Internal Revenue Bulletin 1996-48 (PDF rendition): IRS Notices

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

INCOME TAX
REG–251520–96, page 15.
Proposed regulations under section 861 of the Code
relate to the tax treatment of certain transactions
involving the transfer of computer programs. A public
hearing will be held on March 19, 1997.
EMPLOYEE PLANS
Notice 96–59, page 10.
Weighted average interest rate update.Guidelines are
set forth for determining for November 1996, the
weighted average interest rate and the resulting permis-
sible range of interest rates used to calculate current
liability for purposes of the full funding limitation of
section 412(c)(7) of the Code as amended by the
Omnibus Budget Reconciliation Act of 1987 and by the
Uruguay Round Agreements Act (GATT).
EXEMPT ORGANIZATIONS
Announcement 96–125, page 21.
A list is given of organizations now classified as private
foundations.
EXCISE TAX
T.D. 8685, page 4.
Final regulations under section 6302 of the Code relate
to deposits of excise taxes.
ADMINISTRATIVE
Rev. Proc. 96–52, page 10.
This procedure describes the application procedures for
becoming an acceptance agent for purposes of facilitat-
ing the issuance of certain taxpayer identifying numbers,
and the requisite agreement that an acceptance agent
must execute with the Internal Revenue Service.
Finding Lists begin on page 25.
Announcements of Disbarments and Suspensions begin on page 22.
Bulletin No. 1996–48
November 25, 1996
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.

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

Introduction
The Internal Revenue Bulletin is the authoritative instru-
ment of the Commissioner of Internal Revenue for
announcing official rulings and procedures of the Inter-
nal Revenue Service and for publishing Treasury Deci-
sions, Executive Orders, Tax Conventions, legislation,
court decisions, and other items of general interest. It is
published weekly and may be obtained from the Superin-
tendent of Documents on a subscription basis. Bulletin
contents of a permanent nature are consolidated semi-
annually into Cumulative Bulletins, which are sold on a
single-copy basis.
It is the policy of the Service to publish in the Bulletin all
substantive rulings necessary to promote a uniform
application of the tax laws, including all rulings that
supersede, revoke, modify, or amend any of those
previously published in the Bulletin. All published rulings
apply retroactively unless otherwise indicated. Proce-
dures relating solely to matters of internal management
are not published; however, statements of internal
practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Ser-
vice on the application of the law to the pivotal facts
stated in the revenue ruling. In those based on positions
taken in rulings to taxpayers or technical advice to
Service field offices, identifying details and information
of a confidential nature are deleted to prevent unwar-
ranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not
have the force and effect of Treasury Department
Regulations, but they may be used as precedents.
Unpublished rulings will not be relied on, used, or cited
as precedents by Service personnel in the disposition of
other cases. In applying published rulings and proce-
dures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be consid-
ered, and Service personnel and others concerned are
cautioned against reaching the same conclusions in
other cases unless the facts and circumstances are
substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on
provisions of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows:
Subpart A, Tax Conventions, and Subpart B, Legislation
and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and
Subparts. Also included in this part are Bank Secrecy
Act Administrative Rulings. Bank Secrecy Act Administra-
tive Rulings are issued by the Department of the
Treasury’s Office of the Assistant Secretary (Enforce-
ment).
Part IV.—Items of General Interest.
With the exception of the Notice of Proposed Rulemak-
ing and the disbarment and suspension list included in
this part, none of these announcements are consoli-
dated in the Cumulative Bulletins.
The first Bulletin for each month includes an index for
the matters published during the preceding month.
These monthly indexes are cumulated on a quarterly and
semiannual basis, and are published in the first Bulletin
of the succeeding quarterly and semi-annual period,
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, D.C. 20402.
3

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 6302.—Mode or Time of
Collection
26 CFR 40.6302(c)–1: Use of Government deposi-
taries.
T.D. 8685
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 40, 48, 49, 301, 601, and 602
[TD 8685]
RIN 1545–AT25
Deposits of Excise Taxes
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains fi-
nal regulations relating to deposits of
excise taxes. These regulations reflect
changes to the law made by the Uru-
guay Round Agreements Act and affect
persons required to make deposits of
excise taxes. This document also re-
moves obsolete excise tax regulations.
EFFECTIVE DATE: November 12,
1996
FOR FURTHER INFORMATION
CONTACT: Ruth Hoffman, (202) 622–
3130 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The Uruguay Round Agreements Act
of 1994 amended sections 6302(e) and
(f) (relating to deposits of excise taxes).
As amended, effective January 1, 1995,
these provisions require an additional
deposit in September of each year of all
excise taxes except those imposed by
section 4261 or 4271 (relating to air
transportation). The taxes imposed by
sections 4261 and 4271 are scheduled to
expire on December 31, 1996. If those
taxes are reinstated, they will be subject
to the new deposit provisions beginning
on January 1, 1997.
Temporary regulations (T.D. 8616
[1995–2 C.B. 263]) were published in
theFederal Registeron August 29,
1995 (60 FR 44758), along with a
notice of proposed rulemaking (PS–8–95
[1995–2 C.B. 506]) cross-referencing
the temporary regulations (60 FR
44788). No written comments were re-
ceived and no public hearing was held.
The proposed regulations are adopted as
revised by this Treasury decision and
the corresponding temporary regulations
are removed.
Explanation of Revisions
The temporary regulations provide
rules implementing the changes made by
the Act in a separate regulations section
(§ 40.6302(c)–5T). Instead of finalizing
that section, this document incorporates
the amendments made by the temporary
regulations into the text of §§ 40.6302-
(c)–1 through 40.6302(c)–4.
To reflect changes in technology, the
14-day rule under § 40.6302(c)–4 is
amended to apply to deposits made by
electronic funds transfer.
In addition, the rules set forth in
§§ 601.104(a)(5) and 601.403(c)(2), re-
lating to persons required to collect and
pay over tax, have been combined,
revised, and moved to part 49 as
§ 49.4291–1.
Removal of Obsolete Regulations;
Amendments to Table of OMB Control
Numbers
This document removes obsolete ex-
cise tax regulations under part 601 and
obsolete cross-references under part 301.
Also removed are obsolete regulations
relating to matters now under the juris-
diction of the Bureau of Alcohol, To-
bacco, and Firearms (ATF). Generally,
regulations pertaining to ATF procedural
rules are in 27 CFR parts 70 and 71.
In addition, this document updates
various entries in the Table of OMB
Numbers contained in part 602.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in EO 12866.
Therefore, a regulatory assessment is not
required. It 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.
chapter 6) do not apply to these regula-
tions, and, therefore, a Regulatory Flex-
ibility Analysis is not required. Pursuant
to section 7805(f) of the Internal Rev-
enue Code, the notice of proposed
rulemaking preceding these regulations
was submitted to the Chief Counsel for
Advocacy of the Small Business Admin-
istration for comment on its impact on
small business.
Drafting Information
The principal author of these regula-
tions is Ruth Hoffman, Office of Assis-
tant Chief Counsel (Passthroughs and
Special Industries). However, other per-
sonnel from the IRS and Treasury De-
partment participated in their develop-
ment.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 40, 48, 49,
301, 601, and 602 are amended as
follows:
PART 40—EXCISE TAX
PROCEDURAL REGULATIONS
Paragraph 1. The authority citation
for part 40 continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
Par. 1a. Section 40.6011(a)–1 is
amended as follows:
1. Paragraph (c) is amended by add-
ing a sentence to the end of the para-
graph.
2. Paragraph (d) is removed.
The addition reads as follows:
§ 40.6011(a)–1 Returns.
* * * * *
(c) * * * For provisions relating to
obligations of a person required to col-
lect and pay over facilities and services
excise taxes, see § 49.4291–1 of this
chapter.
Par. 2. Section 40.6011(a)–2(b)(2) is
amended by removing the reference
‘‘§ 40.6302(c)–1(e)(2)’’ and adding
‘‘§ 40.6302(c)–1(f)(2)’’ in its place.
Par. 3. Section 40.6302(c)–1 is
amended as follows:
1. Paragraph (a) is amended by re-
moving the parenthetical ‘‘(relating to
taxes imposed on gasoline by section
4081)’’ from the last sentence and add-
ing ‘‘(relating to section 4081 taxes)’’ in
its place.
2. Paragraph (b)(1)(i) is amended by
removing the reference ‘‘paragraph (e)’’
and adding ‘‘paragraph (f)’’ in its place.
3. Paragraph (b)(1)(ii) is removed and
paragraph (b)(1)(iii) is redesignated as
paragraph (b)(1)(ii).
4. Paragraph (b)(5)(ii) is removed and
paragraph (b)(5)(iii) is redesignated as
paragraph (b)(5)(ii).
5. Newly designated paragraph
(b)(5)(ii) is amended by removing the
4

reference ‘‘paragraph (e)(3)’’ and adding
‘‘paragraph (f)(3)’’ in its place.
6. Paragraph (b)(6)(ii) is amended by
removing the language ‘‘paragraph
(b)(6)(iii) of this section (relating to
deposits of gasoline tax for September)’’
and adding ‘‘paragraph (e) of this sec-
tion (relating to deposits of 9-day rule
taxes for September)’’ in its place.
7. Paragraph (b)(6)(iii) is removed.
8. Paragraphs (c)(2)(i)(A) and (c)(2)
(iii)(B) are amended by removing the
parenthetical ‘‘(16.67 percent)’’.
9. Paragraph (c)(2)(iv) is removed.
10. Paragraph (c)(3)(iii) is removed
and paragraph (c)(3)(iv) is redesignated
as paragraph (c)(3)(iii).
11. Paragraph (g) is removed.
12. Paragraphs (e) and (f) are redes-
ignated as paragraphs (f) and (g), re-
spectively, and a new paragraph (e) is
added.
13. Newly designated paragraph
(f)(3)(ii) is amended by removing the
reference ‘‘paragraph (e)(3)’’ and adding
‘‘paragraph (f)(3)’’ in its place.
The addition reads as follows:
§ 40.6302(c)–1 Use of Government de-
positaries.
* * * * *
(e)Special rules for September—(1)
Deposits required. In the case of depos-
its of 9-day rule taxes for the second
semimonthly period in September, sepa-
rate deposits are required for the period
September 16th-26th and the period
September 27th-30th.
(2)Amount of deposit. The deposits
of 9-day rule taxes for the period Sep-
tember 16th-26th and the period Sep-
tember 27th-30th must be not less than
the amount of net tax liability for 9-day
rule taxes incurred during the respective
periods. The net tax liability incurred
during these periods may be computed
by—
(i) Determining the amount of net tax
liability reasonably expected to be in-
curred during the second semimonthly
period in September;
(ii) Treating 11/15 of that amount as
the net tax liability incurred during the
period September 16th-26th; and
(iii) Treating the remainder of the
amount determined under paragraph
(e)(2)(i) of this section (adjusted to
reflect net tax liability actually incurred
through the end of September) as the
net tax liability incurred during the
period September 27th-30th.
(3)Time to deposit—(i)In general.
The deposit of 9-day rule taxes required
for the period beginning September 16th
must be made by September 29. The
deposit required for the period ending
September 30th must be made at the
time prescribed in paragraph (b)(6)(i) of
this section for making deposits for the
second semimonthly period in Septem-
ber.
(ii)Due date on Saturday or Sunday.
A deposit that would otherwise be due
on September 29 must be made by
September 28 if September 29 is a
Saturday and by September 30 if Sep-
tember 29 is a Sunday.
(4)Safe harbor rule based on look-
back quarter liability. The safe harbor
rule in paragraph (c)(2)(i) of this section
does not apply to 9-day rule taxes for
the third calendar quarter unless—
(i) The deposit of 9-day rule taxes for
the period September 16th-26th is not
less than 11/90 of the net tax liability
reported for 9-day rule taxes for the
look-back quarter; and
(ii) The total deposit of 9-day rule
taxes for the second semimonthly period
in September is not less than 1/6 of the
net tax liability reported for 9-day rule
taxes for the look-back quarter.
(5)Safe harbor rule based on current
liability. The safe harbor rule of para-
graph (c)(3)(i) of this section does not
apply to 9-day rule taxes for the third
calendar quarter unless—
(i) The deposit of 9-day rule taxes for
the period September 16th-26th is not
less than 69.67 percent of the net tax
liability for 9-day rule taxes for the
second semimonthly period in Septem-
ber; and
(ii) The total deposit of 9-day rule
taxes for the second semimonthly period
in September is not less than 95 percent
of the net tax liability for 9-day rule
taxes for that semimonthly period.
(6)Persons not required to use elec-
tronic funds transfer. In the case of a
person that is not required to deposit
excise taxes by electronic funds transfer
(a non-EFT depositor), the rules of this
paragraph (e) apply with the following
modifications:
(i) The periods for which separate
deposits must be made are September
16th-25th and September 26th-30th.
(ii) The deposit required for the pe-
riod beginning September 16th must be
made by September 28. A deposit that
would otherwise be due on September
28 must be made by September 27 if
September 28 is a Saturday and by
September 29 if September 28 is a
Sunday.
(iii) The generally applicable frac-
tions and percentage are modified to
reflect the different deposit periods in
accordance with the following table:
Generally
applicable
fractions and
percentage
Modifications for
non-EFT depositors
11/1510/15
11/9010/90
69.67 percent63.33 percent
(7)Effective date. This paragraph (e)
is effective August 1, 1995, for all 9-day
rule taxes except those imposed by
section 4261 or 4271. For taxes imposed
by section 4261 or 4271, this paragraph
(e) applies beginning January 1, 1997.
* * * * *
Par. 4. Section 40.6302(c)–2 is
amended as follows:
1. Paragraphs (b)(2)(i)(A) and (b)(2)
(ii)(B) are amended by removing the
parenthetical ‘‘(16.67 percent)’’.
2. Paragraph (c) is revised.
The revision reads as follows:
§ 40.6302(c)–2 Special rules for use of
Government depositaries under section
4681.
* * * * *
(c)Special rules for September—(1)
Deposits required. In the case of depos-
its of 30-day rule taxes for the first
semimonthly period in September, sepa-
rate deposits are required for the period
September 1st-11th and the period Sep-
tember 12th-15th.
(2)Amount of deposit. The deposits
of 30-day rule taxes for the period
September 1st-11th and the period Sep-
tember 12th-15th must be not less than
the amount of net tax liability for 30-
day rule taxes incurred during the re-
spective periods. The net tax liability
incurred during these periods may be
computed by—
(i) Determining the amount of net tax
liability incurred during the first semi-
monthly period in September (or, if
semimonthly liability is computed by
dividing monthly liability by two, the
amount reasonably expected to be in-
curred);
(ii) Treating 11/15 of that amount as
the net tax liability incurred during the
period September 1st-11th; and
(iii) Treating the remainder of the
amount determined under paragraph
(c)(2)(i) of this section (adjusted, if that
amount is based on reasonable expecta-
tions, to reflect net tax liability actually
incurred through the end of September)
as the net tax liability incurred during
the period September 12th-15th.
5

