-
low the taxpayer to recharacterize inter-
est income or expense equal to the amount
calculated on a cumulative basis. The com-
mentators recognize that to implement the
above methods would require more com-
plex regulations.
After consideration of these comments,
the final regulations adopt the rule of the
proposed regulations that the self-charged
rules apply only to self-charged items rec-
ognized in the same taxable year. This rule
is consistent with the legislative history and
avoids the complexity of the other sug-
gested methods. For similar reasons, com-
ments suggesting special rules for
capitalized expenses are not adopted.
Certain commentators requested that the
regulations be extended to apply to trans-
actions between taxpayers and their trusts,
estates, REMICs and housing coopera-
tives. The regulations address the transac-
tions identified by Congress involving S
corporations and partnerships (including en-
tities classified as partnerships for federal
tax purposes). Application of the self-
charged rules to other types of entities
would require a significant expansion of the
scope of these regulations to address broader
issues concerning the manner in which sec-
tion 469 applies to those entities.
The applicability date of the final regu-
lations is consistent with the applicability
date as proposed. However, certain clari-
fications have been made to the transition
rule. In the transition period, a taxpayer may
use any reasonable method to offset items
of interest income and interest expense from
lending transactions.
Effective Date
These regulations are applicable for tax-
able years beginning after December 31,
1986. However, for taxable years begin-
ning before June 4, 1991, a taxpayer that
owns an interest in a passthrough entity is
not required to apply these provisions and
may use any reasonable method to offset
items of interest income and interest ex-
pense from lending transactions between the
passthrough entity and its owners or be-
tween certain passthrough entities. Items
from nonlending transactions cannot be off-
set under the self-charged rules.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12886. Therefore, a regulatory assessment
is not required. It also has been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) and the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6) do not apply to these regulations, and,
therefore, a Regulatory Flexibility Analy-
sis is not required. Pursuant to section
7805(f) of the Code, the notice of pro-
posed rulemaking preceding these regula-
tions was submitted to the Small Business
Administration for comment on its im-
pact on small business.
Drafting Information
The principal author of these regula-
tions is Danielle M. Grimm, Office of the
Associate Chief Counsel (Passthroughs and
Special Industries), Internal Revenue Ser-
vice. However, personnel from other of-
fices of the Internal Revenue Service and
Treasury Department participated in their
development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 602 are
amended as follows:
PA RT 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry in nu-
merical order to read in part as follows:
Authority: 26 U.S.C. 7805***
Section 1.469–7 also issued under 26
U.S.C. 469(l).***
Par. 2. Section 1.469–0 is amended by:
1. Revising the entry for§1.469–7.
2002–38 I.R.B.543September 23, 2002

2. Adding entries for§1.469–7(a)
through (h).
3. Revising the entries for§1.469–
11(c)(1) and (c)(1)(i).
4. Adding an entry for§1.469–11, para-
graph (c)(1)(iii).
The additions and revisions read as
follows:
§1.469–0 Table of contents.
*****
§1.469–7 Treatment of self-charged
items of interest income and deduction.
(a) In general.
(1) Applicability and effect of rules.
(2) Priority of rules in this section.
(b) Definitions.
(1) Passthrough entity.
(2) Taxpayer’s share.
(3) Taxpayer’s indirect interest.
(4) Entity taxable year.
(5) Deductions for a taxable year.
(c) Taxpayer loans to passthrough entity.
(1) Applicability.
(2) General rule.
(3) Applicable percentage.
(d) Passthrough entity loans to taxpayer.
(1) Applicability.
(2) General rule.
(3) Applicable percentage.
(e) Identically-owned passthrough enti-
ties.
(1) Applicability.
(2) General rule.
(3) Example.
(f) Identification of properly allocable de-
ductions.
(g) Election to avoid application of the rules
of this section.
(1) In general.
(2) Form of election.
(3) Period for which election applies.
(4) Revocation.
(h) Examples.
§1.469–11 Effective date and transition
rules.
*****
(c)***
(1) Application of certain income rechar-
acterization rules and self-charged rules.
(i) Certain recharacterization rules inappli-
cable in 1987.
*****
(iii) Self-charged rules.
*****
Par. 3. Section 1.469–7 is amended by:
(3) Revising the section heading.
(4) Adding paragraphs (a) through (h).
The revision and additions read as
follows:
§1.469–7 Treatment of self-charged
items of interest income and deduction.
(a)In general—(1)Applicability and ef-
fect of rules. This section sets forth rules
that apply, for purposes of section 469 and
the regulations thereunder, in the case of a
lending transaction (including guaranteed
payments for the use of capital under sec-
tion 707(c)) between a taxpayer and a
passthrough entity in which the taxpayer
owns a direct or indirect interest, or be-
tween certain passthrough entities. The rules
apply only to items of interest income and
interest expense that are recognized in the
same taxable year. The rules—
(i) Treat certain interest income result-
ing from these lending transactions as pas-
sive activity gross income;
(ii) Treat certain deductions for inter-
est expense that is properly allocable to the
interest income as passive activity deduc-
tions; and
(iii) Allocate the passive activity gross
income and passive activity deductions re-
sulting from this treatment among the tax-
payer’s activities. (2)Priority of rules in this
section. The character of amounts treated
under the rules of this section as passive ac-
tivity gross income and passive activity de-
ductions and the activities to which these
amounts are allocated are determined un-
der the rules of this section and not under
the rules of§§1.163–8T, 1.469–2(c) and
(d), and 1.469–2T(c) and (d).
(b)Definitions. The following defini-
tions set forth the meaning of certain terms
for purposes of this section:
(1)Passthrough entity. The term
passthrough entitymeans a partnership or
an S corporation.
(2)Taxpayer’s share.Ataxpayer’s share
of an item of income or deduction of a
passthrough entity is the amount treated as
an item of income or deduction of the tax-
payer for the taxable year under section 702
(relating to the treatment of distributive
shares of partnership items as items of part-
ners) or section 1366 (relating to the treat-
ment of pro rata shares of S corporation
items as items of shareholders).
(3)Taxpayer’s indirect interest.The tax-
payer has an indirect interest in an entity
if the interest is held through one or more
passthrough entities.
(4)Entity taxable year.In applying this
section for a taxable year of a taxpayer, the
termentity taxable yearmeans the tax-
able year of the passthrough entity for
which the entity reports items that are taken
into account under section 702 or section
1366 for the taxpayer’s taxable year.
(5)Deductions for a taxable year.The
termdeductions for a taxable yearmeans
deductions that would be allowable for the
taxable year if the taxpayer’s taxable in-
come for all taxable years were determined
without regard to sections 163(d), 170(b),
469, 613A(d), and 1211.
(c)Taxpayer loans to passthrough
entity—(1)Applicability.Except as pro-
vided in paragraph (g) of this section, this
paragraph (c) applies with respect to a tax-
payer’s interest in a passthrough entity (bor-
rowing entity) for a taxable year if—
(i) The borrowing entity has deduc-
tions for the entity taxable year for inter-
est charged to the borrowing entity by
persons that own direct or indirect inter-
ests in the borrowing entity at any time dur-
ing the entity taxable year (the borrowing
entity’s self-charged interest deductions);
(ii) The taxpayer owns a direct or an in-
direct interest in the borrowing entity at any
time during the entity taxable year and has
gross income for the taxable year from in-
terest charged to the borrowing entity by the
taxpayer or a passthrough entity through
which the taxpayer holds an interest in the
borrowing entity (the taxpayer’s income
from interest charged to the borrowing en-
tity); and
(iii) The taxpayer’s share of the bor-
rowing entity’s self-charged interest de-
ductionsincludespassiveactivity
deductions.
(2)General rule.If any of the borrow-
ing entity’s self-charged interest deduc-
tions are allocable to an activity for a
taxable year in which this paragraph (c) ap-
plies, the passive activity gross income and
passive activity deductions from that ac-
tivity are determined under the following
rules—
(i) The applicable percentage of each
item of the taxpayer’s income for the tax-
able year from interest charged to the bor-
rowing entity is treated as passive activity
gross income from the activity; and
September 23, 20025442002–38 I.R.B.

(ii) The applicable percentage of each
deduction for the taxable year for interest
expense that is properly allocable (within
the meaning of paragraph (f) of this sec-
tion) to the taxpayer’s income from the in-
terest charged to the borrowing entity is
treated as a passive activity deduction from
the activity.
(3)Applicable percentage.In applying
this paragraph (c) with respect to a tax-
payer’s interest in a borrowing entity, the
applicable percentage is separately deter-
mined for each of the taxpayer’s activi-
ties. The percentage applicable to an activity
for a taxable year is obtained by dividing—
(i) The taxpayer’s share for the tax-
able year of the borrowing entity’s self-
charged interest deductions that are treated
as passive activity deductions from the ac-
tivity by
(ii) The greater of—
(A) The taxpayer’s share for the tax-
able year of the borrowing entity’s aggre-
gate self-charged interest deductions for all
activities (regardless of whether these de-
ductions are treated as passive activity de-
ductions); or
(B) The taxpayer’s aggregate income for
the taxable year from interest charged to the
borrowing entity for all activities of the bor-
rowing entity.
(d)Passthrough entity loans to
taxpayer—(1)Applicability.Except as pro-
vided in paragraph (g) of this section, this
paragraph (d) applies with respect to a tax-
payer’s interest in a passthrough entity
(lending entity) for a taxable year if—
(i) The lending entity has gross income
for the entity taxable year from interest
charged by the lending entity to persons that
own direct or indirect interests in the lend-
ing entity at any time during the entity tax-
able year (the lending entity’s self-charged
interest income);
(ii) The taxpayer owns a direct or an in-
direct interest in the lending entity at any
time during the entity taxable year and has
deductions for the taxable year for inter-
est charged by the lending entity to the tax-
payer or a passthrough entity through which
the taxpayer holds an interest in the lend-
ing entity (the taxpayer’s deductions for in-
terest charged by the lending entity); and(iii)
The taxpayer’s deductions for interest
charged by the lending entity include pas-
sive activity deductions.
(2)General rule.If any of the taxpay-
er’s deductions for interest charged by the
lending entity are allocable to an activity
for a taxable year in which this paragraph
(d) applies, the passive activity gross in-
come and passive activity deductions from
that activity are determined under the fol-
lowing rules—
(i) The applicable percentage of the tax-
payer’s share for the taxable year of each
item of the lending entity’s self-charged in-
terest income is treated as passive activ-
ity gross income from the activity.
(ii) The applicable percentage of the tax-
payer’s share for the taxable year of each
deduction for interest expense that is prop-
erly allocable (within the meaning of para-
graph (f) of this section) to the lending
entity’s self-charged interest income is
treated as a passive activity deduction from
the activity.
(3)Applicable percentage.In applying
this paragraph (d) with respect to a tax-
payer’s interest in a lending entity, the ap-
plicable percentage is separately determined
for each of the taxpayer’s activities. The
percentage applicable to an activity for a
taxable year is obtained by dividing—
(i) The taxpayer’s deductions for the tax-
able year for interest charged by the lend-
ing entity, to the extent treated as passive
activity deductions from the activity; by
(ii) The greater of—
(A) The taxpayer’s aggregate deduc-
tions for all activities for the taxable year
for interest charged by the lending entity
(regardless of whether these deductions are
treated as passive activity deductions); or
(B) The taxpayer’s aggregate share for
the taxable year of the lending entity’s self-
charged interest income for all activities of
the lending entity.
(e)Identically-owned passthrough
entities—(1)Applicability.Except as pro-
vided in paragraph (g) of this section, this
paragraph (e) applies with respect to lend-
ing transactions between passthrough en-
tities if each owner of the borrowing entity
has the same proportionate ownership in-
terest in the lending entity.
(2)General rule.To the extent an owner
shares in interest income from a loan be-
tween passthrough entities described in
paragraph (e)(1) of this section, the owner
is treated as having made the loan to the
borrowing passthrough entity and para-
graph (c) of this section applies to deter-
mine the applicable percentage of portfolio
income or properly allocable interest ex-
pense that is recharacterized as passive.
(3)Example.The following example il-
lustrates the application of this paragraph
(e):
Example.(i) A and B, both calendar year taxpay-
ers, each own a 50-percent interest in the capital and
profits of partnerships RS and XY, both calendar year
partnerships. Under the partnership agreements of RS
and XY, A and B are each entitled to a 50-percent dis-
tributive share of each partnership’s income, gain, loss,
deduction, or credit. RS makes a $20,000 loan to XY
and XY pays RS $2,000 of interest for the taxable year.
A’s distributive share of interest income attributable
to this loan is $1,000 (50 percent x $2,000). XY uses
all of the proceeds received from RS in a passive ac-
tivity. A’s distributive share of interest expense at-
tributable to the loan is $1,000 (50 percent x $2,000).
(ii) This paragraph (e) applies in determining A’s
passive activity gross income because RS and XY are
identically-owned passthrough entities as described in
paragraph (e)(1) of this section. Under paragraph (e)(2)
of this section, the RS-to-XY loan is treated as if A
made the loan to XY. Therefore, A must apply para-
graph (c) of this section to determine the applicable
percentage of portfolio income that is recharacter-
ized as passive income.
(iii) Paragraph (c) of this section applies in de-
termining A’s passive activity gross income because:
XY has deductions for interest charged to XY by RS
for the taxable year (XY’s self-charged interest de-
ductions); A owns an interest in XY during XY’s tax-
able year and has gross income for the taxable year
from interest charged to XY by RS; and A’s share of
XY’s self-charged interest deductions includes pas-
sive activity deductions. See paragraph (c)(1) of this
section.
(iv) Under paragraph (c)(2)(i) of this section, the
applicable percentage of A’s interest income is re-
characterized as passive activity gross income from
the activity. Paragraph (c)(3) of this section pro-
vides that the applicable percentage is obtained by di-
viding A’s share for the taxable year of XY’s self-
charged interest deductions that are treated as passive
activity deductions from the activity ($1,000) by the
greater of A’s share for the taxable year of XY’s self-
charged interest deductions ($1,000), or A’s income
for the year from interest charged to XY ($1,000).
Thus, A’s applicable percentage is 100 percent ($1,000/
$1,000), and $1,000 (100 percent x $1,000) of A’s in-
come from interest charged to XY is treated as passive
activity gross income from the passive activity.
(f)Identification of properly allocable
deductions.For purposes of this section, in-
terest expense is properly allocable to an
item of interest income if the interest ex-
pense is allocated under§1.163–8T to an
expenditure that—
(1) Is properly chargeable to capital ac-
count with respect to the investment pro-
ducing the item of interest income; or
(2) May reasonably be taken into ac-
count as a cost of producing the item of in-
terest income.
(g)Election to avoid application of the
rules of this section—(1)In general.Para-
graphs (c),(d) and (e) of this section shall
not apply with respect to any taxpayer’s in-
2002–38 I.R.B.545September 23, 2002

