Internal Revenue Bulletin 1996-53 (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
Rev. Rul. 96–62, page 6.
Training costs; business expenses.The Supreme
Court’s decision in
INDOPCO, Inc. v. Commissioner, 503
U.S. 79 (1992), does not affect the treatment of training
costs as business expenses which are generally deduct-
ible under section 162 of the Code.
Rev. Rul. 96–63, page 8.
Section 1274A inflation-adjusted numbers for 1997.
This ruling provides the dollar amounts, increased by the
1997 inflation-adjustment, for section 1274A of the
Code. Rev. Rul. 96–4 supplemented and superseded.
Rev. Rul. 96–64, page 11.
CPI adjustment for below-market loans for 1997.The
amount that section 7872(g) of the Code permits a
taxpayer to lend to a qualified continuing care facility
without incurring imputed interest is published and
adjusted for inflation for years 1987–1997. Rev. Rul.
96–5 supplemented and superseded.
Rev. Rul. 96–65, page 5.
Damages received on account of personal injuries or
sickness.Under current section 104(a)(2) of the Code,
back pay and damages for emotional distress received
to satisfy a claim for disparate treatment employment
discrimination under Title VII of the 1964 Civil Rights Act
are not excludable from gross income. Under former
section 104(a)(2), back pay received to satisfy such a
claim was not excludable from gross income, but dam-
ages received for emotional distress were excludable.
Rev. Ruls. 72–341, 94–92, and 93–88 obsoleted. No-
tice 95–45 superseded. Rev. Proc. 96–3 modified.
Notice 96–67, page 12.
Notice on application of section 401(a)(9) to employ-
ees who attain age 70½ in 1996.This notice provides
transitional guidance on the application of the definition
of ‘‘required beginning date’’ found in section 401(a)-
(9)(C) of the Code, as amended by the Small Business
Job Protection Act of 1996, to employees who attain age
70½ in 1996.
EMPLOYEE PLANS
Notice 96–66, page 12.
Weighted average interest rate update.Guidelines are
set forth for determining for December 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).
Announcement 96–133, page 60.
Beginning January 1, 1997, requests for employee plan
determination letters and applications for recognition of
tax exemption, formerly sent to the district offices in
Chicago, Illinois and Dallas, Texas, should be sent to the
Internal Revenue Service Center in Covington, Kentucky.
EMPLOYMENT TAX
Page 59.
Social security contribution and benefit base.The
Commissioner of the Social Security Administration has
announced the OASDI contribution and benefit base for
remuneration paid in 1997 and self-employment income
earned in taxable years beginning in 1997.
Page 9.
Railroad retirement; rate determination; quarterly.
The Railroad Retirement Board has determined that the
rate of tax imposed by section 3221 of the Code shall
be 34 cents for the quarter beginning October 1, 1996,
and 35 cents for the quarter beginning January 1, 1997.
(Continued on page 4)
Finding Lists begin on page 64.
Announcement of Disbarments and Suspensions begins on page 62.
Bulletin No. 1996–53
December 30, 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.

HIGHLIGHTS
OF THIS ISSUE—Continued
EMPLOYMENT TAX—Continued
Rev. Proc. 96–60, page 24.
Modification of Rev. Proc. 84–77.This procedure
explains the standards and alternate procedures to be
used in preparing employment tax forms when a
predecessor-successor employer relationship exists.
Rev. Proc. 84–77 modified and superseded.
Announcement 96–134, page 60.
Three codes have been added to identify new amounts
required to be reported in box 13 of the 1997 Form
W–2.
EXCISE TAX
Announcement 96–135, page 60.
A petition has been filed to add diglycidyl ether of
bisphenol-A to the list of taxable substances in section
4672(a)(3) of the Code.
ADMINISTRATIVE
Rev. Proc. 96–38, page 13.
This procedure provides guidance to taxpayers who wish
to submit offers in compromise on photocopies or
computer-generated copies that are verbatim duplicates
of the official Form 656, Offer in Compromise, published
by the Service.
Rev. Proc. 96–57, page 14.
Automatic extensions for Forms W–2.Automatic exten-
sions of time to file Forms W–2 with the Social Security
Administration and to furnish Forms W–2 to employees
will be granted to ‘‘Qualified Employers.’’
Rev. Proc. 96–58, page 16.
Penalties; substantial understatement.Guidance is
provided concerning when information shown on a return
in accordance with the applicable forms and instructions
will be adequate disclosure for purposes of reducing an
understatement of income tax under section 6662(d) of
the Code.
Rev. Proc. 96–59, page 17.
1997 cost-of-living adjustments.The Service provides
1997 cost-of-living adjustment factors and their applica-
tions to the tax rate tables for individuals and for
estates and trusts, the standard deduction amounts, the
personal exemption, and several other items that use
the adjustment method provided for the tax rate tables.
Rev. Proc. 96–61, page 27.
1997 Electronic filing program; Form 1040.Partici-
pants in the 1997 Electronic Filing Program for the Form
1040 series are informed of their obligations to the
Service, taxpayers, and other participants.
Rev. Proc. 96–62, page 38.
1997 On-line filing program; Form 1040.Participants
in the 1997 On-Line Filing Program for the Form 1040
series are informed of their obligations to the Service,
taxpayers, and other participants.
Rev. Proc. 96–63, page 46.
1997 Optional standard mileage rates.This procedure
announces 31.5 cents as the optional rate for deducting
or accounting for expenses for business use of an
automobile, and 10 cents as the optional rate for
deducting or accounting for use of an automobile as a
medical or moving expense for 1997. It provides rules
for substantiating the deductible expenses of using an
automobile for business, moving, medical, or charitable
purposes. Rev. Proc. 95–54 superseded.
Rev. Proc. 96–64, page 52.
Per diem allowances.This procedure provides optional
rules for deeming substantiated the amount for certain
reimbursed traveling expenses of an employee as well
as for determining the amount of deductible meals while
traveling away from home. Rev. Proc. 96–28 super-
seded.
4

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 1.—Tax Imposed
26 CFR 1.1–1: Income tax on individuals.
The Service is providing adjusted tax tables for
individuals and trusts and estates for taxable years
beginning in 1997 to reflect changes in the cost of
living. Also provided are certain reductions al-
lowed against the unearned income of minor
children in computing the ‘‘kiddie tax.’’ The
amounts used to determine whether a parent may
elect to report the ‘‘kiddie tax’’ on the parent’s
return are also adjusted. The adjustments concern-
ing the election to report the ‘‘kiddie tax’’ on the
parent’s return are for taxable years beginning in
1996 and 1997. See Rev. Proc. 96–59, page 17.
Section 32.—Earned Income
26 CFR 1.32–2: Earned income credit for taxable
years beginning after December 31, 1978.
The Service is providing inflation adjustments
for taxable years beginning in 1997 to the limita-
tions on the earned income tax credit. See Rev.
Proc. 96–59, page 17.
Section 59.—Other Definitions and
Special Rules
The Service is providing an inflation adjustment
for taxable years beginning in 1996 and 1997 to
the exemption amount use in computing the
alternative minimum tax for a minor child subject
to the ‘‘kiddie tax.’’ See Rev. Proc. 96–59,
page 17.
Section 61.—Gross Income Defined
26 CFR 1.61–1: Gross income.
Are amounts received in satisfaction of a claim
for denial of a promotion due to disparate treat-
ment employment discrimination under Title VII
of the Civil Rights Act of 1964, as amended in
1991, excludable from gross income under
§ 104(a)(2)? See Rev. Rul. 96–65, this page.
Section 62.—Adjusted Gross
Income Defined
26 CFR 1.62–2: Reimbursements and other ex-
pense allowance arrangements.
Rules are set forth under which a reimburse-
ment or other expense allowance arrangement for
the cost of lodging, meal, and incidental expenses
or meal and incidental expenses incurred by an
employee while traveling away from home will
satisfy the requirements of § 62(c) of the Code as
to substantiation of the amount of expenses. See
Rev. Proc. 96–64, page 52.
Rules under which a reimbursement or other
expense allowance arrangement for the cost of
operating an automobile for business purposes will
satisfy the requirements of section 62(c) of the
Code as to business connection, substantiation, and
returning amounts in excess of expenses. See Rev.
Proc. 96–63, page 46.
Section 63.—Taxable Income
Defined
26 CFR 1.63–1: Change of treatment with respect
to the zero bracket amount and itemized deduc-
tions.
The Service is providing inflation adjustments
for taxable years beginning in 1997 to the standard
deduction amounts (including the limitation in the
case of certain dependents, and the additional
standard deduction for the aged or blind). See Rev.
Proc. 96–59, page 17.
Section 68.—Overall Limitation on
Itemized Deductions
The Service is providing inflation adjustments
for taxable years beginning in 1997 to the overall
limitation on itemized deductions. See Rev. Proc.
96–59, page 17.
Section 104.—Compensation for
Injuries or Sickness
26 CFR 1.104–1(c): Damages received on account
of personal injuries or sickness.
(Also §§ 61, 3121, 3231, 3306, 3401, 7805;
1.61–1; 31–3121(a)–1; 31.3231(e)–1; 31.3306(b)–
1; 31.3401(a)–1; 301.7805–1.)
Damages received on account of
personal injuries or sickness.Under
current § 104(a)(2), back pay and dam-
ages for emotional distress received to
satisfy a claim for denial of a promotion
due to disparate treatment employment
discrimination under Title VII of the
1964 Civil Rights Act are not exclud-
able from gross income. Under former
§ 104(a)(2), as in effect before August
21, 1996, back pay received to satisfy
such a claim is not excludable from
gross income. However, damages re-
ceived for emotional distress under that
statute are excludable. Rev. Rul. 93–88
obsoleted. Notice 95–45 superseded.
Rev. Rul. 72–341 and 84–92 obsoleted.
Rev. Proc. 96–3 modified.
Rev. Rul. 96–65
ISSUE
Are amounts received in satisfaction
of a claim for denial of a promotion due
to disparate treatment employment dis-
crimination under Title VII of the Civil
Rights Act of 1964, as amended in 1991
(Title VII), excludable from gross in-
come under § 104(a)(2) of the Internal
Revenue Code?
LAW AND ANALYSIS
In general, § 61(a) provides that, ex-
cept as otherwise provided by law, gross
income includes all income from what-
ever source derived.
Section 104(a)(2), as amended by
§ 1605 of the Small Business Job Pro-
tection Act of 1996 (the 1996 Act) 110
Stat. 1755, 1838, provides generally that
gross income does not include the
amount of any damages received
(whether by suit or agreement) on ac-
count of personalphysicalinjuries or
physicalsickness. Section 104(a) further
provides that, for purposes of paragraph
(2), emotional distress is not treated as a
physical injury or physical sickness ex-
cept to the extent of damages paid for
medical care (described in § 213(d)-
(1)(A) or (B)) attributable to emotional
distress. The 1996 Act amendments to
§ 104(a) apply to amounts received af-
ter August 20, 1996, but not to amounts
received under a written binding agree-
ment, court decree, or mediation award
in effect on (or issued on or before)
September 13, 1995.
Before its amendment by the 1996
Act, former § 104(a)(2) provided gener-
ally that gross income does not include
the amount of any damages received
(whether by suit or agreement) on ac-
count of personal injuries or sickness.
Section 1.104–1(c) of the Income Tax
Regulations provides that the term
‘‘damages received (whether by suit or
agreement)’’ means an amount received
(other than workmen’s compensation)
through prosecution of a legal suit or
action based upon tort or tort type
rights, or through a settlement agree-
ment entered into in lieu of such pros-
ecution.
InUnited States v. Burke, 504 U.S.
229 (1992), the Supreme Court held that
back pay received for disparate impact
gender discrimination under Title VII
was not excludable from gross income
as damages received on account of
personal injuries under former
§ 104(a)(2) because that part of Title
VII did not compensate for a broad
range of traditional tort harms.
In light ofBurke, the Service issued
Rev. Rul. 93–88, 1993–2 C.B. 61, which
holds that compensatory damages and
back pay are excludable from gross
income as damages for personal injury
under former § 104(a)(2) when received
for: (1) disparate treatment gender dis-
crimination under Title VII, as amended
in 1991; (2) racial discrimination under
§ 16 of the Civil Rights Act of 1870, 42
U.S.C. § 1981 and Title VII; and (3)
disparate treatment discrimination under
the Americans With Disabilities Act, 42
5

U.S.C. §§ 12101–12213, as amended in
1991. All three of these statutes provide
a broad range of compensatory damages
of the type the Supreme Court focused
upon inBurke.
InCommissioner v. Schleier, 515
U.S.
, 115 S. Ct. 2159 (1995), the
Supreme Court held that back pay and
liquidated damages received to settle a
claim under the Age Discrimination in
Employment Act of 1967, 29 U.S.C.
§§ 621–634 (ADEA), are not exclud-
able from gross income under former
§ 104(a)(2). The Court concluded that
former § 104(a)(2) and its regulations
set forth two requirements for a recov-
ery to be excludable from gross income:
(1) it must be based on tort or tort type
rights, and (2) it must be received ‘‘on
account of personal injuries or sick-
ness.’’ The Court held that back pay and
liquidated damages received under the
ADEA meet neither requirement because
(1) the ADEA does not compensate for
any of the other traditional tort harms
associated with personal injury, (2) the
back pay is completely independent of
the existence or extent of any personal
injury, and (3) the ADEA liquidated
damages are punitive in nature.
Based onSchleier, Notice 95–45,
1995–2 C.B. 330, suspended Rev. Rul.
93–88, and added section 5.05 to Rev.
Proc. 95–3, 1995–1 C.B. 385, to provide
that pending issuance of published guid-
ance, the Service will not issue rulings
or determination letters on whether
amounts received are excludable from
gross income under § 104(a)(2) in situa-
tions affected by Schleier.
In light ofSchleier, and the amend-
ment of § 104(a)(2) by the 1996 Act,
the Internal Revenue Service has recon-
sidered Rev. Rul. 93–88.
HOLDINGS
(1)Current § 104(a)(2).Back pay
received in satisfaction of a claim for
denial of a promotion due to disparate
treatment employment discrimination
under Title VII is not excludable from
gross income under § 104(a)(2) because
it is completely independent of, and thus
is not damages received on account of,
personal physical injuries or physical
sickness under that section. Similarly,
amounts received for emotional distress
in satisfaction of such a claim are not
excludable from gross income under
§ 104(a)(2), except to the extent they
are damages paid for medical care (as
described in § 213(d)(1)(A) or (B)) at-
tributable to emotional distress.
(2)Former § 104(a)(2).Back pay re-
ceived in satisfaction of a claim for
denial of a promotion due to disparate
treatment employment discrimination
under Title VII is not excludable from
gross income under former § 104(a)(2)
because it is completely independent of,
and thus is not damages received on
account of, personal injuries or sickness
under that section. However, damages
received for emotional distress in satis-
faction of such a claim are excludable
from gross income under former
§ 104(a)(2) because they are received
‘‘on account of personal injuries or
sickness.’’
(3)Wages and compensation.Back
pay includible in gross income under
Holding (1) or (2) is ‘‘wages’’ for
purposes of § 3121 (Federal Insurance
Contributions Act (FICA)), § 3306
(Federal Unemployment Tax Act
(FUTA)), and § 3401 (federal income
tax withholding), and is ‘‘compensation’’
for purposes of § 3231 (Railroad Retire-
ment Tax Act (RRTA)).
EFFECT ON OTHER DOCUMENTS
Rev. Rul. 93–88 is obsoleted. Notice
95–45 is superseded. Rev. Rul. 72–341,
1972–2 C.B. 32, and Rev. Rul. 84–92,
1984–1 C.B. 204, which hold that
amounts received to settle a claim under
pre-1991 Title VII are (1) includible in
gross income as compensation, (2)
‘‘wages’’ for FICA, FUTA, and federal
income tax withholding purposes, and
(3) ‘‘compensation’’ for RRTA purposes,
are obsoleted. Rev. Proc. 96–3, 1996–1
I.R.B. 82, is modified to delete section
5.05.
PROSPECTIVE APPLICATION
Pursuant to the authority contained in
§ 7805(b), this revenue ruling will not
apply adversely to damages received
under any provision of law providing
tort or tort type remedies for employ-
ment discrimination for race, color, reli-
gion, gender, national origin, or other
similar classifications, if the damages
are received (1) on or before June 14,
1995, the date thatSchleierwas decided
by the Supreme Court, or (2) pursuant
to a written binding agreement, court
decree, or mediation award in effect on
(or issued on or before) June 14, 1995.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Sheldon A. Iskow of the Office
of Assistant Chief Counsel (Income Tax
and Accounting). For further information
regarding this revenue ruling, contact
Mr. Iskow on (202) 622–4920 (not a
toll-free call).
Section 132.—Certain Fringe
Benefits
The Service is providing inflation adjustments
for taxable years beginning in 1997 to the limita-
tion on the exclusion of a qualified transportation
fringe. See Rev. Proc. 96–59, page 17.
Section 135.—Income From United
States Savings Bonds Used To Pay
Higher Education Tuition and Fees
The Service is providing inflation adjustments
for taxable years beginning in 1993 through 1997
to the limitation on the exclusion of income from
United States savings bonds for taxpayers who pay
qualified higher education expenses for taxable
years. See Rev. Proc. 96–59, page 17.
Section 151.—Allowance of
Deductions for Personal
Exemptions
26 CFR 1.151–4: Amount of deduction for each
exemption under section 151.
The Service is providing inflation adjustments
for taxable years beginning in 1997 to the personal
exemption and to the threshold amounts of ad-
justed gross income above which the exemption
amount phases out. See Rev. Proc. 96–59,
page 17.
Section 162.—Trade or Business
Expenses
26 CFR 1.162–1: Business expenses.
(Also section 263; 1.263(a)–1.)
Training costs; business expenses.
The Supreme Court’s decision in
INDOPCO, Inc. v. Commissioner, 503
U.S. 79 (1992), does not affect the
treatment of training costs as business
expenses which are generally deductible
under section 162 of the Code.
Rev. Rul. 96–62
ISSUE
Does the Supreme Court’s decision in
INDOPCO, Inc. v. Commissioner, 503
U.S. 79 (1992), affect the treatment of
training costs as business expenses,
which are generally deductible under
§ 162 of the Internal Revenue Code?
LAW AND ANALYSIS
Section 162 and § 1.162–1(a) of the
Income Tax Regulations allow a deduc-
tion for all the ordinary and necessary
expenses paid or incurred during the
taxable year in carrying on any trade or
business.
6

Section 263(a) and § 1.263(a)–1(a)
provide that no deduction is allowed for
any amount paid out for permanent
improvements or betterments made to
increase the value of any property.
Through provisions such as
§§ 162(a), 263(a), and related sections,
the Internal Revenue Code generally
endeavors to match expenses with the
revenues of the taxable period to which
the expenses are properly attributable,
thereby resulting in a more accurate
calculation of net income for tax pur-
poses.See INDOPCO, Inc. v. Commis-
sioner, 503 U.S. 79, 84 (1992);Com-
missioner v. Idaho Power Co., 418 U.S.
1, 16 (1974).
InINDOPCO, the Supreme Court
concluded that certain legal and profes-
sional fees incurred by a target corpora-
tion to facilitate a friendly merger cre-
ated significant long-term benefits for
the taxpayer and, therefore, were capital
expenditures. In reaching this decision,
the Court specifically rejected the argu-
ment that its decision inCommissioner
v. Lincoln Savings and Loan Associa-
tion, 403 U.S. 345 (1971), should be
read as holding ‘‘thatonlyexpenditures
that create or enhance separate and
distinct assets are to be capitalized un-
der § 263.’’INDOPCOat 86–87 (em-
phasis in original).
TheINDOPCOdecision clarifies that
the creation or enhancement of a sepa-
rate and distinct asset is not a prerequi-
site to capitalization. That clarification
does not, however, change the funda-
mental legal principles for determining
whether a particular expenditure can be
deducted or must be capitalized. As the
Supreme Court has specifically recog-
nized, the ‘‘decisive distinctions [be-
tween capital and ordinary expenditures]
are those of degree and not of kind. . . .’’
Welch v. Helvering, 290 U.S. 111, 114
(1933);Deputy v. du Pont, 308 U.S.
488, 496 (1940). Therefore, with respect
to expenditures that produce benefits
both in the current year and in future
years, the determination of whether such
expenditures must be capitalized or may
be deducted requires a careful examina-
tion of all the facts. Although the mere
presence of some future benefit may not
warrant capitalization, a taxpayer’s real-
ization of future benefits is undeniably
important in determining whether an
expenditure is immediately deductible or
must be capitalized.See INDOPCOat
87–88.
TheINDOPCOdecision does not af-
fect the treatment of training costs under
§ 162. Amounts paid or incurred for
training, including the costs of trainers
and routine updates of training materi-
als, are generally deductible as business
expenses under that section even though
they may have some future benefit.
INDOPCOat 87.See,e.g.,Cleveland
Electric Illuminating Co. v. United
States, 7 Cl. Ct. 220 (1985) (deduction
for costs of training employees to oper-
ate new equipment in an existing busi-
ness); Rev. Rul. 58–238, 1958–1 C.B.
90, 91 (deduction for costs of training
employees that relate to the regular
conduct of the employer’s business);see
also Ithaca Industries, Inc. v. Commis-
sioner, 97 T.C. 253, 271 (1991) (deduc-
tion for costs of training new employees
to keep the assembled workforce un-
changed),aff’d, 17 F.3d 684 (4th Cir.),
cert. denied, 115 S. Ct. 83 (1994).
Training costs must be capitalized only
in the unusual circumstance where the
training is intended primarily to obtain
future benefits significantly beyond
those traditionally associated with train-
ing provided in the ordinary course of a
taxpayer’s trade or business.See,e.g.,
Cleveland Electric, 7 Cl. Ct. at 227–29
(capitalization of costs for training em-
ployees of an electric utility to operate a
new nuclear power plant, which were
akin to start-up costs of a new business).
HOLDING
TheINDOPCOdecision does not af-
fect the treatment of training costs as
business expenses, which are generally
deductible under § 162.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Barry M. Freiman of the Office
of Assistant Chief Counsel (Income Tax
and Accounting). For further information
regarding this revenue ruling, contact
Mr. Freiman on (202) 622–4950 (not a
toll-free call).
26 CFR 1.162–17: Reporting and substantiation
of certain business expenses of employees.
The rules for substantiating the amount of a
deduction or expense for business use of an
automobile that most nearly represents current
costs are set forth. See Rev. Proc. 96–63, page 46.
The rules for substantiating the amount of a
deduction or expense for lodging, meal, and
incidental expenses or meal and incidental ex-
penses incurred while traveling away from home
that most nearly represents current costs are set
forth. See Rev. Proc. 96–64, page 52.
Section 170.—Charitable, Etc.,
Contributions and Gifts
26 CFR 1.170–1: Charitable, etc., contributions
and gifts; allowance of deductions.
The Service is providing inflation adjustments
for calendar year 1997 to the ‘‘insubstantial ben-
efit’’ guidelines. Under the guidelines, a charitable
contribution is fully deductible even though the
contributor receives ‘‘insubstantial benefits’’ from
the charity. See Rev. Proc. 96–59, page 17.
Section 263.—Capital Expenditures
26 CFR 1.263(a)–1: Capital expenditures; in gen-
eral.
Does the Supreme Court’s decision in
INDOPCO, Inc. v. Commissioner, 503 U.S. 79
(1992), affect the treatment of training costs as
business expenses which are generally deductible
under § 162 of the Code? See Rev. Rul. 96–62,
page 38.
Section 267.—Losses, Expenses,
and Interest With Respect to
Transactions Between Related
Taxpayers
26 CFR 1.267(a)–1: Deductions disallowed.
When a payor provides a per diem allowance to
an employee who is a related party, the rules set
forth for the deemed substantiation to the payor of
the amount of the employee’s ordinary and neces-
sary business expenses for lodging, meal, and/or
incidental expenses incurred while traveling away
from home do not apply. See Rev. Proc. 96–64,
page 52.
Section 274.—Disallowance of
Certain Entertainment, Etc.,
Expenses
26 CFR 1.274(d)–1: Substantiation requirements
Simplified optional method for substantiating
the amount of a deduction or expense for business
use of an automobile. See Rev. Proc. 96–63,
page 46.
26 CFR 1.274(d)–1(a): Substantiation require-
ments.
Rules are set forth for substantiating the amount
of ordinary and necessary business expense of an
employee for lodging, meal, and incidental ex-
penses or meal and incidental expenses incurred
while traveling away from home when a payor
provides a per diem allowance under a reimburse-
ment or other expense allowance arrangement to
pay for such expenses. See Rev. Proc. 96–64,
page 52.
26 CFR 1.274–5T: Substantiation requirements
(temporary).
Simplified optional method for substantiating
the amount of a deduction or expense for business
use of an automobile. See Rev. Proc. 96–63,
page 46.
7

Rules are set forth for substantiating the amount
of ordinary and necessary business expense of an
employee for lodging, meal, and incidental ex-
penses or meal and incidental expenses incurred
while traveling away from home when a payor
provides a per diem allowance under a reimburse-
ment or other expense allowance arrangement to
pay for such expenses. Rules are also set forth for
an optional method for employees and self-
employed individuals to use in computing the
deductible costs of business meal and incidental
expenses paid or incurred while traveling away
from home. See Rev. Proc. 96–64, page 52.
Section 483.—Interest on Certain
Deferred Payments
26 CFR 1.483–1: Computation of interest on
certain deferred payments.
As defined by section 1274A, the definitions for
both ‘‘qualified debt instruments’’ and ‘‘cash
method debt instruments’’ have dollar ceilings on
the stated principal amount. The limits to the
stated principal amount are adjusted for inflation
for sales or exchanges occurring in the 1997
calendar year. See Rev. Rul. 96–63, page 46.
Section 512.—Unrelated Business
Taxable Income
The Service is providing inflation adjustments
for taxable years beginning in 1996 and 1997 to
the maximum amount of annual dues that can be
paid to certain agricultural or horticultural organi-
zations without any portion being treated as unre-
lated trade or business income by reason of any
benefits or privileges available to members. See
Rev. Proc. 96–59, page 17.
Section 513.—Unrelated Trade or
Business
The Service is providing inflation adjustments
for taxable years beginning in 1997 to the maxi-
mum amount of a ‘‘low cost article.’’ Funds raised
through a charity’s distribution of ‘‘low cost
articles’’ will not be treated as unrelated business
income to the charity. See Rev. Proc. 96–59,
page 17.
Section 877.—Expatriation To
Avoid Tax
The Service is providing inflation adjustments
for calendar year 1997 to amounts used to deter-
mine whether a principal purpose of expatriation is
to avoid tax. See Rev. Proc. 96–59, page 17.
Section 1016.—Adjustments to
Basis
26 CFR 1.1016–3: Exhaustion, wear and tear,
obsolescence, amortization, and depletion for peri-
ods since February 28, 1913.
Reduction of basis for business use of an
automobile under either the optional standard
mileage rate method or a mileage allowance under
a reimbursement or other expense allowance ar-
rangement. See Rev. Proc. 96–63, page 46.
Section 1274.—Determination of
Issue Price in the Case of Certain
Debt Instruments Issued for
Property
26 CFR 1.1274A–1: Special rules for certain
transactions where stated principal amount does
not exceed $2,800,000.
As defined by section 1274A, the definitions for
both ‘‘qualified debt instruments’’ and ‘‘cash
method debt instruments’’ have dollar ceilings on
the stated principal amount. The limits to the
stated principal amount are adjusted for inflation
for sales or exchanges occurring in the 1997
calendar year. See Rev. Rul. 96–63, this page.
Section 1274A.—Special Rules for
Certain Transactions Where Stated
Principal Amount Does Not Exceed
$2,800,000.
(Also §§ 1274, 483; 1.1274A–1.)
Section 1274A inflation-adjusted
numbers for 1997.This ruling provides
the dollar amounts, increased by the
1997 inflation-adjustment, for section
1274A of the Code. Rev. Rul. 96–4
supplemented and superseded.
Rev. Rul. 96–63
This revenue ruling provides the dol-
lar amounts, increased by the 1997
inflation adjustment, for § 1274A of the
Internal Revenue Code.
BACKGROUND
In general, §§ 483 and 1274 of the
Code determine the principal amount of
a debt instrument given in consideration
for the sale or exchange of nonpublicly
traded property. In addition, any interest
on a debt instrument subject to § 1274
is taken into account under the original
issue discount provisions of the Code.
Section 1274A, however, modifies the
rules under §§ 483 and 1274 for certain
types of debt instruments.
In the case of a ‘‘qualified debt
instrument,’’ the discount rate used for
purposes of §§ 483 and 1274 of the
Code may not exceed 9 percent, com-
pounded semiannually. Section
1274A(b) defines a qualified debt instru-
ment as any debt instrument given in
consideration for the sale or exchange of
property (other than new § 38 property
within the meaning of § 48(b), as in
effect on the day before the date of
enactment of the Revenue Reconcilia-
tion Act of 1990) if the stated principal
amount of the instrument does not ex-
ceed the amount specified in § 1274A-
(b). For debt instruments arising out of
sales or exchanges before January 1,
1990, this amount is $2,800,000.
In the case of a ‘‘cash method debt
instrument,’’ as defined in § 1274A(c)
of the Code, the borrower and lender
may elect to use the cash receipts and
disbursements method of accounting. In
particular, for any cash method debt
instrument, § 1274 does not apply, and
interest on the instrument is accounted
for by both the borrower and the lender
under the cash method of accounting. A
cash method debt instrument is a quali-
fied debt instrument that meets the fol-
lowing additional requirements: (A) In
the case of instruments arising out of
sales or exchanges before January 1,
1990, the stated principal amount does
not exceed $2,000,000, (B) The lender
does not use an accrual method of
accounting and is not a dealer with
respect to the property sold or ex-
changed, (C) Section 1274 would have
applied to the debt instrument but for an
election under § 1274A(c); and (D) An
election under § 1274A(c) is jointly
made with respect to the debt instrument
by the borrower and lender. Section
1.1274A–1(c)(1) of the Income Tax
Regulations provides rules concerning
the time for, and manner of, making this
election.
Section 1274A(d)(2) of the Code pro-
vides that, for any debt instrument aris-
ing out of a sale or exchange during any
calendar year after 1989, the dollar
amounts stated in § 1274A(b) and
§ 1274A(c)(2)(A) are increased by the
inflation adjustment for the calendar
year. Any increase due to the inflation
adjustment is rounded to the nearest
multiple of $100 (or, if the increase is a
multiple of $50 and not of $100, the
increase is increased to the nearest mul-
tiple of $100). The inflation adjustment
for any calendar year is the percentage
(if any) by which the CPI for the
preceding calendar year exceeds the CPI
for calendar year 1988. Section 1274A-
(d)(2)(B) defines the CPI for any calen-
dar year as the average of the Consumer
Price Index as of the close of the
12-month period ending on September
30 of that calendar year.
INFLATION-ADJUSTED AMOUNTS
For debt instruments arising out of
sales or exchanges after December 31,
1989, the inflation-adjusted amounts un-
der § 1274A are shown in Table 1.
8

Rev. Rul. 96–63Table 1
Inflation-Adjusted Amounts Under § 1274A
Calendar Year of Sale or Exchange
1274A(b) Amount
(qualified debt instrument)
1274A(c)(2)(A) Amount
(cash method debt instrument)
1990$2,933,200$2,095,100
1991$3,079,600$2,199,700
1992$3,234,900$2,310,600
1993$3,332,400$2,380,300
1994$3,433,500$2,452,500
1995$3,523,600$2,516,900
1996$3,622,500$2,587,500
1997$3,723,800$2,659,900
Note: These inflation adjustments were computed using the All-Urban, Consumer Price Index, 1982–1984 base, pub-
lished by the Bureau of Labor Statistics.
EFFECT ON OTHER DOCUMENTS
Rev. Rul. 96–4, 1996–3 I.R.B. 16, is
supplemented and superseded.
DRAFTING INFORMATION
The principal author of this revenue
ruling is David B. Silber of the Office
of the Assistant Chief Counsel (Finan-
cial Institutions and Products). For fur-
ther information regarding this revenue
ruling contact Mr. Silber on (202) 622–
3930 (not a toll-free call).
Section 3121.—Definitions
26 CFR 31.3121(a)–1: Wages.
Is back pay that is received in satisfaction of a
claim for denial of a promotion due to disparate
treatment employment discrimination under Title
VII of the Civil Rights Act of 1964, as amended
in 1991, treated as ‘‘wages’’ for purposes of
§ 3121 (FICA)? See Rev. Rul. 96–65, page 5.
Section 3221.—Rate of Tax
Determination of Quarterly Rate of
Excise Tax for Railroad Retirement
Supplemental Annuity Program
In accordance with directions in Sec-
tion 3221(c) of the Railroad Retirement
Tax Act (26 U.S.C., Section 3221(c)),
the Railroad Retirement Board has de-
termined that the excise tax imposed by
such Section 3221(c) on every em-
ployer, with respect to having individu-
als in his employ, for each work-hour
for which compensation is paid by such
employer for services rendered to him
during the quarter beginning October 1,
1996, shall be at the rate of 34 cents.
In accordance with directions in Sec-
tion 15(a) of the Railroad Retirement
Act of 1974, the Railroad Retirement
Board has determined that for the quar-
ter beginning October 1, 1996, 33.8
percent of the taxes collected under
Sections 3211(b) and 3221(c) of the
Railroad Retirement Tax Act shall be
credited to the Railroad Retirement Ac-
count and 66.2 percent of the taxes
collected under such Sections 3211(b)
and 3221(c) plus 100 percent of the
taxes collected under Section 3221(d) of
the Railroad Retirement Tax Act shall be
credited to the Railroad Retirement
Supplemental Account.
Dated: August 27, 1996.
Beatrice Ezerski,
Secretary to the Board
(Filed by the Office of the Federal Register on
September 4, 1996, 8:45 a.m., and published in
the issue of the Federal Register for September 5,
1996, 61 F.R. 46871)
In accordance with directions in Sec-
tion 3221(c) of the Railroad Retirement
Tax Act (26 U.S.C. 3221(c)), the Rail-
road Retirement Board has determined
that the excise tax imposed by such
Section 3221(c) on every employer, with
respect to having individuals in his
employ, for each work-hour for which
compensation is paid by such employer
for services rendered to him during the
quarter beginning January 1, 1997, shall
be at the rate of 35 cents.
In accordance with directions in Sec-
tion 15(a) of the Railroad Retirement
Act of 1974, the Railroad Retirement
Board has determined that for the quar-
ter beginning January 1, 1997, 33.4
percent of the taxes collected under
Sections 3211(b) and 3221(c) of the
Railroad Retirement Tax Act shall be
credited to the Railroad Retirement Ac-
count and 66.6 percent of the taxes
collected under such Sections 3211(b)
and 3221(c) plus 100 percent of the
taxes collected under Section 3221(d) of
the Railroad Retirement Tax Act shall be
credited to the Railroad Retirement
Supplemental Account.
Dated: December 4, 1996.
Beatrice Ezerski,
Secretary to the Board
(Filed by the Office of the Federal Register on
December 11, 1996, 8:45 a.m., and published in
the issue of the Federal Register for December 12,
1996, 61 F.R. 65422)
Section 3231.—Definitions
26 CFR 31.3231(e)–1: Compensation
Is back pay that is received in satisfaction of a
claim for denial of a promotion due to disparate
treatment employment discrimination under Title
VII of the Civil Rights Act of 1964, as amended
in 1991, treated as ‘‘compensation’’ for purposes
of § 3231 (RRTA)? See Rev. Rul. 96–65, page 5.
Section 3306.—Definitions
26 CFR 31.3306(b)–1: Wages.
Is back pay that is received in satisfaction of a
claim for denial of a promotion due to disparate
treatment employment discrimination under Title
VII of the Civil Rights Act of 1964, as amended
in 1991, treated as ‘‘wages’’ for purposes of
§ 3306 (FUTA)? See Rev. Rul. 96–65, page 5.
Section 3401.—Definitions
26 CFR 31.3401(a)–1: Wages.
Is back pay that is received in satisfaction of a
claim for denial of a promotion due to disparate
treatment employment discrimination under Title
VII of the Civil Rights Act of 1964, as amended
in 1991, treated as ‘‘wages’’ for purposes of
§ 3401 (federal income tax withholding)?
Section 4001.—Passenger Vehicles
The Service is providing inflation adjustments
to the price above which a passenger vehicle
becomes subject to an excise tax for transactions
occurring in calendar year 1997. See Rev. Proc.
96–59, page 17.
9

Section 4003.—Special Rules
The Service is providing inflation adjustments
to the price above which a passenger vehicle
becomes subject to an excise tax for transactions
occurring in calendar year 1997. (Price includes
the price of installation of parts or accessories on
a passenger vehicle within six months of the date
after the vehicle was first placed in service.) See
Rev. Proc. 96–59, page 17.
Section 6011.—General
Requirement of Return, Statement,
or List.
26 CFR 31.6011(a)–4: Returns of income tax
withheld.
Standard and alternate procedures to be used in
preparing employment tax forms where a
predecessor-successor employer relationship exists.
Rev. Proc. 84–77 modified and superseded. See
Rev. Proc. 96–60, page 24.
26 CFR 301.6011–2T: Required use of magnetic
media (Temporary).
Automatic extensions of time to furnish Forms
W–2 to employees and file Forms W–2 with the
Social Security Administration are provided for
‘‘Qualified Employers.’’ See Rev. Proc. 96–57,
page 14.
Section 6012.—Persons Required
to Make Returns of Income
26 CFR 1.6012–1: Individuals required to make
returns of income.
The Service is providing adjusted tax tables for
individuals and trusts and estates for taxable years
beginning in 1997 to reflect changes in the cost of
living. See Rev. Proc. 96–59, page 17.
26 CFR 1.6012–5: Composite return in lieu of
specified form.
What are the requirements for participation in
the 1997 Electronic Filing Program for the Form
1040 series? See Rev. Proc. 96–61, page 27.
What are the requirements for participation in
the 1997 On-Line Filing Program for the Form
1040 series? See Rev. Proc. 96–62, page 38.
Section 6013.—Joint Returns of
Income Tax by Husband and Wife
26 CFR 1.6013–1: Joint returns.
The Service is providing adjusted tax tables for
individuals for taxable years beginning in 1997 to
reflect changes in the cost of living. See Rev.
Proc. 96–59, page 17.
Section 6033.—Returns by Exempt
Organizations
The Service is providing inflation adjustments
for taxable years beginning in 1997 to the amount
of dues certain exempt organizations can charge
and still be excepted from the reporting require-
ments for exempt organizations with nondeductible
lobbying expenditures. See Rev. Proc. 96–59,
page 17.
Section 6039F.—Notice of Large
Gifts Received From Foreign
Persons
The Service is providing an inflation adjustment
for taxable years beginning in 1997 to the amount
of gifts in a taxable year from foreign person(s)
that triggers a reporting requirement for a United
States person. See Rev. Proc. 96–59, page 17.
Section 6051.—Receipts for
Employees
26 CFR 31.6051–1: Statements for employees.
Automatic extensions of time to furnish Forms
W–2 to employees and file Forms W–2 with the
Social Security Administration are provided for
‘‘Qualified Employers.’’ See Rev. Proc. 96–57,
page 14.
Standard and alternate procedures to be used in
preparing employment tax forms where a
predecessor-successor employer relationship exists.
Rev. Proc. 84–77 modified and superseded. See
Rev. Proc. 96–60, page 24.
Section 6061.—Signing of Returns
and Other Documents
26 CFR 1.6061–1: Signing of returns and other
documents by individuals.
What are the requirements for participation in
the 1997 Electronic Filing Program for the Form
1040 series? See Rev. Proc. 96–61, page 27.
Section 6071.—Time for Filing
Returns and Other Documents
26 CFR 31.6071(a)–1: Time for filing returns and
other documents.
Automatic extensions of time to furnish Forms
W–2 to employees and file Forms W–2 with the
Social Security Administration are provided for
‘‘Qualified Employers.’’ See Rev. Proc. 96–57,
page 14.
Standard and alternate procedures to be used in
preparing employment tax forms where a
predecessor-successor employer relationship exists.
Rev. Proc. 84–77 modified and superseded. See
Rev. Proc. 96–60, page 24.
Section 6081.—Extension of Time
for Filing Returns.
26 CFR 31.6081(a)–1: Extensions of time for
filing returns and other documents.
Automatic extensions of time to furnish Forms
W–2 to employees and file Forms W–2 with the
Social Security Administration are provided for
‘‘Qualified Employers.’’ See Rev. Proc. 96–57,
page 14.
Section 6601.—Interest on
Underpayment, Nonpayment or
Extensions of Time for Payment of
Tax
26 CFR 301.6601–1: Interest on underpayments.
Uniform tables for computing interest using the
daily compounding rules. See Rev. Proc. 95–17,
1995–1, C.B.556.
Section 6611.—Interest on
Overpayments
26 CFR 301.6611–1: Interest on overpayments.
Uniform tables for computing interest using the
daily compounding rules. See Rev. Proc. 95–17,
1995–1, C.B.556.
Section 6621.—Determination of
Rate of Interest
26 CFR 301.6621–1: Interest rate.
Uniform tables for computing interest using the
daily compounding rules. See Rev. Proc. 95–17,
1995–1, C.B.556.
Section 6622.—Interest
Compounded Daily
26 CFR 301.6622–1: Interest compounded daily.
Uniform tables for computing interest using the
daily compounding rules. See Rev. Proc. 95–17,
1995–1, C.B.556.
Section 7430.—Awarding of Costs
and Certain Fees
The Service is providing an inflation adjustment
for calendar year 1997 to the hourly limit on
attorney fees that may be awarded in a judgment
or settlement of an administrative or judicial
proceeding concerning the determination, collec-
tion, or refund of tax, interest, or penalty. See Rev.
Proc. 96–59, page 17.
Section 7805.—Rules and
Regulations
26 CFR 301.7805–1: Rules and regulations.
Are amounts received in satisfaction of a claim
for denial of a promotion due to disparate treat-
ment employment discrimination under Title VII
of the Civil Rights Act of 1964, as amended in
1991, excludable from gross income under
§ 104(a)(2)? The holding will not apply adversely
to damages received under any provision of law
providing tort or tort type remedies for employ-
ment discrimination on the basis of race, color,
religion, gender, national origin, or other similar
classifications, if the damages are received (1) on
or before June 14, 1995, the date thatSchleierwas
decided by the Supreme Court, or (2) pursuant to
a written binding agreement, court decree, or
mediation award in effect on (or issued on or
before) June 14, 1995. See Rev. Rul. 96–65,
page 5.
10

