Internal Revenue Bulletin 1998-13 (PDF rendition): IRS Revenue Procedures

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INCOME TAX
Rev. Rul. 98–16, page 18.
LIFO; price indexes; department stores.The January
1998 Bureau of Labor Statistics price indexes are accepted
for use by department stores employing the retail inventory
and last-in, first-out inventory methods for valuing inventories
for tax years ended on, or with reference to, January 31,
1998.
Rev. Rul. 98–17, page 21.
Interest rates; underpayments and overpayments.The
rate of interest determined under section 6621 of the Code
for the calendar quarter beginning April 1, 1998, will be 7
percent for overpayments, 8 percent for underpayments,
and 10 percent for large corporate underpayments. The rate
of interest paid on the portion of a corporate overpayment
exceeding $10,000 is 5.5 percent.
T.D. 8757, page 4.
REG–110965–97, page 42.
Final, temporary, and proposed regulations under section
141 of the Code provide guidance to state and local gov-
ernments that issue bonds for output facilities. A public
hearing on the proposed regulations will be held on April
28, 1998.
T.D. 8758, page 15.
Final regulations under section 468A of the Code relate to
requests for revised schedules of ruling amounts for nuclear
decommissioning reserve funds.
T.D. 8759, page 19.
Final regulations under section 905 of the Code relate to the
substantiation requirements for taxpayers claiming foreign
tax credits.
EXEMPT ORGANIZATIONS
Announcement 98–25, page 43.
A list is given of organizations now classified as private foun-
dations.
EMPLOYMENT TAX
Rev. Proc. 98–26, page 26.
Electronic filing; magnetic media; 1998 Form W–4
specifications.Specifications for filing Form W–4, Em-
ployee’s Withholding Allowance Certificate, magnetically or
electronically, are set forth.
ADMINISTRATIVE
Notice 98–19, page 24.
The “differential earnings rate” under section 809 of the
Code is tentatively determined for 1997 together with the
“recomputed differential earnings rate” for 1996.
Notice 98–20, page 25.
This notice provides guidance on the ordering and taxation
of capital gain distributions from a charitable remainder trust
in light of the changes made to section 1(h) of the Code by
the Taxpayer Relief Act of 1997.
Internal Revenue
bbuulllleettiinn
Bulletin No. 1998–13
March 30, 1998
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
Department of the Treasury
Internal Revenue Service
Finding Lists begin on page 47.

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

The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi-
cial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
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stantive rulings necessary to promote a uniform application
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modify, or amend any of those previously published in the
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of internal practices and procedures that affect the rights
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Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
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Rulings and procedures reported in the Bulletin do not have
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dures must be considered, and Service personnel and oth-
ers concerned are cautioned against reaching the same con-
clusions in other cases unless the facts and circumstances
are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions, and Subpart B, Legislation and Related
Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and Sub-
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istrative Rulings. Bank Secrecy Act Administrative Rulings
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Part IV.—Items of General Interest.
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These monthly indexes are cumulated on a semiannual basis
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annual period, respectively.
3
Introduction
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

Section 141.—Private Activity
Bond; Qualified Bond
26 CFR 1.141–7T: Special rules for output facilities
(temporary).
T.D. 8757
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
Obligations of States and
Political Subdivisions
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regula-
tions.
SUMMARY: This document contains final
and temporary regulations that provide
guidance to state and local governments
that issue bonds for output facilities. This
document also contains temporary regula-
tions that provide guidance to certain non-
governmental persons that are engaged in
the local furnishing of electric energy or
gas using facilities financed with state or
local government bonds. These temporary
regulations reflect changes made by the Tax
Reform Act of 1986 and the Small Busi-
ness Job Protection Act of 1996. The tem-
porary regulations will affect State and
local government issuers of obligations and
nongovernmental persons engaged in the
local furnishing of electric energy or gas
after the effective date of these regulations.
The text of these temporary regulations
also serves as the text of REG–110965–97.
DATES: These regulations are effective
January 22, 1998.
For dates of applicability, see §§1.141–
15T, 1.142(f)(4)–1T(g), and 1.150–5T(b)
of these regulations.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations, Allan
Seller (202) 622-3980 (not a toll-free
number).
SUPPLEMENTARY INFORMATION:
Background
This document amends the Income Tax
Regulations (26 CFR part 1) under sec-
tion 141 by providing special rules for
state and local bonds issued for output fa-
cilities. This document also amends the
Income Tax Regulations under section
142(f)(4) by providing rules for non-
governmental persons engaged in local
furnishing of electric energy or gas using
facilities financed with state or local
bonds to make the election provided in
that section. Proposed regulations
§§1.141–7 and 1.141–8, published on De-
cember 30, 1994, (59 FR 67658) ad-
dressed the application of the private ac-
tivity bond tests under section 141(b)(2)
to output contracts for output facilities
and the application of the $15 million
limit under section 141(b)(4) to output fa-
cility financings. These sections (the
1994 proposed output regulations) are
withdrawn. Public comments submitted
on the 1994 proposed output regulations,
however, have been taken into account in
formulating these temporary regulations.
Explanation of Provisions
A. Section 1.141–7T Special Rules for
Output Facilities.
1. Basis for Special Rules for Output
Facilities.
The 1994 proposed output regulations
contain special rules for applying the pri-
vate business tests to output contracts.
Among the reasons for special rules for
output facilities are that governmentally-
owned utilities are often under an open-
ended obligation to assure service to their
customers and that general public cus-
tomers are ordinarily required to make
continuing payments for service. Output
facilities also require special rules be-
cause the economic benefit provided by
these facilities is usually the use of fungi-
ble property, such as electric power or
water. The temporary regulations con-
tinue the approach of the proposed regula-
tions, but contain a number of new provi-
sions, consistent with the general
principles of the existing regulations
under §1.103–7(b)(5), that take into ac-
count changes in the electric industry.
2. The Benefits and Burdens Standard.
The 1994 proposed output regulations
provide that a contract to sell output of a
financed facility to a nongovernmental
person may cause the private business
tests of section 141(b) to be met if it has
the effect of transferring to that non-
governmental person the benefits of own-
ing the facility and the burdens of paying
debt service on the facility. The tempo-
rary regulations adopt this standard, but
clarify its application.
For purposes of the standard, the tem-
porary regulations generally provide that
use of output on a basis different from the
general public has the effect of transfer-
ring the benefits of ownership. Similarly,
contracts that provide a substantial cer-
tainty that payments for output will be
made under the terms of the contract,
other than on a short-term basis, have the
effect of transferring the burden of paying
debt service on a facility. The standard
does not require that the burdens of own-
ership for general tax purposes be trans-
ferred to a nongovernmental person.
3. Requirements Contracts.
The 1994 proposed output regulations
provide that take or pay contracts, take
contracts, and certain requirements con-
tracts meet the benefits and burdens stan-
dard. Many commentators, noting that
§1.103–7(b)(5) does not expressly refer to
requirements contracts, suggested that re-
quirements contracts should never meet
the benefits and burdens standard.
The temporary regulations narrow the
rule for requirements contracts, by pro-
viding that a requirements contract meets
the benefits and burdens test only to the
extent that the issuer reasonably expects
that it is substantially certain that pay-
ments for output will be made under the
contract. Such a requirements contract is
in substance equivalent to a take contract.
A retail requirements contract generally
does not meet this standard, unless the
contract requires substantial termination
payments or contains other terms that es-
tablish substantial certainty of payment.
Whether the payments under a wholesale
requirements contract are substantially
certain to be made is determined on the
basis of all the facts and circumstances,
taking into account such factors as
whether the purchaser’s customer base
has significant indicators of stability,
whether the contract covers historical re-
quirements of the purchaser, and whether
March 30, 199841998–13 I.R.B.
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

the purchaser has agreed not to construct
or acquire other power resources.
4. Special Rule for Output Contracts
With Specific Performance Rights.
The 1994 proposed output regulations
provide that a requirements contract
meets the benefits and burdens standard if
the purchaser has priority rights to the
output (or rights to control the allocation
of the available output).
The temporary regulations generally
provide that any output contract that pro-
vides the purchaser with specific rights to
control the output or with other specific
performance rights to the use of output of
a financed facility meets the benefits and
burdens test, even if the issuer reasonably
expects that it is not substantially certain
that payments will be made under the
contract. This different standard applies
to output contracts that provide the pur-
chaser with specific performance rights
because those contracts closely resemble
leases, and, thus, provide more substantial
rights to the use of a financed facility.
5. Security Interest Test.
The 1994 proposed output regulations
do not address how the security interest
test applies to output contracts.
The temporary regulations provide that
payments made or to be made under an
output contract pledged as security for an
issue are taken into account under the pri-
vate security or payment test even if pay-
ment under the contract is not substan-
tially certain. This rule is appropriate
because it is reasonable to presume that
payments under a contract pledged as se-
curity for an issue are material to the pay-
ment of debt service on an issue.
6. Use of Nameplate Capacity to
Determine Available Output.
The 1994 proposed output regulations
measure the available output of a facility
by reference to nameplate capacity, but
further provide that, if nameplate capacity
or its equivalent is greater than 150 per-
cent of the average expected output, aver-
age expected output is used instead of
nameplate capacity. In addition, name-
plate capacity is reduced by scheduled
maintenance. Commentators suggested
that reference to nameplate capacity to
determine available output is a bright-
line, administrable test, and that the re-
ductions to nameplate capacity in the
1994 proposed output regulations should
be deleted.
The temporary regulations generally
provide that nameplate capacity may be
used as a reference to determine available
output of a generating facility. This rule
acknowledges that, consistent with pru-
dent utility practice, governmentally-
owned utilities may be required to acquire
or construct facilities with excess capacity
for their current or future reserves. To
prevent tax-exempt financings that are in-
consistent with the purposes of section
141, however, the temporary regulations
provide that this rule does not apply if the
issuer reasonably expects on the issue
date that nongovernmental persons that
are treated as private business users will
purchase 30 percent or more of the actual
output of the facility. In such a case, the
Commissioner may determine available
output on another reasonable basis. In ad-
dition, the temporary regulations clarify
that, if a limited source of supply con-
strains the output of a facility (for exam-
ple, if seasonal differences in water flow
constrain output of a hydroelectric facil-
ity), the available output must be deter-
mined by taking into account these con-
straints. The temporary regulations also
delete the rule that nameplate capacity is
reduced by scheduled maintenance.
7. Exception for Swapping and Pooling
Arrangements.
The 1994 proposed output regulations
provide that certain arrangements to swap
and pool power do not meet the private
business tests.
The temporary regulations simplify this
exception and expand it, so that it in-
cludes swapping arrangements entered
into to enhance reliability of a system.
8. Exceptions for Short-term Sales of
Output.
The 1994 proposed output regulations
provide that 30-day agreements for spot
sales of excess capacity do not result in
private business use.
The temporary regulations provide that
the exceptions for short-term use that
apply to other types of arrangements
under the general private activity bond
rules in §1.141–3 also apply to output
contracts. Thus, in general an output con-
tract that is available to the general public
may have a term up to 180 days; an output
contract that is not treated as general pub-
lic use, but that is offered on the basis of
generally applicable or uniformly applied
rates, may have a term of up to 90 days;
and an output contract that is specially ne-
gotiated may have a term of up to 30
days.
9. Special Exceptions for Sales of Output
Attributable to Excess Generating
Capacity which Mitigate Stranded
Costs.
The 1994 proposed output regulations
provide that a single nonrenewable con-
tract for a term of not greater than 1 year
is not treated as private business use.
Commentators suggested that longer
term, renewable contracts to sell output
attributable to excess generating capacity
should be disregarded under the private
business use test. Commentators noted
that the excess generating capacity prob-
lem may be exacerbated by the develop-
ment of open-access regulatory policies
and other factors.
The temporary regulations respond to
these special considerations by providing
a more flexible exception for sales of out-
put attributable to excess generating ca-
pacity that results from the offering of
nondiscriminatory, open access tariffs.
This exception is also consistent with the
Federal Energy Regulatory Commission
policy that utilities should take reasonable
steps to mitigate the imposition of charges
to recover legitimate, prudent, and verifi-
able stranded costs associated with provid-
ing open access. Under this exception, a
contract to sell excess power is not treated
as private business use if the term of the
contract (including all renewal options) is
not greater than 3 years, the issuer does
not issue tax-exempt bonds to increase the
capacity of its generation system during
the term of the contract, the governmental
owner offers non-discriminatory, open ac-
cess transmission tariffs pursuant to the
FERC rules (or comparable state law pro-
visions pursuant to a plan approved by the
FERC), all of the output sold under the
contract is excess capacity resulting from
participation in open access, the contract
mitigates stranded costs of the owner that
are attributable to entry into the open ac-
cess system, and stranded costs recovered
under the contract by that owner are used
to redeem tax-exempt bonds as promptly
as reasonably practical.
1998–13 I.R.B.5March 30, 1998

10. Special Exceptions for Transmission
Facilities.
The 1994 proposed output regulations
provide special rules for transmission fa-
cilities, which are intended to respond to
the development of regulatory policies
that require or encourage open access to
transmission systems. Under these spe-
cial rules, in general, the use of transmis-
sion facilities is not private business use
to the extent that it results from an order
or actions taken in response to (or to pre-
vent) an anticipated order by the United
States that those facilities be used by a
particular nongovernmental person, pro-
vided that the transmission facilities were
sized based on the issuer’s reasonable ex-
pectations about the amount of wheeling.
The 1994 proposed output regulations
contain a number of exceptions to this
rule, which are designed to prevent the
tax-exempt financing of facilities con-
structed for use by nongovernmental per-
sons. The 1994 proposed output regula-
tions also provide that an issuer must take
remedial action if more than 20 percent of
a transmission facility is so used by a non-
governmental person.
Commentators suggested that the ex-
ceptions for use of transmission systems
should be made more flexible to accom-
modate the development of open access
regulatory policies. Commentators noted
that measurement of use of a transmission
system raises a number of complex tech-
nical issues. For example, capacity or
available output may be much more read-
ily determined for a generating unit than
for a transmission system. Some com-
mentators suggested that all use of a
transmission system pursuant to standard
tariffs should be treated as general public
use. Other commentators suggested that
any rules addressing open access required
by the FERC should also similarly ad-
dress open access required by state public
utility commissions.
The temporary regulations broaden the
exceptions for use of transmission facili-
ties, but do not treat all use of transmis-
sion facilities pursuant to standard tariffs
as general public use. Under § 1.141–
2(d), an action taken in response to a spe-
cific FERC order to wheel power under
sections 211 and 212 of the Federal
Power Act (16 U.S.C. 824j and 824k)
would otherwise qualify for an exception
from the deliberate action rule because it
is taken in response to a regulatory direc-
tive made by the federal government. The
temporary regulations additionally pro-
vide that an action taken in anticipation of
such an order is not a deliberate action.
The temporary regulations also provide
a special exception for transmission facil-
ities pursuant to which an action is not
treated as a deliberate action if it is taken
to implement the offering of non-discrim-
inatory, open access for the use of fi-
nanced transmission facilities in a manner
consistent with FERC rules, including
reciprocity conditions of FERC Order No.
888 (61 F.R. 21540, May 10, 1996), pur-
suant to a plan approved by the FERC.
The special exception also applies to or-
ders and rules of state regulatory authori-
ties pursuant to a plan approved by the
FERC that are comparable to certain
FERC orders and rules. This exception
does not apply, however, to the sale, ex-
change, or other disposition of bond-fi-
nanced transmission facilities to a non-
governmental person.
Section 1.141–2(d)(1) provides that an
issue is an issue of private activity bonds
if the issuer reasonably expects, as of the
issue date, that the issue will meet either
the private business tests or the private
loan financing test or if the issuer takes a
deliberate action, subsequent to the issue
date, that causes the conditions of either
the private business tests or the private
loan financing test to be met. Thus, rea-
sonable expectations about private busi-
ness use of transmission facilities under
non-discriminatory, open-access tariffs,
must be taken into account on the issue
date of bonds financing those facilities.
A special transition rule applies to bonds
(other than advance refunding bonds) that
refund bonds issued prior to July 9, 1996
(the effective date of FERC Order No.
888). Because an issuer is in general not
required to apply the temporary regula-
tions to refunding bonds issued after the
effective date that do not have a weighted
average maturity longer than the remain-
ing weighted average maturity of the re-
funded bonds, the special transition rule
will apply only if the issuer chooses to
apply the temporary regulations.
Whether bonds issued after July 9, 1996,
to finance output facilities met the rea-
sonable expectations test of section 141
because of the possibility of actions taken
to implement open access tariffs is appro-
priately determined on a facts and cir-
cumstances basis.
These special rules for transmission fa-
cilities are appropriate because of the
unique statutory and regulatory regime
that applies to transmission facilities.
B. 1.141–8T $15 million Limitation for
Output Facilities.
1. Clarification of Computation of
Nonqualified Amount.The 1994 proposed
output regulations provide guidance on
the special $15 million limitation on out-
put facilities of section 141(b)(4). In gen-
eral, this limitation is based on the “non-
qualified amount” of an issue or issues
that finance a single project.
The temporary regulations clarify that,
in determining the total nonqualified
amount for issues financing a project, the
nonqualified amount is first determined
on an issue-by-issue basis, and that these
amounts are then aggregated. The tempo-
rary regulations also provide a simpler
method for determining how much the
nonqualified amount of an issue is re-
duced when principal of the issue is paid.
Under this method, the nonqualified
amount of an issue is reduced by the ratio
of adjusted issue price over issue price.
C. Section 1.142(f)(4)–1T Manner of
Making Election to Terminate Tax-
exempt Bond Financing.
Section 142(f)(4) permits a person en-
gaged in the local furnishing of electric en-
ergy or gas that uses facilities financed
with exempt facility bonds under section
142(a)(8) and that expands its service area
in a manner inconsistent with the require-
ments of sections 142(a)(8) and 142(f) to
make an election to ensure that those
bonds will continue to be treated as ex-
empt facility bonds. In order to make the
election the person engaged in local fur-
nishing must, among other things, agree to
redeem all outstanding bonds that financed
the facilities not later than 6 months after
the later of the earliest date on which the
bonds may be redeemed or the date of the
election. The temporary regulations set
forth the required time and manner of
making this election. In general, the elec-
tion must be made on or before the 90th
day after the later of (i) the date of the ser-
vice area expansion or (ii) the effective
date of the temporary regulations.
March 30, 199861998–13 I.R.B.