terest in a passthrough entity for a tax-
able year if the passthrough entity has made,
under this paragraph (g), an election that ap-
plies to the entity’s taxable year.
(2)Form of election.A passthrough en-
tity makes an election under this para-
graph (g) by attaching to its return (or
amended return) a written statement that in-
cludes the name, address, and taxpayer iden-
tification number of the passthrough entity
and a declaration that an election is being
made under this paragraph (g).
(3)Period for which election applies.An
election under this paragraph (g) made with
a return (or amended return) for a taxable
year applies to that taxable year and all sub-
sequent taxable years that end before the
date on which the election is revoked.
(4)Revocation.An election under this
paragraph (g) may be revoked only with the
consent of the Commissioner.
(h)Examples.The following examples
illustrate the principles of this section. The
examples assume for purposes of simpli-
fying the presentation, that the lending trans-
actions described do not result in foregone
interest (within the meaning of section
7872(e)(2)), original issue discount (within
the meaning of section 1273), or total un-
stated interest (within the meaning of sec-
tion 483(b)).
Example 1.(i) A and B, two calendar year indi-
viduals, each own 50-percent interests in the capi-
tal, profits and losses of AB, a calendar year
partnership. AB is engaged in a single rental activ-
ity within the meaning of§1.469–1T(e)(3). AB bor-
rows $50,000 from A and uses the loan proceeds in
the rental activity. AB pays $5,000 of interest to A for
the taxable year. A and B each incur $2,500 of inter-
est expense as their distributive share of AB’s inter-
est expense.
(ii) AB has self-charged interest deductions for the
taxable year (i.e., the deductions for interest charged
to AB by A); A owns a direct interest in AB during
AB’s taxable year and has income for A’s taxable year
from interest charged to AB; and A’s share of AB’s
self-charged interest deductions includes passive ac-
tivity deductions. Accordingly, paragraph (c) of this
section applies in determining A’s passive activity gross
income. See paragraph (c)(1) of this section.
(iii) Under paragraph (c)(2)(i) of this section, the
applicable percentage of A’s interest income is re-
characterized as passive activity gross income from
AB’s rental activity. Paragraph (c)(3) of this section
provides that the applicable percentage is obtained by
dividing A’s share for the taxable year of AB’s self-
charged interest deductions that are treated as pas-
sive activity deductions from the activity ($2,500) by
the greater of A’s share for the taxable year of AB’s
self-charged interest deductions ($2,500), or A’s in-
come for the taxable year from interest charged to AB
($5,000). Thus, A’s applicable percentage is 50 per-
cent ($2,500/$5,000), and $2,500 (50 percent x $5,000)
of A’s income from interest charged to AB is treated
as passive activity gross income from the passive ac-
tivity A conducts through AB.
(iv) Because B does not have any gross income
for the year from interest charged to AB, this sec-
tion does not apply to B. See paragraph (c)(1)(ii) of
this section.
Example 2.(i) C and D, two calendar year tax-
payers, each own 50-percent interests in the capital
and profits of CD, a calendar year partnership. CD is
engaged in a single rental activity, within the mean-
ing of§1.469–1T(e)(3). C obtains a $10,000 loan from
a third-party lender, and pays the lender $900 in in-
terest for the taxable year. C lends the $10,000 to CD,
and receives $1,000 of interest income from CD for
the taxable year. D lends $20,000 to CD and re-
ceives $2,000 of interest income from CD for the tax-
able year. CD uses all of the proceeds in the rental
activity. C and D are each allocated $1,500 (50 per-
cent x $3,000) of interest expense as their distribu-
tive share of CD’s interest expense for the taxable year.
(ii) CD has self-charged interest deductions for the
taxable year (i.e., deductions for interest charged to
CD by C and D); C and D each own direct interests
in CD during CD’s taxable year and have gross in-
come for the taxable year from interest charged to CD;
and both C’s and D’s shares of CD’s self-charged in-
terest deductions include passive activity deduc-
tions. Accordingly, paragraph (c) of this section applies
in determining C’s and D’s passive activity gross in-
come. See paragraph (c)(1) of this section.
(iii) Under paragraph (c)(2)(i) of this section, the
applicable percentage of each partner’s interest in-
come is recharacterized as passive activity gross in-
come from CD’s rental activity. Paragraph (c)(3) of
this section provides that C’s applicable percentage is
obtained by dividing C’s share for the taxable year of
CD’s self-charged interest deductions that are treated
as passive activity deductions from the activity ($1,500)
by the greater of C’s share for the taxable year of CD’s
self-charged interest deductions ($1,500), or C’s in-
come for the taxable year from interest charged to CD
($1,000). Thus, C’s applicable percentage is 100 per-
cent ($1,500/$1,500), and all of C’s income from in-
terest charged to CD ($1,000) is treated as passive
activity gross income from the passive activity C con-
ducts through CD. Similarly, D’s applicable percent-
age is obtained by dividing D’s share for the taxable
year of CD’s self-charged interest deductions that are
treated as passive activity deductions from the activ-
ity ($1,500) by the greater of D’s share for the tax-
able year of CD’s self-charged interest deductions
($1,500), or D’s income for the taxable year from in-
terest charged to CD ($2,000). Thus, D’s applicable
percentage is 75 percent ($1,500/$2,000), and $1,500
(75 percent x $2,000) of D’s income from interest
charged to CD is treated as passive activity gross in-
come from the rental activity.
(iv) The $900 of interest expense that C pays to
the third-party lender is allocated under§1.163–
8T(c)(1) to an expenditure that is properly charge-
able to capital account with respect to the loan to CD.
Thus, the expense is properly allocable to the inter-
est income C receives from CD (see paragraph (f) of
this section). Under paragraph (c)(2)(ii) of this sec-
tion, the applicable percentage of C’s deductions for
the taxable year for interest expense that is properly
allocable to C’s income from interest charged to CD
is recharacterized as a passive activity deduction from
CD’s rental activity. Accordingly, all of C’s $900 in-
terest deduction is treated as a passive activity de-
duction from the rental activity.
Example 3.(i) E and F, calendar year taxpayers,
each own 50 percent of the stock of X, a calendar year
S corporation. E borrows $30,000 from X, and pays
X $3,000 of interest for the taxable year. E uses
$15,000 of the loan proceeds to make a personal ex-
penditure (as defined in§1.163–8T(b)(5)), and uses
$15,000 of loan proceeds to purchase a trade or busi-
ness activity in which E does not materially partici-
pate (within the meaning of§1.469–5T) for the taxable
year. E and F each receive $1,500 as theirpro rata
share of X’s interest income from the loan for the tax-
able year.
(ii) X has gross income for X’s taxable year from
interest charged to E (X’s self-charged interest in-
come); E owns a direct interest in X during X’s tax-
able year and has deductions for the taxable year for
interest charged by X; and E’s deductions for inter-
est charged by X include passive activity deduc-
tions. Accordingly, paragraph (d) of this section applies
in determining E’s passive activity gross income. See
paragraph (d)(1) of this section.
(iii) Under the rules in paragraph (d)(2)(i) of this
section, the applicable percentage of E’s share of X’s
self-charged interest income is recharacterized as pas-
sive activity gross income from the activity. Para-
graph (d)(3) of this section provides that the applicable
percentage is obtained by dividing E’s deductions for
the taxable year for interest charged by X, to the ex-
tent treated as passive activity deductions from the ac-
tivity ($1,500), by the greater of E’s deductions for
the taxable year for interest charged by X, regard-
less of whether those deductions are treated as pas-
sive activity deductions ($3,000), or E’s share for the
taxable year of X’s self-charged interest income
($1,500). Thus, E’s applicable percentage is 50 per-
cent ($1,500/$3,000), and $750 (50 percent x $1,500)
of E’s share of X’s self-charged interest income is
treated as passive activity gross income.
(iv) Because F does not have any deductions for
the taxable year for interest charged by X, this sec-
tion does not apply to F. See paragraph (d)(1)(ii) of
this section.
Example 4.(i) ThisExample 4illustrates the ap-
plication of this section to a partner that has a dif-
ferent taxable year from the partnership. The facts are
the same as inExample 1except as follows: Partner-
ship AB has properly adopted a fiscal year ending June
30 for federal tax purposes; AB borrows the $50,000
from A on October 1, 1990; and under the terms of
the loan, AB must pay A $5,000 in interest annu-
ally, in quarterly installments, for a term of 2 years.
(ii) For A’s taxable years from 1990 through 1993
and AB’s corresponding entity taxable years (as de-
fined in paragraph (b)(4) of this section) A’s interest
income and AB’s interest deductions from the loan are
as follows:
A’s Interest
Income
AB’s Interest
Deductions
1990$1,2500
1991$5,000$3,750
1992$3,750$5,000
19930$1,250
(iii) For A’s taxable year ending December 31,
1990, the corresponding entity taxable year is AB’s
taxable year ending June 30, 1990. Because AB does
not have any deductions for the entity taxable year for
September 23, 20025462002–38 I.R.B.

interest charged to AB by A, paragraph (c) of this sec-
tion does not apply in determining A’s passive activ-
ity gross income for 1990 (see paragraph (c)(1)(i) of
this section). Accordingly, A reports $1,250 of port-
folio income on A’s 1990 income tax return.
(iv) For A’s taxable year ending December 31,
1991, the corresponding entity taxable year ends on
June 30, 1991. AB has $3,750 of deductions for the
entity taxable year for interest charged to AB by A
(AB’s self-charged interest deductions); A owns a di-
rect interest in AB during the entity taxable year and
has $5,000 of interest income for A’s taxable year from
interest charged to AB; and A’s share of AB’s self-
charged interest deductions includes passive activity
deductions. Accordingly, paragraph (c) of this sec-
tion applies in determining A’s passive activity gross
income.
(v) Under paragraph (c)(2)(i) of this section, the
applicable percentage of A’s 1991 interest income is
recharacterized as passive activity gross income from
the activity. Paragraph (c)(3) of this section pro-
vides that the applicable percentage is obtained by di-
viding A’s share for A’s 1991 taxable year of AB’s self-
charged interest deductions that are treated as passive
activity deductions from the activity (50 percent x
$3,750 = $1,875) by the greater of A’s share for A’s
taxable year of AB’s self-charged interest deduc-
tions ($1,875), or A’s income for A’s taxable year from
interest charged to AB ($5,000). Thus, A’s appli-
cable percentage is 37.5 percent ($1,875/$5,000), and
$1,875 (37.5 percent x $5,000) of A’s income from
interest charged to AB is treated as passive activity
gross income from the passive activity A conducts
through AB.
(vi) For A’s taxable year ending December 31,
1992, the corresponding entity taxable year ends on
June 30, 1992. AB has $5,000 of deductions for the
entity taxable year for interest charged to AB by A
(AB’s self-charged interest deductions); A owns a di-
rect interest in AB during the entity taxable year and
has $3,750 of gross income for A’s taxable year from
interest charged to AB; and A’s share of AB’s self-
charged interest deductions includes passive activity
deductions. Accordingly, paragraph (c) of this sec-
tion applies in determining A’s passive activity gross
income.
(vii) The applicable percentage for 1992 is ob-
tained by dividing A’s share for A’s 1992 taxable year
of AB’s self-charged interest deductions that are treated
as passive activity deductions from the activity ($2,500)
by the greater of A’s share for A’s taxable year of AB’s
self-charged interest deductions ($2,500), or A’s in-
come for A’s taxable year from interest charged to AB
($3,750). Thus, A’s applicable percentage is 66 2/3 per-
cent ($2,500/$3,750), and $2,500 (66 2/3 percent x
$3,750) of A’s income from interest charged to AB is
treated as passive activity gross income from the pas-
sive activity A conducts through AB.
(viii) Paragraph (c) of this section does not ap-
ply in determining A’s passive activity gross income
for the taxable year ending December 31, 1993, be-
cause A has no gross income for the taxable year from
interest charged to AB (see paragraph (c)(1)(ii) of this
section). A’s share of AB’s self-charged interest de-
ductions for the entity taxable year ending June 30,
1993 ($625) is taken into account as a passive activ-
ity deduction on A’s 1993 income tax return.
(ix) Because B does not have any gross income
from interest charged to AB for any of the taxable
years, this section does not apply to B. See para-
graph (c)(1)(ii) of this section.
Example 5.(i) ThisExample 5illustrates the ap-
plication of the rules of this section in the case of a
taxpayer who has an indirect interest in a partner-
ship. G, a calendar year taxpayer, is an 80-percent part-
ner in partnership UTP. UTP owns a 25-percent interest
in the capital and profits of partnership LTP. UTP and
LTP are both calendar year partnerships. The part-
ners of LTP conduct a single passive activity through
LTP. UTP obtains a $10,000 loan from a bank, and
pays the bank $1,000 of interest per year. G’s dis-
tributive share of the interest paid to the bank is $800
(80 percent x $1,000). UTP uses the $10,000 debt pro-
ceeds and another $10,000 of cash to make a loan to
LTP, and LTP pays UTP $2,000 of interest for the tax-
able year. G’s distributive share of interest income at-
tributable to the UTP-to-LTP loan is $1,600 (80 percent
x $2,000). LTP uses all of the proceeds received from
UTP in the passive activity. UTP’s distributive share
of interest expense attributable to the UTP-to-LTP loan
is $500 (25 percent x $2,000). G’s distributive share
of interest expense attributable to the UTP-to-LTP loan
is $400 (80 percent x $500).
(ii) LTP has deductions for interest charged to LTP
by UTP for the taxable year (LTP’s self-charged in-
terest deductions); G owns an indirect interest in LTP
during LTP’s taxable year and has gross income for
the taxable year from interest charged to LTP by a
passthrough entity (UTP) through which G owns an
interest in LTP; and G’s share of LTP’s self-charged
interest deductions includes passive activity deduc-
tions. Accordingly, paragraph (c) of this section ap-
plies in determining G’s passive activity gross income.
See paragraph (c)(1) of this section.
(iii) Under paragraph (c)(2)(i) of this section, the
applicable percentage of G’s interest income is re-
characterized as passive activity gross income from
the activity. Paragraph (c)(3) of this section pro-
vides that the applicable percentage is obtained by di-
viding G’s share for the taxable year of LTP’s self-
charged interest deductions that are treated as passive
activity deductions from the activity ($400) by the
greater of G’s share for the taxable year of LTP’s self-
charged interest deductions ($400), or G’s income for
the year from interest charged to LTP ($1,600). Thus,
G’s applicable percentage is 25 percent ($400/$1,600),
and $400 (25 percent x $1,600) of G’s income from
interest charged to LTP is treated as passive activity
gross income from the passive activity that G con-
ducts through UTP and LTP.
(iv) G’s $800 distributive share of the interest ex-
pense that UTP pays to the third-party lender is al-
located under§1.163–8T(c)(1) to an expenditure that
is properly chargeable to capital account with re-
spect to the loan to LTP. Thus, the expense is a de-
duction properly allocable to the interest income that
G receives as a result of the UTP-to-LTP loan (see
paragraph (f) of this section). Under paragraph (c)(2)(ii)
of this section, the applicable percentage of G’s de-
ductions for the taxable year for interest expense that
is properly allocable to G’s income from interest
charged by UTP to LTP is recharacterized as a pas-
sive activity deduction from LTP’s passive activity. Ac-
cordingly, $200 (25 percent x $800) of G’s interest
deduction is treated as a passive activity deduction
from LTP’s activity.
Example 6.(i) ThisExample 6illustrates the ap-
plication of the rules of this section in the case of a
taxpayer who conducts two passive activities through
a passthrough entity. J, a calendar year taxpayer, is the
100-percent shareholder of Y, a calendar year S cor-
poration. J conducts two passive activities through Y:
a rental activity and a trade or business activity in
which J does not materially participate. Y borrows
$80,000 from J, and uses $60,000 of the loan pro-
ceeds in the rental activity and $20,000 of the loan
proceeds in the passive trade or business activity. Y
pays $8,000 of interest to J for the taxable year, and
J incurs $8,000 of interest expense as J’s distribu-
tive share of Y’s interest expense.
(ii) Y has self-charged interest deductions for the
taxable year (i.e., the deductions for interest charged
to Y by J); J owns a direct interest in Y during Y’s
taxable year and has gross income for J’s taxable year
from interest charged to Y; and J’s share of Y’s self-
charged interest deductions includes passive activity
deductions. Accordingly, paragraph (c) of this sec-
tion applies in determining J’s passive activity gross
income. See paragraph (c)(1) of this section.
(iii) Under paragraph (c)(2)(i) of this section, the
applicable percentage of J’s interest income is rechar-
acterized as passive activity gross income attribut-
able to the rental activity. Paragraph (c)(3) of this
section provides that the applicable percentage is ob-
tained by dividing J’s share for the taxable year of Y’s
self-charged interest deductions that are treated as pas-
sive activity deductions from the rental activity
($6,000) by the greater of J’s share for the taxable year
of Y’s self-charged interest deductions ($8,000), or J’s
income for the taxable year from interest charged to
Y ($8,000). Thus, J’s applicable percentage is 75 per-
cent ($6,000/$8,000), and $6,000 (75 percent x $8,000)
of J’s income from interest charged to Y is treated as
passive activity gross income from the rental activ-
ity J conducts through Y.
(iv) Under paragraph (c)(2)(i) of this section, the
applicable percentage of J’s interest income is rechar-
acterized as passive activity gross income attribut-
able to the passive trade or business activity. Paragraph
(c)(3) of this section provides that the applicable per-
centage is obtained by dividing J’s share for the tax-
able year of Y’s self-charged interest deductions that
are treated as passive activity deductions from the pas-
sive trade or business activity ($2,000) by the greater
of J’s share for the taxable year of Y’s self-charged
interest deductions ($8,000), or J’s income for the tax-
able year from interest charged to Y ($8,000). Thus,
J’s applicable percentage is 25 percent ($2,000/$8,000),
and $2,000 of J’s income from interest charged to Y
is treated as passive activity gross income from the
passive trade or business activity J conducts through
Y.
Par. 4. Section 1.469–11 is amended as
follows:
1. Paragraph (a)(3) is amended by re-
moving the language“and”at the end of
the paragraph.
2. Paragraph (a)(4) is redesignated as
paragraph (a)(5) and a new paragraph (a)(4)
is added.
3. The paragraph headings for (c)(1) and
(c)(1)(i) are revised.
4. Paragraph (c)(1)(iii) is added.
5. The added and revised provisions read
as follows:
2002–38 I.R.B.547September 23, 2002