(3)Time to deposit—(i)In general.
The deposit required for the period
beginning September 1st and the deposit
for the second semimonthly period in
August must be made by September 29.
The deposit required for the period
ending September 15th must be made at
the time prescribed in paragraph
(b)(1)(i) of this section for making de-
posits for the first semimonthly period
in September.
(ii)Due date on Saturday or Sunday.
A deposit that would otherwise be due
on September 29 must be made by
September 28 if September 29 is a
Saturday and by September 30 if Sep-
tember 29 is a Sunday.
(4)Safe harbor rule based on look-
back quarter liability. The safe harbor
rule of paragraph (b)(2)(i) of this section
does not apply for the third calendar
quarter unless—
(i) The deposit of 30-day rule taxes
for the period September 1st-11th is not
less than 11/90 of the net tax liability
reported for 30-day rule taxes for the
look-back quarter; and
(ii) The total deposit of 30-day rule
taxes for the first semimonthly period in
September is not less than 1/6 of the net
tax liability reported for 30-day rule
taxes for the look-back quarter.
(5)Safe harbor rule based on current
liability. The safe harbor rule of para-
graph (b)(3) of this section does not
apply for the third calendar quarter
unless—
(i) The deposit of 30-day rule taxes
for the period September 1st-11th is not
less than 69.67 percent of the net tax
liability for 30-day rule taxes for the
first semimonthly period in September;
and
(ii) The total deposit of 30-day rule
taxes for the first semimonthly period in
September is not less than 95 percent of
the net tax liability for 30-day rule taxes
for that semimonthly period.
(6)Persons not required to use elec-
tronic funds transfer. In the case of a
person that is not required to deposit
excise taxes by electronic funds transfer
(a non-EFT depositor), the rules of this
paragraph (c) apply with the following
modifications:
(i) The periods for which separate
deposits must be made are September
1st-10th and September 11th-15th.
(ii) The deposit required for the pe-
riod beginning September 1st and the
deposit required for the second semi-
monthly period in August must be made
by September 28. A deposit that would
otherwise be due on September 28 must
be made by September 27 if September
28 is a Saturday and by September 29 if
September 28 is a Sunday.
(iii) The generally applicable frac-
tions and percentage are modified to
reflect the different deposit periods in
accordance with the following table:
Generally
applicable
fractions and
percentage
Modifications for
non-EFT depositors
11/1510/15
11/9010/90
69.67 percent63.33 percent
(7)Effective date. This paragraph (c)
is effective August 1, 1995.
Par. 5. Section 40.6302(c)–3 is
amended as follows:
1. In paragraph (b)(1)(ii), first sen-
tence, the language ‘‘deposits to’’ is
removed and ‘‘deposits of’’ is added in
its place.
2. In paragraph (b)(3), first sentence,
the language ‘‘durina’’ is removed and
‘‘during a’’ is added in its place.
3. Paragraphs (f) and (g) are redesig-
nated as paragraphs (g) and (h), respec-
tively, and a new paragraph (f) is added.
4. In newly designated paragraph (h),
first sentence, the language ‘‘This sec-
tion’’ is removed and ‘‘Except as other-
wise provided, this section’’ is added in
its place.
The addition reads as follows:
§ 40.6302(c)–3 Special rules for use of
Government depositaries under chapter
33.
* * * * *
(f)Special rules for September—(1)
Deposits required. In the case of alterna-
tive method taxes charged (that is, in-
cluded in amounts billed or tickets sold)
during the first semimonthly period in
September, separate deposits are re-
quired for the taxes charged during the
period September 1st-11th and the pe-
riod September 12th-15th.
(2)Time to deposit—(i)In general.
The deposit required for alternative
method taxes charged during the period
beginning September 1st must be made
by September 29. The deposit required
for alternative method taxes charged
during the period ending September
15th must be made at the time pre-
scribed in paragraph (c) of this section
for making deposits for the first semi-
monthly period in October.
(ii)Due date on Saturday or Sunday.
A deposit that would otherwise be due
on September 29 must be made by
September 28 if September 29 is a
Saturday and by September 30 if Sep-
tember 29 is a Sunday.
(3)Amount of deposit. The deposits
of alternative method taxes required for
the period September 1st-11th and the
period September 12th-15th must be not
less than the amount of alternative
method taxes charged during the respec-
tive periods. The amount of alternative
method taxes charged during these peri-
ods may be computed by—
(i) Determining the net amount of
alternative method taxes reflected in the
separate account for the first semi-
monthly period in September (or one-
half of the net amount of alternative
method taxes reasonably expected to be
reflected in the separate account for the
month of September);
(ii) Treating 11/15 of that amount as
the amount of taxes charged during the
period September 1st-11th; and
(iii) Treating the remainder of the
amount determined under paragraph
(f)(3)(i) of this section (adjusted, if that
amount is based on reasonable expecta-
tions, to reflect actual taxes charged
through the end of September) as the
amount charged during the period Sep-
tember 12th-15th.
(4)Safe harbor rule based on look-
back quarter liability. The safe harbor
rule of § 40.6302(c)–1(c)(2)(i) does not
apply for the fourth calendar quarter
unless—
(i) The deposit for alternative method
taxes charged during the period Septem-
ber 1st-11th is not less than 11/90 of the
net tax liability reported for alternative
method taxes for the look-back quarter;
and
(ii) The total deposit for alternative
method taxes charged during the first
semimonthly period in September is not
less than 1/6 of the net tax liability
reported for alternative method taxes for
the look-back quarter.
(5)Safe harbor rule based on current
liability. The safe harbor rule of
§ 40.6302(c)–1(c)(3)(i) does not apply
for the fourth calendar quarter unless—
(i) The deposit for alternative method
taxes charged during the period Septem-
ber 1st-11th is not less than 69.67
percent of the alternative method taxes
charged during the first semimonthly
period in September; and
(ii) The total deposit for alternative
method taxes charged during the first
semimonthly period in September is not
less than 95 percent of the alternative
method taxes charged during that semi-
monthly period.
6

(6)Persons not required to use elec-
tronic funds transfer. In the case of a
person that is not required to deposit
excise taxes by electronic funds transfer
(a non-EFT depositor), the rules of this
paragraph (f) apply with the following
modifications:
(i) The taxes for which separate de-
posits must be made are the taxes
charged during the periods September
1st-10th and September 11th-15th.
(ii) The deposit required for taxes
charged during the period beginning
September 1st must be made by Sep-
tember 28. A deposit that would other-
wise be due on September 28 must be
made by September 27 if September 28
is a Saturday and by September 29 if
September 28 is a Sunday.
(iii) The generally applicable frac-
tions and percentage are modified to
reflect the different deposit periods in
accordance with the following table:
Generally
applicable
fractions and
percentage
Modifications for
non-EFT depositors
11/1510/15
11/9010/90
69.67 percent63.33 percent
(7)Effective date. This paragraph (f)
is effective August 1, 1995, for all taxes
except those imposed by section 4261 or
4271. For taxes imposed by section
4261 or 4271, this paragraph (f) applies
beginning January 1, 1997.
* * * * *
Par. 6. Section 40.6302(c)–4 is
amended as follows:
1. Paragraph (a) is amended by revis-
ing the first sentence and removing the
second sentence.
2. Paragraph (b)(1) is amended by
removing the language ‘‘transfer be-
tween accounts with the same Govern-
ment depositary’’ in the first sentence
and adding ‘‘electronic funds transfer’’
in its place.
3. Paragraph (d) is redesignated as
paragraph (e) and a new paragraph (d)
is added.
4. Newly designated paragraph (e) is
amended by removing the language
‘‘Highway Act’’ and adding ‘‘Highway
Revenue Act’’ in its place.
The revision and addition read as
follows:
§ 40.6302(c)–4 Special rule for use of
Government depositaries under section
4081.
(a)Overview. This section sets forth
a special rule for deposits of taxes
imposed by section 4081. * * *
* * * * *
(d)Special rules for September. De-
posits of 14-day rule taxes for the
second semimonthly period in Septem-
ber must be made in the manner pre-
scribed by § 40.6302(c)–1(e) applied
with the following modifications:
(1) Each reference to 9-day rule taxes
is treated, instead, as a reference to
14-day rule taxes.
(2) The deposit required for the pe-
riod ending September 30th must be
made at the time prescribed in para-
graph (b) of this section (rather than at
the time prescribed in § 40.6302(c)–
1(b)(6)(i)).
* * * * *
§ 40.6302(c)–5T [Removed]
Par. 7. Section 40.6302(c)–5T is re-
moved.
§ 40.9999–1 [Amended]
Par. 8. Section 40.9999–1 is amended
as follows:
1.Example 1(iii) is amended by re-
moving the parenthetical ‘‘(§ 40.6302-
(c)–1(e)(2))’’ and adding ‘‘(§ 40.6302-
(c)–1(f)(2))’’ in its place.
2.Example 3is amended by:
a. Removing the language ‘‘diesel
fuel’’ and adding ‘‘aviation fuel’’ in its
place in the following locations:
i.Example 3, heading.
ii.Example 3(i)(1), each time it ap-
pears in the first sentence.
iii.Example 3(i)(1), second and third
sentences.
iv.Example 3(i)(4), second sentence.
v.Example 3(ii), fourth and seventh
sentences.
vi.Example 3(iii), third sentence.
vii.Example 3(iv), second sentence.
b. InExample 3(iii), second sentence,
removing the parenthetical ‘‘(§ 40.6302-
(c)–1(e)(3))’’ and adding ‘‘(§ 40.6302-
(c)–1(f)(3))’’ in its place.
PART 48—MANUFACTURERS AND
RETAILERS EXCISE TAXES
Par. 9. The authority citation for part
48 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
§ 48.4082–2 [Amended]
Par. 9a. In § 48.4082–2, paragraph
(a) is amended by removing the refer-
ence ‘‘section 6714’’ and adding ‘‘sec-
tion 6715’’ in its place.
§ 48.4083–1 [Amended]
Par. 10. Section 48.4083–1 is
amended as follows:
1. In paragraph (b)(1) introductory
text, first sentence, the reference ‘‘sec-
tion 6714(a)’’ is removed and ‘‘section
6715(a)’’ is added in its place.
2. In paragraph (d)(1), second sen-
tence, the reference ‘‘section 6714’’ is
removed and ‘‘section 6715’’ is added in
its place.
§ 48.6427–7 [Removed]
Par. 11. Section 48.6427–7 is re-
moved.
§ 48.6714–1 [Redesignated as
48.6715–1]
Par. 12. Section 48.6714–1 is redesig-
nated as § 48.6715–1.
Par. 13. In newly designated
§ 48.6715–1, the first and second sen-
tences of paragraph (a) introductory text
are amended by removing the reference
‘‘section 6714(a)’’ and adding ‘‘section
6715(a)’’ in its place.
PART 49—FACILITIES AND
SERVICES EXCISE TAXES
Par. 14. The authority citation for
part 49 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 14a. Subpart F, consisting of
§ 49.4291–1, is added to read as fol-
lows:
Subpart F—Collection of Tax By
Persons Receiving Payment
§ 49.4291–1 Persons receiving payment
must collect tax.
Except as otherwise provided in sec-
tion 4263(a), every person receiving any
payment for facilities or services on
which a tax is imposed upon the payor
thereof under chapter 33 shall collect
the amount of the tax from the person
making that payment. Under section
7501, all taxes collected in this manner
are held by the collecting agent in trust
for the United States. If the person from
whom the tax is required to be collected
refuses to pay it or if for any reason it
is impossible for the collecting agent to
collect the tax from that person, the
collecting agent is required to report to
the district director the name and ad-
dress of that person, the nature of the
facility provided or service rendered, the
amount paid therefor, and the date on
which paid. Upon receipt of this infor-
mation the district director will proceed
7

