Internal Revenue Bulletin 2000-38 (PDF rendition): IRS Notices

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INCOME TAX
T.D. 8898, page 276.
Final regulations under section 368 of the Code relate to the
continuity of interest requirement for certain corporate reor-
ganizations.
T.D. 8901, page 272.
Final regulations under section 110 of the Code relate to an
exclusion from gross income for qualified lessee construction
allowances provided by a lessor to a lessee for the purpose of
constructing long-lived property to be used by the lessee pur-
suant to a short-term lease.
Notice 2000–50, page 291.
2000 marginal production rates.This notice announces
the applicable percentage under section 613A of the Code to
be used in determining percentage depletion for marginal
properties for the 2000 calendar year.
Notice 2000–51, page 291.
2000 enhanced oil recovery credit.The enhanced oil re-
covery credit for taxable years beginning in the 2000 calendar
year is determined without regard to the phase-out for crude
oil price increases provided in section 43(b) of the Code.
Notice 2000–52, page 292.
Electricity produced from certain renewable resources.
This notice announces the calendar year 2000 inflation adjust-
ment factor and reference prices for the renewable electricity
production credit under section 45 of the Code.
Notice 2000–53, page 293.
SRLY election to avoid overlap rules.The Treasury Depart-
ment and the Service intend to provide an election to allow a
corporation that ceased to be a member of a consolidated
group as a result of a qualified stock purchase to avoid the ap-
plication of the overlap rules of sections 1.1502–15(g),
1.1502–21(g), and 1.1502–22(g) of the regulations while it
was in that group.
EMPLOYEE PLANS
T.D. 8900, page 279.
Final regulations under section 411 of the Code permit quali-
fied defined contribution plans to be amended to eliminate
some alternative forms in which an account balance can be
paid and permit certain transfers between defined contribution
plans that were not previously permitted.
GIFT TAX
T.D. 8899, page 288.
Final regulations relate to the definition of a qualified inter-
est under section 2702 of the Code.
Internal Revenue
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Bulletin No. 2000–38
September 18, 2000
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
Department of the Treasury
Internal Revenue Service
Finding Lists begin on page ii.
Announcement of Disbarments and Suspensions begins on page 295.

September 18, 20002000–38 I.R.B.
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi-
cial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
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stantive rulings necessary to promote a uniform application
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modify, or amend any of those previously published in the
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wise indicated. Procedures relating solely to matters of in-
ternal management are not published; however, statements
of internal practices and procedures that affect the rights
and duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings
to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature
are deleted to prevent unwarranted invasions of privacy and
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the force and effect of Treasury Department Regulations,
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islation, regulations, court decisions, rulings, and proce-
dures must be considered, and Service personnel and oth-
ers concerned are cautioned against reaching the same con-
clusions in other cases unless the facts and circumstances
are substantially the same.
The Bulletin is divided into four parts as follows:
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This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
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This part is divided into two subparts as follows: Subpart A,
Tax Conventions, and Subpart B, Legislation and Related
Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and Sub-
parts. Also included in this part are Bank Secrecy Act Admin-
istrative Rulings. Bank Secrecy Act Administrative Rulings
are issued by the Department of the Treasury’s Office of the
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Provide America’s taxpayers top quality service by help-
ing them understand and meet their tax responsibilities
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Introduction
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

September 18, 20002722000–38 I.R.B.
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 110.—Qualified Lessee
Construction Allowances for
Short-Term Leases
26 CFR 1.110–1: Qualified lessee construction
allowances.
T.D. 8901
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Qualified Lessee Construction
Allowances for Short-Term
Leases
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations concerning an exclusion
from gross income for qualified lessee
construction allowances provided by a
lessor to a lessee for the purpose of con-
structing long-lived property to be used
by the lessee pursuant to a short-term
lease. The final regulations affect a lessor
and a lessee paying and receiving, respec-
tively, qualified lessee construction al-
lowances that are depreciated by a lessor
as nonresidential real property and ex-
cluded from the lessee’s gross income.
The final regulations provide guidance on
the exclusion, the information required to
be furnished by the lessor and the lessee,
and the time and manner for providing
that information to the IRS.
DATES: Effective Date: These regula-
tions are effective October 5, 2000.
Date of Applicability: For date of ap-
plicability of §1.110–1, see §1.110–1(d).
FOR FURTHER INFORMATION CON-
TACT: Paul Handleman, (202) 622-3040
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information con-
tained in these final regulations have been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507) under control
number 1545-1661. Responses to these
collections of information are mandatory.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the col-
lection of information displays a valid
control number.
The estimated annual burden per re-
spondent varies from .5 hours to 1.5
hours, depending on individual circum-
stances, with an estimated average of 1
hour.
Comments concerning the accuracy of
these burden estimates and suggestions
for reducing these burdens should be sent
to the Internal Revenue Service, Attn:
IRS Reports Clearance Officer,
OP:FS:FP, Washington, DC 20224, and to
the Office of Management and Budget,
Attn: Desk Officer for the Department of
the Treasury, Office of Information and
Regulatory Affairs, Washington, DC
20503.
Books or records relating to this collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
On September 20, 1999, the IRS pub-
lished proposed regulations (REG–
106010–98, 1999–40 I.R.B. 493) in the
Federal Register(64 F.R. 50783) invit-
ing comments under section 110. A pub-
lic hearing was held January 19, 2000.
Numerous comments have been received.
After consideration of all the comments,
the proposed regulations are adopted as
revised by this Treasury decision.
Public Comments
In accordance with section 110(a), the
proposed regulations provided that
amounts provided to a lessee by a lessor
for property to be constructed and used by
the lessee pursuant to a lease are not in-
cludible in the lessee’s gross income if the
amount is a qualified lessee construction
allowance. The proposed regulations de-
fined a qualified lessee construction al-
lowance as any amount received in cash
(or treated as a rent reduction) by a lessee
from a lessor under a short-term lease of
retail space, provided the purpose and ex-
penditure requirements are met.
Expenditure Requirement
The proposed regulations required that
a qualified lessee construction allowance
be expended by the lessee in the taxable
year received on the construction or im-
provement of qualified long-term real
property for use in the lessee’s trade or
business at the retail space. However, the
proposed regulations deemed an amount
to have been expended by a lessee in the
taxable year in which the construction al-
lowance was received by the lessee if the
amount is expended within 8 1/2 months
after the close of that taxable year.
Several commentators maintained that
the proposed rule prescribing a time limit
for making the expenditure is not required
by the statute or the legislative history and
should be eliminated. One commentator,
for example, pointed out the absence of
an explicit expenditure requirement in
section 110 like the one found in section
118(c)(2)(B), which requires that an ex-
penditure relating to a nontaxable contri-
bution in aid of construction be made be-
fore the end of the second taxable year
after the year in which such amount was
received.
Section 110 does not provide an ex-
plicit expenditure time limit, but it also
does not toll the statute of limitations until
the taxpayer notifies the Secretary that the
amount has been expended as does sec-
tion 118. The lack of a statute of limita-
tion tolling provision in section 110
would be troublesome if there was no lim-
itation on the time period to make the
qualified expenditure. In addition, sec-
tion 110(a) provides that an amount may
be excluded only to the extent that such
amount does not exceed the amount ex-
pended by the lessee for the construction
or improvement of qualified long-term
real property.
The IRS and Treasury Department be-
lieve that the absence of an extension of
the statute of limitations and use of the
term “expended” in the past tense indicate
that the amount must be expended by the
end of the taxable year it is received. Ac-

cordingly, the final regulations retain the
expenditure time limitation. However, in
recognition that a lessee may not be able
to expend the amount in the same taxable
year the lessee receives the construction
allowance from the lessor, the final regu-
lations also retain the 8 1/2 month rule
provided in the proposed regulations.
This 8 1/2 month rule, which grants the
lessee an additional 8 1/2 months after the
close of the taxable year in which the con-
struction allowance was received to ex-
pend the amount, is consistent with the
time period, including extensions, that a
corporate taxpayer has to file its return for
the taxable year in which the construction
allowance is received.
Commentators requested that to the ex-
tent the final regulations retain the expen-
diture requirement, the requirement
should be modified to include construc-
tion allowances used to reimburse lessee
expenditures made in a prior year. In re-
sponse to these comments, the final regu-
lations clarify that, provided the lessee
has not depreciated the expenditures, re-
imbursements received in a taxable year
after the year in which the expenditures
are made by the lessee are timely for pur-
poses of the expenditure requirement.
Purpose Requirement
Consistent with section 110(a), the pro-
posed regulations provided that a quali-
fied lessee construction allowance must
be under a short-term lease of retail space
and for the purpose of constructing or im-
proving qualified long-term real property
for use in the lessee’s trade or business at
the retail space. The proposed regulations
required that the lease agreement for the
retail space expressly provide that the
construction allowance is for the purpose
of constructing or improving qualified
long-term real property for use in the
lessee’s trade or business at that retail
space. The purpose requirement was in-
tended to further Congressional intent of
ensuring consistency in the treatment of
the construction allowance by both the
lessor and the lessee.
Commentators suggested deleting the
requirement in the proposed regulations
that the lease agreement “expressly pro-
vides” that a construction allowance be
for the purpose of constructing or improv-
ing qualified long-term real property.
Other commentators suggested changing
this language to “substantially provides”
or using a standard that would lead a rea-
sonable person to conclude that the pur-
pose of the construction allowance
amount is for the construction or im-
provement of qualified long-term real
property. The final regulations do not
adopt these suggestions. The IRS and the
Treasury Department believe that this ex-
press language is consistent with the re-
quirements of section 110(a) and is neces-
sary to help ensure that the lessor and the
lessee take consistent tax positions.
In addition, commentators noted that
lease agreements do not necessarily ad-
dress construction allowances. The con-
struction allowance provisions may be
contained in another document executed
contemporaneously with the lease agree-
ment or executed during the lease term.
For example, the lessor may provide a
construction allowance during the lease
term for the remodeling of the retail space
by the lessee. In response to these com-
ments, the final regulations clarify that an
ancillary agreement executed contempo-
raneously with the payment of a construc-
tion allowance, whether executed with the
lease or during the term of the lease, is
considered a provision of the lease agree-
ment for this purpose.
Definition of Retail Space
Section 110(c)(3) defines the term “re-
tail space” as real property leased, occu-
pied, or otherwise used by a lessee in its
trade or business of selling tangible per-
sonal property or services to the general
public. The proposed regulations specifi-
cally requested comments on whether the
definition of “retail space” needs to be
clarified.
In response to comments, the final reg-
ulations clarify that offices for hair styl-
ists, tailors, shoe repairmen, doctors,
lawyers, accountants, insurance agents,
financial advisors, stock brokers, securi-
ties dealers (including dealers who sell se-
curities out of inventory), and bankers are
included in the definition of retail space.
The final regulations also clarify that a
taxpayer is selling to the general public if
the products or services for sale are made
available to everyone even though only
certain customers or clients are targeted.
A commentator suggested that retail
space should include back-office support
functions that are contiguous to the retail
sales area and not be limited only to areas
where customers purchase products and
services. Section 110(c)(3) and the pro-
posed regulations only require that the
property be used “in the trade or business”
of selling tangible personal property or
services to the general public. In response
to these comments, the final regulations
state that the term “retail space” includes
not only the space where the retail sales
are made, but also space where activities
supporting the retail activity are per-
formed (such as an administrative office, a
storage area, and an employee lounge).
Definition of Lease Term
Consistent with section 110(c)(2), the
proposed regulations defined a short-term
lease as a lease (or other agreement for
occupancy or use) of retail space for 15
years or less (as determined pursuant to
section 168(i)(3)). Section 168(i)(3) pro-
vides rules on determining when renewal
options will be considered part of the
lease term. Section 168(i)(3)(B) provides
that, in the case of nonresidential real
property or residential rental property,
any option to renew at fair market value,
determined at the time of renewal, is not
taken into account for purposes of deter-
mining the lease term.
A commentator suggested that the final
regulations stipulate that certain common
renewal options will be considered to be
at fair market value. For example, the
commentator suggested that if a lease sets
rent at a certain percentage of sales for the
original lease term and uses that same
percentage of sales for renewal options,
the renewals should be considered to be at
fair market value. As the comment relates
to the determination of lease term under
section 168 and would affect other provi-
sions in addition to section 110 that refer-
ence section 168(i)(3), such as sections
142 and 280F, the comment is beyond the
scope of this regulation. Accordingly, the
final regulations do not adopt the sug-
gested comment.
Information Requirement
The proposed regulations required
qualified lessee construction allowance
information to be furnished by the lessor
and the lessee to the IRS, and described
the time and manner for providing that in-
formation to the IRS. The proposed regu-
lations also provided that a lessor or a
2000–38 I.R.B.273September 18, 2000

lessee that fails to furnish the required in-
formation may be subject to a penalty
under section 6721.
A commentator suggested that the re-
quired information to be furnished should
be the information that is current at the time
the lease is executed. According to the
commentator, it would not be unusual for a
lease to be executed years prior to the pay-
ment and receipt of the construction al-
lowance. One of the parties to the lease
may have been acquired by another tax-
payer or its name and address may have
changed.
The final regulations do not adopt the
suggestion. The purpose of the information
reporting by the lessor and the lessee is to
ensure consistent treatment of the construc-
tion allowance as nonresidential property
owned by the lessor. Accordingly, it is im-
perative that the identity of the persons pay-
ing and receiving the construction al-
lowance amount and relevant information
provided be correct.
A commentator suggested that the infor-
mation requirement should absolve the
party filing the information statement from
any penalty under section 6721 if the party
relied upon incorrect information received
from the other party or if the information
cannot be obtained from the other party
after reasonable efforts. Section 6724(a)
provides that no penalty shall be imposed
under section 6721 with respect to any fail-
ure if it is shown that such failure is due to
reasonable cause and not willful neglect.
Thus, no penalty under section 6721 will
apply to a lessor (or a lessee) if the failure
to furnish qualified lessee construction al-
lowance information resulted from the
lessee (or the lessor) providing incorrect in-
formation to the other party to the lease
upon which the lessor (or the lessee) relied
in good faith.
Another commentator suggested that the
information to be furnished by a lessor is
duplicative because the lessee is required to
furnish the same information to the IRS.
According to the commentator, the lessee
should bear the entire burden of filing the
required information because the lessee is
the primary beneficiary of section 110. The
final regulations do not adopt the commen-
tator’s suggestion. The information pro-
vided by the lessor is helpful in corroborat-
ing the information provided by the lessee
and ensures that the lessor treats the amount
as nonresidential real property on its return.
Moreover, the reporting requirement in sec-
tion 110(d) specifically provides that both
the lessor and the lessee should furnish in-
formation.
Effective Date
The proposed regulations proposed an
effective date applicable to leases entered
into on or after the date final regulations are
published in the Federal Register. A com-
mentator suggested delaying the effective
date of the final regulations to allow busi-
nesses a short period to conform their busi-
ness practices to the final regulations. The
final regulations adopt this suggestion by
making the regulations effective 30 days
after the date the final regulations are pub-
lished in the Federal Register.
Although the final regulations do not
provide for an election to apply the regu-
lations retroactively, taxpayers who com-
ply with the rules set forth in the regula-
tions for leases entered into after August
5, 1997, and prior to the effective date of
the regulations (other than the reporting
requirement) will be treated as meeting
the requirements of section 110.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assess-
ment is not required. It also has been de-
termined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regula-
tions. It is hereby certified that the collec-
tion of information in these regulations
will not have a significant economic im-
pact on a substantial number of small en-
tities. This certification is based upon the
fact that any burden on taxpayers is mini-
mal. Accordingly, a Regulatory Flexibil-
ity Analysis under the Regulatory Flexi-
bility Act (5 U.S.C. chapter 6) is not
required. Pursuant to section 7805(f) of
the Internal Revenue Code, the notice of
proposed rulemaking preceding these reg-
ulations was submitted to the Chief Coun-
sel for Advocacy of the Small Business
Administration for comment on its impact
on small business.
Drafting Information
The principal author of these regulations
is Paul F. Handleman, Office of the Associ-
ate Chief Counsel (Passthroughs and Spe-
cial Industries), IRS. However, other per-
sonnel from the IRS and Treasury Depart-
ment participated in their development.
* * * * *
Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.110–1 also issued under 26
U.S.C. 110(d); * * *
Par. 2. Section 1.110–1 is added to
read as follows:
§1.110–1 Qualified lessee construction
allowances.
(a) Overview. Amounts provided to a
lessee by a lessor for property to be con-
structed and used by the lessee pursuant
to a lease are not includible in the lessee’s
gross income if the amount is a qualified
lessee construction allowance under para-
graph (b) of this section.
(b) Qualified lessee construction al-
lowance—(1) In general. A qualified
lessee construction allowance means any
amount received in cash (or treated as a
rent reduction) by a lessee from a lessor—
(i) Under a short-term lease of retail
space;
(ii) For the purpose of constructing or
improving qualified long-term real prop-
erty for use in the lessee’s trade or busi-
ness at that retail space; and
(iii) To the extent the amount is ex-
pended by the lessee in the taxable year
received on the construction or improve-
ment of qualified long-term real property
for use in the lessee’s trade or business at
that retail space.
(2) Definitions—(i) Qualified long-
term real propertyis nonresidential real
property under section 168(e)(2)(B) that
is part of, or otherwise present at, the re-
tail space referred to in paragraph
(b)(1)(i) of this section and which reverts
to the lessor at the termination of the
lease. Thus, qualified long-term real
property does not include property quali-
fying as section 1245 property under sec-
tion 1245(a)(3).
September 18, 20002742000–38 I.R.B.