Section 7872.—Treatment of Loans
With Below-Market Interest Rates
CPI adjustment for below-market
loans for 1997.The amount that section
7872(g) of the Code permits a taxpayer
to lend to a qualified continuing care
facility without incurring imputed inter-
est is published and adjusted for infla-
tion for years 1987–1997. Rev. Rul.
96–5 supplemented and superseded.
Rev. Rul. 96–64
This revenue ruling publishes the
amount that § 7872(g) of the Internal
Revenue Code permits a taxpayer to
lend to a qualifying continuing care
facility without incurring imputed inter-
est. The amount is adjusted for inflation
for the years after 1986.
Section 7872 of the Code generally
treats loans bearing a below-market in-
terest rate as if they bore interest at the
market rate.
Section 7872(g)(1) of the Code pro-
vides that, in general, § 7872 does not
apply for any calendar year to any
below-market loan made by a lender to
a qualified continuing care facility pur-
suant to a continuing care contract if the
lender (or the lender’s spouse) attains
age 65 before the close of the year.
Section 7872(g)(2) of the Code pro-
vides that, in the case of loans made
after October 11, 1985, and before 1987,
§ 7872(g)(1) applies only to the extent
that the aggregate outstanding amount of
any loan to which § 7872(g) applies
(determined without regard to
§ 7872(g)(2)), when added to the aggre-
gate outstanding amount of all other
previous loans between the lender (or
the lender’s spouse) and any qualified
continuing care facility to which
§ 7872(g)(1) applies, does not exceed
$90,000.
Section 7872(g)(5) of the Code pro-
vides that, for loans made during any
calendar year after 1986 to which
§ 7872(g)(1) applies, the $90,000 limit
specified in § 7872(g)(2) is increased
by an inflation adjustment. The inflation
adjustment for any calendar year is the
percentage (if any) by which the Con-
sumer Price Index (CPI) for the preced-
ing calendar year exceeds the CPI for
calendar year 1985. Section 7872(g)(5)
states that the CPI for any calendar year
is the average of the CPI as of the close
of the 12-month period ending on Sep-
tember 30 of that calendar year.
Rev. Rul. 96–5, 1996–3 I.R.B. 29,
publishes the amount specified in
§ 7872(g)(2) of the Code, increased by
the inflation adjustment, for the years
1987–96.
Table 1 sets forth the amount speci-
fied in § 7872(g)(2) of the Code. The
amount is increased by the inflation
adjustment for the years 1987–97.
REV. RUL. 96–64 TABLE 1
Limit under 7872(g)(2)
YearAmount
Before 1987$ 90,000
1987$ 92,200
1988$ 94,800
1989$ 98,800
1990$103,500
1991$108,600
1992$114,100
1993$117,500
1994$121,100
1995$124,300
1996$127,800
1997$131,300
Note: These inflation adjust-
ments were computed using the
All-Urban, Consumer Price In-
dex 1982–1984 base, published
by the Bureau of Labor Statistics.
EFFECT ON OTHER DOCUMENTS
Rev. Rul. 96–5, 1996–3 I.R.B. 29, is
supplemented and superseded.
DRAFTING INFORMATION
The author of this revenue ruling is
David B. Silber of the Office of Assis-
tant Chief Counsel (Financial Institu-
tions and Products). For further informa-
tion regarding this revenue ruling,
contact Mr. Silber on (202) 622–3930
(not a toll-free call).
11

Part III. Administrative, Procedural, and Miscellaneous
Weighted Average Interest Rate
Update
Notice 96–66
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 No-
vember 1996 is 6.48 percent.
The following rates were determined
for the plan years beginning in the
month shown below.
MonthYear Weighted Average 90% to 108% Permissible Range90% to 110% Permissible Range
December19966.896.20 to 7.446.20 to 7.58
Drafting Information
The principal author of this notice is Donna Prestia of the Employee Plans Division. For further information regarding 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).
Application of Section 401(a)(9) to
Employees who Attain Age 70½ in
1996.
Notice 96–67
PURPOSE
This Notice addresses certain issues
related to amendments, made by section
1404 of the Small Business Job Protec-
tion Act of 1996, Pub.L. 104–188
(SBJPA), to the minimum distribution
requirements of section 401(a)(9) of the
Internal Revenue Code. Specifically, the
notice provides guidance on the applica-
tion of section 401(a)(9), as amended by
the SBJPA, to employees (other than
5-percent owners) who attain age 70½
in 1996 but who have not retired by the
end of 1996.
BACKGROUND
Section 401(a)(9) provides that, in
order for a plan to be qualified under
section 401(a), distributions from the
plan must commence no later than the
‘‘required beginning date’’. Similar rules
apply to an individual retirement ac-
count or annuity (IRA) and a section
403(b) contract (i.e., an annuity contract
described in section 403(b), a custodial
account described in section 403(b)(7)
or a retirement income account de-
scribed in section 403(b)(9)).
Prior to the amendments made by the
SBJPA, section 401(a)(9)(C) generally
defined required beginning date as April
1 of the calendar year following the
calendar year in which an employee
attained age 70½. This meant that an
employee who attained age 70½ was
required to commence distributions from
the plan, even if the employee had not
retired from employment with the em-
ployer maintaining the plan.
Section 1404 of the SBJPA amended
the definition of required beginning date
that applies to an employee who is not a
5-percent owner. The amendment pro-
vides that, in the case of such an
employee, the required beginning date is
April 1 of the calendar year following
the later of the calendar year in which
the employee attains age 70½ or the
calendar year in which the employee
retires. In the case of an employee who
is a 5-percent owner, the required begin-
ning date remains April 1 of the calen-
dar year following the calendar year in
which the 5-percent owner attains age
70½. The amendments made by section
1404 of the SBJPA apply to years
beginning after December 31, 1996.
The amendments do not apply to the
required beginning date for distributions
from an IRA, including an IRA estab-
lished in conjunction with a Simplified
Employee Pension (SEP) or a SIMPLE
Plan. In addition, the amendments do
not affect the determination of the re-
quired beginning date for church plans
and government plans, since, under the
pre-SBJPA version of section 401(a)(9),
the required beginning date for these
plans already was April 1 of the calen-
dar year following the later of the
calendar year in which the employee
attains age 70½ or the calendar year in
which the employee retires.
Taxpayers have requested guidance on
the application of the amendments to
section 401(a)(9)(C) made by the SBJPA
to employees who attain age 70½ in
1996, but have not retired by the end of
1996. This Notice is issued in response
to those requests.
QUESTIONS AND ANSWERS
Q–1: What is the effective date of the
amendments to section 401(a)(9) made
by section 1404 of the SBJPA?
A–1: Section 401(a)(9), as amended
by section 1404 of the SBJPA, applies
in determining the amount of any mini-
mum distribution required to be made
during any calendar year beginning on
or after January 1, 1997 (that was not
required to be made during an earlier
calendar year).
Q–2: Is a minimum distribution re-
quired to be made by April 1, 1997 for
an employee (other than a 5-percent
owner) who attains age 70½ in 1996,
but has not retired from employment
with the employer maintaining the plan
by the end of 1996?
A–2: No. Such an employee’s re-
quired beginning date is determined un-
der section 401(a)(9), as amended by the
SBJPA. Thus, the employee’s required
beginning date is not April 1, 1997.
Instead, the employee’s required begin-
ning date is April 1 of the calendar year
following the year in which the em-
ployee retires from employment with the
employer maintaining the plan.
Q–3: If a plan distribution is made in
1996 to an employee (other than a
5-percent owner) who attains age 70½
in that year, but has not retired by the
end of 1996 from employment with the
employer maintaining the plan, is any
portion of the distribution a required
distribution for purposes of section
402(c)(4)(B)?
A–3: Yes. Section 402(c)(4)(B) pro-
vides that a distribution is not an eli-
12

gible rollover distribution to the extent
that it is required under section
401(a)(9). If a distribution is made dur-
ing 1996 (i.e., prior to the January 1,
1997 effective date of the SBJPA
amendments to section 401(a)(9)), then,
whether that distribution is a required
distribution under section 401(a)(9) is
determined by applying section
401(a)(9) as in effect prior to amend-
ment by the SBJPA.
Under Q&A–7 of § 1.402(c)–2 of the
Income Tax Regulations, a distribution
in the year an employee attains age 70½
is treated as a required distribution un-
der section 401(a)(9) to the extent that
the total required minimum distribution
under section 401(a)(9) for that year has
not been satisfied. Therefore, although
under Q&A–2 of this Notice, no distri-
bution is required to be made by April
1, 1997 with respect to an employee
(other than a 5-percent owner) who
attains age 70½ during 1996, but has
not retired by the end of that year, if a
distribution actually is made to such an
employee in 1996, the distribution is
treated as a required distribution to the
extent that the total required minimum
distribution under section 401(a)(9), as
in effect prior to amendment by the
SBJPA, has not been satisfied. Thus, to
that extent, the distribution is not an
eligible rollover distribution and is not
subject to mandatory 20% withholding
under section 3405(c). However, a dis-
tribution to such an employee in 1997
(i.e., after the effective date of the
SBJPA amendments) is not a required
distribution under section 401(a)(9).
Q–4: How does the guidance pro-
vided in Q&A–2 and Q&A–3 of this
Notice apply to the determination of the
required minimum distribution from a
section 403(b) contract?
A–4: In applying section 401(a)(9) to
a section 403(b) contract to which con-
tributions are made by an employer, an
employee’s required beginning date is
determined under section 401(a)(9) in
the same manner as it would be deter-
mined for a qualified plan maintained
by that employer. Accordingly, the re-
quired beginning date with respect to a
section 403(b) contract of an employee
who attains age 70½ in 1996 and who
has not retired from employment by the
end of 1996 is determined under
Q&A–2 of this Notice. Similarly,
whether a distribution in 1996 from a
section 403(b) contract is a required
minimum distribution (and thus not an
eligible rollover distribution) is deter-
mined in accordance with the guidance
in Q&A–3 of this notice.
REQUEST FOR COMMENTS
CONCERNING RELAXATION OF
SECTION 411(d)(6)
Except to the extent provided by
regulations, section 411(d)(6)(B) pre-
cludes a plan amendment that eliminates
an optional form of benefit as it applies
to benefits accrued as of the later of the
adoption date or the effective date of the
amendment. The right to commence
benefit distributions in any form at a
particular time is an optional form of
benefit within the meaning of section
411(d)(6)(B) and Q&A–1(b) of
§ 1.411(d)–4 of the Income Tax Regula-
tions. When it enacted section 1404 of
the SBJPA, Congress did not alter the
application of section 411(d)(6). Accord-
ingly, an amendment that eliminates the
right to receive a distribution prior to
retirement (an in-service distribution) af-
ter age 70½ is precluded by section
411(d)(6) if the amendment applies to
benefits accrued as of the later of the
adoption date or the effective date of the
amendment.
A plan that retains in-service distribu-
tions after age 70½ (either as a manda-
tory or an optional form of distribution)
will satisfy the requirements of section
401(a)(9) as amended, and will not be
prohibited by section 411(d)(6). How-
ever, the Service and the Treasury rec-
ognize the potential complexity of ad-
ministering these distribution options.
Therefore, the Service and the Treasury
are considering the extent to which it is
appropriate to exercise the authority in
section 411(d)(6)(B) to permit plan
amendments to eliminate the option to
receive in-service distributions after age
70½. In making this determination, fac-
tors that the Service and the Treasury
will take into account include the impor-
tance to plan participants of protecting
the option to receive in-service distribu-
tions as well as the potential complexity
to employers, plan administrators and
participants of retaining the option.
The Service and the Treasury request
comments concerning the extent to
which a relaxation of section 411(d)(6)
protection is appropriate for amend-
ments that eliminate in-service distribu-
tions after age 70½ (e.g., by limiting
section 411(d)(6) protection to employ-
ees above a certain age). Because the
Service and the Treasury have received
requests that this guidance be provided
on an expedited basis, comments are
requested to be submitted by January
31, 1997.
Comments can be addressed to
CC:DOM:CORP:R (Notice 96–XX),
room 5228, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington, DC 20044. In the alternative,
comments may be hand delivered be-
tween the hours of 8 a.m. and 5 p.m. to
CC:DOM:CORP:R (Notice 96–XX),
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue NW.,
Washington, DC. Alternatively, taxpay-
ers may transmit comments electroni-
cally via the IRS Internet site at http://
www.irs.ustreas.gov/prod/tax_regs/
comments.html
DRAFTING INFORMATION
The principal author of this Notice is
Cheryl Press of the Office of the Asso-
ciate Chief Counsel (Employee Benefits
and Exempt Organizations). For further
information regarding this Notice, con-
tact Thomas R. Foley at (202) 622–6050
(not a toll-free number).
26 CFR 601.203: Offers in compromise.
(Also Part I, Section 7122; 301.7122–1)
Rev. Proc. 96–38
SECTION 1. PURPOSE
This revenue procedure provides
guidance to taxpayers who wish to sub-
mit offers in compromise on photo-
copies or computer generated copies of
Form 656, Offer in Compromise, pub-
lished by the Service at the time the
taxpayer makes the offer. This revenue
procedure also establishes the conditions
under which the Service will process
offers submitted on such forms. Specifi-
cally, this revenue procedure sets forth
the required content of a photocopied or
a computer generated Form 656 and
states that taxpayers who submit offers
on such copies authorize the Service to
treat them as verbatim duplicates of the
Form 656 published by the Service.
SEC. 2. CHANGES
.01 This revenue procedure provides
guidance to taxpayers who wish to sub-
mit offers in compromise on photo-
copies or computer generated copies of
Form 656, Offer in Compromise, which
the Service publishes and processes
when the taxpayer makes the offer.
13

.02 This revenue procedure declares
Rev. Proc. 57–41, 1957–2 C.B. 1119
and Rev. Proc. 80–6, 1980–1 C.B. 586
obsolete.
SEC. 3. PROCEDURE
.01 The Service administers an offer
in compromise program whereby a tax-
payer may submit an offer to compro-
mise a tax liability based on doubt as to
liability or doubt as to collectibility.
These offers are submitted on Form 656,
Offer in Compromise, which is revised
by the Service when necessary.
.02 The Service will receive for pro-
cessing legible photocopies or computer
generated copies that are verbatim dupli-
cates of the most current, revised ver-
sion of Form 656, Offer in Compromise,
published by the Service when the tax-
payer makes the offer. However, this
procedure only applies to revised ver-
sions of Form 656 showing a revision
date after September 1993. (See Sec. 6
for a description of the revised versions
of Form 656 to which this revenue
procedure applies.) An offer submitted
on a photocopy or computer generated
copy of Form 656 must be printed on
the same size paper the Service uses to
publish Forms 656 at the time the offer
is made. (The Service currently pub-
lishes Form 656 on paper measuring
eight and one-half by eleven inches).
.03 When a taxpayer makes an offer
on a form that appears to be a photo-
copy or computer generated copy of
Form 656, then pursuant to the terms of
that form, the taxpayer authorizes the
Service to treat the copy as a verbatim
duplicate of the Service’s most currently
revised version of Form 656 that has a
revision date after September 1993.
.04 An offer submitted on a photo-
copy or computer generated copy of
Form 656 must bear the taxpayer’s
original signature and initials, if re-
quired. The Service will not process an
offer in compromise bearing a signature
or initials that were duplicated by elec-
tronic or photographic means,i.e., a
facsimile transmission or photocopy.
.05 If a taxpayer submits an offer in
compromise on a photocopy or com-
puter generated copy of Form 656 and
the terms and conditions of the offer
appear on any page other than the front
and reverse sides of the signature page,
then the taxpayer must initial and date
all pages containing terms and condi-
tions of the offer.
.06 The decision whether to process
photocopies or computer generated cop-
ies of Form 656 remains within the
Service’s discretion.
SEC. 4. INQUIRIES
Inquiries regarding this revenue pro-
cedure should be directed to Internal
Revenue Service, Office of Special Pro-
cedures CP:CO:C:SP, 1111 Constitution
Avenue, N.W., Washington, D.C. 20224.
SEC. 5. EFFECT ON OTHER
REVENUE PROCEDURES
This revenue procedure declares Rev.
Proc. 57–41, 1957–2 C.B. 1119 and
Rev. Proc. 80–6, 1980–1 C.B. 586 obso-
lete. Rev. Proc. 57–41 is obsolete be-
cause it required taxpayers to use a re-
vision of Form 656 that is not currently
published or processed by the Service.
Rev. Proc. 80–6 is obsolete because the
delegations and procedural matters de-
scribed therein have been superseded,
i.e., delegations of authority are now set
forth in Delegation Order No. 11 (Rev.
24) and IRM Handbook 1229; all other
procedural matters described therein are
now set forth in Delegation Order No.
11 (Rev. 24), IRM Handbook 1229,
IRM 57(10)0 through 57(10)(23).4, IRM
8(13)20 through 8(13)70, and CCDM
(34)510 through (34)560.
SEC. 6. EFFECTIVE DATE
This revenue procedure is effective
when published. It applies to all revi-
sions of Form 656, Offer in Compro-
mise, showing a revision date after
September 1993. The Service is cur-
rently revising Form 656. The version of
Form 656 currently published by the
Service bears the revision date of Sep-
tember 1993. This revenue procedure
shall not apply to the September 1993
version of Form 656, and the Service
will not process substitute forms based
on that version, but will process substi-
tute forms based on the next revised
version.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Elizabeth Rawlins of the
Office of Assistant Chief Counsel (Gen-
eral Litigation). For further information
regarding this revenue procedure, con-
tact Elizabeth Rawlins on (202) 622–
3630 (not a toll-free call).
26 CFR 601.602: Forms and instructions.
(Also Part I, §§ 6011, 6051, 6071, 6081;
301.6011–2T, 31.6051–1, 31.6071(a)–1, 31.6081
(a)–1)
Rev. Proc. 96–57
SECTION 1. PURPOSE
.01 This revenue procedure provides
automatic extensions of time for (1)
furnishing Form W–2, Wage and Tax
Statement, to employees and (2) filing
Form W–2, with the Social Security
Administration (SSA) as provided in
§§ 31.6051–1(d)(2)(ii) and 31.6081(a)–
1(a)(3)(ii) of the Employment Tax Regu-
lations. These automatic extensions also
apply to Form 499R–2/W–2PR, With-
holding Statement; Form W–2VI, U.S.
Virgin Island Wage and Tax Statement;
Form W–2GU, Guam Wage and Tax
Statement; and Form W–2AS, American
Samoa Wage and Tax Statement. These
automatic extensions are only available
to ‘‘Qualified Employers,’’ as defined
below.
SECTION 2. BACKGROUND
.01 Section 6011(a) of the Internal
Revenue Code provides that any person
made liable for any tax, or for the
collection of the tax, must make a return
or statement according to the forms or
regulations prescribed by the Secretary.
.02 Section 31.6011(a)–1 prescribes
Form 941 as the form to use for persons
required to make a quarterly return
under the Federal Insurance Contribu-
tions Act.
.03 Section 31.6011(a)–4 prescribes
Form 941 as the form to use for persons
required to make a quarterly return of
income tax withheld from wages.
.04 Section 31.6011(a)–6 provides
that an employer who ceases to pay
wages reportable on Form 941 shall file
a final Form 941.
.05 Section 31.6071(a)–1 provides
that Form 941 generally must be filed
on or before the last day of the first
calendar month following the quarter for
which it is made.
.06 Section 6051(a) provides that (1)
every person required to deduct and
withhold income tax, or who would
have been required to deduct and with-
hold if the employee had claimed no
more than 1 withholding exemption, or
(2) every employer engaged in a trade
or business who pays remuneration for
services performed by an employee,
must furnish a written statement to an
employee regarding the remuneration
paid to the employee during the calen-
14

dar year. Section 31.6051–1(a) provides
that the statement is Form W–2. Form
W–2 must be furnished to the employee
on or before January 31 of the following
calendar year. If the employee’s employ-
ment is terminated before the close of
the calendar year, however, and the
employee requests the Form W–2 in
writing, the Form W–2 must be fur-
nished to the employee within 30 days
of the later of the written request from
the employee or the last payment of
wages, provided such 30-day period
ends before January 31.
.07 Section 31.6051–1(d)(1)(ii) pro-
vides that, effective January 1, 1997, an
employer who is required to file a final
Form 941 must furnish Forms W–2 to
its employees on or before the date
required for filing the final Form 941. If
the final Form 941 is a monthly return,
as described in § 31.6011(a)–5, the
Forms W–2 must be furnished on or
before the last day of the month in
which the final Form 941 is required to
be filed.
.08 Section 31.6071(a)–1(a)(3)(ii)
provides that, effective January 1, 1997,
an employer who is required to file a
final Form 941 must file Forms W–2 on
or before the last day of the second
calendar month following the period for
which the final Form 941 is filed.
.09 Section 301.6011–2T(b)(2) of the
temporary Regulations on Procedure and
Administration provides that if an em-
ployer is required to file 250 or more
Forms W–2, Forms 499R–2/W–2PR,
Forms W–2VI, Forms W–2GU, or
Forms W–2AS in a calendar year, the
employer must file these forms on mag-
netic media. The 250 return threshold
applies separately to each type of form.
Employers who file less than 250 of
these forms in a calendar year may file
their forms on magnetic media with
SSA, but are not required to do so.
.10 SSA prepares the magnetic media
specifications (Specifications) for filing
Forms W–2 and updates them annually.
SSA updates the Specifications generally
by July of the year to which they apply,
and prints them in Technical Information
Bulletin–4 (TIB–4). Employers may ob-
tain the Specifications by contacting
their Magnetic Media Coordinator (call
1–800–SSA–1213 for the number of the
local coordinator). Employers using a
personal computer and a modem can
download the TIB–4 from either of two
electronic bulletin board systems: SSA–
BBS (410–965–1133) or IRP–BBS(IRS)
(304–264–7070). Employers can gener-
ally obtain the Specifications by either
of these methods in July of the current
year.
.11 SSA mails the TIB–4 to those
employers who filed on magnetic media
in the prior year. SSA mails the TIB–4
early in the fourth quarter of each year
to allow employers sufficient time to
update their payroll systems for prepar-
ing the current year Forms W–2, which
generally are due the last day of Febru-
ary following the year in which the
wages were paid.
.12 SSA also prepares the magnetic
media specifications for Forms 499R–2/
W–2PR, Forms W–2VI, Forms W–2GU,
and Forms W–2AS. These specifica-
tions, which are published in TIB–5
(Forms 499R–2/W–2PR); TIB–6 (Form
W–2VI); and TIB–7 (Forms W–2GU
and Forms W–2AS), are available early
in the fourth quarter of the year to
which they apply.
.13 Section 31.6051–1(d)(2)(ii) pro-
vides that the Commissioner may pub-
lish procedures for automatic extensions
of time to furnish Forms W–2 to em-
ployees where the employer is required
to furnish Forms W–2 on an expedited
basis.
.14 Section 31.6081(a)–1(a)(3)(ii)
provides that the Commissioner may
publish procedures for automatic exten-
sions of time to file Forms W–2 with
SSA where the employer is required to
file Forms W–2 on an expedited basis.
.15 Automatic extensions are appro-
priate for those employers who are
required to (1) furnish Forms W–2 to
employees and file Forms W–2 with
SSA on an expedited basis, and (2) file
Forms W–2 on magnetic media before
the current Specifications are available.
They are also appropriate for those
employers who have filed on magnetic
media in the prior year, even though not
required to do so. While use of mag-
netic media does not apply to Forms
W–2 furnished to employees, an ex-
tended due date for the employee copy
of Forms W–2 is granted to allow the
employer to prepare all the Forms W–2
at approximately the same time.
SECTION 3. SCOPE
.01Qualified Employers.The auto-
matic extensions of time are available to
‘‘Qualified Employers.’’ A ‘‘Qualified
Employer’’ is an employer who:
1) is required to furnish Forms W–2
to its employees on an expedited basis
under § 31.6051–1(d)(1)(ii) and file
Forms W–2 with SSA on an expedited
basis under § 31.6071(a)–1(a)(3)(ii),
and
2) is either required to file the expe-
dited Forms W–2 with SSA on magnetic
media, or filed Forms W–2 on magnetic
media in the year prior to the year that
expedited Forms W–2 are required
(whether or not the employer was re-
quired to file on magnetic media in the
prior year).
.02Application to returns filed by
employers for employees in Guam, U.S.
Virgin Islands, American Samoa and
Puerto Rico.Wage and tax statements
filed by employers for employees in
Guam, U.S. Virgin Islands, American
Samoa and Puerto Rico (Form W–2GU,
Form W–2VI, Form W–2AS and Form
499R–2/W–2PR, respectively) are
treated in the same manner as Forms
W–2.
SECTION 4. AUTOMATIC
EXTENSION PERIOD
.01 Qualified Employers must furnish
Forms W–2 to the employees on or
before the later of the expedited due
date under § 31.6051–1(d)(1)(ii) or Oc-
tober 31 of the year in which they file
their final Form 941.
.02 This automatic extension of time
to furnish Forms W–2 to employees
does not relieve an employer of its
obligation to furnish a Form W–2 within
30 days to any employee who makes
such a request in writing under § 6051.
.03 Qualified Employers must file
Forms W–2 on or before the later of the
expedited due date under § 31.6071(a)–
1(a)(3)(ii) or November 30 of the year
in which they file their final Form 941.
.04 These automatic extension peri-
ods remain in effect until new automatic
extension periods are published by the
Commissioner.
SECTION 5. DISCRETIONARY
EXTENSIONS
.01 Qualified Employers may request
additional extensions of time to furnish
Forms W–2 to employees and file
Forms W–2 with SSA. Additional exten-
sions of time are discretionary and
should be requested from the Director,
Martinsburg Computing Center. See
§§ 31.6051–1(d)(2)(i), 31.6081(a)–
1(a)(3)(i) and Form 8809.
.02 Employers who do not meet the
definition of a ‘‘Qualified Employer’’
may request an extension of time to
furnish Forms W–2 to employees and
file Forms W–2 with SSA. These exten-
15

sions of time are discretionary and
should be requested from the Director,
Martinsburg Computing Center. See
§§ 31.6051–1(d)(2)(i), 31.6081(a)–
1(a)(3)(i) and Form 8809.
SECTION 6. EFFECTIVE DATE
This revenue procedure is effective
January 1, 1997.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Jean M. Casey of the
Office of the Associate Chief Counsel
(Employee Benefits and Exempt Organi-
zations). For further information regard-
ing this revenue procedure, contact Ms.
Casey on (202) 622–6040 (not a toll-
free call).
26 CFR 601.105: Examination of returns and
claims for refund, credit or abatement; determina-
tion of correct tax liability.
(Also Part I, § 6662.)
Rev. Proc. 96–58
SECTION 1. PURPOSE
.01 This revenue procedure updates
Rev. Proc. 95–55, 1995–2 C.B. 457, and
identifies circumstances under which the
disclosure on a taxpayer’s return of a
position with respect to an item is
adequate for the purpose of reducing the
understatement of income tax under
§ 6662(d) of the Internal Revenue Code
(relating to the substantial understate-
ment aspect of the accuracy-related pen-
alty), and for the purpose of avoiding
the preparer penalty under § 6694(a)
(relating to understatements due to unre-
alistic positions). This revenue proce-
dure does not apply with respect to any
other penalty provision (including the
negligence or disregard provisions of the
§ 6662 accuracy-related penalty).
.02 This revenue procedure applies to
any return filed on 1996 tax forms for a
taxable year beginning in 1996, and to
any return filed on 1996 tax forms in
1997 for short taxable years beginning
in 1997.
SEC. 2. CHANGES FROM REV.
PROC. 95–55
Editorial changes only have been
made in this revenue procedure.
SEC. 3. BACKGROUND
.01 If § 6662 applies to any portion
of an underpayment of tax required to
be shown on a return, an amount equal
to 20 percent of the portion of the
underpayment to which the section ap-
plies is added to the tax. (The penalty
rate is 40 percent in the case of certain
gross valuation misstatements.) Under
§ 6662(b)(2), § 6662 applies to the por-
tion of an underpayment that is attribut-
able to a substantial understatement of
income tax.
.02 Section 6662(d)(1) provides that
there is a substantial understatement of
income tax if the amount of the under-
statement exceeds the greater of 10
percent of the amount of tax required to
be shown on the return for the taxable
year or $5,000 ($10,000 in the case of a
corporation other than an S corporation
or a personal holding company). Section
6662(d)(2) defines an understatement as
the excess of the amount of tax required
to be shown on the return for the
taxable year over the amount of the tax
that is shown on the return reduced by
any rebate (within the meaning of §
6211(b)(2)).
.03 In the case of an item not attrib-
utable to a tax shelter, § 6662(d)(2)-
(B)(ii) provides that the amount of the
understatement is reduced by the portion
of the understatement attributable to any
item with respect to which the relevant
facts affecting the item’s tax treatment
are adequately disclosed on the return or
on a statement attached to the return,
and there is a reasonable basis for the
tax treatment of such item by the tax-
payer.
.04 In general, this revenue procedure
provides guidance in determining when
disclosure is adequate for purposes of
§ 6662(d). For purposes of this revenue
procedure, the taxpayer must furnish all
required information in accordance with
the applicable forms .and instructions,
and the money amounts entered on these
forms must be verifiable. Guidance un-
der § 6662(d) for returns filed in 1994,
1995, and 1996 is provided in Rev.
Proc. 94–36, 1994–1 C.B. 682; Rev.
Proc. 94–74, 1994–2 C.B. 823; and Rev.
Proc. 95–55, 1995–2 C.B. 457, respec-
tively.
SEC. 4. PROCEDURE
.01 Additional disclosure of facts rel-
evant to, or positions taken with respect
to, issues involving any of the items set
forth below is unnecessary for purposes
of reducing any understatement of in-
come tax under § 6662(d) provided that
the forms and attachments are com-
pleted in a clear manner and in accor-
dance with their instructions. The money
amounts entered on the forms must be
verifiable, and the information on the
return must be disclosed in the manner
described below. For purposes of this
revenue procedure, a number is verifi-
able if, on audit, the taxpayer can
demonstrate the origin of the number
(even if that number is not ultimately
accepted by the Internal Revenue Ser-
vice) and the taxpayer can show good
faith in entering that number on the
applicable form.
(1) Form 1040, Schedule A, Item-
ized Deductions:
(a) Medical and Dental Ex-
penses: Complete lines 1 through 4,
supplying all required information.
(b) Taxes: Complete lines 5
through 9, supplying all required infor-
mation. Line 8 must list each type of tax
and the amount paid.
(c) Interest Expense: Complete
lines 10 through 14, supplying all re-
quired information. This section
4.01(1)(c) does not apply to (i) amounts
disallowed under § 163(d) unless Form
4952, Investment Interest Expense De-
duction, is completed, or (ii) amounts
disallowed under § 265.
(d) Contributions: Complete
lines 15 through 18, supplying all re-
quired information. Merely entering the
amount of the donation on Schedule A,
however, will not constitute adequate
disclosure if the taxpayer receives a
substantial benefit from the donation
shown. If a contribution of property
other than cash is made and the amount
claimed as a deduction exceeds $500, a
properly completed Form 8283, Noncash
Charitable Contributions, must be at-
tached to the return. This section
4.01(1)(d) will not apply to any contri-
bution of $250 or more unless the
contemporaneous written acknowledge-
ment requirement of § 170(f)(8) is satis-
fied.
(e) Casualty and Theft Losses:
Complete Form 4684, Casualties and
Thefts, and attach to the return. Each
item or article for which a casualty or
theft loss is claimed must be listed on
Form 4684.
(2) Certain Trade or Business Ex-
penses (including, for purposes of this
section 4.01(2), the following six ex-
penses as they relate to the rental of
property):
(a) Casualty and Theft Losses:
The procedure outlined in section
4.01(1)(e) above must be followed.
(b) Legal Expenses: The amount
claimed must be stated. This section
4.01(2)(b) does not apply, however, to
amounts properly characterized as capi-
16

tal expenditures, personal expenses, or
nondeductible lobbying or political ex-
penditures, including amounts that are
required to be (or that are) amortized
over a period of years.
(c) Specific Bad Debt Charge-
off: The amount written off must be
stated.
(d) Reasonableness of Officers’
Compensation: Form 1120, Schedule E,
Compensation of Officers, must be com-
pleted when required by its instructions.
The time devoted to business must be
expressed as a percentage as opposed to
‘‘part’’ or ‘‘as needed.’’ This section
4.01(2)(d) does not apply to ‘‘golden
parachute’’ payments, as defined under
§ 280G. This section 4.01(2)(d) will not
apply to the extent that remuneration
paid or incurred exceeds the $1 million
employee remuneration limitation, if ap-
plicable.
(e) Repair Expenses: The
amount claimed must be stated. This
section 4.01(2)(e) does not apply, how-
ever, to any repair expenses properly
characterized as capital expenditures or
personal expenses.
(f) Taxes (other than foreign
taxes): The amount claimed must be
stated.
(3) Form 1120, Schedule M–1,
Reconciliation of Income (Loss) per
Books With Income per Return, pro-
vided:
(a) The amount of the deviation
from the financial books and records is
not the result of a computation that
includes the netting of items; and
(b) The information provided
reasonably may be expected to apprise
the Internal Revenue Service of the
nature of the potential controversy con-
cerning the tax treatment of the item.
(4) Foreign Tax Items:
(a) International Boycott Trans-
actions: Transactions disclosed on Form
5713, International Boycott Report.
(b) Intercompany Transactions:
Transactions and amounts shown on
Schedule M (Form 5471), Transactions
Between Controlled Foreign Corporation
and Shareholders or Other Related Per-
sons, lines 19 and 20, and Form 5472,
Part IV, Monetary Transactions Between
Reporting Corporations and Foreign Re-
lated Party, lines 7 and 18.
(5) Other:
(a) Moving Expenses: Complete
Form 3903, Moving Expenses, or Form
3903–F, Foreign Moving Expenses, and
attach to the return.
(b) Sale or Exchange of Your
Main Home: Complete Form 2119, Sale
of Your Home, and attach to the return.
(c) Employee Business Ex-
penses: Complete Form 2106, Employee
Business Expenses, or Form 2106–EZ,
Unreimbursed Employee Business Ex-
penses, and attach to the return. This
section 4.01(5)(c) does not apply to club
dues, or to travel expenses for any
non-employee accompanying the tax-
payer on a trip.
(d) Fuels Credit: Complete Form
4136, Credit for Federal Tax Paid on
Fuels, and attach to the return.
(e) Investment Credit: Complete
Form 3468, Investment Credit, and at-
tach to the return.
SEC. 5. EFFECTIVE DATE
.01 This revenue procedure applies to
any return filed on 1996 tax forms for a
taxable year beginning in 1996, and to
any return filed on 1996 tax forms in
1997 for short taxable years beginning
in 1997.
SEC. 6. DRAFTING INFORMATION
The principal author of this revenue
procedure is Marcia Rachy of the Office
of Assistant Chief Counsel (Income Tax
and Accounting). For further information
regarding this revenue procedure, con-
tact Ms. Rachy on (202) 622–6232 (not
a toll-free call).
26 CFR 601.602: Tax forms and instructions.
(Also Part I, §§ 1, 32, 59, 63, 68, 132, 135, 151, 170, 512, 513, 877, 4001, 4003, 6012, 6013, 6033, 6039F, 7430; 1.1–1, 1.32–2, 1.63–1, 1.151–4, 1.170–1,
1.6012–1, 1.6013–1)
Rev. Proc. 96–59
Table of Contents
SECTION 1. PURPOSE
SECTION 2. HANGES MADE FROM PRECEDING YEAR
SECTION 3. 1997 ADJUSTED ITEMS
Code Section
.01 Tax Rate Tables1(a)–(e)
.02 Unearned Income of Minor Children Taxed as if Parent’s Income (‘‘Kiddie Tax’’)1(g)
.03 Earned Income Tax Credit32
.04 Alternative Minimum Tax Exemption for ‘‘Kiddie Tax’’ Reported on Parent’s Return59(j)
.05 Standard Deduction63
.06 Overall Limitation on Itemized Deductions68
.07 Qualified Transportation Fringe132(f)
.08 Income from United States Savings Bonds for Taxpayers Who Pay Qualified Higher Education
Expenses
135
.09 Personal Exemption151
.10 Treatment of Dues Paid to Agricultural or Horticultural Organizations.512(d)
.11 Insubstantial Benefit Limitations for Contributions Associated with Charitable Fund-Raising
Campaigns
513(h)
.12 Expatriation to Avoid Tax877
.13 Luxury Automobile Excise Tax4001 & 4003
.14 Reporting Exception for Certain Exempt Organizations with Nondeductible Lobbying
Expenditures
6033(e)(3)
17

Code Section
.15 Notice of Large Gifts Received from Foreign Persons6039F
.16 Attorney Fee Awards7430
SECTION 4. COMPUTATION OF INFLATION ADJUSTMENTS
SECTION 5. 1997 INFLATION ADJUSTMENT FACTORS
SECTION 6. EFFECT ON OTHER DOCUMENTS
SECTION 7. EFFECTIVE DATE
SECTION 8. DRAFTING INFORMATION
SECTION 1. PURPOSE
This revenue procedure sets forth in-
flation adjusted items for 1997.
SECTION 2. CHANGES MADE
FROM PRECEDING YEAR
.01 Amounts used to determine eligi-
bility for the elective method under
§ 1(g)(7) to report the ‘‘kiddie tax’’ on
the parent’s tax return, and to make
computations under this method, are
adjusted for inflation for tax years be-
ginning in 1997. See section 3.02 of this
revenue procedure.
.02 The amount of investment in-
come that causes an individual to be
denied the earned income tax credit
under § 32(i) is adjusted for inflation
for tax years beginning in 1997. See
section 3.03(2) of this revenue proce-
dure.
.03 A limited exemption from the
alternative minimum tax under § 59(j)
for a child subject to the ‘‘kiddie tax’’ is
adjusted for inflation for tax years be-
ginning in 1997. See section 3.04 of this
revenue procedure.
.04 The maximum amount of annual
dues that can be paid to certain agricul-
tural or horticultural organizations under
§ 512(d)(1) without any portion being
treated as unrelated trade or business
income by reason of any benefits or
privileges available to members is ad-
justed for inflation for tax years begin-
ning in 1997. See section 3.10 of this
revenue procedure.
.05 The amounts used under § 877 to
determine whether a principal purpose
of expatriation is to avoid tax are ad-
justed for inflation for calendar year
1997. See section 3.12 of this revenue
procedure.
.06 The amount of gifts in a taxable
year from foreign person(s), which trig-
gers a reporting requirement for a
United States person under § 6039F, is
adjusted for inflation for tax years be-
ginning in 1997. See section 3.15 of this
revenue procedure.
.07 The hourly limit on attorney fees
that may be awarded under § 7430, in a
judgment or settlement of an administra-
tive or judicial proceeding concerning
the determination, collection, or refund
of tax, interest, or penalty under the
Code, is adjusted for inflation for tax
years beginning in 1997. See section
3.16 of this revenue procedure.
SECTION 3. 1997 ADJUSTED
ITEMS
.01Tax Rate Tables.The follow-
ing adjusted tax rate tables are pre-
scribed in lieu of the tables in subsec-
tions (a), (b), (c), (d), and (e) of § 1 of
the Code with respect to tax years
beginning in 1997.
TABLE 1—Section 1(a).—MARRIED INDIVIDUALS FILING JOINT RETURNS AND SURVIVING SPOUSES
If Taxable Income Is:The Tax Is:
Not Over $41,20015% of the taxable income
Over $41,200 but not over $99,600$6,180 plus 28% of the excess over $41,200
Over $99,600 but not over $151,750$22,532 plus 31% of the excess over $99,600
Over $151,750 but not over $271,050$38,698.50 plus 36% of the excess over $151,750
Over $271,050$81,646.50 plus 39.6% of the excess over $271,050
TABLE 2—Section 1(b).—HEADS OF HOUSEHOLDS
If Taxable Income Is:The Tax Is:
Not Over $33,05015% of the taxable income
Over $33,050 but not over $85,350$4,957.50 plus 28% of the excess over $33,050
Over $85,350 but not over $138,200$19,601.50 plus 31% of the excess over $85,350
Over $138,200 but not over $271,050$35,985 plus 36% of the excess over $138,200
Over $271,050$83,811 plus 39.6% of the excess over $271,050
TABLE 3—Section 1(c).—UNMARRIED INDIVIDUALS (OTHER THAN SURVIVING SPOUSES
AND HEADS OF HOUSEHOLDS)
If Taxable Income Is:The Tax Is:
Not Over $24,65015% of the taxable income
Over $24,650 but not over $59,750$3,697.50 plus 28% of the excess over $24,650
18