against the person to whom the facilities
were provided or the services rendered
to assert the amount of tax due, afford-
ing that person the same district confer-
ence, protest, and appellate rights as are
available to other excise taxpayers. In
addition, when a field or office audit of
a collecting agent’s records, or of a
taxpayer’s records, discloses that the
collecting agent failed during prior re-
porting periods to collect taxes due, the
district director may assert those taxes
directly against the person to whom the
facilities were provided or the services
rendered, whether or not the collecting
agent had attempted collection or the
person liable for the tax had refused
payment thereof.
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 15. The authority citation for
part 301 continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
§ 301.6156–1 [Removed]
Par. 15a. Section 301.6156–1 is re-
moved.
§ 301.6206–1 [Removed]
Par. 16. Section 301.6206–1 is re-
moved.
§§ 301.6415–1 through 301.6421–1 and
301.6423–1 [Removed]
Par. 17. Sections 301.6415–1 through
301.6421–1 and 301.6423–1 are re-
moved.
§ 301.6675–1 [Removed]
Par. 18. Section 301.6675–1 is re-
moved.
Par. 19. The undesignated center
heading following § 301.6905–1 is re-
vised to read as follows:
Licensing
Par. 20. The undesignated center
heading preceding § 301.7001–1 is re-
moved.
Par. 21. The undesignated center
heading preceding § 301.7011–1 is re-
moved.
§ 301.7011–1 [Removed]
Par. 22. Section 301.7011–1 is re-
moved.
§ 301.7232–1 [Removed]
Par. 23. Section 301.7232–1 is re-
moved.
§ 301.7328–1 [Removed]
Par. 24. Section 301.7328–1 is re-
moved.
PART 601—STATEMENT OF
PROCEDURAL RULES
Par. 25. The authority citation for
part 601 continues to read as follows:
Authority: 5 U.S.C. 301 and 552.
§ 601.101 [Amended]
Par. 25a. Section 601.101 is amended
as follows:
1. Paragraph (b) is amended by re-
moving the seventh sentence and the
last sentence.
2. Paragraph (c) is removed.
Par. 26. Section 601.102 is amended
as follows:
1. Paragraphs (b)(2)(i) and (b)(2)(ii)
are revised.
2. Paragraphs (b)(2)(iii), (b)(2)(iv),
and (c) are removed.
The revisions read as follows:
§ 601.102 Classification of taxes col-
lected by the Internal Revenue Service.
* * * * *
(b) * * *
(2) * * *
(i) Employment taxes.
(ii) Miscellaneous excise taxes col-
lected by return.
* * * * *
§ 601.104 [Amended]
Par. 27. Section 601.104 is amended
as follows:
1. Paragraphs (a)(4) and (a)(5) are
removed.
2. Paragraph (c)(4) is amended by
removing the eighth and ninth sentences.
§ 601.201 [Amended]
Par. 28. In § 601.201, paragraph
(a)(2) is amended by removing the last
sentence.
§ 601.202 [Amended]
Par. 29. In § 601.202, paragraph
(c)(1) is amended by removing the par-
enthetical ‘‘(other than the manufactur-
ers excise tax on firearms arising from
application of sections 4181 and 4182 of
the Internal Revenue Code of 1954)’’.
§ 601.203 [Amended]
Par. 30. In § 601.203, paragraph
(a)(1) is amended by removing the last
sentence.
Subpart C [Removed and Reserved]
Par. 31. Subpart C of part 601 is
removed and reserved.
Par. 32. The heading for subpart D of
part 601 is revised to read as follows:
Subpart D—Provisions Special to
Certain Employment Taxes §§ 601.402
through 601.405 [Removed]
Par. 33. Sections 601.402 through
601.405 are removed.
Subpart J [Removed]
Par. 34. Subpart J of part 601 is
removed.
PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 35. The authority citation for
part 602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 35a. In § 602.101, paragraph (c)
is amended by:
1. Removing the following entries
from the table:
§ 602.101 OMB Control numbers.
* * * * *
(c) * * *
CFR part or section whereCurrent OMB
identified and describedcontrol No.
* * * * *
48.0–3 . . . . . . . . . . . . . . . . . . . . 1545–0685
* * * * *
48.4102–1 . . . . . . . . . . . . . . . . . 1545–0023
1545–0725
* * * * *
48.4221–8 . . . . . . . . . . . . . . . . . 1545–0023
48.4221–9 . . . . . . . . . . . . . . . . . 1545–0023
* * * * *
48.6427–7 . . . . . . . . . . . . . . . . . 1545–0143
1545–0162
* * * * *
48.6675–1 . . . . . . . . . . . . . . . . . 1545–0723
* * * * *
301.7011–1 . . . . . . . . . . . . . . . . 1545–0123
* * * * *
601.104 . . . . . . . . . . . . . . . . . . . 1545–0023
1545–0233
* * * * *
601.201 . . . . . . . . . . . . . . . . . . . 1545–0819
* * * * *
601.402 . . . . . . . . . . . . . . . . . . . 1545–0014
601.403 . . . . . . . . . . . . . . . . . . . 1545–0023
* * * * *
8

2. Adding entries in numerical order
to the table to read as follows:
§ 602.101 OMB Control numbers.
* * * * *
(c) * * *
CFR part or section whereCurrent OMB
identified and describedcontrol No.
* * * * *
601.104 . . . . . . . . . . . . . . . . . . . 1545–0233
* * * * *
CFR part or section whereCurrent OMB
identified and describedcontrol No.
601.201 . . . . . . . . . . . . . . . . . . . 1545–0019
1545–0819
* * * * *
601.401 . . . . . . . . . . . . . . . . . . . 1545–0257
601.504 . . . . . . . . . . . . . . . . . . . 1545–0150
* * * * *
Approved June 26, 1996.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Donald C. Lubick,
Acting Assistant Secretary of the
Treasury.
(Filed by the Office of the Federal Register on
November 8, 1996, 8:45 a.m., and published in the
issue of the Federal Register for November 12,
1996, 61 F.R. 58004)
9

Part III. Administrative, Procedural, and Miscellaneous
Weighted Average Interest Rate
Update
Notice 96–59
Notice 88–73 provides guidelines for
determining the weighted average inter-
est rate and the resulting permissible
range of interest rates used to calculate
current liability for the purpose of the
full funding limitation of § 412(c)(7) of
the Internal Revenue Code as amended
by the Omnibus Budget Reconciliation
Act of 1987 and as further amended by
the Uruguay Round Agreements Act,
Pub. L. 103–465 (GATT).
The average yield on the 30-year
Treasury Constant Maturities for Octo-
ber 1996 is 6.81 percent.
The following rates were determined
for the plan years beginning in the
month shown below.
MonthYearWeighted Average
90% to 108%
Permissible Range
90% to 110%
Permissible Range
November19966.916.22 to 7.466.22 to 7.60
Drafting Information
The principal author of this notice is
Donna Prestia of the Employee Plans
Division. For further information regard-
ing this notice, call (202) 622–6076
between 2:30 and 4:00 p.m. Eastern
time (not a toll-free number). Ms.
Prestia’s number is (202) 622–7377
(also not a toll-free number).
26 CFR 301.6109–1: Guidance for qualification
as an acceptance agent, and execution of an
agreement between an acceptance agent and the
Internal Revenue Service relating to the issuance
of certain taxpayer identifying numbers.
Rev. Proc. 96–52
CONTENTS
SECTION 1. PURPOSE
SECTION 2. BACKGROUND
SECTION 3. DEFINITIONS
SECTION 4. ACCEPTANCE AGENT
SECTION 5. ACCEPTANCE AGENT
AGREEMENT
SECTION 6. CERTIFYING
ACCEPTANCE AGENT
SECTION 7. EFFECTIVE DATE
SECTION 8. PAPERWORK
REDUCTION ACT
SECTION 9. DRAFTING
INFORMATION
SECTION 1. PURPOSE
This revenue procedure describes the
application procedures for becoming an
acceptance agent and the requisite
agreement that an acceptance agent must
execute with the Internal Revenue Ser-
vice (IRS). Persons may wish to become
an acceptance agent for purposes of
facilitating the issuance of (1) IRS indi-
vidual taxpayer identification numbers
(ITINs) to alien individuals who are
ineligible to obtain social security num-
bers (SSNs), or (2) employer identifica-
tion numbers (EINs) to foreign persons.
SECTION 2. BACKGROUND
Section 301.6109–1(d)(3) of the In-
come Tax Regulations (Regulations)
provides general procedures for obtain-
ing an ITIN which require the submis-
sion of an application form (Form
W–7), together with documentation con-
sidered as evidence of the alien indi-
vidual’s identity and alien status. Section
301.6109–1(d)(2) of the Regulations
provides general procedures for obtain-
ing an EIN which require the submis-
sion of an application form (Form SS–
4), together with any supplementary
statement as may be required. The regu-
lations require an applicant for an ITIN
or an EIN to furnish the information
required by the form, the accompanying
instructions, and any applicable regula-
tions. An applicant may either submit
the application form for an ITIN or an
EIN directly to the IRS or, as provided
in § 301.6109–1(d)(3)(iv) of the Regu-
lations, apply for an ITIN or an EIN by
using an acceptance agent.
SECTION 3. DEFINITIONS
For purposes of this revenue proce-
dure, the terms listed below are defined
as follows.
.01 Anacceptance agentis a person
(i.e., an individual or an entity) who,
pursuant to a written agreement with the
IRS, is authorized to assist alien indi-
viduals and other foreign persons in
obtaining ITINs or EINs from the IRS.
An acceptance agent acting in its capac-
ity as an acceptance agent does not act
as an agent of the IRS, nor is it
authorized to hold itself out as an agent
of the IRS.
.02 Analien individualis an indi-
vidual who is not a citizen or a national
of the United States.
.03 Aforeign personis a nonresident
alien individual, a foreign corporation, a
foreign partnership, a foreign trust, a
foreign estate, or any other person that
is not a U.S. person, the U.S. govern-
ment, or a U.S. state or the District of
Columbia.
.04Alien statusrefers to an individu-
al’s status as a non- U.S. citizen or
non-U.S. national.
.05Identityrefers to the fact of being
the same individual as is represented,
claimed, or described.
.06TIN(taxpayer identifying num-
ber) refers to both ITINs and EINs.
SECTION 4. ACCEPTANCE AGENT
.01Role of acceptance agent.(1)In
general.The role of an acceptance agent
is to facilitate the application process
and the issuance of TINs to alien indi-
viduals and foreign persons. An accep-
tance agent performs this duty by for-
warding the completed Form W–7
(together with the required documentary
evidence) to the IRS, Philadelphia Ser-
vice Center to obtain ITINs, or by
forwarding the completed Form SS–4
(together with any supplementary state-
ment if required) to the IRS, Philadel-
phia Service Center to obtain EINs, or
by calling Tele–TIN: (215) 574– 2400 to
obtain EINs.
(2)Certifying acceptance agent.In
the case of obtaining an ITIN, if permit-
ted under the agreement with the IRS, a
person may assume greater responsibil-
ity as a certifying acceptance agent. In
that case, the acceptance agent may
review the documentation required to
accompany Form W–7 and certify to the
IRS that it has reviewed the required
documentation and to the best of its
knowledge and belief, the documenta-
tion is authentic, complete, and accurate.
See section 6 of this revenue procedure
for further information.
10

.02Application process for accep-
tance agent.(1)Eligible persons.Per-
sons eligible to become acceptance
agents include, but are not limited to, a
financial institution defined in section
265(b)(5) of the Internal Revenue Code
(Code) or § 1.165–12(c)(1)(v) of the
Regulations, a college or university that
is an educational organization defined in
§ 1.501(c)(3)– 1(d)(3)(i) of the Regula-
tions, a federal agency defined in sec-
tion 6402(f) of the Code, and persons
that provide professional assistance to
taxpayers in the preparation of their tax
returns. An eligible person may be a
U.S. or a foreign person.
(2)Pre-application conference.Prior
to submitting a formal application, a
person interested in becoming an accep-
tance agent may request a conference
with the IRS, which may be held in
person or by telephone, to explore infor-
mally the benefits and burdens associ-
ated with the role of an acceptance
agent. Requests for pre-application con-
ferences should be directed to the Assis-
tant Commissioner (International), For-
eign Payments Division (telephone:
(202) 874–1800, not a toll-free number).
(3)Written application. (a) Where to
apply. A person may apply to become an
acceptance agent by submitting a written
request to:
Assistant Commissioner
(International)
Foreign Payments Division CP:IN:-
OO:WT
950 L’Enfant Plaza South, SW
Washington, DC 20024
FAX: (202) 874–1984
(b) Content of application. The appli-
cation shall indicate that the person is
requesting permission to execute an
agreement with the IRS pursuant to
§ 301.6109–1(d)(3)(iv) of the Regula-
tions, and in accordance with this rev-
enue procedure. The application shall
include the information listed below.
(i) The applicant’s complete name,
address, and EIN. If the applicant does
not have an EIN, a completed Form
SS–4 must be included to obtain such
number.
(ii) The reason that the applicant
wishes to become an acceptance agent,
and the type of responsibilities the ap-
plicant expects to assume.
(iii) A description of the applicant,
including the entity status of the appli-
cant (e.g., bank, university, governmen-
tal agency, etc.) and the state (or if
outside the United States, the country)
under whose laws the applicant is cre-
ated or organized.
(iv) A list of the applicant’s employ-
ees who will be responsible parties for
performance under the acceptance agent
agreement, including their title and posi-
tion description.
(v) A list of the offices or branches,
if any, intended to be covered by the
agreement and their location, including
mailing address.
(vi) The business relationship the ap-
plicant has with the persons whom it
expects to assist in obtaining TINs.
(vii) An estimate of the number of
Forms W–7 and/or Forms SS–4 it ex-
pects to submit to the IRS per year.
(viii) The name and telephone num-
ber of a person the IRS can contact
regarding the application.
(4)IRS review of application. (a) Re-
quest for additional information. Upon
review of the application, the IRS may
request additional information.
(b) Determination and notification of
status. Upon completion of review of
the application, including any additional
information submitted, the IRS will de-
termine whether the applicant qualifies
to become an acceptance agent and will
notify the applicant of this determina-
tion. If the applicant is approved as an
acceptance agent, the IRS will provide
instructions to the applicant regarding
the procedures for entering into the
acceptance agent agreement with the
IRS.
SECTION 5. ACCEPTANCE AGENT
AGREEMENT
.01In general. An acceptance agent
agreement described under § 301.6109–
1(d)(3)(iv)(A) of the Regulations is an
agreement between the IRS and a per-
son authorized by virtue of the agree-
ment to act as an acceptance agent on
behalf of an alien individual or a foreign
person with respect to that individual’s
or person’s need to obtain an ITIN or an
EIN from the IRS. The Assistant Com-
missioner (International) shall sign the
agreement on behalf of the IRS. If the
acceptance agent is a person other than
an individual, the agreement must be
signed by an authorized representative
of the acceptance agent.
.02Terms and procedures. The terms
of an acceptance agent agreement may
vary depending upon such factors as the
nature of the applicant (e.g., bank, uni-
versity, governmental agency, etc.) and
its location (i.e., inside the United States
or outside the United States). The accep-
tance agent agreement will generally
contain the following terms and condi-
tions necessary to insure proper admin-
istration of the process by which the
IRS issues TINs to alien individuals and
foreign persons.
(1)Procedures for providing TIN ap-
plication forms. An acceptance agent
shall agree to maintain a supply of Form
W–7 for obtaining ITINs, and of Form
SS–4 for obtaining EINs from the IRS.
The acceptance agent may use a substi-
tute form that is approved by the IRS.
For example, if the acceptance agent is
a financial institution, the Form W–7 or
Form SS–4 may be incorporated as part
of an account opening package. In addi-
tion, an acceptance agent shall agree to
send a Form W–7 to any individual
client or customer (who is not a U.S.
citizen or national) that it knows, or has
reason to know, has been issued a
temporary tax identification number by
the IRS, and to advise the client or
customer of the need to replace the
temporary tax identification number
with an ITIN.
(2)Procedures for assisting in
completion of TIN application forms. An
acceptance agent shall agree to assist in
the preparation of the TIN application
form. For example, the acceptance agent
should make certain that every item
included on the application form has
been completed and should assist the
TIN applicant in understanding the in-
formation required by the application
form. The acceptance agent should con-
tact the IRS for assistance regarding any
questions about the forms, application
process, the requirement to have TINs,
etc. that it cannot reasonably answer.
Questions regarding such matters should
be directed to the IRS at (215) 516–
ITIN (4846) (not a toll-free number).
(3)Procedures for IRS communica-
tion with acceptance agent. The appli-
cant’s signature on the Form W–7 pro-
vides the power of attorney to the
acceptance agent, authorizing communi-
cation with the IRS regarding that par-
ticular application only. The acceptance
agent may act as an agent for the
applicant regarding any additional com-
munication necessary with the IRS in
connection with the application form.
However, IRS communication with an
acceptance agent in connection with a
Form SS–4 application requires that the
applicant has furnished a power of attor-
ney (e.g., Form 2848) authorizing such
communication.
(4)Procedures for submitting TIN
application forms. An acceptance agent
shall agree to submit promptly the TIN
application forms or approved substitute
11