(ii) Short-term leaseis a lease (or other
agreement for occupancy or use) of retail
space for 15 years or less (as determined
pursuant to section 168(i)(3)).
(iii) Retail spaceis nonresidential real
property under section 168(e)(2)(B) that
is leased, occupied, or otherwise used by
the lessee in its trade or business of sell-
ing tangible personal property or services
to the general public. The term retail
spaceincludes not only the space where
the retail sales are made, but also space
where activities supporting the retail ac-
tivity are performed (such as an adminis-
trative office, a storage area, and em-
ployee lounge). Examples of services
typically sold to the general public in-
clude services provided by hair stylists,
tailors, shoe repairmen, doctors, lawyers,
accountants, insurance agents, stock bro-
kers, securities dealers (including dealers
who sell securities out of inventory), fi-
nancial advisors and bankers. For pur-
poses of this paragraph (b)(2)(iii), a tax-
payer is selling to the general public if the
products or services for sale are made
available to the general public, even if the
product or service is targeted to certain
customers or clients.
(3) Purpose requirement. An amount
will meet the requirement in paragraph
(b)(1)(ii) of this section only to the extent
that the lease agreement for the retail
space expressly provides that the con-
struction allowance is for the purpose of
constructing or improving qualified long-
term real property for use in the lessee’s
trade or business at the retail space. An
ancillary agreement between the lessor
and the lessee providing for a construc-
tion allowance, executed contemporane-
ously with the lease or during the term of
the lease, is considered a provision of the
lease agreement for purposes of the pre-
ceding sentence, provided the agreement
is executed before payment of the con-
struction allowance.
(4) Expenditure requirement—(i) In
general. Expenditures referred to in para-
graph (b)(1)(iii) of this section may be
treated as being made first from the
lessee’s construction allowance. Tracing
of the construction allowance to the actual
lessee expenditures for the construction or
improvement of qualified long-term real
property is not required. However, the
lessee should maintain accurate records of
the amount of the qualified lessee con-
struction allowance received and the ex-
penditures made for qualified long-term
real property.
(ii) Time when expenditures deemed
made. For purposes of paragraph
(b)(1)(iii) of this section, an amount is
deemed to have been expended by a
lessee in the taxable year in which the
construction allowance was received by
the lessee if—
(A) The amount is expended by the
lessee within 8 1/2 months after the close
of the taxable year in which the amount
was received; or
(B) The amount is a reimbursement
from the lessor for amounts expended by
the lessee in a prior year and for which the
lessee has not claimed any depreciation
deductions.
(5) Consistent treatment by lessor.
Qualified long-term real property con-
structed or improved with any amount ex-
cluded from a lessee’s gross income by
reason of paragraph (a) of this section
must be treated as nonresidential real
property owned by the lessor (for pur-
poses of depreciation under 168(e)(2)(B)
and determining gain or loss under sec-
tion 168(i)(8)(B)). For purposes of the
preceding sentence, the lessor must treat
the construction allowance as fully ex-
pended in the manner required by para-
graph (b)(1)(iii) of this section unless the
lessor is notified by the lessee in writing
to the contrary. General tax principles
apply for purposes of determining when
the lessor may begin depreciation of its
nonresidential real property. The lessee’s
exclusion from gross income under para-
graph (a) of this section, however, is not
dependent upon the lessor’s treatment of
the property as nonresidential real prop-
erty.
(c) Information required to be fur-
nished—(1) In general. The lessor and
the lessee described in paragraph (b) of
this section who are paying and receiving
a qualified lessee construction allowance,
respectively, must furnish the information
described in paragraph (c)(3) of this sec-
tion in the time and manner prescribed in
paragraph (c)(2) of this section.
(2) Time and manner for furnishing in-
formation. The requirement to furnish in-
formation under paragraph (c)(1) of this
section is met by attaching a statement
with the information described in para-
graph (c)(3) of this section to the lessor’s
or the lessee’s, as applicable, timely filed
(including extensions) Federal income tax
return for the taxable year in which the
construction allowance was paid by the
lessor or received by the lessee (either in
cash or treated as a rent reduction), as ap-
plicable. A lessor or a lessee may report
the required information for several quali-
fied lessee construction allowances on a
combined statement. However, a lessor’s
or a lessee’s failure to provide informa-
tion with respect to each lease will be
treated as a separate failure to provide in-
formation for purposes of paragraph
(c)(4) of this section.
(3) Information required—(i) Lessor.
The statement provided by the lessor must
contain the lessor’s name (and, in the case
of a consolidated group, the parent’s
name), employer identification number,
taxable year and the following informa-
tion for each lease:
(A) The lessee’s name (in the case of a
consolidated group, the parent’s name).
(B) The address of the lessee.
(C) The employer identification num-
ber of the lessee.
(D) The location of the retail space (in-
cluding mall or strip center name, if ap-
plicable, and store name).
(E) The amount of the construction al-
lowance.
(F) The amount of the construction al-
lowance treated by the lessor as nonresi-
dential real property owned by the lessor.
(ii) Lessee. The statement provided by
the lessee must contain the lessee’s name
(and, in the case of a consolidated group,
the parent’s name), employer identifica-
tion number, taxable year and the follow-
ing information for each lease:
(A) The lessor’s name (in the case of a
consolidated group, the parent’s name).
(B) The address of the lessor.
(C) The employer identification num-
ber of the lessor.
(D) The location of the retail space (in-
cluding mall or strip center name, if ap-
plicable, and store name).
(E) The amount of the construction al-
lowance.
(F) The amount of the construction al-
lowance that is a qualified lessee con-
struction allowance under paragraph (b)
of this section.
(4) Failure to furnish information. A
lessor or a lessee that fails to furnish the
information required in this paragraph (c)
2000–38 I.R.B.275September 18, 2000

may be subject to a penalty under section
6721.
(d) Effective date. This section is ap-
plicable to leases entered into on or after
October 5, 2000.
PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 3. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 4. In §602.101, paragraph (b) is
amended by adding an entry for 1.110–1
to the table in numerical order to read as
follows:
§602.101 OMB Control numbers.
* * * * *
(b) * * *
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
Approved August 29, 2000.
Jonathan Talisman,
Acting Assistant Secretary
of the Treasury.
(Filed by the Office of the Federal Register on Sep-
tember 1, 2000, 8:45 a.m., and published in the issue
of the Federal Register for September 5, 2000, 65
F.R. 53584)
September 18, 20002762000–38 I.R.B.
CFR part or section whereCurrent OMB
identified and describedcontrol No.
* * * * *
1.110–1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545-1661
* * * * *
Section 368.—Definitions
Relating to Corporate
Reorganizations
26 CFR 1.368–1: Purpose and scope of exception of
reorganization exchanges.
T.D. 8898
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Continuity of Interest
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations providing guidance re-
garding the continuity of interest require-
ment for corporate reorganizations. The
final regulations affect corporations and
their shareholders. The final regulations
provide that distributions and redemp-
tions by a target corporation prior to a po-
tential reorganization are taken into ac-
count for continuity of interest purposes
to the extent that the consideration re-
ceived by the target shareholder in the re-
demption or distribution is treated as
other property or money under section
356 of the Internal Revenue Code, or to
the extent that the consideration would be
treated as other property or money if the
target shareholder also had received stock
of the issuing corporation in exchange for
stock owned by the shareholder in the tar-
get corporation.
DATES: Effective Dates: These regula-
tions are effective August 30, 2000.
Applicability Dates: For dates of ap-
plicability of these regulations, see the
“Effective Dates” portion of the Supple-
mentary Information of the preamble.
FOR FURTHER INFORMATION CON-
TACT: Marie Byrne, (202) 622-7750 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information in these
final regulations has been reviewed and,
pending receipt and evaluation of public
comments, approved by the Office of
Management and Budget (OMB) under
44 U.S.C. 3507 and assigned control
number 1545-1691.
The collection of information in these
regulations is in §1.368–1(e)(7). The in-
formation is a private letter ruling request
to apply the final regulations to a transac-
tion in which a taxpayer has entered into a
binding agreement on or after January 28,
1998 (the effective date of §1.368–1T),
and before the effective date of the final
regulations. This information will be
used to ensure that all parties to the trans-
action take consistent positions for Fed-
eral tax purposes. The collection of infor-
mation is elective. If §1.368–1T would
apply to a transaction, but the taxpayer
would prefer to apply the final regula-
tions, the taxpayer may elect to submit the
information. The likely respondents are
businesses or other for-profit institutions.
Comments concerning the collection of
information should be sent to the Office
of Management and Budget, Attn: Desk
Officer for the Department of Treasury,
Office of Information and Regulatory Af-
fairs, Washington, DC 20503, with copies
to the Internal Revenue Service, Attn:
IRS Reports Clearance Officer,
OP:FS:FP, Washington, DC 20224. Any
such comments should be submitted not
later than October 30, 2000.
Comments are specifically requested
concerning:
(a) Whether the collection of informa-
tion is necessary for the proper perfor-
mance of the functioning of the Internal
Revenue Service, including whether the
information will have practical utility;
(b) The accuracy of the estimated bur-
den associated with the collection of in-
formation (see below);
(c) How the quality, utility, and clarity of
the information requested may be enhanced;
(d) How the burden of complying with
the collection of information may be mini-
mized, including through the application of
automated collection techniques or other
forms of information technology; and
(e) Estimates of capital or start-up
costs, and costs of operation, mainte-

nance, and purchase of services to pro-
vide information.
Estimated total annual reporting burden:
1,500 hours
The annual burden per respondent varies
from 50 to 200 hours, depending on indi-
vidual circumstances, with an estimated
average of 150 hours.
Estimated number of respondents: 10
Estimated frequency of responses: Once
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it dis-
plays a valid control number assigned by
the OMB.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
On January 28, 1998, the Treasury De-
partment and IRS published final regula-
tions on the continuity of interest (COI)
requirement for potential corporate reor-
ganizations, which permitted former tar-
get corporation (T) shareholders to sell
stock in the issuing corporation (P) with-
out causing the potential reorganization to
fail to satisfy the COI requirement (T.D.
8760, 1998–1 C.B. 803 [63 F.R. 4174]).
Additionally, the IRS and Treasury De-
partment published temporary (T.D. 8761,
1998–1 C.B. 812) and proposed regula-
tions (REG–120882–97, 1998–1 C.B.
824) (the Temporary Regulations) in the
Federal Registerat 63 F.R. 4183 and 63
F.R. 4204, respectively, relating to re-
demptions of, and extraordinary distribu-
tions on, T stock prior to certain otherwise
qualifying reorganizations.
The Treasury Department and IRS re-
ceived written comments in response to the
proposed regulations. A public hearing on
the proposed regulations was held on May
26, 1998. After consideration of all com-
ments, §1.368–1T, published at 63 F.R.
4183, is removed. Section 1.368–1(e) is
amended by this Treasury decision.
Explanation of Provisions
The Internal Revenue Code provides
general nonrecognition treatment for reor-
ganization transactions specifically de-
scribed in section 368. In addition to
complying with the statutory require-
ments and certain other requirements, a
transaction generally must satisfy the COI
requirement. The purpose of the COI re-
quirement is to prevent transactions that
resemble sales from qualifying for non-
recognition of gain or loss available to
corporate reorganizations. COI requires
that in substance a substantial part of the
value of the proprietary interests in T be
preserved in the reorganization. These
final regulations address the effect on
COI of prereorganization redemptions
and distributions.
The Temporary Regulations
The Temporary Regulations provide
that a proprietary interest in T is not pre-
served if, prior to and in connection with
a potential reorganization, it is redeemed,
or to the extent that, prior to and in con-
nection with a potential reorganization, an
extraordinary distribution is made with
respect to it.
Several commentators argued that the
Temporary Regulations are overly broad.
Some suggested that the scope of the COI
requirement should closely parallel the
law regarding the “solely for voting
stock” requirement for reorganizations
under §368(a)(1)(B) and (C), because
both the solely for voting stock require-
ment and the COI requirement arose out
of similar concerns, i.e., to prevent trans-
actions that resemble sales from qualify-
ing for nonrecognition treatment available
to corporate reorganizations. These com-
mentators maintain that, similar to the
solely for voting stock rule, prereorgani-
zation redemptions and extraordinary dis-
tributions by T should not be taken into
account for COI purposes unless P di-
rectly or indirectly furnishes the consider-
ation for the redemption or distribution.
A rule that goes beyond this, they argue,
converts the COI requirement into an
asset continuity test, and thus overlaps
with the continuity of business enterprise
requirement (COBE) and the “substan-
tially all the assets” requirement for cer-
tain reorganizations.
In addition, one commentator main-
tained that the Temporary Regulations
provide inconsistent results by treating
extraordinary distributions taxed as divi-
dends under section 301 as the equivalent
of sales proceeds for purposes of COI.
Other commentators expressed concern
that certain types of taxpayers, such as S
corporations, are inappropriately ad-
versely affected by the approach of the
Temporary Regulations. The commenta-
tors noted that when an S corporation
merges into a C corporation, it is common
for the S corporation, in advance of the
reorganization, to make distributions in
the amount of its accumulated adjust-
ments account (AAA). If large enough,
such distributions may cause the potential
reorganization to fail to qualify for tax-
free treatment because the COI require-
ment is not satisfied under the Temporary
Regulations. These commentators be-
lieve that this application of the COI rules
in the Temporary Regulations to S corpo-
ration reorganizations is inconsistent with
section 1371, which generally provides
that subchapter C applies to an S corpora-
tion, except to the extent inconsistent with
subchapter S, because the practice of
making prereorganization AAA distribu-
tions makes it more difficult for S corpo-
rations than for C corporations to qualify
for reorganization treatment. Similar con-
cerns arise when a controlled foreign cor-
poration (CFC) distributes income from
its previously taxed income account with
respect to its subpart F income (see sec-
tion 959). Another commentator sug-
gested that distributions made by a C cor-
poration immediately prior to a merger
with a Regulated Investment Company
(RIC) or Real Estate Investment Trust
(REIT) should not be treated as extraordi-
nary distributions. Under §§1.852–12
(for RICs) and 1.857–11 (for REITs), a C
corporation that merges into a RIC or
REIT must distribute all non-RIC or non-
REIT earnings and profits before the end
of the RIC’s or REIT’s first taxable year.
Consequently, a C corporation typically
will distribute such earnings and profits
prior to a merger with a RIC or REIT.
After considering these comments, the
purpose of the COI requirement, and the
other existing protections that prevent
transactions that resemble sales from
qualifying for nonrecognition of gain or
loss available to corporate reorganiza-
tions, the Treasury Department and IRS
have concluded that the approach of the
final regulations best reflects the purpose
of the COI requirement. The regulations
provide that a proprietary interest in T
(other than one held by P) is not preserved
2000–38 I.R.B.277September 18, 2000

