us-irs-notices-irb-2004-23-pdf•Internal Revenue Bulletin 2004-23 (PDF rendition): IRS Notices
Internal Revenue Bulletin 2004-23 (PDF rendition): IRS Notices
us-irs-notices-irb-2004-23-pdfInternal Revenue Bulletin 2004-23 (PDF rendition): IRS NoticesGuidance
Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing. Whole bulletin rendition: numbered items are identified below; other legal material and publisher context remain included. This is not a new standalone advance release.
Bulletin No. 200 4-23 June 7, 2004 HIGHLIGHTS OF THIS ISSUE These synopses are intended only as aids to the reader in identifying the subject matter covered. They may not be relied upon as authoritative interpretations. INCOME TAX Rev. Rul. 2004–54, page 1024. Federal rates; adjusted federal rates; adjusted federal long-term rate and the long-term exempt rate.For pur- poses of sections 382, 642, 1274, 1288, and other sections of the Code, tables set forth the rates for June 2004. T.D. 9125, page 1012. Final regu lations under section 221 of the Code provide rules for the tre atment of interest paid on a qualified education loan during the taxable year. The regulations clarify that qualified ed- ucation i nterest includes capitalizedinterest and other amounts charged f or the use or forbearance of money. The regulations also amen d the transition period in the regulations under sec- tion 6050 S to provide that information reporting is not required for loan o rigination fees and capitalized interest on loans made before S eptember 1, 2004. T.D. 9126, page 1023. Final regulations under section 704 of the Code allow revalua- tions in connection with the grant of an interest in the partner- ship (other than ade minimisinterest) as consideration for the provision of services to or for the benefit of the partnership. REG–140492–02, page 1031. Proposed regulations under section 142(a) of the Code define solid waste disposal facilities for purposes of exempt facility bonds. Generally, interest on a state or local bond is excluded from gross income. However, the exclusion does not apply to a private activity bond unless the bond is a qualified bond. A qualified bond includes an exempt facility bond that meets certain requirements. Exempt facility bonds include bonds for solid waste disposal facilities. A public hearing is scheduled for August 11, 2004. EMPLOYEE PLANS Notice 2004–40, page 1028. Weighted average interest rate update; corporate bond indices; 30-year Treasury securities.The weighted aver- age interest rate for May 2004 and the resulting permissible range of interest rates used to calculate current liability and to determine the required contribution are set forth. Announcem ent 2004–51, page 1041. This annou ncement corrects an error in section V. of Announce- ment 2004– 43, 2004–21 I.R.B. 955, and restates the section as correc ted. Announcement 2004–43 corrected. ADMINISTRATIVE Rev. Rul. 2004–53, page 1026. Clarification of scope of section 6103(a).This ruling clarifies the fact that government employees who receive returns or return information pursuant to disclosures under section 6103(c), (k)(6), or (e) of the Code, other than section 6103(e)(1)(D)(iii) (relating to certain shareholders), are not subject to the disclosure restrictions of section 6103(a) with regard to the returns or return information received. Rev. Pro c. 2004–35, page 1029. This pro cedure concerns automatic relief to file certain late shareho lder consents to be an S corporation. Announcements of Disbarments and Suspensions begin on page 1036. Fi nding Lists begin on page ii. The IRS Mission Provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. Introduction The Internal Revenue Bulletin is the authoritative instrument of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service and for publishing Treasury Decisions, Executive Orders, Tax Conven- tions, legislation, court decisions, and other items of general interest. It is published weekly and may be obtained from the Superintendent of Documents on a subscription basis. Bulletin contents are compiled semiannually into Cumulative Bulletins, which are sold on a single-copy basis. It is the policy of the Service to publish in the Bulletin all sub- stantive rulings necessary to promote a uniform application of the tax laws, including all rulings that supersede, revoke, mod- ify, or amend any of those previously published in the Bulletin. All published rulings apply retroactively unless otherwise indi- cated. Procedures relating solely to matters of internal man- agement 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 to comply with statutory requirements. Rulings and procedures reported in the Bulletin do not have the force and effect of Treasury Department Regulations, but they may be used as precedents. Unpublished rulings will not be relied on, used, or cited as precedents by Service personnel in the disposition of other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations, court decisions, rulings, and procedures must be considered, and Service personnel and others concerned are cautioned against reaching the same conclusions in other cases unless the facts and circumstances are substantially the same. The Bulletin is divided into four parts as follows: Part I.—19 86 Code. This part i ncludes rulings and decisions based on provisions of the Intern al Revenue Code of 1986. Part II.—Treaties and Tax Legislation. This part is divided into two subparts as follows: Subpart A, Tax Conventions and Other Related Items, and Subpart B, Leg- islation and Related Committee Reports. Part III.—Administrative, Procedural, and Miscellaneous. To the extent practicable, pertinent cross references to these subjects are contained in the other Parts and Subparts. Also included in this part are Bank Secrecy Act Administrative Rul- ings. Bank Secrecy Act Administrative Rulings are issued by the Department of the Treasury’s Office of the Assistant Sec- retary (Enforcement). Part IV .—Items of General Interest. This par t includes notices of proposed rulemakings, disbar- ment an d suspension lists, and announcements. The last Bulletin for each month includes a cumulative index for the matters published during the preceding months. These monthly indexes are cumulated on a semiannual basis, and are published in the last Bulletin of each semiannual period. The c ontents 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. June 7, 20042004-23 I.R.B. Part I. Rulings and Decisions Under the Internal Revenue Code of 1986 Section 42.—Low-Income Housing Credit The adjusted applicable federal short-term, mid- term, and long-term rates are set forth for the month of June 2004. See Rev. Rul. 2004-54, page 1024. Section 221.—Interest on Education Loans 26 CFR 1.221–1: Deduction for interest paid on qualified education loans after December 31, 2001. T.D. 9125 DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 Deduction for Interest on Qualified Education Loans AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Final regulations. SUMMARY: This document contains final regulations relating to the deduction under section 221 of the Internal Revenue Code (Code) for interest paid on qualified edu- cation loans. The final regulations reflect the enactment and amendment of section 221 by the Taxpayer Relief Act of 1997, the Internal Revenue Service Restructur- ing and Reform Act of 1998, the Omnibus Consolidated and Emergency Supplemen- tal Appropriations Act of 1999, and the Economic Growth and Tax Relief Recon- ciliation Act of 2001. This document also contains amendments to the final regula- tions under section 6050S relating to the information reporting requirements for in- terest payments received on qualified ed- ucation loans. The final regulations af- fect taxpayers who pay interest on qual- ified education loans and payees who re- ceive payments of interest on qualified ed- ucation loans. DATES:Effective Date: These final regu- lations are effective May 7, 2004. Applicability Date:Section1.221–1is applicable to periods governed by section 221 as amended in 2001, which relates to interest paid on qualified education loans after December 31, 2001, and on or be- fore December 31, 2010. Section 1.221–2 is applicable to interest due and paid on qualified education loans after January 21, 1999, but before January 1, 2002, and again after December 31, 2010. Taxpay- ers also may apply §1.221–2 to interest due and paid on qualified education loans af- ter December 31, 1997, but before January 21, 1999. The amendments to §1.6050S–3 provide a transitional rule for certain in- terest payments with respect to qualified education loans made before September 1, 2004, and provide guidance applicable to qualified education loans made on or after that date. FOR FURTHER INFORMATION CONTACT: Sean M. Dwyer at (202) 622–5020 (not a toll-free number). SUPPLEMENTARY INFORMATION: Background On January 21, 1999, the IRS pub- lished a notice of proposed rulemaking (REG–116826–97, 1999–1 C.B. 701) in theFederal Register(64 FR 3257) under section 221 of the Code. The notice of proposed rulemaking implemented sec- tion 202 of the Taxpayer Relief Act of 1997, Public Law 105–34 (111 Stat. 778), which added section 221 to the Code. The IRS received written, including electronic, comments responding to the proposed regulations. There were no requests for a public hearing and none was held. Subsequent to the publication of the proposed regulations, section 412 of the Economic Growth and Tax Relief Recon- ciliation Act of 2001, Public Law 107–16 (115 Stat. 38) (2001 Act) amended sec- tion 221 by eliminating the 60-month limitation period and the restriction on de- ductions of interest a taxpayer pays during a period when the lender does not require payments. The 2001 Act also increased the income limitations relating to interest de- ductions under section 221 from $55,000 ($75,000 for married individuals filing jointly) to $65,000 ($130,000 for married individuals filing jointly) and the income phase-out range from $40,000-$55,000 ($60,000-$75,000 for married individ- uals filing jointly) to $50,000-$65,000 ($100,000-$130,000 for married individu- als filing jointly). The 2001 Act amendments apply to in- terest paid on qualified education loans af- ter December 31, 2001. Accordingly, the final regulations appear in two sections to reflect the law before and after the effec- tive date of the 2001 Act. Section 1.221–1 is applicable to periods governed by sec- tion 221 as amended in 2001, which re- lates to interest paid on qualified educa- tion loans after December 31, 2001, and on or before December 31, 2010. Section 1.221–2 is applicable to interest due and paid on qualified education loans after Jan- uary 21, 1999, but before January 1, 2002. Taxpayers also may apply §1.221–2 to in- terest due and paid on qualified education loans after December 31, 1997, but before January 21, 1999. Unless the 2001 Act amendments are extended by future legis- lation, section 1.221–2 also will apply to interest due and paid on qualified educa- tion loans after December 31, 2010. After consideration of all the com- ments, the proposed regulations under section 221 are adopted as amended by this Treasury decision. On April 29, 2002, the IRS published final regulations (T.D. 8992, 2002–1 C.B. 981) in theFederal Register(67 FR 20901) under section 6050S relating to in- formation reporting for interest payments received on qualified education loans. The Taxpayer Relief Act of 1997 added section 6050S to the Code, as well as section 221. Explanation and Summary of Comments Many of the comments concerned is- sues relating to the 60-month limitation period, which the 2001 Act eliminated. These comments are discussed in 7. and 8. below because the 60-month period con- tinues to apply to interest on qualified ed- ucation loans due and paid after December 31, 1997, but before January 1, 2002, and again after December 31, 2010. 2004-23 I.R.B.1012June 7, 2004 1.Treatment of Capitalized Interest and Certain Fees Several commentators discussed the treatment of capitalized interest, loan origination fees, late fees, and certain insurance fees. Courts have defined the term “interest,” for income tax purposes, as compensation paid for the use or for- bearance of money. See,e.g.,Deputy v. Du Pont, 308 U.S. 488 (1940). Consis- tent with this definition, the final regu- lations provide that capitalized interest is deductible as qualified education loan interest. Generally, fees, such as loan orig- ination fees or late fees, are interest if the fees represent a charge for the use or for- bearance of money. Therefore, if the fees represent compensation to the lender for the cost of specific services performed in connection with theborrower’s account, the fees are not interest for Federal income tax purposes. See Rev. Rul. 69–188, 1969–1 C.B. 54, amplified by Rev. Rul. 69–582, 1969–2 C.B. 29; see also,e.g., Trivett v. Commissioner, T.C. Memo. 1977–161,aff’d on other grounds,611 F.2d 655 (6 th Cir. 1979) (Tax Court found that certain fees, including insurance fees, were similar to payments for services ren- dered and not deductible as interest). Some commentators expressed confu- sion about how to apply the rules in the proposed regulations for allocating pay- ments to principal or interest. In response to these comments, the final regulations provide guidance on the treatment and al- location of such amounts. Under the final regulations, a payment generally first ap- plies to interest that has accrued and re- mains unpaid as of the date the payment is due and then applies to the outstanding principal. An example is included. 2.Interest Paid by Someone Other Than the Taxpayer Several commentators requested guid- ance on the treatment of an interest pay- ment made by someone other than the tax- payer. To provide consistency with sec- tion 221(a), the final regulations provide, “Under section 221, an individual taxpayer may deduct from gross income certain in- terest paidby the taxpayerduring the tax- able year on a qualified education loan.” (Emphasis added.) The final regulations also clarify that certain third party pay- ments of interest are treated as first paid to the taxpayer and then paid by the tax- payer to the lender, in a manner similar to the treatment of third party payments of tuition under §1.25A–5(b)(1). The final regulations provide for this treatment if a third party makes a payment of interest on a qualified education loan on behalf of a taxpayer. Thus, for example, if a third party pays interest on behalf of the taxpayer, as a gift to the taxpayer, the taxpayer may deduct this interest for Federal income tax pur- poses, assuming fulfillment of all other re- quirements of section 221. Similarly, if an employer pays interest to a lender on be- half of the taxpayer, and the taxpayer as required by section 61 includes the pay- ment in income for Federal income tax pur- poses, the taxpayer may deduct this inter- est, assuming fulfillment of all other re- quirements of section 221. A commentator also recommended the allowance of a deduction to an individual even if the individual qualifies as a depen- dent of a taxpayer under section 151. This recommendation was not adopted because it is contrary to section 221(c). 3.Definition of Eligible Educational Institution Several commentators suggested ex- panding the definition ofeligible educa- tional institutionin a manner that is not consistent with the statutory definition under sections 221(d)(2) (formerly sec- tion 221(e)(2) (redesignated by the 2001 Act)) and 25A(f)(2). Accordingly, these comments were not adopted. Another commentator requested guidance on the deductibility of interest paid on a qual- ified education loan if the educational institution loses its status as an eligible educational institution after the end of the academic period for which the loan was incurred. The final regulations include a new example illustrating that the de- ductibility of interest on the loan is not affected by the institution’s subsequent change in status. 4.Definition of Qualified Education Loan The definition ofqualified education loanin section 221(d)(1) (formerly sec- tion 221(e)(1) (redesignated by the 2001 Act)) provides, in part, that the indebt- edness must be incurred by the taxpayer solely to pay higher education expenses that are paid within a reasonable period of time before or after the indebtedness is in- curred. Several comments were received in connection with this “reasonable period of time” requirement. One commentator suggested extending the 60-day safe harbor provided in the pro- posed regulations for satisfying the “rea- sonable period of time” requirement to 90 days or changing it so that the beginning of the safe harbor period is the earlier of 60 days prior to the start of the academic period or the end of the previous academic period. Two commentators suggested ex- tending the safe harbor to 90 days after the end of the academic period. Another commentator expressed concern that ex- penses paid with loans disbursed outside the 60-day window would not satisfy the “reasonable period of time” requirement. Finally, one commentator interpreted the safe harbor to impose a 60-day limit on loans that are part of a federal postsec- ondary loan program. The final regulations provide that what constitutes a reasonable period of time is determined based on all the relevant facts and circumstances. The final regulations also provide that qualified higher educa- tion expenses are treated as paid or in- curred within a reasonable period of time under the following circumstances: 1) the expenses are paid with the proceeds of education loans that are part of a federal postsecondary education loan program; or 2) the expenses relate to a particular aca- demic period and the loan proceeds used to pay the expenses are disbursed within a period that begins 90 days before the start of, and ends 90 days after the end of, the academic period to which the expenses re- late. One commentator recommended ex- pansion of the federal loan safe harbor described above to include expenses paid with the proceeds of any non-federal loan disbursed under policies mirroring the awarding and disbursement policies gov- erning certain federal loans. Although the final regulations do not adopt this sugges- tion, the IRS and Treasury Department believe that loans described by the com- mentator probably would fall within the 90-day safe harbor, or satisfy the “reason- able period of time” requirement based on the facts and circumstances. June 7, 200410132004-23 I.R.B. Another requirement of a “qualified ed- ucation loan” is that the borrower obtain the loan “solely” to pay higher education expenses. One commentator suggested that if a taxpayer refinances a qualified education loan and receives an amount in excess of the original qualified education loan, the taxpayer may take an interest deduction under section 221 for interest paid on the refinanced loan. The com- mentator is correct,but only if the tax- payer uses the excess amount solely to pay higher education expenses and satisfies all other requirements of a qualified education loan. Thus, if the taxpayer uses the ex- cess amount for any other purpose, the re- financed loan is not “solely” to pay higher education expenses, and no interest paid on the loan will be deductible. 5.Miscellaneous Comments and Changes Federal Postsecondary Education Loan Program — The final regulations clarify that a federal postsecondary education loan program includes, but is not limited to, the Federal Perkins Loan, Federal Fam- ily Education Loan, and William D. Ford Federal Direct Loan Programs under Title IV of the Higher Education Act of 1965, and the Health Education Assistance Loan and the Nursing Student Loan Programs underTitlesVIIandVIIIofthePublic Health Service Act. Eligible Educational Institution — Al- though the Higher Education Amendments Act of 1998 moved section 481 from Ti- tle IV to Title I, the regulations do not re- flect this change, as thestatutory language refers to section 481 of the Higher Educa- tion Act as in effect on the date that section 221 was enacted. Interest Charges on a University In-House Deferred Payment Plan — One commentator requested clarification of the deductibility of interest charges on a university’s in-house deferred payment plan, which is a revolving credit account that can include a variety of expenditures in addition to qualified higher education expenses. This situation is addressed by Example 6of §1.221–1(e)(4) andExample 6of §1.221–2(f)(4) concerning mixed use loans. 6.Refinanced and Consolidated Loans The final regulations reserve a place for more detailed treatment of refinanced and consolidated loans. 7.Periods of Deferment or Forbearance Prior to the 2001 Act, section 221(d) stated that a “deduction shall be allowed under this section only with respect to in- terest paid on any qualified education loan during the first 60 months (whether or nor consecutive) in which interest payments are required.” Some commentators recommended that the 60-month limitation period should not be suspended during a period of defer- ment or forbearance. Other commentators suggested that the 60-month limitation pe- riod should be suspended during all peri- ods of deferment or forbearance, whether or not the taxpayer makes payments. Com- mentators also asked whether rules un- der which the 60-month period is not sus- pended apply to loans made under federal programs as well as non-federal loans. Fi- nally, commentators asked whether inter- est payments made during periods of re- duced payment forbearance are deductible. Section 221, prior to the 2001 Act, and the legislative history provide that only in- terest payments required under the terms of a loan are deductible. Under that pro- vision, interest a borrower pays voluntar- ily during a period when payments are not required, such as during a period of defer- ment or forbearance or before loan repay- ment begins, is not deductible. Therefore, §1.221–2 of the final regu- lations retains the rule that interest pay- ments are not deductible if paid voluntar- ily during a period of deferment or forbear- ance. However, the final regulations pro- vide that interest payments made during a period of deferment, forbearance, or re- duced payment forbearance are deductible if required as part of the terms of the de- ferment, forbearance, or reduced payment agreement. The final regulations include a new example involving reduced payment forbearance. In addition, §1.221–2 of the final reg- ulations provides for suspension of the 60-month period for loans not issued or guaranteed under a federal postsecondary education loan program under certain con- ditions. The promissory note must contain conditions for deferment or forbearance that are substantially similar to the condi- tions established by the U.S. Department of Education for Federal student loan programs under Title IV of the Higher Education Act of 1965 and the borrower must satisfy one of those conditions. 