forms (together with the required docu-
mentation for ITINs or the supplemen-
tary statement, if required, for EINs) to
the IRS at the mailing address for the
Philadelphia Service Center included on
Form W–7 or Form SS–4, or the follow-
ing street address (for registered or
certified mail): 11601 Roosevelt Blvd.,
D.P. 426, Philadelphia, PA 19255.
(5)Procedures for collecting and re-
viewing required documentation for as-
signment of an ITIN. A Form W–7 must
be accompanied by documentary evi-
dence of alien status and identity. The
types of acceptable documentary evi-
dence may vary depending upon such
factors as the ITIN applicant’s country
of citizenship or nationality, the ITIN
applicant’s residency at the time of the
application (i.e., inside or outside the
United States), etc. The acceptance
agent must review the applicant’s docu-
mentation in order to determine whether
the documentation is of a type which
the IRS regards as reliable evidence of
alien status and identity. The acceptance
agent agreement will specify the various
types of documentary evidence that the
acceptance agent should accept for sub-
mission with Form W–7. Examples of
documentary evidence supporting alien
status (i.e., non-U.S. citizenship or na-
tionality) include a foreign passport, a
foreign birth record, or a current docu-
ment issued by the Immigration and
Naturalization Service (INS) in accor-
dance with that agency’s regulations.
Examples of documentary evidence sup-
porting identity include a driver’s li-
cense, identity card, school record,
medical record, marriage record, voter
registration card, military registration
card, passport, or a current document
issued by INS in accordance with that
agency’s regulations. Generally, one
piece of documentary evidence should
contain a picture or photo identification.
Generally, ITIN applicants must submit
the required documentation during a
personal interview with the acceptance
agent. The agreement will generally re-
quire that original (or certified copies of
original) documentation be submitted to
the IRS with Form W–7. All original
documents will be returned promptly to
the acceptance agent (i.e., no later than
3 business days from receipt of a com-
plete application by the IRS, Philadel-
phia Service Center). Copies of original
documents, if allowed to be submitted
under the acceptance agent agreement,
will not be returned to the acceptance
agent.
(6)Procedures for assisting taxpayers
with notification procedures in the event
of a change of alien status. When an
acceptance agent knows that an indi-
vidual assigned an ITIN has become
eligible to obtain (or has, in fact, ob-
tained) a SSN, such acceptance agent
shall agree to inform the individual of
the obligation to (1) apply for a SSN,
(2) stop using the previously- assigned
ITIN upon receipt of the new SSN, and
(3) notify the IRS of this change in
alien status. The acceptance agent’s duty
with respect to this matter shall apply
only to the situation where the accep-
tance agent has a continuing business
relationship with the individual. An alien
individual may become eligible to ob-
tain a SSN if, for example, such indi-
vidual has become a U.S. citizen or a
permanent U.S. resident (i.e., ‘‘green
card’’ holder), or is lawfully permitted
by INS to work in the United States.
The ITIN holder’s notification to the
IRS should state that the individual
either is eligible to have or has a SSN,
and should include the individual’s
name, address, previously-assigned ITIN
and new SSN (if available), the current
date, and the individual’s signature. This
information may be provided to the IRS
by FAX: (215) 516–3270 or by mail:
IRS, Philadelphia Service Center, ATTN:
ITIN Unit-D.P. 426, P.O. Box 447,
Bensalem, PA 19020. Questions regard-
ing this matter should be directed to
(215) 516–ITIN (4846) (not a toll-free
number).
(7)Procedures for IRS verification of
compliance with acceptance agent
agreement. The acceptance agent agree-
ment will specify the procedures by
which the IRS will verify the acceptance
agent’s compliance with the agreement.
In particular, the procedures must enable
the IRS to verify that the acceptance
agent has adequate procedures in effect
to assist applicants properly. The proce-
dures also must enable the IRS to verify
that the acceptance agent is complying
with any record retention requirements
relating to the issuance of TINs. Verifi-
cation of compliance with the accep-
tance agent agreement does not consti-
tute an examination of the books and
records of the acceptance agent.
(8)Procedures regarding termination
of acceptance agent agreement. An ac-
ceptance agent agreement generally is
not subject to expiration and renewal.
Either the acceptance agent or the IRS
may terminate an agreement 30 days
after delivery of notice of termination to
the other party. The decision to termi-
nate is solely at the discretion of the
party giving such notice. However, the
IRS generally will not give notice of
termination unless the acceptance agent
willfully fails to comply with procedures
required by the agreement or to perform
any duty or obligation required in the
agreement (including failing to exercise
due diligence under the agreement) and
such failure constitutes material non-
compliance. In addition, the IRS may
give notice of termination where the
acceptance agent has misrepresented
material information given on its appli-
cation to become an acceptance agent or
on a TIN application. Further, notice of
termination may be given where the
acceptance agent accepts a TIN applica-
tion with knowledge that material infor-
mation on the form is false. The accep-
tance agent may request that the IRS
reinstate the acceptance agent agreement
by submitting, within 30 days of receipt
of the notice of termination, a written
explanation of how the acceptance agent
proposes to correct the violation and, if
appropriate, to modify its procedures to
ensure that such violation will not occur
in the future. The IRS shall accept or
reject the request, or make a counterpro-
posal within 20 days of receipt of the
request.
SECTION 6. CERTIFYING
ACCEPTANCE AGENT
.01General requirements. A certify-
ing acceptance agent is a person that is
authorized under the agreement with the
IRS to submit a Form W–7 to the IRS
on behalf of an applicant, without hav-
ing to furnish supporting documentary
evidence. Instead, when submitting a
Form W–7 to the IRS, a certifying
acceptance agent certifies to the IRS
that it has reviewed the appropriate
documentation evidencing the ITIN ap-
plicant’s identity and alien status, and
that it is maintaining a record of such
documentation. In addition, the accep-
tance agent must certify that to the best
of its knowledge and belief, the docu-
mentation is authentic, complete, and
accurate. As part of the certification, the
acceptance agent must describe the
documentation upon which it is relying.
The certification is not binding on the
IRS, which may, in appropriate cases,
request to see appropriate documentation
before issuing an ITIN.
.02Application process. (1)Written
application. IRS permission to act as a
certifying acceptance agent is condi-
tioned upon the acceptance agent’s
12

agreeing to verify documentation sup-
porting the identity and alien status of
an ITIN applicant, maintain certain
records, and submit certain information
to the IRS upon request. As a result, in
addition to the information required to
be submitted with an application to
become an acceptance agent as outlined
in section 4.02(3) of this revenue proce-
dure, an applicant to become a certify-
ing acceptance agent must also provide
the following information:
(a) If an applicant relies on local
know-your-customer practices and pro-
cedures for identifying customers or
clients, and communicating with cus-
tomers or clients, then the applicant
must provide an explanation of those
practices and procedures, including (1)
the extent to which they are mandated
and verified under local law and regula-
tions applicable at each location in-
tended to be covered by the agreement
and (2) the penalties or sanctions that
may apply under local law in the event
of a failure to comply with such proce-
dures. Supporting documentation must
be included.
(b) Information regarding the antici-
pated reason why customers or clients
need to apply for ITINs (e.g., nonresi-
dent alien ineligible for SSN, resident
alien ineligible for SSN, or U.S. per-
son’s dependent ineligible for SSN).
(2)Pre-application conference. Prior
to submitting a formal application, a
person interested in becoming a certify-
ing acceptance agent may request a
conference with the IRS, which may be
held in person or by telephone. This
conference will provide an opportunity
to address such matters as the scope of
the agreement, corresponding obligations
that would arise under the agreement for
the applicant, and the nature of docu-
mentation, record maintenance, and veri-
fication procedures that would arise un-
der the agreement. Requests for pre-
application conferences should be
directed to the Assistant Commissioner
(International), Foreign Payments Divi-
sion (telephone: (202) 874–1800, not a
toll-free number).
.03Agreement. The terms of a certi-
fying acceptance agent agreement may
vary from case to case depending upon
such factors as local laws and practices,
know-your-customer procedures, super-
visory controls, and the types of internal
controls and recordkeeping procedures
in effect in the normal course of busi-
ness of the certifying acceptance agent.
Generally, the acceptance agent agree-
ment will contain the terms and condi-
tions necessary to insure proper admin-
istration of the process by which the
IRS issues ITINs to alien individuals as
are described in section 5.02 of this
revenue procedure. The following terms
are in addition to those outlined in
section 5 above.
(1)Procedures for collecting, review-
ing, and maintaining a record of re-
quired documentation for assignment of
an ITIN. A certifying acceptance agent
agreement will describe the procedures
by which the acceptance agent will
verify the identity and alien status of
ITIN applicants and submit a certifica-
tion to the IRS. To the extent possible,
procedures already in place to identify
persons for local regulatory purposes or
as part of normal course of business will
be used to support the representations
made by the acceptance agent regarding
these matters. To the extent applicable,
an acceptance agent may use documen-
tation evidencing citizenship, nationality,
residency, or immigration status to sup-
port its determination of the alien status
of ITIN applicants. The reliability of
any documentation should be evaluated
by the acceptance agent on the basis of
the type of information stated on the
document, the source document, if any,
used to substantiate the information on
the document, the issuance procedures
used, and the ease with which the
document can be counterfeited. Where
the IRS determines that these require-
ments or practices are not sufficient, it
may require that additional procedures
and documentation be established.
The acceptance agent will agree that,
for purposes of determining its compli-
ance with the acceptance agent agree-
ment, it will maintain a record of the
documentation obtained and reviewed
pursuant to the obligations set forth in
the agreement. If the acceptance agent
has a professional or business relation-
ship with the ITIN applicant, the docu-
mentation with respect to the ITIN ap-
plicant shall be maintained for as long
as the ITIN applicant maintains such a
relationship with the acceptance agent
and for a reasonable period, as pre-
scribed by the IRS in the agreement,
from the date such relationship ceases.
If the acceptance agent does not have a
professional or business relationship
with the ITIN applicant, the documenta-
tion with respect to the ITIN applicant
shall be maintained for three years after
presentation.
(2)Procedures for IRS compliance
checks of certifications. A certifying ac-
ceptance agent must also agree to fur-
nish supporting documentary evidence
to the IRS upon written request in such
manner as the IRS and the acceptance
agent will establish. In order to conduct
periodic compliance checks, the IRS
may rely on sampling techniques and/or
verification (by random selection) with
ITIN recipients to assure reliability of
the acceptance agent’s certifications
while ensuring the least amount of dis-
ruption and burden to the acceptance
agent. The acceptance agent agreement
will specify the manner in which IRS
compliance checks will take place (i.e.,
either on site or through correspon-
dence). Where the acceptance agent re-
sides outside of the United States, in
appropriate cases, assistance may be
obtained from the tax authorities of the
country where the acceptance agent re-
sides.
SECTION 7. EFFECTIVE DATE
This revenue procedure is effective on
the date of publication.
SECTION 8. PAPERWORK
REDUCTION ACT
The collections of information con-
tained in this revenue procedure have
been reviewed and approved by the
Office of Management and Budget in
accordance with the Paperwork Reduc-
tion Act (44 U.S.C. 3507) under control
number 1545–1499.
An agency may not conduct or spon-
sor, and a person is not required to
respond to, a collection of information
unless the collection of information dis-
plays a valid control number.
The collections of information con-
tained in this revenue procedure are in
section 4.02(3), section 5.02(6), and sec-
tion 6.02(1). This information is re-
quired to assist the IRS in issuing TINs
to certain alien individuals and foreign
persons. In addition, this information
will be used to enable the IRS to
determine whether persons qualify as
acceptance agents. The collection of
information is required to obtain an
acceptance agent agreement. The likely
respondents are state or local govern-
ments, business or other for-profit insti-
tutions, federal agencies, and nonprofit
institutions.
The estimated total annual reporting/
recordkeeping burden is 41,006 hours.
The estimated average annual burden
per respondent/recordkeeper is 3 hours,
12 minutes. The estimated number of
respondents/recordkeepers is 12,825.
13

The estimated annual frequency of
responses is on occasion.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become ma-
terial in the administration of any inter-
nal revenue law. Generally tax returns
and tax return information are confiden-
tial, as required by 26 U.S.C. 6103.
SECTION 9. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Lilo A. Hester of the Office
of the Associate Chief Counsel (Interna-
tional). For further information regard-
ing the acceptance agent program,
please contact Tom Logan of the Office
of the Assistant Commissioner (Interna-
tional) on (202) 874–1800 (not a toll-
free number).
14