TABLE 3—Section 1(c).—UNMARRIED INDIVIDUALS (OTHER THAN SURVIVING SPOUSES
AND HEADS OF HOUSEHOLDS)—Continued
If Taxable Income Is:The Tax Is:
Over $59,750 but not over $124,650$13,525.50 plus 31% of the excess over $59,750
Over $124,650 but not over $271,050$33,644.50 plus 36% of the excess over $124,650
Over $271,050$86,348.50 plus 39.6% of the excess over $271,050
TABLE 4—Section 1(d).—MARRIED INDIVIDUALS FILING SEPARATE RETURNS
If Taxable Income Is:The Tax Is:
Not Over $20,60015% of the taxable income
Over $20,600 but not over $49,800$3,090 plus 28% of the excess over $20,600
Over $49,800 but not over $75,875$11,266 plus 31% of the excess over $49,800
Over $75,875 but not over $135,525$19,349.25 plus 36% of the excess over $75,875
Over $135,525$40,823.25 plus 39.6% of the excess over $135,525
TABLE 5—Section 1(e).—ESTATES AND TRUSTS
If Taxable Income Is:The Tax Is:
Not Over $1,65015% of the taxable income
Over $1,650 but not over $3,900$247.50 plus 28% of the excess over $1,650
Over $3,900 but not over $5,950$877.50 plus 31% of the excess over $3,900
Over $5,950 but not over $8,100$1,513 plus 36% of the excess over $5,950
Over $8,100$2,287 plus 39.6% of the excess over $8,100
.02Unearned Income of Minor Chil-
dren Taxed as if Parent’s Income (the
‘‘Kiddie Tax’’).
(1)Reporting on Child’s Return.
(a) Section 1(g) provides that the
tax on the net unearned income of a
child under the age of 14 is computed at
the marginal rate of the child’s parent.
Under § 1(g)(4)(A)(ii), net unearned in-
come generally equals unearned income
less the sum of (I) the amount in effect
for the tax year under § 63(c)(5)(A),
plus (II) the greater of the amount
described in (I) or certain itemized de-
ductions.
(b) The amount in effect for tax
years beginning in 1997 under
§ 63(c)(5)(A) is $650. See section
3.05(2) below. Accordingly, for tax
years beginning in 1997, net unearned
income will generally equal unearned
income less the greater of $1,300 or
$650 plus certain itemized deductions.
(2)Election to Report on Parent’s
Return.
(a) Section 1(g)(7)(A) provides
that if a child’s gross income from
interest and dividends is more than the
amount described in § 1(g)(4)(A)(ii)(I)
and less than ten times that amount, and
certain other conditions are met, a par-
ent may elect to include a child’s gross
income in the parent’s gross income for
the taxable year. Under § 1(g)(7)(B),
the ‘‘kiddie tax’’ is determined by (I)
including the portion of a child’s gross
income in the parent’s gross income to
the extent that the child’s gross income
exceeds twice the amount described in
§ 1(g)(4)(A)(ii)(I), and (II) adding to
the tax on that income the lesser of 15
percent of either the amount described
in § 1(g)(4)(A)(ii)(I) or the excess of
the child’s gross income over such
amount.
(b) The amount in effect for tax
years beginning in 1997 under
§ 1(g)(4)(A)(ii)(I), which is also the
amount under § 63(c)(5)(A) (see section
3.02(1)(b) above), is $650. Accordingly,
for tax years beginning in 1997, to
qualify to make the parent’s election, the
child’s gross income from interest and
dividends must be more than $650 and
less than $6,500 pursuant to § 1(g)-
(7)(A). Under § 1(g)(7)(B), the ‘‘kiddie
tax’’ is imposed on the parent by (I)
including a child’s gross income in ex-
cess of $1,300 in the parent’s gross in-
come, and (II) adding to the tax on that
income the lesser of either $97.50 (or
$98 if the taxpayer elects to round on
the return) or 15 percent of the excess
of the child’s gross income over $650.
.03Earned Income Tax Credit.
(1)Amount of credit; phaseout in-
come levels.
(a) Section 32(a)(1) provides an
earned income tax credit amount for
certain taxpayers with one child, two or
more children, or no children. For tax
years beginning in 1997, the ‘‘maximum
amount of the credit’’ is calculated by
multiplying the ‘‘earned income
amount’’ by the ‘‘credit percentage’’ as
follows:
19

Type of TaxpayerCredit PercentageEarned Income Amount
Maximum Amount
of the Credit
1 child34$6,500$2,210
2 or more children40$9,140$3,656
No children7.65$4,340$ 332
(b) Section 32(a)(2) provides for the phaseout of the earned income tax credit. The amount of the reduction in the
maximum amount of the credit caused by the phaseout is calculated by multiplying the ‘‘phaseout percentage’’ by the amount
by which the taxpayer’s adjusted gross income (or, if greater, earned income) exceeds the ‘‘threshold phaseout amount.’’ For tax
years beginning in 1997, the ‘‘phaseout percentages,’’ the ‘‘threshold phaseout amounts,’’ and the ‘‘completed phaseout
amounts’’ are as follows:
Type of TaxpayerPhaseout Percentage
Threshold Phaseout
Amount
Completed Phaseout
Amount
1 child15.98$11,930$25,760
2 or more children21.06$11,930$29,290
No children7.65$ 5,430$ 9,770
(c) The Internal Revenue Service
will prescribe tables showing the
amount of the earned income tax credit
for each type of taxpayer.
(2)Excessive investment income.
(a) Under § 32(i), the earned in-
come tax credit is denied if the aggre-
gate amount of certain investment in-
come for the taxable year exceeds
$2,200 (the ‘‘disqualified income limita-
tion’’).
(b) For tax years beginning in
1997, the ‘‘disqualified income limita-
tion’’ is $2,250.
.04Alternative Minimum Tax Exemp-
tion for ‘‘Kiddie Tax’’ Reported on Par-
ent’s Return.
(1) Section 59(j) provides that for
a child to whom § 1(g) applies, the
exemption amount for purposes of the
alternative minimum tax under § 55
shall not exceed the sum of (A) such
child’s earned income for the taxable
year, plus (B) twice the amount in effect
for the taxable year under § 63(c)(5)(A)
(or, if greater, the child’s share of the
unused parental minimum tax exemp-
tion).
(2) The amount in effect for tax
years beginning in 1997 under
§ 63(c)(5)(A) is $650. See section
3.05(2) below. Accordingly, for tax
years beginning in 1997, twice the
amount in effect for the taxable year
under § 63(c)(5)(A) is $1,300.
.05Standard Deduction.
(1) The following adjusted stan-
dard deduction amounts are prescribed
in lieu of the amounts set forth in
§ 63(c)(2) with respect to tax years
beginning in 1997.
Filing Status
Standard
Deduction
MARRIED INDIVIDUALS
FILING JOINT RETURNS
AND SURVIVING
SPOUSES (§ 1(a))
$6,900
HEADS OF HOUSE-
HOLDS (§ 1(b))
$6,050
UNMARRIED INDIVIDU-
ALS (OTHER THAN
SURVIVING SPOUSES
AND HEADS OF
HOUSEHOLDS) (§ 1(c))
$4,150
MARRIED INDIVIDUALS
FILING SEPARATE RE-
TURNS (§ 1(d))
$3,450
(2) Under § 63(c)(5)(A) for tax
years beginning in 1997, the standard
deduction for an individual who may be
claimed as a dependent by another tax-
payer for a tax year beginning in the
calendar year in which the individual’s
tax year begins, cannot exceed the
greater of (A) $650 or (B) the amount
of the individual’s earned income.
(3) Under § 63(f) for tax years
beginning in 1997, the additional stan-
dard deduction amounts for the aged
and for the blind are $800 for each.
These amounts are each increased to
$1,000 if the individual is also unmar-
ried and not a surviving spouse.
.06Overall Limitation on Itemized
Deductions.
(1) Section 68 provides that the
amount of itemized deductions other-
wise allowable for the tax year shall be
reduced by the lesser of (1) 3 percent of
the excess of adjusted gross income
over the ‘‘applicable amount,’’ or (2) 80
percent of the amount of certain item-
ized deductions otherwise allowable for
the tax year.
(2) The ‘‘applicable amount’’ for
tax years beginning in 1997 is $121,200
($60,600 in the case of a separate return
filed by a married individual within the
meaning of § 7703).
.07Qualified Transportation Fringe.
(1) Section 132(f) provides an ex-
clusion from gross income for certain
employer-provided transportation re-
ferred to as a ‘‘qualified transportation
fringe.’’ A ‘‘qualified transportation
fringe’’ means any of the following:
transportation in a commuter highway
vehicle between the employee’s resi-
dence and place of employment, any
transit pass, and qualified parking. Sec-
tion 132(f)(2)(A) limits the exclusion for
the aggregate of the transportation in a
commuter highway vehicle and the tran-
sit pass to $60 per month (the ‘‘$60
vehicle/transit’’ limitation). Section
132(f)(2)(B) limits the exclusion for
qualified parking to $155 per month (the
‘‘$155 parking’’ limitation).
(2) For tax years beginning in
1997, the ‘‘$60 vehicle/transit’’ limita-
tion is $65 and the ‘‘$155 parking’’
limitation is $170.
.08Income from United States Sav-
ings Bonds for Taxpayers Who Pay
Qualified Higher Education Expenses.
(1) Section 135 provides an exclu-
sion of income from the redemption of
United States savings bonds for taxpay-
ers who pay qualified higher education
expenses. Section 135(b)(2) provides for
the phaseout of the exclusion. The
amount of the reduction in the exclusion
caused by the phaseout is calculated by
multiplying the amount otherwise ex-
cludable by a fraction. The numerator of
the fraction is the excess of the taxpay-
er’s modified adjusted gross income
20

over the threshold amount ($60,000 for
joint returns or $40,000 for others) and
the denominator is $30,000 for joint
returns or $15,000 for others.
(2) For tax years beginning in
1997, the amounts of modified adjusted
gross income above which the phaseout
of the exclusion begins (‘‘threshold
phaseout amounts’’), and the amounts at
which the benefit is completely phased
out (‘‘completed phaseout amounts’’),
are as follows:
Filing Status
Threshold
Phaseout
Amount
Completed
Phaseout
Amount
Code § 1(a) $76,250 $106,250
Others$50,850 $ 65,850
.09Personal Exemption.
(1) Section 151(b) generally allows
a taxpayer an exemption for himself or
herself. Section 151(c) generally allows
a taxpayer additional exemptions for
dependents as defined in § 152. The
personal exemption for tax years begin-
ning in 1997 is $2,650.
(2) Section 151(d)(3) provides for
the phaseout of the tax benefit of the
personal exemptions allowed by § 151.
The reduction in the amount of personal
exemptions caused by the phaseout is
calculated by reducing the total amount
of the personal exemptions by 2 percent
for each $2,500 increment (or portion
thereof) of adjusted gross income in
excess of a threshold phaseout amount.
For tax years beginning in 1997, the
‘‘threshold phaseout amounts’’ and the
‘‘completed phaseout amounts’’ are as
follows:
Filing Status
Threshold
Phaseout
Amount
Completed
Phaseout
Amount
After
Code § 1(a) $181,800 $304,300
Code § 1(b) $151,500 $274,000
Code § 1(c) $121,200 $243,700
Code § 1(d) $ 90,900 $152,150
.10Treatment of Dues Paid to Agri-
cultural or Horticultural Organizations.
(1) Section 512(d)(1) provides that
no portion of annual dues required by
an agricultural or horticultural organiza-
tion described in § 501(c)(5) is treated
as derived from an unrelated trade or
business by reason of any benefits or
privileges to which members are entitled
if the amount of required annual dues
from each member does not exceed
$100 (the ‘‘$100 amount’’).
(2) For tax years beginning in
1997, the ‘‘$100 amount’’ is $106.
.11Insubstantial Benefit Limitations
for Contributions Associated with Chari-
table Fund-Raising Campaigns.
(1) Section 513(h)(1)(A) provides
that, in the case of certain exempt
organizations, the term ‘‘unrelated busi-
ness income’’ does not include activities
relating to the distribution of ‘‘low cost
articles’’ (as defined in § 513(h)(2)) if
the distribution of such articles is inci-
dental to the solicitation of charitable
contributions.
(2) Section 3 of Rev. Proc. 90–12,
1990–1 C.B. 471, as amplified by Rev.
Proc. 92–49, 1992–1 C.B. 987, and as
modified by Rev. Proc. 92–102, 1992–2
C.B. 579, provides guidelines for deter-
mining the deductible amount of contri-
butions under § 170 when contributors
receive something in return for their
contributions. The guidelines provide
that insubstantial benefits received by a
contributor (in the context of a chari-
table fund-raising campaign) are disre-
garded, which makes the contribution
fully deductible under § 170. The
guidelines further provide the following
three alternative limitations on what are
insubstantial benefits:
(a) The fair market value of all
the benefits received is not more than
2-percent of the contribution, or $50
(the ‘‘$50 benefit’’ limitation), which-
ever is less;
(b) The contribution is $25 (the
‘‘$25 payment’’ limitation) or more, and
the only benefits received by the donor
in return during the calendar year have a
cost, in the aggregate, of not more than
a ‘‘low cost article’’ under § 513(h)(2);
or
(c) In connection with a request
for a charitable contribution, the charity
mails or otherwise distributes free, unor-
dered items to patrons, and the cost of
such items (in the aggregate) distributed
to any single patron in a calendar year
is not more than a ‘‘low cost article’’
under § 513(h)(2).
(3) For tax years beginning in
1997, the ‘‘$50 benefit’’ limitation is
$69, the ‘‘$25 payment’’ limitation is
$34.50, and the ‘‘low cost article’’ limi-
tation is $6.90.
.12Expatriation to Avoid Tax.
(1) Under § 877(a)(1), an indi-
vidual who loses United States citizen-
ship may be subject to taxation under
§ 877(b) if a principal purpose of such
loss is the avoidance of tax. Under
§ 877(a)(2), an individual is treated as
having the avoidance of tax as a princi-
pal purpose of such loss if (A) the
average annual net income tax (as de-
fined in § 38(c)(1)) of such individual
for a period of 5 taxable years ending
before the date of the loss of United
States citizenship is greater than
$100,000 (the ‘‘$100,000 amount’’) or
(B) the net worth of the individual as of
such date is $500,000 or more (the
‘‘$500,000 amount’’).
(2) For calendar year 1997, the
‘‘$100,000 amount’’ is $106,000 and the
‘‘$500,000 amount’’ is $528,000.
.13Luxury Automobile Excise Tax.
(1) Section 4001(a) imposes an ex-
cise tax on the first retail sale of any
passenger vehicle to the extent the price
exceeds $30,000 (the ‘‘$30,000
amount’’). Section 4003(a) imposes an
excise tax on the installation of parts or
accessories on a passenger vehicle
within six months of the date after the
vehicle was first placed in service, to
the extent the price of all parts and
accessories, including installation, and
the price of the vehicle exceed the
‘‘$30,000 amount.’’
(2) For calendar year 1997, the
‘‘$30,000 amount’’ is $36,000.
.14Reporting Exception for Certain
Exempt Organizations with Nondeduct-
ible Lobbying Expenditures.
(1) Section 6033(e)(1)(A) provides
that certain exempt organizations that
pay or incur nondeductible lobbying
expenditures must include the total of
those expenditures on their annual re-
turns and must notify their members
with a reasonable estimate of the portion
of dues allocated to those expenditures.
Section 6033(e)(3) provides that
§ 6033(e)(1)(A) shall not apply to an
organization that establishes to the satis-
faction of the Secretary that substan-
tially all of its dues are nondeductible
without regard to the lobbying expendi-
ture restrictions. Section 4.02 of Rev.
Proc. 95–35, 1995–2 C.B. 391, provides
that § 501(c)(4) social welfare organiza-
tions and § 501(c)(5) agricultural and
horticultural organizations are treated as
satisfying § 6033(e)(3) if either (1)
more than 90 percent of all annual dues
are received from persons, families, or
entities who each pay $50 or less (the
‘‘$50 exception’’ amount), or (2) more
than 90 percent of all annual dues are
received from certain exempt entities.
(2) For tax years beginning in
1997, the ‘‘$50 exception’’ amount is
$53.
.15Notice of Large Gifts Received
from Foreign Persons.
(1) Section 6039F requires that a
United States person report information
on gifts from foreign persons if the
21

aggregate of such gifts from all such
persons exceeds $10,000 (the ‘‘$10,000
amount’’) in a taxable year.
(2) For tax years beginning in
1997, the ‘‘$10,000 amount’’ is $10,276.
.16Attorney Fee Awards.
(1) Under § 7430, attorney fees
may be awarded in a judgment or
settlement of an administrative or judi-
cial proceeding concerning the determi-
nation, collection, or refund of tax,
interest, or penalty under the Code. The
attorney fees are subject to an hourly
limit of $110 (the ‘‘$110 amount’’)
pursuant to § 7430(c)(1).
(2) For calendar year 1997, the
‘‘$110 amount’’ is $110.
SECTION 4. COMPUTATION OF
INFLATION ADJUSTMENTS
.01Tax Rate Tables.
(1) Section 1(f)(1) provides that
not later than December 15 of each
calendar year, the Secretary shall pre-
scribe inflation-adjusted tax rate tables
that apply in lieu of the tax rate tables
in § 1 with respect to tax years begin-
ning in the succeeding calendar year.
(2) Under § 1(f)(3), the inflation
adjustment for a calendar year is the
percentage (if any) by which the Con-
sumer Price Index (CPI) for the preced-
ing calendar year exceeds the CPI for
the calendar year 1992. However,
§ 1(f)(7)(B) provides that in prescribing
the inflation adjustments for the 36
percent and 39.6 percent tax rate brack-
ets, the preceding calendar year’s CPI is
compared with the CPI for the calendar
year 1993. For purposes of computing
the inflation adjustment, § 1(f)(4) de-
fines the CPI as the average of the 12
monthly CPIs for the 12-month period
ending on August 31 of such calendar
year. Under § 1(f)(5), the CPI is that for
all-urban consumers published by the
Department of Labor.
(3) Section 1(f)(2)(A) provides that
the inflation adjustment is reflected in
the tax rate tables by increasing the
minimum and maximum dollar amounts
for each rate bracket. Under § 1(f)(6),
an adjusted bracket amount is ‘‘rounded
down’’ to the nearest multiple of $50
($25 in the case of married individuals
filing separately).
.02Kiddie Tax.
(1)Reporting on Child’s Return.
Section 1(g)(4) uses the limitation on
the standard deduction for certain de-
pendents under § 63(c)(5)(A) in com-
puting the ‘‘kiddie tax.’’ That limitation
is adjusted for inflation under
§ 63(c)(4). The inflation adjustment
computation under § 63(c)(4) is de-
scribed below in section 4.05.
(2)Election To Report on Parent’s
Return.Section 1(g)(7) uses an amount
described in § 1(g)(4) in computing the
‘‘kiddie tax.’’ Section 1(g)(4) uses the
limitation on the standard deduction for
certain dependents under § 63(c)(5)(A),
and is adjusted, as described above in
section 4.02(1).
.03Earned Income Tax Credit.
(1)Amount of credit; phaseout in-
come levels.
(a) Section 32(j) provides that
the ‘‘earned income amounts’’ and
‘‘phaseout amounts,’’ which limit the
earned income tax credit, are adjusted
for inflation under the method described
in § 1(f)(3), except that the preceding
calendar year’s CPI is compared with
the CPI for the calendar year 1995.
Under § 32(j)(2)(A), the adjusted
amount is rounded to the nearest mul-
tiple of $10.
(b) Under § 32(b)(2), the base
amounts of the ‘‘earned income
amounts’’ and ‘‘phaseout amounts’’ are
$6,330 and $11,610 for a taxpayer with
one child, $8,890 and $11,610 for a
taxpayer with two or more children, and
$4,220 and $5,280 for a taxpayer with
no children.
(2)Excessive Investment Income.
(a) Section 32(j) provides that
the ‘‘disqualified income limitation’’ is
adjusted for inflation under the method
described in § 1(f)(3), except that the
preceding calendar year’s CPI is com-
pared with the CPI for the calendar year
1995. Under § 32(j)(2)(B), the ‘‘dis-
qualified income limitation’’ is ‘‘rounded
down’’ to the next lowest multiple of
$50.
(b) Under § 32(i), the base
amount of the ‘‘disqualified income
limitation’’ is $2,200.
.04Alternative Minimum Tax Exemp-
tion for ‘‘Kiddie Tax’’ Reported on Par-
ent’s Return.Section 59(j) uses the
limitation on the standard deduction for
certain dependents under § 63(c)(5)(A)
in computing the alternative minimum
tax on income subject to the ‘‘kiddie
tax.’’ The limitation on the standard
deduction is adjusted for inflation under
§ 63(c)(4). The inflation adjustment
computation under § 63(c)(4) is de-
scribed below in section 4.05.
.05Standard Deduction.
(1) Under § 63(c)(4), the standard
deduction amounts (including the limita-
tion for certain dependents and the addi-
tional standard deduction amounts for
the aged and for the blind) are adjusted
for inflation under the method described
in § 1(f)(3), except that the preceding
calendar year’s CPI is compared with
the CPI for the calendar year 1987.
Under § 1(f)(6), an adjusted amount is
‘‘rounded down’’ to the nearest multiple
of $50 ($25 in the case of the basic
standard deduction for married individu-
als filing separately).
(2) Under § 63(c)(2), the base
amounts of the basic standard deduction
are $5,000 for married individuals filing
joint returns and surviving spouses;
$4,400 for heads of households; $3,000
for unmarried individuals (other than
surviving spouses and heads of house-
holds); and $2,500 for married individu-
als filing separate returns. Under
§ 63(c)(5)(A), the base amount of the
limited standard deduction for an indi-
vidual who may be claimed as a depen-
dent by another taxpayer is $500. Under
§ 63(f), the base amounts of the addi-
tional standard deduction for the aged
and for the blind are $600 for each,
except that these amounts are increased
to $750 if the individual is unmarried
and not a surviving spouse.
.06Overall Limitation on Itemized
Deductions.
(1) Section 68(b)(2) provides that
the ‘‘applicable amount’’ for the overall
limitation on itemized deductions is ad-
justed for inflation under the method
described in § 1(f)(3), except that the
preceding calendar year’s CPI is com-
pared with the CPI for the calendar year
1990. Under § 1(f)(6), the adjusted ‘‘ap-
plicable amount’’ is ‘‘rounded down’’ to
the nearest multiple of $50 ($25 in the
case of married individuals filing sepa-
rately).
(2) Under § 68(b)(1), the base
amount of the ‘‘applicable amount’’ is
$100,000 ($50,000 in the case of a
separate return by a married individual
within the meaning of § 7703).
.07Qualified Transportation Fringe.
Section 132(f)(6) provides that the limi-
tation on the amount of the exclusion
from gross income for a qualified trans-
portation fringe is adjusted for inflation
under the method described in § 1(f)(3).
See section 4.01 above. Under
§ 132(f)(6)(B), an increased amount that
is not a multiple of $5 is ‘‘rounded
down’’ to the next lowest multiple of
$5.
.08Income from United States Sav-
ings Bonds for Taxpayers Who Pay
Qualified Higher Education Expenses.
Section 135(b)(2)(B) provides that the
dollar amount at which the phaseout of
22

the exclusion (of income from the re-
demption of United States savings bonds
for taxpayers who pay qualified higher
education expenses) begins is adjusted
for inflation under the method described
in § 1(f)(3). The preceding calendar
year’s CPI is compared with the CPI for
the calendar year 1989. The adjusted
dollar amount is rounded to the nearest
multiple of $50 (if the adjusted figure is
a multiple of $25, it is increased to the
next highest multiple of $50) under
§ 135(b)(2)(C).
.09Personal Exemption.
(1) Exemption amount.
(a) Section 151(d)(4)(A) pro-
vides that the personal exemption
amount is adjusted for inflation under
the method described in § 1(f)(3), ex-
cept that the preceding calendar year’s
CPI is compared with the CPI for the
calendar year 1988. The adjusted ex-
emption is ‘‘rounded down’’ to the near-
est multiple of $50 under § 1(f)(6).
(b) Under § 151(d)(1), the base
amount of the personal exemption is
$2,000.
(2)Phaseout amounts.
(a) Section 151(d)(4)(B) pro-
vides that the ‘‘threshold amounts’’ at
which the phaseout of the tax benefit of
the personal exemptions begins are ad-
justed for inflation under the method
described in § 1(f)(3), except that the
preceding calendar year’s CPI is com-
pared with the CPI for the calendar year
1990. Under § 1(f)(6), an adjusted
‘‘threshold amount’’ is ‘‘rounded down’’
to the nearest multiple of $50 ($25 in
the case of married individuals filing
separately).
(b) Under § 151(d)(3)(C), the
base amounts of the ‘‘threshold
amounts’’ are $150,000 for Code § 1(a)
taxpayers; $125,000 for Code § 1(b)
taxpayers; $100,000 for Code § 1(c)
taxpayers; and $75,000 for Code § 1(d)
taxpayers.
.10Treatment of Dues Paid to Agri-
cultural or Horticultural Organizations.
Section 512(d)(2) provides that the
‘‘$100 amount’’ is adjusted for inflation
under the method described in § 1(f)(3),
except that the preceding calendar year’s
CPI is compared with the CPI for the
calendar year 1994.
.11Insubstantial Benefit Limitations
for Contributions Associated with Chari-
table Fund-Raising Campaigns.
(1)Section 513(h).
(a) Section 513(h)(1)(C) pro-
vides that the maximum cost of a ‘‘low
cost article’’ is adjusted for inflation
under the method described in § 1(f)(3),
except that the preceding calendar year’s
CPI is compared with the CPI for the
calendar year 1987.
(b) Under § 513(h)(2)(A), the
base amount of the ‘‘low cost article’’ is
$5.
(2)Rev. Proc. 90–12.Rev. Proc.
90–12 provides for the adjustment of the
‘‘low cost article’’ and the ‘‘$25 pay-
ment’’ limitations in that revenue proce-
dure as provided under § 513(h)(2)(C).
The ‘‘$50 benefit’’ limitation in that
revenue procedure is adjusted in the
same manner.
.12Expatriation to Avoid Tax.Sec-
tion 877(a)(2) provides that the
‘‘$100,000 amount’’ and the ‘‘$500,000
amount’’ are adjusted for inflation under
the method described in § 1(f)(3), ex-
cept that the preceding calendar year’s
CPI is compared with the CPI for the
calendar year 1994. Under § 877(a)(2),
the adjusted ‘‘$100,000 amount’’ and
‘‘$500,000 amount’’ are rounded to the
nearest multiple of $1,000.
.13Luxury Automobile Excise Tax.
Section 4001(e)(1) provides that the
‘‘$30,000 amount’’ threshold for the ex-
cise tax on a luxury automobile in
§§ 4001(a) and 4003(a) is adjusted for
inflation under the method described in
§ 1(f)(3), except that the preceding cal-
endar year’s CPI is compared with the
CPI for the calendar year 1990. Under
§ 4001(e)(2), the adjusted ‘‘$30,000
amount’’ is ‘‘rounded down’’ to the
nearest multiple of $2,000.
.14Reporting Exception for Certain
Exempt Organizations with Nondeduct-
ible Lobbying Expenditures.Section
5.05 of Rev. Proc. 95–35 provides that
the ‘‘$50 exception’’ amount is adjusted
for inflation under the method described
in § 1(f)(3), except that the preceding
calendar year’s CPI is compared with
the CPI for the calendar year 1994. The
adjusted ‘‘$50 exception’’ amount is
rounded up to the next highest dollar.
.15Notice of Large Gifts Received
from Foreign Persons.Section 6039F(d)
provides that the ‘‘$10,000 amount’’ is
adjusted for inflation under the method
described in § 1(f)(3), except that the
preceding calendar year’s CPI is com-
pared with the CPI for the calendar year
1995.
.16Attorney Fee Awards.Section
7430(c)(1)(B) provides that the ‘‘$110
amount’’ is adjusted for inflation under
the method described in § 1(f)(3), ex-
cept that the preceding calendar year’s
CPI is compared with the CPI for the
calendar year 1995. The adjusted ‘‘$110
amount’’ is rounded to the nearest mul-
tiple of $10 under § 7430(c)(1)(B).
SECTION 5. 1997 INFLATION
ADJUSTMENT FACTORS
.011995 Base Year Adjustments.The
CPI for 1996 is 155.2416666667 and the
CPI for 1995 is 151.0750000000. This
results in an inflation adjustment factor
of 1.0275801202. This factor applies to
the earned income tax credit, the report-
ing of large gifts from foreign persons
for tax years beginning in 1997, and the
awarding of attorney fees for calendar
year 1997.
.021994 Base Year Adjustments.The
CPI for 1996 is 155.2416666667 and the
CPI for 1994 is 146.9000000000. This
results in an inflation adjustment factor
of 1.0567846608. This factor applies to
the treatment of dues paid to agricultural
or horticultural organizations, the
amounts used to determine whether a
principal purpose of expatriation is to
avoid tax, and the reporting exception
for certain exempt organizations with
nondeductible lobbying expenditures for
tax years beginning in 1997.
.03 1993 Base Year Adjustments. The
CPI for 1996 is 155.2416666667 and the
CPI for 1993 is 143.1750000000. This
results in an inflation adjustment factor
of 1.0842791456. This factor applies to
the 36 percent and 39.6 percent brackets
of the tax rate tables for tax years
beginning in 1997.
.041992 Base Year Adjustments.The
CPI for 1996 is 155.2416666667 and the
CPI for 1992 is 138.9250000000. This
results in an inflation adjustment factor
of 1.1174494631. This factor applies to
the 15 percent, 28 percent, and 31
percent brackets of the tax rate tables,
and to the qualified transportation fringe
limitations for tax years beginning in
1997.
.051990 base year adjustments.The
CPI for 1996 is 155.2416666667 and the
CPI for 1990 is 128.0583333333. This
results in an inflation adjustment factor
of 1.2122730526. This factor applies to
the phaseout of personal exemptions, to
the limitation on itemized deductions,
and to the luxury automobile excise tax
threshold for tax years beginning in
1997.
.061989 base year adjustments.The
CPI for 1996 is 155.2416666667 and the
CPI for 1989 is 122.1500000000. This
results in an inflation adjustment factor
of 1.2709100832. This factor applies to
23

the qualified higher education expense
exclusion for tax years beginning in
1997.
.071988 Base Year Adjustments.The
CPI for 1996 is 155.2416666667 and the
CPI for 1988 is 116.6166666667. This
results in an inflation adjustment factor
of 1.3312133772. This factor applies to
the personal exemption for tax years
beginning in 1997.
.081987 Base Year Adjustments.The
CPI for 1996 is 155.2416666667 and the
CPI for 1987 is 111.9833333333. This
results in an inflation adjustment factor
of 1.3862926031. This factor applies to
the ‘‘kiddie tax’’ (including the election
to report on the parent’s return) and the
limitation on the alternative minimum
tax exemption for ‘‘kiddie tax’’ reported
on a parent’s return, the standard deduc-
tion amounts, and the insubstantial ben-
efit limitations for charitable contribu-
tions for tax years beginning in 1997.
SECTION 6. EFFECT ON OTHER
DOCUMENTS
.01Rev. Proc. 95–53.Rev. Proc. 95–
53, 1995–2 C.B. 445, is amplified and
modified as follows:
(1)Kiddie Tax.For tax years be-
ginning in 1996, the amount in effect
under § 1(g)(4)(A)(ii)(I) for purposes of
the election to report on a parent’s
return is the same as that provided in
section 3.02(b) of this revenue proce-
dure for tax years beginning in 1997.
(2)Alternative Minimum Tax Ex-
emption for ‘‘Kiddie Tax’’ Reported on
Parent’s Return.For tax years beginning
in 1996, the amount in effect under
§ 63(c)(5)(A) is the same as that pro-
vided in section 3.04 of this revenue
procedure for tax years beginning in
1997.
(3)Income from United States Sav-
ings Bonds for Taxpayers Who Pay
Qualified Higher Education Expenses.
For tax years beginning in 1996, the
amounts of modified adjusted gross in-
come above which the § 135 exclusion
begins to phase out and the amounts at
which the phaseout is complete, are as
follows:
Filing Status
Threshold
Phaseout
Amount
Completed
Phaseout
Amount
Code § 1(a) $74,200 $104,200
Others$49,450 $ 64,450
(4)Treatment of Dues Paid to Ag-
ricultural or Horticultural Organiza-
tions.For tax years beginning in 1996,
no portion of annual dues required by
an agricultural or horticultural organiza-
tion described in § 501(c)(5) is treated
as derived from an unrelated trade or
business by reason of any benefits or
privileges to which members are entitled
if the amount of required annual dues
from each member does not exceed
$103.
.02Rev. Proc. 94–72.Rev. Proc. 94–
72, 1994–2 C.B. 811, is modified as
follows: For tax years beginning in
1995, the amounts of modified adjusted
gross income above which the § 135
exclusion begins to phase out and the
amounts at which the phaseout is com-
plete, are as follows:
Filing Status
Threshold
Phaseout
Amount
Completed
Phaseout
Amount
Code § 1(a) $72,150 $102,150
Others$48,100 $ 63,100
.03Rev. Proc. 93–49.Rev. Proc. 93–
49, 1993–2 C.B. 581, is modified as
follows: For tax years beginning in
1994, the amounts of modified adjusted
gross income above which the § 135
exclusion begins to phase out and the
amounts at which the phaseout is com-
plete, are as follows:
Filing Status
Threshold
Phaseout
Amount
Completed
Phaseout
Amount
Code § 1(a) $70,350 $100,350
Others$46,900 $ 61,900
.04Rev. Proc. 92–102.Rev. Proc.
92–102, 1992–2 C.B. 579, is modified
as follows: For tax years beginning in
1993, the amounts of modified adjusted
gross income above which the § 135
exclusion begins to phase out and the
amounts at which the phaseout is com-
plete, are as follows:
Filing Status
Threshold
Phaseout
Amount
Completed
Phaseout
Amount
Code § 1(a) $68,250$98,250
Others$45,500$60,500
SECTION 7. EFFECTIVE DATE
.01General Rule.Except as provided
in sections 6 and 7.02, this revenue
procedure applies to tax years beginning
in 1997.
.02Calendar Year Rule.This revenue
procedure applies to transactions or
events occurring in calendar year 1997
for purposes of section 3.12 (the expa-
triation tax), section 3.13 (the excise tax
on luxury automobiles), and section 3.16
(the hourly limit on attorney fee
awards).
SECTION 8. DRAFTING
INFORMATION
The principal author of this revenue
procedure is John Moran of the Office
of Assistant Chief Counsel (Income Tax
and Accounting). For further information
regarding this revenue procedure, con-
tact Mr. Moran on (202) 622–4940 (not
a toll-free call).
The economist responsible for devel-
opment of the factors set forth in this
revenue procedure is David Ludlum of
the Research Division of the Internal
Revenue Service. For further informa-
tion regarding these factors, contact Mr.
Ludlum on (202) 874–0026 (not a toll-
free call).
26 CFR 601.602: Forms and instructions.
(Also Part I, §§ 6011, 6051, 6071; 31.6011(a)–4,
31.6051–1, 31.6071(a)–1.
Rev. Proc. 96–60
SECTION 1. PURPOSE
.01 This revenue procedure modifies
and supersedes Rev. Proc. 84–77,
1984–2 C.B. 753. This revenue proce-
dure explains both the standard proce-
dure and an alternate procedure for
preparing and filing Form W–2, Wage
and Tax Statement; Form W–3, Trans-
mittal of Income and Tax Statements;
Form 941, Employer’s Quarterly Federal
Tax Return; Form W–4, Employee’s
Withholding Allowance Certificate; and
Form W–5, Earned Income Credit Ad-
vance Payment Certificate in certain
acquisitions. This revenue procedure ap-
plies when an employer (successor) ac-
quires substantially all the property (1)
used in a trade or business of another
employer (predecessor), or (2) used in a
separate unit of a trade or business of a
predecessor, and in connection with, or
immediately after the acquisition (but
during the same calendar year) the suc-
cessor employs individuals who immedi-
ately prior to the acquisition were em-
ployed in the trade or business of the
predecessor. (The term ‘‘trade or busi-
ness,’’ for purposes of this revenue
procedure, may include the activity of a
nonprofit organization or of a federal or
state agency.)
.02 This revenue procedure does not
apply to the situation described in Rev.
Rul. 62–60, 1962–1 C.B. 186, which
relates to the absorption of one corpora-
24

tion by another in a statutory merger or
consolidation, where the resultant entity
is regarded as the same taxpayer and the
same employer as the absorbed corpora-
tion.
SECTION 2. CHANGES
.01 Section 4.01, which provided the
time frame for a predecessor to furnish
Forms W–2 under the standard proce-
dure, has been modified to explain that
the predecessor must furnish Forms
W–2 to its former employees, and file
Forms W–2 and W–3 with the Social
Security Administration (SSA) on an
expedited basis, if the predecessor has
ceased to pay wages and is required to
file a final Form 941.
.02 Section 5.01, which provided the
alternate procedure for furnishing Forms
W–2, has been modified to provide that
the expedited furnishing and filing re-
quirements do not apply to the succes-
sor.
.03 Section 5.02, which provided the
alternate procedure for the predecessor
to submit Form 941, has been modified
to provide that if the predecessor is
required to file a final Form 941, the
predecessor must both furnish Forms
W–2 to its employees who are not
acquired by the successor and file
Forms W–2 and W–3 with SSA on an
expedited basis.
.04 Section 5.06 has been added to
provide procedures for transferring elec-
tronically filed Forms W–4 from the
predecessor to the successor.
SECTION 3. BACKGROUND
.01 Section 6011(a) of the Internal
Revenue Code provides that any person
made liable for any tax, or for the
collection of the tax, must make a return
or statement according to the forms or
regulations prescribed by the Secretary.
.02 Section 31.6011(a)–1 of the Em-
ployment Tax Regulations prescribes
Form 941 as the form to use for persons
required to make a quarterly return
under the Federal Insurance Contribu-
tions Act.
.03 Section 31.6011(a)–4 prescribes
Form 941 as the form to use for persons
required to make a quarterly return of
income tax withheld from wages.
.04 Section 31.6011(a)–6 provides
that an employer who ceases to pay
wages reportable on Form 941 shall file
a final Form 941.
.05 Section 31.6071(a)–1 provides
that the Form 941 generally must be
filed on or before the last day of the
first calendar month following the quar-
ter for which it is made.
.06 Section 6051(a) provides that (1)
every person required to deduct and
withhold income tax, or who would
have been required to deduct and with-
hold if the employee had claimed no
more than 1 withholding exemption, or
(2) every employer engaged in a trade
or business who pays remuneration for
services performed by an employee,
must furnish a written statement to an
employee regarding the remuneration
paid to the employee during the calen-
dar year. Section 31.6051–1(a) provides
that the statement is Form W–2. Form
W–2 must be furnished to the employee
on or before January 31 of the following
calendar year. If the employee’s employ-
ment is terminated before the close of
the calendar year, however, and the
employee requests the Form W–2 in
writing, the Form W–2 must be fur-
nished to the employee within 30 days
of the later of the written request from
the employee or the last payment of
wages, provided such 30-day period
ends before January 31.
.07 Section 31.6051–1(d)(1)(ii) pro-
vides that, effective January 1, 1997, an
employer who is required to file a final
Form 941 must furnish Forms W–2 to
its employees on or before the date
required for filing the final Form 941. If
the final Form 941 is a monthly return
as described in § 31.6011(a)–5, the
Forms W–2 must be furnished on or
before the last day of the month in
which the final Form 941 is required to
be filed.
.08 Section 31.6071(a)–1(a)(3)(ii)
provides that, effective January 1, 1997,
an employer who is required to file a
final Form 941 must file Forms W–2
and W–3 on or before the last day of
the second calendar month following the
period for which the final Form 941 is
filed.
.09 Section 31.3402(f)(5)–1(c) pro-
vides that an employer may establish a
system for its employees to file Form
W–4 electronically.
SECTION 4. STANDARD
PROCEDURE
.01In general.Under the standard
procedure, the predecessor performs all
the reporting duties for the wages and
other compensation it pays. These duties
include the filing of quarterly Forms
941 and the furnishing and filing of
Forms W–2 and W–3. In connection
with the successor’s acquisition of prop-
erty and hiring of employees from the
predecessor, as described in section
1.01, the predecessor may cease to pay
any wages required to be reported on
Form 941 (for example, the predecessor
may go out of business). In that case,
the predecessor must file the Form 941
for the quarter of the acquisition as a
final Form 941. If the predecessor does
not cease to pay any wages required to
be reported on Form 941, (for example,
the predecessor remains in business) a
final Form 941 is not required. Instead,
the predecessor would file its quarterly
Form 941 for the quarter of the acquisi-
tion. The successor, under the standard
procedure, performs all the reporting
duties for the wages and other compen-
sation it pays.
.02Forms W–2.
(1)In general.If, under the cir-
cumstances described in section 1.01,
the predecessor is not required to file a
final Form 941, the predecessor and
successor both must furnish Forms W–2
to their respective employees no later
than January 31 of the following calen-
dar year. If an employee requests the
Form W–2 earlier, however, the Form
W–2 must be furnished within 30 days
of the written request, or within 30 days
after the final payment of wages to the
employee, whichever is later, provided
the 30 day period ends before January
31. The predecessor and successor must
file Forms W–2 and W–3 for their
respective employees with SSA no later
than the last day of February of the
following calendar year.
(2)Expedited Forms W–2.If, un-
der the circumstances described in sec-
tion 1.01, the predecessor is required to
file a final Form 941, the predecessor
must furnish Forms W–2 to its former
employees on an expedited basis. The
Forms W–2 are due on or before the
date required for filing the final Form
941. If the predecessor is required to file
Form 941 on a monthly basis, the Forms
W–2 are due on or before the last day
of the month in which the final Form
941 is required to be filed. The prede-
cessor must also file Forms W–2 and
W–3 with SSA on an expedited basis.
The Forms W–2 and W–3 are due on or
before the last day of the second calen-
dar month following the period for
which the final Form 941 is required to
be filed.
.03Forms W–4.The predecessor
must keep on file the Forms W–4
provided by its former employees. The
transferred employees must provide the
successor with new Forms W–4 as the
25