§1.469–11 Effective date and transition
rules.
(a)***
(4) The rules contained in§1.469–7 ap-
ply for taxable years ending after Decem-
ber 31, 1986; and
*****
(c)***
(1)Application of certain income re-
characterization rules and self-charged
rules—(i)Certain recharacterization rules
inapplicable in 1987.* * *
*****
(iii)Self-charged rules. For taxable years
beginning before June 4, 1991—
(1) A taxpayer is not required to apply
the rules in§1.469–7 in computing the tax-
payer’s passive activity loss and passive ac-
tivity credit; and
(2) A taxpayer that owns an interest in
a passthrough entity may use any reason-
able method of offsetting items of inter-
est income and interest expense from
lendingtransactionsbetweenthe
passthrough entity and its owners or be-
tween identically-owned passthrough en-
tities (as defined in§1.469–7(e)) to
compute the taxpayer’s passive activity loss
and passive activity credit. Items from non-
lending transactions cannot be offset un-
der the self-charged rules.
*****
PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 5. The authority citation for the part
602 continues to read:
Authority: 26 U.S.C. 7805.
Par.6.In§602.101, paragraph (b) is
amended by adding the following entry in
numerical order to the table to read as
follows:
§602.101 OMB Control Numbers.
*****
(b)***
CFR part or section where identified
and described
Current OMB
control number
*****
1.469–7 ................................................................................................................................................................1545–1244
*****
Robert E Wenzel,
Deputy Commissioner
of Internal Revenue.
Approved July 31, 2002.
Pamela F. Olson,
Acting Assistant Secretary
of the Treasury.
(Filed by the Office of the Federal Register on August 20,
2002, 8:45 a.m., and published in the issue of the Federal Reg-
ister for August 21, 2002, 67 F.R. 54087)
Section 6321.—Lien for Taxes
Ct. D. 2075
SUPREME COURT OF THE
UNITED STATES
No. 00–1831
UNITED STATESv.CRAFT
CERTIORARI TO THE
UNITED STATES COURT
OF APPEALS FOR
THE SIXTH CIRCUIT
April 17, 2002
Syllabus
When respondent’s husband failed to pay
federal income tax liabilities assessed
against him, a federal tax lien attached to
“all [of his] property and rights to prop-
erty.”26 U.S.C. Sec. 6321. After the no-
tice of the lien was filed, respondent and
her husband jointly executed a quitclaim
deed purporting to transfer to her his in-
terest in a piece of real property in Michi-
gan that they owned as tenants by the
entirety. Subsequently the Internal Rev-
enue Service (IRS) agreed to release the lien
and allow respondent to sell the property
with half the net proceeds to be held in es-
crow pending determination of the Gov-
ernment’s interest in the property. She
brought this action to quiet title to the es-
crowed proceeds. The Government claimed,
among other things, that its lien had at-
tached to the husband’s interest in the ten-
ancy by the entirety. The District Court
granted the Government summary judg-
ment, but the Sixth Circuit held that no lien
attached because the husband had no sepa-
rate interest in the entireties property un-
der Michigan law, and remanded the case
for consideration of an alternative claim not
at issue here. In affirming the District
Court’s decision on remand, the Sixth Cir-
cuit held that its prior opinion on the is-
sue whether the lien attached to the
husband’s entireties property was the law
of the case.
Held:the husband’s interests in the en-
tireties property constitute“property”or
“rights to property”to which a federal tax
lien may attach. Pp. 3–15.
(a) Because the federal tax lien stat-
ute itself creates no property rights,Unit-
edStates v. Bess, 357 U.S. 51, 55, this Court
looks initially to state law to determine what
September 23, 20025482002–38 I.R.B.

rights the taxpayer has in the property the
Government seeks to reach and then to fed-
eral law to determine whether such state-
delineated rights qualify as property or
rights to property under Sec. 6321,Drye v.
United States, 528 U.S. 49, 58. A com-
mon idiom describes property as a“bundle
of sticks”—a collection of individual rights
which, in certain combinations, constitute
property. State law determines which sticks
are in a person’s bundle, but federal law de-
termines whether those sticks constitute
property for federal tax lien purposes. In
looking to state law, this Court must con-
sider the substance of the state law rights,
not the labels the State gives them or the
conclusions it draws from them. Pp. 3–4.
(b) Michigan law gave respondent’s hus-
band, among other rights, the right to use
the entireties property, the right to exclude
others from it, the right of survivorship, the
right to become a tenant in common with
equal shares upon divorce, the right to sell
the property with respondent’s consent and
to receive half the proceeds from such a
sale, the right to encumber the property with
respondent’s consent, and the right to block
respondent from selling or encumbering the
property unilaterally. Pp. 4–8.
(c) The rights Michigan law granted re-
spondent’s husband qualify as“property”
or“rights to property”under Sec. 6321. The
broad statutory language authorizing the tax
lien reveals that Congress meant to reach
every property interest that a taxpayer might
have.United States v. National Bank of
Commerce, 472 U.S. 713, 719–720. The
husband’s rights of use, exclusion, and in-
come alone may be sufficient to subject his
entireties interest to the lien, for they gave
him a substantial degree of control over the
property. SeeDrye, supra, at 61. He also
had the right to alienate the property with
respondent’s consent. The unilateral alien-
ation stick is not essential to“property.”
Federal tax liens may attach to property that
cannot be unilaterally alienated,United
States v. Rodgers, 461 U.S. 677, and ex-
cluding such property would exempt a
rather large amount of what is commonly
thought of as property. A number of the
sticks in respondent’s husband’s bundle
were presently existing, so it is not neces-
sary to consider whether his survivorship
right alone, which respondent claims is an
expectancy, would qualify as property or
rights to property. Were this Court to reach
a contrary conclusion, the entireties prop-
erty would belong to no one for Sec. 6321
purposes, because respondent had no more
interest in the property than her husband.
Such a result seems absurd, and would al-
low spouses to shield their property from
federal taxation by classifying it as entire-
ties property, facilitating abuse of the fed-
eral tax system. Legislative history does not
support respondent’s position that Con-
gress did not intend that a federal tax lien
attach to an entireties property interest. And
the common law background of the tax lien
statute’s enactment is not enough to over-
come the broad language Congress actu-
ally used. Pp. 8–14.
(d) That Michigan makes a different
choice with respect to state law creditors
does not dictate the choice here. Because
Sec. 6321’s interpretation is a federal ques-
tion, this Court is in no way bound by state
courts’answers to similar questions involv-
ing state law. P. 14.
233 F.3d 358 reversed and remanded.
O’CONNOR, J., delivered the opinion
of the Court, in which REHNQUIST, C.J.,
and KENNEDY, SOUTER, GINSBURG,
and BREYER, JJ., joined. SCALIA, J., filed
a dissenting opinion, in which THOMAS,
J., joined. THOMAS, J., filed a dissent-
ing opinion, in which STEVENS and SCA-
LIA, JJ., joined.
SUPREME COURT OF THE
UNITED STATES
No. 00–1831
UNITED STATESv.
SANDRA L. CRAFT
ON WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF
APPEALS FOR THE SIXTH CIRCUIT
April 17, 2002
JUSTICE O’CONNOR delivered the
opinion of the Court.
This case raises the question whether a
tenant by the entirety possesses“prop-
erty”or“rights to property”to which a fed-
eral tax lien may attach. 26 U.S.C. Sec.
6321. Relying on the state law fiction that
a tenant by the entirety has no separate in-
terest in entireties property, the United States
Court of Appeals for the Sixth Circuit held
that such property is exempt from the tax
lien. We conclude that, despite the fic-
tion, each tenant possesses individual rights
in the estate sufficient to constitute“prop-
erty”or“rights to property”for the pur-
poses of the lien, and reverse the judgment
of the Court of Appeals.
I
In 1988, the Internal Revenue Service
(IRS) assessed $482,446 in unpaid income
tax liabilities against Don Craft, the hus-
band of respondent Sandra L. Craft, for fail-
ure to file federal income tax returns for the
years 1979 through 1986. App. to Pet. for
Cert. 45a, 72a. When he failed to pay, a fed-
eral tax lien attached to“all property and
rights to property, whether real or per-
sonal, belonging to”him. 26 U.S.C. Sec.
6321.
At the time the lien attached, respon-
dent and her husband owned a piece of real
property in Grand Rapids, Michigan, as ten-
ants by the entirety. App. to Pet. for Cert.
45a. After notice of the lien was filed, they
jointly executed a quitclaim deed purport-
ing to transfer the husband’s interest in the
property to respondent for one dollar.Ibid.
When respondent attempted to sell the prop-
erty a few years later, a title search re-
vealed the lien. The IRS agreed to release
the lien and allow the sale with the stipu-
lation that half of the net proceeds be held
in escrow pending determination of the
Government’s interest in the property.Ibid.
Respondent brought this action to quiet
title to the escrowed proceeds. The Gov-
ernment claimed that its lien had attached
to the husband’s interest in the tenancy by
the entirety. It further asserted that the trans-
fer of the property to respondent was in-
valid as a fraud on creditors.Id.,at46a–
47a. The District Court granted the
Government’s motion for summary judg-
ment, holding that the federal tax lien at-
tached at the moment of the transfer to
respondent, which terminated the tenancy
by the entirety and entitled the Govern-
ment to one-half of the value of the prop-
erty. No. 1:93–CV–306, 1994 WL 669680,
*3 (WD Mich., Sept. 12, 1994).
Both parties appealed. The Sixth Cir-
cuit held that the tax lien did not attach to
the property because, under Michigan state
law, the husband had no separate interest
in property held as a tenant by the en-
tirety. 140 F.3d 638, 643 (1998). It re-
manded to the District Court to consider the
Government’s alternative claim that the con-
veyance should be set aside as fraudu-
lent.Id., at 644.
2002–38 I.R.B.549September 23, 2002

On remand, the District Court concluded
that where, as here, state law makes prop-
erty exempt from the claims of creditors,
no fraudulent conveyance can occur. 65
F.Supp.2d 651, 657–658 (WD Mich. 1999).
It found, however, that respondent’s hus-
band’s use of nonexempt funds to pay the
mortgage on the entireties property, which
placed them beyond the reach of credi-
tors, constituted a fraudulent act under state
law, and the court awarded the IRS a share
of the proceeds of the sale of the prop-
erty equal to that amount.Id., at 659.
Both parties appealed the District Court’s
decision, the Government again claiming
that its lien attached to the husband’s in-
terest in the entireties property. The Court
of Appeals held that the prior panel’s opin-
ion was law of the case on that issue. 233
F.3d 358, 363–369 (CA6 2000). It also af-
firmed the District Court’s determination
that the husband’s mortgage payments were
fraudulent.Id.,at369–375.
We granted certiorari to consider the
Government’s claim that respondent’s hus-
band had a separate interest in the entire-
ties property to which the federal tax lien
attached. 533 U.S. 976 (2001).
II
Whether the interests of respondent’s
husband in the property he held as a ten-
ant by the entirety constitutes“property and
rights to property”for the purposes of the
federal tax lien statute, 26 U.S.C. Sec. 6321
is ultimately a question of federal law. The
answer to this federal question, however,
largely depends upon state law. The fed-
eral tax lien statute itself“creates no prop-
ertyrights,butmerelyattaches
consequences, federally defined, to rights
created under state law.”United States v.
Bess, 357 U.S. 51, 55 (1958); see also
United States v. National Bank of Com-
merce, 472 U.S. 713, 722 (1985). Accord-
ingly,
“[w]e look initially to state law to de-
termine what rights the taxpayer has in the
property the Government seeks to reach,
then to federal law to determine whether the
taxpayer’s state—delineated rights qualify
as“property”or“rights to property”within
the compass of the federal tax lien legis-
lation.Drye v. United States, 528 U.S. 49,
58 (1999).
A common idiom describes property as
a“bundle of sticks”—a collection of in-
dividual rights which, in certain combina-
tions, constitute property. See B. Cardozo,
Paradoxes of Legal Science 129 (1928) (re-
print 2000); see alsoDickman v. Commis-
sioner, 465 U.S. 330, 336 (1984). State law
determines only which sticks are in a per-
son’s bundle. Whether those sticks qualify
as“property”for purposes of the federal tax
lien statute is a question of federal law.
In looking to state law, we must be care-
ful to consider the substance of the rights
state law provides, not merely the labels the
State gives these rights or the conclusions
it draws from them. Such state law labels
are irrelevant to the federal question of
which bundles of rights constitute prop-
erty that may be attached by a federal tax
lien. InDrye v. United States,supra,we
considered a situation where state law al-
lowed an heir subject to a federal tax lien
to disclaim his interest in the estate. The
state law also provided that such a dis-
claimer would“creat[e] the legal fiction”
that the heir had predeceased the dece-
dent and would correspondingly be deemed
to have had no property interest in the es-
tate.Id., at 53. We unanimously held that
this state law fiction did not control the fed-
eral question and looked instead to the re-
alities of the heir’s interest. We concluded
that, despite the State’s characterization, the
heir possessed a“right to property”in the
estate—the right to accept the inherit-
ance or pass it along to another—to which
the federal lien could attach.Id., at 59–
61.
III
We turn first to the question of what
rights respondent’s husband had in the en-
tireties property by virtue of state law. In
order to understand these rights, the ten-
ancy, by the entirety must first be placed
in some context.
English common law provided three le-
gal structures for the concurrent owner-
ship of property that have survived into
modern times: tenancy in common, joint
tenancy, and tenancy by the entirety. 1 G.
Thompson, Real Property Sec. 4.06(g) (D.
Thomas ed. 1994) (hereinafter Thomp-
son). The tenancy in common is now the
most common form of concurrent owner-
ship. 7 R. Powell & P. Rohan, Real Prop-
erty Sec. 51.01[3] (M. Wolf ed. 2001)
(hereinafter Powell). The common law char-
acterized tenants in common as each own-
ing a separate fractional share in undivided
property.Id., Sec. 50.01[1]. Tenants in
common may each unilaterally alienate their
shares through sale or gift or place encum-
brances upon these shares. They also have
the power to pass these shares to their heirs
upon death. Tenants in common have many
other rights in the property, including the
right to use the property, to exclude from
third parties from it, and to receive a por-
tion of any income produced from it. Id.,
Secs. 50.03–50.06.
Joint tenancies were the predominant
form of concurrent ownership at common
law, and still persist in some States today.
4 Thompson Sec. 31.05. The common law
characterized each joint tenant as possess-
ing the entire estate, rather than a frac-
tional share:“[J]oint tenants have one and
the same interest...held by one and the
same undivided possession.”2 W. Black-
stone, Commentaries on the Laws of En-
gland 180 (1766). Joint tenants possess
many of the rights enjoyed by tenants in
common: the right to use, to exclude, and
to enjoy a share of the property’s income.
The main difference between a joint ten-
ancy and a tenancy in common is that a
joint tenant also has a right of automatic in-
heritance known as“survivorship.”Upon
the death of one joint tenant, that tenant’s
share in the property does not pass through
will or the rules of intestate succession;
rather, the remaining tenant or tenants au-
tomatically inherit it.Id., at 183; 7 Pow-
ell Sec. 51.01[3]. Joint tenants’right to
alienate their individual shares is also some-
what different. In order for one tenant to
alienate his or her individual interest in the
tenancy, the estate must first be severed—
that is, converted to a tenancy in com-
mon with each tenant possessing an equal
fractional share.Id., Sec. 51.04[1]. Most
States allowing joint tenancies facilitate
alienation, however, by allowing sever-
ance to automatically accompany a con-
veyance of that interest or any other overt
act indicating an intent to sever.Ibid.
A tenancy by the entirety is a unique sort
of concurrent ownership that can only ex-
ist between married persons. 4 Thompson
Sec. 33.02. Because of the common law fic-
tion that the husband and wife were one
person at law (that person, practically speak-
ing, was the husband, see J. Cribbet et al.,
Cases and Materials on Property 329 (6th
ed. 1990)), Blackstone did not character-
ize the tenancy by the entirety as a form of
concurrent ownership at all. Instead, he
thought that entireties property was a form
of single ownership by the marital unity.
September 23, 20025502002–38 I.R.B.