Part IV. Items of General Interest
Notice of Proposed Rulemaking
and Notice of Public Hearing
Classification of Certain
Transactions Involving Computer
Programs
REG–251520–96
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing and notice of public hearing.
SUMMARY: This document contains
proposed regulations relating to the tax
treatment of certain transactions involv-
ing the transfer of computer programs.
The proposed regulations provide rules
for classifying such transactions as sales,
licenses, leases, or the provision of
services or of know-how under certain
provisions of the Internal Revenue Code
and tax treaties. This document also
provides notice of a public hearing on
the proposed regulations.
DATES: Comments must be received by
February 11, 1997. Requests to speak
(with outlines of oral comments) at a
public hearing scheduled for March 19,
1997, at 10 a.m. must be submitted by
February 26, 1997.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (REG–251520–96),
room 5228, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington, DC 20044. In the alternative,
submissions may be hand delivered be-
tween the hours of 8 a.m. and 5 p.m. to:
CC:DOM:CORP:R (REG–251520–96),
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue NW.,
Washington, DC. Alternately, taxpayers
may submit comments electronically via
the Internet by selecting the ‘‘Tax Regs’’
option on the IRS Home Page, or by
submitting comments directly to the IRS
Internet site at http:\\www.irs.ustreas.-
gov\prod\tax_regs\comments.html. The
public hearing will be held in the NYU
Classroom, room 2615, Internal Rev-
enue Building, 1111 Constitution Avenue
NW., Washington, DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations, Will-
iam H. Morris, (202) 622–3880 or Carol
P. Tello, (202) 622–3880; concerning
submissions and the hearing, Christina
Vasquez, (202) 622–7180 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
Background
These regulations are proposed to
clarify the treatment under certain provi-
sions of the Internal Revenue Code
(Code) and tax treaties of income from
transactions involving computer pro-
grams.
I. Introduction
Computer programs are generally pro-
tected by copyright law. Typically the
protection afforded by copyright law is
a principal source of the value of a
computer program to the owner of the
copyright. Conversely, the principal
source of the value of a computer
program to the purchaser of a copy of
the program is not the protection af-
forded by copyright law, but the right to
use or sell the copy. In this regard,
computer programs are similar to other
copyrighted works such as books,
records, motion pictures, etc. For ex-
ample, when a copy of a book is
purchased, the purchaser does not
thereby also acquire any copyright
rights. Accordingly, the proposed regula-
tions generally distinguish between
transactions in a copyright and in the
subject of the copyright.
In developing regulations addressing
the treatment of computer programs, the
IRS and Treasury generally have been
guided by the following principles: (i)
the rules should take into account the
special features of computer programs,
such as the ability to deliver copies
electronically as well as physically, and
to make perfect copies at little or no
cost, and (ii) wherever possible, transac-
tions that are functionally equivalent
should be treated similarly. For example,
a transaction that involves the transfer
for internal use only of fifty copies of a
computer program should generally be
treated the same as a transfer of one
copy (for internal use) with the right to
make forty-nine other copies all for
internal use. Similarly, if the right to use
a computer program is limited in time,
the transaction should generally be
treated the same irrespective of whether,
at the end of the period of permitted
use, a disk containing the computer
program must be returned, or the pro-
gram automatically deactivates itself.
II. Copyright Law Principles
Distinguishing between transactions in
a copyright and in the subject of the
copyright requires an examination of
U.S. and foreign copyright law (e.g. EC
Directive on Legal Protection of Com-
puter Programs, 1991 (91/250/EEC); and
the Berne Convention (Paris Text, July
24, 1971)). An overview of U.S. copy-
right law as it relates to computer
programs is set forth below. However,
the IRS and the Treasury do not purport
in these regulations to interpret U.S.
copyright law and these proposed regu-
lations should not be taken as an expres-
sion of the legal or policy views of the
U.S. Copyright Office.
The Copyright Act of 1976, as
amended (17 U.S.C. 101 et seq.), pro-
vides protection against infringement of
the exclusive rights of the owner of a
copyright in original works of author-
ship, fixed in any tangible medium of
expression, including literary works. (17
U.S.C. 102.) The termliterary worksis
defined to include: ‘‘. . . numbers, or
other verbal or numerical symbols or
indicia, regardless of the nature of the
material objects, such as books, periodi-
cals, manuscripts, phonorecords, film,
tapes, disks, or cards, in which they are
embodied.’’ (17 U.S.C. 101.) Thus, com-
puter programs are literary works for
purposes of the Copyright Act.
The Copyright Act grants five exclu-
sive rights to a copyright owner. Of
these, three are most relevant in the case
of computer programs: the right to re-
produce copies of the copyrighted work
(17 U.S.C. 106(1)); the right to prepare
derivative works, which may themselves
be separately copyrighted, based upon
the copyrighted work (17 U.S.C. 103
and 106(2)); and the right to distribute
copies of the copyrighted work to the
public by sale or other transfer of
ownership, or by rental, lease or lending
(17 U.S.C. 106(3)). Additionally, in cer-
tain circumstances, the right to publicly
perform the copyrighted work (17
U.S.C. 106(4)) and the right to publicly
display the copyrighted work may also
be relevant (17 U.S.C. 106(5)).
Thus, under U.S. copyright law, the
user of a computer program who does
not possess any of those five rights (or
parts of them) has obtained only rights
to use the copyrighted article it pos-
sesses. Generally, that user is treated
only as having received a copy of the
copyrighted work. Under U.S. copyright
law, a copy is a material object in which
a work is fixed by any method now
known or later developed, and from
which the work can be perceived, repro-
151996–48 I.R.B.

duced, or otherwise communicated, ei-
ther directly or with the aid of a ma-
chine or device (17 U.S.C. 101.). In
these proposed regulations a copy is
also referred to as a ‘‘copyrighted ar-
ticle.’’ The distinction between copies
and copyrights is made most clearly in
section 202 of the Copyright Act which
provides:
Ownership of a copyright, or of any of the
exclusive rights under a copyright, is dis-
tinct from ownership of any material object
in which the work is embodied. Transfer of
ownership of any material object, including
the copy or phonorecord in which the work
is first fixed, does not of itself convey any
rights in the copyrighted work embodied in
the object; nor, in the absence of an
agreement, does transfer of ownership of a
copyright or of any exclusive rights under
a copyright convey property rights in any
material object.
Certain rights pass to the purchaser of
a copy of a computer program. The
most important of these is the right to
sell (but not, without permission, to
lease, rent or lend) the copy to another
person. (17 U.S.C. 109.) Additionally,
the owner of a copy of a computer
program has the right to make a copy of
that copy as an essential step in the
utilization of the program (e.g., copying
to the memory of the computer) and
may also make a copy for archival
purposes. (17 U.S.C. 117.) If, however,
the owner of the copy sells that copy, all
copies made pursuant to the 17 U.S.C.
117 right must be destroyed. III. The
Proposed Regulations and Copyright
Law Principles
Although the proposed regulations are
guided by copyright law principles in
determining whether a copyright right or
copyrighted article has been transferred,
the regulations depart in some cases
from a strict reliance on copyright law
in order to take into account the special
nature of computer programs and to
treat functionally equivalent transactions
in the same way. For example, the
proposed regulations do not treat the
transfer of a right to copy as the transfer
of a copyright right, unless it is accom-
panied by the right to distribute the
copies to the public.
Thus, where a corporation obtains the
right, under an agreement, to make fifty
copies of a program for use by its
employees at one location (a site li-
cense) the transaction is not, for all
practical purposes, any different from a
transaction in which fifty individual
disks are purchased. Accordingly, the
proposed regulations treat the transac-
tion as the transfer of a copyrighted
article, rather than of a copyright right,
despite a copyright law requirement that
the corporation receive a ‘‘license’’ to
make those fifty copies. Similarly, under
the proposed regulations, the transfer of
a computer program in perpetuity for
internal use only on a single disk or set
of disks in return for a one-time pay-
ment, in a transaction styled as a license
of copyright rights (a so-called shrink
wrap license), is treated as the sale of a
copyrighted article and not the transfer
of a copyright right. Therefore, such a
transfer is classified solely as the sale of
a copyrighted article for the purposes of
the proposed regulations.
IV. Explanation of Provisions
Section 1.861–18(a)(1) of the pro-
posed regulations describes the scope of
the proposed regulations. These pro-
posed regulations provide rules for clas-
sifying transfers of computer programs
for the purposes of subchapter N of
chapter 1 of the Internal Revenue Code,
sections 367, 404A, 482, 551, 679,
1057, 1059A, chapter 3, chapter 5, sec-
tions 842 and 845 (to the extent involv-
ing a foreign person), and transfers to
foreign trusts not covered by section
679.
Section 1.861–18(a)(2) describes the
categories of transactions relating to
computer programs. In particular, a
transfer of a copyright right may be
either a sale or license of that right and
a transfer of a copyrighted article may
be either a sale or lease of that copy-
righted article. Section 1.861– 18(a)(3)
defines the termcomputer program.
Section 1.861–18(b)(1) provides that a
transaction involving the transfer of a
computer program will be classified as
either the transfer of a copyright right,
the transfer of a copyrighted article, the
provision of services relating to the
development of a computer program, or
the provision of know-how.
Section 1.861–18(b)(2) provides that a
transaction involving computer programs
which consists of more than one of the
categories in paragraph (b)(1), is treated
as separate transactions. Any resulting
transaction that is de minimis, however,
taking into account all facts and circum-
stances, will not be treated as a separate
transaction.
Section 1.861–18(c)(1)(i) provides
that the transfer of a computer program
will be classified as the transfer of a
copyright right if the transferee acquires
one or more of the rights set forth in
paragraph (c)(2).
Section 1.861–18(c)(1)(ii) provides
that if such rights are not transferred
and the transaction does not involve, or
involves to only a de minimis extent,
the provision of services or know- how,
then the transaction will be classified
solely as the transfer of a copyrighted
article.
Section 1.861–18(c)(2) identifies
those rights that will be treated as
copyright rights for purposes of the
proposed regulations. This list differs
from the list of rights set out in the
Copyright Act to take into account the
special nature of computer programs.
Specifically, the copyright law right to
copy will only be treated as a copyright
right for the purposes of the proposed
regulations if it is accompanied by the
right to distribute such copies to the
public. The copyright rights that apply
for purposes of this section are, in
addition to the right to copy and distrib-
ute to the public, the right to prepare
derivative computer programs, the right
to make a public performance of the
computer program, and the right to
publicly display the computer program.
The list of rights contained in § 1.861–
18(c)(2) rather than those contained in
the Copyright Act will apply for the
purposes of the proposed regulations.
Section 1.861–18(c)(3) defines a
copyrighted article as a copy of a com-
puter program from which the work can
be perceived, reproduced or otherwise
communicated.
Section 1.861–18(d) of the proposed
regulations provides rules for determin-
ing whether a transaction involving a
newly- developed or modified computer
program will be treated as the provision
of services or another transaction de-
scribed in paragraph (b)(1) of this sec-
tion. The determination is based on all
facts and circumstances, including how
risk of loss is allocated and the intent of
the parties as to ownership of the copy-
right. See, e.g.,Boulez v. Commissioner,
83 T.C. 584 (1984); Rev. Rul. 74–555
(1974–2 C.B. 202); Rev. Rul. 84–78
(1984–1 C.B. 173).
Section 1.861–18(e) provides rules for
determining whether a transfer of infor-
mation related to a computer program
will be considered the provision of
know-how. A provision of know-how
will not be considered to occur unless a
party transfers information that (i) re-
lates to computer programming tech-
niques, (ii) is not capable of being
copyrighted, and (iii) is protected by
trade secret protection.
Under § 1.861–18(f)(1), if a transfer
involves copyright rights, it will be
further classified as either a sale or a
161996–48 I.R.B.

license of copyright rights. This classifi-
cation will be made by examining
whether, taking into account all facts
and circumstances, all substantial rights,
under the principles of sections 1222
and 1235, have passed to the transferee.
Under § 1.861–18(f)(2), if a transfer
involves a copyrighted article, it will be
further classified as either a sale or a
lease of a copyrighted article. This clas-
sification will be made by examining
whether the benefits and burdens of
ownership have passed to the transferee.
See, e.g.,Grodt & McKay Realty, Inc. v.
Commissioner, 77 T.C. 1221, 1237–38
(1981);Torres v. Commissioner, 88 T.C.
702, 720–27 (1987);Estate of Thomas v.
Commissioner, 84 T.C. 412, 431–40
(1985).
Under § 1.861–18(f)(3), the determi-
nation of the classification of a transfer
involving a copyright right or copy-
righted article must appropriately con-
sider the special nature of computer
programs in transactions that take ad-
vantage of those characteristics. For ex-
ample, a transaction in which a person
acquires a copyrighted article on disk
subject to a requirement that the disk be
destroyed after a specified period is
generally the equivalent of a require-
ment that the disk be returned after such
period. Similarly, a transaction in which
the program deactivates itself after a
specified period may also be treated as
the equivalent of returning the copy.
Section 1.861–18(g) of the proposed
regulations provides certain additional
rules of operation. Section 1.861–
18(g)(1) provides that neither the form
adopted by the parties to a transaction
nor the classification of a transaction
under copyright law are determinative
for tax purposes. Therefore, as illus-
trated in Example 1, a transfer of a
computer program on a disk subject to a
shrink-wrap license will generally be a
sale of a copyrighted article.
Section 1.861–18(g)(2) provides that
the method of transferring the computer
program, for example by disk or elec-
tronically, shall not be relevant in deter-
mining whether a copyright right or a
copyrighted article has been transferred.
The foregoing rules are illustrated by
a number of examples contained in
§ 1.861–18(h).
Under § 1.861–18(i), these regula-
tions are proposed to apply to all trans-
actions occurring on or after the date
that is 60 days after the date the final
regulations are published in theFederal
Register. No inference should be drawn
from the proposed effective date con-
cerning the treatment of transactions
involving computer programs entered
into before the regulations are appli-
cable.
The application of these rules for
purposes of the affected Internal Rev-
enue Code sections may result in a
change in the method of accounting for
certain transactions involving computer
programs by certain taxpayers. If the
final regulations are adopted, the IRS
will consider issuing an automatic
change revenue procedure to address the
situation where the taxpayer is required
to change its method of accounting to
comport with the new regulations.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in EO
12866. Therefore, a regulatory assess-
ment is not required. It also has been
determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these
regulations, and because the regulations
do not impose a collection of informa-
tion on small entities, the Regulatory
Flexibility Act (5 U.S.C. chapter 6) does
not apply. Pursuant to section 7805(f) of
the Internal Revenue Code, this notice
of proposed rulemaking will be submit-
ted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on its impact on small busi-
ness.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consider-
ation will be given to any comments
that are submitted timely (in the manner
described in the ADDRESSES caption)
to the IRS. All comments will be avail-
able for public inspection and copying.
A public hearing has been scheduled
for March 19, 1997, at 10 a.m. in the
NYU Classroom, room 2615, Internal
Revenue Building, 1111 Constitution
Avenue NW., Washington, DC. Because
of access restrictions, visitors will not be
admitted beyond the Internal Revenue
Building lobby more than 15 minutes
before the hearing starts.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing.
Persons that wish to present oral
comments at the hearing must submit
comments by February 11, 1997, and
submit an outline of the topics to be
discussed and the time to be devoted to
each topic (in the manner described in
the ADDRESSES caption) by February
26, 1997.
A period of 10 minutes will be allot-
ted to each person for making com-
ments.
An agenda showing the scheduling of
the speakers will be prepared after the
deadline for receiving outlines has
passed. Copies of the agenda will be
available free of charge at the hearing.
Drafting Information
The principal authors of these regula-
tions are William H. Morris and Carol P.
Tello, of the Office of Associate Chief
Counsel (International), IRS. However,
other personnel from the IRS and Trea-
sury Department participated in their
development.
* * * * *
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.861–18 is added to
read as follows:
§ 1.861–18 Classification of transac-
tions involving computer programs.
(a)General—(1)Scope. This section
provides rules for classifying transac-
tions relating to computer programs for
purposes of subchapter N of chapter 1
of the Internal Revenue Code, sections
367, 404A, 482, 551, 679, 1057, 1059A,
chapter 3, chapter 5, sections 842 and
845 (to the extent involving a foreign
person), and transfers to foreign trusts
not covered by section 679.
(2)Categories of transactions. This
section generally requires that such
transactions be treated as being solely
within one of four categories (described
in paragraph (b)(1) of this section) and
provides certain rules for categorizing
such transactions. In the case of a
transfer of a copyright right, this section
provides rules for determining whether
the transaction should be classified as
either a sale or exchange, or a license
generating royalty income. In the case
of a transfer of a copyrighted article,
this section provides rules for determin-
ing whether the transaction should be
171996–48 I.R.B.