successor now becomes responsible for
deducting and withholding tax from
wages paid to the transferred employees.
.04Forms W–5.The predecessor
must also keep on file the Forms W–5
provided by its former employees. The
transferred employees must provide the
successor with new Forms W–5 for the
current year.
SEC. 5. ALTERNATE PROCEDURE
.01In general.If, in connection with
the circumstances described in section
1.01, the predecessor and successor so
agree, the predecessor will be relieved
from furnishing Forms W–2 to any
employees who will be employed in the
same calendar year by the successor
(acquired employees). In such circum-
stances the acquired employees presum-
ably will be paid wages by the succes-
sor in the same calendar year and the
Forms W–2 furnished to the acquired
employees by the successor for the year
will include wages paid, and taxes with-
held, by both the predecessor and the
successor. The predecessor will also be
relieved from filing Forms W–2 with
SSA for the acquired employees. The
predecessor’s entire Form W–2 reporting
obligations for the acquired employees
will be assumed by the successor. The
predecessor remains responsible for the
Form W–2 reporting obligations for
those employees who are not employed
by the successor.
.02Forms W–2.
(1)In general.If, under the cir-
cumstances described in section 1.01,
the predecessor is not required to file a
final Form 941, the predecessor must
furnish Forms W–2 to employees who
are not employed by the successor by
January 31 of the following calendar
year. Forms W–2 and W–3 filed by the
predecessor with SSA for employees
who are not employed by the successor
are due the last day of February of the
following calendar year. If the successor
assumes the predecessor’s obligation to
furnish Forms W–2 to the acquired
employees for a calendar year, the suc-
cessor must assume the predecessor’s
entire Form W–2 reporting obligation.
Thus, Forms W–2 furnished by the
successor to the acquired employees
must include the wages paid and the
taxes withheld by both the predecessor
and the successor. The successor must
include on the Forms W–2 any amount
reportable by the predecessor, including
‘‘Other compensation’’ or uncollected
employee tax on tips, if applicable.
Forms W–2 must be furnished by the
successor to its employees (both the
acquired employees and any other em-
ployees of the successor) by January 31
of the following calendar year. Forms
W–2 and W–3 must be filed by the
successor with SSA by the last day of
February of the following calendar year.
(2)Expedited Forms W–2.If, un-
der the circumstances described in sec-
tion 1.01, the predecessor is required to
file a final Form 941, the predecessor
must furnish Forms W–2 to the employ-
ees who are not employed by the suc-
cessor on an expedited basis. Forms
W–2 and W–3 filed with SSA by the
predecessor must also be filed on an
expedited basis. The successor is not
required to either furnish Forms W–2 to
the acquired employees or to file the
Forms W–2 and W–3 with SSA on an
expedited basis.
.03Form 941 filed by predecessor.
To the extent the wages paid and the
taxes withheld by the predecessor are to
be included in the Forms W–2 furnished
to the acquired employees by the suc-
cessor, there will be a difference be-
tween the amounts shown on the prede-
cessor’s Form W–3 and its Form 941.
When the predecessor files its Form
941, it should attach a statement ex-
plaining the discrepancy and include the
name, address, and identification num-
ber of the successor and a reference to
this revenue procedure. This Form 941
cannot be filed electronically. See Rev.
Proc. 96–19, 1996–4 I.R.B. 80, section
3.03.
.04Form 941 filed by successor.
There will be a corresponding difference
between the amounts shown on the
successor’s Form W–3 and its Form
941. When the successor files its Form
941, it should also attach a statement to
its Form 941 explaining the discrepancy,
and include the name, address, and
identification number of the predecessor
and a reference to this revenue proce-
dure. This Form 941 cannot be filed
electronically. See Rev. Proc. 96–19,
1996–4 I.R.B. 80, section 3.03. For
instructions relating to annual wage
limitations, see § 31.3121(a)(1)–1.
.05Forms W–4.The predecessor
must transfer to the successor all current
Forms W–4 that were provided to the
predecessor by the acquired employees.
The successor must keep the transferred
Forms W–4 on file and deduct and
withhold from the wages it pays to the
acquired employees according to the
information supplied on those forms
until an employee submits a revised
form. The successor employer must sub-
mit to the Service, in accordance with
§ 31.3402(f)(2)–1(g), copies of the
Forms W–4 received by the predecessor
during the current calendar quarter and
the preceding calendar quarter.
.06Transfer of Forms W–4 furnished
electronically.If the predecessor and
successor both maintain an electronic
system for use by employees in filing
Forms W–4, and the systems are com-
patible, the predecessor may electroni-
cally transfer the Forms W–4 of the
acquired employees to the successor.
The successor may also choose to ac-
quire and maintain the predecessor’s
system. If these options do not apply,
the transferred employees must provide
the successor with a new Form W–4,
either electronically or on paper, as
prescribed by the successor.
.07Forms W–5.The predecessor
must transfer to the successor all Forms
W–5 for the current year that were
provided to the predecessor by the ac-
quired employees.
SECTION 6. EFFECT ON OTHER
REVENUE PROCEDURES
Rev. Proc. 84–77 is modified and
superseded.
SECTION 7. EFFECTIVE DATE
This revenue procedure is effective
January 1, 1997.
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 1545–1510.
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 in this
revenue procedure are in sections 5.03
and 5.04. This information is required to
explain the discrepancy between the
amounts reported on Forms 941 and
W–3 filed by both the predecessor and
successor who use the Alternate Proce-
dure. This information will be used to
assist the IRS in reconciling Forms 941
and W–3. The collections of information
are required to use the Alternate Proce-
dure. The likely respondents are busi-
ness or other for-profit institutions.
26

The estimated total annual reporting
burden is 110,700 hours.
The estimated annual burden per re-
spondent is 12 minutes. The estimated
number of respondents is 553,500.
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 Jean M. Casey of the Of-
fice of the Associate Chief Counsel
(Employee Benefits and Exempt Organi-
zations). For further information regard-
ing this revenue procedure, contact Ms.
Casey on (202) 622–6040 (not a toll-
free call).
26 CFR 601.602: Tax forms and instructions.
(Also Part I, Sections 6012, 6061; 1.6012–5,
1.6061–1.)
Rev. Proc. 96–61
CONTENTS
SECTION 1 PURPOSE
SECTION 2 BACKGROUND AND
CHANGES
SECTION 3 ELECTRONIC FILING
PARTICIPANTS—DEFINITIONS
SECTION 4 ACCEPTANCE IN THE
ELECTRONIC FILING PROGRAM
SECTION 5 RESPONSIBILITIES OF
AN ELECTRONIC FILER
SECTION 6 PENALTIES
SECTION 7 FORM 8453, U.S. INDI-
VIDUAL INCOME TAX DECLA-
RATION FOR ELECTRONIC FIL-
ING
SECTION 8 INFORMATION AN
ELECTRONIC FILER MUST PRO-
VIDE TO THE TAXPAYER
SECTION 9 DIRECT DEPOSIT OF
REFUNDS
SECTION 10 REFUND ANTICIPA-
TION LOANS
SECTION 11 BALANCE DUE RE-
TURNS
SECTION 12 ADVERTISING STAN-
DARDS FOR ELECTRONIC FIL-
ERS AND FINANCIAL INSTITU-
TIONS
SECTION 13 MONITORING AND
SUSPENSION OF AN ELEC-
TRONIC FILER
SECTION 14 ADMINISTRATIVE RE-
VIEW PROCESS FOR DENIAL OF
PARTICIPATION IN THE ELEC-
TRONIC FILING PROGRAM
SECTION 15 ADMINISTRATIVE RE-
VIEW PROCESS FOR SUSPEN-
SION FROM THE ELECTRONIC
FILING PROGRAM
SECTION 16 VITA AND TCE SPON-
SORED ELECTRONIC FILING
SECTION 17 EMPLOYER SPON-
SORED ELECTRONIC FILING
SECTION 18 EFFECT ON OTHER
DOCUMENTS
SECTION 19 EFFECTIVE DATE
SECTION 20 INTERNAL REVENUE
SERVICE OFFICE CONTACT
SECTION 21 PAPERWORK REDUC-
TION ACT
SECTION 1. PURPOSE
This revenue procedure informs those
who participate in the 1997 Electronic
Filing Program for Form 1040 and Form
1040A, U.S. Individual Income Tax Re-
turn, and Form 1040EZ, Income Tax
Return for Single and Joint Filers With
No Dependents, of their obligations to
the Internal Revenue Service, taxpayers,
and other participants. This revenue pro-
cedure updates Rev. Proc. 95–49,
1995–2 C.B. 419.
SECTION 2. BACKGROUND AND
CHANGES
.01 Section 1.6012–5 of the Income
Tax Regulations provides that the Com-
missioner may authorize the use, at the
option of a person required to make a
return, of a composite return in lieu of
any form specified in 26 CFR Part 1
(Income Tax), subject to the conditions,
limitations, and special rules governing
the preparation, execution, filing, and
correction thereof as the Commissioner
may deem appropriate.
.02 For purposes of this revenue pro-
cedure, an electronically filed Form
1040, Form 1040A, or Form 1040EZ is
a composite return consisting of elec-
tronically transmitted data and certain
paper documents. The nonelectronic por-
tion of the return consists of Form 8453,
U.S. Individual Income Tax Declaration
for Electronic Filing, and other paper
documents that cannot be electronically
transmitted. Form 8453 must be re-
ceived by the Service before any elec-
tronically filed return is complete (see
section 5.08 of this revenue procedure).
An electronically filed return must con-
tain the same information that a return
filed completely on paper contains. See
section 7 of this revenue procedure for
procedures for completing Form 8453.
.03 The Service will periodically is-
sue a publication that lists the forms and
schedules associated with a Form 1040
that can be electronically transmitted.
.04 A Form 1040, a Form 1040A, or
a Form 1040EZ cannot be electronically
filed after October 15, 1997, notwith-
standing the fact that the taxpayer has
been granted an extension to file a
return beyond that date.
.05 An amended tax return cannot be
electronically filed. A taxpayer must file
an amended tax return on paper in
accordance with the instructions for
Form 1040X, Amended U.S. Individual
Income Tax Return.
.06 A tax return that has a foreign
address for the taxpayer cannot be elec-
tronically filed. Army/Air Force (APO)
and Fleet (FPO) post offices are not
considered foreign addresses.
.07 A tax return for a decedent can-
not be electronically filed. The decedent’s
spouse or personal representative must
file a paper tax return for the decedent.
.08 This revenue procedure updates
Rev. Proc. 95–49, which applied to the
Electronic Filing Program for the 1996
filing season. The updates include
changes in the Electronic Filing Pro-
gram for the 1997 filing season, clarifi-
cations of prior Electronic Filing Pro-
gram statements, and additional guid-
ance derived from other Service docu-
ments that relate to the Electronic Filing
Program. Some of the updates are:
(1) in certain circumstances, a let-
ter may be submitted in lieu of a revised
Form 8633 (section 4.04);
(2) the application period to submit
a new application for an applicant that
purchases an Electronic Filer on or after
November 1, 1996, is 30 days after the
date of the purchase (section 4.05(2));
(3) the time period to submit a
revised Form 8633 is extended to 30
days (section 4.06);
(4) a Principal for a firm or organi-
zation is defined (section 4.10);
(5) certain Responsible Officials
may be listed on a maximum of ten or
twenty Forms 8633 (sections 4.12);
(6) an Electronic Filer’s foreign lo-
cation no longer has to have an APO or
FPO address and additional information
is required on Form 8633 for a foreign
location (section 4.14);
(7) a nonparticipating ERO may be
dropped from the Electronic Filing Pro-
gram (section 4.16);
(8) a fee for the electronic trans-
mission of a tax return may not be
27

computed using any amount from the
return (section 5.05);
(9) the time period for an Elec-
tronic Filer to notify the Service that it
is discontinuing its participation in the
Electronic Filing Program is extended to
30 days (section 5.07);
(10) the duties of a Transmitter are
clarified (section 5.16);
(11) an ERO must advise taxpayers
that refund information is available on
TeleTax (section 8.05);
(12) information an Electronic
Filer must provide regarding a taxpay-
er’s address of record is clarified (sec-
tion 8.06);
(13) the effect of suspending a
Principal or a Responsible Official, on
entities that listed the Principal or Re-
sponsible Official on their Forms 8633,
is clarified (section 13.02);
(14) the two-year periods for de-
nial and suspension are modified and
clarified (sections 13.10 and 13.11);
(15) the time and method to re-
spond to a proposed letter of denial and
a denial letter are clarified (sections
14.03 and 14.06); and
(16) the time and method to re-
spond to a proposed suspension letter
and a suspension letter are clarified
(sections 15.02 and 15.05).
SECTION 3. ELECTRONIC FILING
PARTICIPANTS—DEFINITIONS
.01 After acceptance into the Elec-
tronic Filing Program, as described in
section 4 of this revenue procedure, a
participant is referred to as an ‘‘Elec-
tronic Filer.’’
.02 An Electronic Filer is categorized
as follows:
(1) ELECTRONIC RETURN
ORIGINATOR. An ‘‘Electronic Return
Originator’’ (ERO) is: (a) an ‘‘Electronic
Return Preparer’’ who prepares tax re-
turns, including Forms 8453, for taxpay-
ers who intend to have their returns
electronically filed; and/or (b) an ‘‘Elec-
tronic Return Collector’’ who accepts
completed tax returns, including Forms
8453, from taxpayers who intend to
have their returns electronically filed.
(2) SERVICE BUREAU. A ‘‘Ser-
vice Bureau’’ receives tax return infor-
mation on any media from an ERO,
formats the return information, and ei-
ther forwards the return information to a
Transmitter or sends back the return
information to the ERO. A Service Bu-
reau may or may not process Forms
8453 and send them to the appropriate
service center.
(3) SOFTWARE DEVELOPER. A
‘‘Software Developer’’ develops soft-
ware for the purposes of (a) formatting
returns according to the Service’s elec-
tronic return specifications; and/or (b)
transmitting electronic returns directly to
the Service. A Software Developer may
also sell its software.
(4) TRANSMITTER. A ‘‘Transmit-
ter’’ transmits the electronic portion of a
return directly to the IRS Data Commu-
nications Subsystem. An entity that pro-
vides a ‘‘bump-up’’ service is a Trans-
mitter. A bump-up service provider
increases the transmission rate or line
speed of formatted or reformatted infor-
mation that is being sent to the Service
via a public switched telephone network.
For example, a bump-up service pro-
vider may increase the transmission rate
or line speed of information from 4800
bits per second (BPS) to 9600 BPS.
Service specifications for electronic fil-
ing require an asynchronous speed of
300 BPS to 38,400 BPS or a
bisynchronous speed of 4800 BPS to
19,200 BPS.
.03 The Electronic Filer categories
are not mutually exclusive. For example,
an ERO can, at the same time, be
considered a Transmitter, Software De-
veloper, or Service Bureau depending on
the function(s) performed.
.04 An electronic filing controlled of-
fice: (1) is an office in which an
Electronic Filer has an ownership inter-
est; (2) uses hardware, software, and
transmission services supplied by an
Electronic Filer; (3) receives income tax
returns for electronic filing; and (4) has
direct contact with taxpayers. At a mini-
mum, direct contact includes verifying
dollar amounts, routing transit numbers,
and depositor account numbers on
Forms 8453. A controlled office may or
may not be open all year.
.05 An Electronic Filer may have a
drop-off collection point(s). The activity
at a drop-off collection point is limited
solely to receiving a return or return
information that a taxpayer wants to
have electronically filed and collecting a
fee for electronically filing that return.
No returns may be prepared at the
drop-off collection point. An Electronic
Filer need not have an ownership inter-
est in the drop-off collection point.
SECTION 4. ACCEPTANCE IN THE
ELECTRONIC FILING PROGRAM
.01 Except as provided in sections
4.02 through 4.04 of this revenue proce-
dure, an Electronic Filer that has ac-
tively participated in the 1996 Electronic
Filing Program does not have to reapply
to participate in the 1997 Electronic
Filing Program. However, an Electronic
Filer that intends to function as a Trans-
mitter or a Software Developer in the
1997 Electronic Filing Program must
first successfully complete the testing
described in section 4.08 of this revenue
procedure. In addition, section 4.15 of
this revenue procedure provides for the
Service’s issuance of credentials neces-
sary for participation in the 1997 Elec-
tronic Filing Program.
.02 Applicants and Electronic Filers
must file a new Form 8633, Application
to Participate in the Electronic Filing
Program, with completed fingerprint
cards for the appropriate individuals if:
(1) the applicant has never actively
participated in the Electronic Filing Pro-
gram;
(2) the applicant is an Electronic
Filer that has actively participated in the
Electronic Filing Program and wants to
operate an electronic filing business at a
new location;
(3) the applicant has previously
been denied participation in the Elec-
tronic Filing Program; or
(4) the applicant has been sus-
pended from the Electronic Filing Pro-
gram.
.03 To participate in the 1997 Elec-
tronic Filing Program, an Electronic
Filer in the 1996 Electronic Filing Pro-
gram must submit a revised Form 8633,
signed by all Principals and the Respon-
sible Official, with completed fingerprint
cards for the appropriate individuals if:
(1) the Electronic Filer functioned
solely as a Software Developer during
the 1996 Electronic Filing Program and
intends to function as an ERO, Service
Bureau, or Transmitter during the 1997
Electronic Filing Program;
(2) there is an additional principal,
such as a partner or a corporate officer,
that must be listed on Form 8633, line 8
(formerly line 1k(1)), ‘‘Principals of
Your Firm or Organization’’;
(3) there is a ‘‘Principal’’ listed on
Form 8633, line 8, that should be de-
leted; or
(4) the ‘‘Responsible Official’’ on
Form 8633, line 9 (formerly line 1k(2)),
changes.
.04 To participate in the 1997 Elec-
tronic Filing Program, an Electronic
Filer in the 1996 Electronic Filing Pro-
gram must submit either a revised Form
8633, or a letter containing the same
information contained in a revised Form
28

8633, if there is any revision to the
following information:
(1) the Firm name or Doing Busi-
ness As (DBA) name;
(2) the business or mailing address;
(3) the contact representative or the
alternate contact representative’s name
or telephone number;
(4) the Electronic Filer’s form of
organization, as described on Form
8633, line 1k;
(5) the electronic functions per-
formed by an Electronic Filer, other
than an Electronic Filer that functions
solely as a Software Developer; or
(6) the number or location(s) of
drop-off collection points.
A Form 8633 or letter submitted under
this section should only include the
information requested on lines 1a
through 1i of Form 8633 and the infor-
mation being revised. A Principal or a
Responsible Official must sign the Form
8633 or the letter.
.05 Applicants described in section
4.02 of this revenue procedure must
submit new applications within the fol-
lowing time periods:
(1) except as provided in section
4.05(2) of this revenue procedure, the
application period begins on August 1,
1996, and ends on December 2, 1996;
and
(2) if an applicant purchases an
Electronic Filer on or after November 1,
1996, a new application must be submit-
ted within 30 days after the date of the
purchase.
.06 Revised applications described in
sections 4.03 and 4.04 of this revenue
procedure must be submitted within 30
days of the change(s) reflected on the
revised Form 8633 or in the letter.
.07 Applicants and Electronic Filers
described in sections 4.02 through 4.04
of this revenue procedure must file
Form 8633 (or a letter containing the
same information as provided in section
4.04 of this revenue procedure) with the
service center that accepts electronically
filed returns from the applicant’s state.
.08 Applicants and Electronic Filers
described in sections 4.01 through 4.03
of this revenue procedure that intend to
function as a Transmitter or a Software
Developer in the 1997 Electronic Filing
Program must first successfully com-
plete the necessary testing at the appro-
priate service center(s).
.09 Each individual listed as a Princi-
pal or a Responsible Official must:
(1) be a United States citizen or an
alien lawfully admitted for permanent
residence as described in 8 U.S.C.
§ 1101(a)(20) (1994);
(2) have attained the age of 21 as
of the date of application;
(3) submit with Form 8633 one
standard fingerprint card with a full set
of fingerprints taken by a law enforce-
ment agency, except as provided in
section 4.10 of this revenue procedure;
(4) pass a suitability check that
includes a credit check and a fingerprint
check; and
(5) if applying to be an ERO, meet
state and local licensing and/or bonding
requirements in connection with the
preparation of tax returns and the collec-
tion of prepared returns that taxpayers
intend to have electronically filed. How-
ever, if the state and local licensing
and/or bonding requirements apply to a
business entity, the individual(s) must
demonstrate that the business entity
meets the requirements.
.10 A Principal for a firm or organi-
zation includes the following:
(1) Sole Proprietorship. The sole
proprietor is the Principal for a sole
proprietorship.
(2) Partnership. Each partner who
has a five percent (5%) or more interest
in the partnership is a Principal of the
partnership. If no partner has at least a
5% or more interest in the partnership,
the Principal is an individual authorized
to act for the partnership in legal and/or
tax matters (at least one such individual
must be listed on Form 8633).
(3) Corporation. The President,
Vice-President, Secretary, and Treasurer
of the corporation are each a Principal
of the corporation.
(4) Other. The Principal for a for-
profit entity that is not a sole proprietor-
ship, partnership, or corporation, is an
individual authorized to act for the en-
tity in legal and/or tax matters (at least
one such individual must be listed on
Form 8633).
.11 A Responsible Official is the indi-
vidual who oversees the daily operations
of an Electronic Filer’s office. As set
forth in section 4.12 of this revenue
procedure, a Responsible Official may
be responsible for more than one office.
.12 A Responsible Official is catego-
rized as follows:
(1) TIER I RESPONSIBLE OFFI-
CIAL. A ‘‘Tier I Responsible Official’’
is a Responsible Official who does not
meet the definition of a ‘‘Tier II Re-
sponsible Official.’’ A Tier I Responsible
Official should be able to physically
visit on a daily basis each office for
which he or she is listed as a Respon-
sible Official. A Tier I Responsible
Official may be listed on a maximum of
ten applications (Forms 8633).
(2) TIER II RESPONSIBLE OFFI-
CIAL. A ‘‘Tier II Responsible Official’’
is an individual who has participated in
the Electronic Filing Program as a Re-
sponsible Official during at least the two
most recent filing seasons and who has
never been suspended from participation
in the Electronic Filing Program. A Tier
II Responsible Official should be able to
physically visit on a daily basis any
office for which he or she is listed as a
Responsible Official. A Tier II Respon-
sible Official may be listed on a maxi-
mum of twenty applications (Forms
8633).
.13 An individual may choose to sub-
mit evidence of the individual’s profes-
sional status in lieu of one standard
fingerprint card if the individual is:
(1) an attorney in good standing of
the bar of the highest court of any State,
possession, territory, Commonwealth, or
the District of Columbia, and is not
currently under suspension or disbar-
ment from practice before the Service;
(2) a certified public accountant
who is duly qualified to practice as a
certified public accountant in any State,
possession, territory, Commonwealth, or
the District of Columbia and is not
currently under suspension or disbar-
ment from practice before the Service;
(3) an enrolled agent pursuant to
part 10 of 31 C.F.R. Subtitle A;
(4) an officer of a publicly held
corporation; or
(5) a banking official who is
bonded and has been fingerprinted
within the last two years.
.14 If an Electronic Filer has a for-
eign location, the following information
is required on any new or revised Form
8633:
(1) the complete name of the con-
tact representative at the foreign loca-
tion;
(2) the complete mailing address
for the foreign location (including city,
country, and postal code);
(3) the complete business address
for the foreign location (including city,
country, and postal code);
(4) the complete local telephone
number for the foreign location (include
international access code, country code,
and city code); and
(5) the information on lines 1m,
1n, 1p, and 1q of Form 8633 for the
stateside contact representative. The
29

stateside contact representative will re-
ceive all Service correspondence for the
foreign location relating to the Elec-
tronic Filing Program.
.15 The Service will issue credentials
to eligible applicants for the 1997 Elec-
tronic Filing Program, as well as Elec-
tronic Filers that do not have to reapply
pursuant to section 4.01, 4.03, or 4.04 of
this revenue procedure (provided they
have first satisfactorily completed the
testing described in section 4.08 of this
revenue procedure if they intend to
function as a Transmitter or Software
Developer). No one may participate in
the Electronic Filing Program for the
1997 filing season without the following
credentials:
(1) a letter of acceptance into the
Electronic Filing Program for the 1997
filing season;
(2) an Electronic Filing Identifica-
tion Number (EFIN);
(3) if appropriate, an Electronic
Transmitter Identification Number
(ETIN);
(4) if appropriate, a Service Bureau
Identification Number (SBIN); and
(5) if appropriate, a Collection
Point Identification Number (CPIN).
.16 An ERO may not receive a letter
of acceptance to participate in the 1997
Electronic Filing Program if the Service
did not receive and accept during the
1996 filing season any electronically
filed returns containing the ERO’s
EFIN. In addition, an ERO may be
dropped from the 1997 Electronic Filing
Program if the Service does not receive
and accept prior to April 15, 1997, any
electronically filed returns containing
the ERO’s EFIN. In either case, the
Service will notify the ERO that it has
been dropped from the Electronic Filing
Program and explain what steps the
ERO needs to take for future participa-
tion in the program.
.17 If an Electronic Filer is a Soft-
ware Developer that performs no other
function in the Electronic Filing Pro-
gram but software development, no
Principal or Responsible Official needs
to pass a suitability check.
.18 If an Electronic Filer will have a
drop-off collection point(s) (as defined
in section 3.05 of this revenue proce-
dure) for the 1997 filing season, an
Electronic Filer must submit a Form
8633 that lists each drop-off collection
point. By listing a drop-off collection
site on Form 8633, an Electronic Filer
becomes a ‘‘parent’’ in relation to a
listed drop-off collection point.
.19 The following reasons, which ap-
ply to any firm, organization, Principal,
or Responsible Official listed on Form
8633, may result in the rejection of an
application to participate in the 1997
Electronic Filing Program (this list is
not all-inclusive):
(1) conviction of any criminal of-
fense under the revenue laws of the
United States, or of any offense involv-
ing dishonesty or breach of trust;
(2) failure to file timely and accu-
rate tax returns, including returns indi-
cating that no tax is due;
(3) failure to timely pay any tax
liabilities;
(4) assessment of tax penalties;
(5) suspension/disbarment from
practice before the Service;
(6) other facts or conduct of a
disreputable nature that would reflect
adversely on the Electronic Filing Pro-
gram;
(7) misrepresentation on an appli-
cation;
(8) suspension or rejection from
the program in a prior year;
(9) unethical practices in return
preparation;
(10) stockpiling returns prior to of-
ficial acceptance into the Electronic Fil-
ing Program (see section 5.14 of this
revenue procedure);
(11) knowingly and directly or in-
directly employing or accepting assis-
tance from any firm, organization, or
individual that is prohibited from apply-
ing to participate in the Electronic Filing
Program (see section 13.10 of this rev-
enue procedure) or that is suspended
from participating in the Electronic Fil-
ing Program (see section 13.11 of this
revenue procedure). This includes any
individual whose actions resulted in the
rejection or suspension of a corporation
or a partnership from the Electronic
Filing Program; or
(12) knowingly and directly or in-
directly accepting employment as an
associate, correspondent, or as a sub-
agent from, or sharing fees with, any
firm, organization, or individual that is
prohibited from applying to participate
in the Electronic Filing Program (see
section 13.10 of this revenue procedure)
or that is suspended from participating
in the Electronic Filing Program (see
section 13.11 of this revenue procedure).
This includes any individual whose ac-
tions resulted in the rejection or suspen-
sion of a corporation or a partnership
from the Electronic Filing Program.
SECTION 5. RESPONSIBILITIES OF
AN ELECTRONIC FILER
.01 To ensure that complete returns
are accurately and efficiently filed, an
Electronic Filer must comply with all
the publications and notices of the Ser-
vice. Currently, these publications and
notices include:
(1) Handbook for Electronic Filers
of Individual Income Tax Returns, Pub-
lication 1345, and Handbook for Elec-
tronic Filers of Individual Income Tax
Returns (Supplement), Publication
1345A;
(2) Electronic Return File Specifi-
cations and Record Layouts for Indi-
vidual Income Tax Returns, Publication
1346;
(3) Test Package for Electronic Fil-
ing of Individual Income Tax Returns,
Publication 1436; and
(4) Postings to the Electronic Fil-
ing System Bulletin Board (EFS Bulle-
tin Board).
.02 An Electronic Filer must maintain
a high degree of integrity, compliance,
and accuracy.
.03 An Electronic Filer may only ac-
cept returns for electronic filing directly
from taxpayers, from drop-off collection
sites accurately identified on its own
Form 8633 (see section 4.18 of this
revenue procedure), or from another
Electronic Filer.
.04 If the taxpayer’s address on a
Form W–2, Wage and Tax Statement,
Form W–2G, Statement for Recipients
of Certain Gambling Winnings, Form
1099–R, Distributions From Pensions,
Annuities, Retirement or Profit-Sharing
Plans, IRAs, Insurance Contracts, etc.,
Form 1040, Schedule C, Profit or Loss
From Business (Sole Proprietorship), or
Form 1040, Schedule C–EZ, Profit or
Loss From Business—Short Version, or
any other tax form is different than the
taxpayer’s address in the entity section
of the electronic portion of the taxpay-
er’s Form 1040, the ERO or the Service
Bureau must input for transmission to
the Service those addresses that differ
from the taxpayer’s address on the elec-
tronic portion of the taxpayer’s Form
1040.
.05 If an Electronic Filer charges a
fee for the electronic transmission of a
tax return, the fee may not be based on
a percentage of the refund amount or
any other amount from the tax return.
An Electronic Filer may not charge a
separate fee for Direct Deposit. See
section 9 of this revenue procedure.
30

.06 An Electronic Filer must submit a
revised Form 8633 to the appropriate
service center within 30 days of when
any of the conditions or changes de-
scribed in section 4.03 or 4.04 of this
revenue procedure occur. See section
4.06 of this revenue procedure.
.07 An Electronic Filer must notify
the service center where the Electronic
Filer filed its Form 8633 within 30 days
of discontinuing its participation in the
Electronic Filing Program. This does not
preclude reapplication in the future.
.08 An Electronic Filer must ensure
that an electronic return is filed on or
before the due date of the return. A tax
return is not considered filed until the
electronic portion of the tax return has
been acknowledged by the Service as
accepted for processing and a completed
and signed Form 8453 has been re-
ceived by the Service. However, if the
electronic portion of a return is success-
fully transmitted on or shortly before the
due date and the Electronic Filer com-
plies with section 7.01 of this revenue
procedure, the return will be deemed
timely filed. If the electronic portion of
a return is initially transmitted on or
shortly before the due date and is ulti-
mately rejected, but the Electronic Filer
and the taxpayer comply with section
5.13 of this revenue procedure, the
return will be deemed timely filed. In
the case of a balance due return, see
section 11 of this revenue procedure for
instructions on how to make a timely
payment of tax.
.09 An Electronic Filer that functions
as an ERO must:
(1) comply with the procedures for
completing and securing Forms 8453
described in section 7 of this revenue
procedure;
(2) comply with the procedures de-
scribed in section 11 of this revenue
procedure for handling a balance due
return;
(3) while returns are being filed,
retain and, if requested, make available
to the Service the following material at
the business address from which a re-
turn was accepted for electronic filing:
(a) a copy of the signed Form
8453 and paper copies of Forms W–2,
W–2G, and 1099–R;
(b) a complete copy of the elec-
tronic portion of the return (may be
retained on magnetic media) that can be
readily and accurately converted into an
electronic transmission that the Service
can process; and
(c) the acknowledgement file re-
ceived from the Service or from a third
party Transmitter; and
(4) retain until the end of the cal-
endar year in which a return was filed,
and, if requested, make available to the
Service the materials described in sec-
tion 5.09(3) of this revenue procedure at
either the business address from which a
return was electronically filed or from
the contact representative named on
Form 8633.
.10 An ERO who is the paid preparer
of an electronic tax return must also
retain for the prescribed amount of time
the materials described in § 1.6107–1(b)
that are required to be kept by an
income tax return preparer.
.11 An ERO must identify the paid
preparer (if any) in the appropriate field
of the electronic return, in addition to
ensuring that the paid preparer signed
Form 8453. If Form 8453 is not signed
by the paid preparer, the ERO must
attach a copy of the Form 1040EZ
signed by the paid preparer below the
taxpayer’s signature or pages one and
two of Form 1040A or Form 1040 that
includes the paid preparer’s signature.
These copies must be marked
‘‘COPY-DO NOT PROCESS’’ to pre-
vent duplicate filings.
.12 An ERO must ensure against the
unauthorized use of its EFIN and, if
applicable, the CPIN(s) issued to its
drop-off collection point(s). An ERO
must not transfer its EFIN or the
CPIN(s) of its drop-off collection
point(s) by sale, merger, loan, gift, or
otherwise to another entity.
.13 If the electronic portion of a
taxpayer’s return is acknowledged as
rejected by the Service, and the reason
for the rejection cannot be rectified by
the actions described in section 6.02(3),
the ERO, within 24 hours of receiving
the rejection, must take all reasonable
steps to tell the taxpayer that the taxpay-
er’s return has not been filed. When the
ERO advises the taxpayer that the tax-
payer’s return has not been filed, the
ERO must provide the taxpayer with the
reject code(s), an explanation of the
reject code(s), and the sequence number
of each reject code(s). If the taxpayer
chooses not to have the previously re-
jected return retransmitted or if the
return cannot be accepted for process-
ing, the taxpayer must file a paper
return by the later of:
(1) the due date of the return; or
(2) within ten calendar days after
the Service’s acknowledgement that the
return is rejected or notification that the
return cannot be retransmitted with an
explanation of why the return is being
filed after the due date.
.14 An ERO is responsible for ensur-
ing that stockpiling does not occur at its
office(s) or drop-off collection point(s).
Stockpiling means collecting returns
from taxpayers or from another Elec-
tronic Filer prior to official acceptance
into the Electronic Filing Program, or,
after official acceptance into the Elec-
tronic Filing Program, waiting more
than three calendar days to transmit a
return to the Service after receiving the
information necessary for an electronic
transmission of a tax return.
.15 An Electronic Filer who functions
as a Service Bureau must:
(1) deliver all electronic returns to
a Transmitter or to the ERO who gave
the electronic returns to the Service
Bureau within three calendar days of
receipt;
(2) retrieve the acknowledgement
file from the Transmitter within one
calendar day of receipt by the Transmit-
ter;
(3) initiate the communication of
the acknowledgement file to the ERO
(whether related or not) within one work
day of retrieving the acknowledgement
file;
(4) if the Service Bureau processes
Forms 8453, send back to the ERO any
return and Form 8453 that needs correc-
tion, unless the correction is described
in section 6.02(3);
(5) accept tax return information
only from Electronic Filers;
(6) include its SBIN and the
ERO’s EFIN with all return information
the Service Bureau forwards to a Trans-
mitter or sends back to an ERO;
(7) retain each acknowledgement
file received from a Transmitter until the
end of the calendar year in which the
electronic return was filed;
(8) if requested, serve as a contact
point between its client EROs and the
Service;
(9) if requested, provide the Ser-
vice with a list of each client ERO; and
(10) ensure against the unautho-
rized use of its SBIN. A Service Bureau
must not transfer its SBIN by sale,
merger, loan, gift, or otherwise to an-
other entity.
.16 An Electronic Filer who functions
as a Transmitter must:
(1) transmit all electronic returns
within three calendar days of receipt;
(2) retrieve the acknowledgement
file within two work days of transmis-
sion;
31

(3) match the acknowledgement
file to the original transmission file and
initiate the communication of the
acknowledgement file to the ERO or the
Service Bureau (whether or not the ERO
or the Service Bureau are related to the
Transmitter) within two work days of
retrieving the acknowledgement file;
(4) retain an acknowledgement file
received from the Service until the end
of the calendar year in which the elec-
tronic return was filed;
(5) immediately contact the appro-
priate service center’s Electronic Filing
Unit for further instructions if an
acknowledgement of acceptance for pro-
cessing has not been received by the
Transmitter within two work days of
transmission or if a Transmitter receives
an acknowledgement for a return that
was not transmitted on the designated
transmission;
(6) promptly correct any transmis-
sion error that causes an electronic
transmission to be rejected;
(7) contact the appropriate service
center’s Electronic Filing Unit for assis-
tance if a return has been rejected after
three transmission attempts;
(8) ensure the security of all trans-
mitted data;
(9) ensure against the unauthorized
use of its EFIN or ETIN. A Transmitter
must not transfer its EFIN or ETIN by
sale, merger, loan, gift, or otherwise to
another entity; and
(10) not use software that has a
Service assigned production password
built into the software.
.17 A Transmitter who provides
transmission services to other unrelated
Electronic Filers must only accept elec-
tronic returns for transmission to the
IRS Data Communications Subsystem
from accepted Electronic Filers. A
Transmitter must include the ERO’s
EFIN and if applicable, the CPIN on
each return that the Transmitter accepts
from an ERO. In addition, a Transmitter
must also include a Service Bureau’s
SBIN if a Service Bureau formats the
return information.
.18 An Electronic Filer who functions
as a Software Developer must:
(1) promptly correct any software
error which causes an electronic return
to be rejected;
(2) promptly distribute any soft-
ware correction;
(3) ensure that any software pack-
age that will be used to transmit any
returns from multiple Electronic Filers
has the capability of combining returns
from these Electronic Filers into one
Service transmission file taking into ac-
count the sorting requirements of the
Declaration Control Number (DCN);
(4) ensure that no other entity uses
the Software Developer’s EFIN or
ETIN. A Software Developer must not
transfer by sale, merger, loan, gift, or
otherwise its EFIN or ETIN to another
entity; and
(5) not incorporate into its software
a Service assigned production password.
.19 An Electronic Filer with a drop-
off collection point is the ERO for that
drop-off collection point. The ERO must
clearly display its name at each drop-off
collection point. The Service will hold
the ERO responsible for any violation of
the advertising standards described in
section 12 or any other violation of this
revenue procedure that occurs at a drop-
off collection point listed on the ERO’s
Form 8633. The ERO must also serve as
the contact point between the Service
and the drop-off collection point for all
correspondence including problem reso-
lution and report evaluation.
.20 In addition to the specific respon-
sibilities described in this section, an
Electronic Filer must meet all the re-
quirements in this revenue procedure to
keep the privilege of participating in the
Electronic Filing Program.
SECTION 6. PENALTIES
.01 Penalties for Disclosure or Use of
Information.
(1) An Electronic Filer, except a
Software Developer, is a tax return
preparer (Preparer) under the definition
of § 301.7216–1(b) of the Regulations
on Procedure and Administration. A
Preparer is subject to a criminal penalty
for disclosure or use of tax return
information, as described in
§ 301.7216–1(a). In general, that regula-
tion provides that any preparer who
discloses or uses any tax return informa-
tion for a purpose other than preparing,
assisting in preparing, or obtaining or
providing services in connection with
the preparation of a tax return is guilty
of a misdemeanor. In addition, § 6713
of the Internal Revenue Code provides
for civil penalties that may be assessed
against a preparer who makes an unau-
thorized disclosure or use of tax return
information.
(2) Under § 301.7216–2(h), disclo-
sure of tax return information among
accepted Electronic Filers for the pur-
pose of preparing a return is permis-
sible. For example, it is permissible for
an ERO to pass on tax return informa-
tion to a Service Bureau and/or a Trans-
mitter for the purpose of having an
electronic return formatted and transmit-
ted to the Service. However, if the tax
return information is disclosed or used
in any other way, a Service Bureau
and/or a Transmitter may be guilty of a
misdemeanor as described in section
6.01(1) of this revenue procedure.
.02 Other Preparer Penalties.
(1) Preparer penalties may be as-
serted against an individual or firm who
meets the definition of an income tax
return preparer under § 7701(a)(36) and
§ 301.7701–15. Examples of preparer
penalties that may be asserted under
appropriate circumstances include, but
are not limited to, those set forth in
§§ 6694, 6695, and 6713.
(2) Under § 301.7701–15(d), Elec-
tronic Return Collectors, Service Bu-
reaus, Transmitters, and Software Devel-
opers are not income tax return
preparers for the purpose of assessing
most preparer penalties as long as their
services are limited to ‘‘typing, repro-
duction, or other mechanical assistance
in the preparation of a return or claim
for refund.’’
(3) If an Electronic Return Collec-
tor, Service Bureau, Transmitter, or Soft-
ware Developer alters the return infor-
mation in a nonsubstantive way, this
alteration will be considered to come
under the ‘‘mechanical assistance’’ ex-
ception described in § 301.7701–
15(d)(1). A nonsubstantive change is a
correction or change limited to a trans-
position error, misplaced entry, spelling
error, or arithmetic correction that falls
within the following tolerances:
(a) the Total Tax amount, With-
holding amount, Refund amount, or
Amount Owed shown on Form 8453
differs from the corresponding amount
on the electronic portion of the tax
return by no more than $7;
(b) the Total Income amount
shown on Form 8453 differs from the
corresponding amount on the electronic
portion of the tax return by no more
than $25; or
(c) dropping cents and rounding
to whole dollars.
(4) If an Electronic Return Collec-
tor, Service Bureau, or Transmitter alters
the return information in a substantive
way, rather than having the taxpayer
alter the return, the Electronic Return
Collector, Service Bureau, or Transmit-
ter will be considered to be an income
tax return preparer for purposes of
§ 7701(a)(36).
32