Orth, Tenancy by the Entirety: The Strange
Career of the Common law Marital Es-
tate, 1997 B.Y.U.L.Rev. 35, 38–39. Nei-
ther spouse was considered to own any
individual interest in the estate; rather, it be-
longed to the couple.
Like joint tenants, tenants by the en-
tirety enjoy the right of survivorship. Also
like a joint tenancy, unilateral alienation of
a spouse’s interest in entireties property is
typically not possible without severance.
Unlike joint tenancies, however, tenan-
cies by the entirety cannot easily be sev-
ered unilaterally. 4 Thompson Sec. 33.08(b).
Typically, severance requires the consent of
both spouses,id., Sec. 33.08(a), or the end-
ing of the marriage in divorce,id., Sec.
33.08(d). At common law, all of the other
rights associated with the entireties prop-
erty belonged to the husband: as the head
of the household, he could control the use
of the property and the exclusion of oth-
ers from it and enjoy all of the income pro-
duced from it. Id., Sec. 33.05. The
husband’s control of the property was so ex-
tensive that, despite the rules on alien-
ation, the common law eventually provided
that he could unilaterally alienate entire-
ties property without severance subject only
to the wife’s survivorship interest.Orth, su-
pra,at40–41.
With the passage of the Married Wom-
en’s Property Acts in the late 19th cen-
tury granting women distinct rights with
respect to marital property, most States ei-
ther abolished the tenancy by the entirety
or altered it significantly. 7 Powell Sec.
52.01[2]. Michigan’s version of the estate
is typical of the modern tenancy by the en-
tirety. Following Blackstone, Michigan char-
acterizes its tenancy by the entirety as
creating no individual rights whatsoever:“It
is well settled under the law of this state
that one tenant by the entirety has no in-
terest separable from that of the other. . ..
Each is vested with an entire title.Long v.
Earle, 277 Mich. 505, 517, 269 N.W. 577,
581 (1936). And yet, in Michigan, each ten-
ant by the entirety possesses the right of sur-
vivorship. Mich. Comp. Laws Ann. Sec.
554.872(g) (West Supp. 1997), recodified
at Sec. 700.2901(2)(g) (West Supp. Pam-
phlet 2001). Each spouse—the wife as
well as the husband—may also use the
property, exclude third parties from it, and
receive an equal share of the income pro-
duced by it. See Sec. 557.71 (West 1988).
Neither spouse may unilaterally alienate or
encumber the property,Long v. Earle, su-
pra, at 517, 269 N.W. at 581;Rogers v.
Rogers, 136 Mich. App. 125, 134, 356 N.W.
2d 288, 292 (1984), although this may be
accomplished with mutual consent,Eadus
v. Hunter, 249 Mich. 190, 228 N.W. 782
(1930). Divorce ends the tenancy by the en-
tirety, generally giving each spouse an equal
interest in the property as a tenant in com-
mon unless the divorce decree specifies oth-
erwise. Mich. Comp. Laws Ann. Sec.
552.102 (West 1988).
In determining whether respondent’s hus-
band possessed“property”or“rights to
property”within the meaning of 26 U.S.C.
Sec. 6321, we look to the individual rights
created by these state law rules. Accord-
ing to Michigan law, respondent’s hus-
band had, among other rights, the following
rights with respect to the entireties property:
the right to use the property, the right to ex-
clude third parties from it, the right to a
share of income produced from it, the right
of survivorship, the right to become a ten-
ant in common with equal shares upon di-
vorce, the right to sell the property with the
respondent’s consent and to receive half the
proceeds from such a sale, the right to place
an encumbrance on the property with the
respondent’s consent, and the right to block
respondent from selling or encumbering the
property unilaterally.
IV
We turn now to the federal question of
whether the rights Michigan law granted to
respondent’s husband as a tenant by the en-
tirety qualify as“property”or“rights to
property”under Sec. 6321. The statutory
language authorizing the tax lien“is broad
and reveals on its face that Congress meant
to reach every interest in property that a tax-
payer might have.”United States v. Na-
tional Bank of Commerce, 472 U.S. at 719–
720.“Stronger language could hardly have
been selected to reveal a purpose to as-
sure the collection of taxes.”Glass City
Bank v. United States, 326 U.S. 265, 267
(1945). We conclude that the husband’s
rights in the entireties property fall within
this broad statutory language.
Michigan law grants a tenant by the en-
tirety some of the most essential property
rights: the right to use the property, to re-
ceive income produced by it, and to ex-
clude others from it. SeeDolan v. City of
Tigard, 512 U.S. 374, 384 (1994) (“[T]he
right to exclude others”is“one of the most
essential sticks in the bundle of rights that
are commonly characterized as property”)
(quotingKaiser Aetna v. United States, 444
U.S. 164, 176 (1979));Loretto v. Tele-
prompter Manhattan CATV Corp., 458 U.S.
419, 435 (1982) (including“use”as one of
the“[p]roperty rights in a physical thing”).
These rights alone may be sufficient to sub-
ject the husband’s interest in the entire-
ties property to the federal tax lien. They
gave him a substantial degree of control
over the entireties property, and, as we noted
inDrye,“in determining whether a fed-
eral taxpayer’s state law rights constitute
“property”or“rights to property,”[t]he im-
portant consideration is the breadth of the
control the [taxpayer] could exercise over
the property. 528 U.S. at 61 (internal quo-
tation marks omitted).
The husband’s rights in the estate, how-
ever, went beyond use, exclusion, and in-
come. He also possessed the right to alienate
(or otherwise encumber) the property with
the consent of respondent, his wife.Lor-
etto, supra, at 435 (the right to“dispose”
of an item is a property right). It is true, as
respondent notes, that he lacked the right
to unilaterally alienate the property, a right
that is often in the bundle of property rights.
See alsopostat 7. There is no reason to be-
lieve, however, that this one stick—the
right of unilateral alienation—is essen-
tial to the category of“property.”
This Court has already stated that fed-
eral tax liens may attach to property that
cannot be unilaterally alienated. InUnited
States v. Rodgers, 461 U.S. 677 (1983), we
considered the Federal Government’s power
to foreclose homestead property attached by
a federal tax lien. Texas law provided that
“‘the owner or claimant of the property
claimed as homestead [may not], if mar-
ried, sell or abandon the homestead with-
out the consent of the other spouse.’”Id.,
at 684–685 (quoting Tex. Const., Art. 16,
Sec. 50). We nonetheless stated that“[i]n
the homestead context...,there is no
doubt...that not only dobothspouses
(rather than neither) have an independent
interest in the homestead property, but that
a federal tax lien can at leastattachto each
of those interests. 461 U.S. at 703, n. 31;
cf.Drye, supra, at 60, n. 7 (noting that“an
interest in a spendthrift trust has been held
to constitute‘property for purposes of Sec.
6321’even though the beneficiary may not
transfer that interest to third parties”).
2002–38 I.R.B.551September 23, 2002

Excluding property from a federal tax
lien simply because the taxpayer does not
have the power to unilaterally alienate it
would, moreover, exempt a rather large
amount of what is commonly thought of as
property. It would exempt not only the type
of property discussed inRodgers, but also
some community property. Community
property states often provide that real com-
munity property cannot be alienated with-
out the consent of both spouses. See,e.g.,
Ariz. Rev. Stat. Ann. Sec. 25–214(C)
(2000); Cal. Fam. Code Ann. Sec. 1102
(West 1994); Idaho Code Sec. 32–912
(1996); La. Civ. Code Ann., Art. 2347 (West
Supp. 2002); Nev. Rev. Stat. Sec.
123.230(3) (1995); N.M. Stat. Ann. Sec. 40–
3–13 (1999); Wash. Rev. Code Sec.
26.16.030(3) (1994). Accordingly, the fact
that respondent’s husband could not uni-
laterally alienate the property does not pre-
clude him from possessing“property and
rights to property”for the purposes of Sec.
6321.
Respondent’s husband also possessed the
right of survivorship—the right to auto-
matically inherit the whole of the estate
should his wife predecease him. Respon-
dent argues that this interest was merely an
expectancy, which we suggested inDrye
would not constitute“property”for the pur-
poses of a federal tax lien. 528 U.S. at 60,
n.7(“[We do not mean to suggest] that an
expectancy that has pecuniary value...
would fall within Sec. 6321 prior to the
time it ripens into a present estate”).Drye
did not decide this question, however, nor
do we need to do so here. As we have dis-
cussed above, a number of the sticks in re-
spondent’s husband’s bundle were presently
existing. It is therefore not necessary to de-
cide whether the right to survivorship alone
would qualify as“property”or“rights to
property”under Sec. 6321.
That the rights of respondent’s hus-
band in the entireties property constitute
“property”or“rights to property”“belong-
ing to”him is further underscored by the
fact that if the conclusion were otherwise,
the entireties property would belong to no
one for the purposes of Sec. 6321. Respon-
dent had no more interest in the property
than her husband; if neither of them had a
property interest in the entireties prop-
erty, who did? This result not only seems
absurd, but would also allow spouses to
shield their property from federal taxa-
tion by classifying it as entireties prop-
erty, facilitating abuse of the federal tax
system. Johnson, AfterDrye: The Likely At-
tachment of the Federal Tax Lien to Ten-
ancy by the Entireties Interests, 75 Ind.L.J.
1163, 1171 (2000).
JUSTICE SCALIA’s and JUSTICE
THOMAS’dissents claim that the conclu-
sion that the husband possessed an inter-
est in the entireties property to which the
federal tax lien could attach is in conflict
with the rules for tax liens relating to part-
nership property. Seepostat 1; see alsopost
at 6, n. 4. This is not so. As the authori-
ties cited by JUSTICE THOMAS reflect,
the federal tax lien does attach to an indi-
vidual partner’s interest in the partner-
ship, that is, to the fair market value of his
or her share in the partnership assets.Ibid.
(citing B. Bittker & M. McMahon, Fed-
eral Income Taxation of Individuals
¶44.5[4][a] (2d ed. 1995 and 2000 Cum-
.Supp.)); see also A. Bromberg & L. Rib-
stein, Partnership Sec. 3.05(d) (2002–1
Supp.) (hereinafter Bromberg & Ribstein)
(citing Uniform Partnership Act Sec. 28, 6
U.L.A. 744 (1995)). As a holder of this lien,
the Federal Government is entitled to“re-
ceive...theprofits to which the assign-
ing partner would otherwise be entitled,”
including predissolution distributions and
the proceeds from dissolution. Uniform
Partnership Act Sec. 27(1),id., at 736.
There is, however, a difference between
the treatment of entireties property and part-
nership assets. The Federal Government
may not compel the sale of partnership as-
sets (although it may foreclose on the part-
ner’s interest, Bromberg & Ribstein Sec.
3.05(d)(3)(iv)). It is this difference that is
reflected in JUSTICE SCALIA’s asser-
tion that partnership property cannot be en-
cumbered by individual partner’s debts. See
postat 1. This disparity in treatment be-
tween the two forms of ownership, how-
ever, arises from our decision inUnited
States v. Rodgers, 461 U.S. 677 (1983)
(holding that the Government may fore-
close on property even where the co-owners
lack the right of unilateral alienation), and
not our holding today. In this case, it is in-
stead the dissenters’theory that departs from
partnership law, as it would hold that the
Federal Government’s lien does not at-
tach to the husband’s interest in the entire-
ties property at all, whereas the lien may
attach to an individual’s interest in part-
nership property.
Respondent argues that whether or not
we would conclude that respondent’s hus-
band had an interest in the entireties prop-
erty, legislative history indicates that
Congress did not intend that a federal tax
lien should attach to such an interest. In
1954, the Senate rejected a proposed
amendment to the tax lien statute that would
have provided that the lien attach to“prop-
erty or rights to property (including the in-
terest of such person as tenant by the
entirety).”S.Rep. No. 1622, 83d Cong., 2d
Sess., p. 575 (1954). We have elsewhere
held, however, that failed legislative pro-
posals are“a particularly dangerous ground
on which to rest an interpretation of a prior
statute,”Pension Benefit Guaranty Corpo-
ration v. LTV Corp., 496 U.S. 633, 650
(1990), reasoning that“‘[c]ongressional in-
action lacks persuasive significance be-
cause several equally tenable inferences may
be drawn from such inaction, including the
inference that the existing legislation al-
ready incorporated the offered change,’”
Central Bank of Denver, N.A. v. First In-
terstate Bank of Denver,N.A., 511 U.S. 164,
187 (1994). This case exemplifies the risk
of relying on such legislative history. As we
noted inUnited States v. Rodgers, 461 U.S.
at 704, n. 31, some legislative history sur-
rounding the 1954 amendment indicates that
the House intended the amendment to be
nothing more than a“clarification”of ex-
isting law, and that the Senate rejected the
amendment only because it found it“su-
perfluous.”See H.R. Rep. No. 1337, 83d
Cong., 2d Sess., A406 (1954) (noting that
the amendment would“clarif[y] the term
‘property and rights to property’by ex-
pressly including therein the interest of the
delinquent taxpayer in an estate by the en-
tirety”); S. Rep. No. 1622, 83d Cong., 2d
Sess., 575 (1954) (“It is not clear what
change in existing law would be made by
the parenthetical phrase. The deletion of the
phrase is intended to continue the exist-
ing law”).
The same ambiguity that plagues the leg-
islative history accompanies the common
law background of Congress’enactment of
the tax lien statute. Respondent argues that
Congress could not have intended the pas-
sage of the federal tax lien statute to alter
the generally accepted rule that liens could
not attach to entireties property. SeeAsto-
ria Fed. Sav. & Loan Assn. v. Solimino, 501
U.S. 104, 108 (1991) (“[W]here a com-
mon law principle is well established...
September 23, 20025522002–38 I.R.B.