classified as either a sale or exchange,
or a lease generating rental income.
(3)Computer program.For purposes
of this section, a computer program is a
set of statements or instructions to be
used directly or indirectly in a computer
in order to bring about a certain result.
For purposes of this paragraph (a)(3), a
computer program includes any data
base or similar item if the data base or
similar item is incidental to the opera-
tion of the computer program.
(b)Categories of transactions—
(1)General. Except as provided in
paragraph (b)(2) of this section, a trans-
action involving the transfer of, or the
provision of services or of know-how
with respect to, a computer program
(collectively, a transfer of a computer
program) is treated as being solely one
of the following—
(i) A transfer of a copyright right in
the computer program;
(ii) A transfer of a copy of the com-
puter program (a copyrighted article);
(iii) The provision of services for the
development or modification of the
computer program; or
(iv) The provision of know-how re-
lating to computer programming tech-
niques.
(2)Transactions consisting of more
than one category.Any transaction in-
volving computer programs which con-
sists of more than one of the transac-
tions described in paragraph (b)(1) of
this section shall be treated as separate
transactions, with the appropriate provi-
sions of this section being applied to
each such transaction. However, any
transaction that is de minimis, taking
into account the overall transaction and
the surrounding facts and circumstances,
shall not be treated as a separate trans-
action, but as part of another transac-
tion.
(c)Transfers involving both a copy-
right right and a copyrighted article—
(1)Classification—(i)Transfers treated
as transfers of copyright rights. A trans-
fer of a computer program is classified
as a transfer of a copyright right if, as a
result of the transaction, a person ac-
quires any one or more of the rights
described in paragraphs (c)(2)(i) through
(iv) of this section. For example, if a
person receives a disk containing a copy
of a computer program which enables it
to exercise, in relation to that program,
a non-de minimis right described in
paragraphs (c)(2)(i) through (iv) of this
section (and the transaction does not
involve, or involves only a de minimis
provision of services as described in
paragraph (d) of this section or of
know-how as described in paragraph (e)
of this section), then, under paragraph
(b)(2) of this section, the transfer is
classified solely as a transfer of a copy-
right right.
(ii)Transfers treated solely as trans-
fers of copyrighted articles. If a person
acquires a copy of a computer program
but does not acquire any of the rights
described in paragraphs (c)(2)(i) through
(iv) of this section (and the transaction
does not involve, or involves only a de
minimis provision of services as de-
scribed in paragraph (d) of this section
or of know-how as described in para-
graph (e) of this section), the transfer of
the copy of the computer program is
classified solely as a transfer of a copy-
righted article.
(2)Copyright rights. The copyright
rights referred to in paragraph (c)(1) of
this section are as follows—
(i) The right to make copies of the
computer program for purposes of distri-
bution to the public by sale or other
transfer of ownership, or by rental, lease
or lending;
(ii) The right to prepare derivative
computer programs based upon the
copyrighted computer program;
(iii) The right to make a public per-
formance of the computer program; or
(iv) The right to publicly display the
computer program.
(3)Copyrighted article. A copy-
righted article is a copy of a computer
program from which the work can be
perceived, reproduced or otherwise com-
municated, either directly or with the aid
of a machine or device. The copy of the
program may be fixed in the magnetic
medium of a floppy disk or in the main
memory or hard drive of a computer.
(d)Provision of services. The deter-
mination of whether a transaction in-
volving a newly developed or modified
computer program is treated as either
the provision of services or another
transaction described in paragraph (b)(1)
of this section is based on all the facts
and circumstances of the transaction,
including, as appropriate, the intent of
the parties (as evidenced by their agree-
ment and conduct) as to which party is
to own the copyright rights in the
computer program and how the risks of
loss are allocated between the parties.
(e)Provision of know-how. The pro-
vision of information with respect to a
computer program will not be treated as
the provision of know-how for the pur-
poses of this section unless the informa-
tion is—
(1) Information relating to computer
programming techniques;
(2) Not capable itself of being copy-
righted; and
(3) Subject to trade secret protection.
(f)Further classification of transfers
involving copyright rights and copy-
righted articles—(1)Transfers of copy-
right rights. The determination of
whether a transfer of a copyright right is
a sale or exchange of property is made
on the basis of whether, taking into
account all facts and circumstances,
there has been a transfer of all substan-
tial rights in the copyright. A transaction
that does not constitute a sale or ex-
change because not all substantial rights
have been transferred will be classified
as a license generating royalty income.
For this purpose, the principles of sec-
tions 1222 and 1235 shall apply.
(2)Transfers of copyrighted articles.
The determination of whether a transfer
of a copyrighted article is a sale or
exchange is made on the basis of
whether, taking into account all facts
and circumstances, the benefits and bur-
dens of ownership have been trans-
ferred. A transaction that does not con-
stitute a sale or exchange because
insufficient benefits and burdens of
ownership of the copyrighted article
have been transferred, such that a person
other than the transferee is properly
treated as the owner of the copyrighted
article, will be classified as a lease
generating rental income.
(3)Special circumstances of com-
puter programs. In connection with de-
terminations under this paragraph (f),
consideration must be given as appropri-
ate to the special characteristics of com-
puter programs in transactions that take
advantage of these characteristics (such
as the ability to make perfect copies at
minimal cost). For example, a transac-
tion in which a person acquires a copy
of a computer program on disk subject
to a requirement that the disk be de-
stroyed after a specified period is gener-
ally the equivalent of a transaction sub-
ject to a requirement that the disk be
returned after such period. Similarly, a
transaction in which the program deacti-
vates itself after a specified period is
generally the equivalent of returning the
copy.
(g)Rules of operation—(1)Term ap-
plied to transaction by parties. Neither
the form adopted by the parties to a
transaction, nor the classification of the
transaction under copyright law, shall be
determinative. Therefore, for example, if
there is a transfer of a computer pro-
181996–48 I.R.B.

gram on a single disk for a one-time
payment with restrictions on transfer
and reverse engineering, which the par-
ties characterize as a license (generally
referred to as a shrink-wrap license),
application of the rules of paragraphs (c)
and (f) of this section may nevertheless
result in the transaction being classified
as the sale of a copyrighted article.
(2)Means of transfer not to be taken
into account. The rules of this section
shall be applied irrespective of the
physical or electronic medium used to
effectuate a transfer of a computer pro-
gram.
(h)Examples. The provisions of this
section may be illustrated by the follow-
ing examples. All of the following ex-
amples assume that all parties are unre-
lated to each other:
Example 1. (i)Facts. Corp A, a U.S. corpora-
tion, owns the copyright in a computer program,
Program X. It copies Program X on to disks. The
disks are placed in boxes covered with a wrapper
on which is printed what is generally referred to
as a shrink-wrap license. The license is stated to
be perpetual. Under the license no reverse engi-
neering of the computer program is permitted. The
transferee receives, first, the right to use the
program on two of its own computers (for ex-
ample, a laptop and a desktop) provided that only
one copy is in use at any one time, and, second,
the right to make one copy of the program on
each machine as an essential step in the utilization
of the program. The transferee is permitted by the
shrink-wrap license to sell the copy so long as it
destroys any other copies it has made and imposes
the same terms and conditions of the license on
the purchaser of its copy. These disks are made
available for sale to the general public in Country
Z. In return for valuable consideration, P, a
Country Z resident, receives one such disk.
(ii)Analysis. (A) Under paragraph (g)(1) of
this section, the label license is not determinative.
None of the copyright rights described in para-
graph (c)(2) of this section have been transferred
in this transaction. P has received a copy of the
program, however, and, therefore, under paragraph
(c)(1)(ii) of this section, P has acquired solely a
copyrighted article.
(B) Taking into account all of the facts and
circumstances, P is properly treated as the owner
of a copyrighted article. Therefore, under para-
graph (f)(2) of this section, there has been a sale
of a copyrighted article rather than the grant of a
lease.
Example 2. (i)Facts. The facts are the same as
those in Example 1, except that instead of selling
disks, Corp A, the U.S. corporation, decides to
make Program X available, for a fee, on a World
Wide Web home page on the Internet. P, the
Country Z resident, in return for payment made to
Corp A, downloads Program X (via modem) onto
the hard drive of his computer. As part of the
electronic communication, P signifies his assent to
a license agreement with terms identical to those
in Example 1, except that in this case P may make
a back-up copy of the program on to a disk.
(ii)Analysis. (A) None of the copyright rights
described in paragraph (c)(2) of this section have
passed to P. Although P did not buy a physical
copy of the disk with the program on it, paragraph
(g)(2) of this section provides that the means of
transferring the program is irrelevant. Therefore, P
has acquired a copyrighted article.
(B) As inExample 1, P is properly treated as
the owner of a copyrighted article. Therefore,
under paragraph (f)(2) of this section, there has
been a sale of a copyrighted article rather than the
grant of a lease.
Example 3. (i)Facts. The facts are the same as
those in Example 1, except that Corp A only
allows P, the Country Z resident, to use Program
X for one week. At the end of that week, P must
return the disk with Program X on it to Corp A. P
must also destroy any copies made of Program X.
If P wishes to use Program X for a further period
he must enter into a new agreement to use the
program for an additional charge.
(ii)Analysis. (A) Under paragraph (c)(2) of this
section, P has received no copyright rights. Be-
cause P has received a copy of the program under
paragraph (c)(1)(ii) of this section, he has, there-
fore, received a copyrighted article.
(B) Taking into account all of the facts and
circumstances, P is not properly treated as the
owner of a copyrighted article. Therefore, under
paragraph (f)(2) of this section, there has been a
lease of a copyrighted article rather than a sale.
Taking into account the special characteristics of
computer programs as provided in paragraph (f)(3)
of this section, the result would be the same if P
were required to destroy the disk at the end of the
one week period instead of returning it since Corp
A can make additional copies of the program at
minimal cost.
Example 4. (i)Facts. The facts are the same as
those in Example 2, where P, the Country Z
resident, receives Program X from Corp A’s home
page on the Internet, except that P may only use
Program X for a period of one week at the end of
which an electronic lock is activated and the
program can no longer be accessed. Thereafter, if
P wishes to use Program X, it must return to the
home page and pay Corp A to send an electronic
key to reactivate the program for another week.
(ii)Analysis. (A) As inExample 3, under para-
graph (c)(2) of this section, P has not received any
copyright rights. P has received a copy of the
program, and under paragraph (g)(2) of this sec-
tion, the means of transmission is irrelevant, P has,
therefore, under paragraph (c)(1)(ii) of this section,
received a copyrighted article.
(B) As inExample 3, P is not properly treated
as the owner of a copyrighted article. Therefore,
under paragraph (f)(2) of this section, there has
been a lease of a copyrighted article rather than a
sale. While P does retain Program X on its
computer at the end of the one week period, as a
legal matter P no longer has the right to use the
program (without further payment) and, indeed,
cannot use the program without the electronic key.
Functionally, Program X is no longer on the hard
drive of P‘‘s computer. Instead, the hard drive
contains only a series of numbers which no longer
perform the function of Program X. Although in
Example 3, P was required to physically return the
disk, taking into account the special characteristics
of computer programs as provided in paragraph
(f)(3) of this section, the result in thisExample 4
is the same as inExample 3.
Example 5. (i)Facts. Corp A, a U.S. corpora-
tion, transfers a disk containing Program X to
Corp B, a Country Z corporation, and grants Corp
B an exclusive license for the remaining term of
the copyright to copy and distribute an unlimited
number of copies of Program X in the geographic
area of Country Z, prepare derivative works based
upon Program X, make public performances of
Program X, and publicly display Program X. Corp
B will pay Corp A a royalty of $y a year for three
years, which is the expected period during which
Program X will have commercially exploitable
value.
(ii)Analysis. (A) Although Corp A has trans-
ferred a disk with a copy of Program X on it to
Corp B, under paragraph (c)(1)(i) of this section
because this transfer is accompanied by a copy-
right right identified in paragraph (c)(2)(i) of this
section, this transaction is a transfer solely of
copyright rights, not of copyrighted articles. For
purposes of paragraph (b)(2) of this section, the
disk containing a copy of Program X is a de
minimis component of the transaction.
(B) Applying the all substantial rights test un-
der paragraph (f)(1) of this section, Corp A will be
treated as having sold copyright rights to Corp B.
Corp B has acquired all of the copyright rights in
Program X, has received the right to use them
exclusively within a geographic area, and has
received the rights for the remaining life of the
copyright in Program X. Under paragraph (g)(1)
of this section, the fact that the agreement is
labelled a license is not controlling (nor is the fact
that Corp A receives a sum labelled a royalty).
(This would also be the case if the copy of
Program X to be used for the purposes of
reproduction were transmitted electronically to
Corp B, as a result of the application of the rule
of paragraph (g)(2) of this section.)
Example 6. (i)Facts. Corp A, a U.S. corpora-
tion, transfers a disk containing Program X to
Corp B, a Country Z corporation, and grants Corp
B the non exclusive right to reproduce and
distribute for sale to the public an unlimited
number of disks at its factory in Country Z in
return for a payment related to the number of
disks copied and sold. The term of the agreement
is two years, which is less than the remaining life
of the copyright.
(ii)Analysis. (A) As inExample 5, the transfer
of the disk containing the copy of the program
does not constitute the transfer of a copyrighted
article under paragraph (c)(1) of this section
because Corp B has also acquired a copyright
right under paragraph (c)(2)(i) of this section. For
purposes of paragraph (b)(2) of this section, the
disk containing Program X is a de minimis
component of the transaction.
(B) Taking into account all of the facts and
circumstances, there has been a license of Program
X to Corp B, and the payments made by Corp B
are royalties. Under paragraph (f)(1) of this sec-
tion, there has not been a transfer of all substantial
rights in the copyright to Program X because Corp
A has the right to enter into other licenses with
respect to the copyright of Program X, including
in Country Z (or even to sell that copyright,
subject to Corp B’s interest). Corp B has acquired
no right itself to license the copyright rights in
Program X. Finally, the term of the license is for
less than the remaining life of the copyright in
Program X.
Example 7. (i)Facts. Corp C, a distributor in
Country Z, enters into an agreement with Corp A,
a U.S. corporation, to purchase as many copies of
Program X on disk as it may from time- to-time
request. Corp C will then sell these disks to
retailers. The disks are shipped in boxes covered
by shrink-wrap licenses (identical to the license
described inExample 1).
(ii)Analysis. (A) Corp C has not acquired any
copyright rights under paragraph (c)(2) of this
section with respect to Program X. It has acquired
individual copies of Program X, which it may sell
to others. The use of the term license is not
dispositive under paragraph (g)(1) of this section.
Under paragraph (c)(1)(ii) of this section, Corp C
has acquired copyrighted articles.
191996–48 I.R.B.