D. §1.150–5T Filing Notices and
Elections.
The temporary regulations specify that
notices and elections under section
142(f)(4)(B) and §1.141–12(d)(3) must
be filed with the Chief, Employee Plans
and Exempt Organizations Division of the
appropriate key district office.
E. Need for Temporary Regulations and
Request for Public Comments
Congress passed the Federal Energy
Act of 1992 to encourage deregulation of
the electric power industry. Since that
time, the Federal Energy Regulatory
Commission and various states have
adopted policies to open up access to
transmission facilities. Treasury and the
IRS are aware that these initiatives are
causing rapid changes in the electric
power industry, and have received many
comments asking for immediate guidance
under section 141 regarding the effect on
the tax-exempt status of bonds of certain
restructuring transactions necessary for
utilities to participate in a deregulated
electric utility environment. For example,
several comments state that the restructur-
ing initiatives in various states and re-
gions may not proceed until Treasury and
the IRS clarify the extent to which munic-
ipal utilities may transfer control of cer-
tain assets financed with tax-exempt
bonds to an independent system operator.
Based on these considerations, it has been
determined that immediate regulatory
guidance is necessary to ensure efficient
administration of the tax laws.
The regulations are published in both
temporary and proposed form to provide
immediate guidance on which issuers can
rely in evaluating their participation in
open access regimes, while providing the
opportunity for public comment. In addi-
tion, Treasury and the IRS believe that
providing guidance on the effect of open
access participation is more appropriately
accomplished by regulation than by pri-
vate letter ruling. Treasury and the IRS
are also aware, however, that restructur-
ing efforts are evolving and uncertain, and
that new types of arrangements may be
developed to implement restructuring.
Many of the issues that will arise may
need to be addressed legislatively. Ac-
cordingly, the regulations are published in
temporary form with the expectation the
Treasury and the IRS will reexamine
them in light of new developments within
the next three years.
Comments are invited on whether fur-
ther guidance is needed to address the
new types of contractual arrangements
that are arising in the electric power in-
dustry. In particular, comments are in-
vited on whether there are any instances
in which an option of a nongovernmental
purchaser to purchase output of a bond-fi-
nanced facility should not be taken into
account as private business use.
Effective Dates
Sections 1.141–7T and 1.141–8T are
applicable to bonds issued on or after
February 23, 1998.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in EO 12866.
Therefore, a regulatory assessment is not
required. It has also been determined that
section 553(b) of the Administrative Pro-
cedure Act (5 U.S.C. chapter 5) does not
apply to these regulations.
It is hereby certified that the provisions
of these regulations that impose a collec-
tion of information requirement on small
entities do not have a significant impact
on a substantial number of small entities.
This certification is based upon the fact
that in the years 1987 through 1993 a total
of only 61 different state or local govern-
ment issuers of exempt facility bonds is-
sued under section 142(f) for facilities for
the local furnishing of electric energy or
gas filed information returns with the In-
ternal Revenue Service under section
149(e). Further, an election under section
142(f)(4) is in no event required to be
filed with the Internal Revenue Service
more than once. Therefore, a Regulatory
Flexibility Analysis under the Regulatory
Flexibility Act (5 U.S.C. Chapter 6) is not
required. Pursuant to section 7805(f) of
the Internal Revenue Code, these tempo-
rary regulations will be submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
Drafting Information
The principal authors of these regula-
tions are Michael G. Bailey and Allan
Seller, Office of Assistant Chief Counsel
(Financial Institutions & Products), and
Nancy M. Lashnits, formerly of that of-
fice. However, other personnel from IRS
and the 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 1.141–0 is amended by
removing the entries for §§1.141–7 and
1.141–8 and adding entries to the table in
numerical order to read as follows:
§1.141–0 Table of contents.
* * * * *
§1.141–7T Special rules for output
facilities (temporary).
(a) Overview.
(b) Definitions.
(1) Available output.
(2) Measurement period.
(3) Sale at wholesale.
(4) Stranded costs.
(5) Take contract and take or pay con-
tract.
(6) Transmission facilities.
(7) Nonqualified amount.
(c) Output contracts.
(1) General rule.
(2) Benefits and burdens test.
(3) Take contract or take or pay contract.
(4) Requirements contracts.
(5) Contract with specific performance
rights.
(d) Measurement of private business use.
(e) Measurement of private security or
payment.
(f) Exceptions for certain contracts.
(1) Small purchases of output.
(2) Swapping and pooling arrangements.
(3) Short-term output contracts.
(4) Special 3-year exception for sales of
output attributable to excess generat-
ing capacity resulting from participa-
tion in open access.
(5) Special exceptions for transmission
facilities.
1998–13 I.R.B.7March 30, 1998

(6) Certain conduit parties disregarded.
(g) Allocations of output facilities and
systems.
(1) Facts and circumstances analysis.
(2) Illustrations.
(3) Transmission contracts.
(4) Allocation of payments.
(h) Examples.
§1.141–8T $15 million limitation for
output facilities (temporary).
(a) In general.
(1) General rule.
(2) Reduction in $15 million output limi-
tation for outstanding issues.
(3) Benefits and burdens test applicable.
(b) Definition of project.
(1) General rule.
(2) Separate ownership.
(3) Generating property.
(4) Transmission.
(5) Subsequent improvements.
(6) Replacement property.
(c) Examples.
* * * * *
§1.141–15T Effective dates (temporary).
(a) through (e) [Reserved].
(f) Effective dates for certain regulations
relating to output facilities.
(1) General rule.
(2) Transition rule for requirement con-
tracts.
(g) Refunding bonds.
(h) Permissive retroactive application.
(i) Permissive retroactive application of
certain regulations pertaining to out-
put contracts.
* * * * *
Par. 3. Section 1.141–2 is amended by
adding a sentence at the end of paragraph
(d)(3)(ii)(B) to read as follows:
§1.141–2 Private activity bond tests.
* * * * *
(d) * * *
(3) * * *
(ii) * * *
(B) * * * See §1.141–7T(f)(5).
* * * * *
§§1.141–7 and 1.141–8 [Removed]
Par. 3a. Sections 1.141–7 and 1.141–8
are removed.
Par. 4. Sections 1.141–7T and 1.141–
8T are added to read as follows:
§1.141–7T Special rules for output
facilities (temporary).
(a) Overview.This section provides
special rules to determine whether
arrangements for purchases of output
from an output facility cause an issue of
bonds to meet the private business tests.
For this purpose, unless otherwise stated,
water facilities are treated as output facili-
ties. Section 1.141–3 generally applies to
determine whether other types of arrange-
ments for use of an output facility cause
an issue to meet the private business tests.
(b) Definitions.For purposes of this
section and §1.141–8T, the following def-
initions and rules apply:
(1) Available output.The available
output of a facility financed by an issue is
determined by multiplying the number of
units produced or to be produced by the
facility in one year by the number of years
in the measurement period of that facility
for that issue.
(i) Generating facilities.The number
of units produced or to be produced by a
generating facility in one year is deter-
mined by reference to its nameplate ca-
pacity or the equivalent (or where there is
no nameplate capacity or the equivalent,
its maximum capacity), which is not re-
duced for reserves or other unutilized ca-
pacity.
(ii) Transmission and other output fa-
cilities.(A) In general.For transmission,
cogeneration, and other output facilities,
available output must be measured in a
reasonable manner to reflect capacity.
(B) Electric transmission facilities.
Measurement of the available output of
all or a portion of electric transmission fa-
cilities may be determined in a manner
consistent with the reporting rules and re-
quirements for transmission networks
promulgated by the Federal Energy Regu-
latory Commission (FERC). For exam-
ple, for a transmission network, the use of
aggregate load and load share ratios in a
manner consistent with the requirements
of the FERC may be reasonable. In addi-
tion, depending on the facts and circum-
stances, measurement of the available
output of transmission facilities using
thermal capacity or transfer capacity may
be reasonable.
(iii) Special rule for facilities acquired
or constructed primarily for use by pri-
vate business users.If an issuer reason-
ably expects on the issue date that per-
sons that are treated as private business
users will purchase more than 30 percent
of the actual output of the facility fi-
nanced with the issue, the Commissioner
may determine the number of units pro-
duced or to be produced by the facility in
one year on a reasonable basis other than
by reference to nameplate capacity, such
as the average expected annual output of
the facility. For example, the Commis-
sioner may treat the reasonably expected
annual output of a financed peaking elec-
tric generating unit as the available out-
put of that unit if the issuer reasonably
expects, on the issue date of bonds that
finance the unit, that an investor-owned
utility will purchase 30 percent of the ac-
tual output of the facility under a take or
pay contract, even if the amount of out-
put purchased is less than 10 percent of
the available output determined by refer-
ence to nameplate capacity. The reason-
ably expected annual output of the gener-
ating facility must be consistent with the
capacity reported for prudent reliability
purposes.
(iv) Special rule for facilities with a
limited source of supply.If a limited
source of supply constrains the output of
an output facility, the number of units
produced or to be produced by the facility
must be determined by reasonably taking
into account those constraints. For exam-
ple, the available output of a hydroelectric
unit must be determined by reference to
the reasonably expected annual flow of
water through the unit.
(2) Measurement period.The measure-
ment period of an output facility financed
by an issue is determined under
§1.141–3(g).
(3) Sale at wholesale. For purposes of
this section, a sale at wholesale means a
sale of output to any person for resale.
(4) Stranded costs. For purposes of
this section, stranded costsmeans
stranded costs as defined in 18 CFR 35.26
and costs that an issuer incurred to pro-
vide service to a wholesale or retail cus-
tomer that subsequently becomes, in
whole or in part, an unbundled transmis-
sion customer and that an issuer is autho-
rized to recover by the FERC or a state
regulatory authority.
March 30, 199881998–13 I.R.B.

(5) Take contract and take or pay con-
tract. Atake contractis an output con-
tract under which a purchaser agrees to
pay for the output under the contract if the
output facility is capable of providing the
output. A take or pay contract is an output
contract under which a purchaser agrees
to pay for the output under the contract,
whether or not the output facility is capa-
ble of providing the output.
(6) Transmission facilities. Transmis-
sion facilitiesare facilities for the trans-
mission or distribution of output. Trans-
mission facilities include facilities
necessary to provide ancillary services re-
quired to be offered as part of open access
transmission tariffs under rules promul-
gated by the FERC under sections 205
and 206 of the Federal Power Act (16
U.S.C. 824d and 824e). Thus, if a facility
also serves another function (for example,
a facility that provides for operating re-
serves for transmission and also provides
generation) an allocable portion of the fa-
cility is treated as a transmission facility.
(7) Nonqualified amount. The non-
qualified amount with respect to an issue
is determined under section 141(b)(8).
(c) Output contracts—(1) General
rule. The purchase by a nongovernmental
person of the available output of an output
facility (output contract) financed with
the proceeds of an issue is taken into ac-
count under the private business tests if
the purchase has the effect of transferring
substantial benefits of owning the facility
and substantial burdens of paying the debt
service on bonds used (directly or indi-
rectly) to finance the facility (the benefits
and burdens test). See paragraph (c)(5) of
this section for other output contract
arrangements that are taken into account
under the private business tests. See also
§1.141–8T for rules for when an issue
that finances an output facility (other than
a water facility) meets the private busi-
ness tests because the nonqualified
amount of the issue exceeds $15 million.
(2) Benefits and burdens test—(i) Ben-
efits of ownership.An output contract
transfers substantial benefits of owning a
facility if the contract gives the purchaser
(directly or indirectly) rights to capacity
of the facility on a basis that is preferen-
tial to the rights of the general public.
(ii) Burdens of paying debt service.An
output contract transfers substantial bur-
dens of paying debt service on an issue to
the extent that the issuer reasonably ex-
pects that it is substantially certain that
payments will be made under the terms of
the contract (disregarding default, insol-
vency, or other similar circumstances).
For example, an output contract is treated
as transferring burdens of paying debt ser-
vice on an issue if payments must be
made upon contract termination.
(iii) Payments pursuant to pledged con-
tract.Payments made or to be made
under the terms of an output contract that
is pledged as security for an issue are
taken into account under the private busi-
ness tests even if the issuer reasonably ex-
pects that it is not substantially certain
that payments will be made under the
contract (disregarding default, insolvency,
or other similar circumstances). For this
purpose, an output contract is pledged as
security only if the bond documents pro-
vide that the pledged contract cannot be
substantially amended without the con-
sent of bondholders or a trustee for the
bondholders.
(3) Take contract or take or pay con-
tract—(i) In general.The benefits and
burdens test is met if a nongovernmental
person agrees pursuant to a take contract
or a take or pay contract to purchase the
available output of a facility. See para-
graphs (d) and (e) of this section for rules
regarding measuring the use of, and pay-
ments on debt service for, an output facil-
ity for determining whether the private
business tests are met.
(ii) Transmission contracts.In the case
of a transmission facility, an agreement
to provide firm or priority transmission
services is generally treated as a take con-
tract or a take or pay contract. The extent
to which transmission services are inter-
ruptible is an important factor indicating
that a contract for transmission services is
not treated as a take contract or a take or
pay contract.
(4) Requirements contracts—(i) In gen-
eral.A requirements contract under which
a nongovernmental person agrees to pur-
chase all or part of its output requirements
is taken into account under the private
business tests only to the extent that, based
on all the facts and circumstances, the
contract meets the benefits and burdens
test. See §1.141–15T(f)(3) for special ef-
fective dates for the application of this
paragraph (c)(4) to issues financing facili-
ties subject to requirements contracts.
(ii) Significant factors. Significant fac-
tors that tend to establish that the benefits
and burdens test is met under the rule set
forth in paragraph (c)(4)(i) of this section
include—
(A) The purchaser’s customer base has
significant indicators of stability, such as
large size, diverse composition, and a
substantial residential component;
(B) The contract covers historical re-
quirements of the purchaser, rather than
only projected requirements that are in
addition to historical requirements; and
(C) The purchaser agrees not to con-
struct or acquire other power resources to
meet the requirements covered by the
contract.
(iii) Special rule for retail requirements
contracts. In general, a requirements con-
tract that is not a sale at wholesale does
not meet the benefits and burdens test be-
cause the obligation to make payments on
the contract is contingent on the output re-
quirements of a single user. Such a re-
quirements contract in general meets the
benefits and burdens test, however, to the
extent that it contains contractual terms
that obligate the purchaser to make pay-
ments that are not contingent on the output
requirements of the purchaser (such as sig-
nificant termination payments) or that ob-
ligate the purchaser to have output re-
quirements. For example, a requirements
contract with an industrial purchaser
meets the benefits and burdens test if the
purchaser enters into additional contrac-
tual obligations with the issuer or another
governmental unit not to cease operations.
(5) Contract with specific performance
rights.An output contract that provides
the purchaser with specific rights to con-
trol the output of a facility or with other
specific performance rights to the use of
output of a facility is generally taken into
account under the private business tests,
even if the benefits and burdens test is not
met. Payments made and to be made
under such a contract are generally taken
into account under the private payment
test, even if the issuer does not reasonably
expect that it is substantially certain that
payments will be made under the contract
(disregarding default, insolvency, or other
similar circumstances). A customer’s nor-
mal entitlement to receive utility service
(for example, an entitlement to reasonable
protection against blackouts in times of
high demand through rotating the effects
1998–13 I.R.B.9March 30, 1998

of blackouts) is not treated as a specific
performance right for this purpose.
(d) Measurement of private business
use. If an output contract results in pri-
vate business use under this section, the
amount of private business use generally
is the capacity that must be reserved for
the nongovernmental person under pru-
dent reliability standards. For example, in
the case of a take contract for a peaking
electric generating unit, under which a
nongovernmental person has priority
rights to use capacity at any time for the
entire term of the bonds, but under which
the total energy purchases are limited in
any one year to 10 percent of annual
available output (determined by reference
to nameplate capacity), the amount of pri-
vate business use is the amount of capac-
ity that must be reserved for that non-
governmental person under prudent
reliability standards, which may be as
much as 100 percent.
(e) Measurement of private security or
payment.The measurement of payments
made or to be made by nongovernmental
persons under output contracts as a per-
cent of the debt service of an issue is de-
termined under the rules provided in
§1.141–4.
(f) Exceptions for certain contracts—
(1) Small purchases of output. An output
contract is not taken into account under
the private business tests if the purchaser
is not required under the contract to make
a payment that is substantially certain to
be made under paragraph (c)(2)(ii) of this
section in any year greater than 0.5 per-
cent of the average annual debt service on
an issue that finances the output facility.
(2) Swapping and pooling arrange-
ments.An agreement that provides for
swapping or pooling of output by one or
more governmental persons and one or
more nongovernmental persons does not
result in private business use of the output
facility owned by the governmental per-
son to the extent that—
(i) The swapped output is reasonably
expected to be approximately equal in
value (determined over periods of one
year or less); and
(ii) The purpose of the agreement is to
enable each of the parties to satisfy differ-
ent peak load demands, to accommodate
temporary outages, to diversify supply, or
to enhance reliability in accordance with
prudent reliability standards.
(3) Short-term output contracts. The
exceptions for short-term arrangements
provided in §1.141–3(c) and (d)(3) apply
to output contracts. For example, a spot
sale for use for a period of 90 days on the
basis of rates that are generally applicable
and uniformly applied generally does not
result in private business use, and a spot
sale for use for a period of 30 days on the
basis of rates that are specially negotiated
generally does not result in private busi-
ness use.
(4) Special 3-year exception for sales
of output attributable to excess generat-
ing capacity resulting from participation
in open access.The purchase of output of
an output facility (not including a water
facility) by a nongovernmental person is
not treated as private business use if all of
the following requirements are met:
(i) The term of the contract is not longer
than 3 years, including all renewal options.
(ii) The issuer does not make expendi-
tures to increase the generating capacity
of its system during the term of the con-
tract that are, or will be, financed with
proceeds of tax-exempt bonds.
(iii) The governmental owner offers
non-discriminatory, open access transmis-
sion tariffs for use of its transmission sys-
tem pursuant to rules promulgated by the
FERC under sections 205 and 206 of the
Federal Power Act (16 U.S.C. 824d and
824e) (or comparable provisions of state
law pursuant to a plan approved by the
FERC).
(iv) All of the output sold under the
contract is attributable to excess capacity
resulting from the offer of the non-dis-
criminatory, open access transmission tar-
iffs referred to in paragraph (f)(5)(ii) of
this section.
(v) The contract mitigates stranded
costs of the governmental owner that are
attributable to the offer of the non-dis-
criminatory, open access transmission tar-
iffs referred to in paragraph (f)(5)(ii) of
this section.
(vi) Any stranded costs recovered by
the governmental owner (including
amounts recovered under the contract)
with respect to the output facility under
rules promulgated by the FERC under the
Federal Power Act (or comparable provi-
sions of state law) are applied as promptly
as is reasonably practical to redeem tax-
exempt bonds that financed that facility in
a manner consistent with §1.141–12.
(5) Special exceptions for transmission
facilities—(i) Mandated wheeling.En-
tering into a contract for the use of trans-
mission facilities financed by an issue is
not treated as a deliberate action under
§1.141–2(d) if—
(A) The contract is entered into in re-
sponse to (or in anticipation of) an order
by the United States under sections 211
and 212 of the Federal Power Act (16
U.S.C. 824j and 824k) (or a state regula-
tory authority under comparable provi-
sions of state law pursuant to a plan ap-
proved by the FERC); and
(B) The terms of the contract are bona
fide and arm’s length, and the considera-
tion paid is consistent with the provisions
of section 212(a) of the Federal Power
Act.
(ii) Actions taken to implement non-dis-
criminatory, open access. An action is
not treated as a deliberate action under
§1.141–2(d) if it is taken to implement the
offering of non-discriminatory, open ac-
cess tariffs for the use of transmission fa-
cilities financed by an issue in a manner
consistent with rules promulgated by the
FERC under sections 205 and 206 of the
Federal Power Act (16 U.S.C. 824d and
824e) (or by a state regulatory authority
under comparable provisions of state law
pursuant to a plan approved by the
FERC). This paragraph (f)(5)(ii) does not
apply, however, to the sale, exchange, or
other disposition of transmission facilities
to a nongovernmental person.
(iii) Application to reasonable expecta-
tions test to certain current refunding
bonds.An action taken or to be taken
with respect to transmission facilities refi-
nanced by an issue is not taken into ac-
count under the reasonable expectations
test of §1.141–2(d) if—
(A) The action is described in para-
graph (f)(5)(i) or (ii) of this section;
(B) The bonds of the issue are current
refunding bonds that, directly or indi-
rectly, refund bonds issued before July 9,
1996; and
(C) The weighted average maturity of
the refunding bonds is not greater than the
remaining weighted average maturity of
those prior bonds.
(6) Certain conduit parties disre-
garded.A nongovernmental person act-
ing solely as a conduit for the exchange of
output among governmentally owned and
operated utilities is disregarded in deter-
March 30, 1998101998–13 I.R.B.