8.Start of the 60-Month Limitation Period A commentator expressed concern that the month a loan first enters repayment sta- tus may not be the same as the month the first interest payment is required. Section 1.221–2 of the final regulations clarifies that the beginning of the 60-month period commences on the first day of the month in which the first interest payment is re- quired. 9.Information Reporting for Interest Payments Received on Qualified Education Loans Section 6050S requires information reporting by certain lenders or other payees that receive payments of inter- est on qualified education loans. Section 1.6050S–3(b)(1) provides that interest in- cludes stated interest, loan origination fees (other than fees for services), and capi- talized interest. Section 1.6050S–3(e)(1) provides a special transitional rule for reporting loan origination fees and capital- ized interest. Under the transitional rule, a payee is not required to report payments of loan origination fees and capitalized interest for loans made before January 1, 2004. Several commentators representing payees requested that the transitional rule be extended because the necessary pro- gramming changes to capture and report these amounts could not be made in the absence of final regulations under section 221. Based on the comments received, these regulations amend §1.6050S–3(e)(1) to extend the transitional rule to loans made before September 1, 2004. Special Analyses It has been determined that this Trea- sury decision is not asignificant regula- tory action 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 Procedure Act (5 U.S.C. chapter 5) does 2004-23 I.R.B.1014June 7, 2004 not apply to these regulations, and, be- cause the regulations do not impose a col- lection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chap- ter 6) does not apply. Pursuant to section 7805(f) of the Code, the proposed regula- tions that preceded these regulations were submitted to the Chief Counsel for Advo- cacy of the Small Business Administration for comment on its impact on small busi- ness. Drafting Information The principal author of these final regu- lations is Sean M. Dwyer, Office of the As- sociate Chief Counsel (Income Tax & Ac- counting). However, other personnel from the IRS and Treasury Department partici- pated in their development. ***** Adoption of Amendments to the Regulations Accordingly, 26 CFR part 1 is 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 as follows: Authority: 26 U.S.C. 7805 * * * Section 1.221–2 also issued under 26 U.S.C. 221(d). * * * Section1.6050S–3alsoissuedunder26 U.S.C. 6050S(g). * * * Par. 2. Sections 1.221–1 and 1.221–2 are added to read as follows: §1.221–1 Deduction for interest paid on qualified education loans after December 31, 2001. (a)In general—(1)Applicability.Un- der section 221, an individual taxpayer may deduct from gross income certain in- terest paid by the taxpayer during the tax- able year on a qualified education loan. See paragraph (b)(4) of this section for rules on payments of interest by third par- ties. The rules of this section are appli- cable to periods governed by section 221 as amended in 2001, which relates to de- ductions for interest paid on qualified ed- ucation loans after December 31, 2001, in taxable years ending after December 31, 2001, and on or before December 31, 2010. For rules applicable to interest due and paid on qualified education loans af- ter January 21, 1999, if paid before Jan- uary 1, 2002, see §1.221–2. Taxpayers also may apply §1.221–2 to interest due and paid on qualified education loans af- ter December 31, 1997, but before January 21, 1999. To the extent that the effective date limitation (sunset) of the 2001 amend- ment remains in force unchanged, section 221 before amendment in 2001, to which §1.221–2 relates, also applies to interest due and paid on qualified education loans in taxable years beginning after December 31, 2010. (2)Example. The following example il- lustrates the rules of this paragraph (a). In the example, assume that the institution the student attends is an eligible educational institution, the loan is a qualified educa- tion loan, the student is legally obligated to make interest payments under the terms of the loan, and any other applicable require- ments, if not otherwise specified, are ful- filled. The example is as follows: Example.Effective dates. Student A begins to make monthly interest payments on her loan begin- ning January 1, 1997. Student A continues to make interest payments in a timely fashion. However, un- der the effective date provisions of section 221, no de- duction is allowed for interest Student A pays prior to January 1, 1998. Student A may deduct interest due and paid on the loan after December 31, 1997. Stu- dent A may apply the rules of §1.221–2 to interest due and paid during the period beginning January 1, 1998, and ending January 20, 1999. Interest due and paid during the period January 21, 1999, and ending December 31, 2001, is deductible under the rules of §1.221–2, and interest paid after December 31, 2001, is deductible under the rules of this section. (b)Eligibility—(1)Taxpayer must have a legal obligation to make interest pay- ments. A taxpayer is entitled to a deduc- tion under section 221 only if the taxpayer has a legal obligation to make interest pay- ments under the terms of the qualified ed- ucation loan. (2)Claimed dependents not eligi- ble—(i)In general. An individual is not entitled to a deduction under section 221 for a taxable year if the individual is a dependent (as defined in section 152) for whom another taxpayer is allowed a deduction under section 151 on a Federal income tax return for the same taxable year (or, in the case of a fiscal year taxpayer, the taxable year beginning in the same calendar year as the individual’s taxable year). (ii)Examples. The following examples illustrate the rules of this paragraph (b)(2): Example 1.Student not claimed as dependent. Student B pays $750 of interest on qualified educa- tion loans during 2003. Student B’s parents are not allowed a deduction for her as a dependent for 2003. Assuming fulfillment of all other relevant require- ments, Student B may deduct under section 221 the $750 of interest paid in 2003. Example 2. Student claimed as dependent.Stu- dent C pays $750 of interest on qualified education loans during 2003. Only Student C has the legal obli- gation to make the payments. Student C’s parent claims him as a dependent and is allowed a deduction under section 151 with respect to Student C in com- puting the parent’s 2003 Federal income tax. Student C is not entitled to a deduction under section 221 for the $750 of interest paid in 2003. Because Student C’s parent was not legally obligated to make the pay- ments, Student C’s parent also is not entitled to a de- duction for the interest. (3)Married taxpayers.Ifataxpayeris married as of the close of a taxable year, he or she is entitled to a deduction under this section only if the taxpayer and the taxpayer’s spouse file a joint return for that taxable year. (4)Payments of interest by a third party —(i)In general. If a third party who is not legally obligated to make a payment of interest on a qualified education loan makes a payment of interest on behalf of a taxpayer who is legally obligated to make the payment, then the taxpayer is treated as receiving the payment from the third party and, in turn, paying the interest. (ii)Examples. The following examples illustrate the rules of this paragraph (b)(4): Example 1.Payment by employer. Student D obtains a qualified education loan to attend college. Upon Student D’s graduation from college, Student D works as an intern for a non-profit organization during which time Student D’s loan is in deferment and Student D makes no interest payments. As part of the internship program, the non-profit organization makes an interest payment on behalf of Student D after the deferment period. This payment is not ex- cluded from Student D’s income under section 108(f) and is treated as additional compensation includible in Student D’s gross income. Assuming fulfillment of all other requirements of section 221, Student D may deduct this payment of interest for Federal in- come tax purposes. Example 2. Payment by parent. Student E obtains a qualified education loan to attend college. Upon graduation from college, Student E makes legally re- quired monthly payments of principal and interest. Student E’s mother makes a required monthly pay- ment of interest as a gift to Student E. A deduction for Student E as a dependent is not allowed on an- other taxpayer’s tax return for that taxable year. As- suming fulfillment of all other requirements of sec- tion 221, Student E may deduct this payment of in- terest for Federal income tax purposes. June 7, 200410152004-23 I.R.B. (c)Maximum deduction. The amount allowed as a deduction under section 221 for any taxable year may not exceed $2,500. (d)Limitation based on modified ad- justed gross income—(1)In general. The deduction allowed under section 221 is phased out ratably for taxpayers with modified adjusted gross income be- tween $50,000 and $65,000 ($100,000 and $130,000 for married individuals who file a joint return). Section 221 does not allow a deduction for taxpayers with modified adjusted gross income of $65,000 or above ($130,000 or above for married individu- als who file a joint return). See paragraph (d)(3) of this section for inflation adjust- ment of amounts in this paragraph (d)(1). (2)Modified adjusted gross income de- fined.Thetermmodified adjusted gross in- comemeans the adjusted gross income (as defined in section 62) of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933 (relating to income earned abroad or from certain United States pos- sessions or Puerto Rico). Modified ad- justed gross income must be determined under this section after taking into account the inclusions, exclusions, deductions, and limitations provided by sections 86 (social security and tier 1 railroad retirement ben- efits), 135 (redemption of qualified United States savings bonds), 137 (adoption assis- tance programs), 219 (deductible qualified retirement contributions), and 469 (limi- tation on passive activity losses and cred- its), but before taking into account the de- ductions provided by sections 221 and 222 (qualified tuition and related expenses). (3)Inflation adjustment. For taxable years beginning after 2002, the amounts in paragraph (d)(1) of this section will be increased for inflation occurring after 2001 in accordance withsection 221(f)(1). If any amount adjusted under section 221(f)(1) is not a multiple of $5,000, the amount will be rounded to the next lowest multiple of $5,000. (e)Definitions—(1)Eligible educa- tional institution. In general, aneligible educational institutionmeans any col- lege, university, vocational school, or other postsecondary educational institu- tion described in section 481 of the Higher Education Act of 1965 (20 U.S.C. 1088), as in effect on August 5, 1997, and certi- fied by the U.S. Department of Education as eligible to participate in student aid programs administered by the Depart- ment, as described in section 25A(f)(2) and §1.25A–2(b). For purposes of this section, an eligible educational institution also includes an institution that conducts an internship or residency program lead- ing to a degree or certificate awarded by an institution, a hospital, or a health care facility that offers postgraduate training. (2)Qualified higher education ex- penses—(i)In general.Qualified higher education expensesmeans the cost of at- tendance (as defined in section 472 of the Higher Education Act of 1965, 20 U.S.C. 1087ll, as in effect on August 4, 1997), at an eligible educational institution, reduced by the amounts described in paragraph (e)(2)(ii) of this section. Consistent with section 472 of the Higher Education Act of 1965, a student’s cost of attendance is determined by the eligible educational institution and includes tuition and fees normally assessed a student carrying the same academic workload as the student, an allowance for room and board, and an allowance for books, supplies, transporta- tion, and miscellaneous expenses of the student. (ii)Reductions. Qualified higher ed- ucation expenses are reduced by any amount that is paid to or on behalf of a student with respect to such expenses and that is— (A) A qualified scholarship that is ex- cludable from income under section 117; (B) An educational assistance al- lowance for a veteran or member of the armed forces under chapter 30, 31, 32, 34 or 35 of title 38, United States Code, or under chapter 1606 of title 10, United States Code; (C) Employer-provided educational as- sistance that is excludable from income under section 127; (D) Any other amount that is de- scribed in section 25A(g)(2)(C) (relating to amounts excludable from gross income as educational assistance); (E) Any otherwise includible amount excluded from gross income under section 135 (relating to the redemption of United States savings bonds); (F) Any otherwise includible amount distributed from a Coverdell education savings account and excluded from gross income under section 530(d)(2); or (G) Any otherwise includible amount distributed from a qualified tuition pro- gram and excluded from gross income un- der section 529(c)(3)(B). (3)Qualified education loan—(i)In general.Aqualified education loanmeans indebtedness incurred by a taxpayer solely to pay qualified higher education expenses that are— (A) Incurred on behalf of a student who is the taxpayer, the taxpayer’s spouse, or a dependent (as defined in section 152) of the taxpayer at the time the taxpayer incurs the indebtedness; (B) Attributable to education provided during an academic period, as described in section 25A and the regulations thereun- der, when the student is an eligible student as defined in section 25A(b)(3) (requir- ing that the student be a degree candidate carrying at least half the normal full-time workload); and (C) Paid or incurred within a reasonable period of time before or after the taxpayer incurs the indebtedness. (ii)Reasonable Period. Except as otherwise provided in this paragraph (e)(3)(ii), what constitutes a reasonable period of time for purposes of paragraph (e)(3)(i)(C) of this section generally is determined based on all the relevant facts and circumstances. However, qualified higher education expenses are treated as paid or incurred within a reasonable period of time before or after the taxpayer incurs the indebtedness if— (A) The expenses are paid with the pro- ceeds of education loans that are part of a Federal postsecondary education loan pro- gram; or (B) The expenses relate to a particu- lar academic period and the loan proceeds used to pay the expenses are disbursed within a period that begins 90 days prior to the start of that academic period and ends 90 days after the end of that academic pe- riod. (iii)Related party. A qualified educa- tion loan does not include any indebted- ness owed to a person who is related to the taxpayer, within the meaning of section 267(b) or 707(b)(1). For example, a parent or grandparent of the taxpayer is a related person. In addition, a qualified education loan does not include a loan made under any qualified employer plan as defined in section 72(p)(4) or under any contract re- ferred to in section 72(p)(5). 2004-23 I.R.B.1016June 7, 2004 (iv)Federal issuance or guarantee not required. A loan does not have to be is- sued or guaranteed under a Federal post- secondary education loan program to be a qualified education loan. (v)Refinanced and consolidated in- debtedness—(A)In general. A qualified education loan includes indebtedness in- curred solely to refinance a qualified education loan. A qualified education loan includes a single, consolidated in- debtedness incurred solely to refinance two or more qualified education loans of a borrower. (B)Treatment of refinanced and consol- idated indebtedness.[Reserved.] (4)Examples. The following examples illustrate the rules of this paragraph (e): Example 1.Eligible educational institution.Uni- versity F is a postsecondary educational institution described in section 481 of the Higher Education Act of 1965. The U.S. Department of Education has certi- fied that University F is eligible to participate in fed- eral financial aid programs administered by that De- partment, although University F chooses not to par- ticipate. University F is an eligible educational insti- tution. Example 2.Qualified higher education expenses. Student G receives a $3,000 qualified scholarship for the 2003 fall semester that is excludable from Student G’s gross income under section 117. Student G re- ceives no other forms of financial assistance with re- spect to the 2003 fall semester. Student G’s cost of at- tendance for the 2003 fall semester, as determined by Student G’s eligible educational institution for pur- poses of calculating a student’s financial need in ac- cordance with section 472 of the Higher Education Act, is $16,000. For the 2003 fall semester, Student G has qualified higher education expenses of $13,000 (the cost of attendance as determined by the institu- tion ($16,000) reduced by the qualified scholarship proceeds excludable from gross income ($3,000)). Example 3.Qualified education loan. Student H borrows money from a commercial bank to pay qual- ified higher education expenses related to his enroll- ment on a half-time basis in a graduate program at an eligible educational institution. Student H uses all the loan proceeds to pay qualified higher education ex- penses incurred within a reasonable period of time af- ter incurring the indebtedness. The loan is not feder- ally guaranteed. The commercial bank is not related to Student H within the meaning of section 267(b) or 707(b)(1). Student H’s loan is a qualified education loan within the meaning of section 221. Example 4. Qualified education loan. Student I signs a promissory note for a loan on August 15, 2003, to pay for qualified higher education expenses for the 2003 fall and 2004 spring semesters. On Au- gust 20, 2003, the lender disburses loan proceeds to Student I’s college. The college credits them to Stu- dent I’s account to pay qualified higher education ex- penses for the 2003 fall semester, which begins on August 25, 2003. On January 26, 2004, the lender disburses additional loan proceeds to Student I’s col- lege. The college credits them to Student I’s ac- count to pay qualified higher education expenses for the 2004 spring semester, which began on January 12, 2004. Student I’s qualified higher education ex- penses for the two semesters are paid within a rea- sonable period of time, as the first loan disbursement occurred within the 90 days prior to the start of the fall 2003 semester and the second loan disbursement occurred during the spring 2004 semester. Example 5. Qualified education loan. The facts are the same as inExample 4except that in 2005 the college is not an eligible educational institution be- cause it loses its eligibility to participate in certain federal financial aid programs administered by the U.S. Department of Education. The qualification of Student I’s loan, which was used to pay for qualified higher education expenses for the 2003 fall and 2004 spring semesters, as a qualified education loan is not affected by the college’s subsequent loss of eligibil- ity. Example 6. Mixed-use loans. Student J signs a promissory note for a loan secured by Student J’s per- sonal residence. Student J will use part of the loan proceeds to pay for certain improvements to Student J’s residence and part of the loan proceeds to pay qualified higher education expenses of Student J’s spouse. Because Student J obtains the loan not solely to pay qualified higher education expenses, the loan is not a qualified education loan. (f)Interest—(1)In general.Amounts paid on a qualified education loan are de- ductible under section 221 if the amounts are interest for federal income tax pur- poses. For example, interest includes— (i) Qualified stated interest (as defined in §1.1273–1(c)); and (ii) Original issue discount, which gen- erally includes capitalized interest. For purposes of section 221, capitalized inter- est means any accrued and unpaid interest on a qualified education loan that, in accor- dance with the terms of the loan, is added by the lender to the outstanding principal balance of the loan. (2)Operative rules for original issue discount—(i)In general.Therulestode- termine the amount of original issue dis- count on a loan and the accruals of the dis- count are in sections 163(e), 1271 through 1275, and the regulations thereunder. In general, original issue discount is the ex- cess of a loan’s stated redemption price at maturity (all payments due under the loan other than qualified stated interest pay- ments) over its issue price (the amount loaned). Although original issue discount generally is deductible as it accrues under section 163(e) and §1.163–7, original is- sue discount on a qualified education loan is not deductible until paid. See paragraph (f)(3) of this section to determine when original issue discount is paid. (ii)Treatment of loan origination fees by the borrower. If a loan origination fee is paid by the borrower other than for prop- erty or services provided by the lender, the fee reduces the issue price of the loan, which creates original issue discount (or additional original issue discount) on the loan in an amount equal to the fee. See §1.1273–2(g). For an example of how a loan origination fee is taken into account, seeExample 2of paragraph (f)(4) of this section. (3)Allocation of payments.See §§1.446–2(e) and 1.1275–2(a) for rules on allocating payments between interest and principal. In general, these rules treat a payment first as a payment of interest to the extent of the interest that has accrued and remains unpaid as of the date the pay- ment is due, and second as a payment of principal. The characterization of a pay- ment as either interest or principal under these rules