(B) Taking into account all of the facts and
circumstances, Corp C is properly treated as the
owner of copyrighted articles. Therefore, under
paragraph (f)(2) of this section, there has been a
sale of copyrighted articles.
Example 8. (i)Facts. Corp A, a U.S. corpora-
tion, transfers a disk containing Program X to
Corp D, a foreign corporation engaged in the
manufacture and sale of personal computers in
Country Z. Corp A grants Corp D the non-
exclusive right to copy Program X onto the hard
drive of computers which it manufactures, and to
distribute those copies (on the hard drive) to the
public. The term of the agreement is two years,
which is less than the remaining life of the
copyright in Program X. Corp D pays Corp A an
amount based on the number of copies of Program
X it loads on to computers.
(ii)Analysis. The analysis is the same as in
Example 6. Under paragraph (c)(2)(i) of this
section, Corp D has acquired a copyright right
enabling it to exploit Program X by copying it on
to the hard drives of the computers that it
manufactures and then sells. For purposes of
paragraph (b)(2) of this section, the disk contain-
ing Program X is a de minimis component of the
transaction. Taking into account all of the facts
and circumstances, Corp D has not, however,
acquired all substantial rights in the copyright to
Program X (for example, the term of the agree-
ment is less than the remaining life of the
copyright). Under paragraph (f)(1) of this section,
this transaction is, therefore, a license of Program
X to Corp D rather than a sale and the payments
made by Corp D are royalties.
Example 9. (i)Facts. The facts are the same as
in Example 8, except that Corp D, the Country Z
corporation, receives physical disks. The disks are
shipped in boxes covered by shrink-wrap licenses
(identical to the licenses described inExample 1).
Corp D uses each individual disk only once to
load a single copy of Program X onto each
separate computer. Corp D transfers the disk with
the computer when it is sold.
(ii)Analysis. (A) As inExample 7(unlike
Example 8) no copyright right identified in para-
graph (c)(2) of this section has been transferred.
Corp D acquires the disks without the right to
reproduce and distribute publicly further copies of
Program X. This is therefore the transfer of
copyrighted articles under paragraph (c)(1)(ii) of
this section.
(B) Taking into account all of the facts and
circumstances, Corp D is properly treated as the
owner of copyrighted articles. Therefore, under
paragraph (f)(2) of this section, the transaction is
classified as the sale of a copyrighted article.
Example 10. (i)Facts. Corp A, a U.S. corpora-
tion, transfers a disk containing Program X to
Corp E, a Country Z corporation, and grants Corp
E the right to load Program X onto 50 individual
workstations for use only by Corp E employees at
one location in return for a one-time per-user fee
(generally referred to as a site license). If addi-
tional workstations are subsequently introduced,
Program X may be loaded on to those machines
for additional one-time per-user fees. The license
which grants the rights to operate Program X on
50 workstations also prohibits Corp E from selling
the disk (or any of the 50 copies) or reverse
engineering the program. The term of the license
is stated to be perpetual.
(ii)Analysis. (A) The grant of a right to copy,
unaccompanied by the right to distribute those
copies to the public, is not the transfer of a
copyright right under paragraph (c)(2) of this
section. Therefore, under paragraph (c)(1)(ii) of
this section, this transaction is a transfer of
copyrighted articles (50 copies of Program X).
(B) Taking into account all of the facts and
circumstances, P is properly treated as the owner
of a copyrighted article. Therefore, under para-
graph (f)(2) of this section, there has been a sale
of copyrighted articles rather than the grant of a
lease. Notwithstanding the restriction on sale,
other factors such as, for example, the risk of loss
and the right to use the copies in perpetuity
outweigh, in this case, the restrictions placed on
the right of alienation.
Example 11. (i)Facts. The facts are the same
as in Example 10, except that Corp E, the Country
Z corporation, acquires the right to make Program
X available to workstation users who are Corp E
employees by way of a local area network (LAN).
The number of users that can use Program X on
the LAN at any one time is limited to 50. Corp E
pays a one-time fee for the right to have up to 50
employees use the program at the same time.
(ii)Analysis. Under paragraph (g)(2) of this
section the mode of transmission is irrelevant.
Therefore, as inExample 10, under paragraph
(c)(2) of this section, no copyright right has been
transferred and thus, under paragraph (c)(1)(ii) of
this section, this transaction will be classified as
the transfer of a copyrighted article. Under the
benefits and burdens test of paragraph (f)(2) of
this section, this transaction is a sale of copy-
righted articles.
Example 12. (i)Facts. The facts are the same
as inExample 11, except that Corp E pays a
monthly fee to Corp A, the U.S. corporation,
calculated with reference to the permitted maxi-
mum number of users (which can be changed) and
the computing power of Corp E’s server. In return
for this monthly fee, Corp C receives the right to
receive upgrades of Program X when they become
available. The agreement may be terminated by
either party at the end of any month. When the
disk containing the upgrade is received, or if the
contract is terminated, Corp E must return the disk
containing the earlier version of Program X to
Corp A, and delete (or otherwise destroy) any
copies made of the current version of Program X.
The agreement specifically provides that Corp E
has not thereby been granted an option to purchase
Program X.
(ii)Analysis. (A) Corp E has received no copy-
right rights under paragraph (c)(2) of this section.
Under paragraph (d) of this section, based on all
the facts and circumstances of the transaction,
Corp A has not provided services to Corp E.
Therefore, under paragraph (c)(1)(ii) of this sec-
tion, the transaction is a transfer of a copyrighted
article.
(B) Taking into account all facts and circum-
stances, under the benefits and burdens test Corp
E is not properly treated as the owner of the
copyrighted article. Corp E does not receive the
right to use Program X in perpetuity, but only for
so long as it continues to make payments. Corp E
does not have the right to purchase Program X on
advantageous (or, indeed, any) terms once a
certain amount of money has been paid to Corp A
or a certain period of time has elapsed (which
might indicate a sale). Once the agreement is
terminated, Corp E will no longer possess any
copies of Program X, current or superseded.
Therefore under paragraph (f)(2) of this section
there has been a lease of a copyrighted article.
Example 13. (i)Facts. The facts are the same
as inExample 12, except that while Corp E must
return copies of Program X as new upgrades are
received, if the agreement terminates, Corp E may
keep the latest version of Program X (although
Corp E is still prohibited from selling or otherwise
transferring any copy of Program X).
(ii)Analysis. For the reasons stated inExample
10, the transfer of the program will be treated as a
sale of a copyrighted article rather than as a lease.
Example 14. (i)Facts. Corp G, a Country Z
corporation, enters into a contract with Corp A, a
U.S. corporation, for Corp A to modify Program X
so that it can be used at Corp G’s facility in
Country Z. Under the contract, Corp G is to
acquire one copy of the program on a disk and the
right to use the program on 5,000 workstations.
The contract requires Corp A to rewrite elements
of Program X so that it will conform to Country Z
accounting standards. The services required to
perform this task are de minimis taking into
account the facts and circumstances of this trans-
action. The agreement between Corp A and Corp
G is otherwise identical as to rights and payment
terms as the agreement described inExample 10.
(ii)Analysis. (A) As inExample 10, no copy-
right rights are being transferred under paragraph
(c)(2) of this section. Under paragraph (b)(2) of
this section, the services provided are de minimis.
This transaction will be classified, therefore, as a
transfer of copyrighted articles under paragraph
(c)(1)(ii) of this section.
(B) Taking into account all facts and circum-
stances, Corp G is properly treated as the owner
of copyrighted articles. Therefore, under paragraph
(f)(2) of this section, there has been the sale of a
copyrighted article rather than the grant of a lease.
Example 15. (i)Facts. Corp H, a Country Z
corporation, enters into a license agreement for a
modified version of Program X only if Corp A, a
U.S. corporation, makes substantial modifications
to the program. Only the core idea of Program X
will be used and a considerable amount of labor
will be expended in rewriting Program X, which
under applicable copyright law as a derivative
work will be a separate, new program. Corp A and
Corp H agree that Corp A is modifying Program X
for Corp H and that, when modified Program X is
completed, the copyright in the modified program
will belong to Corp H. Corp H gives instructions
to Corp A programmers regarding program specifi-
cations. Corp H agrees to pay Corp A a fixed
monthly sum during development of the program.
If Corp H is dissatisfied with the development of
the program it may cancel the contract at the end
of any month. In the event of termination, Corp A
will retain all payments, while any procedures,
techniques or copyrightable interests will be the
property of Corp H. All of the payments are
labelled royalties. There is no provision in the
agreement for any continuing relationship between
Corp A and Corp H, such as the furnishing of
updates of the program, after completion of the
modification work.
(ii)Analysis. Taking into account all of the
facts and circumstances, Corp A is treated as
providing services to Corp H. Under paragraph (d)
of this section, Corp A is treated as providing
services to Corp H because Corp H bears all of
the risks of loss associated with the development
of modified Program X and is the owner of all
copyright rights in modified Program X. Under
paragraph (g)(1) of this section, the fact that the
agreement is labelled a license is not controlling
(nor is the fact that Corp A receives a sum
labelled a royalty).
Example 16. (i)Facts. Corp A, a U.S. corpora-
tion, and Corp I, a Country Z corporation, agree
that a development engineer employed by Corp A
will travel to Country Z to provide know-how
relating to certain techniques which are not gener-
ally known to computer programmers which will
enable Corp I to more efficiently create computer
201996–48 I.R.B.

programs. These techniques represent the product
of experience gained by Corp A from working on
many computer programming projects. Such infor-
mation is not capable of being copyrighted, but it
is subject to trade secret protection.
(ii)Analysis. This transaction contains the ele-
ments of know-how specified in paragraph (e) of
this section. Therefore, this transaction will be
classified as the provision of know-how.
(i)Effective date. This section applies
to transactions occurring on or after the
date that is sixty days after the date
final regulations are published in the
Federal Register.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
(Filed by the Office of the Federal Register on
November 7, 1996, 3:11 p.m., and published in the
issue of the Federal Register for November 13,
1996, 61 F.R. 58152)
Foundations Status of Certain
Organizations
Announcement 96–125
The following organizations have
failed to establish or have been unable
to maintain their status as public chari-
ties or as operating foundations. Accord-
ingly, grantors and contributors may not,
after this date, rely on previous rulings
or designations in the Cumulative List
of Organizations (Publication 78), or on
the presumption arising from the filing
of notices under section 508(b) of the
Code. This listing doesnotindicate that
the organizations have lost their status
as organizations described in section
501(c)(3), eligible to receive deductible
contributions.
Former Public Charities. The follow-
ing organizations (which have been
treated as organizations that are not
private foundations described in section
509(a) of the Code) are now classified
as private foundations:
Adopt a Cow, Montpelier, VT
Ads Against AIDS, Inc., New York, NY
Airport Gardens Resident Association,
Chapel Hill, NC
A Place for Kids, New York, NY
Blytheville Fine Arts Council,
Blytheville, AR
Children’s AIDS Network, Inc.,
Portland, ME
Christian Fellowship Alive Ministries
Inc., Lakeland, FL
Class of 1967 Scholarship Fund, Jasper,
AL
454–458 West 35th Street Housing
Development Fund Corporation, New
York, NY
Healthier People Network, Inc., Decatur,
GA
Holland II House for the Homeless
Handicapped, Detroit, MI
Institute on Law Firm Management,
Ann Arbor, MI
Jaga Learning Center, Little Rock, AR
Metro Ministries of Miami Inc., Miami,
FL
Northwest Corridor Community
Development Corporation, Charlotte,
NC
Research Education and Analysis Center
for Toxics Foundation Inc., Texas
City, TX
Royal Terrace Inc., Jackson, MS
Silas Day Care Center Inc., Silas, AL
Sonrise Retreat, Inc., East Palatka, FL
32nd Precinct Community Council Inc.,
New York, NY
If an organization listed above sub-
mits information that warrants the re-
newal of its classification as a public
charity or as a private operating founda-
tion, the Internal Revenue Service will
issue a ruling or determination letter
with the revised classification as to
foundation status. Grantors and contribu-
tors may thereafter rely upon such rul-
ing or determination letter as provided
in section 1.509(a)–7 of the Income Tax
Regulations. It is not the practice of the
Service to announce such revised classi-
fication of foundation status in the Inter-
nal Revenue Bulletin.
211996–48 I.R.B.