the courts may take it as given that Con-
gress has legislated with an expectation that
the principle will apply except‘when a
statutory purpose to the contrary is evi-
dent’”). The common law rule was not so
well established with respect to the appli-
cation of a federal tax lien that we must as-
sume that Congress considered the impact
of its enactment on the question now be-
fore us. There was not much of a com-
mon law background on the question of the
application of federal tax liens, as the first
court of appeals cases dealing with the ap-
plication of such a lien did not arise until
the 1950’s.United States v. Hutcherson, 188
F.2d 326 (CA8 1951);Raffaele v. Granger,
196 F.2d 620 (CA3 1952). This background
is not sufficient to overcome the broad
statutory language Congress did enact, au-
thorizing the lien to attach to“all prop-
erty and rights to property”a taxpayer might
have.
We therefore conclude that respondent’s
husband’s interest in the entireties prop-
erty constituted“property”or“rights to
property”for the purposes of the federal tax
lien statute. We recognize that Michigan
makes a different choice with respect to
state law creditors:“[L]and held by hus-
band and wife as tenants by entirety is not
subject to levy under execution on judg-
ment rendered against either husband or
wife alone.”Sanford v. Bertrau, 204 Mich.
244, 247, 169 N.W. 880, 881 (1918). But
that by no means dictates our choice. The
interpretation of 26 U.S.C. Sec. 6321 is a
federal question, and in answering that ques-
tion we are in no way bound by state
courts’answers to similar questions involv-
ing state law. As we elsewhere have held,
“‘exempt status under state law does not
bind the federal collector.’”Drye v. United
States, 528 U.S. at 51. See alsoRodgers,
supra, at 701 (clarifying that the Supremacy
Clause“provides the underpinning for the
Federal Government’s right to sweep aside
state-created exemptions”).
V
We express no view as to the proper
valuation of respondent’s husband’s inter-
est in the entireties property, leaving this for
the Sixth Circuit to determine on remand.
We note, however, that insofar as the
amount is dependent upon whether the 1989
conveyance was fraudulent, seepostat 1,
n. 1 (THOMAS, J., dissenting), this case is
somewhat anomalous. The Sixth Circuit af-
firmed the District Court’s judgment that
this conveyance was not fraudulent, and the
Government has not sought certiorari re-
view of that determination. Since the Dis-
trict Court’s judgment was based on the
notion that because the federal tax lien could
not attach to the property, transferring it
could not constitute an attempt to evade the
Government creditor, 65 F.Supp.2d at 657–
659, in future cases, the fraudulent con-
veyance question will no doubt be answered
differently.
The judgment of the United States Court
of Appeals for the Sixth Circuit is accord-
ingly reversed, and the case is remanded for
proceedings consistent with this opinion.
It is so ordered.
SUPREME COURT OF THE
UNITED STATES
No. 00–1831
UNITED STATES PETITIONERv.
SANDRA L.CRAFT
ON WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF
APPEALS FOR THE SIXTH CIRCUIT
April 17, 2002
JUSTICE SCALIA, with whom JUS-
TICE THOMAS joins, dissenting.
I join JUSTICE THOMAS’dissent,
which points out (to no relevant response
from the Court) that a State’s decision to
treat the marital partnership as a separate
legal entity, whose property cannot be en-
cumbered by the debts of its individual
members, is no more novel and no more
“artificial”than a State’s decision to treat
the commercial partnership as a separate le-
gal entity, whose property cannot be en-
cumbered by the debts of its individual
members.
I write separately to observe that the
Court nullifies (insofar as federal taxes are
concerned, at least) a form of property own-
ership that was of particular benefit to the
stay-at- home spouse or mother. She is over-
whelmingly likely to be the survivor that
obtains title to the unencumbered prop-
erty, and she (as opposed to her business-
world husband) is overwhelmingly unlikely
to be the source of the individual indebt-
edness against which a tenancy by the en-
tirety protects. It is regrettable that the Court
has eliminated a large part of this tradi-
tional protection retained by many States.
SUPREME COURT OF THE
UNITED STATES
No. 00–1831
UNITED STATES PETITIONERv.
SANDRA L. CRAFT
ON WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF
APPEALS FOR THE SIXTH CIRCUIT
April 17, 2002
JUSTICE THOMAS, with whom JUS-
TICE STEVENS and JUSTICE SCALIA
join, dissenting.
The Court today allows the Internal Rev-
enue Service (IRS) to reach proceeds from
the sale of real property that did not be-
long to the taxpayer, respondent’s hus-
band, Don Craft,
1
because, in the Court’s
view, he“possesse[d] individual rights in
the [tenancy by the entirety] estate suffi-
cient to constitute‘property and rights to
property’for the purposes of the lien”cre-
ated by 26 U.S.C. Sec. 6321.Ante,at1.The
Court does not contest that the tax liabil-
ity the IRS seeks to satisfy is Mr. Craft’s
alone, and does not claim that, under Michi-
gan law, real property held as a tenancy by
the entirety belongs to either spouse indi-
vidually. Nor does the Court suggest that
the federal tax lien attaches to particular
“rights to property”held individually by Mr.
Craft. Rather, borrowing the metaphor of
“property as a‘bundle of sticks’—a col-
lection of individual rights which, in cer-
tain combinations constitute property,”ante,
at 4, the Court proposes that so long as suf-
1
The Grand Rapids property was tenancy by the entirety property owned by Mr. and Mrs. Craft when the tax lien attached, but was conveyed by the Crafts to Mrs. Craft by quitclaim deed in 1989. That conveyance
terminated the entirety estate. Mich. Comp. Laws Ann. Sec. 557.101 (West 1988); see alsoUnited States v. Certain Real Property Located at 2525 Leroy Lane, 910 F.2d 343, 351 (CA6 1990). The District Court and
Court of Appeals both held that the transfer did not constitute a fraudulent conveyance, a ruling the Government has not appealed. The IRS is undoubtedly entitled to any proceeds that Mr. Craft received or to which he
was entitled fromthe 1989 conveyanceof the tenancy by the entirety property for $1.00; at that point, the tenancy by the entirety estate was destroyed and at least half of the proceeds, or 50cents, was“property”or
“rights to property”“belonging to”Mr. Craft. By contrast, the proceeds that the IRS claims here are fromMrs. Craft’s 1992 saleof the property to a third party. At the time of the sale, she owned the property in fee
simple, and accordingly Mr. Craft neither received nor was entitled to these funds.
2002–38 I.R.B.553September 23, 2002

ficient“sticks”in the bundle of“rights to
property”“belong to”a delinquent tax-
payer, the lien can attach as if the prop-
erty itself belonged to the taxpayer.Ante,
at 11.
This amorphous construct ignores the
primacy of state law in defining property
interests, eviscerates the statutory distinc-
tion between“property”and“rights to prop-
erty”drawn by Sec. 6321, and conflicts
with an unbroken line of authority from this
Court, the lower courts, and the IRS. Its ap-
plication is all the more unsupportable in
this case because, in my view, it is highly
unlikely that the limited individual“rights
to property”recognized in a tenancy by the
entirety under Michigan law are them-
selves subject to lien. I would affirm the
Court of Appeals and hold that Mr. Craft
did not have“property”or“rights to prop-
erty”to which the federal tax lien could at-
tach.
I
Title 26 U.S.C. Sec. 6321 provides that
a federal tax lien attaches to“all property
and rights to property, whether real or per-
sonal, belonging to”a delinquent taxpayer.
It is uncontested that a federal tax lien it-
self“creates no property rights but merely
attaches consequences, federally defined, to
rights created under state law.”United States
v. Bess, 357 U.S. 51, 55 (1958) (constru-
ing the 1939 version of the federal tax lien
statute). Consequently the Government’s lien
under Sec. 6321“cannot extend beyond the
property interests held by the delinquent tax-
payer,”United States v. Rodgers, 461 U.S.
677, 690–691 (1983), under state law. Be-
fore today, no one disputed that the IRS, by
operation of Sec. 6321,“steps into the tax-
payer’s shoes,”and has the same rights as
the taxpayer in property or rights to prop-
erty subject to the lien. B. Bittker & M. Mc-
Mahon, Federal Income Taxation of
Individuals¶44.5[4][a] (2d ed. 1995 and
2000 Cum. Supp.) (hereinafter Bittker). I
would not expand“‘the nature of the le-
gal interest’”the taxpayer has in the prop-
erty beyond those interests recognized under
state law.Aquilino v. United States, 363 U.S.
509, 513 (1960) (citingMorgan v. Com-
missioner, 309 U.S. 78, 82 (1940)).
A
If the Grand Rapids property“belong[ed]
to”Mr. Craft under state law prior to the
termination of the tenancy by the entirety,
the federal tax lien would have attached to
the Grand Rapids property. But that is not
this case. As the Court recognizes, pursu-
ant to Michigan law, as under English com-
mon law, property held as a tenancy by the
entirety does not belong to either spouse,
but to a single entity composed of the mar-
ried persons. Seeante,at6–7. Neither
spouse has“any separate interest in such
an estate.”Sanford v. Bertrau, 204 Mich.
244, 249, 169 N.W. 880, 882 (1918); see
alsoLong v. Earle, 277 Mich. 505, 517, 269
N.W. 577, 581 (1936) (“Each [spouse] is
vested with an entire title and, as against
the one who attempts alone to convey or
encumber such real estate, the other has an
absolute title”). An entireties estate consti-
tutes an indivisible“sole tenancy.”SeeBud-
wit v. Herr, 339 Mich. 265, 272, 63 N.W.2d
841, 844 (1954); see alsoTyler v. United
States, 281 U.S. 497, 501 (1930) (“[T]he
tenants constitute a unit; neither can dis-
pose of any part of the estate without the
consent of the other, and the whole con-
tinues in the survivor”). Because Michi-
gan does not recognize a separate spousal
interest in the Grand Rapids property, it did
not“belong”to either respondent or her
husband individually when the IRS as-
serted its lien for Mr. Craft’s individual tax
liability. Thus, the property was not prop-
erty to which the federal tax lien could at-
tach for Mr. Craft’s tax liability.
The Court does not dispute this char-
acterization of Michigan’s law with re-
spect to the essential attributes of the
tenancy by the entirety estate. However, re-
lying onDrye v. United States, 528 U.S. 49,
59 (1999), which in turn relied uponUnited
States v. Irvine, 511 U.S. 224 (1994), and
United States v. Mitchell, 403 U.S. 190
(1971), the Court suggests that Michigan’s
definition of the tenancy by the entirety es-
tate should be overlooked because fed-
eral tax law is not controlled by state legal
fictions concerning property ownership.
Ante, at 4. But the Court misapprehends the
application ofDryeto this case.
Drye, likeIrvineandMitchellbefore it,
was concerned not with whether state law
recognized“property”as belonging to the
taxpayer in the first place, but rather with
whether state laws could disclaim or ex-
empt such property from federal tax liabil-
ity after the property interest was created.
Dryeheld only that a state law disclaimer
could not retroactively undo a vested right
in an estate that the taxpayer already held,
and that a federal lien therefore attached to
the taxpayer’s interest in the estate. 528 U.S.
at 61 (recognizing that a disclaimer does not
restore thestatus quo antebecause the heir
“determines who will receive the property—
himself if he does not disclaim, a known
other if he does”). Similarly, inIrvine, the
Court held that a state law allowing an in-
dividual to disclaim a gift could not force
the Court to be“struck blind”to the fact
that the transfer of“property”or“prop-
erty rights”for which the gift tax was due
had already occurred;“state property trans-
fer rulesdo not transfer into federal taxa-
tion rules.”511 U.S. at 239–240 (emphasis
added). See alsoMitchell,supra,at204
(holding that right to renounce a marital in-
terest under state law does not indicate that
the taxpayer had no right to property be-
fore the renunciation).
Extending this Court’s“state law fic-
tion”jurisprudence to determine whether
property or rights to propertyexistunder
state law in the first place works a sea
change in the role States have tradition-
ally played in“creating and defining”prop-
erty interests. By erasing the careful line
between state laws that purport to dis-
claim or exempt property interests after the
fact, which the federal tax lien does not re-
spect, and state laws’definition of prop-
erty and property rights, which the federal
tax lien does respect, the Court does not fol-
lowDrye, but rather creates a new fed-
eral common law of property. This
contravenes the previously settled rule that
the definition and scope of property is left
to the States. SeeAquilino, supra, at 513,
n. 3 (recognizing unsoundness of leaving
the definition of property interests to a nebu-
lous body of federal law,“because it ig-
nores the long-established role that the
States have played in creating property in-
terests and places upon the courts the task
of attempting to ascertain a taxpayer’s prop-
erty rights under an undefined rule of fed-
eral law”).
B
That the Grand Rapids property does not
belong to Mr. Craft under Michigan law
does not end the inquiry, however, since the
federal tax lien attaches not only to“prop-
erty,”but also to any“rights to property”
belonging to the taxpayer. While the Court
concludes that a laundry list of“rights to
property”belonged to Mr. Craft as a ten-
September 23, 20025542002–38 I.R.B.