to the extent that consideration received
prior to a potential reorganization, either
in a redemption of T stock or in a distribu-
tion with respect to T stock, is treated as
other property or money received in the
exchange for purposes of section 356 or
would be so treated if the T shareholder
also had received stock of P in exchange
for stock owned by the shareholder in T.
In determining whether consideration is
treated as other property or money under
section 356 received in an exchange for a
proprietary interest in T, taxpayers should
consider all facts, circumstances, and rel-
evant legal authorities.
The regulations posit for COI purposes
that each T shareholder receives some P
stock in exchange for T stock. Section
356 generally does not apply to a T share-
holder who does not receive any P stock
in exchange for T stock in a reorganiza-
tion. See Rev. Rul. 74–515 (1974–2 C.B.
118). Solely for purposes of determining
whether the COI requirement is satisfied,
however, the regulations deem each T
shareholder to have received some P
stock in exchange for T stock (without as-
cribing any value to that stock). The reg-
ulations thus use the same criterion for
determining whether COI is satisfied, re-
gardless of whether a T shareholder re-
ceives any P stock. These final regula-
tions do not offer safe harbors or special
rules for the transactions about which
commentators expressed concern. Unlike
the temporary regulations, however, the
final regulations do not automatically take
all prereorganization redemptions and ex-
traordinary distributions in connection
with the reorganization into account for
COI purposes.
Stock Repurchase Programs
Example 8of §1.368–1(e)(6) illustrates
the effect on COI of a general stock repur-
chase program. In the example, P repur-
chases a small percentage of its stock
after a reorganization, as part of a preex-
isting stock repurchase program. COI is
satisfied because the redemption of a
small percentage of P stock was not in
connection with the merger. In response
to comments received, the IRS and Trea-
sury Department issued further guidance
on the effect of a stock repurchase pro-
gram on COI in Rev. Rul. 99–58
(1999–52 I.R.B. 701). Because Example
8suggests a more restrictive approach to
COI than was intended in this context,
Example 8is removed by this Treasury
decision.
Effect on Other Authorities
These COI regulations apply solely for
purposes of determining whether the COI
requirement is satisfied. No inference
should be drawn from any provision of
this regulation as to whether other reorga-
nization requirements are satisfied, or as
to the characterization of a related trans-
action.
Effect on Other Documents
The following publications do not
apply to the extent they are inconsistent
with these regulations:
Rev. Proc. 77–37 (1977–2 C.B. 568).
Rev. Proc. 86–42 (1986–2 C.B. 722).
Effective Dates
These regulations apply to transactions
occurring after August 30, 2000, unless
the transaction occurs pursuant to a writ-
ten agreement that is (subject to customary
conditions) binding on that date and at all
times thereafter. Taxpayers who entered
into a binding agreement on or after Janu-
ary 28, 1998 (the date that the temporary
and proposed regulations were filed with
the Federal Register), and before August
30, 2000, may request a private letter rul-
ing permitting them to apply the final reg-
ulations to their transaction. A private let-
ter ruling will not be issued unless the
taxpayer establishes to the satisfaction of
the IRS that there is not a significant risk
of different parties to the transaction tak-
ing inconsistent positions, for U.S. tax
purposes, with respect to the applicability
of the final regulations to the transaction.
Special Analyses
It has been determined that these regu-
lations are not a significant regulatory ac-
tion as defined in Executive Order 12866.
Therefore, a regulatory assessment is not
required. It also has been determined that
section 553(b) of the Administrative Pro-
cedure Act (5 U.S.C. chapter 5) does not
apply to these final regulations. It is
hereby certified that the collection of in-
formation in these regulations will not
have a significant economic impact on a
substantial number of small entities. This
certification is based on the fact that while
the burden of making this collection of in-
formation may be significant when applic-
able, taxpayers will have to make this col-
lection of information only if they are
corporations or shareholders of corpora-
tions who are parties to a purported reor-
ganization in which COI would not be
preserved under the Temporary regula-
tions. The IRS estimates that the number
of taxpayers who will need to make this
collection of information will be 10 or
fewer. Therefore, a Regulatory Flexibility
Analysis under the Regulatory Flexibility
Act (5 U.S.C. chapter 6) is not required.
Pursuant to section 7805(f) of the Code,
these final regulations will be submitted to
the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on their impact on small business.
Drafting Information
The principal author of these regula-
tions is Marie Byrne of the Office of the
Associate Chief Counsel (Corporate),
IRS. However, other personnel from the
IRS and Treasury Department partici-
pated in their development.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.368–1 is amended by:
1. Revising paragraph (e)(1)(ii).
2. Removing paragraph (e)(2)(ii).
3. Removing the paragraph designa-
tion (e)(2)(i).
4. Removing Example 8of paragraph
(e)(6).
5. Redesignating Example 9of para-
graph (e)(6) as Example 8.
6. Adding new Example 9 to paragraph
(e)(6).
7. Adding three sentences to the end of
paragraph (e)(7).
The additions and revision read as fol-
lows:
§1.368–1 Purpose and scope of exception
of reorganization exchanges.
*****
September 18, 20002782000–38 I.R.B.

(e) *** (1) ***
(ii) For purposes of paragraph (e)(1)(i)
of this section, a proprietary interest in the
target corporation (other than one held by
the acquiring corporation) is not pre-
served to the extent that consideration re-
ceived prior to a potential reorganization,
either in a redemption of the target corpo-
ration stock or in a distribution with re-
spect to the target corporation stock, is
treated as other property or money re-
ceived in the exchange for purposes of
section 356, or would be so treated if the
target shareholder also had received stock
of the issuing corporation in exchange for
stock owned by the shareholder in the tar-
get corporation.
*****
(6) ***
Example 9. Preacquisition redemption by target
corporation. T has two shareholders, A and B. P ex-
presses an interest in acquiring the stock of T. A
does not wish to own P stock. T redeems A’s shares
in T in exchange for cash. No funds have been or
will be provided by P for this purpose. P subse-
quently acquires all the outstanding stock of T from
B solely in exchange for voting stock of P. The cash
received by A in the prereorganization redemption is
not treated as other property or money under section
356, and would not be so treated even if A had re-
ceived some stock of P in exchange for his T stock.
The prereorganization redemption by T does not af-
fect continuity of interest, because B’s proprietary
interest in T is unaffected, and the value of the pro-
prietary interest in T is preserved.
(7)*** Paragraph (e)(1)(ii) of this sec-
tion, however, applies to transactions oc-
curring after August 30, 2000, unless the
transaction occurs pursuant to a written
agreement that is (subject to customary
conditions) binding on that date and at all
times thereafter. Taxpayers who entered
into a binding agreement on or after Janu-
ary 28, 1998, and before August 30, 2000,
may request a private letter ruling permit-
ting them to apply the final regulation to
their transaction. A private letter ruling
will not be issued unless the taxpayer es-
tablishes to the satisfaction of the IRS that
there is not a significant risk of different
parties to the transaction taking inconsis-
tent positions, for Federal tax purposes,
with respect to the applicability of the
final regulations to the transaction.
§1.368–1T [Removed]
Par. 3. Section 1.368–1T is removed.
PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 4. Section §602.101, paragraph (b)
is amended by adding an entry to the table
in numerical order to read as follows:
§602.101 OMB Control numbers.
*****
(b) ***
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
Approved August 23, 2000.
Jonathan Talisman,
Acting Assistant Secretary
of the Treasury.
(Filed by the Office of the Federal Register on Au-
gust 30, 2000, 8:45 a.m., and published in the issue
of the Federal Register for August 31, 2000, 65 F.R.
52909)
2000–38 I.R.B.279September 18, 2000
CFR part or section whereCurrent OMB
identified and describedcontrol No.
* * * * *
1.368–1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545-1691
* * * * *
Section 411.—Minimum Vesting
Standards
26 CFR 1.411(d)–4: Section 411(d)(6) protected
benefits.
T.D. 8900
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
Special Rules Regarding
Optional Forms of Benefit Under
Qualified Retirement Plans
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations that permit qualified de-
fined contribution plans to be amended to
eliminate some alternative forms in which
an account balance can be paid under cer-
tain circumstances, and permit certain
transfers between defined contribution
plans that were not permitted under prior
final regulations. These regulations affect
qualified retirement plan sponsors, ad-
ministrators, and participants.
DATES: These regulations are effective
September 6, 2000.
FOR FURTHER INFORMATION CON-
TACT: Linda S. F. Marshall, 202-622-
6090 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to
26 CFR part 1 under section 411(d)(6) of
the Internal Revenue Code of 1986
(Code).
Section 411(d)(6) generally provides
that a plan will not be treated as satisfying
the requirements of section 411 if the ac-
crued benefit of a participant is decreased
by a plan amendment. Section
411(d)(6)(B), which was added by the Re-
tirement Equity Act of 1984 (REA), Pub-
lic Law 98-397 (98 Stat. 1426), provides
that a plan amendment that eliminates an
optional form of benefit is treated as re-
ducing accrued benefits to the extent that
the amendment applies to benefits ac-
crued as of the later of the adoption date
or the effective date of the amendment.
However, section 411(d)(6)(B) authorizes
the Secretary of the Treasury to provide
exceptions to this requirement. This au-
thority does not extend to a plan amend-
ment that would have the effect of elimi-

nating or reducing an early retirement
benefit or a retirement-type subsidy. Sec-
tion 204(g)(2) of the Employee Retire-
ment Income Security Act of 1974
(ERISA), Public Law 93-406, (88 Stat.
829) provides a parallel rule to section
411(d)(6)(B) of the Code that applies
under Title I of ERISA, and authorizes the
Secretary of the Treasury to provide ex-
ceptions to this parallel ERISA require-
ment. Thus, Treasury regulations issued
under section 411(d)(6)(B) of the Code
apply as well for purposes of section
204(g)(2) of ERISA.
Final regulations regarding section
411(d)(6)(B) (the 1988 regulations) were
published in the Federal Registeron July
8, 1988. The 1988 regulations, and sub-
sequent amendments to the regulations,
define the optional forms of benefit that
are protected under section 411(d)(6)(B)
and provide for certain exceptions to the
general rule of section 411(d)(6)(B). In
general, these regulatory exceptions to the
application of section 411(d)(6)(B) to op-
tional forms of benefit have been devel-
oped to address certain specific practical
problems. For example, §1.411(d)–4,
Q&A-3(b) of the 1988 regulations per-
mits a plan-to-plan transfer of a partici-
pant’s entire nonforfeitable benefit to be
made at the election of the participant,
without a requirement that the transferee
plan preserve all section 411(d)(6) pro-
tected benefits, but only if the participant
is eligible to receive an immediate distrib-
ution and certain other conditions are sat-
isfied. In addition, some regulatory ex-
ceptions to the application of section
411(d)(6)(B) to optional forms of benefit
address plan amendments that are related
to statutory changes. See Q&A-2(b) and
Q&A-10 of §1.411(d)–4.
The IRS and Treasury recognize that
the accumulation of a variety of payment
choices in a plan may increase the cost
and complexity of plan operations. For
example, an employer that initially
adopted a plan for which the plan docu-
ment was prepared by a prototype sponsor
may now be using a different prototype
plan that offers a different array of distrib-
ution forms. The requirement to preserve
virtually all preexisting optional forms for
benefits accrued up to the date of change
in the prototype plan may present signifi-
cant practical problems in certain cases.
Similar issues arise where employers
merge with or acquire other businesses.
These employers often face issues of
whether to maintain separate plans, termi-
nate one or more of the plans, or merge
the plans. If the employer chooses to
merge the plans, the resulting plan may
accumulate a wide variety of optional
forms, some of which may differ in in-
significant ways or may entail special ad-
ministrative costs. Because the elective
transfer rule of §1.411(d)–4, Q&A-3(b) of
the 1988 regulations has applied only to
situations in which a participant’s benefits
have become distributable, its applicabil-
ity has been limited.
In recent years, it has become easier for
individuals to replicate the various pay-
ment choices available from qualified
plans through other means. The Unem-
ployment Compensation Amendments of
1992, Public Law 102-318 (106 Stat.
290), substantially expanded participants’
ability to transfer distributions from quali-
fied plans to individual retirement
arrangements (IRAs) on a tax-deferred
basis. Individuals who receive single-
sum distributions from qualified plans
frequently roll those distributions over di-
rectly to IRAs, under which distributions
can be made in a wide variety of payment
forms. There are also indications that the
vast majority of participants in defined
contribution plans who are given a choice
of distribution forms that includes a sin-
gle-sum distribution elect the single-sum
distribution.
The IRS and Treasury issued Notice
98–29 (1998–1 C.B. 1163) to request
public comment on several ways of pro-
viding regulatory relief from the require-
ments of section 411(d)(6)(B) for defined
contribution plans in view of these con-
siderations. Most of the public comments
received in response to Notice 98–29 in-
dicated that, particularly for defined con-
tribution plans, the section 411(d)(6)(B)
requirement that a plan continue to offer
all existing payment options often im-
poses significant administrative burdens
that are disproportionate to any corre-
sponding benefit to participants. After
considering the comments received in re-
sponse to Notice 98–29, the IRS and
Treasury issued proposed regulations
(REG–109101–98, 2000–16 I.R.B. 903),
which were published in the Federal
Register(65 F.R. 16546) on March 29,
2000, to propose relief from the require-
ments of section 411(d)(6)(B) in a wide
range of circumstances.
Seventeen written comments respond-
ing to the notice of proposed rulemaking
were received. No public hearing was re-
quested or held. Nearly all of the written
comments expressed support for the pro-
visions of the proposed regulation that
would provide relief from the require-
ments of section 411(d)(6)(B) and re-
quested clarifications or extensions of that
relief in various ways. After considera-
tion of all of the written comments, the
IRS and the Treasury Department are
adopting the proposed regulations as re-
vised by this Treasury Decision for the
reasons summarized below.
These final regulations under section
411(d)(6)(B) do not affect other require-
ments of the Code. For example, a money
purchase pension plan (or a plan other-
wise described in section 401(a)(11)(B))
generally must satisfy certain require-
ments relating to qualified joint and sur-
vivor annuities and qualified preretire-
ment survivor annuities, and those
requirements are not affected by these
final regulations. Similarly, these final
regulations do not affect the requirements
of section 401(a)(31) relating to direct
rollovers.
Explanation of Provisions
A.Permitted Amendments to Alternative
Forms of Payment Under a Defined
Contribution Plan
In order to simplify plan administra-
tion, these final regulations adopt a modi-
fied version of the rule set forth in the
proposed regulations that significantly ex-
pands the permitted changes that may be
made to alternative forms of payment
under a defined contribution plan. Under
the rule in the proposed regulations, a de-
fined contribution plan would not violate
the requirements of section 411(d)(6)
merely because the plan was amended to
eliminate or restrict the ability of a partic-
ipant to receive payment of the partici-
pant’s accrued benefit under a particular
optional form of benefit if, after the plan
amendment became effective with respect
to the participant, the distribution choices
available to the participant included both
payment of the accrued benefit in a sin-
gle-sum distribution form and payment of
the accrued benefit in an extended pay-
September 18, 20002802000–38 I.R.B.