Announcement of the Disbarment, Suspension, or Consent to Voluntary
Suspension of Attorneys, Certified Public Accountants, Enrolled Agents, and
Enrolled Actuaries From Practice Before the Internal Revenue Service
Under 31 Code of Federal Regula-
tions, Part 10, an attorney, certified pub-
lic accountant, enrolled agent, or en-
rolled actuary, in order to avoid the
institution or conclusion of a proceeding
for his disbarment or suspension from
practice before the Internal Revenue Ser-
vice, may offer his consent to suspension
from such practice. The Director of
Practice, in his discretion, may suspend
an attorney, certified public accountant,
enrolled agent, or enrolled actuary in
accordance with the consent offered.
Attorneys, certified public accoun-
tants, enrolled agents, and enrolled actu-
aries are prohibited in any Internal Rev-
enue Service matter from directly or
indirectly employing, accepting assis-
tance from, being employed by or shar-
ing fees with, any practitioner disbarred
or suspended from practice before the
Internal Revenue Service.
To enable attorneys, certified public
accountants, enrolled agents, and en-
rolled actuaries to identify practitioners
under consent suspension from practice
before the Internal Revenue Service, the
Director of Practice will announce in the
Internal Revenue Bulletin the names and
addresses of practitioners who have
been suspended from such practice, their
designation as attorney, certified public
accountant, enrolled agent, or enrolled
actuary, and date or period of suspen-
sion. This announcement will appear in
the weekly Bulletin at the earliest practi-
cable date after such action and will
continue to appear in the weekly Bulle-
tins for five successive weeks or for as
many weeks as is practicable for each
attorney, certified public accountant, en-
rolled agent, or enrolled actuary so
suspended and will be consolidated and
published in the Cumulative Bulletin.
The following individuals have been
placed under consent suspension from
practice before the Internal Revenue
Service:
NameAddressDesignationDate of Suspension
Lamb, Gordon W.Pullman, WACPASeptember 1, 1996 to January 31, 1997
Anderson, Randall S.Arlington Hgts, ILCPASeptember 1, 1996 to February 28, 1998
Broderick, William J.Farmington Hills, MICPASeptember 1, 1996 to November 30, 1996
Ruggiero, John M.Rutland, VTAttorneySeptember 1, 1996 to October 31, 1996
Eklund, MarkPortland, ORCPASeptember 1, 1996 to February 28, 1997
Stayner, G. CraigSalt Lake City, UTCPASeptember 15, 1996 to June 14, 1997
Allen, Lehman D.Lubbock, TXCPASeptember 20, 1996 to September 19, 1998
Hardgrove, David L.Amarillo, TXCPASeptember 21, 1996 to June 20, 1997
Trader, John H.Kansas City, MOAttorneySeptember 30, 1996 to March 29, 1997
Schmertz, Carl D.Wilmette, ILCPAOctober 1, 1996 to March 31, 1999
Bengston, WesselChicago, ILCPAOctober 15, 1996 to April 14, 1997
22

Announcement of the Expedited Suspension of Attorneys, Certified Public
Accountants, Enrolled Agents, and Enrolled Actuaries From Practice Before The
Internal Revenue Service
Under title 31 of the Code of Federal
Regulations, section 10.76, the Director
of Practice is authorized to immediately
suspend from practice before the Internal
Revenue Service any practitioner who,
within five years, from the date the
expedited proceeding is instituted, (1)
has had a license to practice as an
attorney, certified public accountant, or
actuary suspended or revoked for cause;
or (2) has been convicted of any crime
under title 26 of the United States Code
or, of a felony under title 18 of the
United States Code involving dishonesty
or breach of trust.
Attorneys, certified public accoun-
tants, enrolled agents, and enrolled actu-
aries are prohibited in any Internal Rev-
enue Service matter from directly or
indirectly employing, accepting assis-
tance from, being employed by, or shar-
ing fees with, any practitioner disbarred
or suspended from practice before the
Internal Revenue Service.
To enable attorneys, certified public
accountants, enrolled agents, and en-
rolled actuaries to identify practitioners
under expedited suspension from prac-
tice before the Internal Revenue Service,
the Director of Practice will announce in
the Internal Revenue Bulletin the names
and addresses of practitioners who have
been suspended from such practice, their
designation as attorney, certified public
accountant, enrolled agent, or enrolled
actuary, and date or period of suspen-
sion. This announcement will appear in
the weekly Bulletin at the earliest practi-
cable date after such action and will
continue to appear in the weekly Bulle-
tins for five successive weeks or for as
many weeks as is practicable for each
attorney, certified public accountant, en-
rolled agent, or enrolled actuary so
suspended and will be consolidated and
published in the Cumulative Bulletin.
The following individuals have been
placed under suspension from practice
before the Internal Revenue Service by
virtue of the expedited proceeding pro-
visions of the applicable regulations:
NameAddressDesignationDate of Suspension
Alleva, DonaldMount Vernon, NYEnrolled AgentIndefinite from September 5, 1996
Rose, Robert M.Dallas, TXAttorneyIndefinite from September 5, 1996
McGrath, GregoryNew Smyrna Bch, FLCPAIndefinite from September 8, 1996
Finch, Kenneth L. Jr.Pelham, ALCPAIndefinite from September 8, 1996
23

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 de-
scribe the effect:
Amplifieddescribes a situation where
no change is being made in a prior
published 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 ampli-
fied. (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 es-
sential 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 de-
terminative with respect to future trans-
actions. This term is most commonly
used in a ruling that lists previously
published rulings that are obsoleted be-
cause of changes in law or regulations.
A ruling may also be obsoleted because
the substance has been included in regu-
lations subsequently adopted.
Revokeddescribes situations where
the position in the previously published
ruling 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 previ-
ously 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,modifiedandsuper-
sededdescribes a situation where the
substance of a previously published rul-
ing 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 su-
perseded.
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 rulings 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 Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of 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.
24

Numerical Finding List
1
Bulletins 1996–27 through 1996–47
Announcements:
96–61, 1996–27 I.R.B.72
96–62, 1996–28 I.R.B.55
96–63, 1996–29 I.R.B.18
96–64, 1996–29 I.R.B.18
96–65, 1996–29 I.R.B.18
96–66, 1996–29 I.R.B.19
96–67, 1996–30 I.R.B.27
96–68, 1996–31 I.R.B.45
96–69, 1996–32 I.R.B.38
96–70, 1996–32 I.R.B.40
96–71, 1996–33 I.R.B.16
96–72, 1996–33 I.R.B.16
96–73, 1996–33 I.R.B.18
96–74, 1996–33 I.R.B.19
96–75, 1996–34 I.R.B.29
96–76, 1996–34 I.R.B.29
96–77, 1996–35 I.R.B.15
96–78, 1996–35 I.R.B.15
96–79, 1996–35 I.R.B.15
96–80, 1996–35 I.R.B.16
96–81, 1996–36 I.R.B.13
96–82, 1996–36 I.R.B.14
96–83, 1996–36 I.R.B.14
96–84, 1996–36 I.R.B.14
96–85, 1996–37 I.R.B.20
96–86, 1996–37 I.R.B.21
96–87, 1996–37 I.R.B.21
96–88, 1996–38 I.R.B.150
96–89, 1996–37 I.R.B.22
96–90, 1996–37 I.R.B.22
96–91, 1996–37 I.R.B.23
96–92, 1996–38 I.R.B.151
96–93, 1996–38 I.R.B.151
96–94, 1996–38 I.R.B.153
96–96, 1996–39 I.R.B.41
96–97, 1996–39 I.R.B.41
96–98, 1996–39 I.R.B.42
96–99, 1996–39 I.R.B.42
96–100, 1996–40 I.R.B.10
96–101, 1996–40 I.R.B.10
96–102, 1996–40 I.R.B.11
96–103, 1996–40 I.R.B.12
96–104, 1996–41 I.R.B.10
96–105, 1996–42 I.R.B.19
96–106, 1996–42 I.R.B.23
96–107, 1996–42 I.R.B.27
96–108, 1996–44 I.R.B.15
96–109, 1996–43 I.R.B.76
96–110, 1996–43 I.R.B.77
96–111, 1996–44 I.R.B.16
96–112, 1996–45 I.R.B.7
96–113, 1996–44 I.R.B.18
96–114, 1996–45 I.R.B.7
96–115, 1996–45 I.R.B.9
96–116, 1996–46 I.R.B.12
96–117, 1996–46 I.R.B.12
96–118, 1996–46 I.R.B.12
96–119, 1996–46 I.R.B.13
96–120, 1996–47 I.R.B.12
96–121, 1996–47 I.R.B.12
96–122, 1996–47 I.R.B.13
Court Decisions:
2058, 1996–34 I.R.B.13
2059, 1996–34 I.R.B.10
2060, 1996–34 I.R.B.5
Delegation Orders:
155 (Rev. 4), 1996–40 I.R.B.9
Notices:
96–36, 1996–27 I.R.B.11
96–37, 1996–31 I.R.B.29
96–38, 1996–31 I.R.B.29
96–39, 1996–32 I.R.B.8
96–40, 1996–33 I.R.B.11
96–41, 1996–35 I.R.B.6
96–42, 1996–35 I.R.B.6
96–43, 1996–36 I.R.B.7
96–44, 1996–36 I.R.B.7
96–45, 1996–39 I.R.B.7
96–46, 1996–39 I.R.B.7
96–47, 1996–39 I.R.B.8
96–48, 1996–39 I.R.B.8
96–49, 1996–41 I.R.B.6
96–50, 1996–41 I.R.B.6
96–51, 1996–42 I.R.B.6
96–52, 1996–42 I.R.B. 8
96–54, 1996–44 I.R.B.13
96–55, 1996–47 I.R.B.7
96–56, 1996–47 I.R.B.7
96–57, 1996–47 I.R.B.9
Proposed Regulations:
CO–9–96, 1996–34 I.R.B.20
CO–24–96, 1996–30 I.R.B.22
CO–25–96, 1996–31 I.R.B.30
CO–26–96, 1996–31 I.R.B.31
FI–59–94, 1996–30 I.R.B.23
FI–32–95, 1996–34 I.R.B.21
FI–48–95, 1996–31 I.R.B.36
FI–28–96, 1996–31, I.R.B.33
GL–7–96, 1996–33 I.R.B.13
IA–292–84, 1996–28 I.R.B.38
IA–26–94, 1996–30 I.R.B.24
IA–29–96, 1996–33 I.R.B.14
INTL–4–95, 1996–36 I.R.B.8
PS–39–93, 1996–34 I.R.B.27
PS–22–96, 1996–33 I.R.B.15
REG–208215–91, 1996–38 I.R.B.145
REG–209803–95, 1996–44 I.R.B.14
REG–209826–96, 1996–42 I.R.B.10
REG–209827–96, 1996–37 I.R.B.19
REG–245562–96, 1996–41 I.R.B.8
Public Laws:
104–117, 1996–34 I.R.B.19
104–134, 1996–38 I.R.B.7
104–168, 1996–38 I.R.B.8
104–191, 1996–43 I.R.B.7
104–193, 1996–46 I.R.B.4
Railroad Retirement Quarterly Rate
1996–29 I.R.B.14
Revenue Procedures:
96–36, 1996–27 I.R.B.11
Revenue Procedures—Continued
96–37, 1996–29 I.R.B.16
96–39, 1996–33 I.R.B.11
96–40, 1996–32 I.R.B.8
96–41, 1996–32 I.R.B.9
96–42, 1996–32 I.R.B.14
96–43, 1996–35 I.R.B.6
96–44, 1996–35 I.R.B.7
96–45, 1996–35 I.R.B.12
96–46, 1996–38 I.R.B.144
96–47, 1996–39 I.R.B.10
96–48, 1996–39 I.R.B.10
96–49, 1996–43 I.R.B.74
96–50, 1996–47 I.R.B.10
96–51, 1996–47 I.R.B.10
Revenue Rulings:
96–33, 1996–27 I.R.B.4
96–34, 1996–28 I.R.B.4
96–35, 1996–31 I.R.B.4
96–36, 1996–30 I.R.B.6
96–37, 1996–32 I.R.B.4
96–38, 1996–33 I.R.B.4
96–39, 1996–34 I.R.B.4
96–41, 1996–45 I.R.B.4
96–42, 1996–35 I.R.B.4
96–43, 1996–36 I.R.B.4
96–44, 1996–38 I.R.B.4
96–45, 1996–39 I.R.B.5
96–46, 1996–39 I.R.B.5
96–47, 1996–40 I.R.B.7
96–48, 1996–40 I.R.B.4
96–49, 1996–41 I.R.B.4
96–50, 1996–42 I.R.B.4
96–51, 1996–43 I.R.B.5
96–52, 1996–45 I.R.B.5
96–53, 1996–47 I.R.B.4
96–54. 1996–47 I.R.B.5
Tax Conventions:
1996–28 I.R.B. 36
1996–36 I.R.B.6
1996–40 I.R.B.8
Treasury Decisions:
8673, 1996–27 I.R.B.4
8674, 1996–28 I.R.B.7
8675, 1996–29 I.R.B.5
8676, 1996–30 I.R.B.4
8677, 1996–30 I.R.B.7
8678, 1996–31 I.R.B.11
8679, 1996–31 I.R.B.4
8680, 1996–33 I.R.B.5
8681, 1996–37 I.R.B.17
8682, 1996–37 I.R.B.4
8683, 1996–44 I.R.B.9
8684, 1996–44 I.R.B.4
1
A cumulative list of all Revenue Rulings, Rev-
enue Procedures, Treasury Decisions, etc., pub-
lished in Internal Revenue Bulletins 1996–1
through 1996–26 will be found in Internal Rev-
enue Bulletin 1996–27, dated July 1, 1996.
25

Finding List of Current Action on
Previously Published Items
1
Bulletins 1996–27 through 1996–47
*Denotes entry since last publication
Revenue Procedures:
80–27
Modified by
96–40, 1996–32 I.R.B.8
87–32
Modified by
TD 8680, 1996–33 I.R.B.5
92–20
Modified by
TD 8680, 1996–33 I.R.B.5
95–16
Superseded by
96–48, 1996–39 I.R.B.10
95–29
Superseded by
96–36, 1996–27 I.R.B.11
95–29A
Superseded by
96–36, 1996–27 I.R.B.11
95–30
Superseded by
96–42, 1996–32 I.R.B.14
95–46
Superseded by
96–48, 1996–39 I.R.B.10
96–41
Modified by
Notice 96–49, 1996–41 I.R.B.6
96–46
Supplemented by
96–51, 1996–47 I.R.B.10
1
A cumulative finding list for previously published
items mentioned in Internal Revenue Bulletins
1996–1 through 1996–26 will be found in Internal
Revenue Bulletin 1996–27, dated July 1, 1996.
26