(5) If an Electronic Return Collec-
tor, Service Bureau, or Transmitter, or
the product of a Software Developer,
goes beyond mechanical assistance, any
of these parties may be held liable for
income tax return preparer penalties.
Rev. Rul. 85–189, 1985–2 C.B. 341,
describes a situation where a Software
Developer was determined to be an
income tax return preparer and subject
to certain preparer penalties.
.03 In addition to the above specified
provisions, the Service reserves the right
to assert all appropriate preparer,
nonpreparer, and disclosure penalties
against an Electronic Filer as warranted
under the circumstances.
SECTION 7. FORM 8453, U.S.
INDIVIDUAL INCOME TAX
DECLARATION FOR ELECTRONIC
FILING
.01 Procedures for Completing Form
8453.
(1) Form 8453 must be completed
in accordance with the instructions for
Form 8453.
(2) The taxpayer(s)’s name, ad-
dress, social security number(s), tax re-
turn information, and direct deposit of
refund information in the electronic
transmission must be identical to the
information on the Form 8453 that the
taxpayer(s) signed and provided for sub-
mission to the Service.
(3) An Electronic Filer, a financial
institution, or any other entity associated
with the electronic filing of a taxpayer’s
return must not put its address in the
section reserved for the taxpayer’s ad-
dress on Form 8453 or anywhere in the
electronic portion of a return.
(4) After the return has been pre-
pared and before the return is electroni-
cally transmitted, the taxpayer must
verify the information on the electronic
portion of the return and on Form
8453, and must sign Form 8453. The
taxpayer may verify the information on
the electronic portion of the return by
viewing this information on a computer
display terminal. Both spouses’ signa-
tures are required on a joint return prior
to the electronic transmission of the tax
return.
(5) An Electronic Filer must sub-
mit the taxpayer’s Form 8453 to the
appropriate service center within one
work day after the Electronic Filer re-
ceives acknowledgment that the elec-
tronic portion of the taxpayer’s return
has been accepted for processing.
(6) If an Electronic Filer functions
as an ERO, the Electronic Filer must
sign the ERO’s Declaration on Form
8453.
(7) If the ERO is also the paid
preparer, the ERO must check the ‘‘Paid
Preparer’’ box and sign the ERO Decla-
ration on Form 8453.
.02 Corrections to Form 8453.
(1) A new Form 8453 is not re-
quired for a nonsubstantive change. A
nonsubstantive change is limited to a
correction that does not exceed the
tolerances, described in section 7.02(2)
of this revenue procedure for arithmetic
errors, a transposition error, a misplaced
entry, or a spelling error. The incorrect
nonsubstantive information must be
neatly lined through on the Form 8453
and the correct data entered next to the
lined-through entry. Also, the individual
making the correction must initial the
correction.
(2) The tolerances for section
7.02(1) of this revenue procedure are:
(a) the ‘‘Total Income’’ does not
differ from the amount on the electronic
tax return by more than $25; or
(b) the ‘‘Total Tax’’, the ‘‘Fed-
eral income tax withheld’’, the ‘‘Re-
fund’’, or the ‘‘Amount you owe’’ does
not differ from the amount on the
electronic portion of the tax return by
more than $7.
(3) If the ERO makes a substantive
change to the electronic portion of the
return after Form 8453 has been signed
by the taxpayer, but before it is trans-
mitted, the ERO must have all the
necessary parties described above sign a
new Form 8453 that reflects the correc-
tions before the return is transmitted.
(4) Dropping cents or rounding to
whole dollars does not constitute a sub-
stantive change or alteration to the re-
turn unless the amount differs by more
than the above tolerances. All rounding
should be accomplished in accordance
with the instructions in the Form 1040
tax package.
.03 If the Service determines that a
Form 8453 is missing, the ERO must
provide the Service with a replacement.
The ERO must also provide a copy of
the Form(s) W–2, W–2G, 1099R, and
all other attachments to Form 8453.
.04 If a substitute Form 8453 is used,
it must be approved by the Service prior
to use. See Rev. Proc. 96–48, 1996–39
I.R.B. 10.
SECTION 8. INFORMATION AN
ELECTRONIC FILER MUST PROVIDE
TO THE TAXPAYER
.01 The ERO must furnish the tax-
payer with a complete paper copy of the
taxpayer’s return. A complete copy of a
taxpayer’s return includes: (1) Form
8453 and other paper documents that
cannot be electronically transmitted, and
(2) a printout of the electronic portion
of the return. See section 2.02 of this
revenue procedure. The electronic por-
tion of the return can be contained on a
replica of an official form or on an
unofficial form. However, on an unoffi-
cial form, data entries must be refer-
enced to the line numbers on an official
form.
.02 The ERO must advise the tax-
payer to retain a complete copy of the
return and any supporting material.
.03 The ERO must advise the tax-
payer that an amended return, if needed,
must be filed as a paper return and
mailed to the service center that would
handle the taxpayer’s paper return.
.04 The ERO must, upon request,
provide the taxpayer with the Declara-
tion Control Number and the date the
electronic portion of the taxpayer’s re-
turn was acknowledged as accepted for
processing by the Service.
.05 The ERO must advise taxpayers
that they can call the local IRS TeleTax
number to inquire about the status of
their tax refund. The ERO should also
advise taxpayers to wait at least three
weeks from the acceptance date of the
electronic return before calling the
TeleTax number.
.06 If a taxpayer chooses to use an
address other than his or her home
address on the return, the Electronic
Filer must inform the taxpayer that the
address on the electronic portion of the
return, once processed by the Service,
will be used to update the taxpayer’s
address of record. The Internal Revenue
Service uses the taxpayer’s address of
record for various notices that are re-
quired to be sent to a taxpayer’s ‘‘last
known address’’ under the Internal Rev-
enue Code, and for refunds of overpay-
ments of tax (unless otherwise specifi-
cally directed by the taxpayer, such as
by Direct Deposit).
SECTION 9. DIRECT DEPOSIT OF
REFUNDS
.01 The Service will ordinarily pro-
cess a request for Direct Deposit but
reserves the right to issue a paper refund
check.
33

.02 The Service does not guarantee a
specific date by which a refund will be
directly deposited into the taxpayer’s
financial institution account.
.03 Neither the Service nor Financial
Management Service (FMS) is respon-
sible for the misapplication of a Direct
Deposit that is caused by error, negli-
gence, or malfeasance on the part of the
taxpayer, Electronic Filer, financial insti-
tution, or any of their agents.
.04 An ERO must:
(1) advise taxpayers of the option
to receive their refund by paper check
or direct deposit;
(2) not charge a separate fee for a
Direct Deposit;
(3) accept any Direct Deposit elec-
tion to any eligible financial institution
designated by the taxpayer;
(4) ensure that the taxpayer is eli-
gible to choose Direct Deposit;
(5) verify that the taxpayer has
entered the Direct Deposit information
requested on Part II of Form 8453
correctly and that the information en-
tered is the information transmitted with
the electronic portion of the return;
(6) caution the taxpayer that once
an electronic return has been accepted
for processing by the Service:
(a) the Direct Deposit election
cannot be rescinded;
(b) the Routing Transit Number
(RTN) of the financial institution cannot
be changed; and
(c) the taxpayer’s account num-
ber cannot be changed; and
(7) advise the taxpayer that refund
information is available by calling the
local IRS TeleTax number. See section
8.05 of this revenue procedure.
SECTION 10. REFUND
ANTICIPATION LOANS
.01 A Refund Anticipation Loan
(RAL) is money borrowed by a taxpayer
that is based on a taxpayer’s anticipated
income tax refund. The Service has no
involvement in RALs. A RAL is a
contract between the taxpayer and the
lender.
.02 Any entity that is involved in the
Electronic Filing Program, including a
financial institution that accepts direct
deposits of income tax refunds, has an
obligation to every taxpayer who applies
for a RAL to clearly explain to the
taxpayer that a RAL is in fact a loan,
and not a substitute for or a quicker way
of receiving an income tax refund. An
Electronic Filer must advise the tax-
payer that if a Direct Deposit is not
timely, the taxpayer may be liable to the
lender for additional interest on the
RAL.
.03 An Electronic Filer may assist a
taxpayer in applying for a RAL.
.04 An Electronic Filer may charge a
flat fee to assist a taxpayer in applying
for a RAL. The fee must be identical for
all of the Electronic Filer’s customers
and must not be related to the amount
of the refund or a RAL. The Electronic
Filer must not accept a fee from a
financial institution for any service con-
nected with a RAL that is contingent
upon the amount of the refund or a
RAL.
.05 The Service has no responsibility
for the payment of any fees associated
with the preparation of a return, the
electronic transmission of a return, or a
RAL.
.06 An Electronic Filer may disclose
tax information to the lending financial
institution in connection with an appli-
cation for a RAL only with the taxpay-
er’s written consent as specified in
§ 301.7216–3(b).
.07 An Electronic Filer that is also
the return preparer, and the financial
institution or other lender that makes an
RAL, may not be related taxpayers
within the meaning of § 267 or § 707.
.08 Section 6695(f) imposes a $500
penalty on a return preparer who en-
dorses or negotiates a refund check
issued to any taxpayer other than the
return preparer. However, a bank, as
defined in § 581, may accept the full
amount of a refund check as a deposit
in the taxpayer’s account for the benefit
of the taxpayer. Section 1.6695–1(f)
clarifies § 6695 of the Code by explain-
ing that the prohibition on a return
preparer negotiating a refund check is
limited to a refund check for a return
that the return preparer prepared. A
preparer that is also a financial institu-
tion, but has not made a loan to the
taxpayer on the basis of the taxpayer’s
anticipated refund, may (1) cash a re-
fund check and remit all of the cash to
the taxpayer or accept a refund check
for deposit in full to a taxpayer’s ac-
count, provided the bank does not ini-
tially endorse or negotiate the check; or
(2) endorse a refund check for deposit
in full to a taxpayer’s account pursuant
to a written authorization of the tax-
payer. A preparer bank may also subse-
quently endorse or negotiate a refund
check as part of the check-clearing
process through the financial system
after initial endorsement. Any income
tax return preparer that violates this
provision may be suspended from the
Electronic Filing Program.
SECTION 11. BALANCE DUE
RETURNS
.01 All service centers that accept
electronically filed returns will accept
electronically filed balance due returns.
.02 The Electronic Filer must furnish
Form 1040–V, Electronic Payment
Voucher, to a taxpayer who electroni-
cally files a balance due return.
.03 To expedite the crediting of a tax
payment, a taxpayer who electronically
files a balance due return should mail
his or her tax payment with either Form
1040–V or the scannable payment
voucher that is included in some tax
packages. Each of these options has
specific mailing instructions.
.04 A taxpayer who electronically
files a balance due return must make a
full and timely payment of any tax that
is due. Failure to make full payment of
any tax that is due on or before April
15, 1997, will result in the imposition of
interest and may result in the imposition
of penalties.
SECTION 12. ADVERTISING
STANDARDS FOR ELECTRONIC
FILERS AND FINANCIAL
INSTITUTIONS
.01 An Electronic Filer shall comply
with the advertising and solicitation pro-
visions of 31 C.F.R. Part 10 (Treasury
Department Circular No. 230). This cir-
cular prohibits the use or participation in
the use of any form of public communi-
cation containing a false, fraudulent,
misleading, deceptive, unduly influenc-
ing, coercive, or unfair statement or
claim. In addition, advertising must not
imply a special relationship with the
Service, FMS, or the Treasury Depart-
ment. Any claims concerning faster re-
funds by virtue of electronic filing must
be consistent with the language in offi-
cial Service publications.
.02 An Electronic Filer must adhere
to all relevant federal, state, and local
consumer protection laws that relate to
advertising and soliciting.
.03 An Electronic Filer must not use
the Service’s name, ‘‘Internal Revenue
Service’’ or ‘‘IRS’’, within a firm’s
name.
.04 An Electronic Filer must not use
improper or misleading advertising in
relation to the Electronic Filing Program
(including the time frames for refunds
and RALs).
34

.05 Use of Direct Deposit name and
logo.
(1) The name ‘‘Direct Deposit’’
will be used with initial capital letters or
all capital letters.
(2) The logo/graphic for Direct De-
posit will be used whenever feasible in
advertising copy.
(3) The color or size of the Direct
Deposit logo/graphic may be changed
when used in advertising pieces.
.06 Advertising materials shall not
carry the FMS, IRS, or other Treasury
Seals.
.07 Advertising for a cooperative
electronic return project (public/private
sector) must clearly state the names of
all cooperating parties.
.08 In advertising the availability of a
RAL, an Electronic Filer and a financial
institution must clearly (and, if appli-
cable, in easily readable print) refer to
or describe the funds being advanced as
a loan, not a refund; that is, it must be
made clear in the advertising that the
taxpayer is borrowing against the antici-
pated refund and not obtaining the re-
fund itself from the financial institution.
.09 If an Electronic Filer uses radio
or television broadcasting to advertise,
the broadcast must be pre-recorded. The
Electronic Filer must keep a copy of the
pre-recorded advertisement for a period
of at least 36 months from the date of
the last transmission or use.
.10 If an Electronic Filer uses direct
mail or fax communications to advertise,
the Electronic Filer must retain a copy
of the actual mailing or fax, along with
a list or other description of the firms,
organizations, or individuals to whom
the communication was mailed, faxed,
or otherwise distributed for a period of
at least 36 months from the date of the
last mailing, fax, or distribution.
.11 Acceptance to participate in the
Electronic Filing Program does not im-
ply endorsement by the Service or FMS
of the software or quality of services
provided.
SECTION 13. MONITORING AND
SUSPENSION OF AN ELECTRONIC
FILER
.01 The Service will monitor an Elec-
tronic Filer for conformity with this
revenue procedure. The Service can im-
mediately suspend, without notice, an
Electronic Filer from the Electronic Fil-
ing Program. However, in most circum-
stances, a suspension from participation
in the Electronic Filing Program is ef-
fective as of the date of the letter
informing the Electronic Filer of the
suspension. Before suspending an Elec-
tronic Filer, the Service may issue a
warning letter that describes specific
corrective action for deviations from this
revenue procedure.
.02 If a Principal or Responsible Of-
ficial is suspended from the Electronic
Filing Program, every entity that listed
the suspended Principal or Responsible
Official on its Form 8633 may also be
suspended.
.03 The Service will monitor the
timely receipt of Forms 8453, as well as
their overall legibility.
.04 The Service will monitor the
quality of an Electronic Filer’s transmis-
sions throughout the filing season. The
Service will also monitor electronic re-
turns and tabulate rejections, errors, and
other defects. If quality deteriorates, the
Electronic Filer will receive a warning
from the Service.
.05 The Service will monitor drop-off
collection points and advise a parent of
any Electronic Filing Program violations
the Service has encountered with a
parent’s drop-off collection point. If a
parent fails to correct a drop-off collec-
tion point problem, the parent will be
required to eliminate that drop-off col-
lection point. Failure to take corrective
action or eliminate a drop-off collection
point will cause the Service to suspend
the parent. If the Service initiates sus-
pension action, it will apply to all
returns filed by the parent.
.06 The Service will monitor com-
plaints about an Electronic Filer and
issue a warning or suspension letter as
appropriate.
.07 The Service reserves the right to
suspend the electronic filing privilege of
any Electronic Filer that violates any
provision of this revenue procedure.
Generally, the Service will advise a
suspended Electronic Filer concerning
the requirements for reacceptance into
the Electronic Filing Program. The fol-
lowing reasons may lead to a warning
letter and/or suspension of an Electronic
Filer from the Electronic Filing Program
(this list is not all-inclusive):
(1) the reasons listed in section
4.19 of this revenue procedure;
(2) deterioration in the format of
individual transmissions;
(3) unacceptable cumulative error
or rejection rate;
(4) untimely received, illegible, in-
complete, missing, or unapproved sub-
stitute Forms 8453;
(5) stockpiling returns at any time
while participating in the Electronic Fil-
ing Program;
(6) failure on the part of a Trans-
mitter to retrieve acknowledgement files
within two work days of transmission
by the Service;
(7) failure on the part of a Trans-
mitter to initiate the communication of
acknowledgement files to clients within
two work days of receipt of the
acknowledgement files from the Service;
(8) significant complaints about an
Electronic Filer’s performance in the
Electronic Filing Program;
(9) failure on the part of an Elec-
tronic Filer to ensure that no other entity
uses the Electronic Filer’s EFIN and/or
ETIN;
(10) having more than one EFIN
for the same business entity at the same
location (the business entity is generally
the entity that reports on its return the
income derived from electronic filing),
unless the Service has issued more than
one EFIN to a business entity. For
example, the Service may issue more
than one EFIN to accommodate high
volumes of returns;
(11) failure on the part of a Trans-
mitter to include a Service Bureau’s
SBIN in the transmission of a return
submitted by a Service Bureau;
(12) failure on the part of an ERO
to include a drop-off collection point’s
CPIN as part of a return collected from
a drop-off collection point;
(13) failure on the part of an Elec-
tronic Filer to cooperate with the Ser-
vice’s efforts to monitor Electronic Fil-
ers and investigate electronic filing
abuse;
(14) failure on the part of an Elec-
tronic Filer to properly use the standard/
non-standard W–2 indicator;
(15) failure on the part of an Elec-
tronic Filer to properly use the refund
anticipation loan (RAL) indicator;
(16) failure on the part of a Ser-
vice Bureau or a Transmitter to include
the ERO’s EFIN as part of a return that
the ERO submits to the Service Bureau
or the Transmitter;
(17) violation of the advertising
standards described in section 12 of this
revenue procedure;
(18) failure to maintain and make
available records as described in section
5.09(4) of this revenue procedure;
(19) accepting a tax return for
electronic filing either directly or indi-
rectly from a firm, organization, or
individual (other than the taxpayer who
35

is submitting his or her return) that is
not in the Electronic Filing Program;
(20) submitting the electronic por-
tion of a return with information that is
not identical to the information on Form
8453;
(21) failure to timely pay any ap-
plicable fees, as implemented by subse-
quent guidance; or
(22) failure to timely submit a re-
vised Form 8633 notifying the Service
of changes described in section 4.03 or
4.04 of this revenue procedure.
.08 The Service may list in the Inter-
nal Revenue Bulletin, district office list-
ings, district office newsletters, and the
EFS Bulletin Board the name and own-
er(s) of any entity suspended from the
Electronic Filing Program and the effec-
tive date of the suspension.
.09 A district director may warn Elec-
tronic Filers who are using the services
of a rejected or a suspended Electronic
Filer that sections 4.19(11) and (12) of
this revenue procedure prohibit a busi-
ness relationship with a rejected or a
suspended Electronic Filer. However, in
appropriate circumstances, the Service
may immediately suspend the Electronic
Filer.
.10 If an application for participation
in the Electronic Filing Program is de-
nied, the applicant is ineligible to submit
a new application for two years from
the application date of the denied appli-
cation.
.11 If an Electronic Filer is sus-
pended from participating in the Elec-
tronic Filing Program, the period of
suspension includes the remainder of the
calendar year in which the suspension
occurs plus the next two calendar years.
A suspended participant may submit a
new application for the application pe-
riod immediately preceding the end of
the suspension.
SECTION 14. ADMINISTRATIVE
REVIEW PROCESS FOR DENIAL OF
PARTICIPATION IN THE
ELECTRONIC FILING PROGRAM
.01 An applicant that has been denied
participation in the Electronic Filing
Program has the right to an administra-
tive review. During the administrative
review process, the denial of participa-
tion remains in effect.
.02 In response to the submission of
a Form 8633, the appropriate district
office will either (1) accept an applicant
into the Electronic Filing Program, or
(2) issue a proposed letter of denial that
explains to the applicant why the district
office proposes to reject the application
to participate in the Electronic Filing
Program.
.03 An applicant that receives a pro-
posed letter of denial may mail or
deliver, within 30 calendar days of the
date of the proposed letter of denial, a
written response to the district office
that issued the proposed letter of denial.
The applicant’s response must address
the district office’s explanation for pro-
posing the denial to participate.
.04 Upon receipt of an applicant’s
written response, the district office will
reconsider its proposed letter of denial.
The district office may (1) withdraw its
proposed letter of denial and admit the
applicant into the Electronic Filing Pro-
gram, or (2) finalize its proposed letter
of denial and issue it to the applicant.
.05 If an applicant receives a final
letter from the district office that denies
the applicant participation in the Elec-
tronic Filing Program, the applicant is
entitled to an appeal, in writing, to the
Director of Practice.
.06 The appeal must be mailed or
delivered to the district office that is-
sued the denial letter within 30 calendar
days of the date of the denial letter. An
applicant’s written appeal must contain a
detailed explanation, with supporting
documentation, of why the denial should
be reversed. In addition, the applicant
must include a copy of the applicant’s
Form 8633 and a copy of the denial
letter.
.07 The district office whose denial is
being appealed will, upon receipt of a
written appeal to the Director of Prac-
tice, forward to the Director of Practice
its file on the applicant and the material
described in section 14.06 of this rev-
enue procedure that the applicant has
submitted to the district office. The
district office will forward to the Direc-
tor of Practice these materials within 15
calendar days of receipt of the appli-
cant’s written appeal to the Director of
Practice.
.08 Failure to respond within the 30-
day periods described in sections 14.03
and 14.06 of this revenue procedure
irrevocably terminates an applicant’s
right to an administrative review or
appeal.
SECTION 15. ADMINISTRATIVE
REVIEW PROCESS FOR
SUSPENSION FROM THE
ELECTRONIC FILING PROGRAM
.01 An Electronic Filer that has been
suspended from participation in the
Electronic Filing Program has the right
to an administrative review. During the
administrative review process, the sus-
pension remains in effect.
.02 If an Electronic Filer receives a
proposed suspension letter, the Elec-
tronic Filer may mail or deliver, within
30 calendar days of the date of the
proposed suspension letter, a detailed
written explanation, with support-
ing documentation, of why the pro-
posed suspension letter should be with-
drawn. This written response should be
sent to the district office or service
center that issued the proposed suspen-
sion letter.
.03 Upon receipt of the Electronic
Filer’s written response, the district of-
fice or service center will reconsider its
proposed suspension of the Electronic
Filer. The district office or service cen-
ter will either withdraw its proposed
suspension letter and reinstate the Elec-
tronic Filer or issue a suspension letter
to the Electronic Filer.
.04 If an Electronic Filer receives a
suspension letter from a district office or
a service center, the Electronic Filer is
entitled to an appeal, in writing, to the
Director of Practice.
.05 The appeal must be mailed or
delivered to the district office or service
center that issued the suspension let-
ter within 30 calendar days of the
date of the suspension letter. The Elec-
tronic Filer’s written appeal must
contain detailed reasons, with support-
ing documentation, for reversal of the
suspension. In addition, the Electronic
Filer must include a copy of its Form
8633 and a copy of the suspension
letter.
.06 The district office or service cen-
ter whose decision to suspend is be-
ing appealed will, upon receipt of a
written appeal to the Director of Prac-
tice, forward to the Director of Practice
its file on the Electronic Filer and the
material described in section 15.05 of
this revenue procedure that the Elec-
tronic Filer has submitted to the district
office or the service center. The district
office or the service center will forward
to the Director of Practice these materi-
als within 15 calendar days of the
receipt of the Electronic Filer’s written
request for appeal to the Director of
Practice.
.07 Failure to appeal within the 30-
day period described in section 15.05 of
this revenue procedure irrevocably ter-
minates an Electronic Filer’s right to an
appeal.
36

SECTION 16. VITA AND TCE
SPONSORED ELECTRONIC FILING
.01 This revenue procedure applies to
VITA (Volunteer Income Tax Assis-
tance) and TCE (Tax Counselling for the
Elderly) sponsors subject to the excep-
tions and restrictions described in this
section.
.02 For purposes of this section, the
District Director may be represented by
an individual designated by the District
Director such as a District Office Elec-
tronic Filing Coordinator (DOEFC) or a
Taxpayer Education Coordinator.
.03 To be accepted in, or to continue
participation in, the Electronic Filing
Program, a VITA or TCE sponsor must:
(1) have obtained the District Di-
rector’s permission (and, in the case of a
TCE sponsor, the permission of the
Service office that is funding the TCE
program) to provide electronic filing;
and
(2) have a manual or electronic
quality review system for each return to
be electronically filed.
.04 The District Director will advise
the VITA and TCE sponsor how to
submit or transmit returns. Some of the
options available to the District Director
are:
(1) having the VITA or TCE spon-
sor submit returns on paper, magnetic
disk, or in an electronic transmission to
the DOEFC or other locally designated
office;
(2) having the VITA or TCE spon-
sor directly transmit returns to the ap-
propriate service center; or
(3) having the VITA or TCE spon-
sor use a third party Transmitter.
.05 A VITA or TCE sponsor is not
required to manually sign Form 8453 as
ERO. However, if the VITA or TCE
sponsor chooses not to manually sign
Form 8453, the VITA or TCE sponsor
must otherwise furnish on Form 8453 its
VITA or TCE acronym and, if operating
from multiple sites, a site designation
number.
.06 A VITA or TCE sponsor can only
accept a return for electronic filing that
is (1) prepared at the VITA or TCE site
by a VITA or TCE volunteer, (2) pre-
pared by a taxpayer that meets the
criteria for VITA or TCE assistance, or
(3) prepared by a paid preparer that
meets the criteria for VITA or TCE
assistance.
.07 Only returns and accompanying
forms and schedules included in a dis-
trict, VITA, or TCE training course may
be accepted for electronic filing by a
VITA or TCE sponsor.
.08 A VITA or TCE sponsor and a
District Director may enter into an
agreement that provides for the retention
of copies of tax returns and Forms 8453
by a District Director. This information
must be retained by either the VITA or
TCE sponsor or a District Director. This
information must not be given to a third
party, including a third party Transmit-
ter.
.09 A District Director is responsible
for ensuring that Form 8453 is sent to
the appropriate Service office or service
center. However, a District Director may
delegate to the VITA or TCE sponsor
the responsibility for mailing Form 8453
to the appropriate office or service cen-
ter.
.10 A VITA or TCE sponsor may
collect a fee only if it is directly related
to defraying the actual cost of electroni-
cally transmitting a tax return. A VITA
or TCE sponsor may also collect this
fee on behalf of a third party Transmit-
ter who electronically transmitted a
VITA or TCE return.
.11 Before a VITA or TCE sponsor
may collect a fee for electronically
filing a tax return, the VITA or TCE
sponsor must ensure that the taxpayer
understands that:
(1) the fee is not for the prepara-
tion of the return; and
(2) the VITA or TCE service is
offered without regard to either the
electronic filing of a return or the
collection of a fee.
SECTION 17. EMPLOYER
SPONSORED ELECTRONIC FILING
.01 This revenue procedure applies to
an employer who chooses to offer elec-
tronic filing as an employee benefit to
(1) business owners and spouses, (2)
employees and spouses, and/or (3) de-
pendents of business owners and em-
ployees, subject to the exceptions and
restrictions described in this section.
.02 For purposes of this section, the
District Director may be represented by
an individual designated by the District
Director.
.03 An employer may choose to elec-
tronically transmit returns or may ar-
range to have tax returns electronically
transmitted through a third party. If an
employer chooses to transmit returns
from more than one location, the em-
ployer must submit a properly com-
pleted Form 8633 for each location.
.04 An employer may offer electronic
filing as an employee benefit whether
the employer chooses to transmit tax
returns or contracts with a third party to
transmit the tax returns.
.05 If an employer contracts with a
third party to transmit tax returns, the
employer may collect from participating
employees a fee that is directly related
to defraying the actual cost of electroni-
cally transmitting a tax return.
.06 An employer is not required to
manually sign Form 8453 as ERO.
However, if the employer chooses not to
manually sign Form 8453, the employer
must otherwise furnish on Form 8453 its
name, address, and the designation
‘‘Employee Benefit,’’ and if operating
from multiple sites, a site designation
number.
.07 An employer and a District Di-
rector may enter into an agreement that
provides for the retention of copies of
tax returns including Forms 8453. In the
absence of such an agreement, this in-
formation must be retained by the em-
ployer. This information is not to be
given to a third party, including a third
party Transmitter.
SECTION 18. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 95–49, 1995–2 C.B. 419,
is superseded.
SECTION 19. EFFECTIVE DATE
This revenue procedure is effective
December 30, 1996.
SECTION 20. INTERNAL REVENUE
SERVICE OFFICE CONTACT
All questions regarding this revenue
procedure should be directed to the
Internal Revenue Service. The telephone
number for this purpose is (202) 283–
1010 (not a toll-free number).
SECTION 21. 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 1545–1512.
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 in this
revenue procedure are in sections 5, 8,
37

9, and 12. This information is required
to implement the Electronic Filing Pro-
gram and to enable taxpayers to file
their individual income tax returns elec-
tronically. The information will be used
to ensure that taxpayers receive accurate
and essential information regarding the
filing of their electronic returns and to
identify the persons involved in the
filing of electronic returns. The collec-
tions of information are required to
retain the benefit of participating in the
Electronic Filing Program. The likely
respondents are business or other for-
profit institutions.
The estimated total annual reporting
and recordkeeping burden is 1,146,272
hours.
The estimated annual burden per
respondent/recordkeeper varies from six
(6) minutes to 15.5 hours, depending on
individual circumstances, with an esti-
mated average of 15.28 hours (or ap-
proximately six (6) minutes per elec-
tronically filed return). The estimated
number of respondents and recordkeep-
ers is 75,000.
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.
26 CFR 601.602: Tax forms and instructions.
(Also Part I, Sections 6012, 6061; 1.6012–5,
1.6061–1.)
Rev. Proc. 96–62
CONTENTS
SECTION 1 PURPOSE
SECTION 2 BACKGROUND AND
CHANGES
SECTION 3 ON-LINE FILING PAR-
TICIPANTS—DEFINITIONS
SECTION 4 ACCEPTANCE IN THE
ON-LINE FILING PROGRAM
SECTION 5 RESPONSIBILITIES OF
AN ON-LINE FILER
SECTION 6 PENALTIES
SECTION 7 FORM 8453–OL, U.S.
INDIVIDUAL TAX DECLARATION
FOR ON-LINE FILING
SECTION 8 INFORMATION AN
ON-LINE FILER MUST PROVIDE
TO THE TAXPAYER
SECTION 9 DIRECT DEPOSIT OF
REFUNDS
SECTION 10 BALANCE DUE RE-
TURNS
SECTION 11 ADVERTISING STAN-
DARDS FOR ON-LINE FILERS
SECTION 12 MONITORING AND
SUSPENSION OF AN ON-LINE
FILER
SECTION 13 ADMINISTRATIVE RE-
VIEW PROCESS FOR DENIAL OF
PARTICIPATION IN THE ON-LINE
FILING PROGRAM
SECTION 14 ADMINISTRATIVE RE-
VIEW PROCESS FOR SUSPEN-
SION FROM THE ON-LINE FIL-
ING PROGRAM
SECTION 15 EFFECT ON OTHER
DOCUMENTS
SECTION 16 EFFECTIVE DATE
SECTION 17 INTERNAL REVENUE
SERVICE OFFICE CONTACT
SECTION 18 PAPERWORK REDUC-
TION ACT
SECTION 1. PURPOSE
This revenue procedure informs those
who participate in the 1997 On-Line
Filing Program for Form 1040 and Form
1040A, U.S. Individual Income Tax Re-
turn, and Form 1040EZ, Income Tax
Return for Single and Joint Filers With
No Dependents, of their obligations to
the Internal Revenue Service, taxpayers,
and other participants. This revenue pro-
cedure updates Rev. Proc. 96–20,
1996–4 I.R.B. 88.
SECTION 2. BACKGROUND AND
CHANGES
.01 During the 1996 federal income
tax filing season, all returns filed
through the On-Line Filing Program
were filed at the Austin Service Center.
For the 1997 federal income tax filing
season, the program is being expanded
to allow returns filed through the On-
Line Filing Program to be filed at all
service centers that process electronic
returns.
.02 Section 1.6012–5 of the Income
Tax Regulations provides that the Com-
missioner may authorize the use, at the
option of a person required to make a
return, of a composite return in lieu of
any form specified in 26 C.F.R. Part 1
(Income Tax), subject to the conditions,
limitations, and special rules governing
the preparation, execution, filing, and
correction thereof as the Commissioner
may deem appropriate.
.03 For purposes of this revenue pro-
cedure, an on-line electronically filed
Form 1040, Form 1040A, or Form
1040EZ is a composite return consisting
of electronically transmitted data and
certain paper documents. The non-
electronic portion of the return consists
of Form 8453–OL, U.S. Individual In-
come Tax Declaration for On-Line Fil-
ing, and other paper documents that
cannot be electronically transmitted.
Form 8453–OL must be received by the
Service before an on-line electronically
filed return is complete (See section
5.07 of this revenue procedure). An
on-line electronically filed return must
contain the same information that a
return filed completely on paper con-
tains. See section 7 of this revenue
procedure for procedures for completing
Form 8453–OL.
.04 The Service will periodically is-
sue a publication that lists the forms and
schedules associated with a Form 1040
that can be electronically transmitted.
.05 A Form 1040, a Form 1040A, or
a Form 1040EZ cannot be electronically
filed after October 15, 1997, notwith-
standing the fact that the taxpayer has
been granted an extension to file a
return beyond that date.
.06 An amended tax return cannot be
electronically filed. A taxpayer must file
an amended tax return on paper in
accordance with the instructions for
Form 1040X, Amended U.S. Individual
Income Tax Return.
.07 A tax return that has a foreign
address for the taxpayer cannot be elec-
tronically filed. Army/Air Force (APO)
and Fleet (FPO) post offices are not
considered foreign addresses.
.08 A tax return for a decedent can-
not be electronically filed. The dece-
dent’s spouse or personal representative
must file a paper tax return for the
decedent.
.09 This revenue procedure updates
Rev. Proc. 96–20, which applied to the
On-Line Filing Program for the 1996
filing season. The updates include
changes in the On-Line Filing Program
for the 1997 filing season, clarifications
of prior On-Line Filing Program state-
ments, and additional guidance derived
from other Service documents that relate
to the On-Line Filing Program. Some of
the updates are:
(1) in certain circumstances, a letter
may be submitted in lieu of a revised
Form 8633 (section 4.04);
(2) the time period to submit a re-
vised Form 8633 is extended to 30 days
(section 4.05);
(3) a fee for the electronic transmis-
sion of a tax return may not be com-
puted using any amount from the return
(section 5.04);
38

(4) a revised Form 8633 must be
filed with the IRS Headquarters On-Line
Filing Analyst (section 5.05);
(5) the time period for an On-Line
Filer to notify the Service that it is
discontinuing its participation in the On-
Line Filing Program is extended to 30
days (section 5.06);
(6) a Software Developer must ensure
that its software package cannot be used
to transmit more than three electronic
returns (section 5.10(3));
(7) a Software Developer must ensure
that its software package contains a
Form 8453–OL format that can be
printed and used by a taxpayer to file
with the Service (section 5.10(4));
(8) a Software Developer must ensure
that its software package contains a
consent to disclosure statement (section
5.10(5));
(9) a Software Developer must pro-
vide software and accompanying docu-
mentation to the IRS Headquarters On-
Line Filing Analyst once the software
has been successfully tested (section
5.10(6));
(10) a Transmitter must transmit elec-
tronic returns to the appropriate service
center based on the state code in the
taxpayer’s return address (section
5.11(3));
(11) a Transmitter must enter the let-
ter ‘‘O’’ in Field #15 (Transmission
Type Code) when transmitting the elec-
tronic portion of an on-line electroni-
cally filed return to the Service (section
5.13);
(12) a Transmitter must not combine
the electronic portion of an on-line
electronically filed return with the elec-
tronic portion of any other return within
the same transmission to the Service
(section 5.14);
(13) a Transmitter must provide a
taxpayer with the appropriate service
center’s address for mailing the Form
8453–OL (section 5.15(5));
(14) a Software Developer that per-
forms a function in the On-line Filing
Program other than software develop-
ment is a tax return preparer under the
definition of § 301.7216–1(a) of the
Regulations on Procedure and Adminis-
tration (section 6.01(1));
(15) a taxpayer will mail Form
8453–OL to the appropriate service cen-
ter (section 7.01);
(16) the effect of suspending a Prin-
cipal or a Responsible Official, on enti-
ties that listed the Principal or Respon-
sible Official on their Forms 8633, is
clarified (section 12.02);
(17) the two-year periods for denial
and suspension are modified and clari-
fied (sections 12.09 and 12.10);
(18) the time and method to respond
to a proposed letter of denial and a
denial letter are clarified (sections 13.03
and 13.06); and
(19) the time and method to respond
to a proposed suspension letter and a
suspension letter are clarified (sections
14.02 and 14.05).
SECTION 3. ON-LINE FILING
PARTICIPANTS—DEFINITIONS
.01 After acceptance into the On-Line
Filing Program, as described in section
4 of this revenue procedure, a partici-
pant is referred to as an ‘‘On-Line
Filer.’’
.02 An On-Line Filer is categorized
as follows:
(1) ON-LINE SERVICE PRO-
VIDER. An ‘‘On-Line Service Provider’’
is an on-line information service organi-
zation that provides paying subscribers
dial-up access to a variety of data bases.
For purposes of the On-Line Filing
Program, an On-Line Service Provider
must also have:
(a) an established subscriber or
client base to whom the On-Line Ser-
vice Provider offers services on a con-
tinuing basis and about which the On-
Line Service Provider maintains certain
minimum information identifying the
subscriber. Such information could in-
clude the subscriber’s name, account
number, or credit card or demand de-
posit account number;
(b) a port capacity of at least
1,000 lines or the ability to simulta-
neously service 1,000 customers;
(c) a network of personal com-
puters that are linked by modems;
(d) access to a broad spectrum
of information and/or entertainment ser-
vices; and
(e) a client base that has the
ability to communicate using electronic
mail.
(2) SOFTWARE DEVELOPER. A
‘‘Software Developer’’ develops soft-
ware for the purposes of (a) formatting
returns according to the Service’s elec-
tronic return specifications; and/or (b)
transmitting electronic returns directly to
the Service. A Software Developer may
also sell its software.
(3) TRANSMITTER. A ‘‘Transmit-
ter’’ transmits the electronic portion of a
return directly to the IRS Data Commu-
nications Subsystem. An entity that pro-
vides a ‘‘bump-up’’ service is a Trans-
mitter. A ‘‘bump-up’’ service provider
increases the transmission rate or line
speed of formatted or reformatted infor-
mation that is being sent to the Service
via a public switched telephone network.
For example, a bump-up service pro-
vider may increase the transmission rate
or line speed of information from 4800
bits per second (BPS) to 9600 BPS.
Service specifications for electronic fil-
ing require an asynchronous speed of
300 BPS to 38,400 BPS or a
bisynchronous speed of 4800 BPS to
19,200 BPS.
.03 The On-Line Filer categories are
not mutually exclusive. For example, an
On-line Service Provider can, at the
same time, be considered a Transmitter
or Software Developer depending on the
function(s) performed.
SECTION 4. ACCEPTANCE IN THE
ON-LINE FILING PROGRAM
.01 The Service will review and pro-
cess applications received on or before
December 2, 1996, for acceptance into
the 1997 On-Line Filing Program.
.02 Applicants and On-Line Filers are
required to submit a new Form 8633
designated for the On-Line Filing Pro-
gram (hereinafter ‘‘Form 8633’’), with
fingerprint cards for appropriate indi-
viduals, to the IRS Headquarters On-
Line Filing Analyst (see section 17 of
this revenue procedure) if:
(1) the applicant has never partici-
pated in the On-Line Filing Program;
(2) the On-Line Filer intends to
function as an On-Line Service Provider
or a Transmitter during the 1997 On-
Line Filing Program;
(3) the applicant has previously
been denied participation in the On-Line
Filing Program; or
(4) the applicant has been sus-
pended from the On-Line Filing Pro-
gram.
.03 An On-Line Filer must submit a
revised Form 8633, signed by all Princi-
pals and the Responsible Official, with
completed fingerprint cards for the ap-
propriate individuals if:
(1) there is an additional Principal,
such as a partner or corporate officer,
that must be listed on Form 8633, line 8
(formerly line 1k(1)), ‘‘Principals of
Your Firm or Organization’’;
(2) there is a ‘‘Principal’’ listed on
Form 8633, line 1k(1), that should be
deleted; or
(3) the ‘‘Responsible Official’’ on
Form 8633, line 9 (formerly line 1k(2))
changes.
39