mining whether the private business tests
are met with respect to financed facilities
owned by a governmental person. Use of
property by a power marketer in the trade
or business of purchasing and reselling
power, however, is taken into account
under the private business tests.
(g) Allocations of output facilities and
systems—(1) Facts and circumstances
analysis.Whether output sold under an
output contract is allocated to a particular
facility (for example, a generating unit),
to the entire system of the seller of that
output (net of any uses of that system out-
put allocated to a particular facility), or to
a portion of a facility is based on all the
facts and circumstances. Significant fac-
tors to be considered in determining the
allocation of an output contract to fi-
nanced property are the following:
(i) The extent to which it is physically
possible to deliver output to or from a par-
ticular facility or system.
(ii) The terms of a contract relating to
the delivery of output (such as delivery
limitations and options or obligations to
deliver power from additional sources).
(iii) Whether a contract is entered into
as part of a common plan of financing for
a facility.
(iv) The method of pricing output
under the contract, such as the use of mar-
ket rates rather than rates designed to pay
debt service of tax-exempt bonds used to
finance a particular facility.
(2) Illustrations.The following illus-
trate the factors set forth in paragraph
(g)(1) of this section:
(i) Physical possibility.Output from a
generating unit that is fed directly into a
low voltage distribution system of the
owner of that unit and that cannot physi-
cally leave that distribution system gener-
ally must be allocated to those receiving
electricity through that distribution sys-
tem. Output may be allocated without re-
gard to physical limitations, however, if
exchange or similar agreements provide
output to a purchaser where, but for the
exchange agreements, it would not be
possible for the seller to provide output to
that purchaser.
(ii) Contract terms relating to perform-
ance. A contract to provide a specified
amount of electricity from a system, but
only when at least that amount of electric-
ity is being generated by a particular unit,
is allocated to that unit. For example, a
contract to buy 20 MW of system power
with a right to take up to 40 percent of the
actual output of a specific 50 MW facility
whenever total system output is insuffi-
cient to meet all of the seller’s obligations
generally is allocated to the specific facil-
ity rather than to the system.
(iii) Common plan of financing.A con-
tract entered into as part of a common
plan of financing for a facility generally is
allocated to the facility if debt service for
the issue of bonds is reasonably expected
to be paid, directly or indirectly, from
payments substantially certain to be made
under the contract (disregarding default,
insolvency, or other similar circum-
stances).
(iv) Pricing method. Pricing based on
the capital and generating costs of a par-
ticular turbine tends to indicate that out-
put under the contract is properly allo-
cated to that turbine.
(3) Transmission contracts. Whether
use under an output contract for transmis-
sion is allocated to a particular facility or
to a transmission network is based on all
the facts and circumstances, in a manner
similar to paragraphs (g)(1) and (2) of this
section. In general, the method used to
determine payments under a contract is a
more significant contract term for this
purpose than nominal contract path. In
general, if reasonable and consistently ap-
plied, the determination of use of trans-
mission facilities under an output contract
may be based on a method used by third
parties, such as reliability councils.
(4) Allocation of payments.Payments
for output provided by an output facility
financed with two or more sources of
funding are generally allocated under the
rules in §1.141–4(c).
(h) Examples.The following examples
illustrate the application of this section:
Example 1. Joint ownership.Z, an investor-
owned electric utility, and City H agree to construct
an electric generating facility of a size sufficient to
take advantage of the economies of scale. H will
issue $50 million of its 25-year bonds, and Z will
use $100 million of its funds for construction of a fa-
cility they will jointly own as tenants in common.
Each of the participants will share in the ownership,
output, and operating expenses of the facility in pro-
portion to its contribution to the cost of the facility,
that is, one-third by H and two-thirds by Z. H’s
bonds will be secured by H’s ownership interest in
the facility and by revenues to be derived from its
share of the annual output of the facility. H will
need only 50 percent of its share of the annual out-
put of the facility during the first 20 years of opera-
tions. It agrees to sell 10 percent of its share of the
annual output to Z for a period of 20 years pursuant
to a contract under which Z agrees to take that
power if available. The facility will begin operation,
and Z will begin to receive power, 4 years after the
H bonds are issued. The measurement period for the
property financed by the issue is 21 years. H also
will sell the remaining 40 percent of its share of the
annual output to numerous other private utilities
under contracts of 90 days or less entered into under
a prevailing rate schedule, including demand
charges. No contracts will be executed obligating
any person other than Z to purchase any specified
amount of the power for any specified period of time.
No person (other than Z) will make payments sub-
stantially certain to be made (disregarding default,
insolvency, or other similar circumstances) under
paragraph (c)(2) of this section that will result in a
transfer of substantial burdens of paying debt service
on bonds used directly or indirectly to provide H’s
share of the facilities. The bonds are not private ac-
tivity bonds, because H’s one-third interest in the fa-
cility is not treated as used by the other owners of the
facility. Although 10 percent of H’s share of the an-
nual output of the facility will be used in the trade or
business of Z, a non-governmental person, under the
rule in paragraph (c) of this section, that portion con-
stitutes not more than 10 percent of the available out-
put of H’s ownership interest in the facility.
Example 2. Requirements contract treated as
take contract. (i) City J issues 20-year bonds to ac-
quire an electric generating facility having a reason-
ably expected economic life substantially greater
than 20 years and a nameplate capacity of 100 MW.
The available output of the facility under paragraphs
(b)(1) of this section is approximately 17,520,000
MWh. On the issue date, J enters into a contract
with T, an investor-owned utility, to provide T with
all of its power requirements for a period of 10
years, commencing on the issue date. J reasonably
expects that T will actually purchase an average of
20 MW over the 10-year period. Based on all of the
facts and circumstances, including the size, diver-
sity, and composition of T’s customer base, J reason-
ably expects that it is substantially certain (disre-
garding default, insolvency, or other similar
circumstances) that T will actually purchase only an
average of 16 MW over the 10-year period. The
contract is a requirements contract that must be
taken into account under the private business tests
pursuant to paragraph (c)(4) of this section because
it provides T with substantial benefits of ownership
(rights to capacity) and obligates T with substantial
burdens of making payments that the issuer reason-
ably expects are substantially certain.
(ii) J is required to reserve for T’s use 40 MW of
capacity in accordance with prudent reliability stan-
dards. Under paragraph (d) of this section, the
amount of private business use under this contract,
therefore, is approximately 20 percent (40 MW X 24
hours X 365 days X 10 years, or 3,504,000 MWh) of
the available output. Accordingly, the issue meets
the private business use test. J reasonably expects
that the amount to be paid for an average of 16 MW
of power (less the operation and maintenance costs
directly attributable to generating that 16 MW of
power), will be more than 10 percent of debt service
on the issue on a present-value basis. The payment
for 16 MW of power is an amount that J reasonably
expects is substantially certain to be made under
1998–13 I.R.B.11March 30, 1998

paragraph (c)(2) of this section. Accordingly, the
issue meets the private security or payment test be-
cause J reasonably expects that it is substantially cer-
tain that payment of more than 10 percent of the debt
service will be indirectly derived from payments by
T. The bonds are private activity bonds under para-
graph (c) of this section. Further, if 20 percent of the
sale proceeds of the issue is greater than $15 million
and the issue meets the private security or payment
test with respect to the $15 million output limitation,
the bonds are also private activity bonds under sec-
tion 141(b)(4). See §1.141–8T.
Example 3. Allocation of existing contracts to
new facilities.Power Authority K, a political subdi-
vision created by the legislature in State X to own
and operate certain power generating facilities, sells
all of the power from its existing facilities to four
private utility systems under contracts executed in
1999, under which the four systems are required to
take or pay for specified portions of the total power
output until the year 2029. Existing facilities supply
all of the present needs of the four utility systems,
but their future power requirements are expected to
increase substantially beyond the capacity of K’s
current generating system. K issues 20-year bonds
in 2004 to construct a large generating facility. As
part of the financing plan for the bonds, a fifth pri-
vate utility system contracts with K to take or pay
for 15 percent of the available output of the new fa-
cility. The balance of the output of the new facility
will be available for sale as required, but initially it
is not anticipated that there will be any need for that
power. The revenues from the contract with the fifth
private utility system will be sufficient to pay less
than 10 percent of the debt service on the bonds (de-
termined on a present value basis). The balance,
which will exceed 10 percent of the debt service on
the bonds, will be paid from revenues derived from
the contracts with the four systems initially from
sale of power produced by the old facilities. The
output contracts with all the private utilities are allo-
cated to K’s entire generating system. See para-
graphs (g)(1) and (2) of this section. Thus, the
bonds meet the private business use test because
more than 10 percent of the proceeds will be used in
the trade or business of a nongovernmental person.
In addition, the bonds meet the private payment or
security test because payment of more than 10 per-
cent of the debt service, pursuant to underlying
arrangements, will be derived from payments in re-
spect of property used for a private business use.
Example 4. Allocation to displaced resource.
Municipal utility MU, a political subdivision, pur-
chases all of the electricity required to meet the
needs of its customers (1,000 MW) from B, an in-
vestor-owned utility that operates its own electric
generating facilities, under a 50-year take or pay
contract. MU does not anticipate that it will require
additional electric resources, and any new resources
would produce electricity at a higher cost to MU
than its cost under its contract with B. Nevertheless,
B encourages MU to construct a new generating
plant sufficient to meet MU’s requirements. MU is-
sues obligations to construct facilities that will pro-
duce 1,000 MW of electricity. MU, B, and I, an-
other investor-owned utility, enter into an agreement
under which MU assigns to I its rights under MU’s
take or pay contract with B. Under this arrange-
ment, I will pay MU, and MU will continue to pay
B, for the 1,000 MW. I’s payments to MU will at
least equal the amounts required to pay debt service
on MU’s bonds. In addition, under paragraph
(g)(1)(iii) of this section, the contract among MU, B,
and I is entered into as part of a common plan of fi-
nancing of the MU facilities. Under all the facts and
circumstances, MU’s assignment to I of its rights
under the original take or pay contract is allocable to
MU’s new facilities under paragraph (g) of this sec-
tion. Because I is a nongovernmental person, MU’s
bonds are private activity bonds.
Example 5. Transmission facilities transferred to
independent system operator.(i) In 1998, the public
utilities commission of State C adopts a plan for re-
structuring its electric power industry. The plan fos-
ters competition by providing both wholesale and
retail customers with non-discriminatory access to
transmission facilities within the State. The plan
provides that investor-owned utilities will transfer
operating control over all of their transmission as-
sets to an independent system operator (ISO), which
is a nongovernmental person that will operate those
combined assets as a single, state-wide system. Mu-
nicipally-owned utilities are eligible for, but are not
required to participate in, the open access system
implemented by the ISO. The functions of the ISO
include control of transmission access and pricing,
scheduling transmission, control area operations,
and settlements and billing. In addition, under cer-
tain circumstances the ISO may order the transmis-
sion owners to construct additional transmission fa-
cilities. The restructuring plan is approved by the
FERC pursuant to sections 205 and 206 of the Fed-
eral Power Act.
(ii) In 1994 City D had issued bonds to finance
improvements to its transmission system. In 1998, D
transfers operating control of its transmission system
to the ISO pursuant to the restructuring plan. At the
same time, D chooses to apply the private activity
bond regulations of §§1.141–0 through 1.141–15 to
the 1994 bonds. The operation of the financed facili-
ties by the ISO does not meet the exception for man-
agement contracts that do not give rise to private
business use under §1.141–3(b)(4)(iii)(C) because it
is not a contract solely for the operation of a facility
under that exception. Under the special exception in
paragraph (f)(5) of this section, however, the transfer
of control is not treated as a deliberate action. Ac-
cordingly, the transfer of control does not cause the
1994 bonds to meet the private activity bond tests.
Example 6. Current refunding.The facts are the
same as in Example 5 of this paragraph (h), and in
addition D issues bonds in 1999 to currently refund
the 1994 bonds. The weighted average maturity of
the 1999 bonds is not greater than the remaining
weighted average maturity of the 1994 bonds. D
chooses to apply the private activity bond regula-
tions of §§1.141–0 through 1.141–15 to the refund-
ing bonds. In general, reasonable expectations must
be separately tested on the date that refunding bonds
are issued under §1.141–2(d). Under the special ex-
ception in paragraph (f)(5) of this section, however,
the transfer of the financed facilities to the ISO need
not be taken into account in applying the reasonable
expectations test to the refunding bonds.
§1.141–8T $15 million limitation for
output facilities (temporary).
(a) In general—(1) General rule.Sec-
tion 141(b)(4) provides a special private
activity bond limitation (the $15 million
output limitation) for issues 5 percent or
more of the proceeds of which are to be
used to finance output facilities (other
than a facility for the furnishing of water).
Under this rule, a bond is a private activ-
ity bond under the private business tests
of section 141(b)(1) and (2) if the non-
qualified amount with respect to output
facilities financed by the proceeds of the
issue exceeds $15 million. The $15 mil-
lion output limitation applies in addition
to the private business tests of section
141(b)(1) and (2). Under section
141(b)(4) and paragraph (a)(2) of this sec-
tion, the $15 million output limitation is
reduced in certain cases. Specifically, an
issue meets the test in section 141(b)(4) if
both of the following tests are met:
(i) More than $15 million of the pro-
ceeds of the issue to be used with respect
to an output facility are to be used for a
private business use. Investment pro-
ceeds are disregarded for this purpose if
they are not allocated disproportionately
to the private business use portion of the
issue.
(ii) The payment of the principal of, or
the interest on, more than $15 million of
the sales proceeds of the portion of the
issue used with respect to an output facil-
ity is (under the terms of the issue or any
underlying arrangement) directly or indi-
rectly—
(A) Secured by any interest in an out-
put facility used or to be used for a private
business use (or payments in respect of
such an output facility); or
(B) To be derived from payments
(whether or not to the issuer) in respect of
an output facility used or to be used for a
private business use.
(2) Reduction in $15 million output
limitation for outstanding issues—(i)
General rule.In determining whether an
issue more than 5 percent of the proceeds
of which are to be used with respect to an
output facility consists of private activity
bonds under the $15 million output limi-
tation, the $15 million limitation on pri-
vate business use and private security or
payments is applied by taking into ac-
count the aggregate nonqualified amounts
of any outstanding bonds of other issues 5
percent or more of the proceeds of which
are or will be used with respect to that
output facility or any other output facility
that is part of the same project.
March 30, 1998121998–13 I.R.B.

(ii) Bonds taken into account.For pur-
poses of this paragraph (a)(2), in applying
the $15 million output limitation to an
issue (the later issue), a tax-exempt bond
of another issue (the earlier issue) is taken
into account if—
(A) That bond is outstanding on the
issue date of the later issue;
(B) That bond will not be redeemed
within 90 days of the issue date of the
later issue in connection with the refund-
ing of that bond by the later issue; and
(C) More than 5 percent of the sale pro-
ceeds of the earlier issue financed an out-
put facility that is part of the same project
as the output facility that is financed by
more than 5 percent of the sale proceeds
of the later issue.
(3) Benefits and burdens test applica-
ble—(i) In general.In applying the $15
million output limitation, the benefits and
burdens test of §1.141–7T applies, except
that “$15 million” is substituted for “10
percent”, or “5 percent” as appropriate.
(ii) Earlier issues for the project.If
bonds of an earlier issue are outstanding
and must be taken into account under para-
graph (a)(2) of this section, the nonquali-
fied amount for that earlier issue is multi-
plied by a fraction, the numerator of which
is the adjusted issue price of the earlier
issue as of the issue date of the later issue,
and the denominator of which is the issue
price of the earlier issue. Pre-issuance ac-
crued interest as defined in §1.148–1(b) is
disregarded for this purpose.
(b) Definition of project—(1) General
rule.For purposes of paragraph (a)(2) of
this section, projecthas the meaning pro-
vided in this paragraph. Facilities that are
functionally related and subordinate to a
project are treated as part of that same
project. Facilities having different pur-
poses or serving different customer bases
are not ordinarily part of the same project.
For example, the following are generally
not part of the same project—
(i) Generation and transmission facili-
ties;
(ii) Separate facilities designed to serve
wholesale customers and retail customers;
and
(iii) A peaking unit and a baseload unit.
(2) Separate ownership.Except as oth-
erwise provided in this paragraph (b)(2),
facilities that are not owned by the same
person are not part of the same project. If
different governmental persons act in
concert to finance a project, however (for
example as participants in a joint powers
authority), their interests are aggregated
with respect to that project to determine
whether the $15 million output limitation
is met. In the case of undivided owner-
ship interests in a single output facility,
property that is not owned by different
persons is treated as separate projects
only if the separate interests are fi-
nanced—
(i) With bonds of different issuers; and
(ii) Without a principal purpose of
avoiding the limitation in this section.
(3) Generating property—(i) Property
on same site.In the case of generation
and related facilities, projectmeans prop-
erty located at the same site.
(ii) Special rule for generating units.
Separate generating units are not part of
the same project, if one unit is reasonably
expected, on the date of each issue that fi-
nances the project, to be placed in service
more than 3 years before the other. Com-
mon facilities or property that will be
functionally related to more than one gen-
erating unit must be allocated on a reason-
able basis. If a generating unit already is
constructed or is under construction (the
first unit) and bonds are to be issued to fi-
nance an additional generating unit (the
second unit), all costs for any common fa-
cilities paid or incurred before the earlier
of the issue date of bonds to finance the
second unit or the commencement of con-
struction of the second unit are allocated
to the first unit. At the time that bonds are
issued to finance the second unit (or, if
earlier, upon commencement of construc-
tion of that unit), any remaining costs of
the common facilities may be allocated
among the first and second units so that in
the aggregate the allocation is reasonable.
(4) Transmission.In the case of trans-
mission facilities, projectmeans function-
ally related or contiguous property and
property for ancillary services, such as
property required to be included in open
access transmission tariffs under rules of
the FERC. Separate transmission facili-
ties are not part of the same project if one
facility is reasonably expected, on the
issue date of each issue that finances the
project, to be placed in service more than
2 years before the other.
(5) Subsequent improvements—(i) In
general.An improvement to generating
or transmission facilities that is not part of
the original design of those facilities (the
original project) is not part of the same
project as the original project if the con-
struction, reconstruction, or acquisition of
that improvement commences more than
3 years after the original project was
placed in service and the bonds issued to
finance that improvement are issued more
than 3 years after the original project was
placed in service.
(ii) Special rule for transmission facili-
ties. An improvement to transmission fa-
cilities that is not part of the original de-
sign of that property is not part of the
same project as the original project if the
issuer did not reasonably expect the need
to make that improvement when it com-
menced construction of the original pro-
ject and the construction, reconstruction,
or acquisition of that improvement is
mandated by the federal government or a
state regulatory authority to accommodate
requests for wheeling.
(6) Replacement property.For pur-
poses of this section, property that re-
places existing property of an output fa-
cility is treated as part of the same project
as the replaced property unless—
(i) The need to replace the property was
not reasonably expected on the issue date
or the need to replace the property oc-
curred more than 3 years before the issuer
reasonably expected (determined on the
issue date of the bonds financing the
property) that it would need to replace the
property; and
(ii) The bonds that finance (and refi-
nance) the replaced property have a
weighted average maturity that is not
greater than 120 percent of the reasonably
expected economic life of the replaced
property.
(c) Example.The application of the
provisions of this section is illustrated by
the following example:
Example. (i) Power Authority K, a political sub-
division, intends to issue a single issue of tax-ex-
empt bonds at par with a stated principal amount and
sales proceeds of $500 million to finance the acqui-
sition of an electric generating facility. No portion
of the facility will be used for a private business use,
except that L, an investor-owned utility, will pur-
chase 10 percent of the output of the facility under a
take contract and will pay 10 percent of the debt ser-
vice on the bonds. The nonqualified amount with
respect to the bonds is $50 million.
(ii) The maximum amount of tax-exempt bonds
that may be issued for the acquisition of an interest
in the facility in paragraph (i) of this Exampleis
$465 million (that is, $450 million for the 90 percent
1998–13 I.R.B.13March 30, 1998