ant by the entirety,
2
it does not suggest that
the tax lien attached to any of these par-
ticular rights.
3
Instead, the Court gathers
these rights together and opines that there
were sufficient sticks to form a bundle, so
that“respondent’s husband’s interest in the
entireties property constituted‘property’or
‘rights to property’for the purposes of the
federal tax lien statute.”Anteat 11,13.
But the Court’s“sticks in a bundle”
metaphor collapses precisely because of the
distinction expressly drawn by the stat-
ute, which distinguishes between“prop-
erty”and“rights to property.”The Court
refrains from ever stating whether this case
involves“property”or“rights to prop-
erty”even though Sec. 6321 specifically
provides that the federal tax lien attaches
to“property”and“rights to property”“be-
longing to”the delinquent taxpayer, and not
to an imprecise construct of“individual
rights in the estate sufficient to constitute
‘property and rights to property’for the pur-
poses of the lien.”Ante,at1.
4
Rather than adopt the majority’s ap-
proach, I would ask specifically, as the stat-
ute does, whether Mr. Craft had any
particular“rights to property”to which the
federal tax lien could attach. He did not.
5
Such“rights to property”that have been
subject to the Sec. 6321 lien are valuable
and“pecuniary,”i.e., they can be attached,
and levied upon or sold by the Govern-
ment.
6
Drye, 528 U.S. at 58—60, and n. 7.
With such rights subject to lien, the tax-
payer’s interest has“ripen[ed] into a present
estate”of some form and is more than a
mere expectancy,id., at 60, n. 7, and thus
the taxpayer has an apparent right“to chan-
nel that value to [another],”id.,at61.
In contrast, a tenant in a tenancy by the
entirety not only lacks a present divisible
vested interest in the property and control
with respect to the sale, encumbrance, and
transfer of the property, but also does not
possess the ability to devise any portion of
the property because it is subject to the oth-
er’s indestructible right of survivorship.
Rogers v. Rogers, 136 Mich. App. 125,
135–137, 356 N.W.2d 288, 293–294 (1984).
This latter fact makes the property signifi-
cantly different from community prop-
erty, where each spouse has a present one-
half vested interest in the whole, which may
be devised by will or otherwise to a per-
son other than the spouse. See 4 G. Th-
ompson, Real Property Sec. 37.14(a) (D.
Thomas ed. 1994) (noting that a married
person’s power to devise one-half of the
community property is“consistent with the
fundamental characteristic of community
property”:“community ownership means
that each spouse owns 50% of each com-
munity asset”).
7
See alsoDrye, 528 U.S. at
61 (“[I]n determining whether a federal tax-
payer’s state law rights constitute‘prop-
erty’or‘rights to property,’theimportant
consideration is the breadth of the con-
trol the taxpayer could exercise over the
property”(emphasis added, citation and
brackets omitted).
It is clear that some of the individual
rights of a tenant in entireties property are
primarily personal, dependent upon the tax-
payer’s status as a spouse, and similarly not
susceptible to a tax lien. For example, the
right to use the property in conjunction with
one’s spouse and to exclude all others ap-
pears particularly ill suited to being trans-
ferred to another, seeibid., and to lack
“exchangeable value,”id.,at56.
Nor do other identified rights rise to the
level of“rights to property”to which a Sec.
6321 lien can attach, because they repre-
sent, at most, a contingent future interest,
or an“expectancy”that has not“ripen[ed]
into a present estate.”Id. at 60, n. 7 (“Nor
do we mean to suggest that an expect-
ancy that has pecuniary value and is trans-
ferable under state law would fall within
Sec. 6321 prior to the time it ripens into a
present estate”). Cf.Bess, 357 U.S. at
55—56 (holding that no federal tax lien
could attach to proceeds of the taxpayer’s
life insurance policy because“[i]t would be
anomalous to view as‘property’subject to
lien proceeds never within the insured’s
reach to enjoy”). By way of example, the
survivorship right wholly depends upon one
spouse outliving the other at which time the
survivor gains“substantial rights, in re-
spect of the property, theretofore never en-
joyed by [the] survivor.”Tyler, 281 U.S. at
503. While the Court explains that it is“not
necessary to decide whether the right to sur-
vivorship alone would qualify as‘prop-
erty’or‘rights to property’”under Sec.
6321,ante, at 11, the facts of this case dem-
onstrate that it would not. Even assuming
both that the right of survivability contin-
ued after the demise of the tenancy estate
and that the tax lien could attach to such
a contingent future right, creating a lien-
able interest upon the death of the nonli-
able spouse, it would not help the IRS here;
respondent’s husband predeceased her in
1998, and there is no right of survivor-
ship at issue in this case.
2
The parties disagree as to whether Michigan law recognizes the“rights to property”identified by the Court asindividualrights“belonging to”each tenant in entireties property. Without deciding a question better
resolved by the Michigan courts, for the purposes of this case, I will assume,arguendo, that Michigan law recognizes separate interests in these“rights to property.”
3
Nor does the Court explain how such“rights to property”survived the destruction of the tenancy by the entirety, although, for all intents and purposes, it acknowledges that such rights as it identifies exist by virtue
of the tenancy by the entirety estate. Even Judge Ryan’s concurrence in the Sixth Circuit’s first ruling in this matter is best read as making the Federal Government’s right to execute its lien dependent upon the factual
finding that the conveyance was a fraudulent transaction. See 140 F.3d 638, 648–649 (1998).
4
The Court’s reasoning that because a taxpayer has rights to property a federal tax lien can attach not only to those rights but also to the property itself could have far-reaching consequences. As illustration, in the
partnership setting as elsewhere, the Government’s lien under Sec. 6321 places the Government in no better position than the taxpayer to whom the property belonged:“[F]or example, the lien for a partner’s unpaid
income taxes attaches to his interest in the firm, not to the firm’s assets.′′Bittker¶44.5[4][a]. Though partnership property currently is“not subject to attachment or execution, except on a claim against the partnership,”
Rev.Rul. 73–24, 1973–1 Cum. Bull. 602; cf.United States v. Kaufman, 267 U.S. 408 (1925), under the logic of the Court’s opinion partnership property could be attached for the tax liability of an individual partner.
Like a tenant in a tenancy by the entirety, the partner has significant rights to use, enjoy, and control the partnership property in conjunction with his partners. I see no principled way to distinguish between the propri-
ety of attaching the federal tax lien to partnership property to satisfy the tax liability of a partner, in contravention of current practice, and the propriety of attaching the federal tax lien to tenancy by the entirety prop-
erty in order to satisfy the tax liability of one spouse, also in contravention of current practice. I do not doubt that a tax lien may attach to a partner’s partnership interest to satisfy his individual tax liability, but it is
well settled that the lien does not thereby attach to property belonging to the partnership. The problem for the IRS in this case is that, unlike a partnership interest, such limited rights that Mr. Craft had in the Grand
Rapids property are not the kind of rights to property to which a lien can attach, and the Grand Rapids property itself never“belong[ed] to”him under Michigan law.
5
Even such rights as Mr. Craft arguably had in the Grand Rapids property bear no resemblance to those to which a federal tax lien has ever attached. See W. Elliott, Federal Tax Collections, Liens, and Levies¶¶9.09[3][a]–
[f] (1995 and 2000 Cum. Supp.) (hereinafter Elliott) (listing examples of rights to property to which a federal tax lien attaches, such as the right to compel payment; the right to withdraw money from a bank account,
or to receive money from accounts receivable; wages earned but not paid; installment payments under a contract of sale of real estate; annuity payments; a beneficiary’s rights to payment under a spendthrift trust; a
liquor license; an asement; the taxpayer’s interest in a timeshare; options; the taxpayer’s interest in an employee benefit plan or individual retirement account).
6
See 26 U.S.C. Sections 6331 6335–6336.
7
And it is similarly different from the situation inUnited States v. Rodgers, 461 U.S. 677 (1983), where the question was not whether a vested property interest in the family home to which the federal tax lien could
attach“belong[ed] to”the taxpayer. Rather, inRodgers, the only question was whether the federal tax lien for the husband’s tax liability could beforeclosedagainst the property under 26 U.S.C. Sec. 7403 despite his
wife’s homestead right under state law. See 461 U.S. at 701–703, and n. 31.
2002–38 I.R.B.555September 23, 2002

Similarly, while one spouse might es-
cape the absolute limitations on individual
action with respect to tenancy by the en-
tirety property by obtaining the right to one-
half of the property upon divorce, or by
agreeing with the other spouse to sever the
tenancy by the entirety, neither instance is
an event of sufficient certainty to consti-
tute a“right to property”for purposes of
Sec. 6321. Finally, while the federal tax lien
could arguably have attached to a tenant’s
right to any“rents, products, income, or
profits”of real property held as tenants by
the entirety, Mich. Comp. Laws Ann. Sec.
557.71 (West 1988), the Grand Rapids prop-
erty created no rents, products, income, or
profits for the tax lien to attach to.
In any event, all such rights to prop-
erty, dependent as they are upon the exist-
ence of the tenancy by the entirety estate,
were likely destroyed by the quitclaim deed
that severed the tenancy. See n. 1,supra.
Unlike a lien attached to the property it-
self, which would survive a conveyance, a
lien attached to a“right to property”falls
squarely within the maxim that“the tax col-
lector not only steps into the taxpayer’s
shoes, but must go barefoot if the shoes
wear out.”Bittker¶44.5[4][a] (noting that
“a state judgment terminating the taxpay-
er’s rights to an asset also extinguishes the
federal tax lien attached thereto”). See also
Elliott¶9.09[3][d][i] (explaining that while
a tax lien may attach to a taxpayer’s op-
tion on property, if the option terminates,
the Government’s lien rights would termi-
nate as well).
Accordingly, I conclude that Mr. Craft
had neither“property”nor“rights to prop-
erty”to which the federal tax lien could at-
tach.
II
That the federal tax lien did not attach
to the Grand Rapids property is further sup-
ported by the consensus among the lower
courts. For more than 50 years, every fed-
eral court reviewing tenancies by the en-
tirety in States with a similar understanding
of tenancy by the entirety as Michigan has
concluded that a federal tax lien cannot at-
tach to such property to satisfy an indi-
vidual spouse’s tax liability.
8
This consensus
is supported by the IRS’consistent recog-
nition, arguably against its own interest, that
a federal tax lien against one spouse can-
not attach to property or rights to prop-
erty held as a tenancy by the entirety.
9
That the Court fails to so much as men-
tion this consensus, let alone address it or
give any reason for overruling it, is puz-
zling. While the positions of the lower
courts and the IRS do not bind this Court,
one would be hard pressed to explain why
the combined weight of these judicial and
administrative sources—including the IRS’
instructions to its own employees—do not
constitute relevant authority.
III
Finally, while the majority character-
izes Michigan’s view that the tenancy by
the entirety property does not belong to the
individual spouses as a“state law fiction,”
ante, at 1, our precedents, includingDrye,
528 U.S. at 58–60, hold that state, not fed-
eral, law defines property interests. Own-
ership by“the marriage”is admittedly a
fiction of sorts, but so is a partnership or
corporation. There is no basis for ignor-
ing this fiction so long as federal law does
not define property, particularly since the
tenancy by the entirety property remains
subject to lien for the tax liability ofboth
tenants.
Nor do I accept the Court’s unsupported
assumption that its holding today is nec-
essary because a contrary result would“fa-
cilitat[e] abuse of the federal tax system.”
Ante, at 11. The Government created this
straw man, Brief for United States 30–
32, suggesting that the property transfer
from the tenancy by the entirety to respon-
dent was somehow improper, seeid., at 30–
31, n. 20 (characterizing scope of“[t]he tax
avoidance scheme sanctioned by the court
of appeals in this case”), even though it
chosenotto appeal the lower court’s con-
trary assessment. But the longstanding con-
sensus in the lower courts that tenancy by
the entirety property isnotsubject to lien
for the tax liability of one spouse, com-
bined with the Government’s failure to ad-
duce any evidence that this has led to
wholesale tax fraud by married individu-
als, suggests that the Court’s policy ratio-
nale for its holding is simply unsound.
Just as I am unwilling to overturn this
Court’s longstanding precedent that States
define and create property rights and forms
of ownership,Aquilino, 363 U.S. at 513, n.
3, I am equally unwilling to redefine or dis-
miss as fictional forms of property own-
ership that the State has recognized in favor
of an amorphous federal common law defi-
nition of property. I respectfully dissent.
8
SeeIRS v. Gaster, 42 F.3d 787, 791 (CA3 1994) (concluding that the IRS is not entitled to a lien on property owned as a tenancy by the entirety to satisfy the tax obligations of one spouse);Pitts v. United States, 946
F.2d 1569, 1571–1572 (CA4 1991) (same);United States v. American Nat. Bank of Jacksonville, 255 F.2d 504, 507 (CA5), cert. denied, 358 U.S. 835 (1958) (same);Raffaele v. Granger, 196 F.2d 620, 622–623 (CA3
1952) (same);United States v. Hutcherson, 188 F.2d 326, 331 (CA8 1951) (explaining that the interest of one spouse in tenancy by the entirety property“is not a right to property or property in any sense”);United
States v. Nathanson, 60 F. Supp. 193, 194 (ED Mich. 1945) (finding no designation in the Federal Revenue Act for imposing tax upon property held by the entirety for taxes duefrom one person alone);Shaw v. United
States, 94 F. Supp. 245, 246 (WD Mich. 1939) (recognizing that the nature of the estate under Michigan law precludes the tax lien from attaching to tenancy by the entirety property for the tax liability of one spouse).
See alsoBenson v. United States, 442 F.2d 1221, 1223 (CADC 1971) (recognizing the Government’s concession that property owned by the parties as tenants by the entirety cannot be subjected to a tax lien for the
debt of one tenant);Cole v. Cardoza, 441 F.2d 1337, 1343 (CA6 1971) (noting Government concession that, under Michigan law, it had no valid claim against real property held by tenancy by the entirety).
9
See,e.g., Internal Revenue Manual Sec. 5.8.4.2.3 (RIA 2002), available at WESTLAW, RIA–IRM database (Mar. 29, 2002) (listing“property owned as tenants by the entirety′′as among the assets beyond the reach
of the Government’s tax lien);id., Sec. 5.6.1.2.3 (recognizing that aconsensuallien may be appropriate“when the federal tax lien does not attach to the property in question. For example, an assessment exists against
only one spouse and the federal tax lien does not attach to real property held as tenants by the entirety.′′); IRS Chief Counsel Advisory (Aug. 17, 2001) (noting that consensual iens, or mortgages, are to be used“as a
means of securing the Government’s right to collect from property the assessment lien does not attach to, such asreal property held as a tenancy by the entirety”(emphasis added)); IRS Litigation Bulletin No. 407
(Aug. 1994) (“Traditionally, the government has taken the view that a federal tax lien against a single debtor-spouse does not attach to property or rights to property held by both spouses as tenants by the entirety.”);
IRS Litigation Bulletin No. 388 (Jan. 1993) (explaining that neither the Department of Justice nor IRS chief counsel interpretedUnited States v. Rodgers, 461 U.S. 677 (1983), to mean that a federal tax lien against one
spouse encumbers his or her interest in entireties property, and noting that it“do[es] not believe the Department will again argue the broader interpretation ofRodgers,”which would extend the reach of the federal tax
lien to property held by the entireties);Benson, supra, at 1223;Cardoza, supra, at 1343.
September 23, 20025562002–38 I.R.B.