.04 An On-Line Filer must submit
either a revised Form 8633 or a letter
containing the same information con-
tained in a revised Form 8633 if there is
any change to the following:
(1) the Firm name or Doing Busi-
ness As (DBA) name;
(2) the business or mailing address;
(3) the contact representative or the
alternate contact representative’s name
or telephone number; or
(4) the On-Line Filer’s form of
organization, as described on Form
8633, line 1k;
A Form 8633 or letter submitted under
this section needs to include only the
information requested on lines 1a
through 1i of Form 8633 and the infor-
mation being revised and must be sub-
mitted within 30 days of the change(s).
A Principal or Responsible Official must
sign the Form 8633 or the letter.
.05 Revised applications described in
section 4.03 or 4.04 of this revenue
procedure must be submitted to the IRS
Headquarters On-Line Filing Analyst
within 30 days of the change(s).
.06 Applicants and On-Line Filers
that intend to function as a Transmitter
or a Software Developer in the 1997
On-Line Filing Program must first suc-
cessfully complete the necessary testing
at the appropriate service center(s).
.07 Each individual listed as a Princi-
pal or a Responsible Official must:
(1) be a United States citizen or an
alien lawfully admitted for permanent
residence as described in 8 U.S.C.
§ 1101(a)(20) (1994);
(2) have attained the age of 21 as
of the date of application;
(3) submit with Form 8633 one
standard fingerprint card with a full set
of fingerprints taken by a law enforce-
ment agency, except as provided in
subsection 4.08 of this revenue proce-
dure; and
(4) pass a suitability check that
includes a credit check and a fingerprint
check.
.08 An individual may choose to sub-
mit evidence of the individual’s profes-
sional status in lieu of one standard
fingerprint card if the individual is:
(1) an attorney in good standing of
the bar of the highest court of any State,
possession, territory, Commonwealth, or
the District of Columbia, and is not
currently under suspension or disbar-
ment from practice before the Service;
(2) a certified public accountant
who is duly qualified to practice as a
certified public accountant in any State,
possession, territory, Commonwealth, or
the District of Columbia, and is not
currently under suspension or disbar-
ment from practice before the Service;
(3) an enrolled agent pursuant to
part 10 of 31 C.F.R. Subtitle A;
(4) an officer of a publicly held
corporation; or
(5) a banking official who is
bonded and has been fingerprinted
within the last two years.
.09 The Service will issue credentials
for the 1997 On-Line Filing Program to
eligible applicants and On-Line Filers
(provided they have first satisfactorily
completed the testing described in sec-
tion 4.06 of this revenue procedure). No
one may participate in the On-Line
Filing Program for the 1997 filing sea-
son without the following credentials:
(1) a letter of acceptance into the
On-Line Program for the 1997 filing
season;
(2) an Electronic Filing Identifica-
tion Number (EFIN) for each applicable
service center; and
(3) if appropriate, an Electronic
Transmitter Identification Number
(ETIN) for each applicable service cen-
ter.
.10 If an On-Line Filer is a Software
Developer that performs no other func-
tion in the On-Line Filing Program but
software development, no Principal or
Responsible Official needs to pass a
suitability check.
.11 The following reasons, which ap-
ply to any firm, organization, Principal,
or Responsible Official listed on Form
8633, may result in the rejection of an
application to participate in the 1997
On-Line Filing Program (this list is not
all-inclusive):
(1) conviction of any criminal of-
fense under the revenue laws of the
United States, or of any offense involv-
ing dishonesty or breach of trust;
(2) failure to file timely and accu-
rate tax returns, including returns indi-
cating that no tax is due;
(3) failure to timely pay any tax
liabilities;
(4) assessment of tax penalties;
(5) suspension/disbarment from
practice before the Service;
(6) other facts or conduct of a
disreputable nature that would reflect
adversely on the On-Line Filing Pro-
gram;
(7) misrepresentation on an appli-
cation;
(8) suspension or rejection from
either the Electronic Filing Program or
the On-Line Filing Program in a prior
year;
(9) unethical practices in return
preparation;
(10) stockpiling returns prior to of-
ficial acceptance into the On-Line Filing
Program (see section 5.20 of this rev-
enue procedure);
(11) knowingly and directly or in-
directly employing or accepting assis-
tance from any firm, organization, or
individual that is prohibited from apply-
ing to participate in the Electronic Filing
Program or the On-Line Filing Program,
or that is suspended from participating
in the Electronic Filing Program or the
On-Line Filing Program. This includes
any individual whose actions resulted in
the rejection or suspension of a corpora-
tion or a partnership from the Electronic
Filing Program or the On-Line Filing
Program; or
(12) knowingly and directly or in-
directly accepting employment as an
associate, correspondent, or as a sub-
agent from, or sharing fees with, any
firm, organization, or individual that is
prohibited from applying to participate
in the Electronic Filing Program or the
On-Line Filing Program, or that is sus-
pended from participating in the Elec-
tronic Filing Program or the On-Line
Filing Program. This includes any indi-
vidual whose actions resulted in the
rejection or suspension of a corporation
or a partnership from the Electronic
Filing Program or the On-Line Filing
Program.
SECTION 5. RESPONSIBILITIES OF
AN ON-LINE FILER
.01 To ensure that complete returns
are accurately and efficiently filed, an
On-Line Filer must comply with all the
publications and notices of the Service.
Currently, these publications and notices
include:
(1) Handbook for Electronic Filers
of Individual Income Tax Returns, Pub-
lication 1345 and Handbook for Elec-
tronic Filers of Individual Income Tax
Returns (Supplement), Publication
1345A;
(2) Electronic Return File Specifi-
cations and Record Layouts for Indi-
vidual Income Tax Returns, Publication
1346;
(3) Test Package for Electronic Fil-
ing of Individual Income Tax Returns,
Publication 1436; and
(4) Postings to the Electronic Fil-
ing System Bulletin Board (EFS Bulle-
tin Board).
40

.02 An On-Line Filer must maintain a
high degree of integrity, compliance,
and accuracy.
.03 An On-Line Filer may only ac-
cept returns for on-line electronic filing
directly from taxpayers or from another
On-Line Filer.
.04 If an On-Line Filer charges a fee
for the electronic transmission of a tax
return, the fee may not be based on a
percentage of the refund amount or any
other amount from the tax return.
.05 An On-Line Filer must submit a
revised Form 8633 to the IRS Head-
quarters On-Line Filing Analyst within
30 days of when any of the conditions
or changes described in section 4.03 or
4.04 of this revenue procedure occur.
.06 An On-Line Filer must notify the
IRS Headquarters On-Line Filing Ana-
lyst within 30 days of discontinuing its
participation in the On-Line Filing Pro-
gram. This does not preclude reapplica-
tion in the future.
.07 An On-Line Filer must ensure
that an on-line electronic return is filed
on or before the due date of the return.
A tax return is not considered filed until
the electronic portion of the tax return
has been acknowledged by the Service
as accepted for processing and a com-
pleted and signed Form 8453–OL has
been received by the Service. However,
if the electronic portion of a return is
successfully transmitted on or shortly
before the due date and the taxpayer
complies with section 7.01 of this rev-
enue procedure, the return will be
deemed timely filed. If the electronic
portion of a return is initially transmit-
ted on or shortly before the due date
and is ultimately rejected, but the tax-
payer complies with section 5.17 of this
revenue procedure, the return will be
deemed timely filed. In the case of a
balance due return, see section 10 of
this revenue procedure for instructions
on how to make a timely payment of
tax.
.08 An On-Line Filer must ensure
that no other entity uses its EFIN or
ETIN. An On-Line Filer must not trans-
fer its EFIN or ETIN by sale, loan, gift,
or otherwise to another entity.
.09 An On-Line Filer that functions
as an On-Line Service Provider must:
(1) provide assistance to a sub-
scriber in transmitting the electronic
portion of a tax return;
(2) ensure that no more than three
tax returns are filed electronically by
one subscriber;
(3) not provide to a subscriber
software that has a Service-assigned
production password built into the soft-
ware;
(4) immediately deliver to a sub-
scriber the information provided by a
Transmitter under section 5.16 or 5.17
of this revenue procedure; and
(5) if requested, inform a sub-
scriber that information regarding a re-
fund can be obtained by using the IRS
TeleTax system or contacting the appro-
priate service center’s customer service
department.
.10 An On-Line Filer that functions
as a Software Developer must:
(1) promptly correct any software
error which causes an electronic return
to be rejected;
(2) promptly distribute any soft-
ware correction;
(3) ensure that its software package
cannot be used to transmit more than
three electronic returns;
(4) ensure that its software package
contains a Form 8453–OL format that
can be printed and used by a taxpayer to
file with the Service;
(5) ensure that its software package
contains a consent to disclosure state-
ment;
(6) provide software and accompa-
nying documentation provided to a pur-
chaser of its software (a demonstration
package is sufficient to satisfy this re-
quirement) to the IRS Headquarters On-
Line Filing Analyst, once the software
has been successfully tested for the
1997 filing season (see section 4.06 of
this revenue procedure); and
(7) not incorporate into its software
a Service-assigned production password.
.11 An On-Line Filer that functions
as a Transmitter must:
(1) assign (as prescribed in Publi-
cation 1345) a Declaration Control
Number (DCN) to the electronic portion
of each return received from a taxpayer;
(2) include the assigned DCN in
the transmission of the electronic por-
tion of a return;
(3) transmit all electronic returns
within three calendar days of receipt to
the appropriate service center based on
the state code in the taxpayer’s return
address;
(4) retrieve the acknowledgement
file within two work days of transmis-
sion;
(5) match the acknowledgement
file to the original transmission file and
notify the taxpayer of the status of a
transmitted return as prescribed in sec-
tion 5.18 of this revenue procedure;
(6) retain, until the end of the
calendar year in which a return was
filed, an acknowledgement file received
from the Service;
(7) retain, until the end of the
calendar year in which a return was
filed, a complete copy of the electronic
portion of the return (may be retained
on magnetic media) that can be readily
and accurately converted into an elec-
tronic transmission that the Service can
process;
(8) immediately contact the Elec-
tronic Filing Unit at the appropriate
service center for further instructions if
an acknowledgement of acceptance for
processing has not been received by the
Transmitter within two work days of
transmission or if the Transmitter re-
ceives an acknowledgement for a return
that was not transmitted on the desig-
nated transmission;
(9) promptly correct any transmis-
sion error that causes an electronic
transmission to be rejected;
(10) contact the Electronic Filing
Unit at the appropriate service center for
assistance if a return has been rejected
after three transmission attempts;
(11) ensure the security of all
transmitted data;
(12) ensure that it does not trans-
mit or accept for transmission more than
three electronic returns originating from
one software package;
(13) ensure that the electronic por-
tion of a return contains a completed
consent to disclosure statement; and
(14) ensure that it does not use
software that has a Service-assigned
production password built into the soft-
ware.
.12 A Transmitter must include an
On-Line Service Provider’s EFIN on
each return that the Transmitter accepts
from an On-Line Service Provider.
.13 A Transmitter must enter the let-
ter ‘‘O’’ in Field #15 (Transmission
Type Code) when transmitting the elec-
tronic portion of an on-line electroni-
cally filed return to the Service. See Part
II, Section 1, page 4, of Publication
1346.
.14 A Transmitter must ensure that it
does not combine the electronic portion
of an on-line electronically filed return
with the electronic portion of any other
return within the same transmission to
the Service.
.15 If the electronic portion of a
taxpayer’s return is acknowledged as
accepted by the Service, the Transmitter
must notify the taxpayer, as prescribed
41

in section 5.18 of this revenue proce-
dure, of the following:
(1) the date the transmission was
accepted;
(2) the DCN;
(3) where to put the DCN on Form
8453–OL;
(4) the requirement to properly
complete and timely submit a Form
8453–OL with accompanying paper
documents within one work day;
(5) the appropriate service center’s
address to which Form 8453–OL with
accompanying paper documents must be
sent;
(6) that a Form 8453–OL must be
received by the Service before an on-
line electronically filed return is com-
plete; and
(7) the taxpayer’s failure to timely
submit a Form 8453–OL with accompa-
nying paper documents could result in
the Service not allowing the taxpayer to
file a tax return through the On-Line
Filing Program in the future.
.16 If the electronic portion of a
taxpayer’s return is acknowledged as
rejected by the Service, the Transmitter
must notify the taxpayer, as prescribed
in section 5.18 of this revenue proce-
dure, of the following:
(1) that the electronic portion of
the return submitted by the taxpayer has
not been accepted for processing;
(2) the date of the rejection;
(3) what the reject code means;
(4) what steps the taxpayer needs
to take to correct the error that caused
the rejection; and
(5) the information contained in
section 5.17 of this revenue procedure.
.17 If the taxpayer chooses not to
have the rejected return retransmitted or
if the return cannot be accepted for
processing, the taxpayer, in order to file
a timely return, must file a paper return
by the later of:
(1) the due date of the return; or
(2) within ten calendar days of the
Service’s acknowledgment that the re-
turn is rejected or notification that the
return cannot be retransmitted, with an
explanation of why the return is being
filed after the due date.
.18 A Transmitter that transmits a
return of a taxpayer who is a subscriber
of an On-Line Service Provider must
notify the taxpayer by sending an elec-
tronic transmission to the On-Line Ser-
vice Provider within two work days of
retrieving the acknowledgement file. A
Transmitter that transmits a return of a
taxpayer who is not a subscriber of an
On-Line Service Provider must notify
the taxpayer by:
(1) sending an electronic transmis-
sion to the taxpayer within two work
days of retrieving the acknowledgement
file; or
(2) mailing a written notification to
the taxpayer within one work day of
retrieving the acknowledgement file.
.19 A Transmitter must, if requested,
make available to the Service all items
required by this section to be retained
until the end of the calendar year in
which a return was filed. The Transmit-
ter must make this material available
either at the business address of the
Transmitter or from the contact repre-
sentative named on Form 8633.
.20 A Transmitter is responsible for
ensuring that stockpiling does not occur.
Stockpiling means collecting returns
from taxpayers prior to official accep-
tance into the On-Line Filing Program,
or, after official acceptance into the
On-Line Filing Program, waiting more
than three calendar days to transmit a
return to the Service after receiving the
information necessary for an electronic
transmission of a tax return.
.21 An On-Line Filer may not offer,
nor in any way participate in or facili-
tate, a Refund Anticipation Loan (RAL)
in connection with any return filed un-
der the On-Line Filing Program. A RAL
is money borrowed by a taxpayer that is
based on a taxpayer’s anticipated in-
come tax refund.
.22 An On-Line Filer may not charge
a separate fee for a Direct Deposit. See
section 9 of this revenue procedure.
.23 In addition to the specific respon-
sibilities described in this section, an
On-Line Filer must meet all the require-
ments in this revenue procedure to keep
the privilege of participating in the
On-Line Filing Program.
SECTION 6. PENALTIES
.01Penalties for Disclosure or Use
of Information.
(1) An On-Line Filer, except a
Software Developer that performs no
other function in the On-Line Filing
Program but software development, is a
tax return preparer (Preparer) under the
definition of § 301.7216–1(b) of the
Regulations on Procedure and Adminis-
tration. A Preparer is subject to a crimi-
nal penalty for disclosure or use of tax
return information, as described in
§ 301.7216–1(a). In general, that regula-
tion provides that any preparer who
discloses or uses any tax return informa-
tion for a purpose other than preparing,
assisting in preparing, or obtaining or
providing services in connection with
the preparation of a tax return is guilty
of a misdemeanor. In addition, § 6713
of the Internal Revenue Code provides
for civil penalties that may be assessed
against a preparer who makes an unau-
thorized disclosure or use of tax return
information.
(2) Under § 301.7216–2(h), disclo-
sure of tax return information among
accepted On-Line Filers for the purpose
of preparing a return is permissible. For
example, it is permissible for an On-
Line Service Provider to pass on tax
return information to a Transmitter for
the purpose of having an on-line elec-
tronic return formatted and transmitted
to the Service. However, if the tax
return information is disclosed or used
in any other way, an On-Line Filer may
be guilty of a misdemeanor as described
in section 6.01(1) of this revenue proce-
dure.
.02Other Preparer Penalties.
(1) Preparer penalties may be as-
serted against an individual or firm who
meets the definition of an income tax
return preparer under § 7701(a)(36) and
§ 301.7701–15. Examples of preparer
penalties that may be asserted under
appropriate circumstances include, but
are not limited to, those set forth in
§§ 6694, 6695, and 6713.
(2) Under § 301.7701–15(d), an
On-Line Filer is not an income tax
return preparer for the purpose of as-
sessing most preparer penalties as long
as the On-Line Filer’s services are lim-
ited to ‘‘typing, reproduction, or other
mechanical assistance in the preparation
of a return or claim for refund.’’
(3) If an On-Line Filer alters the
return information in a nonsubstantive
way, this alteration will be considered to
come under the ‘‘mechanical assistance’’
exception described in § 301.7701–
15(d)(1). A nonsubstantive change is a
correction or change limited to a trans-
position error, misplaced entry, spelling
error, or arithmetic correction that falls
within the following tolerances:
(a) the Total Tax amount, With-
holding amount, Refund amount, or
Amount Owed shown on Form
8453–OL differs from the corresponding
amount on the electronic portion of the
tax return by no more than $7;
(b) the Total Income amount
shown on Form 8453–OL differs from
42

the corresponding amount on the elec-
tronic portion of the tax return by no
more than $25; or
(c) dropping cents and rounding
to whole dollars.
(4) If an On-Line Filer alters the
return information in a substantive way,
rather than having the taxpayer alter the
return, the On-Line Filer will be consid-
ered to be an income tax return preparer
for purposes of § 7701(a)(36).
(5) If an On-Line Filer goes be-
yond mechanical assistance, the On-Line
Filer may be held liable for income tax
return preparer penalties. Rev. Rul. 85–
189, 1985–2 C.B. 341, describes a situa-
tion where a Software Developer was
determined to be an income tax return
preparer and subject to certain preparer
penalties.
.03 In addition to the above specified
provisions, the Service reserves the right
to assert all appropriate preparer,
nonpreparer, and disclosure penalties
against an On-Line Filer as warranted
under the circumstances.
SECTION 7. FORM 8453–OL, U.S.
INDIVIDUAL INCOME TAX
DECLARATION FOR ON-LINE FILING
.01 Procedures for Completing Form
8453–OL.
(1) Form 8453–OL must be com-
pleted by the taxpayer in accordance
with the instructions for Form 8453–OL.
(2) The taxpayer(s)’s name, ad-
dress, social security number(s), tax re-
turn information, and direct deposit of
refund information in the electronic
transmission must be identical to the
information on the Form 8453–OL that
the taxpayer(s) signs and will mail to
the appropriate service center.
(3) If the electronic portion of a
return was filed as a joint return, both
spouses’ signatures are required on
Form 8453–OL.
(4) The taxpayer’s Form 8453–OL
must be sent to the address of the
appropriate service center within one
work day after the taxpayer is provided
notification that the electronic portion of
the taxpayer’s return has been accepted
for processing. .02 If the Service deter-
mines that a Form 8453–OL is missing,
the taxpayer must provide the Service
with a replacement. A taxpayer must
also provide a copy of any Form W–2,
Wage and Tax Statement, Form W–2G,
Certain Gambling Winnings, Form
1099–R, Distributions From Pensions,
Annuities, Retirement or Profit-Sharing
Plans, IRAs, Insurance Contracts, etc.,
and all other attachments to Form 8453–
OL.
.03 If a substitute Form 8453–OL is
used, it must be approved by the Service
prior to use. See Rev. Proc. 96–48,
1996–39 I.R.B. 10.
SECTION 8. INFORMATION AN
ON-LINE FILER MUST PROVIDE TO
THE TAXPAYER
.01 The Transmitter must advise a
taxpayer to retain a complete copy of
the return and any supporting material.
.02 The Transmitter must advise the
taxpayer that an amended return, if
needed, must be filed as a paper return
and mailed to the service center that
would handle the taxpayer’s paper re-
turn.
.03 The Transmitter must give the
taxpayer the Declaration Control Num-
ber (DCN) for the taxpayer’s Form
8453–OL and instructions to the tax-
payer for entering the DCN on Form
8453–OL.
.04 If a taxpayer inquires about the
status of a refund, the Transmitter, or
On-Line Service Provider if the taxpayer
is a subscriber, must advise the taxpayer
to use the IRS TeleTax system or con-
tact the appropriate service center’s cus-
tomer service department. The Transmit-
ter or On-Line Service Provider should
also advise the taxpayer to wait at least
three weeks from the acceptance date of
the electronic return before making an
inquiry regarding the status of a refund.
.05 The Transmitter must inform the
taxpayer that the address on the elec-
tronic portion of the return, once pro-
cessed, will be used to update the
taxpayer’s address of record. The Inter-
nal Revenue Service uses the taxpayer’s
address of record for various notices
that are required to be sent to a taxpay-
er’s ‘‘last known address’’ under the
Internal Revenue Code and for refunds
of overpayments of tax (unless other-
wise specifically directed by the tax-
payer, such as by Direct Deposit).
SECTION 9. DIRECT DEPOSIT OF
REFUNDS
.01 The Service will ordinarily pro-
cess a request for Direct Deposit but
reserves the right to issue a paper refund
check.
.02 The Service does not guarantee a
specific date by which a refund will be
directly deposited into the taxpayer’s
financial institution account.
.03 Neither the Service nor Financial
Management Service (FMS) is respon-
sible for the misapplication of a Direct
Deposit that is caused by error, negli-
gence, or malfeasance on the part of the
taxpayer, On-Line Filer, financial insti-
tution, or any of their agents.
SECTION 10. BALANCE DUE
RETURNS
.01 An electronically filed balance
due return is transmitted to the appropri-
ate service center in the same manner
that a refund or zero balance return is
filed. A balance due return is not com-
plete unless and until the Service re-
ceives Form 8453–OL completed and
signed by the taxpayer.
.02 The Transmitter must furnish
Form 1040–V, Electronic Payment
Voucher, to a taxpayer who electroni-
cally files a balance due return.
.03 To expedite the crediting of a tax
payment, a taxpayer who electronically
files a balance due return should mail
his or her tax payment with either Form
1040–V or the scannable payment
voucher that is included in some tax
packages. Each of these options has
specific mailing instructions.
.04 A taxpayer who electronically
files a balance due return must make a
full and timely payment of any tax that
is due. Failure to make full payment of
any tax that is due on or before April
15, 1997, will result in the imposition of
interest and may result in the imposition
of penalties.
SECTION 11. ADVERTISING
STANDARDS FOR ON-LINE FILERS
.01 An On-Line Filer shall comply
with the advertising and solicitation pro-
visions of 31 C.F.R. Part 10 (Treasury
Department Circular No. 230). This cir-
cular prohibits the use or participation in
the use of any form of public communi-
cation containing a false, fraudulent,
misleading, deceptive, unduly influenc-
ing, coercive, or unfair statement or
claim. In addition, advertising must not
imply a special relationship with the
Service, FMS, or the Treasury Depart-
ment. Any claims concerning faster re-
funds by virtue of electronic filing must
be consistent with the language in offi-
cial Service publications.
.02 An On-Line Filer must adhere to
all relevant federal, state, and local
43

consumer protection laws that relate to
advertising and soliciting.
.03 An On-Line Filer must not use
the Service’s name, ‘‘Internal Revenue
Service’’ or ‘‘IRS’’, within a firm’s
name.
.04 An On-Line Filer must not use
improper or misleading advertising in
relation to the On-Line Filing Program
(including the time frames for refunds).
.05 Use of Direct Deposit name and
logo.
(1) The name ‘‘Direct Deposit’’
will be used with initial capital letters or
all capital letters.
(2) The logo/graphic for Direct De-
posit will be used whenever feasible in
advertising copy.
(3) The color or size of the Direct
Deposit logo/graphic may be changed
when used in advertising pieces.
.06 Advertising materials shall not
carry the FMS, IRS, or other Treasury
Seals.
.07 Advertising for a cooperative
electronic return project (public/private
sector) must clearly state the names of
all cooperating parties.
.08 If an On-Line Filer uses radio or
television broadcasting to advertise, the
broadcast must be pre-recorded. The
On-Line Filer must keep a copy of the
pre-recorded advertisement for a period
of at least 36 months from the date of
the last transmission or use.
.09 If an On-Line Filer uses direct
mail or fax communications to advertise,
the On-Line Filer must retain a copy of
the actual mailing or fax, along with a
list or other description of firms, organi-
zation, or individuals to whom the com-
munication was mailed, faxed, or other-
wise distributed for a period of at least
36 months from the date of the last
mailing, fax, or distribution.
.10 Acceptance to participate in the
On-Line Filing Program does not imply
endorsement by the Service or FMS of
the software or quality of services pro-
vided.
SECTION 12. MONITORING AND
SUSPENSION OF AN ON-LINE FILER
.01 The Service will monitor an On-
Line Filer for conformity with this rev-
enue procedure. The Service can imme-
diately suspend, without notice, an On-
Line Filer from the On-Line Filing
Program. However, in most circum-
stances, a suspension from participation
in the On-Line Filing Program is effec-
tive as of the date of the letter inform-
ing the On-Line Filer of the suspension.
Before suspending an On-Line Filer, the
Service may issue a warning letter that
describes specific corrective action for
deviations from this revenue procedure.
.02 If a Principal or Responsible Of-
ficial is suspended from the On-Line
Filing Program, every entity that listed
the suspended Principal or Responsible
Official on its Form 8633 may also be
suspended.
.03 The Service will monitor the
timely receipt of Forms 8453–OL.
.04 The Service will monitor the
quality of an On-Line Filer’s transmis-
sions throughout the filing season. The
Service will also monitor electronic re-
turns and tabulate rejections, errors, and
other defects. If quality deteriorates, the
On-Line Filer will receive a warning
from the Service.
.05 The Service will monitor com-
plaints about an On-Line Filer and issue
a warning or suspension letter as appro-
priate.
.06 The Service reserves the right to
suspend the electronic filing privilege of
any On-Line Filer that violates any
provision of this revenue procedure.
Generally, the Service will advise a
suspended On-Line Filer concerning the
requirements for reacceptance into the
On-Line Filing Program. The following
reasons may lead to a warning letter
and/or suspension of an On-Line Filer
from the On-Line Filing Program (this
list is not all-inclusive):
(1) the reasons listed in section
4.11 of this revenue procedure;
(2) deterioration in the format of
individual transmissions;
(3) unacceptable cumulative error
or rejection rate;
(4) stockpiling returns at any time
while participating in the On-Line Filing
Program;
(5) failure on the part of a Trans-
mitter to retrieve acknowledgement files
within two work days of transmission
by the Service;
(6) failure on the part of a Trans-
mitter to notify the taxpayer, as pre-
scribed in section 5.18 of this revenue
procedure, of the status of a transmitted
return within two work days of receipt
of the acknowledgement files from the
Service;
(7) failure on the part of an On-
Line Service Provider to ensure that no
more than three tax returns are filed
electronically by one subscriber;
(8) failure on the part of a Trans-
mitter to ensure that it does not transmit
or accept for transmission more than
three electronic returns originating from
one software package; (
9) significant complaints about an
On-Line Filer;
(10) failure on the part of an On-
Line Filer to ensure that no other entity
uses its EFIN and/or ETIN;
(11) having more than one EFIN
for the same business entity at the same
location (the business entity is generally
the entity that reports on its return the
income derived from electronic filing),
unless the Service has issued more than
one EFIN to a business entity.
(12) failure on the part of an On-
Line Filer to cooperate with the Ser-
vice’s efforts to investigate electronic
filing abuse;
(13) violation of the advertising
standards described in section 11 of this
revenue procedure;
(14) failure to maintain and make
available records as described in section
5.19 of this revenue procedure;
(15) failure to supply a taxpayer
with an accurate DCN;
(16) failure to give effective in-
structions to a taxpayer concerning the
entry of the DCN on Form 8453–OL;
(17) failure to timely pay any ap-
plicable fees, as implemented by subse-
quent guidance; or
(18) failure to timely submit a re-
vised Form 8633 or a letter containing
the same information contained in a
revised Form 8633 notifying the Service
of changes described in section 4.03 or
4.04 of this revenue procedure.
.08 The Service may list in the Inter-
nal Revenue Bulletin, district office list-
ings, district office newsletters, and on
the EFS Bulletin Board the name and
owner(s) of any entity suspended from
the On-Line Filing Program and the
effective date of the suspension.
.09 If an application for participation
in the On-Line Filing Program is denied,
the applicant is ineligible to submit a
new application for two years from the
application date of the denied applica-
tion.
.10 If a participant is suspended from
participating in the On-Line Filing Pro-
gram, the period of suspension includes
the remainder of the calendar year in
which the suspension occurs plus the
next two calendar years. A suspended
participant may submit a new applica-
tion for the application period immedi-
ately preceding the end of the suspen-
sion.
44

SECTION 13. ADMINISTRATIVE
REVIEW PROCESS FOR DENIAL OF
PARTICIPATION IN THE ON-LINE
FILING PROGRAM
.01 An applicant that has been denied
participation in the On-Line Filing Pro-
gram has the right to an administrative
review. During the administrative review
process, the denial of participation re-
mains in effect.
.02 In response to the submission of
a Form 8633, the appropriate district
office will either (1) accept an applicant
into the On-Line Filing Program, or (2)
issue a proposed letter of denial that
explains to the applicant why the district
office proposes to reject the application
to participate in the On-Line Filing
Program.
.03 An applicant who receives a pro-
posed letter of denial may mail or
deliver, within 30 calendar days of the
date of the proposed letter of denial, a
written response to the district office
that issued the proposed letter of denial.
The applicant’s response must address
the district office’s explanation for pro-
posing the denial to participate.
.04 Upon receipt of an applicant’s
written response, the district office will
reconsider its proposed letter of denial.
The district office may (1) withdraw its
proposed letter of denial and admit the
applicant into the On-Line Filing Pro-
gram, or (2) finalize its proposed letter
of denial and issue it to the applicant.
.05 If an applicant receives a final
letter from the district office that denies
the applicant participation in the On-
Line Filing Program, the applicant is
entitled to an appeal, in writing, to the
Director of Practice.
.06 The appeal must be mailed or
delivered to the district office that is-
sued the denial letter within 30 calendar
days of the date of the denial letter. An
applicant’s written appeal must contain a
detailed explanation, with supporting
documentation, of why the denial should
be reversed. In addition, the applicant
must include a copy of the applicant’s
Form 8633 and a copy of the denial
letter.
.07 The district office whose denial is
being appealed will, upon receipt of a
written appeal to the Director of Prac-
tice, forward to the Director of Practice
its file on the applicant and the material
described in section 13.06 of this rev-
enue procedure that the applicant has
submitted to the district office. The
district office will forward to the Direc-
tor of Practice these materials within 15
calendar days of receipt of the appli-
cant’s written appeal to the Director of
Practice.
.08 Failure to respond within the 30-
day periods described in sections 13.03
and 13.06 of this revenue procedure
irrevocably terminates an applicant’s
right to an administrative review or
appeal.
SECTION. 14. ADMINISTRATIVE
REVIEW PROCESS FOR
SUSPENSION FROM THE ON-LINE
FILING PROGRAM
.01 An On-Line Filer that has been
suspended from participation in the On-
Line Filing Program has the right to an
administrative review. During the ad-
ministrative review process, the suspen-
sion remains in effect.
.02 If an On-Line Filer receives a
proposed suspension letter, the On-Line
Filer may mail or deliver, within 30
calendar days of the date of the pro-
posed suspension letter, a detailed writ-
ten explanation, with supporting docu-
mentation, of why the proposed
suspension letter should be withdrawn.
This written response should be sent to
the district office or service center that
issued the proposed suspension letter.
.03 Upon receipt of the On-Line Fil-
er’s written response, the district office
or service center will reconsider its
proposed suspension of the On-Line
Filer. The district office or service cen-
ter will either withdraw its proposed
suspension letter and reinstate the On-
Line Filer or issue a suspension letter to
the On-Line Filer.
.04 If the On-Line Filer receives a
suspension letter from a district office or
a service center, the On-Line Filer is
entitled to an appeal, in writing, to the
Director of Practice.
.05 The appeal must be mailed or
delivered to the district office or service
center that issued the suspension letter
within 30 calendar days of the date of
the suspension letter. The On-Line Fil-
er’s written appeal must contain detailed
reasons, with supporting documentation,
for reversal of the suspension. In addi-
tion, the On-Line Filer must include a
copy of its Form 8633 and a copy of the
suspension letter.
.06 The district office or service cen-
ter whose decision to suspend is being
appealed will, upon receipt of a written
appeal to the Director of Practice, for-
ward to the Director of Practice its file
on the On-Line Filer and the material
described in section 14.05 of this rev-
enue procedure that the On-Line Filer
has submitted to the district office or the
service center. The district office or the
service center will forward to the Direc-
tor of Practice these materials within 15
calendar days of the receipt of an On-
Line Filer’s written request for appeal.
.05 Failure to appeal within the 30-
day period described in section 14.05 of
this revenue procedure irrevocably ter-
minates an On-Line Filer’s right to an
appeal.
SECTION 15. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 96–20, 1996–4 I.R.B. 88,
is superseded.
SECTION 16. EFFECTIVE DATE
This revenue procedure is effective
December 30, 1996.
SECTION 17. INTERNAL REVENUE
SERVICE OFFICE CONTACT
All questions regarding the electronic
filing aspects of the On-Line Filing
Program should be directed to the Elec-
tronic Filing Office. The telephone num-
ber for this purpose is (202) 283–1010
(not a toll-free number). All questions
regarding the on-line aspects of this
program should be directed to the IRS
Headquarters On-Line Filing Analyst.
The telephone number for this purpose
is (202) 283–0265 (not a toll-free num-
ber).
SECTION 18. 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 1545–1513.
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 in this
revenue procedure are in sections 5, 8,
and 11 of the revenue procedure. This
information is required by the IRS to
implement the On-Line Filing Program
and to enable taxpayers to file their
individual income tax returns electroni-
cally through the On-Line Filing Pro-
gram. The information will be used to
ensure that taxpayers receive accurate
and essential information regarding the
45

filing of their return through the On-
Line Filing Program and to identify the
persons involved in the filing of a return
through the On-Line Filing Program.
The collections of information are re-
quired to retain the benefit of participat-
ing in the On-Line Filing Program. The
likely respondents are business or other
for-profit institutions.
The estimated total annual reporting
and recordkeeping burden is 5,919
hours.
The estimated annual burden per
respondent/recordkeeper varies from
eight (8) minutes to 455 hours, depend-
ing on individual circumstances, with an
estimated average of 423 hours (or
approximately two (2) minutes per on-
line electronically filed return). The esti-
mated number of respondents and
recordkeepers is 14.
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.
26 CFR 601.105: Examination of returns and
claims for refund, credit, or abatement; determina-
tion of correct tax liability.
(Also Part I, Sections 62, 162, 274, 1016; 1.62–2,
1.162–17, 1.274–5T, 1.274(d)–1, 1.1016–3.)
Rev. Proc. 96–63
SECTION 1. PURPOSE
This revenue procedure updates Rev.
Proc. 95–54, l995–2 C.B. 450, by pro-
viding optional standard mileage rates
for employees, self-employed individu-
als, or other taxpayers to use in comput-
ing the deductible costs paid or incurred
on or after January 1, 1997, of operating
a passenger automobile for business,
charitable, medical, or moving expense
purposes. This revenue procedure also
provides rules under which the amount
of ordinary and necessary expenses of
local travel or transportation away from
home that are paid or incurred by an
employee will be deemed substantiated
under § 1.274–5T of the temporary In-
come Tax Regulations when a payor
(the employer, its agent, or a third party)
provides a mileage allowance under a
reimbursement or other expense allow-
ance arrangement to pay for such ex-
penses. Use of a method of substantia-
tion described in this revenue procedure
is not mandatory and a taxpayer may
use actual allowable expenses if the
taxpayer maintains adequate records or
other sufficient evidence for proper sub-
stantiation.
SEC. 2. SUMMARY OF STANDARD
MILEAGE RATES
Business (Sec. 5 below)
31.5 cents per mile
Rural Mail Carrier (Sec. 6 below)
47.25 cents per mile
Charitable (Sec. 7 below)
12 cents per mile
Medical and Moving (Sec. 7 below)
10 cents per mile
SEC. 3. BACKGROUND
.01 Section 162(a) of the Internal
Revenue Code allows a deduction for all
the ordinary and necessary expenses
paid or incurred during the taxable year
in carrying on any trade or business.
Under that provision, an employee or
self-employed individual may deduct the
cost of operating a passenger automobile
to the extent that it is used in a trade or
business. However, under § 262, no
portion of the cost of operating a pas-
senger automobile that is attributable to
personal use is deductible.
.02 Section 274(d) provides, in part,
that no deduction shall be allowed under
§ 162 with respect to any listed prop-
erty (as defined in § 280F(d)(4) to
include passenger automobiles and any
other property used as a means of
transportation) unless the taxpayer com-
plies with certain substantiation require-
ments. The section further provides that
regulations may prescribe that some or
all of the substantiation requirements do
not apply to an expense that does not
exceed an amount prescribed by such
regulations.
.03 Section 1.274(d)–1 in part, grants
the Commissioner the authority to pre-
scribe rules relating to mileage allow-
ances for ordinary and necessary ex-
penses of local travel and transportation
away from home. Pursuant to this grant
of authority, the Commissioner may pre-
scribe rules under which such allow-
ances, if in accordance with reasonable
business practice, will be regarded as (1)
equivalent to substantiation, by adequate
records or other sufficient evidence, of
the amount of such travel and transpor-
tation expenses for purposes of
§ 1.274–5T(c), and (2) satisfying the
requirements of an adequate accounting
to the employer of the amount of such
expenses for purposes of § 1.274–5T(f).
.04 Section 62(a)(2)(A) allows an
employee, in determining adjusted gross
income, a deduction for the expenses
allowed by Part VI (§ 161 and follow-
ing), subchapter B, chapter 1 of the
Code, paid or incurred by the employee
in connection with the performance of
services as an employee under a reim-
bursement or other expense allowance
arrangement with a payor.
.05 Section 62(c) provides that an
arrangement will not be treated as a
reimbursement or other expense allow-
ance arrangement for purposes of
§ 62(a)(2)(A) if it—
(1) does not require the employee
to substantiate the expenses covered by
the arrangement to the payor, or
(2) provides the employee with the
right to retain any amount in excess of
the substantiated expenses covered un-
der the arrangement. Section 62(c) fur-
ther provides that the substantiation re-
quirements described therein shall not
apply to any expense to the extent that,
under the grant of regulatory authority
prescribed in § 274(d), the Commis-
sioner has provided that substantiation is
not required for such expense.
.06 Under § 1.62–2(c)(1) a reim-
bursement or other expense allowance
arrangement satisfies the requirements
of § 62(c) if it meets the requirements
of business connection, substantiation,
and returning amounts in excess of
expenses as specified in the regulations.
Section 1.62–2(e)(2) specifically pro-
vides that substantiation of certain busi-
ness expenses in accordance with rules
prescribed under the authority of
§ 1.274(d)–1 will be treated as substan-
tiation of the amount of such expenses
for purposes of § 1.62–2. Under
§ 1.62–2(f)(2), the Commissioner may
prescribe rules under which an arrange-
ment providing mileage allowances will
be treated as satisfying the requirement
of returning amounts in excess of ex-
penses, even though the arrangement
does not require the employee to return
the portion of such an allowance that
relates to miles of travel substantiated
and that exceeds the amount of the
employee’s expenses deemed substanti-
ated pursuant to rules prescribed under
§ 274(d), provided the allowance is rea-
sonably calculated not to exceed the
amount of the employee’s expenses or
anticipated expenses and the employee
is required to return any portion of such
an allowance that relates to miles of
travel not substantiated.
.07 Section 1.62–2(h)(2)(i)(B) pro-
vides that if a payor pays a mileage
46