applies regardless of how the parties label the payment (either as interest or principal). Accordingly, the taxpayer may deduct the portion of a payment la- beled as principal that these rules treat as a payment of interest on the loan, includ- ing any portion attributable to capitalized interest or loan origination fees. (4)Examples. The following examples illustrate the rules of this paragraph (f). In the examples, assume that the institu- tion the student attends is an eligible ed- ucational institution, the loan is a qualified education loan, the student is legally obli- gated to make interest payments under the terms of the loan, and any other applica- ble requirements, if not otherwise speci- fied, are fulfilled. The examples are as fol- lows: Example 1. Capitalized interest. Interest on Stu- dent K’s loan accrues while Student K is in school, but Student K is not required to make any payments on the loan until six months after he graduates or oth- erwise leaves school. At that time, the lender capi- talizes all accrued but unpaid interest and adds it to the outstanding principal amount of the loan. There- after, Student K is required to make monthly pay- ments of interest and principal on the loan. The inter- est payable on the loan, including the capitalized in- terest, is original issue discount. See section 1273 and the regulations thereunder. Therefore, in determining the total amount of interest paid on the loan each tax- able year, Student K may deduct any payments that §1.1275–2(a) treats as payments of interest, including any principal payments that are treated as payments of capitalized interest. See paragraph (f)(3) of this section. Example 2. Allocation of payments. The facts are the same as inExample 1, except that, in addi- tion, the lender charges Student K a loan origination fee, which is not for any property or services pro- vided by the lender. Under §1.1273–2(g), the loan June 7, 200410172004-23 I.R.B. origination fee reduces the issue price of the loan, which reduction increases the amount of original is- sue discount on the loan by the amount of the fee. The amount of original issue discount (which includes the capitalized interest and loan origination fee) that ac- crues each year is determined under section 1272 and §1.1272–1. In effect, the loan origination fee ac- crues over the entire term of the loan. Because the loan has original issue discount, the payment order- ing rules in §1.1275–2(a) must be used to determine how much of each payment is interest for federal tax purposes. See paragraph (f)(3) of this section. Under §1.1275–2(a), eachpayment (regardless of its desig- nation by the parties as either interest or principal) generally is treated first as a payment of original issue discount, to the extent of the original issue discount that has accrued as of the date the payment is due and has not been allocated to prior payments, and second as a payment of principal. Therefore, in determining the total amount of interest paid on the qualified edu- cation loan for a taxable year, Student K may deduct any payments that the parties label as principal but that are treated as payments of original issue discount under §1.1275–2(a). (g)Additional Rules—(1)Payment of interest made during period when interest payment not required. Payments of inter- est on a qualified education loan to which this section is applicable are deductible even if the payments are made during a period when interest payments are not re- quired because, for example, the loan has not yet entered repayment status or is in a period of deferment or forbearance. (2)Denial of double benefit.Nodeduc- tion is allowed under this section for any amount for which a deduction is allowable under another provision of Chapter 1 of the Internal Revenue Code. No deduction is allowed under this section for any amount for which an exclusion is allowable under section 108(f) (relating to cancellation of indebtedness). (3)Examples. The following examples illustrate the rules of this paragraph (g). In the examples, assume that the institu- tion the student attends is an eligible ed- ucational institution, the loan is a qualified education loan, and the student is legally obligated to make interest payments under thetermsoftheloan: Example 1. Voluntary payment of interest before loan has entered repayment status. Student L obtains a loan to attend college. The terms of the loan pro- vide that interest accrues on the loan while Student L earns his undergraduate degree but that Student L is not required to begin making payments of interest un- til six full calendar months after he graduates or oth- erwise leaves school. Nevertheless, Student L volun- tarily pays interest on the loan during 2003, while en- rolled in college. Assuming all other relevant require- ments are met, Student Lis allowed a deduction for interest paid while attending college even though the payments were made before interest payments were required. Example 2. Voluntary payment during period of deferment or forbearance. The facts are the same as inExample 2, except that Student L makes no pay- ments on the loan while enrolled in college. Student L graduates in June 2003 and begins making monthly payments of principal and interest on the loan in Jan- uary 2004, as required by the terms of the loan. In August 2004, Student L enrolls in graduate school on a full-time basis. Under the terms of the loan, Stu- dent L may apply for deferment of the loan payments while Student L is enrolled in graduate school. Stu- dent L applies for and receives a deferment on the out- standing loan. However, Student L continues to make some monthly payments of interest during graduate school. Student L may deduct interest paid on the loan during the period beginning in January 2004, in- cluding interest paid while Student L is enrolled in graduate school. (h)Effective date.Thissectionisappli- cable to periods governed by section 221 as amended in 2001, which relates to inter- est paid on a qualified education loan after December 31, 2001, in taxable years end- ing after December 31, 2001, and on or be- fore December 31, 2010. §1.221–2 Deduction for interest due and paid on qualified education loans before January 1, 2002. (a)In general. Under section 221, an individual taxpayer may deduct from gross income certain interest due and paid by the taxpayer during the taxable year on a qual- ified education loan. The deduction is al- lowed only with respect to interest due and paid on a qualified education loan during the first 60 months that interest payments are required under the terms of the loan. See paragraph (e) of this section for rules relating to the 60-month rule. See para- graph (b)(4) of this section for rules on payments of interest by third parties. The rules of this section are applicable to in- terest due and paid on qualified education loans after January 21, 1999, if paid before January 1, 2002. Taxpayers also may ap- ply the rules of this section to interest due and paid on qualified education loans after December 31, 1997, but before January 21, 1999. To the extent that the effective date limitation (“sunset”) of the 2001 amend- ment remains in force unchanged, section 221 before amendment in 2001, to which this section relates, also applies to interest due and paid on qualified education loans in taxable years beginning after Decem- ber 31, 2010. For rules applicable to peri- ods governed by section 221 as amended in 2001, which relates to deductions for inter- est paid on qualified education loans after December 31, 2001, in taxable years end- ing after December 31, 2001, and before January 1, 2011, see §1.221–1. (b)Eligibility—(1)Taxpayer must have a legal obligation to make interest pay- ments. A taxpayer is entitled to a deduc- tion under section 221 only if the taxpayer has a legal obligation to make interest pay- ments under the terms of the qualified ed- ucation loan. (2)Claimed dependents not eligi- ble—(i)In general. An individual is not entitled to a deduction under section 221 for a taxable year if the individual is a dependent (as defined in section 152) for whom another taxpayer is allowed a deduction under section 151 on a Federal income tax return for the same taxable year (or, in the case of a fiscal year taxpayer, the taxable year beginning in the same calendar year as the individual’s taxable year). (ii)Examples. The following examples illustrate the rules of this paragraph (b)(2): Example 1. Student not claimed as dependent. Student A pays $750 of interest on qualified educa- tion loans during 1998. Student A’s parents are not allowed a deduction for her as a dependent for 1998. Assuming fulfillment of all other relevant require- ments, Student A may deduct the $750 of interest paid in 1998 under section 221. Example 2. Student claimed as dependent.Stu- dent B pays $750 of interest on qualified education loans during 1998. Only Student B has the legal obli- gation to make the payments. Student B’s parent claims him as a dependent and is allowed a deduction under section 151 with respect to Student B in com- puting the parent’s 1998 Federal income tax. Student B may not deduct the $750 of interest paid in 1998 under section 221. Because Student B’s parent was not legally obligated to make the payments, Student B’sparentalsomaynotdeducttheinterest. (3)Married taxpayers.Ifataxpayeris married as of the close of a taxable year, he or she is entitled to a deduction under this section only if the taxpayer and the taxpayer’s spouse file a joint return for that taxable year. (4)Payments of interest by a third party—(i)In general. If a third party who is not legally obligated to make a payment of interest on a qualified education loan makes a payment of interest on behalf of a taxpayer who is legally obligated to make the payment, then the taxpayer is treated as receiving the payment from the third party and, in turn, paying the interest. (ii)Examples. The following examples illustrate the rules of this paragraph (b)(4): 2004-23 I.R.B.1018June 7, 2004 Example 1. Payment by employer. Student C obtains a qualified education loan to attend college. Upon Student C’s graduation from college, Student C works as an intern for a non-profit organization dur- ing which time Student C’s loan is in deferment and Student C makes no interest payments. As part of the internship program, the non-profit organization makes an interest payment on behalf of Student C after the deferment period. This payment is not ex- cluded from Student C’s income under section 108(f) and is treated as additional compensation includible in Student C’s gross income. Assuming fulfillment of all other requirements of section 221, Student C may deduct this payment of interest for Federal income tax purposes. Example 2. Payment by parent. Student D obtains a qualified education loan to attend college. Upon graduation from college, Student D makes legally re- quired monthly payments of principal and interest. Student D’s mother makes a required monthly pay- ment of interest as a gift to Student D. A deduction for Student D as a dependent is not allowed on an- other taxpayer’s tax returnfor that taxable year. As- suming fulfillment of all other requirements of sec- tion 221, Student D may deduct this payment of in- terest for Federal income tax purposes. (c)Maximum deduction. In any taxable year beginning before January 1, 2002, the amount allowed as a deduction under sec- tion 221 may not exceed the amount de- termined in accordance with the following table: Taxable Year Beginning inMaximum Deduction 1998 $1,000 1999 $1,500 2000 $2,000 2001 $2,500 (d)Limitation based on modified ad- justed gross income—(1)In general. The deduction allowed under section 221 is phased out ratably for taxpayers with modified adjusted gross income be- tween $40,000 and $55,000 ($60,000 and $75,000 for married individuals who file a joint return). Section 221 does not allow a deduction for taxpayers with modified adjusted gross income of $55,000 or above ($75,000 or above for married individuals who file a joint return). (2)Modified adjusted gross income de- fined.Thetermmodified adjusted gross in- comemeans the adjusted gross income (as defined in section 62) of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933 (relating to income earned abroad or from certain United States pos- sessions or Puerto Rico). Modified ad- justed gross income must be determined under this section after taking into account the inclusions, exclusions, deductions, and limitations provided by sections 86 (social security and tier 1 railroad retirement ben- efits), 135 (redemption of qualified United States savings bonds), 137 (adoption assis- tance programs), 219 (deductible qualified retirement contributions), and 469 (limita- tion on passive activity losses and credits), but before taking into account the deduc- tion provided by section 221. (e)60-month rule—(1)In general.A deduction for interest paid on a qualified education loan is allowed only for pay- ments made during the first 60 months that interest payments are required on the loan. The60-monthperiodbeginsonthefirst day of the month that includes the date on which interest payments are first re- quired and ends 60 months later, unless the 60-month period is suspended for pe- riods of deferment or forbearance within the meaning of paragraph (e)(3) of this sec- tion. The 60-month period continues to run regardless of whether the required in- terest payments are actually made. The date on which the first interest payment is required is determined under the terms of the loan agreement or, in the case of a loan issued or guaranteed under a federal post- secondary education loan program (such as loan programs under Title IV of the Higher Education Act of 1965 (20 U.S.C. 1070) and Titles VII and VIII of the Public Health Service Act (42 U.S.C. 292, and 42 U.S.C. 296) under applicable Federal reg- ulations. For a discussion of interest, see paragraph (h) of this section. For special rules relating to loan refinancings, consol- idated loans, and collapsed loans, see para- graph (i) of this section. (2)Loans that entered repayment sta- tus prior to January 1, 1998. In the case of any qualified education loan that entered repayment status prior to January 1, 1998, section 221 allows no deduction for inter- est paid during the portion of the 60-month period described in paragraph (e)(1) of this section that occurred prior to January 1, 1998. Section 221 allows a deduction only for interest due and paid during that por- tion, if any, of the 60-month period remain- ing after December 31, 1997. (3)Periods of deferment or forbear- ance. The 60-month period described in paragraph (e)(1) of this section generally is suspended for any period when inter- est payments are not required on a quali- fied education loan because the lender has granted the taxpayer a period of deferment or forbearance (including postponement in anticipation of cancellation). However, in the case of a qualified education loan that is not issued or guaranteed under a Federal postsecondary education loan program, the 60-month period will be suspended under this paragraph (e)(3) only if the promis- sory note contains conditions substantially similar to the conditions for deferment or forbearance established by the U.S. De- partment of Education for Federal student loan programs under Title IV of the Higher Education Act of 1965, such as half-time study at a postsecondary educational in- stitution, study in an approved graduate fellowship program or in an approved re- habilitation program for the disabled, in- ability to find full-time employment, eco- nomic hardship, or the performance of ser- vices in certain occupations or federal pro- grams, and the borrower satisfies one of those conditions. For any qualified educa- tion loan, the 60-month period is not sus- pended if under the terms of the loan inter- est continues to accrue while the loan is in deferment or forbearance and either— (i) In the case of deferment, the tax- payer agrees to pay interest currently dur- ing the deferment period; or (ii) In the case of forbearance, the tax- payer agrees to make reduced payments, or June 7, 200410192004-23 I.R.B. payments of interest only, during the for- bearance period. (4)Late payments. A deduction is al- lowed for a payment of interest required in one month but actually made in a subse- quent month prior to the expiration of the 60-month period. A deduction is not al- lowed for a payment of interest required in one month but actually made in a sub- sequent month after the expiration of the 60-month period. A late payment made during a period of deferment or forbear- ance is treated, solely for purposes of de- termining whether it is made during the 60-month period, as made on the date it is due. (5)Examples. The following examples illustrate the rules of this paragraph (e). In the examples, assume that the institu- tion the student attends is an eligible ed- ucational institution, the loan is a quali- fied education loan and is issued or guar- anteed under a federal postsecondary edu- cation loan program, the student is legally obligated to make interest payments under the terms of the loan, the interest payments occur after December 31, 1997, but before January 1, 2002, and with respect to any period after December 31, 1997, but be- fore January 21, 1999, the taxpayer elects to apply the rules of this section. The ex- amples are as follows: Example 1. Payment prior to 60-month period. Student E obtains a loan to attend college. The terms of the loan provide that interest accrues on the loan while Student E earns his undergraduate degree but that Student E is not required to begin making pay- ments of interest until six full calendar months af- ter he graduates. Nevertheless, Student E voluntarily pays interest on the loan while attending college. Stu- dent E is not allowed a deduction for interest paid dur- ing that period, because those payments were made prior to the start of the 60-month period. Similarly, Student E would not be allowed a deduction for any interest paid during the six month grace period after graduation when interest payments are not required. Example 2. Deferment option not exercised.The facts are the same as inExample 1except that Stu- dent E makes no payments on the loan while enrolled in college. Student E graduates in June 1999, and is required to begin making monthly payments of prin- cipal and interest on the loan in January 2000. The 60-month period described in paragraph (e)(1) of this section begins in January 2000. In August 2000, Stu- dent E enrolls in graduate school on a full-time ba- sis. Under the terms of the loan, Student E may apply for deferment of the loan payments while en- rolled in graduate school. However, Student E elects not to apply for deferment and continues to make re- quired monthly payments on the loan during graduate school. Assuming fulfillment of all other relevant re- quirements, Student E may deduct interest paid on the loan during the 60-month period beginning in January 2000, including interest paid while enrolled in grad- uate school. Example 3. Late payment, within 60-month pe- riod. The facts are the same as inExample 2except that, after the loan enters repayment status in Jan- uary 2000, Student E makes no interest payments un- til March 2000. In March 2000, Student E pays inter- est required for the months of January, February, and March 2000. Assuming fulfillment of all other rele- vant requirements, Student E may deduct the interest paid in March for the months of January, February, and March because the interest payments are required under the terms of the loan and are paid within the 60-month period, even though the January and Feb- ruary interest payments may be late. Example 4. Late payment during deferment but within 60-month period. The terms of Student F’s loan require her to begin making monthly payments of interest on the loan in January 2000. The 60-month period described in paragraph (e)(1) of this section begins in January 2000. Student F fails to make the required interest payments for the months of Novem- ber and December 2000. In January 2001, Student F enrolls in graduate school on a half-time basis. Un- der the terms of the loan, Student F obtains a de- ferment of the loan payments due while enrolled in graduate school. The deferment becomes effective January 1, 2001. In March 2001, while the loan is in deferment, Student F pays the interest due for the months of November and December 2000. Assuming fulfillment of all other relevant requirements, Student F may deduct interest paid in March 2001, for the months of November and December 2000, because the late interest payments are treated, solely for pur- poses of determining whether they were made during the 60-month period, as made in November and De- cember 2000. Example 5. 60-month period. The terms of Stu- dent G’s loan require him to begin making monthly payments of interest on the loan in November 1999. The 60-month period described in paragraph (e)(1) of this section begins in November 1999. In Jan- uary 2000, Student G enrolls in graduate school on a half-time basis. As permitted under the terms of the loan, Student G applies for deferment of the loan pay- ments due while enrolled in graduate school. While awaiting formal approval from the lender of his re- quest for deferment, Student G pays interest due for the month of January 2000. In February 2000, the lender approves Student G’s request for deferment, effective as of January 1, 2000. Assuming fulfill- ment of all other relevant requirements, Student G may deduct interest paid in January 2000, prior to his receipt of the lender’s approval, even though the de- ferment was retroactive to January 1, 2000. As of February 2000, there are 57 months remaining in the 60-month period for that loan. Because Student G is not required to make interest payments during the pe- riod of deferment, the 60-month period is suspended. After January 2000, Student G may not deduct any voluntary payments of interest made during the pe- riod of deferment. Example 6. 