of the facility that is governmentally owned and
used plus a nonqualified amount of $15 million).
Par. 5. Section 1.141–15 is revised to
read as follows:
§1.141–15 Effective dates.
(a) Scope.The effective dates of this
section apply for purposes of §§1.141–1
through 1.141–6(a), 1.141–9 through
1.141–14, 1.145–1 through 1.145–2,
1.150–1(a)(3) and the definition of bond
documents contained in §1.150–1(b).
(b) Effective dates.Except as other-
wise provided in this section, §§1.141–1
through 1.141–6(a), 1.141–9 through
1.141–14, 1.145–1 through 1.145–2,
1.150–1(a)(3) and the definition of bond
documents contained in §1.150–1(b) apply
to bonds issued on or after May 16, 1997,
that are subject to section 1301 of the Tax
Reform Act of 1986 (100 Stat. 2602).
(c) Refunding bonds.Sections 1.141–
1 through 1.141–6(a), 1.141–9 through
1.141–14, 1.145–1 through 1.145–2,
1.150–1(a)(3) and the definition of bond
documents contained in §1.150–1(b) do
not apply to any bonds issued on or after
May 16, 1997, to refund a bond to which
those sections do not apply unless—
(1) The weighted average maturity of
the refunding bonds is longer than—
(i) The weighted average maturity of
the refunded bonds; or
(ii) In the case of a short-term obliga-
tion that the issuer reasonably expects to
refund with a long-term financing (such
as a bond anticipation note), 120 percent
of the weighted average reasonably ex-
pected economic life of the facilities fi-
nanced; or
(2) A principal purpose for the issuance
of the refunding bonds is to make one or
more new conduit loans.
(d) Permissive application of regula-
tions. Except as provided in paragraph (e)
of this section, §§1.141–1 through
1.141–6(a), 1.141–9 through 1.141–14,
1.145–1 through 1.145–2, 1.150–1(a)(3)
and the definition of bond documents con-
tained in §1.150–1(b) may be applied in
whole, but not in part, to actions taken be-
fore February 23, 1998 with respect to—
(1) Bonds that are outstanding on May
16, 1997, and subject to section 141; or
(2) Refunding bonds issued on or after
May 16, 1997.
(e) Permissive retroactive application
of certain sections. The following sec-
tions may each be applied to any bonds is-
sued before May 16, 1997—
(1) Section 1.141–3(b)(4);
(2) Section 1.141–3(b)(6); and
(3) Section 1.141–12.
Par. 6. Section 1.141–15T is added to
read as follows:
§1.141–15T Effective dates (temporary).
(a) through (e) [Reserved]. For guid-
ance see §1.141–15.
(f) Effective dates for certain regula-
tions relating to output facilities—(1)
General rule.Except as otherwise pro-
vided in this section, §§ 1.141–7T and
1.141–8T apply to bonds issued on or
after February 23, 1998 that are subject to
section 1301 of the Tax Reform Act of
1986 (100 Stat. 2602).
(2) Transition rule for requirements
contracts.Section 1.141–7T(c)(4) ap-
plies to output contracts entered into on
or after February 23, 1998. An output
contract is treated as entered into on or
after that date if its term is extended, the
parties to the contract change, or other
material terms are amended on or after
that date.
(g) Refunding bonds in general. Ex-
cept as otherwise provided in paragraph
(h) or (i) of this section, §§1.141–7T and
1.141–8T do not apply to bonds issued on
or after February 23, 1998, to refund a
bond to which the §§1.141–7T and
1.141–8T do not apply unless—
(1) The weighted average maturity of
the refunding bonds is longer than—
(i) The weighted average maturity of
the refunded bonds; or
(ii) In the case of a short-term financ-
ings (such as a bond anticipation note),
120 percent of the weighted average rea-
sonably expected economic life of the fa-
cilities financed; or
(2) A principal purpose of the issuance
of the refunding bonds is to make one or
more new conduit loans.
(h) Permissive retroactive application.
Except as provided in §1.141–15 (d) or
(e) or paragraph (i) of this section,
§§1.141–1 through 1.141–6, 1.141–7T
through 1.141–8T, 1.141–9 through
1.141–14, 1.145–1 through 1.145–2,
1.150–1(a)(3) and the definition of bond
documents contained in §1.150–1(b) may
be applied in whole, but not in part to—
(1) Bonds that are outstanding on May
16, 1997, and subject to section 141; or
(2) Refunding bonds issued on or after
May 16, 1997.
(i) Permissive retroactive application
of certain regulations pertaining to output
contracts.Section 1.141–7T(f)(4) and (5)
may be applied to any bonds issued be-
fore February 23, 1998.
Par. 7. Section 1.142(f)(4)–1T is added
to read as follows: §1.142(f)(4)–1T Man-
ner of making election to terminate tax-
exempt bond financing (temporary).
(a) Overview.Section 142(f)(4) per-
mits a person engaged in the local fur-
nishing of electric energy or gas (a local
furnisher) that uses facilities financed
with exempt facility bonds under section
142(a)(8) and that expands its service area
in a manner inconsistent with the require-
ments of sections 142(a)(8) and 142(f) to
make an election to ensure that those
bonds will continue to be treated as ex-
empt facility bonds. The election must
meet the requirements of paragraphs (b)
and (c) of this section.
(b) Time for making election—(1) In
general.An election under section
142(f)(4)(B) must be filed with the Inter-
nal Revenue Service on or before 90 days
after the later of—
(i) The date of the service area expan-
sion that causes bonds to cease to meet
the requirements of sections 142(a)(8)
and 142(f); or
(ii) February 23, 1998.
(2) Date of service area expansion.For
the purposes of this section, the date of
the service area expansion is the first date
on which the local furnisher is authorized
to collect revenue for the provision of ser-
vice in the expanded area.
(c) Manner of making election.An
election under section 142(f)(4)(B) must
be captioned “ELECTION TO TERMI-
NATE TAX-EXEMPT BOND FINANC-
ING”, must be signed under penalties of
perjury by a person who has authority to
sign on behalf of the local furnisher, and
must contain the following information—
(1) The name of the local furnisher;
(2) The tax identification number of the
local furnisher;
(3) The complete address of the local
furnisher;
(4) The date of the service area expan-
sion;
(5) Identification of each bond issue
subject to the election, including the com-
plete name of each issue, the tax identifi-
March 30, 1998141998–13 I.R.B.

cation number of each issuer, the issue
date of each issue, the issue price of each
issue, the adjusted issue price of each
issue as of the date of the election, the
earliest date on which the bonds of each
issue may be redeemed, and the principal
amount of bonds of each issue to be re-
deemed on the earliest redemption date;
(6) A statement that the local furnisher
making the election agrees to the condi-
tions stated in section 142(f)(4)(B); and
(7) A statement that each issuer of the
bonds subject to the election has received
written notice of the election.
(d) Effect on section 150(b).Except as
provided in paragraph (e) of this section,
if a local furnisher files an election within
the period specified in paragraph (b) of
this section, section 150(b) does not apply
to bonds identified in the election during
and after that period.
(e) Effect of failure to meet agreements.
If a local furnisher fails to meet any of the
conditions stated in an election pursuant
to paragraph (c)(6) of this section, the
election is invalid.
(f) Corresponding provisions of the In-
ternal Revenue Code of 1954.Section
103(b)(4)(E) of the Internal Revenue
Code of 1954 set forth corresponding re-
quirements for the exclusion from gross
income of the interest on bonds issued for
facilities for the local furnishing of elec-
tric energy or gas. For the purposes of
this section any reference to sections
142(a)(8) and (f) of the Internal Revenue
Code of 1986 includes a reference to the
corresponding portion of section
103(b)(4)(E) of the Internal Revenue
Code of 1954.
(g) Effective dates.Section 1.142(f)-
(4)–1 applies to elections made on or after
February 23, 1998.
Par. 8. Section 1.150–5T is added to
read as follows:
§1.150–5T Filing notices and elections
(temporary).
(a) In general.Notices and elections
under the following sections must be filed
with the Chief, Employee Plans and Ex-
empt Organizations) of the appropriate
key district office—
(1) Section 1.141–12(d)(3); and
(2) Section 1.142(f)(4)–1T.
(b) Effective dates.This section applies
to notices and elections filed on or after
February 23, 1998.
Michael P. Dolan,
Acting Commissioner of
Internal Revenue.
Approved December 23, 1997.
Jonathan Talisman,
Deputy Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on
January 21, 1998, 8:45 a.m., and published in the
issue of the Federal Register for January 22, 1998,
63 F.R. 3256)
Section 468A.—Special Rules
for Nuclear Decommissioning
Costs
26 CFR 1.468A–3: Ruling amount.
T.D. 8758
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Nuclear Decommissioning
Funds; Revised Schedules of
Ruling Amounts
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains final
regulations relating to requests for revised
schedules of ruling amounts for nuclear
decommissioning reserve funds. The regu-
lations amend existing regulations to ease
the burden on affected taxpayers by per-
mitting electing taxpayers with qualifying
interests in nuclear power plants to adjust
their ruling amounts under a formula or
method rather than by filing a request for a
revised schedule of ruling amounts.
DATES: The final regulations are effec-
tive January 20, 1998.
FOR FURTHER INFORMATION CON-
TACT: Peter Friedman, (202) 622-3110
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information con-
tained in these final regulations has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act (44
U.S.C. 3507) under the control number
1545–1511. Responses to this collection
of information are voluntary.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the col-
lection of information displays a valid
control number.
The estimated average annual burden
per recordkeeper is 5 hours.
Comments concerning the accuracy of
this burden estimate and suggestions for
reducing this burden should be sent to the
Internal Revenue Service, Attn: IRS Re-
ports Clearance Officer, T:FP, Washing-
ton, DC 20024, and to the Office of Man-
agement and Budget,Attn: Desk Officer
for the Department of the Treasury, Office
of Information and Regulatory Affairs,
Washington, DC 20503.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
return information are confidential, as re-
quired by 26 U.S.C. 6103.
Background
This document contains final regula-
tions under section 468A of the Internal
Revenue Code. Section 468A was added
to the Internal Revenue Code by section
91(c) of the Tax Reform Act of 1984
(Public Law 98–369). Significant amend-
ments were made to section 468A by sec-
tion 1917 of the Energy Policy Act of
1992 (Public Law 102–486).
Section 468A(a) allows an electing tax-
payer to deduct the amount of payments
made by the taxpayer to a nuclear decom-
missioning reserve fund. Section
468A(b) limits the amount of these pay-
ments for any taxable year to the lesser of
the ruling amount or the amount of de-
commissioning costs included in the tax-
payer’s cost of service for ratemaking
purposes for that taxable year.
Section 468A(d) provides that no de-
duction shall be allowed unless the tax-
payer requests, and receives, a schedule
of ruling amounts from the Secretary. A
ruling amount is, with respect to any tax-
able year, the amount determined by the
Secretary as necessary to (1) fund that
1998–13 I.R.B.15March 30, 1998

portion of the nuclear decommissioning
costs of the taxpayer with respect to the
nuclear power plant which bears the same
ratio to the total nuclear decommissioning
costs with respect to the nuclear power
plant as the period for which the nuclear
decommissioning fund is in effect bears to
the estimated useful life of such nuclear
power plant; and (2) prevent any exces-
sive funding of such costs or the funding
of such costs at a rate more rapid than
level funding, taking into account such
discount rates as the Secretary deems ap-
propriate. Section 468A(d)(3) provides
that the Secretary shall, at least once dur-
ing the useful life of the nuclear power
plant (or more frequently, upon the request
of the taxpayer), review and, if necessary,
revise the schedule of ruling amounts.
Section 1.468A–3 sets forth the rules
relating to the determination of ruling
amounts. The regulations permit the use
of a formula or method for determining a
schedule of ruling amounts (in lieu of a
schedule of ruling amounts specifying a
dollar amount for each taxable year), but
only if the public utility commission es-
tablishing or approving the amount of de-
commissioning costs to be included in
cost of service for ratemaking does not es-
timate the cost of decommissioning in fu-
ture dollars.
The regulations contain provisions for
the review and revision of schedules of
ruling amounts and set forth circum-
stances under which a taxpayer must re-
quest a revision to its schedule of ruling
amounts. In general, a schedule of ruling
amounts must be reviewed at 10 year in-
tervals. If the schedule is determined
under a formula or method, however, the
period between reviews may not exceed 5
years.
The regulations provide that a taxpayer
may request an elective review of its
schedule of ruling amounts. A taxpayer
seeking to maximize its deductions under
section 468A generally needs to request an
elective review of its schedule of ruling
amounts each time a public utility commis-
sion changes previously established
amounts of decommissioning costs. A no-
tice of proposed rulemaking (REG–
09828–96) relating to these rules was pub-
lished in the Federal Register on December
23, 1996 (61 F.R. 67510). The notice pro-
poses to amend §1.468A–3(a)(4) by elimi-
nating the restriction on the use of a for-
mula or method for determining a schedule
of ruling amounts and to revise the manda-
tory review requirements.
Written comments were received in re-
sponse to the notice of proposed rulemak-
ing, and a public hearing was held on
May 13, 1997. After considering the writ-
ten comments and the statements made at
the public hearing, the proposed rules are
adopted as modified by this Treasury
Decision.
Explanation of Provisions
The final regulations provide that a tax-
payer may request approval of a formula
or method for determining a schedule of
ruling amounts (rather than a schedule
specifying a dollar amount for each tax-
able year) that is consistent with the prin-
ciples and provisions of the rules relating
to the determination of ruling amounts.
The final regulations ease the filing
burden on taxpayers by permitting them
to adjust their ruling amounts under a for-
mula or method (rather than by filing a re-
quest for a revised schedule of ruling
amounts). Thus, a taxpayer may maxi-
mize its deductions under section 468A
without requesting a revised schedule of
ruling amounts each time a public utility
commission changes the amount of de-
commissioning costs included in the tax-
payer’s cost of service if, under the tax-
payer’s formula or method, the
commission’s action results in a corre-
sponding change in ruling amounts. The
commentators all agreed with the ex-
panded availability of ruling amounts
based on formulas or methods.
In addition, the final regulations mod-
ify the mandatory review provisions ap-
plicable to schedules of ruling amounts
determined under a formula or method.
The proposed regulations eliminate the
rule requiring review of those schedules
after 5 years but make those schedules
subject to the general rule requiring re-
view at 10 year intervals. In addition, the
proposed regulations require taxpayers to
request a revised schedule of ruling
amounts if, beginning with the second
taxable year during which the most re-
cently issued formula or method is in ef-
fect, the ruling amount for a taxable year
(1) differs by more than 25 percent from
the ruling amount for any preceding tax-
able year during which such formula or
method was in effect; or (2) differs by
more than 10 percent from the ruling
amount for the immediately preceding
taxable year. The commentators gener-
ally favored either a retention of the 5
year review period without limits on dif-
ferences in ruling amounts or an increase
in the percentage by which ruling
amounts are permitted to differ. In re-
sponse to these suggestions, the final reg-
ulations retain the 5 year review require-
ment, increase the overall percentage by
which ruling amounts may differ, and
eliminate the 10 percent limitation on
changes from one year to the next.
Some commentators suggested that all
elements of a formula should be permitted
to be variable. Nothing in the proposed
regulations was meant to suggest other-
wise. In order to afford different taxpay-
ers maximum flexibility in using a for-
mula, the regulations do not specify
which elements must be fixed and which
must be variable. Instead, the formula, it-
self, will determine whether an element is
fixed or variable. A fixed element is one
that is assumed to retain the same value
regardless of action by the applicable
public utility commission.
Some commentators suggested that a
taxpayer that recently received a schedule
of ruling amounts should be permitted to
vary this schedule using a formula or
method that has not been approved by the
Service. This suggestion is inconsistent
with the Service’s obligation to issue and
review schedules of ruling amounts and is
not adopted.
Several commentators requested that
the existing user fee for obtaining a
schedule of ruling amounts under section
468A is excessive and should be waived
or reduced. Because this subject is not
within the scope of this regulations pro-
ject, it is not addressed in the final regula-
tions.
Finally, some commentators suggested
that the regulations should address the sit-
uation where a taxpayer, based on a good
faith but erroneous calculation of the per-
centage limitations, fails to comply with
the mandatory review provisions. Partly
in response to this suggestion, the per-
centage limitation has been simplified.
Effective date
These regulations are applicable for re-
quests for schedules of ruling amounts
made on or after January 20, 1998.
March 30, 1998161998–13 I.R.B.

Special Analyses
It has been determined that this Treasury
decision is not a significant regulatory ac-
tion as defined in EO 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. It is hereby certified
that the collection of information in the
regulation will not have a significant im-
pact on a substantial number of small enti-
ties. This certification is based on the fact
that taxpayers with qualifying interests in a
nuclear power plant are generally large en-
tities. Thus, because the regulation applies
only to these taxpayers and does 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 Internal Revenue
Code, the notice of proposed rulemaking
preceding these regulations was submitted
to the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on its impact on small business.
Drafting Information
The principal author of these regula-
tions is Peter Friedman, Office of Assis-
tant Chief Counsel (Passthroughs and
Special Industries). However, other per-
sonnel from the IRS and Treasury Depart-
ment participated in their development.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.468A–2 is amended
as follows:
1. The text of paragraph (f)(3) follow-
ing the heading is designated as paragraph
(f)(3)(i).
2. Paragraph (f)(3)(ii) is added.
The addition reads as follows:
§1.468A–2 Treatment of electing
taxpayer.
* * * * *
(f) * * *
(3) * * * (i) * * *
(ii) The requirement of this paragraph
(f)(3) does not apply if the taxpayer deter-
mines its schedule of ruling amounts
under a formula or method obtained under
§1.468A–3(a)(4) and the cost of service
amount is a variable element of that for-
mula or method.
* * * * *
Par. 3. Section 1.468A–3 is amended
as follows:
1. Paragraph (a)(4) is revised.
2. Paragraph (e)(5) is added.
3. Paragraphs (i)(1)(ii)(A), (i)(1)(iii)-
(A)(3), and (i)(1)(iii)(B) are revised.
4. Paragraph (i)(1)(iii)(C) is added.
The revisions and additions read as fol-
lows:
§1.468A–3 Ruling amount.
(a) * * *
(4) The Internal Revenue Service will
approve, at the request of the taxpayer, a
formula or method for determining a
schedule of ruling amounts (rather than a
schedule specifying a dollar amount for
each taxable year) that is consistent with
the principles and provisions of this sec-
tion. See paragraph (i)(1)(ii) of this sec-
tion for a special rule relating to the
mandatory review of ruling amounts that
are determined pursuant to a formula or
method.
* * * * *
(e) * * *
(5) A formula or method obtained under
paragraph (a)(4) of this section may pro-
vide for changes in an estimated date de-
scribed in paragraph (e)(1) or (2) of this
section to reflect changes in the ratemak-
ing assumptions used to determine rates
(whether interim or final) that are estab-
lished or approved by the applicable public
utility commission after the filing of the re-
quest for approval of a formula or method.
* * * * *
(i) * * *
(1) * * *
(ii)(A) Any taxpayer that has obtained a
formula or method for determining a
schedule of ruling amounts for any tax-
able year under paragraph (a)(4) of this
section must file a request for a revised
schedule on or before the earlier of the
deemed payment deadline for the fifth tax-
able year that begins after its taxable year
in which the most recent formula or
method was approved or the deemed pay-
ment deadline for the first taxable year
that begins after a taxable year in which
there is a substantial variation in the ruling
amount determined under the most recent
formula or method. There is a substantial
variation in the ruling amount determined
under the formula or method in effect for a
taxable year if the ruling amount for the
year and the ruling amount for any earlier
year since the most recent formula or
method was approved differ by more than
50 percent of the smaller amount.
* * * * *
(iii) * * *
(A) * * *
(3) Reduces the amount of decommis-
sioning costs to be included in cost of ser-
vice for any taxable year;
(B) The taxpayer’s most recent request
for a schedule of ruling amounts did not
provide notice to the Internal Revenue
Service of such action by the public utility
commission; and
(C) In the case of a taxpayer that deter-
mines its schedule of ruling amounts
under a formula or method obtained under
paragraph (a)(4) of this section, the item
increased, adjusted, or reduced is a fixed
(rather than a variable) element of that
formula or method.
* * * * *
Par. 4. Section 1.468A–8 is amended
by adding paragraph (b)(12) to read as
follows:
§1.468A–8 Effective date and transitional
rules.
* * * * *
(b) * * *
(12) Use of formula or method.Sec-
tion 1.468A–2(f)(3)(ii) and §1.468A–
3(a)(4) (to the extent it permits a formula
or method when the applicable public
utility commission estimates the cost of
decommissioning in future dollars),
(e)(5), (i)(1)(ii)(A) (to the extent it re-
quires the taxpayer to file a request for a
revised schedule because of a substantial
variation in ruling amounts), and
(i)(1)(iii)(C) apply only to requests for a
1998–13 I.R.B.17March 30, 1998

formula or method submitted on or after
January 20, 1998, and to formulas and
methods obtained in response to those re-
quests.
PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 5. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 6. In §602.101(c), the entry for
1.468A–3 in the table is revised to read as
follows:
§602.101 OMB Control numbers.
* * * * *
(c) * * *
CFR part or sectionCurrent OMB
where identifiedcontrol No.
or described
* * * * *
1.468A–3 . . . . . . . . . . . . . . . .1545–1269
1545–1378
1545–1511
* * * * *
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
Approved January 9, 1998.
Donald C. Lubick,
Acting Assistant Secretary of
the Treasury (Tax Policy).
(Filed by the Office of the Federal Register on
January 16, 1998, 8:45 a.m., and published in the
issue of the Federal Register for January 20, 1998,
63 F.R. 2892)
Section 472.—Last-in, First-out
Inventories
26 CFR 1.472–1: Last-in, first-out inventories.
LIFO; price indexes; department stores. The
January 1998 Bureau of Labor Statistics price in-
dexes are accepted for use by department stores em-
ploying the retail inventory and last-in, first-out in-
ventory methods for valuing inventories for tax years
ended on, or with reference to, January 31, 1998.
Rev. Rul. 98–16
The following Department Store Inven-
tory Price Indexes for January 1998 were
issued by the Bureau of Labor Statistics.
The indexes are accepted by the Internal
Revenue Service, under § 1.472–1(k) of
the Income Tax Regulations and Rev.
Proc. 86–46, 1986–2 C.B. 739, for appro-
priate application to inventories of depart-
ment stores employing the retail inven-
tory and last-in, first-out inventory
methods for tax years ended on, or with
reference to, January 31, 1998.
The Department Store Inventory Price
Indexes are prepared on a national basis
and include (a) 23 major groups of depart-
ments, (b) three special combinations of
the major groups - soft goods, durable
goods, and miscellaneous goods, and (c) a
store total, which covers all departments,
including some not listed separately, ex-
cept for the following: candy, food,
liquor, tobacco, and contract departments.
March 30, 1998181998–13 I.R.B.
BUREAU OF LABOR STATISTICS, DEPARTMENT STORE
INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS
(January 1941 = 100, unless otherwise noted)
Percent Change
GroupsJan.Jan.from Jan. 1997
19971998to Jan. 1998
1
1. Piece Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .536.5536.70.0
2. Domestics and Draperies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .648.0627.9–3.1
3. Women’s and Children’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .636.8656.33.1
4. Men’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .895.6890.5–0.6
5. Infants’ Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .622.7619.0–0.6
6. Women’s Underwear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .522.0558.37.0
7. Women’s Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .291.3304.64.6
8. Women’s and Girls’ Accessories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .539.6544.10.8
9. Women’s Outerwear and Girls’ Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . .404.3395.6–2.2
10. Men’s Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .614.3614.60.0
11. Men’s Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .580.0584.20.7
12. Boys’ Clothing and Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .478.5504.45.4
13. Jewelry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .993.2981.2–1.2
14. Notions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .773.4803.33.9
15. Toilet Articles and Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .906.5929.72.6
16. Furniture and Bedding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .658.4662.80.7
17. Floor Coverings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .579.1583.90.8
18. Housewares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .818.0811.8–0.8
19. Major Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .246.8241.8–2.0