ment form (such as, for example, an annu-
ity distribution), each of which was other-
wise identical to the eliminated or re-
stricted optional form of benefit. In the
preamble to the proposed regulations, the
IRS and the Treasury Department re-
quested comments on whether an ex-
tended payment form should be required
to be preserved as part of such a plan
amendment, or should be required to be
preserved in particular circumstances.
In general, comments stated that the
rule set forth in the proposed regulations
would simplify plan administration.
However, most commentators also indi-
cated that requiring the retention of an ex-
tended payment form would perpetuate
administrative burdens that would not be
justified by any comparative advantage to
plan participants. These commentators
pointed out various administrative bur-
dens associated with retaining an ex-
tended payment form, such as maintain-
ing a system to administer the extended
payment form for the few (if any) partici-
pants who choose that payment form, in-
cluding descriptions of the extended pay-
ment form in participant materials,
explaining the extended payment form in
response to participant inquiries, dealing
with participant requests to accelerate dis-
tributions under the extended payment
form, complying with the minimum re-
quired distribution rules of section
401(a)(9), and handling the problems that
result from an increased incidence of
missing participants. These commenta-
tors also pointed out the special burdens
that maintenance of an extended payment
option imposes in mergers and acquisi-
tions. These commentators took the posi-
tion that, in light of a participant’s ability
to roll over distributions to one or more
IRAs, which commonly offer a far wider
array of alternative payment forms, and in
light of the ability of many participants to
choose to retain their full vested account
balance in the qualified plan, there is little
or no advantage to the participant in rules
requiring the plan sponsor to retain an op-
tion to receive extended payments from a
qualified defined contribution plan.
After considering these comments re-
garding the desirability of requiring the
retention of an extended payment form,
and in light of the ability of participants to
replicate any extended payment form that
a defined contribution plan may offer by
rolling over a single-sum distribution to
an IRA, the IRS and the Treasury Depart-
ment have determined that any advan-
tages of requiring the retention of an ex-
tended payment form are outweighed by
the countervailing considerations. Ac-
cordingly, these final regulations gener-
ally provide that a defined contribution
plan does not violate the requirements of
section 411(d)(6) merely because the plan
is amended to eliminate or restrict the
ability of a participant to receive payment
of accrued benefits under a particular op-
tional form of benefit if, after the plan
amendment is effective with respect to the
participant, the alternative forms of pay-
ment available to the participant include
payment in a single-sum distribution form
that is otherwise identical to the optional
form of benefit that is being eliminated or
restricted. The final regulations adopt the
rules set forth in the proposed regulations
for determining whether a single-sum dis-
tribution is otherwise identical to an op-
tional form of benefit that is being elimi-
nated or restricted.
However, the final regulations include
a provision that protects participants tak-
ing distributions shortly after the plan is
amended, who may have planned on the
availability of the payment form that is
being eliminated or restricted. Under this
provision, a plan amendment that elimi-
nates or restricts the ability of a partici-
pant to receive a particular optional form
of benefit cannot apply to any distribution
that has an annuity starting date earlier
than the 90th day
1
after the date the par-
ticipant receiving the distribution has
been furnished a summary that reflects
the amendment and that satisfies the re-
quirements of the Labor Department reg-
ulations at 29 CFR 2520.104b–3 relating
to a summary of material modifications
for pension plans (or, if earlier, the first
day of the second plan year following the
plan year in which the amendment is
adopted).
As noted above, the final regulations
do not affect the survivor annuity require-
ments of sections 401(a)(11) and 417 or
the direct rollover requirements of section
401(a)(31).
One commentator expressed concern
that permitting plan amendments that
eliminate alternative forms of payment
would have the effect of permitting the
elimination of subsidized early retirement
benefits (i.e., distribution forms available
upon early retirement that have a higher
actuarial value than the normal retirement
benefit that has been accrued at the time
the distribution begins). These regula-
tions, however, permit plan amendments
eliminating alternative forms of payment
only in certain circumstances involving
defined contribution plans. Under a de-
fined contribution plan, a participant is
entitled to a distribution, in whatever
form may be provided under the plan,
only to the extent of the participant’s indi-
vidual account, plus earnings thereon.
Accordingly, no alternative form of pay-
ment can be subsidized relative to any
other payment form available under a de-
fined contribution plan. Thus, these regu-
lations do not have the effect of permit-
ting the elimination of any early
retirement subsidy or any other subsi-
dized benefit forms.
B.Voluntary Direct Transfers Between
Plans
Under certain circumstances, the 1988
regulations permitted elimination of op-
tional forms of benefit in connection with
transfers of benefits from one plan to an-
other with a participant’s consent. See
§1.411(d)–4, Q&A-3(b) (as contained in
26 CFR part 1 revised April 1, 2000). The
proposed regulations contained a number
of changes to the 1988 regulations that
would significantly liberalize the applica-
tion of these elective transfer provisions.
These final regulations generally finalize
the provisions of the proposed regulations
relating to elective transfers, with certain
modifications that are described below.
The 1988 regulations permitted an
elective transfer from one qualified plan
to another only if the participant’s benefit
under the transferring plan was immedi-
ately distributable (a distributable event
transfer). This condition precluded use of
the elective transfer provision in the 1988
regulations in connection with merger and
acquisition transactions involving plans
with a cash or deferred arrangement under
section 401(k) in cases in which benefits
under the cash or deferred arrangement
were not distributable because section
2000–38 I.R.B.281September 18, 2000
1
This 90-day requirement is parallel to the 90-day
election period applicable to any plan that is subject
to the joint and survivor annuity requirements of sec-
tion 417.

401(k)(10) was not applicable. In re-
sponse to Notice 98–29, many commenta-
tors stated that permitting elective trans-
fers from the former employer’s section
401(k) plan to the new employer’s section
401(k) plan under these circumstances
would allow employers to permit employ-
ees to keep their previously earned retire-
ment benefits in a qualified plan together
with their newly earned retirement bene-
fits, particularly in cases where the new
employer chooses not to maintain the for-
mer employer’s plan.
Section 1.411(d)–4, Q&A-3(c) of these
final regulations retains and modifies the
previously applicable section 411(d)(6)
relief for distributable event transfers, and
§1.411(d)–4, Q&A-3(b) of these final
regulations adds new section 411(d)(6)
relief for transfers in connection with cer-
tain corporate mergers and acquisitions or
changes in the participant’s employment
status (transaction or employment change
transfers). As a result, relief from section
411(d)(6) applies in each of the following
cases:
•Direct rollover. Existing rules provide
that if a direct rollover is made from
one qualified retirement plan to an-
other, as described in section
401(a)(31), the receiving plan is not re-
quired by section 411(d)(6) to offer the
same optional forms of benefit as the
sending plan offered. See
§1.401(a)(31)–1, Q&A-14.
•Distributable event transfer. As dis-
cussed further below, in any case in
which a participant is entitled to a dis-
tribution from either a defined benefit
plan or a defined contribution plan but
the participant is not eligible to receive
an immediate distribution of the partic-
ipant’s entire nonforfeitable accrued
benefit in a single-sum distribution
that can be entirely rolled over, these
final regulations provide section
411(d)(6) relief for a voluntary transfer.
Thus, these regulations modify the dis-
tributable event transfer provisions of
the 1988 regulations.
•Transaction or employment change
transfer. As discussed further below,
even if a participant is not entitled to a
distribution to which the preceding
rules would apply, these final regula-
tions, like the proposed regulations,
allow a voluntary transfer from a de-
fined contribution plan to another de-
fined contribution plan of the same type
if the transfer occurs in connection with
a corporate merger or acquisition or a
change in the participant’s employment
status. See §1.411(d)–4, Q&A-3(b).
Under certain circumstances, it may be
possible to accomplish a voluntary trans-
fer of a participant’s benefit from one de-
fined contribution plan to another that
could be structured as either a distrib-
utable event transfer or a transaction or
employment change transfer. In such a
situation, the plans would be required to
comply with the requirements applicable
to either one of those sets of rules with re-
spect to the transfer.
1.Expansion of Section 411(d)(6)
Relief for Distributable Event
Transfers
Under section 401(a)(31), which was
enacted after the issuance of the 1988 reg-
ulations, any eligible rollover distribution
may be directly rolled over to an IRA or
to another eligible retirement plan. The
section 411(d)(6) requirements do not
apply to amounts that have been distrib-
uted, including distributions that are di-
rectly rolled over to another plan under
section 401(a)(31). Accordingly, for
amounts that are distributable in an eligi-
ble rollover distribution, the elective
transfer rules of the 1988 regulations have
largely been duplicated by the enactment
of section 401(a)(31) because the same
section 411(d)(6) result generally is avail-
able through a direct rollover. These final
regulations generally eliminate this dupli-
cation. Under these final regulations, for
transfers occurring on or after January 1,
2002, the distributable event transfer rules
are not available if the participant is eligi-
ble to receive an immediate distribution
of the participant’s entire nonforfeitable
accrued benefit in a single-sum distribu-
tion that would consist entirely of an eli-
gible rollover distribution within the
meaning of section 401(a)(31)(C). (In-
stead, the plan must offer a section
401(a)(31) direct rollover.) However, in
other situations, including situations in
which a single-sum distribution is not
available or the participant’s benefit in-
cludes an amount attributable to after-tax
employee contributions, the distributable
event transfer rules will be available.
Some commentators requested that
plans have the ability to characterize a
transfer that could be accomplished to-
tally or in part as a direct rollover under
section 401(a)(31) as a direct transfer to
which section 411(d)(6) relief applies.
They point out that this procedure is per-
mitted under the 1988 regulations and that
this procedure would simplify plan ad-
ministration. These final regulations clar-
ify that plans are not required to bifurcate
a transaction into a partial section
401(a)(31) direct rollover and a partial
elective transfer to which section
411(d)(6) relief applies, but that plans are
permitted, as an alternative to bifurcation,
to treat such a transaction entirely as an
elective transfer to which section
411(d)(6) relief applies. However, as
noted above, for transfers occurring on or
after January 1, 2002, this section
411(d)(6) relief for distributable event
transfers does not apply to an elective
transfer that occurs at a time at which the
participant is eligible to receive an imme-
diate distribution of the participant’s en-
tire nonforfeitable account balance in a
single-sum distribution that would consist
entirely of an eligible rollover distribution
within the meaning of section
401(a)(31)(C). Instead, a similar result
could be achieved by means of a direct
rollover to which section 401(a)(31) ap-
plies.
Under the proposed regulations, the
section 411(d)(6) relief for transfers of
immediately distributable amounts other
than eligible rollover distributions would
only have applied to transfers between
plans of the same type (i.e., transfers from
defined benefit plans to defined benefit
plans and transfers from defined contribu-
tion plans to defined contribution plans),
notwithstanding that the 1988 regulations
granted section 411(d)(6) relief to trans-
fers between plans of different types (i.e.,
transfers from defined benefit plans to de-
fined contribution plans and vice versa).
The preamble specifically requested com-
ments on whether section 411(d)(6) relief
was needed for distributable event trans-
fers between different types of plans,
given the availability of direct rollovers.
Several commentators stated that this sec-
tion 411(d)(6) relief provided under the
1988 regulations was still valuable and
also requested clarification that the relief
applied to transfers of amounts that were
immediately distributable only in the
form of periodic payments commencing
September 18, 20002822000–38 I.R.B.

immediately. These final regulations
adopt both of these recommendations.
2.Section 411(d)(6) Relief for
Transaction or Employment Change
Transfers
Section 1.411(d)–4, Q&A-3(b) of these
final regulations retains and, in some re-
spects, expands provisions of the pro-
posed regulations that grant, subject to
certain conditions, broad section
411(d)(6) relief for many types of elective
transfers of a participant’s entire benefit
under a defined contribution plan,
whether or not the benefit is immediately
distributable (and whether or not the par-
ticipant would be eligible for a distribu-
tion of the participant’s entire benefit in a
single-sum distribution that would be an
eligible rollover distribution). In order to
ensure that the participant’s election oc-
curs in connection with an independent
event (and is not, in effect, a mere
waiver), the transfer must be made either
in connection with certain corporate
transactions (such as a merger or acquisi-
tion) or in connection with a participant’s
change in employment status (for exam-
ple, the participant’s transfer to a different
subsidiary or division of the employer,
without regard to whether the transfer
constitutes a separation from service) to
an employment status with respect to
which the participant is not entitled to ad-
ditional allocations under the transferor
plan, even if the event is not one that trig-
gers the right to an immediate distribu-
tion. Such elective transfers can be made
to a plan that is outside the employer’s
controlled group, to another plan of the
same employer, or to a plan that is main-
tained by another member of the em-
ployer’s controlled group.
A transaction or employment change
transfer may involve benefits that are not
fully vested under the transferor plan.
However, where a participant’s benefit
that is not fully vested under the trans-
feror plan is transferred pursuant to these
rules, the vesting schedule amendment re-
quirements of section 411(a)(10) must be
satisfied.
A transaction or employment change
transfer generally is only permitted be-
tween defined contribution plans of the
same type (e.g., from a qualified cash or
deferred arrangement under section
401(k) to another qualified cash or de-
ferred arrangement). The restrictions on
the types of plans between which transac-
tion or employment change transfers are
permitted facilitate administration of the
qualified plan distribution rules by ensur-
ing that amounts transferred to the receiv-
ing plan, in a transfer that is not itself a
distribution, will be subject to similar
legal restrictions with respect to in-ser-
vice distributions. See Rev. Rul. 94–76
(1994–2 C.B. 46). In the case of transfers
from plans that are subject to the survivor
annuity requirements of sections
401(a)(11)(A) and 417, those survivor an-
nuity requirements would in any event
apply to the receiving plan with respect to
the transferred amount as a result of the
transferee plan rule of section 401(a)-
(11)(B)(iii)(III).
In response to comments, the final reg-
ulations clarify that the right to a transac-
tion or employment change transfer is an
other right or feature for purposes of sec-
tion 401(a)(4) (unlike a distributable
event transfer, which is treated as an op-
tional form of benefit for purposes of sec-
tion 401(a)(4)). In applying section
401(a)(4) to a transaction or employment
change transfer right, the final regulations
permit certain conditions to be disre-
garded. Thus, for example, section
401(a)(4) would be satisfied if, with re-
spect to all participants: (1) the plan pro-
vides a transfer right in the event that an
employee ceases to be covered by the
plan because of any asset or stock disposi-
tion, merger or other similar business
transaction involving a change of the em-
ployer; (2) the plan provides a transfer
right in the event that an employee ceases
to be covered by the plan because of an
identified asset or stock disposition,
merger or other similar business transac-
tion that involves a change of the em-
ployer; or (3) the plan provides a transfer
right in the event that an employee ceases
to be covered by the plan because of a
transfer of employment to a position cov-
ered by another plan within the em-
ployer’s controlled group.
C.Rules Regarding In-Kind
Distributions
The final regulations clarify and mod-
ify the rules regarding the application of
the protections of section 411(d)(6)(B) to
a right to receive benefit distributions in
kind from defined contribution plans and
defined benefit plans. Provisions for dis-
tribution in kind are sometimes found, for
example, in plans invested in annuity con-
tracts or in marketable mutual funds. The
right to a particular form of investment is
not a protected optional form of benefit.
However, the investments made by a plan
generally are subject to fiduciary require-
ments, including the prudence require-
ment of section 404(a)(1)(B) of ERISA.
The 1988 regulations state that the right to
a medium of distribution, such as cash or
in-kind payments, is an optional form of
benefit to which section 411(d)(6)(B) ap-
plies.
The proposed regulations provided
that, if a defined benefit plan included an
optional form of benefit under which ben-
efits were distributed in the medium of an
annuity contract, that optional form of
benefit could be modified by substituting
cash for the annuity contract. The pro-
posed regulations separately provided a
similar rule for defined contribution plans
that provided an annuity optional form of
benefit and for distribution of an annuity
contract, and that substituted a non-annu-
ity optional form of benefit for the annu-
ity form. These final regulations combine
and simplify these two rules. The final
regulations clarify that a participant’s
right to receive a particular benefit in the
form of cash payments from either a de-
fined benefit plan or a defined contribu-
tion plan and a participant’s right to re-
ceive that benefit in the form of the
distribution of an annuity contract that
provides for cash payments that are other-
wise identical in all respects to those cash
payments from the plan are not separate
optional forms of benefit. Therefore, for
example, if a plan includes an optional
form of benefit under which benefits are
distributed in the medium of an annuity
contract that provides for cash payments,
that optional form of benefit may be mod-
ified by a plan amendment that substitutes
cash payments from the plan for the dis-
tribution of the annuity contract, where
those cash payments from the plan are
identical to the cash payments payable
from the annuity contract in all respects
except for the source of the payments.
Of course, a defined contribution plan
that continues to offer a life annuity form
of distribution must purchase an annuity
contract from an insurance carrier in order
to provide that optional form (and the
2000–38 I.R.B.283September 18, 2000