60-month period. The terms of Stu- dent H’s loan require her to begin making monthly payments of interest on the loan in November 1999. The 60-month period described in paragraph (e)(1) of this section begins in November 1999. In Jan- uary 2000, Student H enrolls in graduate school on a half-time basis. As permitted under the terms of the loan, Student H applies to make reduced pay- ments of principal and interest while enrolled in grad- uate school. After the lender approves her applica- tion, Student H pays principal and interest due for the month of January 2000 at the reduced rate. Assuming fulfillment of all other relevant requirements, Student H may deduct interest paid in January 2000. As of February 2000, there are 57 months remaining in the 60-month period for that loan. Example 7. Reduction of 60-month period for months prior to January 1, 1998. The first payment of interest on a loan is due in January 1997. There- after, interest payments are required on a monthly basis. The 60-month period described in paragraph (e)(1) of this section for this loan begins on January 1, 1997, the first day of the month that includes the date on which the first interest payment is required. However, the borrower may not deduct interest paid prior to January 1, 1998, under the effective date pro- visions of section 221. Assuming fulfillment of all other relevant requirements, the borrower may deduct interest due and paid on the loan during the 48 months beginning on January 1, 1998 (unless such period is extended for periods of deferment or forbearance un- der paragraph (e)(3) of this section). (f)Definitions—(1)Eligible educa- tional institution. In general, aneligible educational institutionmeans any college, university, vocational school, or other post-secondary educational institution described in section 481 of the Higher Education Act of 1965, 20 U.S.C. 1088, as in effect on August 5, 1997, and certi- fied by the U.S. Department of Education as eligible to participate in student aid programs administered by the Depart- ment, as described in section 25A(f)(2) and § 1.25A–2(b). For purposes of this section, an eligible educational institution also includes an institution that conducts an internship or residency program lead- ing to a degree or certificate awarded by an institution, a hospital, or a health care facility that offers postgraduate training. (2)Qualified higher education ex- penses—(i)In general.Qualified higher education expensesmeans the cost of at- tendance (as defined in section 472 of the Higher Education Act of 1965, 20 U.S.C. 1087ll, as in effect on August 4, 1997), at an eligible educational institution, reduced by the amounts described in paragraph (f)(2)(ii) of this section. Consistent with section 472 of the Higher Education Act of 1965, a student’s cost of attendance is determined by the eligible educational institution and includes tuition and fees normally assessed a student carrying the same academic workload as the student, an allowance for room and board, and an allowance for books, supplies, transporta- 2004-23 I.R.B.1020June 7, 2004 tion, and miscellaneous expenses of the student. (ii)Reductions. Qualified higher ed- ucation expenses are reduced by any amount that is paid to or on behalf of a student with respect to such expenses and that is— (A) A qualified scholarship that is ex- cludable from income under section 117; (B) An educational assistance al- lowance for a veteran or member of the armed forces under chapter 30, 31, 32, 34 or 35 of title 38, United States Code, or under chapter 1606 of title 10, United States Code; (C) Employer-provided educational as- sistance that is excludable from income under section 127; (D) Any other amount that is de- scribed in section 25A(g)(2)(C) (relating to amounts excludable from gross income as educational assistance); (E) Any otherwise includible amount excluded from gross income under section 135 (relating to the redemption of United States savings bonds); or (F) Any otherwise includible amount distributed from a Coverdell education savings account and excluded from gross income under section 530(d)(2). (3)Qualified education loan—(i)In general.Aqualified education loanmeans indebtedness incurredby a taxpayer solely to pay qualified higher education expenses that are— (A)Incurredonbehalfofastudentwho is the taxpayer, the taxpayer’s spouse, or a dependent (as defined in section 152) of the taxpayer at the time the taxpayer incurs the indebtedness; (B) Attributable to education provided during an academic period, as described in section 25A and the regulations thereun- der, when the student is an eligible student as defined in section 25A(b)(3) (requir- ing that the student be a degree candidate carrying at least half the normal full-time workload); and (C) Paid or incurred within a reasonable period of time before or after the taxpayer incurs the indebtedness. (ii)Reasonable period. Except as otherwise provided in this paragraph (f)(3)(ii), what constitutes a reasonable period of time for purposes of paragraph (f)(3)(i)(C) of thissection generally is determined based on all the relevant facts and circumstances. However, qualified higher education expenses are treated as paid or incurred within a reasonable period of time before or after the taxpayer incurs the indebtedness if— (A) The expenses are paid with the pro- ceeds of education loans that are part of a federal postsecondary education loan pro- gram; or (B) The expenses relate to a particu- lar academic period and the loan proceeds used to pay the expenses are disbursed within a period that begins 90 days prior to the start of that academic period and ends 90 days after the end of that academic pe- riod. (iii)Related party. A qualified educa- tion loan does not include any indebted- ness owed to a person who is related to the taxpayer, within the meaning of section 267(b) or 707(b)(1). For example, a parent or grandparent of the taxpayer is a related person. In addition, a qualified education loan does not include a loan made under any qualified employer plan as defined in section 72(p)(4) or under any contract re- ferred to in section 72(p)(5). (iv)Federal issuance or guarantee not required. A loan does not have to be is- sued or guaranteed under a federal post- secondary education loan program to be a qualified education loan. (v)Refinanced and consolidated in- debtedness—(A)In general. A qualified education loan includes indebtedness in- curred solely to refinance a qualified education loan. A qualified education loan includes a single, consolidated in- debtedness incurred solely to refinance two or more qualified education loans of a borrower. (B)Treatment of refinanced and consol- idated indebtedness.[Reserved.] (4)Examples. The following examples illustrate the rules of this paragraph (f): Example 1. Eligible educational institution.Uni- versity J is a postsecondary educational institution de- scribed in section 481 of the Higher Education Act of 1965. The U.S. Department of Education has certi- fied that University J is eligible to participate in fed- eral financial aid programs administered by that De- partment, although University J chooses not to par- ticipate. University J is an eligible educational insti- tution. Example 2. Qualified higher education expenses. Student K receives a $3,000 qualified scholarship for the 1999 fall semester that is excludable from Student K’s gross income under section 117. Student K re- ceives no other forms of financial assistance with re- spect to the 1999 fall semester. Student K’s cost of at- tendance for the 1999 fall semester, as determined by Student K’s eligible educational institution for pur- poses of calculating a student’s financial need in ac- cordance with section 472 of the Higher Education Act, is $16,000. For the 1999 fall semester, Student K has qualified higher education expenses of $13,000 (the cost of attendance as determined by the institu- tion ($16,000) reduced by the qualified scholarship proceeds excludable from gross income ($3,000)). Example 3. Qualified education loan. Student L borrows money from a commercial bank to pay qual- ified higher education expenses related to his enroll- ment on a half-time basis in a graduate program at an eligible educational institution. Student L uses all the loan proceeds to pay qualified higher education ex- penses incurred within a reasonable period of time af- ter incurring the indebtedness. The loan is not feder- ally guaranteed. The commercial bank is not related to Student L within the meaning of section 267(b) or 707(b)(1). Student L’s loan is a qualified education loan within the meaning of section 221. Example 4. Qualified education loan. Student M signs a promissory note for a loan on August 15, 1999, to pay for qualified higher education expenses for the 1999 fall and 2000 spring semesters. On Au- gust 20, 1999, the lender disburses loan proceeds to Student M’s college. The college credits them to Student M’s account to pay qualified higher educa- tion expenses for the 1999 fall semester, which be- gins on August 23, 1999. On January 25, 2000, the lender disburses additional loan proceeds to Student M’s college. The college credits them to Student M’s account to pay qualified higher education expenses for the 2000 spring semester, which began on Jan- uary 10, 2000. Student M’s qualified higher educa- tion expenses for the two semesters are paid within a reasonable period of time, as the first loan disburse- ment occurred within the 90 days prior to the start of the fall 1999 semester, and the second loan disburse- ment occurred during the spring 2000 semester. Example 5. Qualified education loan. The facts are the same as inExample 4, except that in 2001 the college is not an eligible educational institution be- cause it loses its eligibility to participate in certain federal financial aid programs administered by the U.S. Department of Education. The qualification of Student M’s loan, which was used to pay for quali- fied higher education expenses for the 1999 fall and 2000 spring semesters, as a qualified education loan is not affected by the college’s subsequent loss of el- igibility. Example 6. Mixed-use loans. Student N signs a promissory note for a loan that is secured by Student N’s personal residence. Student N will use part of the loan proceeds to pay for certain improvements to Student N’s residence and part of the loan proceeds to pay qualified higher education expenses of Student N’s spouse. Because Student N obtains the loan not solely to pay qualified higher education expenses, the loan is not a qualified education loan. (g)Denial of double benefit. No deduc- tion is allowed under this section for any amount for which a deduction is allowable under another provision of Chapter 1 of the Internal Revenue Code. No deduction is allowed under this section for any amount for which an exclusion is allowable under June 7, 200410212004-23 I.R.B. section 108(f) (relating to cancellation of indebtedness). (h)Interest—(1)In general.Amounts paid on a qualified education loan are de- ductible under section 221 if the amounts are interest for Federal income tax pur- poses. For example, interest includes— (i) Qualified stated interest (as defined in §1.1273–1(c)); and (ii) Original issue discount, which gen- erally includes capitalized interest. For purposes of section 221, capitalized inter- est means any accrued and unpaid interest on a qualified education loan that, in accor- dance with the terms of the loan, is added by the lender to the outstanding principal balance of the loan. (2)Operative rules for original issue discount—(i)In general.Therulestode- termine the amount of original issue dis- count on a loan and the accruals of the dis- count are in sections 163(e), 1271 through 1275, and the regulations thereunder. In general, original issue discount is the ex- cess of a loan’s stated redemption price at maturity (all payments due under the loan other than qualified stated interest pay- ments) over its issue price (the amount loaned). Although original issue discount generally is deductible as it accrues under section 163(e) and §1.163–7, original is- sue discount on a qualified education loan is not deductible until paid. See paragraph (h)(3) of this section to determine when original issue discount is paid. (ii)Treatment of loan origination fees by the borrower. If a loan origination fee is paid by the borrower other than for prop- erty or services provided by the lender, the fee reduces the issue price of the loan, which creates original issue discount (or additional original issue discount) on the loan in an amount equal to the fee. See §1.1273–2(g). For an example of how a loan origination fee is taken into account, seeExample 2of paragraph (h)(4) of this section. (3)Allocation of payments.See §§1.446–2(e) and 1.1275–2(a) for rules on allocating payments between interest and principal. In general, these rules treat a payment first as a payment of interest to the extent of the interest that has accrued and remains unpaid as of the date the pay- ment is due, and second as a payment of principal. The characterization of a pay- ment as either interest or principal under these rules applies regardless of how the parties label the payment (either as interest or principal). Accordingly, the taxpayer may deduct the portion of a payment la- beled as principal that these rules treat as a payment of interest on the loan, includ- ing any portion attributable to capitalized interest or loan origination fees. (4)Examples. The following examples illustrate the rules of this paragraph (h). In the examples, assume that the institu- tion the student attends is an eligible ed- ucational institution, the loan is a qualified education loan, the student is legally obli- gated to make interest payments under the terms of the loan, and any other applica- ble requirements, if not otherwise speci- fied, are fulfilled. The examples are as fol- lows: Example 1. Capitalized interest. Interest on Stu- dent O’s qualified education loan accrues while Stu- dent O is in school, but Student O is not required to make any payments on the loan until six months after he graduates or otherwise leaves school. At that time, the lender capitalizes all accrued but un- paid interest and adds it to the outstanding principal amount of the loan. Thereafter, Student O is required to make monthly payments of interest and principal on the loan. The interest payable on the loan, in- cluding the capitalized interest, is original issue dis- count. Therefore, in determining the total amount of interest paid on the qualified education loan during the 60-month period described in paragraph (e)(1) of this section, Student O may deduct any payments that §1.1275–2(a) treats as payments of interest, including any principal payments that are treated as payments of capitalized interest. See paragraph (h)(3) of this section. Example 2. Allocation of payments. The facts are the same as inExample 1of this paragraph (h)(4), ex- cept that, in addition, the lender charges Student O a loan origination fee, which is not for any property or services provided by the lender. Under §1.1273–2(g), the loan origination fee reduces the issue price of the loan, which reduction increases the amount of origi- nal issue discount on the loan by the amount of the fee. The amount of original issue discount (which includes the capitalized interest and loan origination fee) that accrues each year is determined under sec- tion 1272 and §1.1272–1. In effect, the loan origi- nation fee accrues over the entire term of the loan. Because the loan has original issue discount, the pay- ment ordering rules in §1.1275–2(a) must be used to determine how much of each payment is interest for federal tax purposes. See paragraph (h)(3) of this sec- tion. Under §1.1275–2(a), each payment (regardless of its designation by the parties as either interest or principal) generally is treated first as a payment of original issue discount, to the extent of the original issue discount that has accrued as of the date the pay- ment is due and has not been allocated to prior pay- ments, and second as a payment of principal. There- fore, in determining the total amount of interest paid on the qualified education loan during the 60-month period described in paragraph (e)(1) of this section, Student O may deduct any payments that the par- ties label as principal but that are treated as payments of original issue discount under §1.1275–2(a). The 60-month period does not begin in the month in which the lender charges Student O the loan origination fee. (i)Special rules regarding 60-month limitation—(1)Refinancing. A quali- fied education loan and all indebtedness incurred solely to refinance that loan constitute a single loan for purposes of calculating the 60-month period described in paragraph (e)(1) of this section. (2)Consolidated loans. A consoli- dated loan is a single loan that refinances more than one qualified education loan of a borrower. For consolidated loans, the 60-month period described in paragraph (e)(1) of this section begins on the latest date on which any of the underlying loans entered repayment status and includes any subsequent month in which the consoli- datedloanisinrepaymentstatus. (3)Collapsed loans. A collapsed loan is two or more qualified education loans of a single taxpayer that constitute a sin- gle qualified education loan for loan ser- vicing purposes and for which the lender or servicer does not separately account. For a collapsed loan, the 60-month period described in paragraph (e)(1) of this sec- tion begins on the latest date on which any of the underlying loans entered repayment status and includes any subsequent month in which any of the underlying loans is in repayment status. (4)Examples. The following examples illustrate the rules of this paragraph (i): Example 1. Refinancing. Student P obtains a qualifiededucationloantopayforanundergradu- ate degree at an eligible educational institution. Af- ter graduation, Student P is required to make monthly interest payments on the loan beginning in January 2000. Student P makes the required interest payments for 15 months. In April 2001, Student P borrows money from another lenderexclusively to repay the first qualified education loan. The new loan requires interest payments to start immediately. At the time Student P must begin interest payments on the new loan, which is a qualified education loan, there are 45 months remaining of the original 60-month period re- ferred to in paragraph (e)(1) of this section. Example 2. Collapsed loans. To finance his edu- cation, Student Q obtains four separate qualified ed- ucation loans from Lender R. The loans enter repay- ment status, and their respective 60-month periods described in paragraph (e)(1) of this section begin, in July, August, September, and December of 1999. Af- ter all of Student Q’s loans have entered repayment status, Lender R informs Student Q that Lender R will transfer all four loans to Lender S. Following the transfer, Lender S treats theloansasasingleloanfor loan servicing purposes. Lender S sends Student Q a single statement that shows the total principal and interest, and does not keep separate records with re- spect to each loan. With respect to the single col- 2004-23 I.R.B.1022June 7, 2004 lapsed loan, the 60-month period described in para- graph (e)(1) of this section begins in December 1999. (j)Effective date.Thissectionisappli- cable to interest due and paid on qualified education loans after January 21, 1999, if paid before January 1, 2002. Taxpayers also may apply this section to interest due and paid on qualified education loans af- ter December 31, 1997, but before January 21, 1999. This section also applies to in- terest due and paid on qualified education loans in a taxable year beginning after De- cember 31, 2010. Par. 3. Section 1.6050S–3 is amended by revising paragraphs (d)(1)(iii)(B) and (e)(1) to read as follows: §1.6050S–3 Information reporting for payments of interest on qualified education loans. ***** (d)* * * (1)* * * (iii)* * * (B) In the case of qualified education loans made before September 1, 2004, for which the payee does not report payments of interest other than stated interest, state that the payor may be able to deduct addi- tional amounts (such as certain loan origi- nation fees and capitalized interest) not re- ported on the statement; ***** (e)Special rules—(1)Transitional rule for reporting of loan origination fees and capitalized interest—(i)Loans made be- fore September 1, 2004. For qualified ed- ucation loans made before September 1, 2004, a payee is not required to report pay- ments of loan origination fees or capital- ized interest or to take such payments into account in determining the $600 amount for purposes of paragraph (a)(1) of this section. (ii)Loans made on or after September 1, 2004. For qualified education loans made on or after September 1, 2004, a payee is required to report payments of in- terest as described in §1.221–1(f). Under §1.221–1(f), interest includes loan origina- tion fees that represent charges for the use or forbearance of money and capitalized interest. Under this paragraph (e)(1)(ii), a payee shall take such payments of inter- est into account in determining the $600 amount for purposes of paragraph (a)(1) of this section. For purposes of this section and section 6050S, interest (including cap- italized interest and loan origination fees) is treated as received, and is reportable, in the year the interest is treated as paid under the allocation rules in §1.221–1(f)(3). See §1.221–1(f) for rules relating to capitalized interest, and §1.221–1(f)(2)(ii) for rules relating to loan origination fees, on qualified education loans. ***** Mark E. Matthews, Deputy Commissioner for Services and Enforcement. Approved April 27, 2004. Gregory F. Jenner, Acting Assistant Secretary of the Treasury. (Filed by the Office of the Federal Register on May 6, 2004, 8:45 a.m., and published in the issue of the Federal Register for May 7, 2004, 69 F.R. 25489) Section 280G.—Golden Parachute Payments Federal short-term, mid-term, and long-term rates are set forth for the month of June 2004. See Rev. Rul. 2004-54, page 1024. Section 382.—Limitation on Net Operating Loss Carryforwards and Certain Built-In Losses Following Ownership Change The adjusted applicable federal long-term rate is set forth for the month of June 2004. See Rev. Rul. 2004-54, page 1024. Section 412.—Minimum Funding Standards The adjusted applicable federal short-term, mid- term, and long-term rates are set forth for the month of June 2004. See Rev. Rul. 2004-54, page 1024. Section 467.—Certain Payments for the Use of Property or Services The adjusted applicable federal short-term, mid- term, and long-term rates are set forth for the month of June 2004. See Rev. Rul. 2004-54, page 1024. Section 468.