DRAFTING INFORMATION
The principal author of this revenue
ruling is Stan Michaels of the Office of
Assistant Chief Counsel (Income Tax and
Accounting). For further information re-
garding this revenue ruling, contact Mr.
Michaels on (202) 622-4970 (not a toll-
free call).
Section 905.—Applicable Rules
26 CFR 1.905–2: Conditions of allowance of credit.
T.D. 8759
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
Filing Requirements for Returns
Claiming the Foreign Tax Credit
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final Regulation.
SUMMARY: This document contains a
final regulation relating to the substantia-
tion requirements for taxpayers claiming
foreign tax credits. The regulation is nec-
essary to provide guidance to U.S. tax-
payers who claim foreign tax credits.
DATES: Effective date:This regulation
is effective January 27, 1998.
Applicability dates:This regulation is
applicable for tax returns whose original
due date falls on or after January 1, 1988.
FOR FURTHER INFORMATION CON-
TACT: Joan Thomsen, (202) 622-3850
(not a toll-free call).
SUPPLEMENTARY INFORMATION:
Background
On January 13, 1997, the IRS pub-
lished in the Federal Registera notice of
proposed rulemaking (REG–208288–90
[1997–1 C.B. 722]) at 62 F.R. 1700, relat-
ing to the filing requirements for returns
claiming the foreign tax credit (the pro-
posed regulation).
Written comments responding to the
proposed regulation were received. A
public hearing was requested and sched-
uled but was later canceled when the one
requester withdrew the request to testify.
After consideration of all of the written
comments, the proposed regulation under
section 905(b) is adopted as revised by
this Treasury Decision.
Summary of Comments and Final
Regulations
The commenters argued that the in-
terim credit notion incorporated in the
proposed regulations from Continental
Illinois, T.C. Memo 1991–66, 61 T.C.M.
(CCH) 1916 (1991), aff ’d in part and
rev’d in part,998 F.2d 513, 516–17 (7th
Cir. 1993), was misapplied and that the
proposed amendment to §1.905–2(b)(3)
denied district directors the flexibility to
find compliance with section 905(b) un-
less the taxpayer produces receipts (or
other direct evidence of payment) in order
to prove that the taxes actually were paid
to the foreign government. They argued
that, even if the district director should be
able to require such proof in cases such as
Continental Illinois,district directors
must have the flexibility to accept lesser
proof. They argued that a portfolio holder
of publicly-traded foreign securities, for
example, will not be able to obtain proof
in the form of receipts evidencing that the
issuer of the securities actually paid the
withheld taxes to the foreign government.
The comment letters are correct that the
regulations historically have allowed the
district director flexibility to determine
that section 905(b) is satisfied without the
production of tax receipts evidencing that
the tax has been paid to the foreign gov-
ernment. Treasury and the IRS did not in-
tend that the amendment to §1.905–
2(b)(3), as proposed, deny the district di-
rector the flexibility to accept secondary
evidence of the foreign tax payment
where it has been established to the satis-
faction of the district director that it is im-
possible to furnish a receipt for such for-
eign tax payment. The amendment was
merely intended to clarify that proof of
the act of withholding through secondary
evidence is not, per se, equivalent to proof
1998–13 I.R.B.19March 30, 1998
BUREAU OF LABOR STATISTICS, DEPARTMENT STORE
INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS—Continued
(January 1941 = 100, unless otherwise noted)
Percent Change
GroupsJan.Jan.from Jan. 1997
19971998to Jan. 1998
1
20. Radio and Television . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .78.473.5–6.3
21. Recreation and Education
2
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111.7108.3–3.0
22. Home Improvements
2
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132.9134.00.8
23. Auto Accessories
2
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .107.6107.80.2
Groups 1 – 15: Soft Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .592.0593.10.2
Groups 16 – 20: Durable Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .469.9461.9–1.7
Groups 21 – 23: Misc. Goods
2
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .113.6111.5–1.8
Store Total
3
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .550.0547.5–0.5
1
Absence of a minus sign before percentage change in this column signifies price increase.
2
Indexes on a January 1986=100 base.
3
The store total index covers all departments, including some not listed separately, except for the following: candy, food, liquor, to-
bacco, and contract departments.

of payment of the foreign tax. Treasury
and the IRS have now concluded, how-
ever, that such clarification is not neces-
sary. Continental Illinois v. Commis-
sioner, supra.
Therefore, in response to comments, the
proposed regulation is finalized without its
proposed amendment to §1.905– 2(b)(3).
Thus, the final regulations are identical to
the final regulations currently in effect,
except §1.905–2(a)(2) no longer requires
a foreign receipt or return to be attached
to a Form 1116 or Form 1118.
Treasury and the IRS will continue to
review the foreign tax credit substantia-
tion rules to assure that they are function-
ing adequately. For example, Treasury
and the IRS are concerned that U.S. hold-
ers of foreign securities, including Ameri-
can Depositary Receipts (ADRs), may be
claiming foreign tax credits in situations
where an intermediary in the chain of
ownership between the holder of a foreign
security or an ADR and the issuer of the
security (or the security underlying the
ADR) has taken actions inconsistent with
the ownership of the underlying security
by the person claiming the credit, such as
a disposition of such security. One ap-
proach to address this issue would involve
modifying the substantiation, documenta-
tion and reporting rules with respect to
payments on such securities and taxes
withheld therefrom. For example, in
order for a U.S. owner to be entitled to a
credit for foreign taxes imposed on in-
come with respect to a security, financial
intermediaries (including custodians)
could be required to substantiate that they
have not taken any action inconsistent
with beneficial ownership of the relevant
security by such U.S. owner.
It should be noted that portfolio in-
vestors are not necessarily entitled to for-
eign tax credits for the full amount indi-
cated on the Form 1099 as foreign taxes
paid. Portfolio investors are only entitled
to a foreign tax credit for the amount of
tax that is legally owed, which may not be
the same as the amount withheld. If, for
example, a portfolio investor is entitled to
a refund of foreign tax withheld because
of a reduced treaty withholding rate, the
investor is only entitled to a foreign tax
credit for the reduced amount, whether or
not the investor files a refund claim with
the foreign tax authorities. The IRS has
made changes to the Form 1116 Instruc-
tions and Publication 514 to clarify this
point and intends to make similar changes
to the Form 1118 Instructions.
Explanation of Provisions
§§1.905–2(a)(1), 1.905–2(b)(1),(2), and
(3), and 1.905–2(c)
Sections 1.905–2(a)(1), 1.905–2(b)(1),
(2) and (3), and 1.905–2(c) are unchanged
from the current final regulations.
§1.905–2(a)(2)
Under former §1.905–2(a)(2), taxpay-
ers generally were required to attach to
their income tax returns either (1) the re-
ceipt for the foreign tax payment or (2) a
foreign tax return for accrued foreign
taxes. Section 1.905–2(a)(2) removes the
requirement that the documentation be at-
tached to the income tax return. The regu-
lation now provides that such evidence of
payment of foreign taxes must be pre-
sented to the district director upon request.
Special Analyses
It has been determined that this Treasury
decision is not a significant regulatory ac-
tion 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 Pro-
cedures Act (5 U.S.C. chapter 5) does not
apply to this regulation, and because the
regulation does not impose a collection of
information on small entities, the Regula-
tory Flexibility Act (5 U.S.C. chapter 6)
does not apply. Pursuant to section 7805(f)
of the Internal Revenue Code, the notice of
proposed rulemaking preceding this regu-
lation was submitted to the Chief Counsel
for Advocacy of the Small Business Ad-
ministration for comment on its impact on
small business.
Drafting Information
The principal author of this regulation
is Joan Thomsen of the Office of the As-
sociate Chief Counsel (International),
IRS. 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
26 CFR part 1 continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.905–2 is amended by
revising the second through fourth sen-
tences in paragraph (a)(2) to read as fol-
lows:
§1.905–2 Conditions of allowance of
credit.
(a) * * *
(2) * * * Except where it is established
to the satisfaction of the district director
that it is impossible for the taxpayer to
furnish such evidence, the taxpayer must
provide upon request the receipt for each
such tax payment if credit is sought for
taxes already paid or the return on which
each such accrued tax was based if credit
is sought for taxes accrued. The receipt
or return must be either the original, a du-
plicate original, or a duly certified or au-
thenticated copy. The preceding two sen-
tences are effective for returns whose
original due date falls on or after January
1, 1988. * * *
* * * * *
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
Approved January 13, 1998.
Donald C. Lubick,
Acting Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on
January 26, 1998, 8:45 a.m., and published in the
issue of the Federal Register for January 27, 1998,
63 F.R. 3812)
Section 6621.—Determination
of Interest Rate
26 CFR 301.6621–1: Interest rate.
Interest rates; underpayments and overpay-
ments. The rate of interest determined under section
6621 of the Code for the calendar quarter beginning
April 1, 1998, will be 7 percent for overpayments, 8
percent for underpayments, and 10 percent for large
corporate underpayments. The rate of interest paid
on the portion of a corporate overpayment exceed-
ing $10,000 is 5.5 percent.
March 30, 1998201998–13 I.R.B.

Rev. Rul. 98–17
Section 6621 of the Internal Revenue
Code establishes different rates for inter-
est on tax overpayments and interest on
tax underpayments. Under § 6621(a)(1),
the overpayment rate is the sum of the
federal short-term rate plus 2 percentage
points, except the rate for the portion of a
corporate overpayment of tax exceeding
$10,000 for a taxable period is the sum of
the federal short-term rate plus 0.5 of a
percentage point for interest computations
made after December 31, 1994. Under
§ 6621(a)(2), the underpayment rate is the
sum of the federal short-term rate plus 3
percentage points.
Section 6621(c) provides that for pur-
poses of interest payable under § 6601 on
any large corporate underpayment, the un-
derpayment rate under § 6621(a)(2) is de-
termined by substituting “5 percentage
points” for “3 percentage points.” See
§ 6621(c) and § 301.6621–3 of the Regu-
lations on Procedure and Administration
for the definition of a large corporate un-
derpayment and for the rules for determin-
ing the applicable date. Section 6621(c)
and § 301.6621–3 are generally effective
for periods after December 31, 1990.
Section 6621(b)(1) provides that the
Secretary will determine the federal short-
term rate for the first month in each calen-
dar quarter.
Section 6621(b)(2)(A) provides that the
federal short-term rate determined under
§ 6621(b)(1) for any month applies during
the first calendar quarter beginning after
such month.
Section 6621(b)(2)(B) provides that in
determining the addition to tax under
§ 6654 for failure to pay estimated tax for
any taxable year, the federal short-term
rate that applies during the third month
following such taxable year also applies
during the first 15 days of the fourth
month following such taxable year.
Section 6621(b)(3) provides that the
federal short-term rate for any month is
the federal short-term rate determined
during such month by the Secretary in ac-
cordance with § 1274(d), rounded to the
nearest full percent (or, if a multiple of
1/2 of 1 percent, the rate is increased to
the next highest full percent).
Notice 88–59, 1988–1 C.B. 546, an-
nounced that, in determining the quarterly
interest rates to be used for overpayments
and underpayments of tax under § 6621,
the Internal Revenue Service will use the
federal short-term rate based on daily
compounding because that rate is most
consistent with § 6621 which, pursuant to
§ 6622, is subject to daily compounding.
Rounded to the nearest full percent, the
federal short-term rate based on daily com-
pounding determined during the month of
January 1998 is 5 percent. Accordingly, an
overpayment rate of 7 percent and an un-
derpayment rate of 8 percent are estab-
lished for the calendar quarter beginning
April 1, 1998. The overpayment rate for
the portion of a corporate overpayment ex-
ceeding $10,000 for the calendar quarter
beginning April 1, 1998, is 5.5 percent.
The underpayment rate for large corporate
underpayments for the calendar quarter be-
ginning April 1, 1998, is 10 percent. These
rates apply to amounts bearing interest
during that calendar quarter.
Under § 6621(b)(2)(B), the 9 percent
rate that applies to estimated tax under-
payments for the first calendar quarter in
1998, as provided in Rev. Rul. 97–53,
1997–52 I.R.B. 13, also applies to such
underpayments for the first 15 days in
April 1998.
Interest factors for daily compound in-
terest for annual rates of 5.5 percent, 7
percent, 8 percent, and 10 percent are
published in Tables 16, 19, 21, and 25 of
Rev. Proc. 95–17, 1995–1 C.B. 556, 570,
573, 575, and 579.
Annual interest rates to be compounded
daily pursuant to § 6622 that apply for
prior periods are set forth in the tables ac-
companying this revenue ruling.
DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Raymond Bailey of the Office of As-
sistant Chief Counsel (Income Tax and Ac-
counting). For further information
regarding this revenue ruling, contact Mr.
Bailey on (202) 622-6226 (not a toll-free
call).
1998–13 I.R.B.21March 30, 1998
TABLE OF INTEREST RATES
PERIODS BEFORE JUL. 1, 1975 - PERIODS ENDING DEC. 31, 1986
OVERPAYMENTS AND UNDERPAYMENTS
DAILY RATE TABLE
PERIODRATEIN 1995–1 C.B.
Before Jul. 1, 19756%Table 2,pg. 557
Jul. 1, 1975—Jan. 31, 19769%Table 4,pg. 559
Feb. 1, 1976—Jan. 31, 19787%Table 3,pg. 558
Feb. 1, 1978—Jan. 31, 19806%Table 2,pg. 557
Feb. 1, 1980—Jan. 31, 198212%Table 5,pg. 560
Feb. 1, 1982—Dec. 31, 198220%Table 6,pg. 560
Jan. 1, 1983—Jun. 30, 198316%Table 37, pg. 591
Jul. 1, 1983—Dec. 31, 198311%Table 27, pg. 581
Jan. 1, 1984—Jun. 30, 198411%Table 75, pg. 629
Jul. 1, 1984—Dec. 31, 198411%Table 75, pg. 629
Jan. 1, 1985—Jun. 30, 198513%Table 31, pg. 585
Jul. 1, 1985—Dec. 31, 198511%Table 27, pg. 581
Jan. 1, 1986—Jun. 30, 198610%Table 25 pg. 579
Jul. 1, 1986—Dec. 31, 19869%Table 23, pg. 577

March 30, 1998221998–13 I.R.B.
TABLE OF INTEREST RATES
FROM JAN. 1, 1987 - PRESENT
OVERPAYMENTSUNDERPAYMENTS
RATE TABLE PGRATE TABLE PG
1995–1 C.B.1995–1 C.B.
Jan. 1, 1987—Mar. 31, 19878%21575 9%23577
Apr. 1, 1987—Jun. 30, 19878%21575 9%23577
Jul. 1, 1987—Sep. 30, 19878%21575 9%23577
Oct. 1, 1987—Dec. 31, 19879%23577 10%25579
Jan. 1, 1988—Mar. 31, 198810%73627 11%75629
Apr. 1, 1988—Jun. 30, 19889%71625 10%73627
Jul. 1, 1988—Sep. 30, 19889%71625 10%73627
Oct. 1, 1988—Dec. 31, 198810%73627 11%75629
Jan. 1, 1989—Mar. 31, 198910%25579 11%27581
Apr. 1, 1989—Jun. 30, 198911%27581 12%29583
Jul. 1, 1989—Sep. 30, 198911%27581 12%29583
Oct. 1, 1989—Dec. 31, 198910%25579 11%27581
Jan. 1, 1990—Mar. 31, 199010%25579 11%27581
Apr. 1, 1990—Jun. 30, 199010%25579 11%27581
Jul. 1, 1990—Sep. 30, 199010%25579 11%27581
Oct. 1, 1990—Dec. 31, 199010%25579 11%27581
Jan. 1, 1991—Mar. 31, 199110%25579 11%27581
Apr. 1, 1991—Jun. 30, 19919%23577 10%25579
Jul. 1, 1991—Sep. 30, 19919%23577 10%25579
Oct. 1, 1991—Dec. 31, 19919%23577 10%25579
Jan. 1, 1992—Mar. 31, 19928%69623 9%71625
Apr. 1, 1992—Jun. 30, 19927%67621 8%69623
Jul. 1, 1992—Sep. 30, 19927%67621 8%69623
Oct. 1, 1992—Dec. 31, 19926%65619 7%67621
Jan. 1, 1993—Mar. 31, 19936%17571 7%19573
Apr. 1, 1993—Jun. 30, 19936%17571 7%19573
Jul. 1, 1993—Sep. 30, 19936%17571 7%19573
Oct. 1, 1993—Dec. 31, 19936%17571 7%19573
Jan. 1, 1994—Mar. 31, 19946%17571 7%19573
Apr. 1, 1994—Jun. 30, 19946%17571 7%19573
Jul. 1, 1994—Sep. 30, 19947%19573 8%21575
Oct. 1, 1994—Dec. 31, 19948%21575 9%23577
Jan. 1, 1995—Mar. 31, 19958%21575 9%23577
Apr. 1, 1995—Jun. 30, 19959%23577 10%25579
Jul. 1, 1995—Sep. 30, 19958%21575 9%23577
Oct. 1, 1995—Dec. 31, 19958%21575 9%23577
Jan. 1, 1996—Mar. 31, 19968%69623 9%71625
Apr. 1, 1996—Jun. 30, 19967%67621 8%69623
Jul. 1, 1996—Sep. 30, 19968%69623 9%71625
Oct. 1, 1996—Dec. 31, 19968%69623 9%71625
Jan. 1, 1997—Mar. 31, 19978%21575 9%23577
Apr. 1, 1997—Jun. 30, 19978%21575 9%23577
Jul. 1, 1997—Sep. 30, 19978%21575 9%23577
Oct. 1, 1997—Dec. 31, 19978%21575 9%23577
Jan. 1, 1998—Mar. 31, 19988%21575 9%23577
Apr. 1, 1998—Jun. 30, 19987%195738%21575