plan may either distribute that contract to
the participant or hold the contract as a
plan asset from which it makes the pay-
ments for the participant).
These final regulations permit a defined
contribution plan to be amended to replace
the ability to receive a distribution in the
form of marketable securities (other than
employer securities) with the ability to re-
ceive a distribution in the form of cash.
Thus, the right to distributions from a de-
fined contribution plan in the form of cash,
employer securities or other property that is
not marketable securities is generally pro-
tected. The protection for employer securi-
ties reflects the potential value of the spe-
cial tax treatment provided to net
unrealized appreciation (NUA) on em-
ployer securities under section 402(e)(4).
The protection for assets that are not mar-
ketable securities reflects that possibility
that a participant may assign a higher value
to such assets than the plan without the par-
ticipant having the ability to acquire the
asset after receiving a cash distribution.
The proposed regulations would permit a
defined contribution plan that gives a par-
ticipant the right to an in-kind distribution
(including employer securities and property
that is not marketable securities) to be
amended to limit the types of property in
which distributions can be made to a partic-
ipant to specific types of property allocated
to the participant’s account at the time of
the amendment (and with respect to which
the participant had the right to receive an
in-kind distribution before the plan amend-
ment). In addition, the proposed regula-
tions would permit a defined contribution
plan giving a participant the right to a dis-
tribution in a type of property to be
amended to specify that the participant is
permitted to receive a distribution in that
type of property only to the extent that the
plan assets allocated to the participant’s ac-
count at the time of the distribution include
that type of property.
These provisions of the proposed regula-
tions were supported by commentators and
have been adopted in these final regula-
tions. In response to commentator sugges-
tions, the examples from the proposed reg-
ulations have been modified in these
regulations to clarify that a plan amend-
ment that limits the right of a distribution in
specified types of property to certain partic-
ipants, as permitted by these regulations,
need not itself contain a list of those partici-
pants. These provisions of the final regula-
tions do not permit a plan to be amended in
a way that affects protected features of op-
tional forms of benefit other than the
medium of distribution.
Effective Date and Applicability Date
These final regulations are effective
September 6, 2000. These final regula-
tions apply to plan amendments that are
adopted and effective on or after Septem-
ber 6, 2000, except as provided in
§1.411(d)–4, Q&A-2(e)(1)(ii) and Q&A-
3(c)(1)(ii).
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assess-
ment is not required. It also has been de-
termined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regula-
tions, and because the regulation does not
impose a collection of information on
small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply.
Pursuant to section 7805(f) of the Code,
the notice of proposed rulemaking pre-
ceding these regulations was submitted to
the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on its impact on small business.
Drafting Information
The principal author of these regula-
tions is Linda S. F. Marshall of the Office
of the Division Counsel/Associate Chief
Counsel (Tax Exempt and Government
Entities). However, other personnel from
the IRS and Treasury participated in their
development.
* * * * *
Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.411(d)–4 is amended
as follows:
1. In Q&A-1, paragraph (b)(1), the last
sentence is amended by removing the lan-
guage “§1.401(a)(4)–4(d)” and adding
“§1.401(a)(4)–4(e)(1)” in its place.
2. Q&A-2 is amended by:
a. In paragraph (a)(1), removing the
language “in paragraph (b) of this Q&A-
2” and adding the language “in this sec-
tion” in its place.
b. Adding two sentences at the begin-
ning of paragraph (a)(3)(ii)(A).
c. Revising the second sentence of
paragraph (b)(2) introductory text.
d. Revising paragraph (b)(2)(iii).
e. Amending paragraph (b)(2)(viii) by
removing the language “ of the em-
ployer”.
f. Adding paragraph (e).
3. Q&A-3 is amended by:
a. Revising paragraph (a)(3).
b. Adding paragraph (a)(4).
c. Revising paragraphs (b), (c), and
(d).
The additions and revisions read as fol-
lows:
§1.411(d)–4 Section 411(d)(6) protected
benefits.
* * * * *
A-2: * * *
(a) * * *
(3) * * *
(ii) Annuity contracts—(A) General
rule. The right of a participant to receive
a benefit in the form of cash payments
from the plan and the right of a participant
to receive that benefit in the form of the
distribution of an annuity contract that
provides for cash payments that are iden-
tical in all respects to the cash payments
from the plan except with respect to the
source of the payments are not separate
optional forms of benefit. Therefore, for
example, if a plan includes an optional
form of benefit under which benefits are
distributed in the medium of an annuity
contract that provides for cash payments,
that optional form of benefit may be mod-
ified by a plan amendment that substitutes
cash payments from the plan for the annu-
ity contract, where those cash payments
from the plan are identical to the cash
payments payable from the annuity con-
tract in all respects except with respect to
the source of the payments. * * *
* * * * *
(b) * * *
(2) * * * The rules with respect to per-
missible eliminations and reductions pro-
vided in this paragraph (b)(2) generally
are effective January 30, 1986; however,
the rules of paragraphs (b)(2)(iii)(A) and
September 18, 20002842000–38 I.R.B.

(B) and (b)(2)(viii) of this Q&A-2 are ef-
fective for plan amendments that are
adopted and effective on or after Septem-
ber 6, 2000. * * *
* * * * *
(iii) In-kind distributions—(A) In-kind
distributions payable under defined con-
tribution plans in the form of marketable
securities other than employer securities.
If a defined contribution plan includes an
optional form of benefit under which ben-
efits are distributed in the form of mar-
ketable securities, other than securities of
the employer, that optional form of bene-
fit may be modified by a plan amendment
that substitutes cash for the marketable
securities as the medium of distribution.
For purposes of this paragraph
(b)(2)(iii)(A) and paragraph (b)(2)(iii)(B)
of this Q&A-2, the term marketable secu-
ritiesmeans marketable securities as de-
fined in section 731(c)(2), and the term
securities of the employermeans securi-
ties of the employer as defined in section
402(e)(4)(E)(ii).
(B) Amendments to defined contribu-
tion plans to specify medium of distribu-
tion. If a defined contribution plan in-
cludes an optional form of benefit under
which benefits are distributable to a par-
ticipant in a medium other than cash, the
plan may be amended to limit the types of
property in which distributions may be
made to the participant to the types of
property specified in the amendment. For
this purpose, the types of property speci-
fied in the amendment must include all
types of property (other than marketable
securities that are not securities of the em-
ployer) that are allocated to the partici-
pant’s account on the effective date of the
amendment and in which the participant
would be able to receive a distribution im-
mediately before the effective date of the
amendment if a distributable event oc-
curred. In addition, a plan amendment
may provide that the participant’s right to
receive a distribution in the form of speci-
fied types of property is limited to the
property allocated to the participant’s ac-
count at the time of distribution that con-
sists of property of those specified types.
(C) In-kind distributions after plan ter-
mination. If a plan includes an optional
form of benefit under which benefits are
distributed in specified property, that op-
tional form of benefit may be modified for
distributions after plan termination by sub-
stituting cash for the specified property as
the medium of distribution to the extent
that, on plan termination, an employee has
the opportunity to receive the optional
form of benefit in the form of the specified
property. This exception is not available,
however, if the employer that maintains
the terminating plan also maintains another
plan that provides an optional form of ben-
efit under which benefits are distributed in
the specified property.
(D) Examples. The following exam-
ples illustrate the application of this para-
graph (b)(2)(iii):
Example 1.(i) An employer maintains a profit-
sharing plan under which participants may direct the
investment of their accounts. One investment option
available to participants is a fund invested in com-
mon stock of the employer. The plan provides that
the participant has the right to a distribution in the
form of cash upon termination of employment. In
addition, the plan provides that, to the extent a par-
ticipant’s account is invested in the employer stock
fund, the participant may receive an in-kind distribu-
tion of employer stock upon termination of employ-
ment. On October 18, 2000, the plan is amended,
effective on January 1, 2001, to remove the fund in-
vested in employer common stock as an investment
option under the plan and to provide for the stock
held in the fund to be sold. The amendment permits
participants to elect how the sale proceeds are to be
reallocated among the remaining investment op-
tions, and provides for amounts not so reallocated as
of January 1, 2001, to be allocated to a specified in-
vestment option.
(ii) The plan does not fail to satisfy section
411(d)(6) solely on account of the plan amendment
relating to the elimination of the employer stock in-
vestment option, which is not a section 411(d)(6)
protected benefit. See paragraph (d)(7) of Q&A-1
of this section. Moreover, because the plan did not
provide for distributions of employer securities ex-
cept to the extent participants’ accounts were in-
vested in the employer stock fund, the plan is not re-
quired operationally to offer distributions of
employer securities following the amendment. In
addition, the plan would not fail to satisfy section
411(d)(6) on account of a further plan amendment,
effective after the plan has ceased to provide for an
employer stock fund investment option (and partici-
pants’ accounts have ceased to be invested in em-
ployer securities), to eliminate the right to a distribu-
tion in the form of employer stock. See paragraph
(b)(2)(iii)(B) of this Q&A-2.
Example 2.(i) An employer maintains a profit-
sharing plan under which a participant, upon termi-
nation of employment, may elect to receive benefits
in a single-sum distribution either in cash or in kind.
The plan’s investments are limited to a fund invested
in employer stock, a fund invested in XYZ mutual
funds (which are marketable securities), and a fund
invested in shares of PQR limited partnership
(which are not marketable securities).
(ii) The following alternative plan amendments
would not cause the plan to fail to satisfy section
411(d)(6):
(A) A plan amendment that limits non-cash distri-
butions to a participant on termination of employ-
ment to a distribution of employer stock and shares
of PQR limited partnership. See paragraph
(b)(2)(iii)(A) of this Q&A-2.
(B) A plan amendment that limits non-cash distri-
butions to a participant on termination of employ-
ment to a distribution of employer stock and shares
of PQR limited partnership, and that also provides
that only participants with employer stock allocated
to their accounts as of the effective date of the
amendment have the right to distributions in the
form of employer stock, and that only participants
with shares of PQR limited partnership allocated to
their accounts as of the effective date of the amend-
ment have the right to distributions in the form of
shares of PQR limited partnership. To comply with
the plan amendment, the plan administrator retains a
list of participants with employer stock allocated to
their accounts as of the effective date of the amend-
ment, and a list of participants with shares of PQR
limited partnership allocated to their accounts as of
the effective date of the amendment. See paragraphs
(b)(2)(iii)(A) and (B) of this Q&A-2.
(C) A plan amendment that limits non-cash distri-
butions to a participant on termination of employ-
ment to a distribution of employer stock and shares
of PQR limited partnership to the extent that those
assets are allocated to the participant’s account at the
time of the distribution. See paragraphs
(b)(2)(iii)(A) and (B) of this Q&A-2.
(D) A plan amendment that limits non-cash distri-
butions to a participant on termination of employ-
ment to a distribution of employer stock and shares
of PQR limited partnership, and that provides that
only participants with employer stock allocated to
their accounts as of the effective date of the amend-
ment have the right to distributions in the form of
employer stock, and that only participants with
shares of PQR limited partnership allocated to their
accounts as of the effective date of the amendment
have the right to distributions in the form of shares
of PQR limited partnership, and that further pro-
vides that the distribution of that stock or those
shares is available only to the extent that those assets
are allocated to those participants’ accounts at the
time of the distribution. To comply with the plan
amendment, the plan administrator retains a list of
participants with employer stock allocated to their
accounts as of the effective date of the amendment,
and a list of participants with shares of PQR limited
partnership allocated to their accounts as of the ef-
fective date of the amendment. See paragraphs
(b)(2)(iii)(A) and (B) of this Q&A-2.
Example 3. (i) An employer maintains a stock
bonus plan under which a participant, upon termina-
tion of employment, may elect to receive benefits in a
single-sum distribution in employer stock. This is the
only plan maintained by the employer under which
distributions in employer stock are available. The
employer decides to terminate the stock bonus plan.
(ii) If the plan makes available a single-sum dis-
tribution in employer stock on plan termination, the
plan will not fail to satisfy section 411(d)(6) solely
because the optional form of benefit providing a sin-
gle-sum distribution in employer stock on termina-
tion of employment is modified to provide that such
distribution is available only in cash. See paragraph
(b)(2)(iii)(C) of this Q&A-2.
2000–38 I.R.B.285September 18, 2000