—Special Rules for Mining and Solid Waste Reclamation and Closing Costs The adjusted applicable federal short-term, mid- term, and long-term rates are set forth for the month of June 2004. See Rev. Rul. 2004-54, page 1024. Section 482.—Allocation of Income and Deductions Among Taxpayers Federal short-term, mid-term, and long-term rates are set forth for the month of June 2004. See Rev. Rul. 2004-54, page 1024. Section 483.—Interest on Certain Deferred Payments The adjusted applicable federal short-term, mid- term, and long-term rates are set forth for the month of June 2004. See Rev. Rul. 2004-54, page 1024. Section 642.—Special Rules for C redits and Deductio ns Federal s hort-term, mid-term, and long-term rates are set fo rth for the month of June 2004. See Rev. Rul. 2004 -54, page 1024. Section 704.—Partner’s Distributive Share 26 CFR 1.704–1: Partner’s distributive share. T.D. 9126 DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 Section 704(b) and Capital Account Revaluations AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Final regulations. SUMMARY: This document contains fi- nal regulations relating to the capital ac- count maintenance rules under section 704 of the Internal Revenue Code. These reg- ulations expand the rules regarding a part- nership’s right to adjust capital accounts to June 7, 200410232004-23 I.R.B. reflect unrealized appreciation and depre- ciation in the value of partnership assets. DATE:Effective Date:These regulations are effective May 6, 2004. FOR FURTHER INFORMATION CONTACT: Laura Nash at (202) 622–3050 (not a toll-free number). SUPPLEMENTARY INFORMATION: Background On July 2, 2003, proposed regulations (REG–116914, 2003–32 I.R.B. 338 [68 FR 39498]) relating to the capital account maintenance rules under section 704 of the Internal Revenue Code (Code) were pub- lished in theFederal Register. The pro- posed regulations expanded the circum- stances under which a partnership is per- mitted to increase or decrease the capital accounts of the partners to reflect a revalu- ation of partnershipproperty on the part- nership’s books. Specifically, the regu- lations proposed to allow revaluations in connection with the grant of an interest in the partnership (other than ade minimisin- terest) on or after the date these final reg- ulations are published in theFederal Reg- isteras consideration for the provision of services to or for the benefit of the part- nershipbyanexistingpartneractingina partner capacity, or by a new partner act- ing in a partner capacity or in anticipation of being a partner. In addition, the notice of proposed rulemaking requested comments on other situations in which revaluations of partnership property should be permitted. No written or electronic comments were received in response to the notice of pro- posed rulemaking. No requests for a pub- lic hearing were received, and accordingly, no hearing was held. Explanation of Provisions This Treasury decision adopts the pro- posed regulations without change. The regulations apply to the grant of an inter- est in a partnership (other than ade min- imisinterest)onorafterMay6,2004,as consideration for the provision of services to or for the benefit of the partnership by an existing partner acting in a partner capac- ity, or by a new partner acting in a partner capacity or in anticipation of being a part- ner. Special Analysis 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 assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because these regulations do not impose a collec- tion of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chap- ter 6) does not apply. Pursuant to sec- tion 7805(f) of the Code, the notice of pro- posed rulemaking preceding these regula- tions was submitted to the Chief Counsel for Advocacy of the Small Business Ad- ministration for comment on its impact on small businesses. Drafting Information The principal author of these regula- tions is Laura Nash, Office of Associate Chief Counsel (Passthroughs and Special Industries), IRS. However, other person- nel from the IRS and Treasury Department participated in their development. ***** Adoption of Amendments to the Regulations Accordingly, 26 CFR part 1 is 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 1.704–1 is amended as follows: 1. Paragraph (b)(2)(iv)(f)(5)(iii)is redesignated as paragraph (b)(2)(iv) (f)(5)(iv). 2. New paragraph (b)(2)(iv)(f)(5)(iii)is added to read as follows: §1.704–1 Partner’s distributive share. ***** (b) * * * (2) * * * (iv) * * * (f)*** (5)*** (iii) In connection with the grant of an interest in the partnership (other than ade minimisinterest) on or after May 6, 2004, as consideration for the provision of ser- vices to or for the benefit of the partner- ship by an existing partner acting in a part- ner capacity, or by a new partner acting in a partner capacity or in anticipation of be- ing a partner. ***** Mark E. Matthews, Deputy Commissioner for Services and Enforcement. Approved April 29, 2004. Gregory F. Jenner, Assistant Secretary of the Treasury. (Filed by the Office of the Federal Register on May 5, 2004, 8:45 a.m., and published in the issue of the Federal Register for May 6, 2004, 69 F.R. 25315) Section 807.—Rules for Certain Reserves The adjusted applicable federal short-term, mid- term, and long-term rates are set forth for the month of June 2004. See Rev. Rul. 2004-54, page 1024. Section 846.—Discounted Unpaid Losses Defined The adjusted applicable federal short-term, mid- term, and long-term rates are set forth for the month of June 2004. See Rev. Rul. 2004-54, page 1024. Section 1274.—Determi- nation of Issue Price in the Case of Certain Debt Instru- ments Issued for Property (Also sections 42, 280G, 382, 412, 467, 468, 482, 483, 642, 807, 846, 1288, 7520, 7872.) Federal rates; adjusted federal rates; adjusted federal long-term rate and the long-term exempt rate.For purposes of sections 382, 642, 1274, 1288, and other sections of the Code, tables set forth the rates for June 2004. Rev. Rul. 2004–54 This revenue ruling provides vari- ous prescribed rates for federal income tax purposes for June 2004 (the current month). Table 1 contains the short-term, mid-term, and long-term applicable fed- eral rates (AFR) for the current month for purposes of section 1274(d) of the 2004-23 I.R.B.1024June 7, 2004 Internal Revenue Code. Table 2 contains the short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for the current month for purposes of section 1288(b). Table 3 sets forth the adjusted federal long-term rate and the long-term tax-exempt rate described in section 382(f). Table 4 contains the ap- propriate percentages for determining the low-income housing credit described in section 42(b)(2) for buildings placed in service during the current month. Finally, Table 5 contains the federal rate for de- termining the present value of annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of section 7520. REV. RUL. 2004–54 TABLE 1 Applicable Federal Rates (AFR) for June 2004 Period for Compounding AnnualSemiannualQuarterlyMonthly Short-Term AFR1.98%1.97%1.97%1.96% 110% AFR2.18%2.17%2.16%2.16% 120% AFR2.37%2.36%2.35%2.35% 130% AFR2.58%2.56%2.55%2.55% Mid-Term AFR3.89%3.85%3.83%3.82% 110% AFR4.28%4.24%4.22%4.20% 120% AFR4.67%4.62%4.59%4.58% 130% AFR5.07%5.01%4.98%4.96% 150% AFR5.86%5.78%5.74%5.71% 175% AF R 6.85%6.74%6.68%6.65% Long-Term AFR5.20%5.13%5.10%5.08% 110% AFR5.72%5.64%5.60%5.57% 120% AFR6.25%6.16%6.11%6.08% 130% AFR6.78%6.67%6.62%6.58% REV. RUL. 2004–54 TABLE 2 Rates Under Section 382 for June 2004 Period for Compounding AnnualSemiannualQuarterlyMonthly Short-term adjusted AFR 1.61%1.60%1.60%1.59% Mid-term adjusted AFR3.06%3.04%3.03%3.02% Long-term adjusted AFR 4.62%4.57%4.54%4.53% REV. RUL. 2004–54 TABLE 3 Rates Under Section 382 for June 2004 Adjusted federal long-term rate for the current month4.62% Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted federal long-term rates for the current month and the prior two months.)4.62% June 7, 200410252004-23 I.R.B. REV. RUL. 2004–54 TABLE 4 Appropriate Percentages Under Section 42(b)(2) for June 2004 Appropriate percentage for the 70% present value low-income housing credit8.06% Appropriate percentage for the 30% present value low-income housing credit3.45% REV. RUL. 2004–54 TABLE 5 Rate Under Section 7520 for June 2004 Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest4.6% Section 1288.—Treatment of Original Issue Discount on Tax-Exempt Obligations The adjusted applicable federal short-term, mid- term, and long-term rates are set forth for the month of June 2004. See Rev. Rul. 2004-54, page 1024. Section 6103.—Confi- dentiality and Disclosure of Returns and Return Information 26 CFR 301.6103: Confidentiality of returns. Clarification of scope of section 6103(a).This ruling clarifies the fact that government employees who receive returns or return information pursuant to disclosures under section 6103(c), (k)(6), or (e) of the Code, other than sec- tion 6103(e)(1)(D)(iii)(relating to certain shareholders), are not subject to the dis- closure restrictions of section 6103(a) with regard to the returns or return information received. Rev. Rul. 2004–53 ISSUE Whether Federal, State and local gov- ernment officers or employees (“govern- ment employees”) are subject to the disclo- sure restrictions of Internal Revenue Code section 6103(a) with regard to returns or return information received as a result of disclosures under: •section 6103(c) with the consent of the taxpayer (taxpayer consent exception) •section 6103(e) as a person having a material interest, but not under sec- tion 6103(e)(1)(D)(iii) relating to dis- closures to certain shareholders (mate- rial interest exception), or •section 6103(k)(6) for investigative purposes (investigative disclosure ex- ception). FAC TS Situation 1.Arequests the assistance of his friendBwith respect to a tax matter. Aalso requests that the Internal Revenue Service provideA’s returns and return in- formation toB.Bsubsequently discloses to a third party returns and return information obtained as a result ofA’s request that the Service provide the returns and return in- formation. Situation 2. Same as situation 1, above, except thatBhappens to be an employee in the office of a State agency. Situation 3.Cis a lawyer employed by a law firm. The firm has a policy of tak- ing disciplinary action against any of its attorneys who do not properly fulfill their tax obligations. The Service serves a no- tice of levy with respect toC’s tax liabil- ity on the payroll department of the firm. A payroll department employee (D)pro- cesses the notice of levy and informs the firm’s managing partners ofC’s tax delin- quency to enable the firm to take appropri- ate action consistent with firm policy. Situation 4.Eis an employee of a State agency. The agency has a policy of taking disciplinary action against employees who do not properly fulfill their tax obligations. The Service serves a notice of levy with re- spect toE’s tax liability on the payroll de- partment of the agency. A payroll depart- ment employee (F) processes the notice of levy and informs the agency’s labor rela- tions office ofE’s tax delinquency to en- able the agency to take appropriate action consistent with its policy. Situation 5. Same as Situation 4, above, except thatEandFare employees of a Federal agency. Situation 6.Gis the unemployed father of 5-year-old film starH.H’s mother signs H’s return as parent for a minor child and dies shortly thereafter.Gis the guardian ofH’s estate under applicable State law. Greceives notice thatH’s return is under examination.Gdoes not have a copy of H’s return. To assist in the examination, Gobtains the return and return informa- tion from the Service. When subsequently asked by a news reporter how much in- comeHreported on the return,Greplies “three million dollars.” Situation 7. Same as Situation 6, above, except thatGhappens to be an employee of a Federal agency. LAW Generally, section 6103 provides that returns and return information (as defined in section 6103(b)(2)) are confidential and may not be disclosed except as expressly authorized by the Code. Specifically, ex- cept as authorized by the Code, section 6103(a) prohibits the disclosure by offi- cers or employees of the United States, of any State, or of specified local government agencies, or by certain other specified per- sons, of returns and return information ob- tained in connection with service as such an officer or employee or otherwise.See Girard v. Bentsen, 94–2 U.S.T.C. ¶ 50,625 (N.D. Cal. 1994) (“or otherwise” modifies “in connection with his service”, allow- 2004-23 I.R.B.1026June 7, 2004 ing the statute to cover those who are nei- ther “officers” nor “employees”, namely certain other persons specified in section 6103(a)). There are, however, exceptions to the general rule of confidentiality. First, the taxpayer consent exception permits the disclosure of returns and return in- formation to a designee of a taxpayer, pursuant to the taxpayer’s request or con- sent. To be valid, a consent must satisfy the requirements of section 6103(c) and § 301.6103(c)–1(a) of the Procedure and Administration Regulations. Second, the material interest exception permits the dis- closure of returns and return information to specific persons with amaterial interest in the information. Third, the investigative disclosure exception,in conjunction with § 301.6103(k)(6)–1, authorizes the disclo- sure of return information (but not returns) to the extent that disclosure is necessary in obtaining information that is not otherwise reasonably available with respect to the correct determination of tax, liability for tax, or the amount to be collected, or with respect to the enforcement of any other provision of the Code. When the general rule of confidential- ity applies, section 6103(p) imposes cer- tain accountings and safeguards. Section 6103(p)(3) generally requires the Service to maintain a permanent system of stan- dardized records or accountings of all re- quests for, and disclosures of, returns and return information under particular provi- sions of section 6103. Section 6103(p)(4) generally requires recipients of returns or return information under particular provi- sions of section 6103 to keep records of re- quests and disclosures, to maintain secure storage, to establish restricted access, to re- port to the Service on confidentiality pro- cedures, to return or destroy the returns or return information upon completion of the prescribed use, and to provide other nec- essary or appropriate safeguards. These accounting and safeguard requirements do not apply to returns or return information disclosed under the taxpayer consent ex- ception, the material interest exception, or the investigative disclosure exception. ANALYSIS Section 6103(c), (e), and (k)(6) con- tains no limitation or restriction on the re- disclosure of returns or return information received pursuant to the taxpayer consent, material interest and investigative disclo- sure exceptions. Therefore, in Situations 1, 3, and 6 there are no statutory or regula- tory restrictions on the redisclosures made byB,D,orG. In Situations 2, 4, 5, and 7, however, the prohibition in section 6103(a) on redis- closure by government employees could be read to prohibit redisclosures byB,F, andGbecause they happen to be govern- ment employees. This reading would cre- ate a disparity in the application of section 6103(a) based on where the person receiv- ing the disclosure of returns or return in- formation happens to be employed. By its terms, section 6103(a) does not regulate or control the use of returns and return information received under the tax- payer consent, material interest and inves- tigative disclosure exceptions. Moreover, the requirements for accountings and safe- guards that typically apply where redisclo- sureislimiteddonotapplytotheseexcep- tions. There is no evidence that Congress in- tended disparate treatment of individuals receiving disclosures of returns or return information pursuant to these exceptions merely because they happen to be govern- ment employees. On the contrary, there are compelling reasons for those government employees to be subject to the same rules as other recipients. For example, a private sector employer may take disciplinary ac- tion against employees who do not prop- erly fulfill their tax obligations. If redis- closure is not permitted because the em- ployer happens to be the Federal govern- ment, the Federal employees who failed to fulfill their tax obligations would be in a significantly better position than their pri- vate sector counterparts. This inappropri- ate result only occurs if section 6103(a) is read to apply to individuals merely be- cause they happen to be government em- ployees. Accordingly, persons are not barred be- cause of their status as government em- ployees from redisclosing returns and re- turn information received pursuant to sec- tion 6103(c), (e), and (k)(6). HOLDING Government employees who receive re- turns or return information pursuant to dis- closures under section 6103(c), (k)(6) or (e), other than section 6103(e)(1)(D)(iii) (relating to certain shareholders), are not subject to the disclosure restrictions of sec- tion 6103(a) with regard to the returns or return information received. DRAFTING INFORMATION The principal author of this revenue rul- ing is Geoffrey M. Campbell of the Of- fice of Associate Chief Counsel, Proce- dure & Administration (Disclosure & Pri- vacy Law Division). For further informa- tion regarding this revenue ruling, contact Geoffrey M. Campbell at (202) 622–4570 (not a toll-free call). Section 7520.—Valuation Tables The adjusted applicable federal short-term, mid- term, and long-term rates are set forth for the month of June 2004. See Rev. Rul. 2004-54, page 1024. Section 7872.—Treatment of Loans With Below-Market Interest Rates The adjusted applicable federal short-term, mid- term, and long-term rates are set forth for the month of June 2004. See Rev. Rul. 2004-54, page 1024. June 7, 200410272004-23 I.R.B. Part III. Administrative, Procedural, and Miscellaneous Weighted Average Interest Rates Update Notice 2004–40 This notice provides guidance as to the corporate bond weighted average interest rate and the permissible range of interest rates specified under § 412(b)(5)(B)(ii)(II) of the Internal Revenue Code. In ad- dition, it provides guidance as to the interest rate on 30-year Treasury securi- ties under § 417(e)(3)(A)(ii)(II), and the weighted average interest rate and permis- sible ranges of interest rates based on the 30-year Treasury securities rate. CORPORATE BOND WEIGHTED AVERAGE INTEREST RATE Sections 412(b)(5)(B)(ii) and 412(l)(7) (C)(i), as amended by the Pension Funding Equity Act of 2004, provide that the inter- est rates used to calculate current liability and to determine the required contribution under § 412(l) for plan years beginning in 2004 or 2005 must be within a permissible range based on the weighted average of the rates of interest on amounts invested con- servatively in long term investment grade corporate bonds during the 4-year period ending on the last day before the beginning of the plan year. Notice 2004–34, 2004–18 I.R.B. 848, provides guidelines for determining the corporate bond weighted average interest rate and the resulting permissible range of interest rates used to calculate current liability. That notice establishes that the corporate bond weighted average is based on the monthly composite corporate bond rate derived from designated corporate bond indices. The composite corporate bond rate for April 2004 is 5.86 percent. Pursuant to No- tice 2004–34, the Service has determined this rate as the average of the monthly yields for the included corporate bond in- dices for that month. The following corporate bond weighted average interest rate was determined for plan years beginning in the month shown below. For Plan Years Beginning in: MonthYear Corporate Bond Weighted Average 90% to 100% Permissible Range May20046.365.73 to 6.36 30-YEAR TREASURY SECURITIES WEIGHTED AVERAGE INTEREST RATE Section 417(e)(3)(A)(ii)(II) defines the applicable interest rate, which must be used for purposes of determining the minimum present value of a participant’s benefit under § 417(e)(1) and (2), as the annual rate of interest on 30-year Treasury securities for the month before the date of distribution or such other time as the Secretary may by regulations prescribe. Section 1.417(e)–1(d)(3) of the Income Tax Regulations provides that the applica- bleinterestrateforamonthistheannual interest rate on 30-year Treasury securi- ties as specified by the Commissioner for that month in revenue rulings, notices or other guidance published in the Internal Revenue Bulletin. Section 404(a)(1) of the Code, as amended by the Pension Funding Eq- uity Act of 2004, permits an employer to elect to disregard subclause (II) of § 412(b)(5)(B)(ii) to determine the max- imum amount of the deduction allowed under § 404(a)(1). The rate of interest on 30-year Treasury securities for April 2004 is 5.14 percent. Pursuant to Notice 2002–26, 2002–1 C.B. 743, the Service has determined this rate as the monthly average of the daily deter- mination of yield on the 30-year Treasury bond maturing in February 2031. The following 30-year Treasury rates were determined for the plan years begin- ning in the month shown below. For Plan Years Beginning in: MonthYear 30-Year Treasury Weighted Average 90% to 105% Permissible Range 90% to 110% Permissible Range May20045.174.65to5.434.65to5.69 Drafting Information The principal authors of this notice are Paul Stern and Tony Montanaro of the Employee Plans, Tax Exempt and Government Entities Division. For fur- ther information regarding this notice, please contact the Employee Plans’ tax- payer assistance telephone service at 1–877–829–5500 (a toll-free number), between the hours of 8:00 a.m. and 6:30 p.m. Eastern time, Monday through Friday. Mr. Stern may be reached at 1–202–283–9703. Mr. Montanaro may be reached at 1–202–283–9714. The tele- phone numbers in thepreceding sentences are not toll-free. 2004-23 I.R.B.1028June 7, 2004 26 CFR 601.105: Examination of returns and claims for refund, credit or abatement; determination of cor- rect tax liability. (Also Part I, §§ 1362; 1.1362–6.) Rev. Proc. 2004–35 SECTION 1. PURPOSE This revenue procedure provides auto- matic relief for certain taxpayers request- ing relief for late shareholder consents for S corporation elections in community property states. SECTION 2. BACKGROUND Section 1361(a)(1) of the Internal Rev- enue Code defines an “S corporation,” with respect to any taxable year, as