Section 6621.—
Determination of Interest
Rates
26 CFR 301.6621–1: Interest rate.
Interest rates; underpayments and overpay-
ments.The rate of interest determined under sec-
tion 6621 of the Code for the calendar quarter
beginning October 1, 2002, will be 6 percent for over-
payments (5 percent in the case of a corporation), 6
percent for underpayments, and 8 percent for large cor-
porate underpayments. The rate of interest paid on the
portion of a corporate overpayment exceeding $10,000
will be 3.5 percent.
Rev. Rul. 2002–59
Section 6621 of the Internal Revenue
Code establishes the rates for interest on tax
overpayments and tax underpayments. Un-
der§6621(a)(1), the overpayment rate be-
ginning October 1, 2002, is the sum of the
federal short-term rate plus 3 percentage
points (2 percentage points in the case of
a corporation), except the rate for the por-
tion of a corporate overpayment of tax ex-
ceeding $10,000 for a taxable period is the
sum of the federal short-term rate plus 0.5
of a percentage point for interest compu-
tations made after December 31, 1994. Un-
der§6621(a)(2), the underpayment rate is
the sum of the federal short-term rate plus
3 percentage points.
Section 6621(c) provides that for pur-
poses of interest payable under§6601 on
any large corporate underpayment, the un-
derpayment rate under§6621(a)(2) is de-
termined by substituting“5 percentage
points”for“3 percentage points.”See
§6621(c) and§301.6621–3 of the Regu-
lations on Procedure and Administration for
the definition of a large corporate under-
payment and for the rules for determin-
ing the applicable date. Section 6621(c) and
§301.6621–3 are generally effective for pe-
riods after December 31, 1990.
Section 6621(b)(1) provides that the Sec-
retary will determine the federal short-
term rate for the first month in each
calendar quarter.
Section 6621(b)(2)(A) provides that the
federal short-term rate determined under
§6621(b)(1) for any month applies dur-
ing the first calendar quarter beginning af-
ter such month.
Section 6621(b)(3) provides that the fed-
eral short-term rate for any month is the
federal short-term rate determined during
such month by the Secretary in accordance
with§1274(d), rounded to the nearest full
percent (or, if a multiple of 1/2 of 1 per-
cent, the rate is increased to the next high-
est full percent).
Notice 88–59, 1988–1 C.B. 546, an-
nounced that, in determining the quarterly
interest rates to be used for overpayments
and underpayments of tax under§6621, the
Internal Revenue Service will use the fed-
eral short-term rate based on daily com-
pounding because that rate is most
consistent with§6621 which, pursuant to
§6622, is subject to daily compounding.
Rounded to the nearest full percent, the
federal short-term rate based on daily com-
pounding determined during the month of
July 2002 is 3 percent. Accordingly, an
overpayment rate of 6 percent (5 percent
in the case of a corporation) and an under-
payment rate of 6 percent are established
for the calendar quarter beginning Octo-
ber 1, 2002. The overpayment rate for the
portion of a corporate overpayment ex-
ceeding $10,000 for the calendar quarter be-
ginning October 1, 2002, is 3.5 percent. The
underpayment rate for large corporate un-
derpayments for the calendar quarter be-
ginning October 1, 2002, is 8 percent. These
rates apply to amounts bearing interest dur-
ing that calendar quarter.
Interest factors for daily compound in-
terest for annual rates of 3.5 percent, 5 per-
cent, 6 percent, and 8 percent are published
in Tables 12, 15, 17, and 21 of Rev. Proc.
95–17, 1995–1 C.B. 556, 566, 569, 571, and
575.
Annual interest rates to be compounded
daily pursuant to§6622 that apply for prior
periods are set forth in the tables accom-
panying this revenue ruling.
DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Raymond Bailey of the Office of As-
sociate Chief Counsel (Procedure &
Administration), Administrative Provi-
sions & Judicial Practice Division. For fur-
ther information regarding this revenue
ruling, contact Mr. Bailey at (202) 622–
6226 (not a toll-free call).
TABLE OF INTEREST RATES
PERIODS BEFORE JUL. 1, 1975–PERIODS ENDING DEC. 31, 1986
OVERPAYMENTS AND UNDERPAYMENTS
PERIODRATE
In 1995–1 C.B.
DAILY RATE TABLE
Before Jul. 1, 19756%Table 2, pg. 557
Jul. 1, 1975—Jan. 31, 19769%Table 4, pg. 559
Feb. 1, 1976—Jan. 31, 19787%Table 3, pg. 558
Feb. 1, 1978—Jan. 31, 19806%Table 2, pg. 557
Feb. 1, 1980—Jan. 31, 198212%Table 5, pg. 560
Feb. 1, 1982—Dec. 31, 198220%Table 6, pg. 560
Jan. 1, 1983—Jun. 30, 198316%Table 37, pg. 591
Jul. 1, 1983—Dec. 31, 198311%Table 27, pg. 581
Jan. 1, 1984—Jun. 30, 198411%Table 75, pg. 629
Jul. 1, 1984—Dec. 31, 198411%Table 75, pg. 629
2002–38 I.R.B.557September 23, 2002

TABLE OF INTEREST RATES
PERIODS BEFORE JUL. 1, 1975–PERIODS ENDING DEC. 31, 1986
OVERPAYMENTS AND UNDERPAYMENTS—CONTINUED
PERIODRATE
In 1995–1 C.B.
DAILY RATE TABLE
Jan. 1, 1985—Jun. 30, 198513%Table 31, pg. 585
Jul. 1, 1986—Dec. 31, 19869%Table 23, pg. 577
TABLE OF INTEREST RATES
FROM JAN. 1, 1987–Dec. 31, 1998
OVERPAYMENTSUNDERPAYMENTS
1995–1 C.B.1995–1 C.B.
RATETABLEPGRATETABLEPG
Jan. 1, 1987—Mar. 31, 19878%215759%23577
Apr. 1, 1987—Jun. 30, 19878%215759%23577
Jul. 1, 1987—Sep. 30, 19878%215759%23577
Oct. 1, 1987—Dec. 31, 19879%2357710%25579
Jan. 1, 1988—Mar. 31, 198810%7362711%75629
Apr. 1, 1988—Jun. 30, 19889%7162510%73627
Jul. 1, 1988—Sep. 30, 19889%7162510%73627
Oct. 1, 1988—Dec. 31, 198810%7362711%75629
Jan. 1, 1989—Mar. 31, 198910%2557911%27581
Apr. 1, 1989—Jun. 30, 198911%2758112%29583
Jul. 1, 1989—Sep. 30, 198911%2758112%29583
Oct. 1, 1989—Dec. 31, 198910%2557911%27581
Jan. 1, 1990—Mar. 31, 199010%2557911%27581
Apr. 1, 1990—Jun. 30, 199010%2557911%27581
Jul. 1, 1990—Sep. 30, 199010%2557911%27581
Oct. 1, 1990—Dec. 31, 199010%2557911%27581
Jan. 1, 1991—Mar. 31, 199110%2557911%27581
Apr. 1, 1991—Jun. 30, 19919%2357710%25579
Jul. 1, 1991—Sep. 30, 19919%2357710%25579
Oct. 1, 1991—Dec. 31, 19919%2357710%25579
Jan. 1, 1992—Mar. 31, 19928%696239%71625
Apr. 1, 1992—Jun. 30, 19927%676218%69623
Jul. 1, 1992—Sep. 30, 19927%676218%69623
Oct. 1, 1992—Dec. 31, 19926%656197%67621
Jan. 1, 1993—Mar. 31, 19936%175717%19573
Apr. 1, 1993—Jun. 30, 19936%175717%19573
Jul. 1, 1993—Sep. 30, 19936%175717%19573
Oct. 1, 1993—Dec. 31, 19936%175717%19573
Jan. 1, 1994—Mar. 31, 19946%175717%19573
Apr. 1, 1994—Jun. 30, 19946%175717%19573
Jul. 1, 1994—Sep. 30, 19947%195738%21575
Oct. 1, 1994—Dec. 31, 19948%215759%23577
Jan. 1, 1995—Mar. 31, 19958%215759%23577
Apr. 1, 1995—Jun. 30, 19959%2357710%25579
September 23, 20025582002–38 I.R.B.

TABLE OF INTEREST RATES
FROM JAN. 1, 1987–Dec. 31, 1998—CONTINUED
OVERPAYMENTSUNDERPAYMENTS
1995–1 C.B.1995–1 C.B.
RATETABLEPGRATETABLEPG
Jul. 1, 1995—Sep. 30, 19958%215759%23577
Oct. 1, 1995—Dec. 31, 19958%215759%23577
Jan. 1, 1996—Mar. 31, 19968%696239%71625
Apr. 1, 1996—Jun. 30, 19967%676218%69623
Jul. 1, 1996—Sep. 30, 19968%696239%71625
Oct. 1, 1996—Dec. 31, 19968%696239%71625
Jan. 1, 1997—Mar. 31, 19978%215759%23577
Apr. 1, 1997—Jun. 30, 19978%215759%23577
Jul. 1, 1997—Sep. 30, 19978%215759%23577
Oct. 1, 1997—Dec. 31, 19978%215759%23577
Jan. 1, 1998—Mar. 31, 19988%215759%23577
Apr. 1, 1998—Jun. 30, 19987%195738%21575
Jul. 1, 1998—Sep. 30, 19987%195738%21575
Oct. 1, 1998—Dec. 31, 19987%195738%21575
TABLE OF INTEREST RATES
FROM JANUARY 1, 1999–PRESENT
NONCORPORATE OVERPAYMENTS AND UNDERPAYMENTS
1995–1 C.B.
RATETABLEPAGE
Jan. 1, 1999—Mar. 31, 19997%19573
Apr. 1, 1999—Jun. 30, 19998%21575
Jul. 1, 1999—Sep. 30, 19998%21575
Oct. 1, 1999—Dec. 31, 19998%21575
Jan. 1, 2000—Mar. 31, 20008%69623
Apr. 1, 2000—Jun. 30, 20009%71625
Jul. 1, 2000—Sep. 30, 20009%71625
Oct. 1, 2000—Dec. 31, 20009%71625
Jan. 1, 2001—Mar. 31, 20019%23577
Apr. 1, 2001—Jun. 30, 20018%21575
Jul. 1, 2001—Sep. 30, 20017%19573
Oct. 1, 2001—Dec. 31, 20017%19573
Jan. 1, 2002—Mar. 31, 20026%17571
Apr. 1, 2002—Jun. 30, 20026%17571
Jul. 1, 2002—Sep. 30, 20026%17571
Oct. 1, 2002—Dec. 31, 20026%17571
2002–38 I.R.B.559September 23, 2002

TABLE OF INTEREST RATES
FROM JAN. 1, 1999–PRESENT
CORPORATE OVERPAYMENTS AND UNDERPAYMENTS
OVERPAYMENTSUNDERPAYMENTS
1995–1 C.B.*1995–1 C.B.
RATETABLEPGRATETABLEPG
Jan. 1, 1999—Mar. 31, 19996%175717%19573
Apr. 1, 1999—Jun. 30, 19997%195738%21575
Jul. 1, 1999—Sep. 30, 19997%195738%21575
Oct. 1, 1999—Dec. 31, 19997%195738%21575
Jan. 1, 2000—Mar. 31, 20007%676218%69623
Apr. 1, 2000—Jun. 30, 20008%696239%71625
Jul. 1, 2000—Sep. 30, 20008%696239%71625
Oct. 1, 2000—Dec. 31, 20008%696239%71625
Jan. 1, 2001—Mar. 31, 20018%215759%23577
Apr. 1, 2001—Jun. 30, 20017%195738%21575
Jul. 1, 2001—Sep. 30, 20016%175717%19573
Oct. 1, 2001—Dec. 31, 20016%175717%19573
Jan. 1, 2002—Mar. 31, 20025%155696%17571
Apr. 1, 2002—Jun. 30, 20025%155696%17571
Jul. 1, 2002—Sep. 30, 20025%155696%17571
Oct. 1, 2002—Dec. 31, 20025%155696%17571
TABLE OF INTEREST RATES FOR
LARGE CORPORATE UNDERPAYMENTS
FROM JANUARY 1, 1991–PRESENT
1995–1 C.B.
RATETABLEPAGE
Jan. 1, 1991—Mar. 31, 199113%31585
Apr. 1, 1991—Jun. 30, 199112%29583
Jul. 1, 1991—Sep. 30, 199112%29583
Oct. 1, 1991—Dec. 31, 199112%29583
Jan. 1, 1992—Mar. 31, 199211%75629
Apr. 1, 1992—Jun. 30, 199210%73627
Jul. 1, 1992—Sep. 30, 199210%73627
Oct. 1, 1992—Dec. 31, 19929%71625
Jan. 1, 1993—Mar. 31, 19939%23577
Apr. 1, 1993—Jun. 30, 19939%23577
Jul. 1, 1993—Sep. 30, 19939%23577
Oct. 1, 1993—Dec. 31, 19939%23577
Jan. 1, 1994—Mar. 31, 19949%23577
Apr. 1, 1994—Jun. 30, 19949%23577
Jul. 1, 1994—Sep. 30, 199410%25579
Oct. 1, 1994—Dec. 31, 199411%27581
Jan. 1, 1995—Mar. 31, 199511%27581
Apr. 1, 1995—Jun. 30, 199512%29583
Jul. 1, 1995—Sep. 30, 199511%27581
Oct. 1, 1995—Dec. 31, 199511%27581
September 23, 20025602002–38 I.R.B.

TABLE OF INTEREST RATES FOR
LARGE CORPORATE UNDERPAYMENTS
FROM JANUARY 1, 1991–PRESENT—CONTINUED
1995–1 C.B.
RATETABLEPAGE
Jan. 1, 1996—Mar. 31, 199611%75629
Apr. 1, 1996—Jun. 30, 199610%73627
Jul. 1, 1996—Sep. 30, 199611%75629
Oct. 1, 1996—Dec. 31, 199611%75629
Jan 1, 1997—Mar. 31, 199711%27581
Apr. 1, 1997—Jun. 30, 199711%27581
Jul. 1, 1997—Sep. 30, 199711%27581
Oct. 1, 1997—Dec. 31, 199711%27581
Jan. 1, 1998—Mar. 31, 199811%27581
Apr. 1, 1998—Jun. 30, 199810%25579
Jul. 1, 1998—Sep. 30, 199810%25579
Oct. 1, 1998—Dec. 31, 199810%25579
Jan. 1, 1999—Mar. 31, 19999%23577
Apr. 1, 1999—Jun. 30, 199910%25579
Jul. 1, 1999—Sep. 30, 199910%25579
Oct. 1, 1999—Dec. 31, 199910%25579
Jan. 1, 2000—Mar. 31, 200010%73627
Apr. 1, 2000—Jun. 30, 200011%75629
Jul. 1, 2000—Sep. 30, 200011%75629
Oct. 1, 2000—Dec. 31, 200011%75629
Jan. 1, 2001—Mar. 31, 200111%27581
Apr. 1, 2001—Jun. 30, 200110%25579
Jul. 1, 2001—Sep. 30, 20019%23577
Oct. 1, 2001—Dec. 31, 20019%23577
Jan. 1, 2002—Mar. 31, 20028%21575
Apr. 1, 2002—Jun. 30, 20028%21575
Jul. 1, 2002—Sep. 30, 20028%21575
Oct. 1, 2002—Dec. 30, 20028%21575
TABLE OF INTEREST RATES FOR
CORPORATE OVERPAYMENTS EXCEEDING $10,000
FROM JANUARY 1, 1995–PRESENT
1995–1 C.B.
RATETABLEPAGE
Jan. 1, 1995—Mar. 31, 19956.5%18572
Apr. 1, 1995—Jun. 30, 19957.5%20574
Jul. 1, 1995—Sep. 30, 19956.5%18572
Oct. 1, 1995—Dec. 31, 19956.5%18572
Jan. 1, 1996—Mar. 31, 19966.5%66620
Apr. 1, 1996—Jun. 30, 19965.5%64618
Jul. 1, 1996—Sep. 30, 19966.5%66620
Oct. 1, 1996—Dec. 31, 19966.5%66620
Jan. 1, 1997—Mar. 31, 19976.5%18572
Apr. 1, 1997—Jun. 30, 19976.5%18572
2002–38 I.R.B.561September 23, 2002