* * * * *
(e) Permitted plan amendments affect-
ing alternative forms of payment under
defined contribution plans—(1) General
rule. A defined contribution plan does not
violate the requirements of section
411(d)(6) merely because the plan is
amended to eliminate or restrict the abil-
ity of a participant to receive payment of
accrued benefits under a particular op-
tional form of benefit if—
(i) After the plan amendment is effec-
tive with respect to the participant, the al-
ternative forms of payment available to
the participant include payment in a sin-
gle-sum distribution form that is other-
wise identical to the optional form of ben-
efit that is being eliminated or restricted;
and
(ii) The amendment does not apply to
the participant with respect to any distrib-
ution with an annuity starting date that is
earlier than the earlier of—
(A) The 90th day after the date the par-
ticipant has been furnished a summary
that reflects the amendment and that satis-
fies the requirements of 29 CFR
2520.104b–3 (relating to a summary of
material modifications) for pension plans;
or
(B) The first day of the second plan
year following the plan year in which the
amendment is adopted.
(2) Otherwise identical single-sum dis-
tribution. For purposes of this paragraph
(e), a single-sum distribution form is oth-
erwise identical to an optional form of
benefit that is eliminated or restricted pur-
suant to paragraph (e)(1) of this Q&A-2
only if the single-sum distribution form is
identical in all respects to the eliminated
or restricted optional form of benefit (or
would be identical except that it provides
greater rights to the participant) except
with respect to the timing of payments
after commencement. For example, a sin-
gle-sum distribution form is not otherwise
identical to a specified installment form
of benefit if the single-sum distribution
form is not available for distribution on
the date on which the installment form
would have been available for com-
mencement, is not available in the same
medium of distribution as the installment
form, or imposes any condition of eligi-
bility that did not apply to the installment
form. However, an otherwise identical
distribution form need not retain rights or
features of the optional form of benefit
that is eliminated or restricted to the ex-
tent that those rights or features would not
be protected from elimination or restric-
tion under section 411(d)(6) or this sec-
tion.
(3) Examples. The following examples
illustrate the application of this paragraph
(e):
Example 1. (i) P is a participant in Plan M, a
qualified profit-sharing plan with a calendar plan
year that is invested in mutual funds. The distribu-
tion forms available to P under Plan M include a dis-
tribution of P’s vested account balance under Plan M
in the form of distribution of various annuity con-
tract forms (including a single life annuity and a
joint and survivor annuity). The annuity payments
under the annuity contract forms begin as of the first
day of the month following P’s termination of em-
ployment (or as of the first day of any subsequent
month, subject to the requirements of section
401(a)(9)). P has not previously elected payment of
benefits in the form of a life annuity, and Plan M is
not a direct or indirect transferee of any plan that is a
defined benefit plan or a defined contribution plan
that is subject to section 412. Plan M provides that
distributions on the death of a participant are made
in accordance with section 401(a)(11)(B)(iii)(I). On
May 15, 2001, Plan M is amended so that, after the
amendment is effective, P is no longer entitled to
any distribution in the form of the distribution of an
annuity contract. However, after the amendment is
effective, P is entitled to receive a single-sum cash
distribution of P’s vested account balance under
Plan M payable as of the first day of the month fol-
lowing P’s termination of employment (or as of the
first day of any subsequent month, subject to the re-
quirements of section 401(a)(9)). The amendment
does not apply to P if P elects to have annuity pay-
ments begin before the earlier of January 1, 2003, or
90 days after the date on which the plan administra-
tor of Plan M furnishes P with a summary that re-
flects the amendment and that satisfies the require-
ments of 29 CFR 2520.104b–3. On December 14,
2001, the plan administrator of Plan M furnishes P
with a summary plan description that reflects the
amendment and that satisfies the requirements of 29
CFR 2520.104b–3.
(ii) Plan M does not violate the requirements of
section 411(d)(6) (or section 401(a)(11)) merely be-
cause, as of March 14, 2002, the plan amendment
has eliminated P’s option to receive a distribution in
any of the various annuity contract forms previously
available.
Example 2. (i) P is a participant in Plan M, a
qualified profit-sharing plan to which section
401(a)(11)(A) does not apply. Upon termination of
employment, P is entitled to receive cash distribu-
tions from Plan M, payable as of the first day of the
month following P’s termination of employment (or
as of the first day of any subsequent month, subject
to the requirements of section 401(a)(9)), in the form
of a single-sum distribution, or in substantially equal
monthly installment payments over either 5, 10, 15,
or 20 years. On May 15, 2001, Plan M is amended
so that, after the amendment is effective, P is no
longer entitled to receive a distribution in the form
of substantially equal monthly installment payments
over 5, 10, 15, or 20 years. However, after the
amendment is effective, P continues to be entitled to
receive cash distributions from Plan M, payable as
of the first day of the month following P’s termina-
tion of employment (or as of the first day of any sub-
sequent month, subject to the requirements of sec-
tion 401(a)(9)), in the form of a single-sum
distribution. The amendment does not apply to P if
P elects to have annuity payments begin before Jan-
uary 1, 2002. On September 20, 2001, the plan ad-
ministrator of Plan M furnishes P with a summary of
material modifications that reflects the amendment
and that satisfies the requirements of 29 CFR
2520.104b–3.
(ii) Plan M does not violate the requirements of
section 411(d)(6) merely because, as of January 1,
2002, the plan amendment has eliminated P’s option
to receive a distribution in the form of substantially
equal monthly installment payments over 5, 10, 15,
or 20 years.
(4) Effective date.This paragraph (e)
applies to plan amendments that are
adopted on or after September 6, 2000.
* * * * *
A-3. (a) * * *
(3) Waiver prohibition. In general, ex-
cept as provided in paragraph (b) of this
Q&A-3, a participant may not elect to
waive section 411(d)(6) protected bene-
fits. Thus, for example, the elimination of
the defined benefit feature of a partici-
pant’s benefit under a defined benefit plan
by reason of a transfer of such benefits to
a defined contribution plan pursuant to a
participant election, at a time when the
benefit is not distributable to the partici-
pant, violates section 411(d)(6).
(4) Direct rollovers. A direct rollover
described in Q&A-3 of §1.401(a)(31)–1
that is paid to a qualified plan is not a
transfer of assets and liabilities that must
satisfy the requirements of section 414(l),
and is not a transfer of benefits for pur-
poses of applying the requirements under
section 411(d)(6) and paragraph (a)(1) of
this Q&A-3. Therefore, for example, if
such a direct rollover is made to another
qualified plan, the receiving plan is not
required to provide, with respect to
amounts paid to it in a direct rollover, the
same optional forms of benefit that were
provided under the plan that made the di-
rect rollover. See §1.401(a)(31)–1, Q&A-
14.
(b) Elective transfers of benefits be-
tween defined contribution plans—(1)
General rule. A transfer of a participant’s
entire benefit between qualified defined
contribution plans (other than any direct
rollover described in Q&A-3 of
§1.401(a)(31)–1) that results in the elimi-
nation or reduction of section 411(d)(6)
September 18, 20002862000–38 I.R.B.

protected benefits does not violate section
411(d)(6) if the following requirements
are met—
(i) Voluntary election. The plan from
which the benefits are transferred must pro-
vide that the transfer is conditioned upon a
voluntary, fully-informed election by the
participant to transfer the participant’s en-
tire benefit to the other qualified defined
contribution plan. As an alternative to the
transfer, the participant must be offered the
opportunity to retain the participant’s sec-
tion 411(d)(6) protected benefits under the
plan (or, if the plan is terminating, to re-
ceive any optional form of benefit for
which the participant is eligible under the
plan as required by section 411(d)(6)).
(ii) Types of plans to which transfers
may be made.To the extent the benefits
are transferred from a money purchase
pension plan, the transferee plan must be
a money purchase pension plan. To the
extent the benefits being transferred are
part of a qualified cash or deferred
arrangement under section 401(k), the
benefits must be transferred to a qualified
cash or deferred arrangement under sec-
tion 401(k). To the extent the benefits
being transferred are part of an employee
stock ownership plan as defined in section
4975(e)(7), the benefits must be trans-
ferred to another employee stock owner-
ship plan. Benefits transferred from a
profit-sharing plan other than from a qual-
ified cash or deferred arrangement, or
from a stock bonus plan other than an em-
ployee stock ownership plan, may be
transferred to any type of defined contri-
bution plan.
(iii) Circumstances under which trans-
fers may be made. The transfer must be
made either in connection with an asset or
stock acquisition, merger, or other similar
transaction involving a change in em-
ployer of the employees of a trade or busi-
ness (i.e., an acquisition or disposition
within the meaning of §1.410(b)–2(f)) or
in connection with the participant’s
change in employment status to an em-
ployment status with respect to which the
participant is not entitled to additional al-
locations under the transferor plan.
(2) Applicable qualification require-
ments. A transfer described in this para-
graph (b) is a transfer of assets or liabili-
ties within the meaning of section
414(l)(1) and, thus, must satisfy the re-
quirements of section 414(l). In addition,
this paragraph (b) only provides relief
under section 411(d)(6); a transfer de-
scribed in this paragraph must satisfy all
other applicable qualification require-
ments. Thus, for example, if the survivor
annuity requirements of sections
401(a)(11) and 417 apply to the plan from
which the benefits are transferred, as de-
scribed in this paragraph (b), but do not
otherwise apply to the receiving plan, the
requirements of sections 401(a)(11) and
417 must be met with respect to the trans-
ferred benefits under the receiving plan.
In addition, the vesting provisions under
the receiving plan must satisfy the re-
quirements of section 411(a)(10) with re-
spect to the amounts transferred.
(3) Status of elective transfer as other
right or feature. A right to a transfer of
benefits from a plan pursuant to the elec-
tive transfer rules of this paragraph (b) is
an other right or feature within the mean-
ing of §1.401(a)(4)–4(e)(3), the availabil-
ity of which is subject to the nondiscrimi-
nation requirements of section 401(a)(4)
and §1.401(a)(4)–4. However, for pur-
poses of applying the rules of
§1.401(a)(4)–4, the following conditions
are to be disregarded in determining the
employees to whom the other right or fea-
ture is available—
(i) A condition restricting the availabil-
ity of the transfer to benefits of partici-
pants who are transferred to a different
employer in connection with a specified
asset or stock disposition, merger, or other
similar transaction involving a change in
employer of the employees of a trade or
business (i.e., a disposition within the
meaning of §1.410(b)–2(f)), or in connec-
tion with any such disposition, merger, or
other similar transaction.
(ii) A condition restricting the availabil-
ity of the transfer to benefits of partici-
pants who have a change in employment
status to an employment status with re-
spect to which the participant is not enti-
tled to additional allocations under the
transferor plan.
(c) Elective transfers of certain distrib-
utable benefits between qualified plans—
(1) In general.A transfer of a partici-
pant’s benefits between qualified plans
that results in the elimination or reduction
of section 411(d)(6) protected benefits
does not violate section 411(d)(6) if—
(i) The transfer occurs at a time at
which the participant’s benefits are dis-
tributable (within the meaning of para-
graph (c)(3) of this Q&A-3);
(ii) For a transfer that occurs on or after
January 1, 2002, the transfer occurs at a
time at which the participant is not eligi-
ble to receive an immediate distribution
of the participant’s entire nonforfeitable
accrued benefit in a single-sum distribu-
tion that would consist entirely of an eli-
gible rollover distribution within the
meaning of section 401(a)(31)(C);
(iii) The voluntary election require-
ments of paragraph (b)(1)(i) of this Q&A-
3 are met;
(iv) The participant is fully vested in
the transferred benefit in the transferee
plan;
(v) In the case of a transfer from a de-
fined contribution plan to a defined bene-
fit plan, the defined benefit plan provides
a minimum benefit, for each participant
whose benefits are transferred, equal to
the benefit, expressed as an annuity
payable at normal retirement age, that is
derived solely on the basis of the amount
transferred with respect to such partici-
pant; and
(vi) The amount of the benefit trans-
ferred, together with the amount of any
contemporaneous section 401(a)(31) di-
rect rollover to the transferee plan, equals
the entire nonforfeitable accrued benefit
under the transferor plan of the participant
whose benefit is being transferred, calcu-
lated to be at least the greater of the sin-
gle-sum distribution provided for under
the plan for which the participant is eligi-
ble (if any) or the present value of the par-
ticipant’s accrued benefit payable at nor-
mal retirement age (calculated by using
interest and mortality assumptions that
satisfy the requirements of section 417(e)
and subject to the limitations imposed by
section 415).
(2) Treatment of transfer—(i) In gen-
eral. A transfer of benefits pursuant to
this paragraph (c) generally is treated as a
distribution for purposes of section
401(a). For example, the transfer is sub-
ject to the cash-out rules of section
411(a)(7), the early termination require-
ments of section 411(d)(2), and the sur-
vivor annuity requirements of sections
401(a)(11) and 417. A transfer pursuant
to the elective transfer rules of this para-
graph (c) is not treated as a distribution
for purposes of the minimum distribution
requirements of section 401(a)(9).
2000–38 I.R.B.287September 18, 2000

(ii) Status of elective transfer as op-
tional form of benefit. A right to a transfer
of benefits from a plan pursuant to the
elective transfer rules of this paragraph
(c) is an optional form of benefit under
section 411(d)(6), the availability of
which is subject to the nondiscrimination
requirements of section 401(a)(4) and
§1.401(a)(4)–4.
(3) Distributable benefits. For pur-
poses of paragraph (c)(1)(i) of this Q&A-
3, a participant’s benefits are distributable
on a particular date if, on that date, the
participant is eligible, under the terms of
the plan from which the benefits are trans-
ferred, to receive an immediate distribu-
tion of these benefits (e.g., in the form of
an immediately commencing annuity)
from that plan under provisions of the
plan not inconsistent with section 401(a).
(d) Effective date. This Q&A-3 is ap-
plicable for transfers made on or after
September 6, 2000.
* * * * *
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
Approved August 28, 2000.
Jonathan Talisman,
Acting Assistant Secretary
of the Treasury.
(Filed by the Office of the Federal Register on Au-
gust 31, 2000, 2:25 p.m., and published in the issue
of the Federal Register for September 6, 2000, 65
F.R. 53901)
Section 2702.—Special
Valuation Rules in Case of
Transfers of Interests in Trusts
26 CFR 25.2702–3: Qualified interests.
T.D. 8899
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 25
Definition of a Qualified Interest
in a Grantor Retained Annuity
Trust and a Grantor Retained
Unitrust
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations relating to the definition
of a qualified interest under section 2702
of the Internal Revenue Code. The final
regulations apply to a grantor retained an-
nuity trust (GRAT) and a grantor retained
unitrust (GRUT) in determining whether
a retained interest is a qualified interest.
These final regulations affect individuals
who make a transfer in trust to a family
member and retain an interest in the trust.
These final regulations clarify that a trust
that uses a note, other debt instrument,
option, or similar financial arrangement
to satisfy the annual payment obligation
does not meet the requirements of section
2702(b).
DATES: Effective Date: These regula-
tions are effective September 5, 2000.
FOR FURTHER INFORMATION CON-
TACT: James F. Hogan, (202)622-3090
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On June 22, 1999, the IRS published in
the Federal Register(64 F.R. 33235) a
notice of proposed rulemaking
(REG–108287–98, 1999–28 I.R.B. 27)
relating to the definition of a qualified in-
terestunder section 2702. The IRS re-
ceived comments on the notice of pro-
posed rulemaking; however, no request
for a public hearing was received so no
public hearing was held. This document
adopts final regulations with respect to
the notice of proposed rulemaking. A
summary of the principal comments re-
ceived is provided below.
In addition, the final regulations clarify
the regulatory rule regarding the payment
period of the annuity or unitrust amount
and the proration of payments for periods
of less than 12 months.
Comments on Notice of Proposed
Rulemaking
Under the proposed regulations, the use
of a note, other debt instrument, option, or
similar financial arrangement does not
constitute a payment of the annuity or
unitrust amount to the grantor as required
by section 2702. Further, the proposed
regulations provide that a retained interest
is not a qualified interest under section
2702, unless the trust instrument ex-
pressly prohibits the use of notes, other
debt instruments, options, or similar fi-
nancial arrangements.
Commentators suggested that the regula-
tions should permit the use of short-term
notes or notes that bear interest at the sec-
tion 7520 rate. This suggestion was not
adopted. A note issued by the trust, regard-
less of the term or the interest rate, effec-
tively defers the required payment. Thus,
the issuance of a note is not the current pay-
ment of the annuity or unitrust amount not
less frequently than annually as required by
the statute. Under these provisions, in
order to satisfy the annuity or unitrust pay-
ment obligation under section 2702(b), the
annuity or unitrust amount must be paid
with either cash or other assets held by the
trust.
Commentators also questioned whether
the prohibition on the use of notes to make
the annuity or unitrust payment applies if
the trustee borrows the required funds from
an unrelated party. The Treasury Depart-
ment and the IRS acknowledge that a
trustee may borrow from an unrelated party
to make the payment. However, the step
transaction doctrine will be applied where a
series of transactions is used to achieve a
result that is inconsistent with the regula-
tions. For example, suppose that the trustee
borrows cash from a bank to make the re-
quired annuity payment and then borrows
cash from the grantor to repay the bank.
Similarly, suppose the grantor requests that
a bank make a loan to the trust, but as a pre-
requisite for making the loan, the bank re-
quires the grantor to deposit with the bank
an amount equal to the loan. There is no
substantive difference between these series
of transactions and the situation in which a
trustee issues a note for the annuity amount
directly to the grantor. The final regula-
tions have added the words “directly or in-
directly” to clarify this point.
In response to a comment, the final regu-
lations clarify that a trust instrument provi-
sion expressly prohibiting the use of notes
to satisfy the annual payments is not re-
quired for trusts established before Septem-
ber 20, 1999. However, as provided in the
regulations, a retained interest in a trust es-
tablished before September 20, 1999, will
not be treated as a qualified interest if notes
are used after September 20, 1999, to sat-
isfy the payment obligation, or any notes is-
September 18, 20002882000–38 I.R.B.