allowance under an arrangement that
meets the requirements of § 1.62–
2(c)(1), the portion, if any, of the allow-
ance that relates to miles of travel
substantiated in accordance with
§ 1.62–2(e), that exceeds the amount of
the employee’s expenses deemed sub-
stantiated for such travel pursuant to
rules prescribed under §§ 274(d) and
1.274(d)–1, and that the employee is not
required to return, is subject to with-
holding and payment of employment
taxes. See §§ 31.3121(a)–3, 31.3231-
(e)–3, 31.3306(b)–2, and 31.3401(a)–4.
Because the employee is not required to
return this excess portion, the reasonable
period of time provisions of § 1.62–2(g)
(relating to the return of excess
amounts) do not apply to this excess
portion.
.08 Under § 1.62–2(h)(2)(i)(B)(4),
the Commissioner may, in his or her
discretion, prescribe special rules regard-
ing the timing of withholding and pay-
ment of employment taxes on mileage
allowances.
SEC. 4. DEFINITIONS
.01Standard mileage rate.The term
‘‘standard mileage rate’’ means the ap-
plicable amount provided by the Service
for optional use by employees or self-
employed individuals in computing the
deductible costs of operating passenger
automobiles owned by them (including
vans, pickups, or panel trucks) for busi-
ness purposes, or by taxpayers in com-
puting the deductible costs of operating
passenger automobiles for charitable,
medical, or moving expense purposes.
.02Transportation expenses.The
term ‘‘transportation expenses’’ means
the expenses of operating a passenger
automobile for local travel or transporta-
tion away from home.
.03Mileage allowance.The term
‘‘mileage allowance’’ means a payment
under a reimbursement or other expense
allowance arrangement that meets the
requirements specified in § 1.62–2(c)(1)
and that is
(1) paid with respect to the ordi-
nary and necessary business expenses
incurred, or which the payor reasonably
anticipates will be incurred, by an em-
ployee for transportation expenses in
connection with the performance of ser-
vices as an employee of the employer,
(2) reasonably calculated not to ex-
ceed the amount of the expenses or the
anticipated expenses, and
(3) paid at the applicable standard
mileage rate, a flat rate or stated sched-
ule, or in accordance with any other
Service-specified rate or schedule.
.04Flat rate or stated schedule.A
mileage allowance is paid at a flat rate
or stated schedule if it is provided on a
uniform and objective basis with respect
to the expenses described in section
4.03. Such allowance may be paid peri-
odically at a fixed rate, at a cents-per-
mile rate, at a variable rate based on a
stated schedule, at a rate that combines
any of these rates, or on any other basis
that is consistently applied and in accor-
dance with reasonable business practice.
Thus, for example, a periodic payment
at a fixed rate to cover the fixed costs
(including depreciation, insurance, regis-
tration and license fees, and personal
property taxes) of driving an automobile
in connection with the performance of
services as an employee of the em-
ployer, coupled with a periodic payment
at a cents-per-mile rate to cover the
operating costs (including gasoline and
all taxes thereon, oil, tires, and routine
maintenance and repairs) of using an
automobile for such purposes, is an
allowance paid at a flat rate or stated
schedule. Likewise, a periodic payment
at a variable rate based on a stated
schedule for different locales to cover
the costs of driving an automobile in
connection with the performance of ser-
vices as an employee is an allowance
paid at a flat rate or stated schedule.
SEC. 5. BUSINESS STANDARD
MILEAGE RATE
.01In general.The standard mileage
rate for transportation expenses paid or
incurred on or after January 1, 1997, is
31.5 cents per mile for all miles of use
for business purposes. This business
standard mileage rate will be adjusted
annually (to the extent warranted) by the
Service, and any such adjustment will
be applied prospectively.
.02Use of the business standard
mileage rate.A taxpayer may, on a
yearly basis, deduct an amount equal to
either the business standard mileage rate
times the number of business miles
traveled or the actual costs (both operat-
ing and fixed) paid or incurred by the
taxpayer that are allocable to traveling
those business miles.
.03Business standard mileage rate in
lieu of operating and fixed costs.A
deduction computed using the standard
mileage rate for business miles is in lieu
of operating and fixed costs of the
automobile allocable to business pur-
poses. Such items as depreciation, main-
tenance and repairs, tires, gasoline (in-
cluding all taxes thereon), oil, insurance,
and registration fees are included in
operating and fixed costs.
.04Parking fees, tolls, interest, and
taxes.Parking fees and tolls attributable
to use of the automobile for business
purposes may be deducted as separate
items. Likewise, interest relating to the
purchase of the automobile as well as
state and local taxes (other than those
included in the cost of gasoline) may be
deducted as separate items, but only to
the extent that the interest or taxes are
allowable deductions under § 163 or
164 respectively. If the automobile is
operated less than 100 percent for busi-
ness purposes, an allocation is required
to determine the business and nonbusi-
ness portion of the taxes and interest
deduction allowable. However, § 163-
(h)(2)(A) expressly provides that interest
is nondeductible personal interest when
it is paid or accrued on indebtedness
properly allocable to the trade or busi-
ness of performing services as an em-
ployee. Section 164 also expressly pro-
vides that state and local taxes that are
paid or accrued by a taxpayer in con-
nection with an acquisition or disposi-
tion of property will be treated as part
of the cost of the acquired property or
as a reduction in the amount realized on
the disposition of such property.
.05Depreciation.
For automobiles placed in service
for business purposes, and for which the
business standard mileage rate has been
used for any year, depreciation will be
considered to have been allowed at the
rate of 11 cents a mile for 1989, 1990,
and 1991; 11.5 cents a mile for 1992
and 1993; and 12 cents a mile for 1994,
1995, 1996, and l997, for those years in
which the business standard mileage rate
was used. If actual costs were used for
one or more of those years, the rates
above will not apply to any year in
which such costs were used. The depre-
ciation described above will reduce the
basis of the automobile (but not below
zero) in determining adjusted basis as
required by § 1016.
.06Limitations.
(1) The business standard mileage
rate may not be used to compute the
deductible expenses of (a) vehicles used
for hire, such as taxicabs, (b) two or
more automobiles used simultaneously
(such as in fleet operations), or (c) any
vehicle that is leased, rather than owned,
by the taxpayer.
47

(2) The business standard mileage
rate may not be used if (a) the automo-
bile has previously been depreciated
using a method other than straight-line
for its estimated useful life, (b) a § 179
deduction has been claimed, or (c) the
taxpayer has used the Accelerated Cost
Recovery System (ACRS) under former
§ 168 or the Modified Accelerated Cost
Recovery System (MACRS) under cur-
rent § 168. By using the business stan-
dard mileage rate, the taxpayer has
elected to exclude the automobile from
MACRS pursuant to § 168(f)(1). If,
after using the business standard mile-
age rate, the taxpayer uses actual costs,
the taxpayer must use straight-line de-
preciation for the automobile’s remain-
ing estimated useful life (subject to the
applicable depreciation deduction limita-
tions under § 280F for any passenger
automobile).
SEC. 6. RURAL MAIL CARRIER
SPECIAL MILEAGE RATE
.01Special mileage rate.For taxable
years beginning after December 31,
1987, § 6008 of the Technical and Mis-
cellaneous Revenue Act of 1988,
1988–3 C.B. 347, allows employees of
the United States Postal Service to use a
special mileage rate in computing the
amount allowable as a deduction for
business use of an automobile in per-
forming qualifying services. Qualifying
services are services involving the col-
lection and delivery of mail on a ‘‘rural
route,’’ as that term is defined by the
Postal Service. The special mileage rate
is equal to 150 percent of the business
standard mileage rate, and is 47.25 cents
per mile for transportation expenses paid
or incurred on or after January 1, 1997
(150 percent of the business standard
mileage rate of 31.5 cents per mile).
The special mileage rate applies to all
business use of an automobile while
performing qualifying services. It will
be adjusted annually (to the extent war-
ranted) by the Service to reflect changes
in the business standard mileage rate,
and any such adjustment will be applied
prospectively.
.02Depreciation.In determining the
adjusted basis of an automobile used to
perform qualifying services, depreciation
will be computed as provided in section
5.05, except as provided in section 6.03.
.03Special depreciation rules.The
special mileage rate is not available for
any automobile if, for any taxable year
beginning after December 31, 1987, the
employee claims depreciation for such
automobile. For this purpose, claiming
depreciation means the deduction of any
amount under § 167, 168, or 179 (in-
cluding any such deduction attributable
to use in a trade or business that does
not involve the performance of qualify-
ing services). The availability of the
special mileage rate is not affected by
depreciation claimed for taxable years
beginning before January 1, 1988. Thus,
the special mileage rate is available
even if the automobile was fully depre-
ciated in taxable years beginning before
January 1, 1988, and regardless of the
year the automobile was placed in ser-
vice.
.04Rural mail carrier special mile-
age rate in lieu of operating and fixed
costs.The rules provided under section
5.03 also apply to use of the special
mileage rate.
.05Parking fees, tolls, interest, and
taxes.The rules provided under section
5.04 also apply to the use of the special
mileage rate.
SEC. 7. CHARITABLE, MEDICAL,
AND MOVING STANDARD MILEAGE
RATE
.01Charitable.Section 170(i) pro-
vides a standard mileage rate of 12
cents per mile for purposes of comput-
ing the charitable deduction for use of a
passenger automobile in connection with
rendering gratuitous services to a chari-
table organization under § 170.
.02Medical and moving.The stan-
dard mileage rate is 10 cents per mile
for use of a passenger automobile (a) to
obtain medical care described in § 213,
or (b) as part of a move for which the
expenses are deductible under § 217.
The standard mileage rates for medical
and moving transportation expenses will
be adjusted annually (to the extent war-
ranted) by the Service, and any such
adjustment will be applied prospectively.
.03Charitable, medical, or moving
expense standard mileage rate in lieu of
operating expenses.A deduction com-
puted using the applicable standard
mileage rate for charitable, medical, or
moving expense miles is in lieu of
operating expenses (including gasoline
and oil) of the automobile allocable to
such purposes. Costs for such items as
depreciation, maintenance and repairs,
tires, insurance, and registration fees are
not deductible, and are not included in
such standard mileage rates.
.04Parking fees, tolls, interest, and
taxes.Parking fees and tolls attributable
to the use of the automobile for chari-
table, medical, or moving expense pur-
poses may be deducted as separate
items. Likewise, interest relating to the
purchase of the automobile as well as
state and local taxes (other than those
included in the cost of gasoline) may be
deducted as separate items, but only to
the extent that the interest and taxes are
allowable deductions under § 163 or
164, respectively.
SEC. 8. FIXED AND VARIABLE RATE
ALLOWANCE
.01In general.
(1) The ordinary and necessary ex-
penses paid or incurred by an employee
in driving an automobile in connection
with the performance of services as an
employee of the employer will be
deemed substantiated (in an amount de-
termined under section 9) when a payor
reimburses such expenses with a mile-
age allowance using a flat rate or stated
schedule that combines periodic fixed
and variable rate payments that meet all
the requirements of this section (a FAVR
allowance).
(2) The amount of a FAVR allow-
ance must be based on data that (a) is
derived from the base locality, (b) re-
flects retail prices paid by consumers,
and (c) is reasonable and statistically
defensible in approximating the actual
expenses of employees receiving the
allowance.
.02Definitions.
(1)FAVR allowance.A FAVR al-
lowance includes periodic fixed pay-
ments and periodic variable payments. A
payor may maintain more than one
FAVR allowance. A FAVR allowance
that uses the same payor, standard auto-
mobile (or an automobile of the same
make and model that is comparably
equipped), retention period, and business
use percentage is considered one FAVR
allowance, even though other features of
the allowance may vary. A FAVR allow-
ance also includes any optional high
mileage payments; however, such op-
tional high mileage payments are in-
cluded in the employee’s gross income,
are reported as wages or other compen-
sation on the employee’s Form W–2,
and are subject to withholding and pay-
ment of employment taxes when paid.
See section 9.05. An optional high mile-
age payment covers the additional de-
preciation for a standard automobile
attributable to business miles driven and
substantiated by the employee for a
calendar year in excess of the annual
48

business mileage for that year. If an
employee is covered by the FAVR al-
lowance for less than the entire calendar
year, the annual business mileage may
be prorated on a monthly basis for
purposes of the preceding sentence.
(2)Periodic fixed payment.A peri-
odic fixed payment covers the projected
fixed costs (including depreciation, in-
surance, registration and license fees,
and personal property taxes) of driving a
standard automobile in connection with
the performance of services as an em-
ployee of the employer in a base local-
ity, and must be paid at least quarterly.
A periodic fixed payment may be com-
puted by (a) dividing the total projected
fixed costs for the standard automobile
for all years of the retention period,
determined at the beginning of the re-
tention period, by the number of peri-
odic fixed payments in the retention
period, and (b) multiplying the resulting
amount by the business use percentage.
(3)Periodic variable payment.A
periodic variable payment covers the
projected operating costs (including
gasoline and all taxes thereon, oil, tires,
and routine maintenance and repairs) of
driving a standard automobile in con-
nection with the performance of services
as an employee of the employer in a
base locality, and must be paid at least
quarterly. The rate of a periodic variable
payment for a computation period may
be computed by dividing the total pro-
jected operating costs for the standard
automobile for the computation period,
determined at the beginning of the com-
putation period, by the computation pe-
riod mileage. A computation period can
be any period of a year or less. Compu-
tation period mileage is the total mile-
age (business and personal) a payor
reasonably projects a standard automo-
bile will be driven during a computation
period and equals the retention mileage
divided by the number of computation
periods in the retention period. For each
business mile substantiated by the em-
ployee for the computation period, the
periodic variable payment must be paid
at a rate that does not exceed the rate
for that computation period.
(4)Base locality.A base locality is
the particular geographic locality or re-
gion of the United States in which the
costs of driving an automobile in con-
nection with the performance of services
as an employee of the employer are
generally paid or incurred by the em-
ployee. Thus, for purposes of determin-
ing the amount of fixed costs, the base
locality is generally the geographic lo-
cality or region in which the employee
resides. For purposes of determining the
amount of operating costs, the base
locality is generally the geographic lo-
cality or region in which the employee
drives the automobile in connection with
the performance of services as an em-
ployee of the employer.
(5)Standard automobile.A stan-
dard automobile is the passenger auto-
mobile selected by the payor on which a
specific FAVR allowance is based.
(6)Standard automobile cost.The
standard automobile cost for a calendar
year may not exceed 95 percent of the
sum of (a) the retail dealer invoice cost
of the standard automobile in the base
locality, and (b) state and local sales or
use taxes applicable on the purchase of
such an automobile. Further, the stan-
dard automobile cost may not exceed
$26,500.
(7)Annual mileage.Annual mile-
age is the total mileage (business and
personal) a payor reasonably projects a
standard automobile will be driven dur-
ing a calendar year. Annual mileage
equals the annual business mileage di-
vided by the business use percentage.
(8)Annual business mileage.An-
nual business mileage is the mileage a
payor reasonably projects a standard
automobile will be driven by an em-
ployee in connection with the perfor-
mance of services as an employee of the
employer during the calendar year, but
may not be less than 6,250 miles for a
calendar year. Annual business mileage
equals the annual mileage multiplied by
the business use percentage.
(9)Business use percentage.A
business use percentage is determined
by dividing the annual business mileage
by the annual mileage. The business use
percentage may not exceed 75 percent.
In lieu of demonstrating the reasonable-
ness of the business use percentage
based on records of total mileage and
business mileage driven by the employ-
ees annually, a payor may use a busi-
ness use percentage that is less than or
equal to the following percentages for a
FAVR allowance that is paid for the
following annual business mileage:
Annual business
mileage
Business use
percentage
6,250 or more but
less than 10,000
45 percent
10,000 or more but
less than 15,000
55 percent
Annual business
mileage
Business use
percentage
15,000 or more but
less than 20,000
65 percent
20,000 or more75 percent
(10)Retention period.A retention
period is the period in calendar years
selected by the payor during which the
payor expects an employee to drive a
standard automobile in connection with
the performance of services as an em-
ployee of the employer before the auto-
mobile is replaced. Such period may not
be less than two calendar years.
(11)Retention mileage.Retention
mileage is the annual mileage multiplied
by the number of calendar years in the
retention period.
(12)Residual value.The residual
value of a standard automobile is the
projected amount for which it could be
sold at the end of the retention period
after being driven the retention mileage.
The Service will accept the following
safe harbor residual values for a stan-
dard automobile computed as a percent-
age of the standard automobile cost:
Retention period Residual value
2-year70 percent
3-year60 percent
4-year50 percent
.03FAVR allowance in lieu of operat-
ing and fixed costs.
(1) Except as provided in section
8.03(2), a deduction computed using a
FAVR allowance is in lieu of all the
operating and fixed costs paid or in-
curred by an employee in driving the
automobile in connection with the per-
formance of services as an employee of
the employer.
(2) Parking fees and tolls attribut-
able to an employee driving the standard
automobile in connection with the per-
formance of services as an employee of
the employer are not included in fixed
and operating costs and may be de-
ducted as separate items. Similarly, in-
terest relating to the purchase of the
standard automobile may be deducted as
a separate item, but only to the extent
that the interest is an allowable deduc-
tion under § 163.
.04Depreciation.
(1) A FAVR allowance may not be
paid with respect to an automobile for
which the employee has claimed (a)
depreciation using a method other than
straight-line for its estimated useful life,
(b) a § 179 deduction has been claimed,
or (c) the taxpayer has used the Acceler-
49

ated Cost Recovery System (ACRS)
under former § 168 or the Modified
Accelerated Cost Recovery System
(MACRS) under current § 168. If an
employee uses actual costs for an auto-
mobile that has been covered by a
FAVR allowance, the employee must
use straight-line depreciation for the
automobile’s remaining estimated useful
life (subject to the applicable deprecia-
tion deduction limitations under § 280F
for any passenger automobile).
(2) The total amount of the depre-
ciation component for the retention pe-
riod taken into account in computing the
periodic fixed payments for that reten-
tion period may not exceed the excess
of the standard automobile cost over the
residual value of the standard automo-
bile. In addition, the total amount of
such depreciation component may not
exceed the sum of the annual § 280F
limitations on depreciation (in effect at
the beginning of the retention period)
that apply to the standard automobile
during the retention period.
(3) The depreciation included in
each periodic fixed payment portion of a
FAVR allowance paid with respect to an
automobile will reduce the basis of the
automobile (but not below zero) in
determining adjusted basis as required
by § 1016. See section 8.07(2) for the
requirement that the employer report the
depreciation component of a periodic
fixed payment to the employee.
.05FAVR allowance limitations.
(1) A FAVR allowance may be
paid only to an employee who substanti-
ates to the payor for a calendar year at
least 5,000 miles driven in connection
with the performance of services as an
employee of the employer or, if greater,
80 percent of the annual business mile-
age of that FAVR allowance. If the
employee is covered by the FAVR al-
lowance for less than the entire calendar
year, these limits may be prorated on a
monthly basis.
(2) A FAVR allowance may not be
paid to a control employee (as defined
in § 1.61–21(f)(5) and (6), excluding
the $100,000 limitation in paragraph
(f)(5)(iii)).
(3) At no time during a calendar
year may a majority of the employees
covered by a FAVR allowance be man-
agement employees.
(4) At all times during a calendar
year at least 10 employees of an em-
ployer must be covered by one or more
FAVR allowances.
(5) A FAVR allowance may be
paid only with respect to an automobile
(a) owned by the employee receiving
the payment, (b) the cost of which,
when new, is at least 90 percent of the
standard automobile cost taken into ac-
count for purposes of determining the
FAVR allowance for the first calendar
year the employee receives the allow-
ance with respect to that automobile,
and (c) the model year of which does
not differ from the current calendar year
by more than the number of years in the
retention period.
(6) The insurance cost component
of a FAVR allowance must be based on
the rates charged in the base locality for
insurance coverage on the standard auto-
mobile during the current calendar year
without taking into account such rate-
increasing factors as poor driving
records or young drivers.
(7) A FAVR allowance may be
paid only to an employee whose insur-
ance coverage limits on the automobile
with respect to which the FAVR allow-
ance is paid are at least equal to the
insurance coverage limits used to com-
pute the periodic fixed payment under
that FAVR allowance.
.06Employee reporting.Within 30
days after an employee’s automobile is
initially covered by a FAVR allowance,
or is again covered by a FAVR allow-
ance if such coverage has lapsed, the
employee by written declaration must
provide the payor with the following
information: (a) the make, model, and
year of the automobile owned by the
employee, (b) written proof of the insur-
ance coverage limits on the automobile,
(c) the odometer reading of the automo-
bile, (d) the purchase price of the auto-
mobile, and (e) whether the employee
has claimed depreciation with respect to
the automobile using any of the depre-
ciation methods prohibited by section
8.04(1). The information described in
(a), (b), and (c) of the preceding sen-
tence also must be supplied by the
employee to the payor within 30 days
after the beginning of each calendar
year that the employee’s automobile is
covered by a FAVR allowance.
.07Payor recordkeeping and report-
ing.
(1) The payor or its agent must
maintain written records setting forth (a)
the statistical data and projections on
which the FAVR allowance payments
are based, and (b) the information pro-
vided by the employees pursuant to
section 8.06.
(2) Within 30 days of the end of
each calendar year, the employer must
provide each employee covered by a
FAVR allowance during that year with a
statement listing the amount of deprecia-
tion included in each periodic fixed
payment portion of the FAVR allowance
paid during that calendar year and ex-
plaining that by receiving a FAVR al-
lowance the employee has elected to
exclude the automobile from MACRS
pursuant to § 168(f)(1).
.08Failure to meet section 8 require-
ments.If an employee receives a mile-
age allowance that fails to meet one or
more of the requirements of section 8,
the employee may not be treated as
covered by any FAVR allowance of the
payor during the period of such failure.
Nevertheless, the expenses to which that
mileage allowance relates may be
deemed substantiated using the method
described in sections 5, 9.01(1), and
9.02 to the extent the requirements of
those sections are met.
SEC. 9. APPLICATION
.01 If a payor pays a mileage allow-
ance in lieu of reimbursing actual trans-
portation expenses incurred or to be
incurred by an employee, the amount of
the expenses that is deemed substanti-
ated to the payor is either:
(1) for any mileage allowance
other than a FAVR allowance, the lesser
of the amount paid under the mileage
allowance or the applicable standard
mileage rate in section 5.01 or 6.01
multiplied by the number of business
miles substantiated by the employee; or
(2) for a FAVR allowance, the
amount paid under the FAVR allowance
less the sum of (a) any periodic variable
rate payment that relates to miles in
excess of the business miles substanti-
ated by the employee and that the
employee fails to return to the payor
although required to do so, (b) any
portion of a periodic fixed payment that
relates to a period during which the
employee is treated as not covered by
the FAVR allowance and that the em-
ployee fails to return to the payor
although required to do so, and (c) any
optional high mileage payments.
.02 If the amount of transportation
expenses is deemed substantiated under
the rules provided in section 9.01, and
the employee actually substantiates to
the payor the elements of time, place (or
use), and business purpose of the trans-
portation expenses in accordance with
paragraphs (b)(2) (travel away from
home), (b)(6) (listed property, which
includes passenger automobiles and any
other property used as a means of
50

transportation), and (c) of § 1.274–5T,
the employee is deemed to satisfy the
adequate accounting requirements of
§ 1.274–5T(f), as well as the require-
ment to substantiate by adequate records
or other sufficient evidence for purposes
of § 1.274–5T(c). See § 1.62–2(e)(1)
for the rule that an arrangement must
require business expenses to be substan-
tiated to the payor within a reasonable
period of time.
.03 An arrangement providing mile-
age allowances will be treated as satis-
fying the requirement of § 1.62–2(f)(2)
with respect to returning amounts in
excess of expenses as follows:
(1) For a mileage allowance other
than a FAVR allowance, the requirement
to return excess amounts will be treated
as satisfied if the employee is required
to return within a reasonable period of
time (as defined in § 1.62–2(g)) any
portion of such an allowance that relates
to miles of travel not substantiated by
the employee, even though the arrange-
ment does not require the employee to
return the portion of such an allowance
that relates to the miles of travel sub-
stantiated and that exceeds the amount
of the employee’s expenses deemed sub-
stantiated. For example, assume a payor
provides an employee an advance mile-
age allowance of $70 based on an
anticipated 200 business miles at 35
cents per mile (at a time when the
applicable business standard mileage
rate is 31.5 cents per mile), and the
employee substantiates 120 business
miles. The requirement to return excess
amounts will be treated as satisfied if
the employee is required to return the
portion of the allowance that relates to
the 80 unsubstantiated business miles
($28) even though the employee is not
required to return the portion of the
allowance ($4.20) that exceeds the
amount of the employee’s expenses
deemed substantiated under section 9.01
($37.80) for the 120 substantiated busi-
ness miles. However, the $4.20 excess
portion of the allowance is treated as
paid under a nonaccountable plan as
discussed in section 9.05.
(2) For a FAVR allowance, the
requirement to return excess amounts
will be treated as satisfied if the em-
ployee is required to return within a
reasonable period of time (as defined in
§ 1.62–2(g)), (a) the portion (if any) of
the periodic variable payment received
that relates to miles in excess of the
business miles substantiated by the em-
ployee, and (b) the portion (if any) of a
periodic fixed payment that relates to a
period during which the employee was
not covered by the FAVR allowance.
.04 An employee is not required to
include in gross income the portion of a
mileage allowance received from a
payor that is less than or equal to the
amount deemed substantiated under sec-
tion 9.01, provided the employee sub-
stantiates in accordance with section
9.02. See § 1.274–5T(f)(2)(i). In addi-
tion, such portion of the allowance is
treated as paid under an accountable
plan, is not reported as wages or other
compensation on the employee’s Form
W–2, and is exempt from the withhold-
ing and payment of employment taxes.
See §§ 1.62–2(c)(2) and (c)(4).
.05 An employee is required to in-
clude in gross income only the portion
of a mileage allowance received from a
payor that exceeds the amount deemed
substantiated under section 9.01, pro-
vided the employee substantiates in ac-
cordance with section 9.02. See
§ 1.274–5T(f)(2)(ii). In addition, the ex-
cess portion of the allowance is treated
as paid under a nonaccountable plan, is
reported as wages or other compensation
on the employee’s Form W–2, and is
subject to withholding and payment of
employment taxes. See §§ 1.62–
2(c)(3)(ii), (c)(5), and (h)(2)(i)(B).
.06 If the amount of the expenses
deemed substantiated under the rules
provided in section 9.01 is less than the
amount of the employee’s business
transportation expenses, the employee
may claim an itemized deduction for the
amount by which the business transpor-
tation expenses exceed the amount that
is deemed substantiated, provided the
employee substantiates all the business
transportation expenses, includes on
Form 2106, Employee Business Ex-
penses, the deemed substantiated portion
of the mileage allowance received from
the payor, and includes in gross income
the portion (if any) of the mileage
allowance received from the payor that
exceeds the amount deemed substanti-
ated. See § 1.274–5T(f)(2)(iii). How-
ever, for purposes of claiming this item-
ized deduction, substantiation of the
amount of the expenses is not required
if the employee is claiming a deduction
that is equal to or less than the appli-
cable standard mileage rate multiplied
by the number of business miles sub-
stantiated by the employee minus the
amount deemed substantiated under sec-
tion 9.01. The itemized deduction is
subject to the 2-percent floor on miscel-
laneous itemized deductions provided in
§ 67.
.07 An employee may deduct an
amount computed pursuant to section
5.01 or 6.01 only as an itemized deduc-
tion. This itemized deduction is subject
to the 2-percent floor on miscellaneous
itemized deductions provided in § 67.
.08 A self-employed individual may
deduct an amount computed pursuant to
section 5.01 in determining adjusted
gross income under § 62(a)(1).
.09 If a payor’s reimbursement or
other expense allowance arrangement
evidences a pattern of abuse of the rules
of § 62(c) and the regulations thereun-
der, all payments under the arrangement
will be treated as made under a nonac-
countable plan. Thus, such payments are
included in the employee’s gross in-
come, are reported as wages or other
compensation on the employee’s Form
W–2, and are subject to withholding and
payment of employment taxes. See
§§ 1.62–2(c)(3), (c)(5), and (h)(2).
SEC. 10. WITHHOLDING AND
PAYMENT OF EMPLOYMENT
TAXES.
.01 The portion of a mileage allow-
ance (other than a FAVR allowance), if
any, that relates to the miles of business
travel substantiated and that exceeds the
amount deemed substantiated for those
miles under section 9.01(1) is subject to
withholding and payment of employ-
ment taxes. See § 1.62–2(h)(2)(i)(B).
(1) In the case of a mileage allow-
ance paid as a reimbursement, the ex-
cess described in this section 10.01 is
subject to withholding and payment of
employment taxes in the payroll period
in which the payor reimburses the ex-
penses for the business miles substanti-
ated. See § 1.62–2(h)(2)(i)(B)(2).
(2) In the case of a mileage allow-
ance paid as an advance, the excess
described in this section 10.01 is subject
to withholding and payment of employ-
ment taxes no later than the first payroll
period following the payroll period in
which the business miles with respect to
which the advance was paid are substan-
tiated. See § 1.62–2(h)(2)(i)(B)(3). If
some or all of the business miles with
respect to which the advance was paid
are not substantiated within a reasonable
period of time and the employee does
not return the portion of the allowance
that relates to those miles within a
reasonable period of time, the portion of
the allowance that relates to those miles
is subject to withholding and payment
of employment taxes no later than the
51

first payroll period following the end of
the reasonable period. See § 1.62–
2(h)(2)(i)(A).
(3) In the case of a mileage allow-
ance that is not computed on the basis
of a fixed amount per mile of travel
(e.g., a mileage allowance that combines
periodic fixed and variable rate pay-
ments, but that does not satisfy the
requirements of section 8), the payor
must compute the amount, if any, that
exceeds the amount deemed substanti-
ated under section 9.01(1) periodically
(no less frequently than quarterly) by
comparing the total mileage allowance
paid for the period to the applicable
standard mileage rate in section 5.01 or
6.01 multiplied by the number of busi-
ness miles substantiated by the em-
ployee for the period. Any excess is
subject to withholding and payment of
employment taxes no later than the first
payroll period following the payroll pe-
riod in which the excess is computed.
See § 1.62–2(h)(2)(i)(B)(4).
(4) For example, assume an em-
ployer pays its employees a mileage
allowance at a rate of 35 cents per mile
(when the business standard mileage
rate is 31.5 cents per mile). The em-
ployer does not require the return of the
portion of the allowance (3.5 cents) that
exceeds the business standard mileage
rate for the business miles substantiated.
In June, the employer advances an em-
ployee $175 for 500 miles to be traveled
during the month. In July, the employee
substantiates to the employer 400 busi-
ness miles traveled in June and returns
$35 to the employer for the 100 busi-
ness miles not traveled. The amount
deemed substantiated for the 400 miles
traveled is $126 and the employee is not
required to return the remaining $14. No
later than the first payroll period follow-
ing the payroll period in which the 400
business miles traveled are substantiated,
the employer must withhold and pay
employment taxes on $14.
.02 The portion of a FAVR allow-
ance, if any, that exceeds the amount
deemed substantiated for those miles
under section 9.01(2) is subject to with-
holding and payment of employment
taxes. See § 1.62–2(h)(2)(i)(B).
(1) Any periodic variable rate pay-
ment that relates to miles in excess of
the business miles substantiated by the
employee and that the employee fails to
return within a reasonable period, or any
portion of a periodic fixed payment that
relates to a period during which the
employee is treated as not covered by
the FAVR allowance and that the em-
ployee fails to return within a reason-
able period, is subject to withholding
and payment of employment taxes no
later than the first payroll period follow-
ing the end of the reasonable period.
See § 1.62–2(h)(2)(i)(A).
(2) Any optional high mileage pay-
ment is subject to withholding and pay-
ment of employment taxes when paid.
SEC. 11. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 95–54, l995–2 C.B. 450, is
hereby superseded for mileage allow-
ances paid to an employee on or after
January 1, 1997, with respect to trans-
portation expenses paid or incurred on
or after January 1, 1997, and, for pur-
poses of computing the amount allow-
able as a deduction, for transportation
expenses paid or incurred on or after
January 1, 1997.
DRAFTING INFORMATION
The principal author of this revenue
procedure is G. Channing Horton of the
Office of Assistant Chief Counsel (In-
come Tax and Accounting). For further
information regarding this revenue pro-
cedure, contact Mr. Horton on (202)
622–4920 (not a toll-free call).
26 CFR 601.105: Examination of returns and
claims for refund, credit, or abatement; determina-
tion of correct tax liability.
(Also Part I, §§ 62, 162, 267, 274; 1.62–2,
1.162–17, 1.267(a)–1, 1.274–5T, 1.274(d)–1.)
Rev. Proc. 96–64
SECTION 1. PURPOSE
This revenue procedure updates Rev.
Proc. 96–28, l996–1 C.B. 686, by pro-
viding rules under which the amount of
ordinary and necessary business ex-
penses of an employee for lodging,
meal, and incidental expenses or for
meal and incidental expenses incurred
while traveling away from home will be
deemed substantiated under § 1.274–5T
of the temporary Income Tax Regula-
tions when a payor (the employer, its
agent, or a third party) provides a per
diem allowance under a reimbursement
or other expense allowance arrangement
to pay for such expenses. This revenue
procedure also provides an optional
method for employees and self-
employed individuals to use in comput-
ing the deductible costs of business
meal and incidental expenses paid or
incurred while traveling away from
home. Use of a method described in this
revenue procedure is not mandatory and
a taxpayer may use actual allowable
expenses if the taxpayer maintains ad-
equate records or other sufficient evi-
dence for proper substantiation. This
revenue procedure does not provide
rules under which the amount of an
employee’s lodging expenses will be
deemed substantiated when a payor pro-
vides an allowance to pay for those
expenses but not meal and incidental
expenses.
SECTION 2. BACKGROUND AND
CHANGES
.01 Section 162(a) of the Internal
Revenue Code allows a deduction for all
the ordinary and necessary expenses
paid or incurred during the taxable year
in carrying on any trade or business.
Under that provision, an employee or
self-employed individual may deduct ex-
penses paid or incurred while traveling
away from home in pursuit of a trade or
business. However, under § 262, no
portion of such travel expenses that is
attributable to personal, living, or family
expenses is deductible.
.02 Section 274(d) provides, in part,
that no deduction shall be allowed under
§ 162 for any traveling expense (includ-
ing meals and lodging while away from
home) unless the taxpayer complies with
certain substantiation requirements. The
section further provides that regulations
may prescribe that some or all of the
substantiation requirements do not apply
to an expense that does not exceed an
amount prescribed by such regulations.
.03 Section 1.274(d)–1(a) of the regu-
lations, in part, grants the Commissioner
the authority to prescribe rules relating
to reimbursement arrangements or per
diem allowances for ordinary and neces-
sary expenses paid or incurred while
traveling away from home. Pursuant to
this grant of authority, the Commis-
sioner may prescribe rules under which
such arrangements or allowances, if in
accordance with reasonable business
practice, will be regarded (1) as equiva-
lent to substantiation, by adequate
records or other sufficient evidence, of
the amount of such travel expenses for
purposes of § 1.274–5T(c), and (2) as
satisfying the requirements of an ad-
equate accounting to the employer of
the amount of such travel expenses for
purposes of § 1.274–5T(f).
.04 Section 1.274–5T(j) grants the
Commissioner the authority to establish
a method under which a taxpayer may
elect to use a specified amount for
52

meals paid or incurred while traveling
away from home in lieu of substantiat-
ing the actual cost of meals.
.05 For purposes of determining ad-
justed gross income, § 62(a)(2)(A) al-
lows an employee a deduction for ex-
penses allowed by Part VI (§ 161 and
following), subchapter B, chapter 1 of
the Code, paid or incurred by the em-
ployee in connection with the perfor-
mance of services as an employee under
a reimbursement or other expense allow-
ance arrangement with a payor.
.06 Section 62(c) provides that an
arrangement will not be treated as a
reimbursement or other expense allow-
ance arrangement for purposes of
§ 62(a)(2)(A) if it—
(1) does not require the employee
to substantiate the expenses covered by
the arrangement to the payor, or
(2) provides the employee with the
right to retain any amount in excess of
the substantiated expenses covered un-
der the arrangement.
Section 62(c) further provides that the
substantiation requirements described
therein shall not apply to any expense to
the extent that, under the grant of regu-
latory authority prescribed in § 274(d),
the Commissioner has provided that
substantiation is not required for such
expense.
.07 Under § 1.62–2(c)(1) a reim-
bursement or other expense allowance
arrangement satisfies the requirements
of § 62(c) if it meets the requirements
of business connection, substantiation,
and returning amounts in excess of
expenses as specified in the regulations.
Section 1.62–2(e)(2) specifically pro-
vides that substantiation of certain busi-
ness expenses in accordance with rules
prescribed under the authority of
§ 1.274(d)–1(a) or 1.274–5T(j) will be
treated as substantiation of the amount
of such expenses for purposes of
§ 1.62–2. Under § 1.62–2(f)(2), the
Commissioner may prescribe rules under
which an arrangement providing per
diem allowances will be treated as satis-
fying the requirement of returning
amounts in excess of expenses, even
though the arrangement does not require
the employee to return the portion of
such an allowance that relates to days of
travel substantiated and that exceeds the
amount of the employee’s expenses
deemed substantiated pursuant to rules
prescribed under § 274(d), provided the
allowance is reasonably calculated not
to exceed the amount of the employee’s
expenses or anticipated expenses and the
employee is required to return any por-
tion of such an allowance that relates to
days of travel not substantiated.
.08 Section 1.62–2(h)(2)(i)(B) pro-
vides that if a payor pays a per diem
allowance that meets the requirements
of § 1.62–2(c)(1), the portion, if any, of
the allowance that relates to days of
travel substantiated in accordance with
§ 1.62–2(e), that exceeds the amount of
the employee’s expenses deemed sub-
stantiated for such travel pursuant to
rules prescribed under § 274(d) and
§ 1.274(d)–1(a) or § 1.274–5T(j), and
that the employee is not required
to return, is subject to withholding
and payment of employment taxes. See
§§ 31.3121(a)–3,31.3231(e)–3,
31.3306(b)–2, and 31.3401(a)–4. Be-
cause the employee is not required to
return this excess portion, the reasonable
period of time provisions of § 1.62–2(g)
(relating to the return of excess
amounts) do not apply to this portion.
.09 Under § 1.62–2(h)(2)(i)(B)(4),
the Commissioner may, in his or her
discretion, prescribe special rules regard-
ing the timing of withholding and pay-
ment of employment taxes on per diem
allowances.
.10 Section 5.04 contains a descrip-
tion of changes to the high-cost locali-
ties for purposes of section 5.
.11 Changes to sections 3.01(3), 4.02,
and 6.02 clarify that the amount of an
employee’s expenses of traveling away
from home may be deemed substanti-
ated under the revenue procedure if a
payor pays a per diem amount for the
employee’s lodging, meal, and incidental
expenses that is equal toor less thanthe
amount of the Federal per diem for the
locality of travel for the day (or part of
the day).
.12 Changes to sections 1, 3.01(1),
6.01, and 6.06 clarify that the revenue
procedure does not provide rules under
which the amount of an employee’s
lodging expenses will be deemed sub-
stantiated when a payor provides an
allowance to pay for those expenses but
not meal and incidental expenses.
SECTION 3. DEFINITIONS
.01Per diem allowance.The term
‘‘per diem allowance’’ means a payment
under a reimbursement or other expense
allowance arrangement that meets the
requirements specified in § 1.62–2(c)(1)
and that is
(1) paid with respect to ordinary
and necessary business expenses in-
curred, or which the payor reasonably
anticipates will be incurred, by an em-
ployee for lodging, meal, and incidental
expenses or for meal and incidental
expenses for travel away from home in
connection with the performance of ser-
vices as an employee of the employer,
(2) reasonably calculated not to ex-
ceed the amount of the expenses or the
anticipated expenses, and
(3) paid at or below the applicable
Federal per diem rate, a flat rate or
stated schedule, or in accordance with
any other Service-specified rate or
schedule.
.02Federal per diem rate.
(1)General rule.The Federal per
diem rate is equal to the sum of the
Federal lodging expense rate and the
Federal meal and incidental expense
(M&IE) rate for the locality of travel.
Each of these rates for a particular
locality in the continental United States
(‘‘CONUS’’) is set forth in Appendix A
of 41 C.F.R., Chapter 301, as amended.
See 41 C.F.R. Part 301–7 (1996), as
amended, for specific rules regarding
these Federal rates. Each of these rates
is established by the Secretary of De-
fense for a particular nonforeign locality
outside the continental United States
(‘‘OCONUS’’) (including Alaska, Ha-
waii, Puerto Rico, the Northern Mariana
Islands, and the possessions of the
United States), and by the Secretary of
State for a particular foreign OCONUS
locality. Each of these OCONUS rates is
published in the Per Diem Supplement
to the Standardized Regulations (Gov-
ernment Civilians, Foreign Areas). See,
e.g., Maximum Travel Per Diem Allow-
ances for Foreign Areas, PD Supplement
382, issued March 1, 1996.
(2)Locality of travel.The term
‘‘locality of travel’’ means the locality
where an employee traveling away from
home in connection with the perfor-
mance of services as an employee of the
employer stops for sleep or rest.
(3)Incidental expenses.The term
‘‘incidental expenses’’ includes, but is
not limited to, expenses for laundry,
cleaning and pressing of clothing, and
fees and tips for services, such as for
porters and baggage carriers. The term
‘‘incidental expenses’’ does not include
taxicab fares or the costs of telegrams or
telephone calls.
.03Flat rate or stated schedule.
(1) In general.Except as provided in
section 3.03(2), an allowance is paid at
a flat rate or stated schedule if it is
provided on a uniform and objective
basis with respect to the expenses de-
scribed in section 3.01. Such allowance
may be paid with respect to the number
53