a small businesscorporationforwhichanScor- poration election under section 1362(a) is in effect for that year. Section 1362(a)(2) provides that an electiontobeanScorporationshallbe valid only if all persons who are share- holders in the corporation on the day on which the election is made consent to the election. Section 1.1362–6(b)(2)(i) of the In- come Tax Regulations provides that when stock of the corporation is owned by hus- band and wife as community property (or the income from the stock is com- munity property), each person having a community interest in the stock or income therefrom must consent to the election. Section 1.1362–6(b)(3)(iii) provides that an election that is timely filed for any taxable year and that would be valid except for the failure of any shareholder to file a timely consent is not invalid if consents are filed and it is shown to the satisfac- tion of the service center with which the corporation files its income tax return that (1) there was reasonable cause for the fail- ure to file the consent, (2) the request for the extension of time to file a consent is made within a reasonable time under the circumstances, and (3) the interests of the Government will not be jeopardized by treating the election as valid. SECTION 3. SCOPE This revenue procedure provides au- tomatic relief for late filing of share- holder consents for spouses of S corpora- tion shareholders in community property states. A corporation that does not meet the re- quirements for relief or is denied relief un- der this revenue procedure may request re- lief under § 1.1362–6(b)(3)(iii). The cor- poration may also request inadvertent in- valid election relief by requesting a letter ruling. The procedural requirements for requesting a letter ruling are described in Rev. Proc. 2004–1, 2004–1 I.R.B. 1 (or its successor). SECTION 4. AUTOMATIC RELIEF FOR LATE SHAREHOLDER CONSENTS UNDER THIS REVENUE PROCEDURE .01Eligibility for Automatic Relief.Au- tomatic relief is available if all of the fol- lowing conditions are met: (1) The S corporation election is invalid solely because the Form 2553,Election by a Small Business Corporation,failedtoin- clude the signature of a community prop- erty spouse who was a shareholder solely pursuant to state community property law; and (2) Both spouses have reported all items of income, gain, loss, deduction or credit consistent with the S corporation election on all affected federal income tax returns. .02Procedural Requirements for Auto- matic Relief. The corporation must file with the service center with which the cor- poration files its income tax return a dated statement that includes the following infor- mation: (1) A representation that reads, “This statement is being furnished pursuant to Rev. Proc. 2004–35 for a late filing of shareholder consents for community prop- erty spouses of S corporation shareholders in community property states.” (2) The name of the corporation, its em- ployer identification number, its address, date of incorporation, state of incorpora- tion, and the intended effective date of its initially filed Form 2553; (3) Each spouse’s name, social security number or employee identification num- ber, tax year end and the total number of shares owned at the date of the intended election; (4) A statement that the community property spouses reported all items of income, gain, loss, deduction or credit consistent with the S corporation election on all affected returns; (5) A signed statement from each of the community property spouses that reads, “Under penalties of perjury, I, [name of community property spouse], declare that I consent to the election to treat [name of S corporation] to be an S corporation un- der section 1362(a) of the Internal Rev- enue Code as of [the date that the S cor- poration intended to be an S corporation] and to the best of my knowledge and be- lief, the facts presented in support of this election are true, correct, and complete.” .03Relief for Failure to File Timely Shareholder Consent to S Corporation Elections. A shareholder that satisfies the requirements of section 4.01 of this revenue procedure will be deemed (1) to have reasonable cause for the failure to consent to the S corporation elections, (2) to have made the request for the extension of time to file a consent within a reason- able time under the circumstances, and (3) to have satisfied the requirement that the interests of the Government will not be jeopardized by treating the election as valid. Accordingly, the shareholder will automatically be granted relief to file the late shareholder consent. The Service will notify the shareholder of the acceptance of the shareholder’s request to file the late shareholder consent or of the denial of a request that fails to satisfy the require- ments of this revenue procedure. SECTION 5. EFFECTIVE DATE This revenue procedure is effective for all applications for relief satisfying the requirements of section 4 of this revenue procedure, including those applications now being considered by the Service. SECTION 6. PAPERWORK REDUCTION ACT The collection of information con- tained in this revenue procedure has been reviewed and approved by the Office of Management and Budget in accor- dance with the Paperwork Reduction Act (44 U.S.C. 3507) under control number 1545–1886. An agency may not conduct or sponsor, and a person is not required to respond June 7, 200410292004-23 I.R.B. to, a collection of information unless the collection of information displays a valid OMB control number. The collections of information in this revenue procedure are in section 4.02. This information is required to be sub- mitted to the applicable service center in order to obtain relief for late elections under subchapter S. This information will be used to determine whether the eligibil- ity requirements for obtaining relief have been met. The collection of information is required to obtain a benefit. The likely re- spondents are business or other for-profit institutions. The estimated total annual reporting burden is 500 hours. The estimated annual burden per re- spondent varies from .5 hours to 7 hours, depending on individual circumstances, with an estimated average burden of 1 hour to complete the statement. The esti- mated number of respondents is 200. The estimated annual frequency of re- sponses is on occasion. Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally tax returns and tax return information are confidential, as required by 26 U.S.C. 6103. SECTION 7. DRAFTING INFORMATION The principal author of this revenue procedure is Jason T. Smyczek of the Office of the Associate Chief Counsel (Passthroughs and Special Industries.) For further information regarding this revenue procedure, contact Mr. Smyczek at (202) 622–3050 (not a toll-free call). 2004-23 I.R.B.1030June 7, 2004 Part IV. Items of General Interest Notice of Proposed Rulemaking and Notice of Public Hearing Definition of Solid Waste Disposal Facilities for Tax-Exempt Bond Purposes REG–140492–02 AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemaking and notice of public hearing. SUMMARY: This document contains pro- posed regulations on the definition of solid waste disposal facilities for purposes of the rules applicableto tax-exempt bonds issued by State and local governments. These regulations provide guidance to State and local governments that issue tax-exempt bonds to finance solid waste disposal facilities and to taxpayers that use those facilities. This document also con- tains a notice of public hearing on these proposed regulations. DATES: Written or electronic comments must be received by August 9, 2004. Out- lines of topics to be discussed at the pub- lic hearing scheduled for August 11, 2004, at 10 a.m., must be received by August 4, 2004. ADDRESSES: Send submissions to CC:PA:LPD:PR (REG–140492–02), room 5203, Internal Revenue Service, POB 7604, Ben Franklin Station, Washing- ton, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG–140492–02), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Wash- ington, DC. Alternatively, taxpayers may submit comments electronically to the IRS Internet site athttp://www.irs.gov/regs, or via the Federal eRulemaking Portal athttp://www.regulations.gov(IRS — REG–140492–02). The public hearing will be held in the auditorium, Internal Revenue Building, 1111 Constitution Av- enue, NW, Washington, DC. FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Michael P. Brewer, (202) 622–3980; concerning submissions and the hear- ing, Sonya Cruse, (202) 622–4693 (not toll-free numbers). SUPPLEMENTARY INFORMATION: Background Generally, interest on a State or local bond is excluded from gross income un- der section 103 of the Internal Revenue Code (Code). However, section 103(b) provides that the exclusion does not ap- ply to a private activity bond unless the bond is a qualified bond. Section 141(e) definesqualified bondto include an ex- empt facility bond that meets certain re- quirements. Section 142(a) lists the cate- gories of exempt facility bonds, which in- clude bonds for solid waste disposal facil- ities under section 142(a)(6). Section 1.103–8(f)(2)(ii)(a) of the In- come Tax Regulations generally defines solid waste disposal facilitiesas any prop- erty or portion thereof used for the col- lection, storage, treatment, utilization, pro- cessing, or final disposal of solid waste. Section 1.103–8(f)(2)(ii)(b) provides that the termsolid wastehas the same mean- ing as in former section 203(4) of the Solid Waste Disposal Act (42 U.S.C. 3252(4)), as quoted in §1.103–8(f)(2)(ii)(b), except that material will not qualify as solid waste unless, on the date of issue of the obliga- tions issued to provide the facility to dis- pose of the waste material, it is property that is useless, unused, unwanted, or dis- carded solid material that has no market or other value at the place where the property is located (theno-value test). Thus, under the existing regulations, when any person is willing to purchase the property, at any price, the material is not waste. However, if any person is willing to remove the prop- erty at his own expense but is not willing to purchase it at any price, the material is waste under the existing regulations. Former section 203(4) of the Solid Waste Disposal Act, as quoted in §1.103–8(f)(2)(ii)(b), provides that the termsolid wastemeans, garbage, refuse, and other discarded solid materials, including solid-waste materials resulting from industrial, commercial, and agricultural opera- tions, and from community activities, but does not include solids or dis- solved material in domestic sewage or other significant pollutants in water resources, such as silt, dissolved or sus- pended solids in industrial waste water effluents, dissolved materials in irri- gation return flows or other common water pollutants. Section 1.103–8(f)(2)(ii)(c) states that a facility that disposes of solid waste by re- constituting, converting, or otherwise re- cycling it into material that is not waste also qualifies as a solid waste disposal fa- cility if solid waste constitutes at least 65 percent, by weight or volume, of the to- tal materials introduced into the recycling process. Such a recycling facility does not fail to qualify as a solid waste disposal fa- cility under the existing regulations solely because it operates at a profit. Section 17.1(a) of the temporary In- come Tax Regulations generally provides that, in the case of property that has both a solid waste disposal function and a func- tion other than the disposal of solid waste, only the portion of the cost of the prop- erty allocable to the function of solid waste disposal is taken into account as an expen- diture to provide solid waste disposal fa- cilities. However, under §17.1(a), a facil- ity that otherwise qualifies as a solid waste disposal facility will not be treated as hav- ing a function other than solid waste dis- posal merely because material or heat that has utility or value is recovered or results from the disposal process. Section 17.1(a) provides that, when materials or heat are recovered, the waste disposal function in- cludes the processing of those materials or heat that occurs in order to put them into the form in which the materials or heat are in fact sold or used, but does not include further processing that converts the mate- rials or heat into other products. Section 17.1(b) provides that the por- tion of the cost of property allocable to solid waste disposal is determined by al- locating the cost of the property between the property’s solid waste disposal func- tion and any other functions by any method which, with reference to all the facts and circumstances with respect to the property, June 7, 200410312004-23 I.R.B. reasonably reflects a separation of costs for each function of the property. In Notice 2002–51, 2002–2 C.B. 131, the IRS and Treasury Department re- quested public comments on the appli- cation of section 142(a)(6) to recycling facilities. Notice 2002–51 also invited comments on any other issues concerning the application of that Code provision. In response to the Notice, commen- tators suggested that the rules governing exempt facility bonds for solid waste dis- posal facilities should be consistent with national policies to encourage, facilitate, and increase recycling. For example, com- mentators stated that the rules should not deny tax-exempt financing to recycling while providing such financing to landfills and municipal waste incinerators. Commentators suggested revisions to the no-value test used for determining whether material is solid waste. For exam- ple, commentators suggested that material that has a market or other value at the place it is located only by reason of its value for recycling should not be considered to have a market or other value. Commentators also suggested that material acquired by a recycler should qualify as solid waste if the amounts paid to the packer, collector or similar party are not in excess of the cost of transporting and handling the material. Some commentators suggested that the determination of whether material is waste should be made at the point of generation prior to the time costs are incurred to di- vert the material from the waste stream. Commentators also suggested that the determination of when the waste recy- cling process stops should not depend on whether the activity is being carried out by a single party or multiple parties, or whether there has been a change of own- ership of the material. The IRS and Treasury Department have considered these comments, and the pro- posed regulations contained in this doc- ument (the proposed regulations) imple- ment a number of these recommendations. Explanation of Provisions I.Solid Waste The proposed regulations contain pro- posed amendments to 26 CFR part 1 regarding exempt facility bonds for solid waste disposal facilities. In light of the changes that have occurred in the waste recycling industry since the existing regu- lations were issued in 1972, the proposed regulations eliminate the no-value test for determining whether material is solid waste. The proposed regulations retain the definition of solid waste under former section 203(4) of the Solid Waste Disposal Act, quoted above, and provide guidance for determining whether material consti- tutes “garbage, refuse and other discarded solid materials” under that definition. Thus, the proposed regulations provide that the termsolid wastemeans garbage, refuse, and other discarded solid materials, including solid-waste materials resulting from industrial, commercial, and agri- cultural operations, and from community activities, but does not include solids or dissolved material in domestic sewage or other significant pollutants in water resources, such as silt, dissolved or sus- pended solids in industrial waste water effluents, dissolved materials in irrigation return flows or other common water pol- lutants. For these purposes, the proposed reg- ulations provide thatgarbage, refuse and other discarded solid materialsmeans ma- terial that is solid and that is introduced into a final disposal process, conversion process, recovery process, or transforma- tion process (as those terms are defined in the proposed regulations and described in part II below) unless the material falls within one of several categories of ex- cluded items. The first category of material that does not constitute solid waste is material that is introduced into a conversion process if the material is either: (1) a fossil fuel; or (2) any material that is grown, harvested, produced, mined, or otherwise created for the principal purpose of converting the ma- terial to heat, hot water, steam, or another useful form of energy. For this purpose, material is not treated as grown, harvested, produced, mined, or otherwise created for the principal purpose of converting the ma- terial to heat, hot water, steam, or another useful form of energy just because an op- eration is performed on the material to make the material more conducive to be- ing converted to heat, hot water, or steam. For example, if material that is not other- wise grown, harvested, produced, mined, or created for the principal purpose of con- verting the material to a useful form of en- ergy is formed into pellets to make the ma- terial more conducive to being incinerated to produce steam, the creation of pellets does not cause the material to be produced or created for the principal purpose of con- verting the material to steam. The second category of material that does not constitute solid waste is any pre- cious metal that is introduced into a recov- ery process. The regulations are reserved with re- spect to any additional category of ex- cluded material that may be specified with respect to a transformation process. Under the proposed regulations, haz- ardous material is not solid waste if the material is disposed of at a facility that is subject to final permit requirements under subtitle C of title II of the Solid Waste Disposal Act (as in effect on October 22, 1986, the date of the enactment of the Tax Reform Act of 1986). Thus, under the proposed regulations, a hazardous waste disposal facility described in sec- tion 142(h)(1) would not qualify as a solid waste disposal facility. Finally, the proposed regulations pro- vide that radioactive material is not solid waste. II.Solid Waste Disposal Facility A.In General The proposed regulations provide that a facility is asolid waste disposal facility to the extent that the facility is: (1) used to perform a solid waste disposal function (as defined in the proposed regulations and discussed in part II, B below); (2) used to perform a preliminary function (as defined in the proposed regulations and discussed in part II, C below); or (3) functionally re- lated and subordinate (within the meaning of §1.103–8(a)(3)) to a facility that is used to perform a solid waste disposal function or a preliminary function. B.Solid Waste Disposal Function The proposed regulations definesolid waste disposal functionas the process- ing of solid waste in (1) a final disposal process, (2) a conversion process, (3) a recovery process, or (4) a transformation process. 2004-23 I.R.B.1032June 7, 2004 1.Final Disposal Process Under the proposed regulations, afinal disposal processis (1) the placement of material in a landfill or (2) the incineration of material without any useful energy be- ing captured. Comments are requested on whether other types of processes should be included in the definition of final disposal process. 2.Conversion Process The proposed regulations definecon- version processas a process in which ma- terial is incinerated and heat, hot water, or steam is created and captured as useful energy. For this purpose, the conversion process begins with the incineration of ma- terial and ends at the point at which the lat- est of heat, hot water, or steam is created. Thus, the conversion process ends before anytransferordistributionofheat,hotwa- ter or steam. Comments are requested on the definition of conversion process in the proposed regulations, including whether the definition should include processes in which useful energy in a form other than heat, hot water, or steam is created. 3.Recovery Process The proposed regulations define recov- ery process as a process that starts with the melting or re-pulping of material to return the material to a form in which the mate- rial previously existed for use in the fabri- cation of an end product and ends imme- diately before the material is processed in the same or substantially the same way that virgin material is processed to fabricate the end product. The proposed regulations further pro- vide that, if an end product is fabricated entirely from non-virgin material, the re- covery process ends immediately before the non-virgin material is processed in the same or substantially the same way that virgin material is processed in a compara- ble fabrication process that uses only vir- gin material or a combination of virgin and non-virgin material. The proposed regulations also specify that refurbishing, repair, or similar activ- ities are not recovery processes. Comments are requested on the defini- tion of recovery process in the proposed regulations, including whether the defini- tion should include processes, other than melting or re-pulping, that return material to a form in which the material previously existed. 