TABLE OF INTEREST RATES FOR
CORPORATE OVERPAYMENTS EXCEEDING $10,000
FROM JANUARY 1, 1995–PRESENT—CONTINUED
1995–1 C.B.
RATETABLEPAGE
Jul. 1, 1997—Sep. 30, 19976.5%18572
Oct. 1, 1997—Dec. 31, 19976.5%18572
Jan. 1, 1998—Mar. 31, 19986.5%18572
Apr. 1, 1998—Jun. 30, 19985.5%16570
Jul. 1, 1998—Sep. 30, 19985.5%16570
Oct. 1, 1998—Dec. 31, 19985.5%16570
Jan. 1, 1999—Mar. 31, 19994.5%14568
Apr. 1, 1999—Jun. 30, 19995.5%16570
Jul. 1, 1999—Sep. 30, 19995.5%16570
Oct. 1, 1999—Dec. 31, 19995.5%16570
Jan. 1, 2000—Mar. 31, 20005.5%64618
Apr. 1, 2000—Jun. 30, 20006.5%66620
Jul. 1, 2000—Sep. 30, 20006.5%66620
Oct. 1, 2000—Dec. 31, 20006.5%66620
Jan. 1, 2001—Mar. 31, 20016.5%18572
Apr. 1, 2001—Jun. 30, 20015.5%16570
Jul. 1, 2001—Sep. 30, 20014.5%14568
Oct. 1, 2001—Dec. 31, 20014.5%14568
Jan. 1, 2002—Mar. 31, 20023.5%12566
Apr. 1, 2002—Jun. 30, 20023.5%12566
Jul. 1, 2002—Sep. 30, 20023.5%12566
Oct. 1, 2002—Dec. 31, 20023.5%12566
September 23, 20025622002–38 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Weighted Average Interest
Rate Update
Notice 2002–61
Sections 412(b)(5)(B) and 412(l)(7)(C)(i)
of the Internal Revenue Code provide that
the interest rates used to calculate current
liability for purposes of determining the full
funding limitation under§412(c)(7) and the
required contribution under§412(l) must
be within a permissible range around the
weighted average of the rates of interest on
30-year Treasury securities during the four-
year period ending on the last day before
the beginning of the plan year.
Notice 88–73, 1988–2 C.B. 383, pro-
vides guidelines for determining the
weighted average interest rate and the re-
sulting permissible range of interest rates
used to calculate current liability for the pur-
pose of the full funding limitation of
§412(c)(7) of the Code.
Section 417(e)(3)(A)(ii)(II) of the Code
defines the applicable interest rate, which
must be used for purposes of determining
the minimum present value of a partici-
pant’s benefit under§417(e)(1) and (2), as
the annual rate of interest on 30-year Trea-
sury securities for the month before the date
of distribution or such other time as the Sec-
retary may by regulations prescribe. Sec-
tion 1.417(e)-1(d)(3) of the Income Tax
Regulations provides that the applicable in-
terest rate for a month is the annual inter-
est rate on 30-year Treasury securities as
specified by the Commissioner for that
month in revenue rulings, notices or other
guidance published in the Internal Rev-
enue Bulletin.
The rate of interest on 30-year Trea-
sury Securities for August 2002 is 5.08 per-
cent. Pursuant to Notice 2002–26, 2002–15
I.R.B. 743, the Service has determined this
rate as the monthly average of the daily de-
termination of yield on the 30-year Trea-
sury bond maturing in February 2031.
Section 405 of the Job Creation and
Worker Assistance Act of 2002 amended
§412(l)(7)(C) of the Code to provide that
for plan years beginning in 2002 and 2003
the permissible range is extended to 120
percent.
The following rates were determined for
the plan years beginning in the month
shown below.
MonthYearWeighted Average
90% to 110%
Permissible
Range
90% to 120%
Permissible
Range
September20025.635.07 to 6.205.07 to 6.76
Drafting Information
The principal author of this notice is
Todd Newman of the Employee Plans, Tax
Exempt and Government Entities Divi-
sion. For further information regarding this
notice, please contact the Employee Plans’
taxpayer assistance telephone service at
1–877–829–5500 (a toll-free number), be-
tween the hours of 8:00 a.m. and 6:30 p.m.
Eastern time, Monday through Friday. Mr.
Newman may be reached at 1–202–283–
9888 (not a toll-free number).
2002–38 I.R.B.563September 23, 2002

Part IV. Items of General Interest
Releif From Joint and Several
Liability; Correction
Announcement 2002–83
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Correction to final regulations.
SUMMARY: This document contains a
correction to final regulations (T.D. 9003,
2002–32 I.R.B. 294) that were published in
theFederal Registeron Thursday, July 18,
2002 (67 FR 47278), relating to relief from
joint and several liability.
DATES: This correction is effective July
18, 2002.
FORFURTHERINFORMATION
CONTACT: Charles A. Hall (202) 622-
4940 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The final regulations that are the sub-
ject of this correction is under section 6015
of the Internal Revenue Code.
Need for Correction
As published, the final regulations con-
tains an error that my prove to be mislead-
ing and is in need of clarification.
Correction of Publication
Accordingly, the publication of the fi-
nal regulations (T.D. 9003), that were the
subject of FR Doc. 02–17866, is corrected
as follows:
On page 47294, column 3,§1.6015–
5(b)(3), line 10, the language“CDP hear-
ing procedures under sections”is corrected
to read“CDP hearing procedures under sec-
tion”.
Cynthia E.Grigsby,
Chief, Regulations Unit,
Associate Chief Counsel
(Income Tax & Accounting).
(Filed by the Office of the Federal Register on August 23,
2002, 8:45 a.m., and published in the issue of the Federal Reg-
ister for August 26, 2002, 67 F.R. 54735)
Foundations Status of Certain
Organizations
Announcement 2002–88
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:
Adoption Assistance Foundation, Inc.,
Methuen, MA
Affordable Neighborhood Economic
Development, Inc., Jacksonville, FL
American Education Institute, Big Fork, MT
Aquarius International Village Water Project,
Davis, CA
Arab American Community Center,
Coldwater, MI
Arc of the Keys, Inc., Tavernier, FL
Artists Direct Chicago, Chicago, IL
Artists Theatre Project, Inc.,
New Smyrna Beach, FL
Associate, Inc., Cordova, TN
Bartlesville High School Auditorium
Complex Foundation, Inc.,
Bartlesville, OK
Belize Foundation, Golden, CO
Berlin Airlift Foundation, Inc., Ennis, TX
Beverly Hills Charitable Foundation,
Beverly Hills, CA
Black Ebony Loquat, Inc., Princeton, NJ
Camp Bluebird of West Michigan, Inc.,
Grand Haven, MI
BMKB Memorial Scholarship Fund,
Virginia Beach, VA
Brighthope Alliance, Asheville, NC
Castmaster Ministries, Allen, TX
Center for American Studies and Culture,
Santa Monica, CA
Charles W. Dunn Jr., Inc., Altadena, CA
Classic Yacht Preservation, Inc., Eureka, CA
Coalition of Progressive Professionals,
Cincinnati, OH
Compassion Ministries, Beaverton, OR
Congressional Legacies Project, Inc.,
Falls Church, VA
Cornerstone Charities Community Tr.,
Salinas, CA
Count Me In Foundation, Brooklyn, NY
Creative Decisions Foundation,
Pittsburgh, PA
Credit Bureau of San Joaquin County
Charitable Foundation, Stockton, CA
Dean Sueltenfuss Journalism Scholarship
Trust, Boerne, TX
Digital Preserve, Silver Spring, MD
Dog’s Best Friend, Inc., Santa Barbara, CA
Double Portion Development, Houston, TX
Dr. O. H. Damron Charitable Trust,
Clinton, MO
Dutta Foundation, Santa Fe, NM
East Side Community Development
Corporation, Bridgeport, CT
El Fortress, Long Beach, CA
Encouragement Ministries, Inc.,
Norcross, GA
EOC Housing Development,
Blytheville, AR
Fancap U S, Inc., Guatemala, Ciudad
Focus Foundation, Inc., Leonard, MI
For the Children International, Inc.,
Laredo, TX
Frank Morrison Family Educational
Foundation, Lincoln, NE
Free Enterprise Foundation, Inc.,
Princeton, NJ
Friends of Lankershim Center for the Arts,
North Hollywood, CA
Fulfilling the Lives of Children, Inc.,
San Antonio, TX
Gates Avenue Youth Program Inc.,
for Sports and Cultural Events,
Hillcreast Heights, MD
Gateway Charities an Arizona Non-profit
Corporation, Tempe, AZ
Gethsemane Economic & Educational
Ministry, Inc., Eustis, FL
Great Resolutions, Inc., Atlanta, GA
Green Nicaragua, Inc., Austin, TX
Green Research, Inc., Nevada City, CA
Grundy County Christian Daycare
Center, Coalmont, TN
Help Handicapped Veterans, Inc.,
St. Louis, MO
House of Win, Inc., Longview, TX
Housing America, Mercer Island, WA
September 23, 20025642002–38 I.R.B.

Indoor Air Matters, Inc., West Hartford, VT
International Buddhist Culture Television
Foundation, Bellevue, WA
International Community Awareness
Redevelopment Exchange (ICARE),
Jackson, MS
Ivers Foundation, Westport, CT
Jazz as a Motivational Tool, Inc.,
Medford, MA
Kentucky Youth Academy, Inc.,
Ashcamp, KY
King Solomon Community Development
and Youth Programs, Inc.,
Ft. Wayne, IN
Kountze Educational Foundation, Inc.,
Kountze, TX
Life Changing Centers, Inc., Detroit, MI
Lithonia Cadets Parents Organization, Inc.,
Lithonia, GA
Little House, Inc., Tucson, AZ
Martin L. King Jr. Annual Womens
Basketball Tournament, Inc.,
Washington, DC
MASRAD Research and Development, Inc.,
Las Vegas, NV
McGrane Self-Esteem Center, Inc.,
Villa Hills, KY
Michigan Chiropractic Foundation,
Lansing, MI
Michigan Citizens for Animal Welfare,
Dimondale, MI
Micki Rainey Scholarship Fund, Inc.,
Martinez, CA
Midland ISD Educational Foundation,
Midland, TX
Missouri River Frontier Museum,
Parkville, MO
Monroe City Missouri Community
Foundation, Monroe City, MO
National Childrens Foundation, Center, CO
National Viet Nam War Museum, Inc.,
Mineral Wells, TX
New Coalition of Africans From
South of the Sahara, New York, NY
New Jersey Council For Recovering
Pharmacists, Inc., Mahwah, NJ
Newton County Trail-Path Foundation, Inc.,
Covington, GA
Northern Housing Associates, Inc.,
North Providence, RI
Noxid, Inc., Hollywood, CA
OFC of Ortonville, Inc., Ortonville, MN
Onaway House, Inc., Sallisaw, OK
One B L O O D Black Latino Oasis of
Donors Foundation, Inc.,
Cambria Heights, NY
Peggy Thorns Ministries, Inc., Charlotte, NC
Pennsylvania Association for Continuing
Education, Pittsburgh, PA
P H D Center, Inc., Parents Home of
Diversity, Jonesboro, GA
Phoenix Housing and Development
Services, Inc., Queensbury, NY
Positive Images Southwest Mississippi
Community Outreach, Inc.,
Tylertown, MS
Project Education International USA/South
Africa, Fullerton, CA
Purrfect Haven, Inc., Greenville, OH
Raymond W. Farkas Foundation, Inc.,
Douglaston, NY
Reachout Organization, Los Angeles, CA
Reilly Family Foundation, Arlington, TX
Renaissance Drug & Alcohol Recovery
House, Inc., Matteson, IL
RMDC Assisted Living, Inc., Helena, MT
Save Our Coast-Malibu Dolphin Watch
Foundation, Malibu, CA
Sing for Joy Music Ministries, Hayes, VA
Singout, Woodinville, WA
Sonic Children Fund, San Pedro, CA
South Carolina Heart Center Foundation,
Inc., Columbia, SC
Southeastern Colorado Institute of
Natural History, La Junta, CO
Southern Sports Commission, Danville, VA
Stark County Urban Minority Alcoholism
and Drug Outreach Project,
Canton, OH
Step by Step Home Care Services, Inc.,
Brooklyn, NY
Strickland Ministries, Inc., Tallahassee, FL
Sussex Court Residential Services, Inc.,
Atlanta, GA
Tattnall County Family Connection, Inc.,
Reidville, GA
Tenderheart Family Child Care, Inc.,
Amery, WI
Texas Sex Institute Sex Information
Education Council of Texas,
The Woodlands, TX
Theresa and Sabrina, Inc., New York, NY
Top Prospects, Inc., Los Angeles, CA
Tucson Velodrome Association, Tucson, AZ
Utah Theatre For Youth, Salt Lake City, UT
Video Gaming Certification, Charlotte, NC
Volunteer Services to Animals, Encino, CA
W. Seavey Joyce S J Award, Hull MA
Whitney National Trust for Historical
Preservation, Los Angeles, CA
Whiz Kidz Learning Center, Inc.,
Chicago, IL
Wholistic Research and Development, Inc.,
Rutherfordton, NC
Wonderful Days, Fort Worth, TX
Zee Rides, Incorporated, Zuni, NM
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.
2002–38 I.R.B.565September 23, 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
Thornton, John L.Fayetteville, ARCPAJune 21, 2001
Campbell, David G.Reading, PAAttorneyJuly 10, 2001
Schlabach, John J.Colbert, WACPAJuly 16, 2001
September 23, 20025662002–38 I.R.B.

NameAddressDesignationEffective Date
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 be-
fore the Internal Revenue Service, may of-
fer 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
Agent
February 1, 2001
to
January 31, 2004
Price, Russell S.Washington, DCCPAFebruary 17, 2001
to
August 16, 2003
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
2002–38 I.R.B.567September 23, 2002

NameAddressDesignationDate of Suspension
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
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
September 23, 20025682002–38 I.R.B.

NameAddressDesignationDate of Suspension
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
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
2002–38 I.R.B.569September 23, 2002

NameAddressDesignationDate of Suspension
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
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
September 23, 20025702002–38 I.R.B.

NameAddressDesignationDate of Suspension
Lawrence, William E.Salinas, CACPAIndefinite
from
August 6, 2001
Marks, William J.New York, NYCPAIndefinite
from
August 6, 2001
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
2002–38 I.R.B.571September 23, 2002

NameAddressDesignationDate of Suspension
Hancock, George B.New Bern, NCCPAIndefinite
from
June 24, 2002
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 CSpringfield, 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
September 23, 20025722002–38 I.R.B.

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.
2002–38 I.R.B.iSeptember 23, 2002

Numerical Finding List
1
Bulletin 2002–26 through 2002–37
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
2002–78, 2002–36 I.R.B.514
2002–79, 2002–36 I.R.B.515
2002–80, 2002–36 I.R.B.515
2002–81, 2002–37 I.R.B.533
2002–82, 2002–37 I.R.B.533
2002–84, 2002–37 I.R.B.533
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
2002–55, 2002–36 I.R.B.481
2002–56, 2002–32 I.R.B.319
2002–57, 2002–33 I.R.B.379
2002–58, 2002–35 I.R.B.432
2002–59, 2002–36 I.R.B.481
2002–60, 2002–36 I.R.B.482
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
Proposed Regulations:—Continued
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–136311–01, 2002–36 I.R.B.485
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
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
2002–48, 2002–37 I.R.B.531
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
2002–56, 2002–36 I.R.B.483
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
2002–54, 2002–37 I.R.B.527
2002–55, 2002–37 I.R.B.529
2002–56, 2002–37 I.R.B.526
2002–57, 2002–37 I.R.B.526
Treasury Decisions:
8997, 2002–26 I.R.B.6
8998, 2002–26 I.R.B.1
Treasury Decisions:—Continued
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.
September 23, 2002ii2002–38 I.R.B.

Finding List of Current Actions
on Previously Published Items
1
Bulletin 2002–26 through 2002–37
Announcements:
REG–208280–86
Withdrawn by
REG–136311–01, 2002–36 I.R.B.485
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
Ann. 2002–79, 2002–36 I.R.B.515
REG–103829–99
Corrected by
Ann. 2002–82, 2002–37 I.R.B.533
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
Proposed Regulations—Continued:
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–106359–02
Corrected by
Ann. 2002–81, 2002–37 I.R.B.533
REG–108697–02
Corrected by
Ann. 2002–84, 2002–37 I.R.B.533
REG–123305–02
Corrected by
Ann. 2002–69, 2002–31 I.R.B.283
Revenue Procedures:
88–10
Superseded by
Rev. Proc. 2002–48, 2002–37 I.R.B.531
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
Revenue Procedures—Continued:
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
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
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.
2002–38 I.R.B.iiiSeptember 23, 2002

Revenue Rulings—Continued:
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
September 23, 2002iv2002–38 I.R.B.