1998–13 I.R.B.23March 30, 1998
TABLE OF INTEREST RATES FOR
LARGE CORPORATE UNDERPAYMENTS
FROM JANUARY 1, 1991 - PRESENT
RATE TABLE PG
1995–1 C.B.
Jan. 1, 1991—Mar. 31, 199113%31585
Apr. 1, 1991—Jun. 30, 199112%29583
Jul. 1, 1991—Sep. 30, 199112%29583
Oct. 1, 1991—Dec. 31, 199112%29583
Jan. 1, 1992—Mar. 31, 199211%75629
Apr. 1, 1992—Jun. 30, 199210%73627
Jul. 1, 1992—Sep. 30, 199210%73627
Oct. 1, 1992—Dec. 31, 19929%71625
Jan. 1, 1993—Mar. 31, 19939%23577
Apr. 1, 1993—Jun. 30, 1993 9%23577
Jul. 1, 1993—Sep. 30, 19939%23577
Oct. 1, 1993—Dec. 31, 19939%23577
Jan. 1, 1994—Mar. 31, 19949%23577
Apr. 1, 1994—Jun. 30, 19949%23577
Jul. 1, 1994—Sep. 30, 199410%25579
Oct. 1, 1994—Dec. 31, 199411%27581
Jan. 1, 1995—Mar. 31, 199511%27581
Apr. 1, 1995—Jun. 30, 199512%29583
Jul. 1, 1995—Sep. 30, 199511%27581
Oct. 1, 1995—Dec. 31, 199511%27581
Jan. 1, 1996—Mar. 31, 199611%75629
Apr. 1, 1996—Jun. 30, 199610%73627
Jul. 1, 1996—Sep. 30, 199611%75629
Oct. 1, 1996—Dec. 31, 199611%75629
Jan. 1, 1997—Mar. 31, 199711%27581
Apr. 1, 1997—Jun. 30, 199711%27581
Jul. 1, 1997—Sep. 30, 199711%27581
Oct. 1, 1997—Dec. 31, 199711%27581
Jan. 1, 1998—Mar. 31, 199811%27581
Apr. 1, 1998—Jun. 30, 199810%25579
TABLE OF INTEREST RATES FOR CORPORATE
OVERPAYMENTS EXCEEDING $10,000
FROM JANUARY 1, 1995 - PRESENT
RATE TABLE PG
1995–1 C.B.
Jan. 1, 1995—Mar. 31, 19956.5%18572
Apr. 1, 1995—Jun. 30, 19957.5%20574
Jul. 1, 1995—Sep. 30, 19956.5%18572
Oct. 1, 1995—Dec. 31, 19956.5%18572
Jan. 1, 1996—Mar. 31, 19966.5%66620
Apr. 1, 1996—Jun. 30, 19965.5%64618
Jul. 1, 1996—Sep. 30, 19966.5%66620
Oct. 1, 1996—Dec. 31, 19966.5%66620
Jan. 1, 1997—Mar. 31, 19976.5%18572
Apr. 1, 1997—Jun. 30, 19976.5%18572
Jul. 1, 1997—Sep. 30, 19976.5%18572
Oct. 1, 1997—Dec. 31, 19976.5%18572
Jan. 1, 1998—Mar. 31, 19986.5%18572
Apr. 1, 1998—Jun. 30, 19985.5%16570

Differential Earnings Rate for
Mutual Life Insurance
Companies
Notice 98–19
This notice publishes a tentative deter-
mination under § 809 of the Internal Rev-
enue Code of the “differential earnings
rate” for 1997 and the rate that is used to
calculate the “recomputed differential
earnings amount” for 1996. (The latter
rate is referred to in this notice as the “re-
computed differential earnings rate” for
1996.) These rates are used by mutual
life insurance companies to calculate their
federal income tax liability for taxable
years beginning in 1997.
BACKGROUND
Section 809(a) provides that, in the
case of any mutual life insurance com-
pany, the amount of the deduction allow-
able under § 808 for policyholder divi-
dends is reduced (but not below zero) by
the “differential earnings amount.” Any
excess of the differential earnings amount
over the amount of the deduction allow-
able under § 808 is taken into account as a
reduction in the closing balance of re-
serves under subsections (a) and (b) of
§ 807. The “differential earnings
amount” for any taxable year is the
amount equal to the product of (a) the life
insurance company’s average equity base
for the taxable year multiplied by (b) the
“differential earnings rate” for that tax-
able year. The “differential earnings rate”
for the taxable year is the excess of (a) the
“imputed earnings rate” for the taxable
year over (b) the “average mutual earn-
ings rate” for the second calendar year
preceding the calendar year in which the
taxable year begins. The “imputed earn-
ings rate” for any taxable year is the
amount that bears the same ratio to 16.5
percent as the “current stock earnings
rate” for the taxable year bears to the
“base period stock earnings rate.”
Section 809(f) provides that, in the case
of any mutual life insurance company, if
the “recomputed differential earnings
amount” for any taxable year exceeds the
differential earnings amount for that tax-
able year, the excess is included in life in-
surance gross income for the succeeding
taxable year. If the differential earnings
amount for any taxable year exceeds the
recomputed differential earnings amount
for that taxable year, the excess is allowed
as a life insurance deduction for the suc-
ceeding taxable year. The “recomputed
differential earnings amount” for any tax-
able year is an amount calculated in the
same manner as the differential earnings
amount for that taxable year, except that
the average mutual earnings rate for the
calendar year in which the taxable year
begins is substituted for the average mu-
tual earnings rate for the second calendar
year preceding the calendar year in which
the taxable year begins.
The stock earnings rates and mutual
earnings rates taken into account under §
809 generally are determined by dividing
statement gain from operations by the av-
erage equity base. For this purpose, the
term “statement gain from operations”
means “the net gain or loss from opera-
tions required to be set forth in the annual
statement, determined without regard to
Federal income taxes, and ... properly ad-
justed for realized capital gains and
losses. . . .” See§ 809(g)(1). The term
“equity base” is defined as an amount de-
termined in the manner prescribed by reg-
ulations equal to surplus and capital in-
creased by the amount of nonadmitted
financial assets, the excess of statutory re-
serves over the amount of tax reserves,
the sum of certain other reserves, and 50
percent of any policyholder dividends (or
other similar liability) payable in the fol-
lowing taxable year. See§ 809(b)(2), (3),
(4), (5) and (6). Section 1.809–10 of the
Income Tax Regulations provides that the
equity base includes both the asset valua-
tion reserve and the interest maintenance
reserve for taxable years ending after De-
cember 31, 1991.
Section 1.809–9(a) of the regulations
provides that neither the differential earn-
ings rate under § 809(c) nor the recom-
puted differential earnings rate that is
used in computing the recomputed differ-
ential earnings amount under § 809(f)(3)
may be less than zero.
As described above, the differential
earnings rate for 1997 and the recomputed
differential earnings rate for 1996 affect
the income and deductions reported by
mutual life insurance companies on their
federal income tax returns for the 1997
taxable year.
Data necessary to determine the tenta-
tive differential earnings rate for 1997 and
the tentative recomputed differential earn-
ings rate for 1996 have been compiled
from returns filed by mutual life insurance
companies and certain stock life insurance
companies. The Internal Revenue Service
is currently examining these returns. This
examination will not be completed before
the March 16, 1998, due date for filing
1997 calendar year returns.
NOTICE OF TENTATIVE RATES
This notice publishes a tentative deter-
mination of the differential earnings rate
for 1997 and of the recomputed differen-
tial earnings rate for 1996. This notice
also publishes a tentative determination of
the rates on which the calculation of the
differential earnings rate for 1997 and the
recomputed differential earnings rate for
1996 are based. The final determination
of these rates is expected to be published
before September 1, 1998.
The tentative determination of the dif-
ferential earnings rate for 1997 and the
tentative determination of the recomputed
differential earnings rate for 1996 that are
published in this notice should be used by
mutual life insurance companies to calcu-
late the amount of tax liability for taxable
years beginning in 1997 (in the case of
companies that file returns before publi-
cation of the final determination of these
rates) or to calculate the amount of esti-
mated unpaid tax liability for taxable
years beginning in 1997 (in the case of
companies that are allowed an extension
of time to file returns). Companies that
file returns before publication of the final
determination of these rates should file
amended returns after the final determina-
tion of these rates is published. If there is
a failure to pay tax for a taxable year be-
ginning in 1997 and the failure is attribut-
able to a difference between (a) the tenta-
tive determination of the differential
earnings rate for 1997 and recomputed
differential earnings rate for 1996 and (b)
the final determination of these rates, then
any such failure through September 15,
1998, will be treated as due to reasonable
March 30, 1998241998–13 I.R.B.
Part III. Administrative, Procedural, and Miscellaneous

1998–13 I.R.B.25March 30, 1998
Notice 98–19Table 1
Tentative Determination of Rates To Be
Used for Taxable Years Beginning in
1997
Differential earnings rate for 1997 . . 0
Recomputed differential earnings
rate for 1996 . . . . . . . . . . . . . . . . . . .0
Imputed earnings rate for
1996 . . . . . . . . . . . . . . . . . . . .15.669
Imputed earnings rate for
1997 . . . . . . . . . . . . . . . . . . . .13.813
Base period stock earnings
rate . . . . . . . . . . . . . . . . . . . . .18.221
Current stock earnings rate
for 1997 . . . . . . . . . . . . . . . . .15.254
Stock earnings rate for 1994 . . .11.437
Stock earnings rate for 1995 . . .17.087
Stock earnings rate for 1996 . . .17.238
Average mutual earnings rate
for 1995 . . . . . . . . . . . . . . . . .16.477
Average mutual earnings rate
for 1996 . . . . . . . . . . . . . . . . .16.225
cause and will not give rise to any addi-
tion to tax under § 6651.
The tentative determination of the rates
is set forth in Table 1.
Capital Gains and Charitable
Remainder Trusts
Notice 98–20
This notice provides guidance on the
ordering and taxation of distributions
under § 664(b)(2) of the Internal Revenue
Code from a charitable remainder trust
(CRT) in light of the changes made to
§ 1(h) by the Taxpayer Relief Act of 1997
(TRA 1997). Pub. L. 105–34, § 311, 111
Stat. 788, 831. Section § 1(h) provides
that the Treasury may issue regulations to
implement the provisions of § 1(h) for
passthrough entities. The Treasury De-
partment and the Internal Revenue Ser-
vice plan to issue regulations incorporat-
ing the guidance contained in this notice.
BACKGROUND
Generally, a CRT is a trust that pro-
vides for a specified distribution at least
annually over a specified period to one or
more noncharitable recipients (a CRT dis-
tribution), with the remainder interest in
the trust held irrevocably for a charitable
organization.
TRA 1997 amended § 1(h) to provide
for new capital gain tax rates for noncor-
porate taxpayers. Notice 97–59, 1997–45
I.R.B. 7, explains that a noncorporate tax-
payer’s long-term capital gains and losses
are separated into three tax rate groups:
(1) the 28-percent group, (2) the 25-per-
cent group, and (3) the 20-percent group.
The present notice uses these terms in ex-
plaining how a CRT characterizes its cap-
ital gain distribution for taxable years be-
ginning on or after January 1, 1998. The
definitions of net capital gain, net long-
term capital gain or loss, and net short-
term capital gain or loss were not changed
by TRA 1997. Like Notice 97–59, this
notice takes into account the pending
retroactive legislative corrections. H.R.
2676, 105th Cong., § 605(d) (1997).
ADDITIONAL NETTING RULES
CRTs will be expected to follow the
netting rules in Notice 97-59 when deter-
mining net short-term and net long-term
capital gains. The rules in § 1.664–1(d)-
(1)(i)(b)(2) and (3) of the Income Tax
Regulations continue to apply in deter-
mining capital gains or losses carried for-
ward to the succeeding taxable year.
GENERAL PRINCIPLES OF THE
ORDERING RULE
Section 664(b) contains the ordering
rule for determining the character of a
CRT distribution in the hands of the recip-
ient. The character of a CRT’s income is
determined at the time the income is real-
ized by the trust. Under § 664(b), the fol-
lowing ordering rule applies for determin-
ing the character of a distribution in the
hands of the recipient: (1) first, as ordi-
nary income to the extent of the trust’s or-
dinary income for the trust’s taxable year
and its undistributed ordinary income for
prior years, (2) second, as capital gain to
the extent of the trust’s capital gain for the
trust’s taxable year and its undistributed
capital gain for prior years, (3) third, as
other income to the extent of the trust’s
other income for the trust’s taxable year
and its undistributed other income for
prior years, and (4) fourth, as a distribu-
tion of trust corpus.
The underlying policy in the ordering
rule of § 664(b) and the existing regula-
tions thereunder is that a CRT distribution
is deemed to consist first of income that is
subject to the highest federal income tax
rate in effect at the time of the distribution
and then of income that is subject to pro-
gressively lower (or no) federal income
tax rates in effect at the time of distribu-
tion. The same policy applies in the regu-
lations under § 664 when different in-
come tax rates apply to different groups
of income within a category of the items
described in § 664(b), such as short-term
and long-term capital gains. Therefore,
income from a group that is subject to a
higher federal income tax rate is deemed
distributed before other income from a
group, within the same category, that is
subject to a lower federal income tax rate.
The following example illustrates how
this principle applies to capital gain distri-
butions after TRA 1997. Assume for the
1998 taxable year, a CRT has undistributed
long-term capital gain in each of the three
groups of long-term capital gain, i.e., the
28-percent group, the 25-percent group,
and the 20-percent group, and also has
undistributed short-term capital gain. To
the extent capital gains are deemed distrib-
uted for the 1998 taxable year, the short-
term capital gain is deemed distributed
prior to any long-term capital gain. The
long-term capital gain is deemed distrib-
uted in the following order: (1) the gain in
the 28-percent group is deemed distributed
prior to any other long-term capital gain;
(2) the gain in the 25-percent group is
deemed distributed prior to any gain in the
20-percent group; and (3) the gain in the
20-percent group is deemed distributed
last of any long-term capital gain.
A trustee of a CRT will be required to
report each group of long-term capital
gain separately on the Form 5227, Split-
Interest Trust Information Return. The
trustee may use any reasonable method
for determining the amount of each type
of gain within a group that has been dis-
tributed when doing the required report-
ing or associated recordkeeping.
PRE-1997 LONG-TERM CAPITAL
GAIN
As of January 1, 1997, many CRTs had
undistributed long-term capital gains that
the CRT properly took into account be-
fore January 1, 1997 (pre-1997 long-term
capital gains). These pre-1997 long-term
capital gains must be assigned to one of
the three groups of long-term capital
gains. Section 1(h) does not specifically
assign pre-1997 long-term capital gains to

one group of long-term capital gain.
However, § 1(h) gives the Treasury broad
regulatory authority to implement the pro-
visions of § 1(h) for passthrough entities.
Pre-1997 long-term capital gains were
characterized by the CRT based on the de-
finitions of short-term and long-term cap-
ital gains applicable at the time the CRT
sold a capital asset. CRTs have never
been required to segregate these gains
based upon the tax rate or holding period
in effect at the time the gains were real-
ized by the CRT. Thus, the undistributed
pre-1997 long-term capital gains reflect
gains realized when various tax rates and
holding periods were in effect. Treasury
will exercise its regulatory authority to
treat undistributed CRT pre-1997 long-
term capital gains as falling within the 20-
percent group.
1997 PRE-EFFECTIVE DATE LONG-
TERM CAPITAL GAINS
Long-term capital gains properly taken
into account from January 1, 1997, through
May 6, 1997, are covered by the rules in §
1(h) regarding pre-effective date gains.
Under § 1(h), for the taxable year that in-
cludes May 7, 1997, gains and losses prop-
erly taken into account by the CRT for the
portion of the taxable year before May 7,
1997, must be taken into account in deter-
mining long-term capital gain in the 28-
percent group. Because the taxable year
for CRTs is the calendar year, long-term
capital gains properly taken into account
by a CRT from January 1, 1997, through
May 6, 1997, are treated as long-term capi-
tal gains in the 28-percent group.
EXAMPLE ILLUSTRATING
ORDERING AND CHARACTER
RULES
The following example illustrates how
these rules will apply to the 1998 taxable
year. At the end of the 1998 taxable year,
CRT X has no current or undistributed or-
dinary income and has the following net
short-term and long-term capital gains:
Net short-term capital gain$ 5
Net long-term capital gain$50
By tax rate group:
28-percent group gain – $15
($12 of gain recognized from 1/1/97
through 5/6/97; and $3 of gain rec-
ognized after 7/28/97 from an asset
held for more than one year and less
than 18 months)
25-percent group gain – $ 5
20-percent group gain – $30
($10 of gain recognized before
1/1/97)
Xmakes a CRT distribution of $25 for the
1998 taxable year. The CRT distribution
is deemed to have the following charac-
teristics in the recipient’s hands:
Short-term capital gain $ 5
28-percent group gain $15
25-percent group gain $ 5
20-percent group gain $ 0
The undistributed 20-percent group gain
of $30 is carried forward to 1999.
EFFECTIVE DATE
The proposed regulations when pub-
lished will be effective for taxable years
beginning on or after January 1, 1998.
CRTs and their recipients, however, may
rely on the rules in this notice for the 1997
taxable year.
DRAFTING INFORMATION
The principal authors of this notice are
Mary Beth Collins and Jeff Erickson of
the Office of Assistant Chief Counsel
(Passthroughs and Special Industries).
For further information regarding this no-
tice contact Ms. Collins or Mr. Erickson
on (202) 622-3070 (not a toll-free call).
March 30, 1998261998–13 I.R.B.
26 CFR 601.602: Tax forms and instructions.
Rev. Proc. 98–26
TABLE OF CONTENTS
PART A. GENERAL
SECTION 1. PURPOSE
SECTION 2. NATURE OF CHANGES
SECTION 3. WHERE TO FILE AND HOW TO CONTACT THE IRS, MARTINSBURG COMPUTING CENTER
SECTION 4. FILING REQUIREMENTS
SECTION 5.FORM 4419, APPLICATION FOR FILING INFORMATION RETURNS MAGNETICALLY/ELECTRONI-
CALLY
SECTION 6. FILING DUE DATES
SECTION 7. FILING FORMS W-4 MAGNETICALLY/ELECTRONICALLY
SECTION 8. REPLACEMENT FILES
SECTION 9. EFFECT ON PAPER DOCUMENTS
SECTION 10. DEFINITION OF TERMS
PART B. MAGNETIC MEDIA /ELECTRONIC SPECIFICATIONS
SECTION 1. GENERAL
SECTION 2. TAPE SPECIFICATIONS
SECTION 3. 5 1⁄4-INCH AND 3 1⁄2-INCH DISKETTE SPECIFICATIONS
SECTION 4. TAPE CARTRIDGE SPECIFICATIONS
SECTION 5. 8MM, 4MM and QUARTER INCH CARTRIDGE SPECIFICATIONS