4.Transformation Process The IRS and Treasury Department rec- ognize that certain processes in which material is transformed for use in the creation of a useful product (transforma- tion processes) should be treated as solid waste disposal functions. A transforma- tion process could include, for example, shredding used tires for use as roadbed material. However, defining a transfor- mation process requires clear criteria that distinguish a transformation process from a manufacturing or production process that uses material other than solid waste. The proposed regulations reserve on the definition of transformation process so that the public may comment on how the definition should be crafted to meet this objective within the context of the proposed regulations. Comments are requested in particular on whether the def- inition of a transformation process should be limited to the processing of particu- lar types of materials to produce certain categories of products, and, if so, what types of materials and which categories of products should be included. C.Preliminary Function A facility is a solid waste disposal fa- cility under the proposed regulations to the extent that the facility is used to perform a preliminary function. For this purpose, a preliminary functionis the collection, sep- aration, sorting, storage, treatment, pro- cessing, disassembly, or handling of solid material that is preliminary and directly re- lated to a solid waste disposal function. However, no portion of a collection, sepa- ration, sorting, storage, treatment, process- ing, disassembly, or handling activity is a preliminary function unless, for each year while the issue is outstanding, more than 50 percent, by weight or volume, of the to- tal materials that result from the entire ac- tivity (both the part that is preliminary and directly related to a solid waste disposal function and the part that is not prelimi- nary and directly related to a solid waste disposal function) is solid waste. For ex- ample, if a facility sorts material and some of the sorted material is processed in a solid waste disposal function and some of the sorted material is processed in another manner, a portion of the sorting facility is a solid waste disposal facility if, for each year while the issue is outstanding, more than 50 percent, by weight or volume, of all the sorted material is solid waste. D.Mixed-Function Facilities The proposed regulations provide that, in general, if a facility is used to perform both (1) a solid waste disposal function or a preliminary function, and (2) another function, then the costs of the facility allo- cable to the solid waste disposal function or the preliminary function are determined using any reasonable method, based on all the facts and circumstances. This rule applies, for example, if a facility is used (1) to process solid waste in a recovery process and (2) to perform another func- tion that is neither a solid waste disposal function (because it does not process solid waste in a final disposal process, conver- sion process, recovery process, or transfor- mation process) nor a preliminary function (because it is not preliminary and directly related to a solid waste disposal function). The proposed regulations also contain a special rule to determine the portion of the costs of property that are alloca- ble to a solid waste disposal function if the property is used to perform a final disposal process, conversion process, re- covery process, or transformation process and the inputs to the process consist of solid waste and material that is not solid waste. Under this special rule, the portion of the costs of property used to perform such a process that are allocable to a solid waste disposal function equals the lowest percentage of solid waste processed in the process in any year while the issue is outstanding. The percentage of solid waste processed in such a process for any year is the percentage, by weight or vol- ume, of the total materials processed in the process that constitute solid waste for that year. If, however, for each year while the issue is outstanding, solid waste con- stitutes at least 80 percent, by weight or volume, of the total materials processed in the process, all of the costs of the property used to perform the process are allocable to a solid waste disposal function. June 7, 200410332004-23 I.R.B. Proposed Effective Date The proposed regulations will apply to bonds that are: (1) sold on or after the date that is 60 days after the date of publication of final regulations under section 142(a)(6) in theFederal Register; and (2) subject to section 142. However, the proposed reg- ulations provide that an issuer is not re- quired to apply the regulations to bonds described in the preceding sentence that are issued to refund a bond to which the regulations do not apply if the weighted average maturity of the refunding bonds is not longer than the weighted average maturity of the refunded bonds. Section 1.103–8(f)(2) of the Income Tax Regula- tions and §17.1 of the temporary Income Tax Regulations will not apply to bonds that are subject to the final regulations un- der section 142(a)(6). Special Analyses It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory as- sessment is not required. It also has been determined that section 553(b) of the Ad- ministrative Procedure Act (5 U.S.C. chap- ter 5) does not apply to these regulations, and because the regulations do not im- pose 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, this notice of proposed rulemaking will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for com- ment on its impact on small business. Comments and Public Hearing Before these proposed regulations are adopted as final regulations, consideration will be given to any written (a signed origi- nal and eight (8) copies) or electronic com- ments that are submitted timely to the IRS. The IRS and Treasury Department request comments on the clarity of the proposed rules and how they can be made easier to understand. All comments will be avail- able for public inspection and copying. A public hearing has been scheduled for August 11, 2004, at 10 a.m. in the au- ditorium, Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC. Due to building security procedures, visitors must enter at the Constitution Av- enue entrance. In addition, all visitors must present photo identification to enter the building. Because of access restric- tions, visitors will not be admitted beyond the lobby more than 30 minutes before the hearing starts. For information about having your name placed on the building access list to attend the hearing, see the FOR FURTHER INFORMATION CON- TACT section of this preamble. The rules of 26 CFR 601.601(a)(3) ap- ply to the hearing. Persons who wish to present oral comments at the hearing must submit written comments by August 9, 2004, and submit an outline of the top- ics to be discussed and the amount of time to be devoted to each topic by August 4, 2004. A period of 10 minutes will be allot- ted to each person for making comments. An agenda showing the scheduling of the speakers will be prepared after the deadline for receiving outlines has passed. Copies of the agenda will be available free of charge at the hearing. Comments are requested on all aspects of the proposed regulations, including those aspects for which specific requests for comments are set forth above. Drafting Information The principal authors of these regula- tions are Michael P. Brewer, Timothy L. Jones and Rebecca L. Harrigal, Office of Chief Counsel, IRS (TE/GE). However, other personnel from the IRS and Treasury Department participated in their develop- ment. ***** Proposed Amendments to the Regulations Accordingly, 26 CFR part 1 is proposed to be amended as follows: PART 1—INCOME TAXES Paragraph 1. The authority citation for part 1 continues to read in part as follows: Authority: 26 U.S.C. 7805 * * * Par. 2. Section 1.142(a)(6)–1 is added to read as follows: §1.142(a)(6)–1 Exempt facility bonds: solid waste disposal facilities. (a)In general. Section 103(a) provides that, generally, interest on a state or lo- cal bond is not included in gross income. However, this exclusion does not apply to any private activity bond that is not a quali- fied bond. Section 141(e) definesqualified bondto include an exempt facility bond that meets certain requirements. Section 142(a) definesexempt facility bondas any bond issued as part of an issue 95 percent or more of the net proceeds of which are to be used to provide a facility specified in section 142(a). One type of facility speci- fied in section 142(a) is a solid waste dis- posal facility. This section defines the term solid waste disposal facility for purposes of section 142(a). (b)Solid waste disposal facility—(1)In general.Thetermsolid waste disposal facilitymeans a facility to the extent that the facility is— (i) Used to perform a solid waste dis- posal function (within the meaning of paragraph (b)(2) of this section); (ii) Used to perform a preliminary function (within the meaning of paragraph (b)(3) of this section); or (iii) Functionally related and sub- ordinate (within the meaning of §1.103–8(a)(3)) to a facility that is used to perform a solid waste disposal function or a preliminary function. (2)Solid waste disposal function.A solid waste disposal function is the pro- cessing of solid waste (as defined in para- graph (c) of this section) in— (i) A final disposal process (as defined in paragraph (d) of this section); (ii) A conversion process (as defined in paragraph (e) of this section); (iii) A recovery process (as defined in paragraph (f) of this section); or (iv) A transformation process (as de- fined in paragraph (g) of this section). (3)Preliminary function.Aprelim- inary function is the collection, separa- tion, sorting, storage, treatment, process- ing, disassembly, or handling of solid ma- terial that is preliminary and directly re- lated to a solid waste disposal function. However, no portion of a collection, sepa- ration, sorting, storage, treatment, process- ing, disassembly, or handling activity is a preliminary function unless, for each year whiletheissueisoutstanding,morethan 2004-23 I.R.B.1034June 7, 2004 50 percent, by weight or volume, of the to- tal materials that result from the entire ac- tivity is solid waste. (4)Mixed-function facilities. Paragraph (h) of this section provides rules for deter- mining the portion of a facility that is a solid waste disposal facility for a facility that is used to perform— (i) A solid waste disposal function or a preliminary function; and (ii) Another function. (c)Solid Waste—(1)In general.For purposes of this section, the termsolid wastemeans garbage, refuse, and other discarded solid materials (as defined in paragraph (c)(2) of this section), including solid waste materials resulting from indus- trial, commercial, and agricultural opera- tions, and from community activities, but does not include solids or dissolved mate- rial in domestic sewage or other significant pollutants in water resources, such as silt, dissolved or suspended solids in industrial waste water effluents, dissolved materials in irrigation return flows or other common water pollutants. Liquid or gaseous waste is not solid waste. (2)Garbage, refuse and other dis- carded solid materials—(i)In general. For purposes of paragraph (c)(1) of this section,garbage, refuse and other dis- carded solid materialsmeans material that is solid and that is introduced into a final disposal process, conversion process, re- covery process, or transformation process unless the material is described in para- graph (c)(2)(ii), (iii), (iv), (v) or (vi) of this section. (ii)Certain material introduced into a conversion process. Material is described in this paragraph (c)(2)(ii) if the material is introduced into a conversion process and the material is— (A) A fossil fuel; or (B) Any material that is grown, har- vested, produced, mined, or otherwise cre- ated for the principal purpose of convert- ing the material to heat, hot water, steam, or another useful form of energy. For ex- ample, organic material that is closed-loop biomass under section 45(c) is described in this paragraph (c)(2)(ii) if the material is introduced into a conversion process. Material is not treated as described in this paragraph (c)(2)(ii)just because an op- eration is performed on the material to make the material more conducive to be- ing converted to heat, hot water, or steam. For example, if material that is not other- wise grown, harvested, produced, mined, or created for the principal purpose of con- verting the material to a useful form of en- ergy is formed into pellets to make the ma- terial more conducive to being incinerated to produce steam, the creation of pellets does not cause the material to be produced or created for the principal purpose of con- verting the material to steam. (iii)Certain material introduced into a recovery process. Material is described in this paragraph (c)(2)(iii) if the material is introduced into a recovery process, and the material is a precious metal. (iv)Certain material introduced into a transformation process. [Reserved]. (v)Certain hazardous material. Mate- rial is described in this paragraph (c)(2)(v) if the material is hazardous material and it is disposed of at a facility that is subject to final permit requirements under subtitle C of title II of the Solid Waste Disposal Act (as in effect on October 22, 1986, the date of the enactment of the Tax Reform Act of 1986). See section 142(h)(1). (vi)Radioactive material. Material is described in this paragraph (c)(2)(vi) if the material is radioactive. (d)Final disposal process.Theterm final disposal processmeans— (1) The placement of material in a land- fill; or (2) The incineration of material without any useful energy being captured. (e)Conversion process.Thetermcon- version processmeans a process in which material is incinerated and heat, hot water, or steam is created and captured as use- ful energy. The conversion process begins with the incineration of material and ends at the point at which the latest of heat, hot water, or steam is created. Thus, the con- version process ends before any transfer or distribution of heat, hot water or steam. (f)Recovery process—(1)In general. The termrecovery processmeans a process that starts with the melting or re-pulping of material to return the material to a form in which the material previously existed for use in the fabrication of an end product and ends immediately before the material is processed in the same or substantially the same way that virgin material is processed to fabricate the end product. For exam- ple, melting non-virgin metal to fabricate a metal product is not a recovery process if virgin metal is melted in the same or sub- stantially the same process to fabricate the product. (2)End products fabricated entirely from non-virgin material. If an end prod- uct is fabricated entirely from non-virgin material, the recovery process ends imme- diately before the non-virgin material is processed in the same or substantially the same way that virgin material is processed in a comparable fabrication process that uses only virgin material or a combination of virgin and non-virgin material. For ex- ample, if new paper is fabricated entirely from re-pulped, non-virgin material, the recovery process ends immediately before the non-virgin material is processed in the same or substantially the same manner that virgin material is processed in the fabrication of paper made only with virgin material, or with a mixture of virgin and non-virgin material. (3)Refurbishing, repair, or similar ac- tivities. Refurbishing, repair, or similar ac- tivities are not recovery processes. (g)Transformation process.[Re- served]. (h)Mixed-function facilities—(1)In general. Except to the extent provided in paragraph (h)(2) of this section, if a facility is used to perform both a solid waste disposal function or a preliminary function and another function, then the costs of the facility allocable to the solid waste disposal function or the preliminary function are determined using any reason- able method, based on all the facts and circumstances. See §1.103–8(a)(1) for rules relating to which amounts are used to provide an exempt facility. (2)Mixed inputs—(i)In general.Ex- cept as provided in paragraph (h)(2)(ii) of this section, for each final disposal process, conversion process, recovery process, or transformation process, the percentage of costs of the property used to perform such process that are allocable to a solid waste disposal function equals the lowest percentage of solid waste pro- cessed in that process in any year while the issue is outstanding. The percentage of solid waste processed in such process for any year is the percentage, by weight or volume, of the total materials processed in that process that constitute solid waste for that year. (ii)Special rule for mixed-input pro- cesses if at least 80 percent of the materials processed are solid waste. For each final June 7, 200410352004-23 I.R.B. disposal process, conversion process, re- covery process, or transformation process, all of the costs of the property used to per- form such process are allocable to a solid waste disposal function if, for each year while the issue is outstanding, solid waste constitutes at least 80 percent, by weight or volume, of the total materials processed in the process. (i)Examples. The following examples illustrate the application of this section: Example 1.Final disposal process.Garbage trucks collect solid material at curbside from busi- nesses and residences and dump the material in a landfill owned by Company A. The landfill is not subject to final permit requirements under subtitle C of title II of the Solid Waste Disposal Act (as in effect on the date of the enactment of the Tax Reform Act of 1986). The placement of material in the landfill is a final disposal process. The solid material placed in the landfill is solid waste under paragraph (c) of this section. Therefore, the landfill is a solid waste disposal facility. Example 2.Recovery process. Company B re-pulps magazines and cleans the pulp. After clean- ing, B mixes the pulp with virgin material and uses the mixed material to produce rolls of paper towels. Before the mixing, the re-pulped material is not processed in the same or substantially the same way that virgin material is processed to produce the paper towels. The process starting with the re-pulping of the magazines and ending immediately before the re-pulped material is mixed with the virgin material is a recovery process. The magazines introduced into the recovery process are solid waste. Therefore, the property that re-pulps the magazines and the property that cleans the re-pulped material are used to perform a solid waste disposal function. Example 3.Preliminary function. Company C owns a paper mill. At the mill, logs from nearby tim- ber operations are processed through a machine that removes bark. The stripped logs are used to manufac- ture paper. The stripped bark falls onto a conveyor belt that transports the bark to a storage bin used to briefly store the bark until C feeds the bark into a boiler. The conveyor belt and storage bin are used only for these purposes. The boiler is used only to create steam by burning the bark, and the steam is used to generate electricity. The creation of steam from the stripped bark is a conversion process that starts with the incineration of the stripped bark. The conversion process is a solid waste disposal function. The conveyor belt performs a collection activity that is preliminary and that is directly related to the solid waste disposal function. The storage bin performs a storage function that is preliminary and that is directly related to the solid waste disposal function. Thus, the conveyor belt and storage bin are solid waste disposal facilities. The removal of the bark does not have a sufficient nexus to the conversion process to be di- rectly related to the conversion process; the process of removing the bark does not become directly related to the conversion process merely because it results in material that will be waste used in the conversion process. Example 4.Mixed-input facility. Company D owns an incinerator financed by an issue and uses the incinerator exclusively to burn coal (a fossil fuel) and other solid material to create steam that is used to generate electricity. Each year while the issue is outstanding, 30 percent by volume and 40 percent by weight of the solid material that D processes in the conversion process is a fossil fuel. The remainder of the solid material processed is neither a fossil fuel nor material that was grown, harvested, produced, mined, or otherwise created for the principal purpose of con- verting the material to heat, hot water, steam, or an- other useful form of energy. Seventy percent of the costs of the property used to perform the conversion process are allocable to a solid waste disposal func- tion. Example 5.Mixed-function facility. Company E owns and operates a facility financed by an issue and uses the facility exclusively to sort damaged bottles from bottles that may be re-filled. The damaged bot- tles are directly introduced into a process that melts them for use in the fabrication of an end product. The melting process is a recovery process. Each year while the issue is outstanding, more than 50 percent, by weight or volume, of all of the bottles that pass out of the sorting process are damaged bottles that are processed in a recovery process. The sorting facility performs a preliminary function, but it also performs another function. The costs of the sorting facility al- locable to the preliminary function are determined us- ing any reasonable method, based on all the facts and circumstances. (j)Effective date—(1)In general.Ex- cept as provided in paragraph (j)(2) of this section, this section applies to bonds that are— (i)Soldonorafterthedatethatis60 days after the date of publication of final regulations in theFederal Register;and (ii) Subject to section 142. (2)Certain refunding bonds.Anis- suer is not required to apply this section to bonds described in paragraph (j)(1) of this section that are issued to refund a bond towhichthissectiondoesnotapplyifthe weighted average maturity of the refund- ing bonds is not longer than the weighted average maturity of the refunded bonds. Mark E. Matthews, Deputy Commissioner for Services and Enforcement. (Filed by the Office of the Federal Register on May 5, 2004, 2:45 p.m., and published in the issue of the Federal Register for May 10, 2004, 69 F.R. 25856) Announcement of Disciplinary Actions Involving Attorneys, Certified Public Accountants, Enrolled Agents, and Enrolled Actuaries — Suspensions, Censures, Disbarments, and Resignations Announcement 2004-49 Under Title 31, Code of Federal Regu- lations, Part 10, attorneys, certified public accountants, enrolled agents, and enrolled actuaries may not accept assistance from, or assist, any person who is under disbar- ment or suspension from practice before the Internal Revenue Service if the assis- tance relates to a matter constituting prac- tice before the Internal Revenue Service and may not knowingly aid or abet another person to practice before the Internal Rev- enue Service during a period of suspen- sion, disbarment, or ineligibility of such other person. To enable attorneys, certified public accountants, enrolled agents, and enrolled actuaries to identify persons to whom these restrictions apply, the Director, Of- fice of Professional Responsibility, will announce in the Internal Revenue Bulletin their names, their city and state, their pro- fessional designation, the effective date of disciplinary action, and the period of suspension. This announcement will ap- pear 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. 