sued to satisfy the annual payment obliga-
tion on or prior to September 20, 1999, are
not paid in full by December 31, 1999.
Proration of First Year’s Payment
In response to comments, the regula-
tions clarify the rules covering the period
on which the annual payment must be
based and the proration of the annuity or
unitrust amount in the case of short peri-
ods. The final regulations make it clear
that the annuity or unitrust amount need
not be payable based on the taxable year
of the trust. Rather, the annuity or uni-
trust amount may be payable annually or
more frequently, (for example, monthly,
quarterly, or semi-annually) based on the
anniversary date of the creation of the
trust. Thus, a trust providing for an annu-
ity interest created on May 1
st
need not re-
quire that the trustee make payments
based on the taxable year of the trust. In-
stead, the entire annual payment may be
made by April 30
th
of each succeeding
year of the trust term. If payment is based
on the anniversary date of the trust, prora-
tion of the annuity or unitrust amount will
be required only if the last period during
which such amount is payable to the
grantor is a short period. On the other
hand, if payment is based on the taxable
year of the trust, proration is required for
each short taxable year of the trust during
the grantor’s term.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assess-
ment is not required. It has also been de-
termined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C.
chapter 5) and the Regulatory Flexibility
Act (5 U.S.C. chapter 6) do not apply to
these regulations, and therefore, a Regula-
tory Flexibility Analysis is not required.
Pursuant to section 7805(f) of the Internal
Revenue Code, the notice of proposed
rulemaking preceding these regulations
was submitted to the Small Business Ad-
ministration for comment on its impact on
small business.
Drafting Information
The principal author of these regula-
tions is James F. Hogan, Office of the
Chief Counsel, IRS. Other personnel
from the IRS and Treasury Department
participated in their development.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 25 is
amended as follows:
PART 25—GIFT TAX; GIFTS MADE
AFTER DECEMBER 31, 1954
Par. 1. The authority citation for part
25 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 25.2702–3 is amended
as follows:
1. Paragraph (b)(1)(i) is amended by
revising the second and fourth sentences,
and removing the last sentence.
2. Paragraph (b)(3) is revised.
3. Paragraph (b)(4) is redesignated as
paragraph (b)(5).
4. A new paragraph (b)(4) is added.
5. Paragraph (c)(1)(i) is amended by re-
vising the third and fifth sentences and re-
moving the last sentence.
6. Paragraph (c)(3) is revised.
7. Paragraphs (c)(4) and (d)(5) are
added.
The revisions and additions read as fol-
lows:
§25.2702–3 Qualified interests.
* * * * *
(b) * * *
(1) * * * (i) * * * The annuity amount
must be payable to (or for the benefit of)
the holder of the annuity interest at least
annually. * * * Issuance of a note, other
debt instrument, option, or other similar
financial arrangement, directly or indi-
rectly, in satisfaction of the annuity
amount does not constitute payment of
the annuity amount.
* * * * *
(3) Payment of annuity amount. The
annuity amount may be payable based on
either the anniversary date of the creation
of the trust or the taxable year of the trust.
In either situation, the annuity amount
may be paid annually or more frequently,
such as semi-annually, quarterly, or
monthly. If the payment is made based on
the anniversary date, proration of the an-
nuity amount is required only if the last
period during which the annuity is
payable to the grantor is a period of less
than 12 months. If the payment is made
based on the taxable year, proration of the
annuity amount is required for each short
taxable year of the trust during the
grantor’s term. The prorated amount is
the annual annuity amount multiplied by a
fraction, the numerator of which is the
number of days in the short period and the
denominator of which is 365 (366 if Feb-
ruary 29 is a day included in the numera-
tor).
(4) Payment of the annuity amount in
certain circumstances. An annuity
amount payable based on the anniversary
date of the creation of the trust must be
paid by the anniversary date. An annuity
amount payable based on the taxable year
of the trust may be paid after the close of
the taxable year, provided the payment is
made no later than the date by which the
trustee is required to file the Federal in-
come tax return of the trust for the taxable
year (without regard to extensions). If the
trustee reports for the taxable year pur-
suant to §1.671–4(b) of this chapter, the
annuity payment must be made no later
than the date by which the trustee would
have been required to file the Federal in-
come tax return of the trust for the taxable
year (without regard to extensions) had
the trustee reported pursuant to
§1.671–4(a) of this chapter.
* * * * *
(c) * * *
(1) * * * (i) * * * The unitrust amount
must be payable to (or for the benefit of)
the holder of the unitrust interest at least
annually. * * * Issuance of a note, other
debt instrument, option, or other similar
financial arrangement, directly or indi-
rectly, in satisfaction of the unitrust
amount does not constitute payment of
the unitrust amount.
* * * * *
(3) Payment of unitrust amount. The
unitrust amount may be payable based on
either the anniversary date of the creation
of the trust or the taxable year of the trust.
In either situation, the unitrust amount
may be paid annually or more frequently,
such as semi-annually, quarterly, or
monthly. If the payment is made based on
the anniversary date, proration of the uni-
trust amount is required only if the last
period during which the annuity is
payable to the grantor is a period of less
than 12 months. If the payment is made
2000–38 I.R.B.289September 18, 2000

based on the taxable year, proration of the
unitrust amount is required for each short
taxable year of the trust during the
grantor’s term. The prorated amount is
the annual unitrust amount multiplied by
a fraction, the numerator of which is the
number of days in the short period and the
denominator of which is 365 (366 if Feb-
ruary 29 is a day included in the numera-
tor).
(4) Payment of the unitrust amount in
certain circumstances. A unitrust amount
payable based on the anniversary date of
the creation of the trust must be paid by
the anniversary date. A unitrust amount
payable based on the taxable year of the
trust may be paid after the close of the
taxable year, provided the payment is
made no later than the date by which the
trustee is required to file the Federal in-
come tax return of the trust for the taxable
year (without regard to extensions). If the
trustee reports for the taxable year pur-
suant to §1.671–4(b) of this chapter, the
unitrust payment must be made no later
than the date by which the trustee would
have been required to file the Federal in-
come tax return of the trust for the taxable
year (without regard to extensions) had
the trustee reported pursuant to
§1.671–4(a) of this chapter.
(d) * * *
(5) Use of debt obligations to satisfy
the annuity or unitrust payment obliga-
tion—(i) In general. In the case of a trust
created on or after September 20, 1999,
the trust instrument must prohibit the
trustee from issuing a note, other debt in-
strument, option, or other similar finan-
cial arrangement in satisfaction of the an-
nuity or unitrust payment obligation.
(ii) Special rule in the case of a trust
created prior to September 20, 1999.In
the case of a trust created prior to Septem-
ber 20, 1999, the interest will be treated as
a qualified interest under section 2702(b)
if—
(A) Notes, other debt instruments, op-
tions, or similar financial arrangements
are not issued after September 20, 1999,
to satisfy the annuity or unitrust payment
obligation; and
(B) Any notes or any other debt instru-
ments that were issued to satisfy the an-
nual payment obligation on or prior to
September 20, 1999, are paid in full by
December 31, 1999, and any option or
similar financial arrangement issued to
satisfy the annual payment obligation is
terminated by December 31, 1999, such
that the grantor receives cash or other
trust assets in satisfaction of the payment
obligation. For purposes of the preceding
sentence, an option will be considered ter-
minated only if the grantor receives cash
or other trust assets equal in value to the
greater of the required annuity or unitrust
payment plus interest computed under
section 7520 of the Internal Revenue
Code, or the fair market value of the op-
tion.
* * * * *
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
Approved August 10, 2000.
Jonathan Talisman,
Acting Assistant Secretary
of the Treasury.
(Filed by the Office of the Federal Register on Sep-
tember 1, 2000, 8:45 a.m., and published in the issue
of the Federal Register for September 5, 2000, 65
F.R. 53587)
September 18, 20002902000–38 I.R.B.

2000 Marginal Production Rates
Notice 2000–50
Section 613A(c)(6)(C) of the Internal
Revenue Code defines the term “applica-
ble percentage” for purposes of determin-
ing percentage depletion for oil and gas
produced from marginal properties. The
applicable percentage is the percentage
(not greater than 25 percent) equal to the
sum of 15 percent, plus one percentage
point for each whole dollar by which $20
exceeds the reference price (determined
under § 29(d)(2)(C)) for crude oil for the
calendar year preceding the calendar year
in which the taxable year begins. The
reference price determined under
§ 29(d)(2)(C) for the 1999 calendar year
is $15.56.
Table 1 contains the applicable percent-
ages for marginal production for taxable
years beginning in calendar years 1991
through 2000.
2000–38 I.R.B.291September 18, 2000
Part III. Administrative, Procedural, and Miscellaneous
Notice 2000–50 Table 1
APPLICABLE PERCENTAGE FOR MARGINAL PRODUCTION
Calendar YearApplicable Percentage
199115 percent
199218 percent
199319 percent
199420 percent
199521 percent
199620 percent
199716 percent
199817 percent
199924 percent
200019 percent
The principal author of this notice is
Brenda M. Stewart of the Office of Associ-
ate Chief Counsel (Passthroughs and Spe-
cial Industries). For further information re-
garding this notice contact Ms. Stewart at
(202) 622-3120 (not a toll-free call).
2000 Section 43 Inflation
Adjustment
Notice 2000–51
Section 43(b)(3)(B) of the Internal Rev-
enue Code requires the Secretary to publish
an inflation adjustment factor. The en-
hanced oil recovery credit under § 43 for
any taxable year is reduced if the “reference
price,” determined under § 29(d)(2)(C), for
the calendar year preceding the calendar
year in which the taxable year begins is
greater than $28 multiplied by the inflation
adjustment factor for that year.
The term “inflation adjustment factor”
means, with respect to any calendar year,
a fraction the numerator of which is the
GNP implicit price deflator for the pre-
ceding calendar year and the denominator
of which is the GNP implicit price defla-
tor for 1990.
Because the reference price for the
1999 calendar year ($15.56) does not ex-
ceed $28 multiplied by the inflation ad-
justment factor for the 2000 calendar
year, the enhanced oil recovery credit for
qualified costs paid or incurred in 2000 is
determined without regard to the phase-
out for crude oil price increases.
Table 1 contains the GNP implicit price
deflator used for the 2000 calendar year,
as well as the previously published GNP
implicit price deflators used for the 1991
through 1999 calendar years.

Table 2 contains the inflation adjustment
factor and the phase-out amount for taxable
years beginning in the 2000 calendar year
as well as the previously published inflation
adjustment factors and phase-out amounts
for the 1991 through 1999 calendar years.
September 18, 20002922000–38 I.R.B.
Notice 2000–51 Table 1
GNP IMPLICIT PRICE DEFLATORS
Calendar YearGNP Implicit Price Deflator
1990112.9 (used for 1991)
1991117.0 (used for 1992)
1992120.9 (used for 1993)
1993124.1 (used for 1994)
1994126.0 (used for 1995)
1995107.5 (used for 1996)*
1996109.7 (used for 1997)
1997112.35 (used for 1998)**
1998112.64 (used for 1999)
1999104.59 (used for 2000)***
* Beginning in 1995, the GNP implicit price deflator was rebased relative to 1992. The 1990 GNP implicit price deflator used
to compute the 1996 § 43 inflation adjustment factor is 93.6.
** Beginning in 1997, two digits follow the decimal point in the GNP implicit price defltor. The 1990 GNP price deflator used
to compute the 1998 § 43 inflation adjustment factor is 93.63.
*** Beginning in 1999, the GNP implicit price deflator was rebased relative to 1996. The 1990 GNP implicit price deflator
used to compute the 2000 § 43 inflation adjustment factor is 86.53.
Notice 2000–51 Table 2
INFLATION ADJUSTMENT FACTORS AND PHASE-OUT AMOUNTS
CalendarInflation AdjustmentPhase-out
YearFactorAmount
19911.00000
19921.03630
19931.07080
19941.09920
19951.11600
19961.14850
19971.17200
19981.19990
19991.20300
20001.20870
DRAFTING INFORMATION
The principal author of this notice is
Brenda M. Stewart of the Office of Asso-
ciate Chief Counsel (Passthroughs and
Special Industries). For further informa-
tion regarding this notice contact Ms.
Stewart at (202) 622-3120 (not a toll-free
call).
Renewable Electricity
Production Credit, Publication of
Inflation Adjustment Factor and
Reference Prices for Calendar
Year 2000
Notice 2000–52
This notice publishes the inflation adjust-
ment factor and reference prices for calendar
year 2000 for the renewable electricity pro-
duction credit under § 45(a) of the Internal
Revenue Code. The 2000 inflation adjust-
ment factor and reference prices are used in
determining the availability of the credit.
The 2000 inflation adjustment factor and ref-
erence prices apply to calendar year 2000
sales of kilowatt-hours of electricity pro-
duced in the United States or a possession
thereof from qualified energy resources.