1998–13 I.R.B.27March 30, 1998
SECTION 6. ASYNCHRONOUS (IRP-BBS) ELECTRONIC FILING SPECIFICATIONS
SECTION 7. FORM W-4 RECORD FORMAT AND RECORD LAYOUT
SECTION 8. EFFECT ON OTHER DOCUMENTS
SECTION 9. EFFECTIVE DATE
PART A. GENERAL
SEC. 1. PURPOSE
.01 The purpose of this revenue procedure is to update Rev. Proc. 92–80, 1992–2 C.B. 465, (IRS Pub. 1245), which outlines the
requirements and conditions for submitting certain Forms W–4, Employee’s Withholding Allowance Certificate, magnetically or
electronically to the Internal Revenue Service (IRS), Martinsburg Computing Center (MCC).
.02 Revenue procedures are generally revised to reflect legislative and form changes. Comments concerning this revenue proce-
dure or suggestions for making it more helpful can be addressed to Internal Revenue Service, Martinsburg Computing Center, P.O.
Box 1359, Martinsburg, WV 25402, ATTN: IRBInformation Support Section.
.03 The following revenue procedures and publications provide more detailed filing procedures for certain information returns
and can be obtained by contacting your local IRS office or by calling 1-800-829-3676:
(a) “Instructions for Forms 1099, 1098, 5498, and W–2G” provides specific instructions on completing and submitting infor-
mation returns to IRS.
(b) Rev. Proc. 84–33, 1984–1 C.B. 502, regarding the optional method for agents to report and deposit backup withholding.
(c) Publication 1179, Specifications for Paper Document Reporting and Paper Substitutes for Forms 1096, 1098, 1099 Series,
5498, and W–2G.
(d) Publication 1220, Specifications for Filing Form 1098, 1099, 5498, and W–2G Magnetically or Electronically.
(e) Publication 1239, Specifications for Filing Form 8027, Employer’s Annual Information Return of Tip Income and Allo-
cated Tips, on Magnetic Tape and 3
1
⁄
2
- or 5
1
⁄
4
-Inch Magnetic Diskettes.
(f) Publication 1187, Specifications for Filing Form 1042S, Foreign Person’s U.S. Source Income Subject to Withholding,
Magnetically or Electronically
(g) Publication 1527, IRP–BBS (Information Reporting Program Bulletin Board System).
.04 Refer to Part A, Sec. 10, for definitions of terms used in this publication.
SEC. 2. NATURE OF CHANGES
In this publication, major changes have been emphasized by usingitalics.This has been done to assist filers in identifying new in-
formation. Filers are still advised to read the publication in its entirety.
The changes are as follow:
.01 EDITORIAL CHANGES
(a) The title of the publication has changed from “Specifications for Filing Form W–4, Employee’s Withholding Allowance
Certificate, on Magnetic Tape, and 5
1
⁄
4
-, and 3
1
⁄
2
-Inch Magnetic Diskettes” to “Specifications for Filing Form W–4, Em-
ployee’s Withholding Allowance Certificate, Magnetically or Electronically.” This revenue procedure now contains specifi-
cations for reporting electronically through the Information Reporting Program Bulletin Board System (IRP–BBS), and
magnetically using AS400 compatible tape cartridges, 8mm, 4mm, and Quarter Inch Cartridges.
(b) Under Part A, Sec. 3, “WHERE TO FILE AND HOW TO CONTACT THE IRS, MARTINSBURG COMPUTING CEN-
TER”, the ZIP code for the P O Box address was changed to 25402.
(c) Telephone numbers for the Information Reporting Program Bulletin Board System (IRP–BBS) and IRS/MCC fax machine
have changed. The IRP–BBS telephone number is now 304-264-7070. The IRS/MCC fax number is 304-264-5602.
(d) Under Part B, Sec. 2, tape specifications, modifications have been made which simplify requirements. Please read care-
fully.
(e) Part B, Sec. 7, Form W–4 record format, has been changed to Form W–4 record format and record layout. A record layout
has been added at the end of the format specifications.
.02 PROGRAMMING CHANGES
(a) Added Part B, Sec. 4,“Tape Cartridge Specifications”
(b) Added Part B, Sec. 5, “8MM, 4MM, and QUARTER INCH CARTRIDGE Specifications”
(c) Added Part B, Sec. 6, “Asynchronous (IRP–BBS) Electronic Filing Specifications”
(d) Revised Part B, Sec. 7, “Form W–4 Record Format and Record Layout.”
(1) Form W–4 Date field is expanded to 8 positions. The format will be YYYYMMDD, (e.g. 19981231).
(2) The date field was moved from positions 164–169 to positions 324–331. Field positions 164–169 will now be blank
filled.
(3) Employer Zip Code has expanded from 5 positions to 9 positions. The field positions are now 310–318.
(4) Due to the change in the Employer Zip Code, the Transmitter Control Code has shifted 4 positions. The field positions
are now 319–323.

March 30, 1998281998–13 I.R.B.
SEC. 3. WHERE TO FILE AND HOW TO CONTACT THE IRS, MARTINSBURG COMPUTING CENTER
.01 All Forms W–4 filed magnetically or electronically are processed at IRS/MCC. Magnetic media containing Forms W–4 are
to be sent to the following addresses:
If by Postal Service:or If by truck or air freight:
IRS-Martinsburg Computing CenterIRS-Martinsburg Computing Center
Information Reporting ProgramInformation Reporting Program
P. O. Box 1359Route 9 and Needy Road
Martinsburg, WV 25402-1359 Martinsburg, WV 25401
+ Note: The ZIP Code has changed from 25401-1359 to 25402-1359 for the IRS P.O. Box addresses for Martinsburg, WV.
.02 Publication 1245 and other IRS publications concerning magnetic/electronic filing of information returns are available
through the IRP–BBS as “downloadable” files. Using IRP–BBS as a means of obtaining publications will provide faster access to
this information. Additionally, publications will be available from IRP–BBS much earlier than the printed version. The IRP–BBS is
operational 24 hours a day, 7 days a week. The telephone number is (304) 264-7070.
.03 Requests for paper forms and publications unrelated to magnetic media/electronic filing should be requested by calling the
“Forms Only Number” listed in your local telephone directory or by calling the IRS toll-free number 1-800-TAX-FORM (1-800-
829-3676).
.04 Questions pertaining to magnetic media/electronic filing of Forms W–2 mustbe directed to the Social Security Administra-
tion (SSA). Filers can call 1-800-SSA-1213 to obtain the phone number of the SSA Magnetic Media Coordinator for their area.
.05 A taxpayer or authorized representative may request a copy of a tax return or a Form W–2 filed with a return by submitting
Form 4506, Request for Copy or Transcript of Tax Form, to IRS. This form may be obtained by calling 1-800-TAX-FORM (1-800-
829-3676).
.06 The IRS/MCC Call Site, located in Martinsburg, WV provides service to the payer/employer community (financial institu-
tions, employers, and other transmitters of information returns). The IRS/MCC Call Site answers question concerning tax law and
the magnetic/electronic filing of questionable Forms W–4 as well as information returns (Forms 1096, 1098, 1099, 5498,
5498–MSA, 8027, W–2G, W–3, and 1042S), inquiries dealing with backup withholding due to missing and incorrect taxpayer iden-
tification numbers and questions concerning paper filing of Forms W–2. Recipients of information returns (payees) should continue
to contact 1-800-829-1040 or other numbers specified in the tax return instructions with any questions on how to report information
returns.
The Call Site accepts calls from all areas of the country. The number to call is 304-263-8700or Telecommunications Device for
the Deaf (TDD) 304-267-3367.These are toll calls. The Call Site is in operation throughout the year to handle the questions of pay-
ers, transmitters, and employers. Due to the high demand for assistance at the end of January and February, it is advisable to call
as soon as possible to avoid these peak filing seasons.
.07 Telephone inquiries may be made Monday through Friday between 8:30 a.m. and 4:30 p.m. Eastern time. The telephone
numbers for magnetic media/electronic inquiries or electronic submissions are:
304-263-8700 - Call Site
304-264-7070 - IRP–BBS (Information Reporting Program Bulletin Board System)
304-267-3367 - TDD (Telecommunication Device for the Deaf)
304-264-5602 - Fax Machine
(These are not toll-free telephone numbers.)
TO OBTAIN FORMS & PUBLICATIONS, CALL:
1-800-TAX-FORM(1-800-829-3676)
SEC. 4. FILING REQUIREMENTS
.01 Employers are required to send to IRS quarterly, copies of all Forms W–4 received during the quarter from employees still
employed at the end of the quarter who claim the following:
(a) More than 10 withholding allowances, or
(b) Exempt status and are expected to earn more than $200 a week.
.02 Employers are not required to send other Forms W–4 unless notified by IRS in writing to do so.
)
j
%

1998–13 I.R.B.29March 30, 1998
.03 Employers may submit all information magnetically or electronically; or a combination of magnetic/electronic files and paper
documents is acceptable, provided there are no duplications or omissions of documents. However magnetic/electronic filing is pre-
ferred and strongly encouraged.
.04 A Form W–4 with a written statement attached from the employee must be filed on paper, not on magnetic media. If filing
paper Forms W–4, the employer may send them in each quarter with paper Forms 941. If the employer submits the paper Forms
W–4 at any time other than quarterly, a cover letter must be submitted giving the employer’s name, address, employer identification
number (EIN), and the number of Forms W–4 included.
NOTE: MCC DOES NOT PROCESS PAPER RETURNS. PAPER RETURNS MUST BE FILED WITH THE AP-
PROPRIATE SERVICE CENTER. SEE FORM 941 INSTRUCTIONS FOR THE APPROPRIATE SERVICE
CENTER
SEC. 5. FORM 4419, APPLICATION FOR FILING INFORMATION RETURNS MAGNETICALLY/ELECTRONICALLY
.01 Employers, or their transmitters, who wish to file magnetically or electronically, must submit a Form 4419, Application for
Filing Information Returns Magnetically/Electronically. Instructions for its completion are on the reverse of the form.
.02 Magnetic/electronic files may not be filed with IRS/MCCuntil authorization to file is received. Requests will be approved or
disapproved within 30 days of receipt.
.03 Only applications of employers or transmitters, whose equipment meets the specifications in Part B, Sec. 2, 3, 4, 5 or 6 will be
approved.
.04 Once authorization to file has been granted, a five-character alpha/numeric Transmitter Control Code (TCC) will be assigned.
Approval will continue in effect in succeeding years provided the requirements of the current revenue procedure are met and there
are no equipment changes by the employer or transmitter. Although a TCC may have already been assigned to a transmitter for the
filing of information returns, the Form W–4 requires a separate TCC of its own. This TCC must appear on all transmittal forms sub-
mitted with magnetic/electronic files as well as other correspondence. The TCC must also be coded into positions 319–323 of the
Form W–4 record. (See Part B, Sec. 7.)
.05 New applications (Forms 4419) are required whenever:
(a) You discontinue filing on magnetically/electronically for a year, in which case your TCC may have been reassigned. You
may call IRS/MCC to verify if your TCC is still valid.
(b) You have used a service agency in the past, and they had their own TCC, to prepare your files but you now have computer
equipment compatible with that of IRS, in which case you must request your own TCC.
SEC. 6. FILING DUE DATES
.01 Magnetic/electronic reporting of Forms W–4 to IRS must be at least quarterly (monthly reporting is encouraged). The follow-
ing are the quarter end dates:
Period CoveredDue Date
January 1 thru March 31April 30
April 1 thru June 30 July 31
July 1 thru September 30October 31
October 1 thru December 31January 31
.02 If any due date falls on a Saturday, Sunday, or legal holiday, the Forms W–4 are considered timely if they are filed on the next
day that is not a Saturday, Sunday, or legal holiday.
SEC. 7. FILING FORMS W–4 MAGNETICALLY/ELECTRONICALLY
.01 A Magnetic media/electronic Reporting Package which includes the current revenue procedure and the necessary transmittal
forms will be mailed to approved filers each year.
.02 If the employer chooses to file magnetically/electronically, then a Form 6466, Transmittal of Forms W–4 Reported Magneti-
cally/Electronically, must be sent to the IRS/MCCas prescribed in Part A, Sec. 3.
.03 Form 6466 MUSTbe signed by the employer or the transmitter, service bureau, paying agent, or disbursing agent (all here-
after referred to as agent), on behalf of the employer if the agent has the authority to sign the affidavit under an agency agreement
(either oral, written, or implied) that is valid under state law and adds the caption “FOR: (name of employer).”
.04 Although a duly authorized agent signs the affidavit, the employer(s) is held responsible for the accuracy of the Forms W–4
filed magnetically or electronically.
.05 DO NOT REPORT THE SAME INFORMATION ON PAPER DOCUMENTS THAT YOU REPORT MAGNETI-
CALLY/ELECTRONICALLY. If you report part of your returns on paper and part magnetically or electronically, be sure that du-
plicate returns are not included on both.

.06 Before submitting your magnetic/electronic file, include the following:
(a) A signed Form 6466, Transmittal of Forms W–4 Reported Magnetically/Electronically along with a Form 6467, Transmit-
tal of Forms W–4 Reported Magnetically/Electronically(Continuation), if you submit data for multiple employers. These
forms must be mailed the same day electronic files are submitted.
(b) Your media (tape, diskette, or cartridge with an external identifying label.) Form 6468 describes the information which
should be included on this self-prepared label.
(c) On the outside of the shipping container, affix the label IRB Special Projects. This label is included in the publication.
.07 IRS/MCCwill not return filers’ magnetic media after it has been successfully processed. Should filers wish to know if their
media was received by IRS/MCC,a delivery service that provides certification of delivery is recommended.
.08 IRS cannot accept any Cash-On-Delivery (COD) or Charged-to-IRS shipments of reportable tax information that
an individual or organization is legally required to file. Because of the high volume of data received and shipping cost
involved, special shipping containers will not be returned.
.09 Use this record format and processing capabilities to file Forms W–4 submitted for the quarter ending 06-30-1998 and for all
subsequent filings.
SEC. 8. REPLACEMENT FILES
THE MAGNETIC MEDIA/ELECTRONIC SPECIFICATIONS CONTAINED IN PART B OF THIS REVENUE PRO-
CEDURE MUST BE STRICTLY ADHERED TO. If files are unprocessable, they will be returned to you for replacement and re-
submission, or submission of paper Forms W–4. Replacement files must be resubmitted to IRS/MCCwithin 45 days of the date of
the letter. The media should be identified as replacement data by writing, typing or printing “Magnetic Media Replacement” on the
external label used on the magnetic media and marking the replacement box on the Form 6466. If filing electronically, you will be
prompted to enter an “R” in type of submission to identify a replacement file before transmission begins.
SEC. 9. EFFECT ON PAPER DOCUMENTS
.01 Magnetic/electronic reporting to IRS eliminates the need to submit copies of paper Forms W–4.
.02 If part of the Forms W–4 are reported magnetically/electronically and the remainder are reported on paper forms, the paper
Forms W–4 must be mailed to the appropriate service center.
SEC. 10. DEFINITION OF TERMS
EmployerGenerally, an employer is a person or organization for whom a worker performs a service as an em-
ployee. The employer has the right to direct and control the worker. A person or organization pay-
ing wages to a former employee after the work ends is also considered an employer.
EmployeeOne who performs services for an employer.
bDenotes a blank position. Enter blank(s) when this symbol is used (“b”). This appears
throughout the record descriptions.
EINEmployer Identification Number that has been assigned by IRS.
FileFor purposes of this procedure, a file consists of all magnetic/electronic records submitted by an
employer or transmitter.
Special CharacterAny character that is not a numeral, an alpha or a blank.
TaxpayerMay be either an Employer Identification Number (EIN); a Social Security Number (SSN); an IRS
IdentificationIndividual Taxpayer Identification Number (ITIN) issued to an alien individual; or an IRS
Number (TIN)Adoption Taxpayer Identification Number (ATIN) assigned to children who are in the process of
being adopted.
TransmitterPerson or organization preparing and/or submitting magnetic/electronic file(s).
TransmitterA five-character alpha/numeric number assigned by IRS to the transmitter prior to actual filing
Control Codemagnetically/electronically. This number is inserted in Positions 319–323 of your files and must be
(TCC) present before the file can be processed. An application Form 4419 must be filed with IRS to re-
ceive this number.
March 30, 1998301998–13 I.R.B.

PART B. MAGNETIC MEDIA/ELECTRONIC SPECIFICATIONS
SEC. 1. GENERAL
.01 The specifications contained in this part of the revenue procedure define the required format and content of the records to be
included in the magnetic/electronic file. Use this revenue procedure to file Forms W–4 submitted for the quarter ending June 30,
1998 and all subsequent filings.
.02 An external label must appear on each tape, tape cartridge and diskette submitted. Form 6468 details what information must
be on the label. The diskettes used must be MS/DOS compatible.
SEC. 2. TAPE SPECIFICATIONS
.01. IRS/MCC can process most magnetic tape files if the following specifications are followed:
(a) 9-track EBCDIC (Extended Binary Coded Decimal Interchange Code) with:
(1) Odd parity
(2) Recording density—1600 or 6250 BPI
(3) If you use UNISYS Series 1100, you must submit an interchange tape.
(b) 9-track ASCII (American Standard Coded Information Interchange) with:
(1) Odd parity
(2) Recording density—1600 or 6250 BPI
.02 All tape files must have the following characteristics:
(a) 0.5 inch (12.7 mm) wide computer grade magnetic tape,
(b) Tape thickness: 1.0 or 1.5 mils,
(c) Reel diameter: 10.5 inch (26.67 cm), 8.5 inch (21.59 cm), or 7 inch (17.78 cm) and
(d) Reel of tape up to 2400 feet (731.52 m).
.03 All records, including Header and Trailer Labels (if used) must be transmitted using the same density.
.04 The tape records defined in this revenue procedure may be blocked subject to the following:
(a) A block must not exceed 32,550 tape positions.
(b) If the use of blocked records would result in a short block, all remaining positions of the block must be filled with 9’s; how-
ever, the last block of the file may be filled with 9’s or truncated. Do not pad a block with blanks.
(c) All records, except the header and trailer labels, may be blocked or unblocked. A record may not contain any control fields
or block descriptor fields which describe the length of the block or the logical records within the block. The number of log-
ical records within a block (the blocking factor) must be constant in every block with the exception of the last block which
may be shorter (see item b above). The block length must be evenly divisible by 350.
(d) All data records are a fixed record length of 350 positions and may not span blocks.
.05 Labeled or unlabeled tapes may be submitted.
.06 For the purposes of this revenue procedure the following must be used:
Tape Mark:
(a) Used to signify the physical end of the recording on tape.
(b) For even parity, use BCD configuration 001111 (8421).
(c) May follow the header label and precede and/or follow the trailer label.
.07 Do not submit an employee Form W–4 record without the required employer identification information. Every record must
contain both employee and employer data.
SEC. 3. 5
1
⁄
4
-INCH AND 3
1
⁄
2
-INCH DISKETTE SPECIFICATIONS
.01 To be compatible, a diskette file must meet the following specifications:
(a) 5
1
⁄
4
- or 3
1
⁄
2
-inches in diameter.
(b) Data must be recorded in standard ASCII code.
(c) Records must be a fixed length of 350 bytes per record.
(d) Delimiter character commas (,) must not be used.
(e) Positions 349 and 350 of each record have been reserved for carriage return/line feed (cr/lf) characters.
(f) Filename of QWFTAX must be used. Do not enter any other data in this field. This extension will indicate the sequence of
the diskettes within the file. For example, the first diskette will be named QWFTAX.001, the second diskette will be QWF-
TAX.002, etc.
(g) A diskette file may consist of multiple diskettes as long as the file naming conventions are adhered to.
(h) Diskettes must meet one of the following specifications:
1998–13 I.R.B.31March 30, 1998

CapacityTracksSides/DensitySector Size
1.44 mb96tpihd512
1.44 mb135tpihd 512
1.2 mb96tpihd512
720 kb48tpids/dd512
360 kb 48tpids/dd 512
320 kb48tpids/dd512
180 kb48tpiss/dd512
160 kb48tpiss/dd 512
.02 5
1
⁄
4
- and 3
1
⁄
2
-inch diskettes are only acceptable if they were created using MS/DOS.
SEC. 4. TAPE CARTRIDGE SPECIFICATIONS
.01 In most instances, IRS/MCC can process tape cartridges that meet the following specifications:
(a) Must be IBM 3480, 3490, 3490E, or AS400 compatible.
(b) Must meet American National Standard Institute (ANSI) standards, and have the following characteristics:
(1) Tape cartridges will be
1
⁄
2
-inch tape contained in plastic cartridges which are approximately 4-inches by 5-inches by 1-
inch in dimension.
(2) Magnetic tape will be chromium dioxide particle based
1
⁄
2
-inch tape.
(3) Cartridges must be 18-track or 36-track parallel (See Note).
(4) Cartridges will contain 37,871 CPI or 75,742 CPI (characters per inch).
(5) Mode will be full function.
(6) The data may be compressed using EDRC (Memorex) or IDRC (IBM) compression.
(7) Either EBCDIC (Extended Binary Coded Decimal Interchange Code) or ASCII (American Standard Coded Information
Interchange) may be used.
.02 The tape cartridge records defined in this revenue procedure may be blocked subject to the following:
(a) A block must notexceed 3,500 tape positions.
(b) If the use of blocked records would result in a short block, all remaining positions of the block must be filled with 9s; how-
ever, the last block of the file may be filled with 9s or truncated. Do not pad a block with blanks.
(c) All records, except the header and trailer labels, may be blocked or unblocked. A record may not contain any control fields
or block descriptor fields which describe the length of the block or the logical records within the block. The number of log-
ical records within a block (the blocking factor) must be constant in every block with the exception of the last block which
may be shorter (see item b above). The block length must be evenly divisible by 350.
(d) Records may not span blocks.
.03 Tape cartridges may be labeled or unlabeled.
.04 For the purposes of this revenue procedure, the following must be used:
Tape Mark:
(a) Used to signify the physical end of the recording on tape.
(b) For even parity, use BCD configuration 001111 (8421).
(c) May follow the header label and precede and/or follow the trailer label.
+ Note: Filers should indicate on the external media label and transmittal Form 6466 whether the cartridge is 36-track or
18-track.
SEC. 5. 8MM, 4MM, AND QUARTER INCH CARTRIDGE SPECIFICATIONS
.01 In most instances, IRS/MCC can process 8mm tape cartridges that meet the following specifications:
(a) Must meet American National Standard Institute (ANSI) standards, and have the following characteristics:
(1) Created from an AS400 operating systems only.
(2) 8mm (.315-inch) tape cartridges will be 2
1
⁄
2
-inch by 3
3
⁄
4
-inch.
(3) The 8mm tape cartridges must meet the following specifications:
TracksDensityCapacity
120 (43245 BPI)2.3 Gb
121 (45434 BPI)5 Gb
(4) Mode will be full function.
(5) Compressed data is not acceptable.
March 30, 1998321998–13 I.R.B.