2004-23 I.R.B.1036June 7, 2004 Consent Disbarments From Practice Before the Internal Revenue Service Under Title 31, Code of Federal Regu- lations, Part 10, an attorney, certified pub- lic accountant, enrolled agent, or enrolled actuary, in order to avoid institution or con- clusion of a proceeding for his or her dis- barment or suspension from practice be- fore the Internal Revenue Service, may of- fer his or her consent to disbarment from such practice. The Director, Office of Pro- fessional Responsibility, in his discretion, may disbar an attorney, certified public ac- countant, enrolled agent, or enrolled actu- ary in accordance with the consent offered. The following individuals have been placed under consent disbarment from practice before the Internal Revenue Ser- vice: NameAddressDesignationDate of Disbarment Ranes III, Wesse C.Annapolis, MDCPAIndefinite from May 1, 2004 Consent Suspensions From Practice Before the Internal Revenue Service Under Title 31, Code of Federal Regu- lations, Part 10, an attorney, certified pub- lic accountant, enrolled agent, or enrolled actuary, in order to avoid institution or con- clusion of a proceeding for his or her dis- barment or suspension from practice be- fore the Internal Revenue Service, may of- fer his or her consent to suspension from such practice. The Director, Office of Pro- fessional Responsibility, in his discretion, may suspend an attorney, certified public accountant, enrolled agent, or enrolled ac- tuary in accordance with the consent of- fered. The following individuals have been placed under consent suspension from practice before the Internal Revenue Ser- vice: NameAddressDesignationDate of Suspension Montgomery, Goldie L.Lancaster, CAEnrolled AgentIndefinite from February 1, 2004 Frost, Charles L.San Antonio, TXEnrolled AgentIndefinite from February 1, 2004 Briggs, John W.Sayville, NYEnrolled AgentFebruary 10, 2004 from August 8, 2004 Lahman, Gary M.Ft. Collins,COEnrolled AgentIndefinite from February 12, 2004 Stanny, Gertrude M.South Lyon, MIEnrolled AgentIndefinite from March 1, 2004 June 7, 200410372004-23 I.R.B. NameAddressDesignationDate of Suspension Millar, MarkTall Timbers, MDEnrolled AgentIndefinite from March 1, 2004 Murray, Maureen E.Naugatuck, CTEnrolled AgentIndefinite from March 1, 2004 Keith, James S.Imperial Beach, CAEnrolled AgentMarch 2, 2004 from June 30, 2004 Zelek, Linda S.Moultonboro, NHCPAIndefinite from March 4, 2004 Gilpin, Charles H.San Leandro,CAEnrolled AgentIndefinite from March 5, 2004 Smith, Sean M.Silver Spring, MDEnrolled AgentIndefinite from March 15, 2004 Morelini, Wayne C.Modesto, CAEnrolled AgentIndefinite from March 15, 2004 Bower, JayRedmond, OREnrolled AgentIndefinite from March 16, 2004 Lynn, Celia M.Locust Grove, VAEnrolled AgentIndefinite from April 1, 2004 Swantz Jr., H. E.San Diego, CAEnrolled AgentIndefinite from April 6, 2004 Hart, David A.Lake Zurich, ILEnrolled AgentIndefinite from April 8, 2004 Lau, Dennis K.M.Honolulu, HIEnrolled AgentIndefinite from April 20, 2004 Lentz, CaroleMastic, NYEnrolled AgentIndefinite from April 23, 2004 Goble, Dennis R.Valparaiso, INCPAIndefinite from April 26, 2004 Rivera, Eduardo M.Torrence, CAAttorneyMay 1, 2004 to October 29, 2006 2004-23 I.R.B.1038June 7, 2004 NameAddressDesignationDate of Suspension Grant, Elaine C.Woodway, WAEnrolled AgentMay 1, 2004 to October 31, 2004 Bell, DonGrand Junction, COEnrolled AgentIndefinite from May 1, 2004 Cohick, Jeffrey S.Newville, PAEnrolled AgentMay 1, 2004 from October 30, 2004 Expedited Suspensions From Practice Before the Internal Revenue Service Under Title 31, Code of Federal Regu- lations, Part 10, the Director, Office of Pro- fessional Responsibility, is authorized to immediately suspend from practice before the Internal RevenueService any practi- tioner who, within five years from the date the expedited proceeding is instituted (1) has had a license to practice as an attor- ney, certified public accountant, or actuary suspended or revoked for cause or (2) has been convicted of certain crimes. The following individuals have been placed under suspension from practice be- fore the Internal Revenue Service by virtue of the expedited proceeding provisions: NameAddressDesignationDate of Suspension Candelario, AlexanderCabins, WVCPAIndefinite from February 1, 2004 Riener, RichardSt. Paul, MNAttorneyIndefinite from March 1, 2004 Dunkle, ClarkCarlisle, PACPAIndefinite from March 15, 2004 Bailey, Donald D.Tucson, AZCPAIndefinite from March 18, 2004 Hill, Donald R.Clinchco, VACPAIndefinite from April 1, 2004 Bergeson, NancyInver Grove Hghts, MNCPAIndefinite from April 14, 2004 Reese, Kenneth J.Nebraska City, NECPAIndefinite from April 15, 2004 Coates, Marsden S.Baltimore, MDAttorneyIndefinite from April 15, 2004 June 7, 200410392004-23 I.R.B. NameAddressDesignationDate of Suspension Schaefer, Robert J.Moorhead, MNAttorneyIndefinite from April 20, 2004 Mills, Stuart B.Pender, NEAttorneyIndefinite from May 1, 2004 Harris-Smith, BridgetteSilver Spring, MDAttorneyIndefinite from May 3, 2004 Janousek, Donald R.Omaha, NEAttorneyIndefinite from May 3, 2004 Williams, Gary W.Diamond Bar, CACPAIndefinite from May 3, 2004 Demaio, Louis J.Bel Air, MDAttorneyIndefinite from May 3, 2004 Miller, Frederick C.Cedar Hill, TXCPAIndefinite from May 15, 2004 Censure Issued by Consent Under Title 31, Code of Federal Reg- ulations, Part 10, in lieu of a proceeding being instituted or continued, an attorney, certified public accountant, enrolled agent, or enrolled actuary, may offer his or her consent to the issuance of a censure. Cen- sure is a public reprimand. The following individuals have con- sented to the issuance of a Censure: NameAddressDesignationDate of Censure Friedman, Milton G.Ft. Lauderdale, FLCPADecember 30, 2003 Stevens, William E.Omaha, NECPAFebruary 13, 2004 Turner, Mark A.Cincinnati, OHCPAFebruary 25, 2004 Rath, Dorris A.Bradenton, FLEnrolled AgentMarch 9, 2004 Damiano, LisaSouth Windsor, CTEnrolled AgentMarch 9, 2004 Silbiger, Arnold R.Baltimore, MDAttorneyMarch 11, 2004 Farwell, Nancy K.Citrus Heights, CAEnrolled AgentApril 5, 2004 Dembrowski, Karen E.Encino, CACPAApril 13, 2004 2004-23 I.R.B.1040June 7, 2004 Correction to Announcement 2004–43 Announcement 2004–51 This is to correct an error in the second sentence of section V. of Announcement 2004–43, 2004–21 I.R.B. 955. The phrase “that begins during calendar 2004” should read “that begins before April 1, 2004.” As a result, section V. is corrected to read as follows: Notwithstanding the requirement to make an election by the end of the first quarter of the plan year, the following transitional rules are applicable. If an employer makes an alternative deficit reduction contribution election on or before June 30, 2004, that election will be deemed timely for the plan year that begins before April 1, 2004. In addition, if an employer issues a PBGC notice for a plan on or before June 5, 2004, the PBGC will treat the PBGC notice as timely issued. June 7, 200410412004-23 I.R.B. Definition of Terms Revenue rulings and revenue procedures (hereinafter referred to as “rulings”) that have an effect on previous rulings use the following defined terms to describe the ef- fect: Amplifieddescribes a situation where no change is being made in a prior pub- lished position, but the prior position is be- ingextendedtoapplytoavariationofthe fact situation set forth therein. Thus, if an earlier ruling held that a principle ap- plied to A, and the new ruling holds that the same principle also applies to B, the earlier ruling is amplified. (Compare withmodi- fied,below). Clarifiedis used in those instances where the language in a prior ruling is be- ing made clear because the language has caused, or may cause, some confusion. It is not used where a position in a prior ruling is being changed. Distinguisheddescribes a situation where a ruling mentions a previously pub- lished ruling and points out an essential difference between them. Modifiedis used where the substance of a previously published position is being changed. Thus, if a prior ruling held that a principle applied to A but not to B, and the new ruling holds that it applies to both A and B, the prior ruling is modified because it corrects a published position. (Compare withamplifiedandclarified, above). Obsoleteddescribes a previously pub- lished ruling that is not considered deter- minative with respect to future transac- tions. This term is most commonly used in a ruling that lists previously published rul- ings that are obsoleted because of changes in laws or regulations. A ruling may also be obsoleted because the substance has been included in regulations subsequently adopted. Revokeddescribes situations where the position in the previously published ruling is not correct and the correct position is beingstatedinanewruling. Supersededdescribes a situation where the new ruling does nothing more than re- state the substance and situation of a previ- ously published ruling (or rulings). Thus, the term is used to republish under the 1986 Code and regulations the same po- sition published under the 1939 Code and regulations. The term is also used when it is desired to republish in a single rul- ing a series of situations, names, etc., that were previously published over a period of time in separate rulings. If the new rul- ing does more than restate the substance of a prior ruling, a combination of terms is used. For example,modifiedandsu- persededdescribes a situation where the substance of a previously published 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 pub- lished ruling is first modified and then, as modified, is superseded. Supplementedis used in situations in which a list, such as a list of the names of countries, is published in a ruling and that list is expanded by adding further names in subsequent rulings. After the original rul- ing has been supplemented several times, a new ruling may be published that includes the list in the original ruling and the ad- ditions, and supersedes all prior rulings in the series. Suspendedis used in rare situations to show that the previous published rul- ings 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 fol lowing abbreviations in current use and for merly used will appear in material publis hedintheBulletin. A—Individual. Acq.—A cquiescence. B—Individual. BE—Beneficiary. BK—Bank . B.T.A.—Board of Tax Appeals. C—Individual. C.B.—Cu mulative Bulletin. CFR—Code of Federal Regulations. CI—City. COOP—Coo perative. Ct.D.—Court Decision. CY—County. D—Decede nt. 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—Emp loyer. ERISA—Employee Retirement Income Security Act. EX—Executor. F—Fiduc iary. FC—Foreign Country. FICA—Federal Insurance Contributions Act. FISC—Fo reign International Sales Company. FPH—Foreign Personal Holding Company. F.R.—Federal Register. FUTA—Fed eral Unemployment Tax Act. FX—Foreign corporation. G.C.M.—Chief Counsel’s Memorandum. GE—Grante e. GP—General Partner. GR—Grantor. IC—Insura nce Company. I.R.B.—Internal Revenue Bulletin. LE—Lessee. LP—Limited Partner. LR—Lessor. M—Minor. Nonacq.—No nacquiescence. O—Organization. P—Parent Corporation. PHC—Persona l Holding Company. PO—Possession of the U.S. PR—Partner. PRS—Pa rtnership. PTE—Prohibited Transaction Exemption. Pub. L.—Public Law. REIT—Re al Estate Investment Trust. Rev. Proc.—Revenue Procedure. Rev. Rul.—Revenue Ruling. S—Subsi diary. S.P.R.—Statement of Procedural Rules. Stat.—Statutes at Large. T—Target Corporation. T.C.—Tax Court. T.D.—Treasury Decision. TFE—Trans feree. TFR—Transferor. T.I.R.—Technical Information Release. TP—Taxpay er. TR—Trust. TT—Trustee. U.S.C.—Uni ted States Code. X—Corporation. Y—Corporation. Z—Corporat ion. 2004-23 I.R.B.iJune 7, 2004 Numerical Finding List 1 Bulletins 2004–1 through 2004–23 Announcements: 2004-1, 2004-1 I.R.B.254 2004-2, 2004-3 I.R.B.322 2004-3, 2004-2 I.R.B.294 2004-4, 2004-4 I.R.B.357 2004-5, 2004-4 I.R.B.362 2004-6, 2004-3 I.R.B.322 2004-7, 2004-4 I.R.B.365 2004-8, 2004-6 I.R.B.441 2004-9, 2004-6 I.R.B.441 2004-10, 2004-7 I.R.B.501 2004-11, 2004-10 I.R.B.581 2004-12, 2004-9 I.R.B.541 2004-13, 2004-9 I.R.B.543 2004-14, 2004-10 I.R.B.582 2004-15, 2004-11 I.R.B.612 2004-16, 2004-13 I.R.B.668 2004-17, 2004-12 I.R.B.635 2004-18, 2004-12 I.R.B.639 2004-19, 2004-13 I.R.B.668 2004-20, 2004-13 I.R.B.673 2004-21, 2004-13 I.R.B.673 2004-22, 2004-14 I.R.B.709 2004-23, 2004-13 I.R.B.673 2004-24, 2004-14 I.R.B.714 2004-25, 2004-15 I.R.B.737 2004-26, 2004-15 I.R.B.743 2004-27, 2004-14 I.R.B.714 2004-28, 2004-16 I.R.B.818 2004-29, 2004-15 I.R.B.772 2004-30, 2004-17 I.R.B.833 2004-31, 2004-18 I.R.B.854 2004-32, 2004-18 I.R.B.860 2004-33, 2004-18 I.R.B.862 2004-34, 2004-19 I.R.B.895 2004-35, 2004-17 I.R.B.839 2004-36, 2004-20 I.R.B.932 2004-37, 2004-17 I.R.B.839 2004-38, 2004-18 I.R.B.878 2004-39, 2004-17 I.R.B.840 2004-40, 2004-17 I.R.B.840 2004-41, 2004-18 I.R.B.879 2004-42, 2004-17 I.R.B.840 2004-43, 2004-21 I.R.B.955 2004-44, 2004-21 I.R.B.957 2004-45, 2004-21 I.R.B.958 2004-46, 2004-21 I.R.B.964 2004-47, 2004-21 I.R.B.966 2004-48, 2004-22 I.R.B.998 2004-49, 2004-20 I.R.B.966 2004-50, 2004-22 I.R.B.1005 2004-51, 2004-23 I.R.B.1041 Court Decisions: 2078, 2004-16 I.R.B.773 2079, 2004-22 I.R.B.978 Notices: 2004-1, 2004-2 I.R.B.268 2004-2, 2004-2 I.R.B.269 2004-3, 2004-5 I.R.B.391 2004-4, 2004-2 I.R.B.273 2004-5, 2004-7 I.R.B.489 2004-6, 2004-3 I.R.B.308 2004-7, 2004-3 I.R.B.310 2004-8, 2004-4 I.R.B.333 2004-9, 2004-4 I.R.B.334 2004-10, 2004-6 I.R.B.433 2004-11, 2004-6 I.R.B.434 2004-12, 2004-10 I.R.B.556 2004-13, 2004-12 I.R.B.631 2004-14, 2004-9 I.R.B.526 2004-15, 2004-9 I.R.B.526 2004-16, 2004-9 I.R.B.527 2004-17, 2004-11 I.R.B.605 2004-18, 2004-11 I.R.B.605 2004-19, 2004-11 I.R.B.606 2004-20, 2004-11 I.R.B.608 2004-21, 2004-11 I.R.B.609 2004-22, 2004-12 I.R.B.632 2004-23, 2004-15 I.R.B.725 2004-24, 2004-13 I.R.B.642 2004-25, 2004-15 I.R.B.727 2004-26, 2004-16 I.R.B.782 2004-27, 2004-16 I.R.B.782 2004-28, 2004-16 I.R.B.783 2004-29, 2004-17 I.R.B.828 2004-30, 2004-17 I.R.B.828 2004-31, 2004-17 I.R.B.830 2004-32, 2004-18 I.R.B.847 2004-33, 2004-18 I.R.B.847 2004-34, 2004-18 I.R.B.848 2004-35, 2004-19 I.R.B.889 2004-36, 2004-19 I.R.B.889 2004-37, 2004-21 I.R.B.947 2004-38, 2004-21 I.R.B.949 2004-39, 2004-22 I.R.B.982 2004-40, 2004-23 I.R.B.1028 Proposed Regulations: REG-106590-00, 2004-14 I.R.B.704 REG-116664-01, 2004-3 I.R.B.319 REG-129447-01, 2004-19 I.R.B.894 REG-106681-02, 2004-18 I.R.B.852 REG-122379-02, 2004-5 I.R.B.392 REG-139792-02, 2004-20 I.R.B.926 REG-139845-02, 2004-5 I.R.B.397 REG-140492-02, 2004-23 I.R.B.1031 Proposed Regulations— Continued: REG-165579-02, 2004-13 I.R.B.651 REG-166012-02, 2004-13 I.R.B.655 REG-115471-03, 2004-14 I.R.B.706 REG-116564-03, 2004-20 I.R.B.927 REG-121475-03, 2004-16 I.R.B.793 REG-126459-03, 2004-6 I.R.B.437 REG-126967-03, 2004-10 I.R.B.566 REG-128309-03, 2004-16 I.R.B.800 REG-128590-03, 2004-21 I.R.B.952 REG-149752-03, 2004-14 I.R.B.707 REG-153172-03, 2004-15 I.R.B.729 REG-156232-03, 2004-5 I.R.B.399 REG-156421-03, 2004-10 I.R.B.571 REG-167217-03, 2004-9 I.R.B.540 REG-167265-03, 2004-15 I.R.B.730 Revenue Procedures: 2004-1, 2004-1 I.R.B.1 2004-2, 2004-1 I.R.B.83 2004-3, 2004-1 I.R.B.114 2004-4, 2004-1 I.R.B.125 2004-5, 2004-1 I.R.B.167 2004-6, 2004-1 I.R.B.197 2004-7, 2004-1 I.R.B.237 2004-8, 2004-1 I.R.B.240 2004-9, 2004-2 I.R.B.275 2004-10, 2004-2 I.R.B.288 2004-11, 2004-3 I.R.B.311 2004-12, 2004-9 I.R.B.528 2004-13, 2004-4 I.R.B.335 2004-14, 2004-7 I.R.B.489 2004-15, 2004-7 I.R.B.490 2004-16, 2004-10 I.R.B.559 2004-17, 2004-10 I.R.B.562 2004-18, 2004-9 I.R.B.529 2004-19, 2004-10 I.R.B.563 2004-20, 2004-13 I.R.B.642 2004-21, 2004-14 I.R.B.702 2004-22, 2004-15 I.R.B.727 2004-23, 2004-16 I.R.B.785 2004-24, 2004-16 I.R.B.790 2004-25, 2004-16 I.R.B.791 2004-26, 2004-19 I.R.B.890 2004-27, 2004-17 I.R.B.831 2004-28, 2004-22 I.R.B.984 2004-29, 2004-20 I.R.B.918 2004-30, 2004-21 I.R.B.950 2004-31, 2004-22 I.R.B.986 2004-32, 2004-22 I.R.B.988 2004-33, 2004-22 I.R.B.989 2004-34, 2004-22 I.R.B.991 2004-35, 2004-23 I.R.B.1029 Revenue Rulings: 2004-1, 2004-4 I.R.B.325 1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2003–27 through 2003–52 is in Internal Revenue Bulletin 2003–52, dated December 29, 2003. June 7, 2004ii2004-23 I.R.B. Revenue Rulings— Continued: 2004-2, 2004-2 I.R.B.265 2004-3, 2004-7 I.R.B.486 2004-4, 2004-6 I.R.B.414 2004-5, 2004-3 I.R.B.295 2004-6, 2004-4 I.R.B.328 2004-7, 2004-4 I.R.B.327 2004-8, 2004-10 I.R.B.544 2004-9, 2004-6 I.R.B.428 2004-10, 2004-7 I.R.B.484 2004-11, 2004-7 I.R.B.480 2004-12, 2004-7 I.R.B.478 2004-13, 2004-7 I.R.B.485 2004-14, 2004-8 I.R.B.511 2004-15, 2004-8 I.R.B.515 2004-16, 2004-8 I.R.B.503 2004-17, 2004-8 I.R.B.516 2004-18, 2004-8 I.R.B.509 2004-19, 2004-8 I.R.B.510 2004-20, 2004-10 I.R.B.546 2004-21, 2004-10 I.R.B.544 2004-22, 2004-10 I.R.B.553 2004-23, 2004-11 I.R.B.585 2004-24, 2004-10 I.R.B.550 2004-25, 2004-11 I.R.B.587 2004-26, 2004-11 I.R.B.598 2004-27, 2004-12 I.R.B.625 2004-28, 2004-12 I.R.B.624 2004-29, 2004-12 I.R.B.627 2004-30, 2004-12 I.R.B.622 2004-31, 2004-12 I.R.B.617 2004-32, 2004-12 I.R.B.621 2004-33, 2004-12 I.R.B.628 2004-34, 2004-12 I.R.B.619 2004-35, 2004-13 I.R.B.640 2004-36, 2004-12 I.R.B.620 2004-37, 2004-11 I.R.B.583 2004-38, 2004-15 I.R.B.717 2004-39, 2004-14 I.R.B.700 2004-40, 2004-15 I.R.B.716 2004-41, 2004-18 I.R.B.845 2004-42, 2004-17 I.R.B.824 2004-43, 2004-18 I.R.B.842 2004-44, 2004-19 I.R.B.885 2004-45, 2004-22 I.R.B.971 2004-46, 2004-20 I.R.B.915 2004-47, 2004-21 I.R.B.941 2004-48, 2004-21 I.R.B.945 2004-49, 2004-21 I.R.B.939 2004-50, 2004-22 I.R.B.977 2004-51, 2004-22 I.R.B.974 2004-52, 2004-22 I.R.B.973 2004-53, 2004-23 I.R.B.1026 2004-54, 2004-23 I.R.B.1024 Tax Conventions: 2004-3, 2004-7 I.R.B.486 Treasury Decisions: 9099, 2004-2 I.R.B.255 9100, 2004-3 I.R.B.297 9101, 2004-5 I.R.B.376 9102, 2004-5 I.R.B.366 9103, 2004-3 I.R.B.306 9104, 2004-6 I.R.B.406 9105, 2004-6 I.R.B.419 9106, 2004-5 I.R.B.384 9107, 2004-7 I.R.B.447 9108, 2004-6 I.R.B.429 9109, 2004-8 I.R.B.519 9110, 2004-8 I.R.B.504 9111, 2004-8 I.R.B.518 9112, 2004-9 I.R.B.523 9113, 2004-9 I.R.B.524 9114, 2004-11 I.R.B.589 9115, 2004-14 I.R.B.680 9116, 2004-14 I.R.B.674 9117, 2004-15 I.R.B.721 9118, 2004-15 I.R.B.718 9119, 2004-17 I.R.B.825 9120, 2004-19 I.R.B.881 9121, 2004-20 I.R.B.903 9122, 2004-19 I.R.B.886 9123, 2004-20 I.R.B.907 9124, 2004-20 I.R.B.901 9125, 2004-23 I.R.B.1012 9126, 2004-23 I.R.B.1023 9128, 2004-21 I.R.B.943 2004-23 I.R.B.iiiJune 7, 2004 Findings List of Current Actions on Previously Published Items 1 Bulletins 2004–1 through 2004–23 Announcements: 93-60 Obsoleted by Rev. Proc. 2004-23, 2004-16 I.R.B.785 2003-56 Modified by Ann. 2004-11, 2004-10 I.R.B.581 2004-38 Modified by Ann. 2004-43, 2004-21 I.R.B.955 2004-43 Corrected by Ann. 2004-51, 2004-23 I.R.B.1041 Notices: 98-5 Withdrawn by Notice 2004-19, 2004-11 I.R.B.606 2000-4 Obsoleted by T.D. 9115, 2004-14 I.R.B.680 2003-76 Modified by Notice 2004-19, 2004-11 I.R.B.606 2004–2 Modified by Notice 2004–25, 2004–15 I.R.B.727 Proposed Regulations: REG-110896-98 Corrected by Ann. 2004-14, 2004-10 I.R.B.582 REG-115037-00 Corrected by Ann. 2004-7, 2004-4 I.R.B.365 REG-138499-02 Partially withdrawn by REG-106590-00, 2004-14 I.R.B.704 REG-143321-02 Withdrawn by REG-156232-03, 2004-5 I.R.B.399 REG-146893-02 Corrected by Ann. 2004-7, 2004-4 I.R.B.365 REG-163974-02 Corrected by Ann. 2004-13, 2004-9 I.R.B.543 Proposed Regulations— Continued: REG-166012-02 Corrected by Ann. 2004-40, 2004-17 I.R.B.840 Revenue Procedures: 71-21 Modified and superseded by Rev. Proc. 2004-34, 2004-22 I.R.B.991 85-35 Obsoleted by Rev. Proc. 2004-26, 2004-19 I.R.B.890 87-19 Obsoleted in part by Rev. Proc. 2004-18, 2004-9 I.R.B.529 93-15 Obsoleted in part by Rev. Proc. 2004-18, 2004-9 I.R.B.529 94-41 Superseded by Rev. Proc. 2004-15, 2004-7 I.R.B.490 94-55 Obsoleted in part by Rev. Proc. 2004-18, 2004-9 I.R.B.529 98-16 Suspended by Notice 2004-12, 2004-10 I.R.B.556 2000-38 Modified by Rev. Proc. 2004-11, 2004-3 I.R.B.311 2000-50 Modified by Rev. Proc. 2004-11, 2004-3 I.R.B.311 2001-10 Modified by Ann. 2004-16, 2004-13 I.R.B.668 2001-23 Modified by Ann. 2004-16, 2004-13 I.R.B.668 2002-9 Modified and amplified by Rev. Rul. 2004-18, 2004-8 I.R.B.509 Rev. Proc. 2004-23, 2004-16 I.R.B.785 Rev. Proc. 2004-30, 2004-21 I.R.B.950 Rev. Proc. 2004-32, 2004-22 I.R.B.988 Rev. Proc. 2004-33, 2004-22 I.R.B.989 Rev. Proc. 2004-34, 2004-22 I.R.B.991 Modified by Rev. Proc. 2004-11, 2004-3 I.R.B.311 Ann. 2004-16, 2004-13 I.R.B.668 2002-28 Modified by Ann. 2004-16, 2004-13 I.R.B.668 Revenue Procedures— Continued: 2002-71 Superseded by Rev. Proc. 2004-13, 2004-4 I.R.B.335 2003-1 Superseded by Rev. Proc. 2004-1, 2004-1 I.R.B.1 2003-2 Superseded by Rev. Proc. 2004-2, 2004-1 I.R.B.83 2003-3 As amplified by Rev. Proc. 2003-14, and as modified by Rev. Proc. 2003-48 superseded by Rev. Proc. 2004-3, 2004-1 I.R.B.114 2003-4 Superseded by Rev. Proc. 2004-4, 2004-1 I.R.B.125 2003-5 Superseded by Rev. Proc. 2004-5, 2004-1 I.R.B.167 2003-6 Superseded by Rev. Proc. 2004-6, 2004-1 I.R.B.197 2003-7 Superseded by Rev. Proc. 2004-7, 2004-1 I.R.B.237 2003-8 Superseded by Rev. Proc. 2004-8, 2004-1 I.R.B.240 2003-23 Modified and superseded by Rev. Proc. 2004-14, 2004-7 I.R.B.489 2003-26 Supplemented by Rev. Proc. 2004-17, 2004-10 I.R.B.562 2003-29 Obsoleted, except as provided in section 5.02, by Rev. Proc. 2004-24, 2004-16 I.R.B.790 2003-64 Modified by Rev. Proc. 2004-21, 2004-14 I.R.B.702 2004-1 Corrected by Ann. 2004-8, 2004-6 I.R.B.441 2004-4 Modified by Rev. Proc. 2004-15, 2004-7 I.R.B.490 2004-5 Modified by Rev. Proc. 2004-15, 2004-7 I.R.B.490 1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2003–27 through 2003–52 is in Internal Revenue Bulletin 2003–52, dated December 29, 2003. June 7, 2004iv2004-23 I.R.B. Revenue Procedures— Continued: 2004-6 Modified by Rev. Proc. 2004-15, 2004-7 I.R.B.490 Revenue Rulings: 55-748 Modified and superseded by Rev. Rul. 2004-20, 2004-10 I.R.B.546 92-19 Supplemented in part by Rev. Rul. 2004-14, 2004-8 I.R.B.511 94-38 Clarified by Rev. Rul. 2004-18, 2004-8 I.R.B.509 98-25 Clarified by Rev. Rul. 2004-18, 2004-8 I.R.B.509 2004-38 Modified by Rev. Proc. 2004-22, 2004-15 I.R.B.727 Treasury Decisions: 9088 Corrected by Ann. 2004-39, 2004-17 I.R.B.840 2004-23 I.R.B.vJune 7, 2004 *U.S.G overnment Printing O ff ice: 2 004 —3 04–7 78/60138
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