of days away from home in connection
with the performance of services as an
employee or on any other basis that is
consistently applied and in accordance
with reasonable business practice. Thus,
for example, an hourly payment to cover
meal and incidental expenses paid to a
pilot or flight attendant who is traveling
away from home in connection with the
performance of services as an employee
is an allowance paid at a flat rate or
stated schedule. Likewise, a payment
based on the number of miles traveled
(e.g., cents per mile) to cover meal and
incidental expenses paid to an over-the-
road truck driver who is traveling away
from home in connection with the per-
formance of services as an employee is
an allowance paid at a flat rate or stated
schedule.
(2)Limitation.For purposes of this
revenue procedure, an allowance that is
computed on a basis similar to that used
in computing the employee’s wages or
other compensation ( e.g., the number of
hours worked, miles traveled, or pieces
produced) does not meet the business
connection requirement of § 1.62–2(d),
is not a per diem allowance, and is not
paid at a flat rate or stated schedule,
unless, as of December 12, 1989, (a) the
allowance was identified by the payor
either by making a separate payment or
by specifically identifying the amount of
the allowance, or (b) an allowance com-
puted on that basis was commonly used
in the industry in which the employee is
employed. See § 1.62–2(d)(3)(ii).
SECTION 4. PER DIEM
SUBSTANTIATION METHOD
.01Per diem allowance.If a payor
pays a per diem allowance in lieu of
reimbursing actual expenses for lodging,
meal, and incidental expenses incurred
or to be incurred by an employee for
travel away from home, the amount of
the expenses that is deemed substanti-
ated for each calendar day (or part of
the calendar day, see section 6.04) is
equal to the lesser of the per diem
allowance for such day or the amount
computed at the Federal per diem rate
for the locality of travel for such day (or
part of such day, see section 6.04).
.02Meals only per diem allowance.
If a payor pays a per diem allowance
only for meal and incidental expenses in
lieu of reimbursing actual expenses for
meal and incidental expenses incurred or
to be incurred by an employee for travel
away from home, the amount of the
expenses that is deemed substantiated
for each calendar day (or part of the
calendar day, see section 6.04) is equal
to the lesser of the per diem allowance
for such day or the amount computed at
the Federal M&IE rate for the locality
of travel for such day (or part of such
day, see section 6.04). A per diem
allowance is treated as paid only for
meal and incidental expenses if (1) the
payor pays the employee for actual
expenses for lodging based on receipts
submitted to the payor, (2) the payor
provides the lodging in kind, (3) the
payor pays the actual expenses for lodg-
ing directly to the provider of the lodg-
ing, (4) the payor does not have a
reasonable belief that lodging expenses
were or will be incurred by the em-
ployee, or (5) the allowance is computed
on a basis similar to that used in
computing the employee’s wages or
other compensation (e.g., the number of
hours worked, miles traveled, or pieces
produced).
.03Optional method for meals only
deduction.In lieu of using actual ex-
penses, employees and self-employed
individuals, in computing the amount
allowable as a deduction for ordinary
and necessary meal and incidental ex-
penses paid or incurred for travel away
from home, may use an amount com-
puted at the Federal M&IE rate for the
locality of travel for each calendar day
(or part thereof, see section 6.04) the
employee or self-employed individual is
away from home. Such amount will be
deemed substantiated for purposes of
paragraphs (b)(2) (travel away from
home) and (c) of § 1.274–5T, provided
the employee or self-employed indi-
vidual substantiates the elements of
time, place, and business purpose of the
travel expenses in accordance with those
regulations.
.04Special rules for transportation
industry.
(1)In general.This section 4.04
applies to (a) a payor that pays a per
diem allowance only for meal and inci-
dental expenses for travel away from
home as described in section 4.02 to an
employee in the transportation industry,
or (b) an employee or self-employed
individual in the transportation industry
who computes the amount allowable as
a deduction for meal and incidental
expenses for travel away from home in
accordance with section 4.03.
(2)Rates.A taxpayer described in
section 4.04(1) may treat $36 as the
Federal M&IE rate for any locality of
travel in CONUS, and/or $40 as the
Federal M&IE rate for any locality of
travel OCONUS. A payor that uses
either (or both) of these special rates
with respect to an employee must use
the special rate(s) for all amounts sub-
ject to section 4.02 paid to that em-
ployee for travel away from home
within CONUS and/or OCONUS, as the
case may be, during the calendar year.
Similarly, an employee or self-employed
individual that uses either (or both) of
these special rates must use the special
rate(s) for all amounts computed pursu-
ant to section 4.03 for travel away from
home within CONUS and/or OCONUS,
as the case may be, during the calendar
year.
(3)Periodic rule.A payor de-
scribed in section 4.04(1) may compute
the amount of the employee’s expenses
that is deemed substantiated under sec-
tion 4.02 periodically (not less fre-
quently than monthly), rather than daily,
by comparing the total per diem allow-
ance paid for the period to the sum of
the amounts computed at the Federal
M&IE rate(s) for the localities of travel
for the days (or partial days, see section
6.04) the employee is away from home
during the period. For example, assume
an employee in the transportation indus-
try travels away from home within
CONUS on 17 days (including partial
days under section 6.04) during a calen-
dar month and receives a per diem
allowance only for meal and incidental
expenses from a payor that uses the
special rule under section 4.04(2). The
amount deemed substantiated under
section 4.02 is equal to the lesser of
the total per diem allowance paid for
the month or $612 (17 days at $36 per
day).
(4)Transportation industry de-
fined.For purposes of this section 4.04,
an employee or self-employed individual
is ‘‘in the transportation industry’’ only
if the employee’s or individual’s work
(a) is of the type that directly involves
moving people or goods by airplane,
barge, bus, ship, train, or truck, and (b)
regularly requires travel away from
home which, during any single trip
away from home, usually involves travel
to localities with differing Federal
M&IE rates. For purposes of the preced-
ing sentence, a payor must determine
that an employee or a group of employ-
ees is ‘‘in the transportation industry’’
by using a method that is consistently
applied and in accordance with reason-
able business practice.
54

SECTION 5. HIGH-LOW
SUBSTANTIATION METHOD
.01General rule.If a payor pays a
per diem allowance in lieu of reimburs-
ing actual expenses for lodging, meal,
and incidental expenses incurred or to
be incurred by an employee for travel
away from home and the payor uses the
high-low substantiation method de-
scribed in this section 5 for travel within
CONUS, the amount of the expenses
that is deemed substantiated for each
calendar day (or part of the calendar
day, see section 6.04) is equal to the
lesser of the per diem allowance for
such day or the amount computed at the
rate set forth in section 5.02 for the
locality of travel for such day (or part of
such day, see section 6.04). This high-
low substantiation method may be used
in lieu of the per diem substantiation
method provided in section 4.01, but
may not be used in lieu of the meals
only substantiation method provided in
section 4.02 or 4.03.
.02Specific high-low rates.The per
diem rate set forth in this section 5.02
is $166 for travel to any ‘‘high-cost
locality’’ specified in section 5.03, or
$109 for travel to any other locality
within CONUS. Whichever per diem
rate applies, it is applied as if it were
the Federal per diem rate for the local-
ity of travel. For purposes of applying
the high-low substantiation method, the
Federal M&IE rate shall be treated as
$40 for a high-cost locality and $32 for
any other locality within CONUS.
.03High-cost localities.The follow-
ing localities have a Federal per diem
rate of $138 or more for all or part of
the calendar year, and are high-cost
localities for all of the calendar year or
the portion of the calendar year speci-
fied in parenthesis under the key city
name:
Key cityCounty and other defined location
Arizona
Grand CanyonAll points in the Grand Canyon National Park and Kaibab National Forest within
Coconino County
Phoenix/Scottsdale
(October 1–May 14)
Maricopa
California
Gualala/Point ArenaMendocino
Los AngelesLos Angeles, Kern, Orange, and Ventura Counties; Edwards Air Force Base; Naval
Weapons Center and Ordnance Test Station, China Lake
Palo Alto/San JoseSanta Clara
San FranciscoSan Francisco
South Lake TahoeEl Dorado
Yosemite Nat’l Park
(April 1–October 31)
Mariposa
Colorado
Aspen
(January 15–March 31)
Pitkin
Keystone/SilverthorneSummit
Steamboat Springs
(December 1–March 31)
Routt
TellurideSan Miquel
Vail
(November 1–March 31)
Eagle
District of Columbia
Washington, D.C.Washington, D.C.; the cities of Alexandria, Falls Church, and Fairfax, and the coun-
ties of Arlington, Loudoun, and Fairfax in Virginia; and the counties of Montgomery
and Prince Georges in Maryland
Florida
Key WestMonroe
Illinois
ChicagoDu Page, Cook, and Lake
Indiana
Nashville
(June 1–October 31)
Brown
Maine
Bar Harbor
(July 1–September 14)
Hancock
Maryland
Ocean City
(May 1–September 30)
Worcester
55

Key cityCounty and other defined location
Saint MichaelsTalbot
Massachusetts
BostonSuffolk
Cambridge/LowellMiddlesex
Hyannis
(July 1–September 30)
Barnstable
Martha’s Vineyard/NantucketDukes and Nantucket
Michigan
Leland
(May 1–September 30)
Leelanau
Mackinac Island
(June 1–September 30)
Mackinac
Nevada
Incline VillageIncline Village
StatelineDouglas
New Jersey
Atlantic City
(April 1–November 30)
Atlantic
Ocean City/Cape May
(May 15–September 30)
Cape May
New Mexico
Santa Fe
(May 1–October 31)
Santa Fe
New York
New York CityThe boroughs of Bronx, Brooklyn, Manhattan, Queens, and Staten Island; Nassau and
Suffolk Counties
White PlainsWestchester
North Carolina
Duck/Outer Banks
(May 1–September 30)
Dare
Ohio
Sandusky
(May 1–September 30)
Erie
Pennsylvania
Chester/RadnorDelaware
PhiladelphiaPhiladelphia; city of Bala Cynwyd in Montgomery County
Rhode Island
Newport/Block Island
(May 1–October 14)
Newport and Washington
Utah
Bullfrog
(April 1–October 31)
Garfield
Park City
(December 1–March 31)
Summit
Virginia
Virginia Beach
(May 1–September 30)
Virginia Beach, Norfolk, Portsmouth and Chesapeake
WintergreenNelson
Wisconsin
Wisconsin Dells
(June 1–September 14)
Columbia
Wyoming
Jackson
(June 1–October 14)
Teton
56

.04Changes in high-cost localities.
The list of high-cost localities in section
5.03 of this Revenue Procedure differs
from the list of high-cost localities in
section 5.03 of Rev. Proc. 96–28. The
following localities have been added to
the list of high-cost localities: Saint
Michaels, Maryland; Chester/Radnor,
Pennsylvania; and Block Island, Rhode
Island. The portion of the year for
which the following are high-cost locali-
ties has been changed: Yosemite Na-
tional Park, California (April 1–October
31); Steamboat Springs, Colorado (De-
cember 1–March 31); Telluride, Colo-
rado (all year); Vail, Colorado (Novem-
ber 1–March 31); Ocean City/Cape May,
New Jersey (May 15–September 30);
Santa Fe, New Mexico (May 1–October
31). The following localities have been
removed from the list of high-cost lo-
calities: Gulf Shores, Alabama; Santa
Barbara, California; Boulder, Colorado,
and Denver, Colorado; Bridgeport/
Danbury, Connecticut; Naples, Florida;
Rockport, Maine; Annapolis, Maryland,
and Baltimore, Maryland; Detroit,
Michigan, and Traverse City, Michigan;
Newark, New Jersey, Parsippany/Dover,
New Jersey, and Princeton/Trenton, New
Jersey; Lake Placid, New York; Crater
Lake/Klamath Falls, Oregon; Valley
Forge/Malvern, Pennsylvania; Provi-
dence, Rhode Island; Myrtle Beach,
South Carolina.
.05Specific limitation.A payor that
uses the high-low substantiation method
with respect to an employee must use
that method for all amounts paid to that
employee for travel away from home
within CONUS during the calendar year.
However, with respect to that employee,
the payor may still reimburse actual
expenses or use the meals only per diem
method described in section 4.02 for any
travel away from home, and may use
the per diem substantiation method de-
scribed in section 4.01 for any
OCONUS travel away from home.
SECTION 6. LIMITATIONS AND
SPECIAL RULES
.01In general.The Federal per diem
rate and the Federal M&IE rate de-
scribed in section 3.02 for the locality of
travel will be applied in the same man-
ner as applied under the Federal Travel
Regulations, 41 C.F.R. Part 301–7
(1996), except as provided in sections
6.02 through 6.04.
.02Federal per diem rate.A receipt
for lodging expenses is not required in
determining the amount of expenses
deemed substantiated under section 4.01
or 5.01.
.03Federal per diem or M&IE rate.
A payor is not required to reduce the
Federal per diem rate or the Federal
M&IE rate for the locality of travel for
meals provided in kind, provided the
payor has a reasonable belief that meal
and incidental expenses were or will be
incurred by the employee.
.04Proration of the Federal per diem
or M&IE rate.Pursuant to the Federal
Travel Regulations, in determining the
Federal per diem rate or the Federal
M&IE rate for the locality of travel, the
full applicable Federal M&IE rate is
available for a full day of travel from
12:01 a.m. to 12:00 midnight. For pur-
poses of determining the amount
deemed substantiated under section 4 or
5 with respect to partial days of travel
away from home, either of the following
methods may be used to prorate the
Federal M&IE rate to determine the
Federal per diem rate or the Federal
M&IE rate for the partial days of travel:
(1) Such rate may be prorated us-
ing the method prescribed by the Fed-
eral Travel Regulations. Currently the
Federal Travel Regulations allow one-
fourth of the applicable Federal M&IE
rate for each 6-hour quarter of the day
(i.e., midnight to 6 a.m., 6 a.m. to noon,
noon to 6 p.m., and 6 p.m. to midnight)
during any portion of which the em-
ployee or self-employed individual is
traveling away from home in connection
with the performance of services as an
employee or self-employed individual;
or
(2) Such rate may be prorated us-
ing any method that is consistently
applied and in accordance with reason-
able business practice. For example, if
an employee travels away from home
from 9 a.m. one day to 5 p.m. the next
day, a method of proration that results in
an amount equal to 2 times the Federal
M&IE rate will be treated as being in
accordance with reasonable business
practice (even though only 1½ times the
Federal M&IE rate would be allowed
under the Federal Travel Regulations).
Similarly, if a self-employed individual
travels away from home from 7 p.m.
one day to 9 p.m. the next day, a
method of proration that results in an
amount equal to 1½ times the Federal
M&IE rate will be treated as being in
accordance with reasonable business
practice (even though only 1¼ times the
Federal M&IE rate would be allowed
under the Federal Travel Regulations).
.05Application of the 50-percent
limitation on meal expenses.When a per
diem allowance is paid only for meal
and incidental expenses or when an
amount for meal and incidental expenses
is computed pursuant to section 4.03, an
amount equal to the lesser of the per
diem allowance for each calendar day
(or part of the calendar day, see section
6.04) or the Federal M&IE rate for the
locality of travel for such day (or part of
such day, see section 6.04) is treated as
an expense for food and beverages.
When a per diem allowance is paid for
lodging, meal, and incidental expenses,
the payor must treat an amount equal to
the Federal M&IE rate for the locality
of travel for each calendar day (or part
of the calendar day, see section 6.04)
the employee is away from home as an
expense for food and beverages. For
purposes of the preceding sentence,
when a per diem allowance for lodging,
meal, and incidental expenses for a full
day of travel is paid at a rate that is less
than the Federal per diem rate for the
locality of travel, the payor may treat an
amount equal to 40 percent of such per
diem allowance for a full day of travel
as the Federal M&IE rate for the local-
ity of travel.
.06No double reimbursement or de-
duction.If a payor pays a per diem
allowance in lieu of reimbursing actual
expenses for lodging, meal, and inciden-
tal expenses or for meal and incidental
expenses in accordance with section 4
or 5, any additional payment with re-
spect to such expenses is treated as paid
under a nonaccountable plan, is included
in the employee’s gross income, is re-
ported as wages or other compensation
on the employee’s Form W–2, and is
subject to withholding and payment of
employment taxes. Similarly, if an em-
ployee or self-employed individual com-
putes the amount allowable as a deduc-
tion for meal and incidental expenses
for travel away from home in accor-
dance with section 4.03 or 4.04, no
other deduction is allowed to the em-
ployee or self-employed individual with
respect to such expenses. For example,
assume an employee receives a per diem
allowance from a payor for lodging,
meal, and incidental expenses or for
meal and incidental expenses incurred
while traveling away from home. During
that trip, the employee pays for dinner
for the employee and two business asso-
ciates. The payor reimburses as a busi-
ness entertainment meal expense the
57

meal expense for the employee and the
two business associates. Because the
payor also pays a per diem allowance to
cover the cost of the employee’s meals,
the amount paid by the payor for the
employee’s portion of the business en-
tertainment meal expense is treated as
paid under a nonaccountable plan, is
reported as wages or other compensation
on the employee’s Form W–2, and is
subject to withholding and payment of
employment taxes.
.07Related parties.Sections 4.01,
4.02, 4.04 (to the extent it relates to
section 4.02), and 5 of this revenue
procedure will not apply in any case in
which a payor and an employee are
related within the meaning of § 267(b),
but for this purpose the percentage of
ownership interest referred to in
§ 267(b)(2) shall be 10 percent.
SECTION 7. APPLICATION
.01 If the amount of travel expenses
is deemed substantiated under the rules
provided in section 4 or 5, and the
employee actually substantiates to the
payor the elements of time, place, and
business purpose of the travel expenses
in accordance with paragraphs (b)(2)
(travel away from home) and (c) (other
than subparagraph (2)(iii)(A) thereof) of
§ 1.274–5T, the employee is deemed to
satisfy the adequate accounting require-
ments of § 1.274–5T(f) as well as the
requirement to substantiate by adequate
records or other sufficient evidence for
purposes of § 1.274–5T(c). See § 1.62–
2(e)(1) for the rule that an arrangement
must require business expenses to be
substantiated to the payor within a rea-
sonable period of time.
.02 An arrangement providing per
diem allowances will be treated as satis-
fying the requirement of § 1.62–2(f)(2)
with respect to returning amounts in
excess of expenses if the employee is
required to return within a reasonable
period of time (as defined in § 1.62–
2(g)) any portion of such an allowance
that relates to days of travel not substan-
tiated, even though the arrangement
does not require the employee to return
the portion of such an allowance that
relates to days of travel substantiated
and that exceeds the amount of the
employee’s expenses deemed substanti-
ated. For example, assume a payor pro-
vides an employee an advance per diem
allowance for meal and incidental ex-
penses of $200, based on an anticipated
5 days of business travel at $40 per day
to a locality for which the Federal
M&IE rate is $34, and the employee
substantiates 3 full days of business
travel. The requirement to return excess
amounts will be treated as satisfied if
the employee is required to return
within a reasonable period of time (as
defined in § 1.62–2(g)) the portion of
the allowance that is attributable to the
2 unsubstantiated days of travel ($80),
even though the employee is not re-
quired to return the portion of the
allowance ($18) that exceeds the amount
of the employee’s expenses deemed sub-
stantiated under section 4.02 ($102) for
the 3 substantiated days of travel. How-
ever, the $18 excess portion of the
allowance is treated as paid under a
nonaccountable plan as discussed in sec-
tion 7.04.
.03 An employee is not required to
include in gross income the portion of a
per diem allowance received from a
payor that is less than or equal to the
amount deemed substantiated under the
rules provided in section 4 or 5 if the
employee substantiates the business
travel expenses covered by the per diem
allowance in accordance with section
7.01. See § 1.274–5T(f)(2)(i). In addi-
tion, such portion of the allowance is
treated as paid under an accountable
plan, is not reported as wages or other
compensation on the employee’s Form
W–2, and is exempt from the withhold-
ing and payment of employment taxes.
See § 1.62–2(c)(2) and (c)(4).
.04 An employee is required to in-
clude in gross income only the portion
of the per diem allowance received from
a payor that exceeds the amount deemed
substantiated under the rules provided in
section 4 or 5 if the employee substanti-
ates the business travel expenses cov-
ered by the per diem allowance in
accordance with section 7.01. See
§ 1.274–5T(f)(2)(ii). In addition, the ex-
cess portion of the allowance is treated
as paid under a nonaccountable plan, is
reported as wages or other compensation
on the employee’s Form W–2, and is
subject to withholding and payment of
employment taxes. See § 1.62–
2(c)(3)(ii), (c)(5), and (h)(2)(i)(B).
.05 If the amount of the expenses that
is deemed substantiated under the rules
provided in section 4.01, 4.02, or 5 is
less than the amount of the employee’s
business expenses for travel away from
home, the employee may claim an item-
ized deduction for the amount by which
the business travel expenses exceed the
amount that is deemed substantiated,
provided the employee substantiates all
the business travel expenses, includes on
Form 2106, Employee Business Ex-
penses, the deemed substantiated portion
of the per diem allowance received from
the payor, and includes in gross income
the portion (if any) of the per diem
allowance received from the payor that
exceeds the amount deemed substanti-
ated. See § 1.274–5T(f)(2)(iii). How-
ever, for purposes of claiming this item-
ized deduction with respect to meal and
incidental expenses, substantiation of the
amount of the expenses is not required
if the employee is claiming a deduction
that is equal to or less than the amount
computed under section 4.03 minus the
amount deemed substantiated under sec-
tion 4.02 and section 7.01. The itemized
deduction is subject to the 50-percent
limitation on meal and entertainment
expenses provided in § 274(n) and the
2-percent floor on miscellaneous item-
ized deductions provided in § 67.
.06 An employee who does not re-
ceive a per diem allowance for meal and
incidental expenses may deduct an
amount computed pursuant to section
4.03 only as an itemized deduction. This
itemized deduction is subject to the
50-percent limitation on meal and enter-
tainment expenses provided in § 274(n)
and the 2-percent floor on miscellaneous
itemized deductions provided in § 67.
.07 A self-employed individual may
deduct an amount computed pursuant to
section 4.03 in determining adjusted
gross income under § 62(a)(1). This
deduction is subject to the 50-percent
limitation on meal and entertainment
expenses provided in § 274(n).
.08 If a payor’s reimbursement or
other expense allowance arrangement
evidences a pattern of abuse of the rules
of § 62(c) and the regulations thereun-
der, all payments under the arrangement
will be treated as made under a nonac-
countable plan. Thus, such payments are
included in the employee’s gross in-
come, are reported as wages or other
compensation on the employee’s Form
W–2, and are subject to withholding and
payment of employment taxes. See
§ 1.62–2(c)(3), (c)(5), and (h)(2).
SECTION 8. WITHHOLDING AND
PAYMENT OF EMPLOYMENT
TAXES.
.01 The portion of a per diem allow-
ance, if any, that relates to the days of
business travel substantiated and that
exceeds the amount deemed substanti-
ated for those days under section 4.01,
4.02, or 5 is subject to withholding and
58

payment of employment taxes. See
§ 1.62–2(h)(2)(i)(B).
.02 In the case of a per diem allow-
ance paid as a reimbursement, the ex-
cess described in section 8.01 is subject
to withholding and payment of employ-
ment taxes in the payroll period in
which the payor reimburses the ex-
penses for the days of travel substanti-
ated. See § 1.62–2(h)(2)(i)(B)(2).
.03 In the case of a per diem allow-
ance paid as an advance, the excess
described in section 8.01 is subject to
withholding and payment of employ-
ment taxes no later than the first payroll
period following the payroll period in
which the days of travel with respect to
which the advance was paid are substan-
tiated. See § 1.62–2(h)(2)(i)(B)(3). If
some or all of the days of travel with
respect to which the advance was paid
are not substantiated within a reasonable
period of time and the employee does
not return the portion of the allowance
that relates to those days within a
reasonable period of time, the portion of
the allowance that relates to those days
is subject to withholding and payment
of employment taxes no later than the
first payroll period following the end of
the reasonable period. See § 1.62–
2(h)(2)(i)(A).
.04 In the case of a per diem allow-
ance only for meal and incidental ex-
penses for travel away from home paid
to an employee in the transportation
industry by a payor that uses the rule in
section 4.04(3), the excess of the per
diem allowance paid for the period over
the amount deemed substantiated for the
period under section 4.02 (after applying
section 4.04(3)), is subject to withhold-
ing and payment of employment taxes
no later than the first payroll period
following the payroll period in which
the excess is computed. See § 1.62–
2(h)(2)(i)(B)(4).
.05 For example, assume that an em-
ployer pays an employee a per diem
allowance to cover business expenses
for meals and lodging for travel away
from home at a rate of 120 percent of
the Federal per diem rate for the locali-
ties to which the employee travels. The
employer does not require the employee
to return the 20 percent by which the
reimbursement for those expenses ex-
ceeds the Federal per diem rate. The
employee substantiates 6 days of travel
away from home: 2 days in a locality in
which the Federal per diem rate is $100
and 4 days in a locality in which the
Federal per diem rate is $125. The
employer reimburses the employee $840
for the 6 days of travel away from home
(2 × (120% × $100) + 4 × (120% ×
$125)), and does not require the em-
ployee to return the excess payment of
$140 ((2 days × $20 ($1202$100) + 4
days × $25 ($1502$125)). For the pay-
roll period in which the employer reim-
burses the expenses, the employer must
withhold and pay employment taxes on
$140. See section 8.02.
SECTION 9. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 96–28 is hereby super-
seded for per diem allowances paid to
an employee on or after January 1, 1997
with respect to lodging, meal, and inci-
dental expenses or with respect to meal
and incidental expenses paid or incurred
for travel while away from home on or
after January 1, 1997 and, for purposes
of computing the amount allowable as a
deduction, for meal and incidental ex-
penses paid or incurred by an employee
or self-employed individual for travel
while away from home on or after
January 1, 1997.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Edwin B. Cleverdon of the
Office of Assistant Chief Counsel (In-
come Tax and Accounting). For further
information regarding this revenue pro-
cedure, contact Mr. Cleverdon on (202)
622–4920 (not a toll-free call).
Social Security Contribution and
Benefit Base
Under authority contained in the
Social Security Act (‘‘the Act’’), the
Commissioner, Social Security Admin-
istration, has determined and announced
(61 F.R. 55346, dated October 25,
1996) that the contribution and bene-
fit base for remuneration paid in 1997,
and self-employment income earned in
taxable years beginning in 1997 is
$65,400.
‘‘Old-Law’’ Contribution and Benefit
Base
General.The 1997 ‘‘old-law’’ contri-
bution and benefit base is $48,600. This
is the base that would have been effec-
tive under the Act without the enactment
of the 1977 amendments. The base is
computed under section 230(b) of the
Act as it read prior to the 1977 amend-
ments.
The ‘‘old-law’’ contribution and ben-
efit base is used by:
(a) the Railroad Retirement program
to determine certain tax liabilities and
tier II benefits payable under that pro-
gram to supplement the tier I payments
which correspond to basic Social Secu-
rity benefits,
(b) the Pension Benefit Guaranty
Corporation to determine the maximum
amount of pension guaranteed under the
Employee Retirement Income Security
Act (as stated in section 230(d) of the
Act),
(c) Social Security to determine a
year of coverage in computing the spe-
cial minimum benefit, as described ear-
lier, and
(d) Social Security to determine a
year of coverage (acquired whenever
earnings equal or exceed 25 percent of
the ‘‘old-law’’ base for this purpose
only) in computing benefits for persons
who are also eligible to receive pensions
based on employment not covered under
section 210 of the Act.
59

Part IV. Items of General Interest
Employee Plans and Exempt
Organizations; Requests for Certain
Determination Letters and
Applications for Recognition of
Exemption
Announcement 96–133
PURPOSE
This is to announce new ‘‘Where to
File’’ instructions for applications for
employee plan determination and other
letters, as well as exempt organization
applications for recognition of exemp-
tion from federal income tax, previously
submitted to the Chicago and Dallas
Key District Offices of Internal Rev-
enue.
BACKGROUND
The Internal Revenue Service is in
the process of centralizing the filing of
requests for determination and other
letters and applications for recognition
of tax exemption. Currently, plan spon-
sors and organizations file with a desig-
nated district office depending on the
geographic location of the plan’s or
organization’s principal office or place
of business. Announcement 95–51, pub-
lished in Internal Revenue Bulletin
1995–25 at page 132, announced that
centralization will be phased in by dis-
trict. Announcement 96–92, published in
Internal Revenue Bulletin 1996–38 at
page 151, announced that beginning
September 1, 1996, requests formerly
sent to the key district offices in Atlanta,
Georgia, and Baltimore, Maryland,
should be sent to the Internal Revenue
Service Center in Covington, Kentucky.
The Service is also consolidating the
employee plan volume submitter and
regional prototype programs that are
presently maintained by each individual
key district office. Plans previously ap-
proved by a key district office, whose
determination letter processing program
is being transferred to Cincinnati, will
be reviewed using the same criteria and
procedures used by the original district
office. New guidelines are being devel-
oped that will combine the best features
and procedures currently in use by the
districts. Guidelines for the revised vol-
ume submitter and regional prototype
programs will be explained in a future
announcement.
INSTRUCTIONS
Beginning January 1, 1997, letter re-
quests and applications previously sub-
mitted to the key district offices in
Chicago, Illinois, and Dallas, Texas,
should be sent to the Internal Revenue
Service Center in Covington, Kentucky,
at the address shown below. (For a
period of time, requests and applications
mistakenly sent to the Chicago and
Dallas Key District Offices will be
forwarded.) The new address applies to
requests for determination letters, re-
gional prototype notification letters and
volume submitter advisory letters, on the
qualified status of employee plans under
sections 401, 403(a), and 409, and the
exempt status of any related trust under
section 501 of the Internal Revenue
Code, applications for recognition of tax
exemption on Form 1023, Form 1024,
and Form 1028 and other applications
for recognition of qualification or ex-
emption. The affected plan sponsors and
organizations are those whose principal
office or place of business is located in
Arizona, Colorado, Illinois, Iowa, Kan-
sas, Minnesota, Missouri, Montana, Ne-
braska, New Mexico, North Dakota,
Oklahoma, South Dakota, Texas, Utah,
Wisconsin, and Wyoming. These re-
quests or applications, as well as those
formerly submitted to the Atlanta, Balti-
more, and Cincinnati Key Districts,
should be sent to:
Internal Revenue Service
P.O. Box 192
Covington, KY 41012–0192
Until further notice, plans and organi-
zations in all other locations will con-
tinue to file their requests or applica-
tions in accordance with the applicable
user fee instructions, currently in Sec-
tion 7 of Revenue Procedure 96–8,
published in Internal Revenue Bulletin
1996–1 at page 187, and the instructions
for Form 8717, User Fee for Employee
Plan Determination Letter Request, or
Form 8718, User Fee for Exempt Orga-
nization Determination Letter Request.
Comments or concerns regarding the
centralization of the determination pro-
cess or applications submitted to the
Covington address, may be directed to
the EP/EO Customer Service Unit in
Cincinnati at (513) 684–3957 (not a
toll-free number).
New Codes for the 1997 Form
W–2, Box 13
Announcement 96–134
On the 1997 Form W–2, three new
codes must be used to designate
amounts reported in box 13. Descrip-
tions of the amounts to be designated by
the codes are given below. See Publica-
tion 553, Highlights of 1996 Tax
Changes, and the 1997 Instructions for
Form W–2, for more information.
Code R—Medical Savings Account
(MSA)
Employer contributions to a medical
savings account for an employee.
Code S—Savings Incentive Match
Plan for Employees of Small Employ-
ers (SIMPLE) Retirement Account
Salary reduction contributions to a
SIMPLE.
Code T—Adoption Assistance Benefits
Employer payments under an adop-
tion assistance plan for qualified
adoption expenses.
Tax on Certain Imported
Substances; Filing of Petitions
Announcement 96–135
This announces the acceptance, under
Notice 89–61, 1989–1 C.B. 717, of a
petition requesting that diglycidyl ether
of bisphenol-A be added to the list of
taxable substances in § 4672(a)(3). Pub-
lication of this notice is in compliance
with Notice 89–61. This is not a deter-
mination that the list of taxable sub-
stances should be modified. Any modifi-
cation of the list of taxable substances
based upon this petition would be effec-
tive April 1, 1992.
Before a determination is made, con-
sideration will be given to any written
comments (a signed original and eight
(8) copies) that are submitted timely to
the IRS. Written comments and requests
for a public hearing relating to these
petitions must be received by February
4, 1997. Send submissions to:
CC:DOM:CORP:R (Petition), room
5228, Internal Revenue Service, POB
7604, Ben Franklin Station, Washington,
DC 20044. In the alternative, submis-
sions may be hand delivered between
the hours of 8 a.m. and 5 p.m. to:
CC:DOM:CORP:R (Petition), Courier’s
Desk, Internal Revenue Service, 1111
Constitution Avenue NW, Washington,
DC. All comments will be available for
public inspection and copying. A public
hearing may be scheduled if requested
in writing by a person that timely
submits written comments. If a public
hearing is scheduled, notice of the date,
601996–53 I.R.B.

time, and place for the hearing will be
published in the Federal Register.
The petition was received on July 1,
1991. The petitioner is Dow Chemical
Company, a manufacturer and exporter
of this substance. The following is a
summary of the information contained
in the petition. The complete petition is
available in the Internal Revenue Ser-
vice Freedom of Information Reading
Room.
HTS number:3907.3
CAS number:025085–99–8
Diglycidyl ether of bisphenol-A
(DGEBA) is derived from the taxable
chemicals benzene, propylene, chlorine,
and sodium hydroxide and produced
predominantly from epichlorohydrin and
bisphenol-A via a two-step reaction.
The stoichiometric material consump-
tion formula for this substance is:
2 C
6
H
6
(benzene) + 4 C
3
H
6
(propylene)
+ 4 Cl
2
(chlorine) + 6 NaOH (sodium
hydroxide) + 2 O
2
(oxygen) – – – – –.
(CH
3
)
2
C(C
6
H
4
OC
3
H
5
0)
2
(DGEBA) +
CH
3
COCH
3
(acetone) + 2 HCl (hydro-
gen chloride) + 6 NaCl (sodium chlo-
ride) + 5 H
2
O (water)
According to the petition, taxable
chemicals constitute 92.95 percent by
weight of the materials used to produce
this substance. The rate of tax for this
substance would be $7.08 per ton. This
is based upon a conversion factor for
benzene of 0.459, a conversion factor
for propylene of 0.494, a conversion
factor for chlorine of 0.833, and a
conversion factor for sodium hydroxide
of 0.705.
The principal author of this announce-
ment is Ruth Hoffman, Office of Assis-
tant Chief Counsel (Passthroughs and
Special Industries). For further informa-
tion regarding this announcement con-
tact Ruth Hoffman on (202) 622–3130
(not a toll-free number).
611996–53 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
Sherman, Richard M.Crystal Lake, ILCPAOctober 18, 1996 to July 17, 1997
Hunter, LewisJacksonville, FLCPAOctober 25, 1996 to January 24, 1997
Hisken, DonaldRed Bluff, CACPANovember 1, 1996 to March 31, 1997
Byrne, Steven P.Arcadia, CAAttorneyNovember 1, 1996 to January 31, 1997
Mulrey, Robert M.Milton, MACPANovember 1, 1996 to October 31, 1997
Edwards, Ronald A.Plymouth, MICPANovember 1, 1996 to April 30, 1998
Hart Jr., Charles E.Wilmington, OHAttorneyNovember 1, 1996 to October 31, 1998
Willner, Peter D.Stowe, VTCPANovember 1, 1996 to April 30, 1997
May, GaryMadison, WIAttorneyNovember 1, 1996 to October 31, 1998
Josephson, ElliottNorthbrook, ILCPANovember 1, 1996 to October 31, 1998
Capwill Jr., James A.Solon, OHCPANovember 1, 1996 to February 28, 1997
Hazel, John J.Ridgefield, CTEnrolled AgentNovember 1, 1996 to January 31, 1997
Jacobs, PatrickSt. Paul, MNCPANovember 1, 1996 to December 31, 1996
Lau, WilliamCrete, ILCPANovember 1, 1996 to June 30, 1997
Franklin, Gene L.Lees Summit, MOEnrolled AgentNovember 1, 1996 to January 31, 1997
Winterhalter, Charles L.Cincinnati, OHCPANovember 1, 1996 to April 30, 1998
Cremer, Patricia L.Roundup, MTCPANovember 5, 1996 to May 4, 1997
Gardner, Stephen A.Dallas, TXAttorneyNovember 7, 1996 to May 6, 1999
Masini, DavidWheat Ridge, COCPANovember 12, 1996 to November 11, 1997
Cunningham, MichaelLafayette, INCPANovember 12, 1996 to August 11, 1997
Smith, RobertChicago, ILCPAJanuary 1, 1997 to December 31, 1997
62

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
Pacchiana, PaulChappaqua, NYAttorneyIndefinite from October 9, 1996
Rosenberger, David H.Centerville, OHEnrolled AgentIndefinite from October 21, 1996
Gudes, GeraldW. Bloomfield, MICPAIndefinite from October 22, 1996
Donnelly, Richard S.Asheville, NCCPAIndefinite from October 22, 1996
Burrows, William D.Dallas, TXAttorneyIndefinite from November 13, 1996
Klausner, JuliusScarsdale, NYCPAIndefinite from November 13, 1996
Glessner, RandyOmak, WACPAIndefinite from November 13, 1996
Aspland, Frieda R.Greenville, SCCPAIndefinite from November 13, 1996
63

Numerical Finding List
1
Bulletins 1996–27 through 1996–52
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
96–123, 1996–51 I.R.B.13
96–124, 1996–49 I.R.B.22
96–125, 1996–48 I.R.B.21
96–126, 1996–50 I.R.B.12
96–127, 1996–50 I.R.B.12
96–128, 1996–51 I.R.B.14
Announcements—Continued:
96–129, 1996–51 I.R.B.14
96–130, 1996–52 I.R.B.32
96–131, 1996–52 I.R.B.32
96–132, 1996–52 I.R.B.33
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
96–53, 1996–51 I.R.B.5
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
96–58, 1996–49 I.R.B.7
96–59, 1996–48 I.R.B.10
96–60, 1996–49 I.R.B.7
96–61, 1996–49 I.R.B.8
96–62, 1996–49 I.R.B.8
96–63, 1996–51 I.R.B.8
96–64, 1996–51 I.R.B.8
96–65, 1996–52 I.R.B.28
96–68, 1996–52 I.R.B.30
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–42–95, 1996–49 I.R.B.21
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
REG–251520–96, 1996–48 I.R.B.15
Public Laws:
104–117, 1996–34 I.R.B.19
Public Laws—Continued:
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
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
96–52, 1996–48 I.R.B.10
96–53, 1996–49 I.R.B.9
96–54, 1996–50 I.R.B.9
96–55, 1996–50 I.R.B.10
96–56, 1996–51 I.R.B.11
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
96–55, 1996–49 I.R.B.4
96–56, 1996–50 I.R.B.7
96–57, 1996–50 I.R.B.5
96–58, 1996–50 I.R.B.4
96–59, 1996–50 I.R.B.4
96–60, 1996–51 I.R.B.4
96–61, 1996–52 I.R.B.24
Tax Conventions:
1996–28 I.R.B. 36
1996–36 I.R.B.6
1996–40 I.R.B.8
1996–50 I.R.B.8
Treasury Decisions:
8673, 1996–27 I.R.B.4
8674, 1996–28 I.R.B.7
See footnote at end of list.
64

Numerical Finding List—Continued
Bulletins 1996–27 through 1996–52
Treasury Decisions—Continued:
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
8685, 1996–48 I.R.B. 4
8686, 1996–52 I.R.B.14
8687, 1996–52 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.
65

Finding List of Current Action on
Previously Published Items
1
Bulletins 1996–27 through 1996–52
*Denotes entry since last publication
Revenue Procedures:
67–396
Modified by
96–56, 1996–50 I.R.B.7
80–27
Modified by
96–40, 1996–32 I.R.B.8
87–32
Modified by
TD 8680, 1996–33 I.R.B.5
91–22
Superseded by
96–53, 1996–49 I.R.B.9
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
96–3
Amplified by
96–56, 1996–51 I.R.B.11*
96–25
Modified by
96–58, 1996–50 I.R.B.4
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.
66