2000–38 I.R.B.293September 18, 2000
BACKGROUND
Section 45(a) provides that the renew-
able electricity production credit for any tax
year is an amount equal to the product of
1.5 cents multiplied by the kilowatt-hours
of specified electricity produced by the tax-
payer and sold to an unrelated person dur-
ing the tax year. This electricity must be
produced from qualified energy resources
and at a qualified facility during the 10-year
period beginning on the date the facility
was originally placed in service.
Section 45(b)(1) provides that the
amount of the credit determined under
§ 45(a) is reduced by an amount that bears
the same ratio to the amount of the credit as
(A) the amount by which the reference
price for the calendar year in which the sale
occurs exceeds 8 cents bears to (B) 3 cents.
Under § 45(b)(2), the 1.5 cents in § 45(a)
and the 8 cents in § 45(b)(1) are each ad-
justed by multiplying the amount by the in-
flation adjustment factor for the calendar
year in which the sale occurs.
Section 45(c)(1) defines qualified energy
resources as wind, closed-loop biomass,
and poultry waste. Section 45(c)(3) defines
a qualified facility as any facility owned by
the taxpayer that originally is placed in ser-
vice after December 31, 1993 (December
31, 1992, in the case of a facility using
closed-loop biomass to produce electricity
and December 31, 1999, in the case of a fa-
cility using poultry waste to produce elec-
tricity), and before January 1, 2002. See
§ 45(d)(7) for rules relating to the inapplic-
ability of the credit to electricity sold to
utilities under certain contracts.
Section 45(d)(2)(A) requires the Secre-
tary to determine and publish in the Fed-
eral Register each calendar year the infla-
tion adjustment factor and the reference
prices for the calendar year. The inflation
adjustment factor and the reference prices
for the 2000 calendar year were published
in the Federal Register on August 29,
2000, (168 Fed. Reg. 52474).
Section 45(d)(2)(B) defines the infla-
tion adjustment factor for a calendar year
as the fraction the numerator of which is
the GDP implicit price deflator for the
preceding calendar year and the denomi-
nator of which is the GDP implicit price
deflator for the calendar year 1992. The
term “GDP implicit price deflator” means
the most recent revision of the implicit
price deflator for the gross domestic prod-
uct as computed and published by the De-
partment of Commerce before March 15
of the calendar year.
Section 45(d)(2)(C) provides that the
reference price is the Secretary’s determi-
nation of the annual average contract
price per kilowatt hour of electricity gen-
erated from the same qualified energy re-
source and sold in the previous year in the
United States. Only contracts entered
into after December 31, 1989, are taken
into account.
INFLATION ADJUSTMENT FACTOR
AND REFERENCE PRICES
The inflation adjustment factor for cal-
endar year 2000 is 1.1382. The reference
prices for calendar year 2000 are 4.95
cents per kilowatt-hour for facilities pro-
ducing electricity from wind energy re-
sources and 0 cents per kilowatt-hour for
facilities producing electricity from
closed-loop biomass and poultry waste
energy resources.
PHASE-OUT CALCULATION
Because the 2000 reference prices for
electricity produced from wind, closed-
loop biomass, and poultry waste energy
resources do not exceed 8 cents per kilo-
watt hour multiplied by the inflation ad-
justment factor, the phaseout of the credit
provided in § 45(b)(1) does not apply to
electricity produced from wind, closed-
loop biomass, or poultry waste energy re-
sources sold during calendar year 2000.
CREDIT AMOUNT
As required by § 45(b)(2), the 1.5¢
amount in § 45(a)(1) is adjusted by multi-
plying such amount by the inflation ad-
justment factor for the calendar year in
which the sale occurs. If any amount as
increased under the preceding sentence is
not a multiple of 0.1¢, such amount is
rounded to the nearest multiple of 0.1¢.
Under the calculation required by
§ 45(b)(2), the renewable electricity pro-
duction credit for calendar year 2000 is
1.7¢ per kilowatt hour on the sale of elec-
tricity produced from wind energy,
closed-loop bionass, and poultry waste re-
sources.
DRAFTING INFORMATION
CONTACT
The principal author of this notice is
David A. Selig of the Office of Associate
Chief Counsel (Passthroughs and Special
Industries). For further information re-
garding this notice contact Mr. Selig at
(202) 622-3040 (not a toll-free call).
SRLY Election
Notice 2000–53
This notice announces that the Treasury
Department and the Internal Revenue Ser-
vice intend to issue regulations permit-
ting certain taxpayers to elect not to apply
certain provisions of Treas. Reg.
§§ 1.1502–15, – 21, and – 22 issued on
June 25, 1999, and published in the Fed-
eral Register on July 2, 1999 (64 F.R.
36091). The notice also provides taxpay-
ers a mechanism for making the election
before the regulations are issued.
Treasury Regulations §§ 1.1502–15,
–21, and –22 provide rules for computing
the limitation with respect to separate re-
turn limitation year (SRLY) losses, and the
carryover or carryback of losses to consol-
idated and separate return years. In
§§ 1.1502–15(g), –21(g), and –22(g), the
“overlap rule” eliminates the application
of the SRLY rules in certain circumstances
in which the rules of §§ 382 or 383 of the
Internal Revenue Code also apply. The
overlap rule, and consequently the elimi-
nation of the SRLY rules, is effective for
tax years for which the due date of the re-
turn is after June 25, 1999. The elimina-
tion of SRLY could increase the amount of
net operating loss carryovers that a consol-
idated group could absorb.
Treasury and the Service have been
made aware that the application of the
overlap rule has resulted in adverse tax
consequences with respect to certain ac-
quisitions of corporations from consoli-
dated groups that occurred during a tax-
able year of the consolidated group to
which the June 1999 regulations applied
but prior to the actual issuance of those
regulations (the “interim period”). Trea-
sury and the Service believe that certain
of these adverse tax consequences are in-
appropriate.
Accordingly, this notice announces that
Treasury and the Service intend to issue
regulations that provide an election to
allow a corporation that ceased to be a
member of a consolidated group as a re-
sult of a qualified stock purchase (as de-
fined in § 338(d)(3)) in the interim period

(the “departing member”) to avoid the
application of the overlap rule of
§§ 1.1502–15(g), –21(g), and –22(g)
while it was in the former group. The
election will be available to a departing
member of a consolidated group that
would otherwise be affected by the appli-
cation of the overlap rule and that ceased
to be a member of the consolidated group
before June 26, 1999, or pursuant to a
binding contract that was in effect before
June 26, 1999.
The election will allow a departing
member to determine the amount of its net
operating loss and capital loss carryovers
(including the amount of net operating
loss carryovers treated as arising under
§ 1.1502–15(a)) to taxable years begin-
ning after it ceases to be a member of the
group by treating §§ 1.1502–15(g),
–21(g), and –22 (g) as not applying with
respect to that corporation (or to a sub-
group in which it was included) while it
was a member of the group. The election
will be made solely by the departing mem-
ber (or, under § 1.1502–77, its new com-
mon parent if it joins another consolidated
group). The election will not require any
action by the departing member’s former
consolidated group and will have no effect
on the consolidated return filed by that
group for the taxable year for which the
due date of the return was after June 25,
1999, or any subsequent taxable year.
To make the election under this notice,
a corporation must write “Election Pur-
suant to Notice 2000–53” across the top
of page 1 of its original or amended tax
return for the first taxable year (whether
separate or consolidated) after it ceases to
be a member of the group and file the re-
turn in accordance with the election as if
§§ 1.1502–15(g), –21(g), and –22(g) did
not apply while it was a member of the
former group.
Treasury and the Service intend to
amend the regulations under § 1502 to in-
corporate the guidance set forth in this no-
tice. Until the regulations are amended,
taxpayers may rely on the guidance set
forth in this notice.
For further information regarding this
notice contact David Kessler or Christo-
pher M. Bass of the Office of Associate
Chief Counsel (Corporate) at (202) 622-
7770 (not a toll-free call).
September 18, 20002942000–38 I.R.B.

2000–38 I.R.B.295September 18, 2000
Part IV. Items of General Interest
Under 31 Code of Federal Regulations,
Part 10, an attorney, certified public ac-
countant, enrolled agent or enrolled actu-
ary, in order to avoid the institution or
conclusion of a proceeding for his disbar-
ment or suspension from practice before
the Internal Revenue Service, may offer
his consent to suspension from such prac-
tice. The Director of Practice, in his dis-
cretion, may suspend an attorney, certi-
fied public accountant, enrolled agent or
enrolled actuary in accordance with the
consent offered.
Attorneys, certified public accountants,
enrolled agents and enrolled actuaries are
prohibited in any Internal Revenue Ser-
vice matter from directly or indirectly em-
ploying, accepting assistance from, being
employed by or sharing fees with, any
practitioner disbarred or suspended from
practice before the Internal Revenue Ser-
vice.
To enable attorneys, certified public ac-
countants, enrolled agents and enrolled
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 ad-
dresses of practitioners who have been
suspended from such practice, their desig-
nation as attorney, certified public ac-
countant, enrolled agent or enrolled actu-
ary, and date or period of suspension.
This announcement will appear in the
weekly Bulletin at the earliest practicable
date after such action and will continue to
appear in the weekly Bulletins for five
successive weeks or for as many weeks as
is practicable for each attorney, certified
public accountant, enrolled agent or en-
rolled actuary so suspended and will be
consolidated and published in the Cumu-
lative Bulletin.
The following individuals have been
placed under consent suspension from
practice before the Internal Revenue Ser-
vice:
Announcement of the Consent Voluntary Suspension of Attorneys,
Certified Public Accountants, Enrolled Agents, and Enrolled Actuaries
From Practice Before the Internal Revenue Service
Date of
NameAddressDesignationSuspension
Stoppenhagen, Larry Ft. Wayne, INCPAApril 14, 2000
to
April 13, 2001
Chon, James N. Hollywood, CACPAMay 22, 2000
to
May 21, 2003
Bleyer, Stephen A.Bala Cynwyd, PACPAJune 26, 2000
to
December 25, 2000
Knutson, OwenOuray, COCPAJuly 3, 2000
to
January 2, 2003
Silverman, Richard E.Fayetteville, NYCPAAugust 1, 2000
to
March 31, 2004
Holt, JeffreyLittle Rock, AREnrolledOctober 1, 2000
Agentto
March 31, 2003
Barbagallo, JosephNewton, PACPAOctober 15, 2000
to
October 14, 2004

September 18, 20002962000–38 I.R.B.
Under Section 330, Title 31 of the
United States Code, the Secretary of the
Treasury, after due notice and opportunity
for hearing, is authorized to suspend or
disbar from practice before the Internal
Revenue Service any person who has vio-
lated the rules and regulations governing
the recognition of attorneys, certified
public accountants, enrolled agents or en-
rolled actuaries to practice before the In-
ternal Revenue Service.
Attorneys, certified public accountants,
enrolled agents, and enrolled actuaries are
prohibited in any Internal Revenue Ser-
vice matter from directly or indirectly em-
ploying, accepting assistance from, being
employed by or sharing fees with, any
practitioner disbarred or under suspension
from practice before the Internal Revenue
Service.
To enable attorneys, certified public ac-
countants, enrolled agents and enrolled
actuaries to identify such disbarred or sus-
pended practitioners, the Director of Prac-
tice will announce in the Internal Revenue
Bulletin the names and addresses of prac-
titioners who have been suspended from
such practice, their designation as attor-
ney, certified public accountant, enrolled
agent or enrolled actuary, and the date of
disbarment or period of suspension. This
announcement will appear in the weekly
Bulletin for five successive weeks or as
long as it is practicable for each attorney,
certified public accountant, enrolled agent
or enrolled actuary so suspended or dis-
barred and will be consolidated and pub-
lished in the Cumulative Bulletin.
After due notice and opportunity for
hearing before an administrative law
judge, the following individual has been
disbarred from further practice before the
Internal Revenue Service:
Announcement of the Disbarment and Suspension of Attorneys,
Certified Public Accountants, Enrolled Agents, and Enrolled Actuaries
From Practice Before the Internal Revenue Service
NameAddressDesignation Effective Date
Luebben, WilliamHot Springs, AR CPAFebruary 11, 2000

2000–38 I.R.B.iSeptember 18, 2000
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously
published ruling and points out an essen-
tial difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it ap-
plies to both A and B, the prior ruling is
modified because it corrects a published
position. (Compare with amplified and
clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. A ruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is super-
seded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be pub-
lished that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current use and for-
merly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
Definition of Terms

September 18, 2000ii2000–38 I.R.B.
Numerical Finding List
1
Bulletins 2000–27 through 2000–37
Announcements:
2000–57, 2000–28 I.R.B. 115
2000–58, 2000–30 I.R.B. 135
2000–59, 2000–29 I.R.B. 120
2000–60, 2000–31 I.R.B. 149
2000–61, 2000–30 I.R.B. 136
2000–62, 2000–30 I.R.B. 137
2000–63, 2000–31 I.R.B. 149
2000–64, 2000–31 I.R.B. 149
2000–65, 2000–31 I.R.B. 150
2000–66, 2000–32 I.R.B. 160
2000–67, 2000–32 I.R.B. 160
2000–68, 2000–32 I.R.B. 161
2000–69, 2000–33 I.R.B. 183
2000–70, 2000–34 I.R.B. 204
2000–72, 2000–35 I.R.B. 226
2000–73, 2000–35 I.R.B. 230
2000–74, 2000–35 I.R.B. 230
2000–75, 2000–37 I.R.B. 268
2000–76, 2000–36 I.R.B. 260
2000–77, 2000–36 I.R.B. 260
Court Decisions:
2068, 2000–28 I.R.B. 109
Notices:
2000–33, 2000–27 I.R.B. 97
2000–34, 2000–33 I.R.B. 172
2000–35, 2000–29 I.R.B. 118
2000–36, 2000–33 I.R.B. 173
2000–37, 2000–29 I.R.B. 118
2000–38, 2000–33 I.R.B. 174
2000–39, 2000–30 I.R.B. 132
2000–40, 2000–30 I.R.B. 134
2000–41, 2000–33 I.R.B. 177
2000–43, 2000–35 I.R.B. 209
2000–44, 2000–36 I.R.B. 255
2000–45, 2000–36 I.R.B. 256
2000–46, 2000–37 I.R.B. 265
2000–48, 2000–37 I.R.B. 265
2000–49, 2000–37 I.R.B. 266
Proposed Regulations:
REG–209038–89, 2000–34 I.R.B. 191
REG–105316–98, 2000–27 I.R.B. 98
REG–110311–98, 2000–36 I.R.B. 258
REG–116495–99, 2000–33 I.R.B. 179
REG–103735–00, 2000–36 I.R.B. 258
REG–103736–00, 2000–36 I.R.B. 258
REG–108522–00, 2000–34 I.R.B. 187
Railroad Retirement Quarterly Rate:
2000–28, I.R.B. 112
2000–29, I.R.B. 117
Revenue Procedures:
2000–28, 2000–27 I.R.B. 60
2000–29, 2000–28 I.R.B. 113
2000–30, 2000–28 I.R.B. 113
2000–31, 2000–31 I.R.B. 146
2000–32, 2000–33 I.R.B. 172
2000–33, 2000–36 I.R.B. 257
2000–34, 2000–34 I.R.B. 186
2000–35, 2000–35 I.R.B. 211
2000–36, 2000–37 I.R.B. 267
Revenue Rulings:
2000–32, 2000–27 I.R.B. 1
2000–33, 2000–31 I.R.B. 142
2000–34, 2000–29 I.R.B. 116
2000–35, 2000–31 I.R.B. 138
2000–36, 2000–31 I.R.B. 140
2000–37, 2000–32 I.R.B. 156
2000–38, 2000–32 I.R.B. 157
2000–39, 2000–34 I.R.B. 184
2000–40, 2000–35 I.R.B. 208
2000–41, 2000–36 I.R.B. 248
2000–47, 2000–37 I.R.B. 264
Treasury Decisions:
8886, 2000–27 I.R.B. 3
8888, 2000–27 I.R.B. 3
8889, 2000–30 I.R.B. 124
8890, 2000–30 I.R.B. 122
8891, 2000–32 I.R.B. 152
8892, 2000–32 I.R.B. 158
8893, 2000–31 I.R.B. 143
8894, 2000–33 I.R.B. 162
8896, 2000–36 I.R.B. 249
8897, 2000–36 I.R.B. 234
1
A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 2000–1 through 2000–26
is in Internal Revenue Bulletin 2000–27, dated July
3, 2000.

2000–38 I.R.B.iiiSeptember 18, 2000
Finding List of Current Actions on
Previously Published Items
1
Bulletins 2000–27 through 2000–37
Notices:
87–76
Obsoleted by
T.D. 8897, 2000–36 I.R.B. 234
88–24
Obsoleted by
T.D. 8897, 2000–36 I.R.B. 234
88–86
Obsoleted by
T.D. 8897 (section V), 2000–36 I.R.B. 234
Proposed Regulations:
FI–42–90
Withdrawn by
Announcement 2000–63, 2000–31 I.R.B. 149
IA–38–93
Withdrawn by
Announcement 2000–68, 2000–32 I.R.B. 161
REG–107644–98
Corrected by
Announcement 2000–66, 2000–32 I.R.B. 160
Revenue Procedures:
88–23
Superseded by
Rev. Proc. 2000–35, 2000–35 I.R.B. 211
98–50
Modified and superseded by
Rev. Proc. 2000–31, 2000–31 I.R.B. 146
98–51
Modified and superseded by
Rev. Proc. 2000–31, 2000–31 I.R.B. 146
99–18
Modified by
Rev. Proc. 2000–29, 2000–28 I.R.B. 113
99–34
Superseded by
Rev. Proc. 2000–28, 2000–27 I.R.B. 60
Treasury Decisions:
8873
Corrected by
Announcement 2000–74, 2000–35 I.R.B. 230
8883
Corrected by
Announcement 2000–57, 2000–28 I.R.B. 115
8884
Corrected by
Announcement 2000–73, 2000–35 I.R.B. 230
1
A cumulative list of current actions on previously
published items in Internal Revenue Bulletins
2000–1 through 2000–26 is in Internal Revenue
Bulletin 2000–27, dated July 3, 2000.

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