(6) Either EBCDIC (Extended Binary Coded Decimal Interchange Code) or ASCII (American Standard Coded Information In-
terchange) may be used. However, IRS/MCC encourages the use of EBCDIC. This information must appear on the exter-
nal media label affixed to the cartridge.
.02 The 8mm (.315-inch) tape cartridge records defined in this revenue procedure may be blocked subject to the following:
(a) A block must notexceed 3,500 tape positions.
(b) If the use of blocked records would result in a short block, all remaining positions of the block must be filled with 9’s; how-
ever, the last block of the file may be filled with 9’s or truncated. Do not pad a block with blanks.
(c) All records, except the header and trailer labels, may be blocked or unblocked. A record may not contain any control fields
or block descriptor fields which describe the length of the block or the logical records within the block. The number of log-
ical records within a block (the blocking factor) must be constant in every block with the exception of the last block which
may be shorter (see item (b) above). The block length must be evenly divisible by 350.
(d) Various COPY commands have been successful, however, the SAVE OBJECT COMMAND is not acceptable.
(e) Records may not span blocks.
.03 For faster processing, IRS/MCC encourages transmitters to use header labeled cartridges. QWFTAX may be used as a sug-
gested filename.
.04 For the purposes of this revenue procedure, the following must be used:
Tape Mark:
(a) Used to signify the physical end of the recording on tape.
(b) For even parity, use BCD configuration 001111 (8421).
(c) May follow the header label and precede and/or follow the trailer label.
.05 IRS/MCC can only read one data file on a tape. A data file is a group of records which may or may not begin with a tape-
mark, but must end with a trailer label. Any data beyond the trailer label cannot be read by IRS programs.
.06 4mm (.157-inch) cassettes are acceptable with the following specifications:
(a) 4 mm cassettes will be 2
1
⁄
4
-inch by 3-inch.
(b) The tracks are 1 (one).
(c) The density is 19 (61000 BPI).
(d) The typical capacity is DDS (DAT data storage) at 1.3 Gb or 2 Gb, or DDS–2 at 4Gb.
(e) The general specifications for 8mm cartridges will also apply to the 4mm cassettes.
.07 Various Quarter Inch Cartridges (QIC) (1/4-inch) are also acceptable.
(a) QIC cartridges will be 4” by 6”.
(b) QIC cartridges must meet the following specifications:
SizeTracksDensityCapacity
QIC–114/54 (8000 BPI)22Mb or 30Mb
QIC–248/95 (8000 BPI)45Mb or 60Mb
QIC–1201515 (10000 BPI)120Mb or 200Mb
QIC–1501816 (10000 BPI)150Mb or 250Mb
QIC–3202617 (16000 BPI)320Mb
QIC–5252617 (16000 BPI)525Mb
QIC–10003021 (36000 BPI)1Gb
QIC–13503018 (51667 BPI)1.3Gb
QIC–2Gb4234 (40640 BPI) 2Gb
(c) The general specifications that apply to 8mm cartridges will also apply to QIC cartridges.
SEC. 6. ASYNCHRONOUS (IRP–BBS) ELECTRONIC FILING SPECIFICATIONS
.01 Asynchronous electronic filing of Forms W–4, originals and replacements is offered as an alternative to magnetic media
(tape, tape cartridge, or diskette) or paper filing. If the original file was sent magnetically, but was returned for replacement, the re-
placement may be transmitted electronically.
.02 The electronic filing of Forms W–4 is not affiliated with the Form 1040 electronic filing program. These two programs are to-
tally independent, and filers must obtain separate approval to participate in each of them. All inquiries concerning the electronic fil-
ing of Forms W–4 should be directed to IRS/MCC. IRS/MCC personnel cannotanswer questions or assist taxpayers in the filing of
Form 1040 tax returns. Filers with questions of this nature will be directed to the Taxpayer Service toll-free number (1-800-829-
1040)for assistance.
.03 Filers participating in the electronic filing program for Forms W–4 will submit their forms to IRS/MCC electronically and not
through magnetic media or paper filing. Files submitted in this manner must be in standard ASCII code.
.04 The format of the record is the same for electronically filed records as it is for 5
1
⁄
4
- and 3
1
⁄
2
-inch diskettes, tapes, and tape
cartridges; however, it must be in standard ASCII code.
1998–13 I.R.B.33March 30, 1998

.05 Filers must have a Transmitter Control Code (TCC) assigned to them prior to submitting their files electronically. (Filers
who currently have a TCC for filing Forms W–4 do not have to request a second TCC for electronic filing.) Refer to Part A, Sec. 5,
for information on how to obtain a TCC.
.06 Filers using IRP–BBS assign their own passwords and do not need special approval.
.07 With all passwords, it is the user’s responsibility to remember the password and not allow the password to be compromised.
However, if filers do forget their password, call 304-263-8700for assistance.
+ Note: Passwords on the IRP–BBS are case sensitive.
.08 Electronically filed Forms W–4 may be submitted to IRS/MCC 24 hours a day, 7 days a week. Technical assistance will be
available Monday through Friday between 8:30 a.m. and 4:30 p.m. Eastern Time by calling 304-263-8700.
.09 Filers may submit as many documents as they choose electronically. Filers are allowed 240 minutes a day; however, more
time may be requested if needed.
.10 Do not transmit data using IRP–BBS January 1 through January 7.This will allow time for the IRP–BBS to be updated to
reflect current year changes.
.11 Data compression is encouraged when submitting Forms W–4 by way of the IRP–BBS. MCC has the ability to decompress
files created using several popular software compression programs such as ARC, LHARC, and PKZIP. Software data compression
can be done alone or in conjunction with V.42bis hardware compression.
The time required to transmit Forms W–4 electronically will vary depending on the modem speed and the type of data compres-
sion used, if any. The time required to transmit a file can be reduced by as much as 85 percent by using software compression and
hardware compression.
The following are actual transmission rates for 1099 Series filers achieved in test uploads at MCC using compressed files
(PKZIP) and the XMODEM-1K protocol. The actual transmission rates will vary depending on the protocol that is used. (ZMO-
DEM is normally the fastest protocol and XMODEM and KERMIT are the slower protocols.)
March 30, 1998341998–13 I.R.B.
Transmission Speed in bps500 Records 2500 Records10000 Records
960040 sec2 min 50 sec12 min 21 sec
1920031 sec1 min 34 sec7 min1 sec
3840017 sec36 sec4 min 7 sec
.12 Files submitted to IRP–BBS must have a unique filename; therefore, the IRP–BBS will build the filename that must be used.
The name will consist of the filer’s TCC, submission type (T = Test, P = Production, and R = Replacement) and a sequence number.
Filers may call the file anything they choose on their end. The sequence number will be incremented every time the filers send, or at-
tempt to send, a file. Record the upload date, time, and filename. This information will be needed by MCC in order to identify the
file if assistance is required and to complete Form 6466.
.13 The results of the electronic transmission will be posted to the (F)ile Status area of the IRP–BBS; however, no further pro-
cessing will occur until the signed Form 6466 is received. The transmitter must send or fax the signed Form 6466 the same day the
electronic transmission is made. No electronic transmission is considered filed until a Form 6466 is received by IRS/MCC.
.14 Form 6466 can be ordered by calling the IRS toll-free forms and publication order number 1-800-TAX-FORM, (1-800-829-
3676), downloaded from the IRP–BBS, or it may be computer-generated. If a filer chooses to computer-generate Form 6466, all of
the information contained on the original form, including the affidavit, must also be contained on the computer-generated form.
.15 Forms 6466 are to be mailed to the following addresses:
If by Postal Service:
)
IRS-Martinsburg Computing Center
Information Reporting Program
Attn.: Electronic Filing Coordinator
P. O. Box 1359
Martinsburg, WV 25402-1359
+ Note: The ZIP Code has changed from 25401-1359 to 25402-1359 for the IRS P.O. Box addresses for Martinsburg, WV.
If by air or truck freight:
IRS-Martinsburg Computing Center
Information Reporting Program
Attn.: Electronic Filing Coordinator
Route 9 and Needy Road
Martinsburg, WV 25401
j

.16 A signed Form 6466 submitted for electronically filed Forms W–4 may be faxed to IRS/MCC at the following number: 304-
264-5602. Faxed transmittals will allow IRS/MCC to begin processing the file immediately.
.17 The IRP–BBS is an electronic bulletin board system available to filers of Forms W–4. In addition to filing Forms W–4 elec-
tronically, the IRP–BBS provides other capabilities. Some of the advantages of IRP–BBS are as follows:
(1) Notification within two weeks as to the acceptability of the data transmitted.
(2) Immediate access to the latest changes and updates that affect the Information Reporting Program at IRS/MCC (program,
legislative, etc.).
(3) Access to publications such as the Publication 1245 as soon as they are available.
(4) Capability to communicate with IRS/MCC personnel.
(5) Ability to retrieve information and files applicable to the IRP–BBS.
.18 The IRP–BBS is available for public use and accessible using various personal computer communications equipment; how-
ever, electronic submission of Forms W–4 is limited to holders of valid TCCs. A TCC is not needed to access those portions of the
IRP–BBS that contain forms and publications or to leave questions or messages for IRS/MCC personnel.
.19 Filers using IRP–BBS can determine the acceptability of files submitted by checking the file status area of the bulletin board.
These reports are not immediately available but will be available two weeks after the transmission is received by IRS/MCC.
.20 Contact the IRP–BBS by dialing 304-264-7070. The communication software settings for IRP–BBS are:
– No parity
– Eight data bits
– One stop bit
– Full duplex
The communication software should be set up to use the fastest speed allowed by the filer’s modem.
.21 Due to the large number of communication products available, it is impossible to provide specific information on a particular
software package or hardware configuration. Filers should contact their software or hardware supplier for assistance.
.22 IRP–BBS software provides a menu-driven environment allowing access to different parts of IRP–BBS. Whenever possible,
IRS/MCC personnel will provide assistance in resolving any communication problems with IRP–BBS.
.23 IRP–BBS can be accessed at speeds from 1200 to 28,800 bps. The speed is automatically negotiated for connection at the
speed of the calling modem. The communication standards supported include Industry Standard 212A, V.22bis, V.32, V.32bis, V.34,
and V.FC. Point-to-point error control is supported using the V.42 ITU-T standard or MNP 2–4. Data compression is supported
using V.42bis ITU-T standard or MNP5.
.24 The following information will be requested to set up the filer’s user profile when logging onto the IRP–BBS for the first time.
(1) Enter the letter, that corresponds to the filer’s terminal, from the following:
<A> IBM PC <B> IBM w/ANSI <C> Atari
<D> ADM–3 <E> H19/Z19/H89<F> Televid 925
<G> TRS–80 <H> Vidtex <I> VT–52
<J> VT–100 <CR> if none of the above
Most personal computers, clones, etc., will select the IBM PC emulation. Machines with color, CGA, EGA, or VGA should select
IBM w/ANSI.
(2) Upper/lower case, line feed needed, O (zero) nulls after each <CR>, do you wish to modify this? (Most users answer no.)
Common User Problems
Problem Probable Cause Solution
File does not upload/downloadNot starting communication whenStart upload/download on filers end
prompted by ‘Awaiting Start Signal’
All files not processedCompressing several files into oneCompress only one file for every
filenamefilename
Replacement neededOriginal data does not meetReplacement must be submitted within 45
processing and/or format requirementsdays of original transmission
Cannot determine file statusNot dialing back thru IRP–BBS to checkTwo weeks after sending a file, check
the status of the file under (F)ile Status for notification of ac-
ceptability
Transfer aborts before it startsTransfer protocol mismatchEnsure protocols match on both the send-
ing and receiving ends
1998–13 I.R.B.35March 30, 1998

IRS Encountered Problems
Problem Probable Cause Solution
Loss of carrier during sessionIncorrect modem settings on user’s endReference your modem manual about in-
creasing the value of the S10 register
Unreadable screens after selectingANSI.SYS driver not loaded in theSelect non ANSI under (Y)our settings
IBM w/ANSIuser’s PC
IRS cannot complete final processingUser did not send the Form 6466Send completed Form 6466 the same
of dataday as the electronic transmission
IRS cannot determine which file is User did not indicate which file isMust enter the filename that is being re-
being replacedbeing replacedplaced under the replacement option
IRS cannot determine the type of fileUser incorrectly indicated P, C, or RWhen prompted, enter the correct type
being sentfor the type of fileof file data being sent
Replacement file not replaced withinUser did not dial back thru IRP–BBSTwo weeks after sending file check under
45 daysto check status of file(F)ile Status for notification of accept-
ability
Duplicate dataTransmitter sends corrections forOnly submit corrections for incorrect
entire filerecords
SEC. 7. FORM W–4 RECORD FORMAT AND RECORD LAYOUT
.01 This record is used to identify the employer, the employee, number of allowances, and other information that is reported on
the paper Form W–4.
.02 ALL RECORDS MUST BE A FIXED LENGTH OF 350 POSITIONS.
.03 Do not begin any record at the end of a block or diskette and continue the same record into the next block or diskette.
FORM W–4 RECORD FORMAT
Field
PositionField TitleLengthDescription and Remarks
1–9Employee Tax9REQUIRED.Enter the 9-digit number (TIN) assigned to the employee. DO NOT
IdentificationENTER HYPHENS or ALPHA CHARACTERS. All zeroes, ones, twos, etc. will
Numberhave the effect of an incorrect TIN.
10–44Employee Name35REQUIRED.Enter the name of the employee whose TIN appears in field positions
Line 11–9. Enter the name in the following order: first name, middle name (if present), and
surname. (Use initials for the first and middle names where necessary to insure that the
entire employee surname fits in the field.) If fewer than 35 characters are used, left-jus-
tify and fill unused positions with blanks.
(1) A blank must be surrounded by alphas or continued to the end of the field (e.g.,
ab...b, aba).
(2) A hyphen in the first position is to identify an employee with surname only. Hy-
phens must be surrounded by alphas or numerics and must never occur in the first posi-
tion of a name unless immediately followed by a caret.
(3) A caret is used to define an internal name control. It must immediately precede
the employee surname in place of the blank. A second caret is used to separate a
suffix from the surname (e.g., JOHN J.<BLACK; BILL<OAK<JR; AMY
FERN<BROWN<MD).
+ Note: The only allowable characters are alphas, blanks, numerics, ampersand, hyphens and slashes. A minimum of one
and a maximum of two carets (<) can be used. Punctuation, such as, periods and commas are not allowed and will cause your
file to be returned.
March 30, 1998361998–13 I.R.B.

1998–13 I.R.B.37March 30, 1998
FORM W–4 RECORD FORMAT (CONTINUED)
Field
PositionField TitleLengthDescription and Remarks
45–79Employee Name35 Optional. This line is designated for an “in care of” (c/o) situation. Left- justify and fill
Line 2unused positions with blanks. Hyphens and slashes must be surrounded by alphas or
numerics; ampersands must be surrounded by blanks; blanks must be surrounded by al-
phas or numerics or continued to the end of the field (e.g., ab...b aba).
+ Note: The same exceptions apply as set forth in “Employee Name Line 1” plus the use of a percent sign (%) is not valid—
use c/o if necessary.
80–114 Employee Street35REQUIRED.Enter mailing address of employee. Street address should include
Addressnumber, street, apartment or suite number (or P O Box if mail is not delivered to street
address). Left-justify and fill unused positions with blanks. Position 80 must be an
alpha or numeric; hyphens and slashes must be surrounded by alphas or numerics; am-
persands must be surrounded by blanks; blanks must be surrounded by alphas or nu-
merics or continued to the end of the field (e.g.,ab...b, aba).
+ Note: The only allowable characters are alphas, blanks, numerics, ampersand, hyphens and slashes. Punctuation such as
periods and commas are not allowed and will cause your file to be returned. For example, the address 210 N. Queen St.,
Suite #300 must be entered as 210 N Queen St Suite 300.
115–139Employee City25REQUIRED.Enter the city, town or post office. If a foreign address, see Note 2.
Left-justify and fill unused positions with blanks. Enter APO or FPO, if applicable. Do
not enter state and ZIP Code information in this field. Position 115 must be an alpha or
numeric; hyphens must be surrounded by alphas or numerics; blanks must be sur-
rounded by alphas or numerics or continued to the end of the field (e.g., ab...b, aba).
+Note 1: The only allowable characters are alphas, blanks, numerics, ampersand, hyphens and slashes. Punctuation such as
periods and commas are not allowed and will cause your file to be returned. For example, the city St. Louis must be entered
as St Louis
+Note 2: For foreign addresses, you may use the 40 position address fields (city, state and zip) to provide the following in-
formation: city, province or state, postal code, and country name.
140–41Employee State2REQUIRED. Enter the two-character location code of employee address—must be
one of the following:
+Note 1: For foreign addresses, enter xx from table below.
LocationCodeLocationCodeLocationCode
AlabamaALKentuckyKYOhio OH
Alaska AKLouisianaLAOklahoma OK
American SamoaAS MaineMEOregonOR
ArizonaAZMarshall IslandsMH Pennsylvania PA
ArkansasARMarylandMD Puerto Rico PR
California CAMassachusetts MARhode IslandRI
ColoradoCOMichiganMISouth CarolinaSC
ConnecticutCTMinnesotaMNSouth DakotaSD
DelawareDE MississippiMS TennesseeTN
District of ColumbiaDC Missouri MOTexasTX
Federated States of MontanaMTUtah UT
MicronesiaFM NebraskaNEVermontVT
FloridaFLNevadaNVVirginia VA
GeorgiaGANew HampshireNHVirgin Islands VI
GuamGU New JerseyNJ WashingtonWA

March 30, 1998381998–13 I.R.B.
LocationCodeLocationCodeLocationCode
HawaiiHINew Mexico NMWest VirginiaWV
IdahoIDNew YorkNYWisconsinWI
IllinoisILNorth CarolinaNCWyomingWY
IndianaINNorth DakotaND Foreign Address,
Iowa IANorthern All OthersXX
KansasKSMariana IslandsMP
142–150Employee ZIP Code 9 REQUIRED.Enter the valid nine-digit ZIP Code of employee. IF YOU ONLY
HAVE FIVE (5) DIGITS AVAILABLE, LEFT-JUSTIFY AND ZERO FILL.
Blank fill only if the employee’s ZIP Code is unavailable.
151Marital Status1REQUIRED.Enter appropriate code from the table below:
Marital StatusCode
Designated
SingleS
Married M
Married, withhold
at single rateW
No marital status
designated A
152Exempt Status1 REQUIRED. Enter “E” if employee claims exempt status; otherwise, enter blank.
153BLANK1Enter Blank.
154–156Allowances3REQUIRED.Must be a three (3) digit numeric field corresponding to the number of
allowances claimed by employee. (It is necessary to file this Form W–4 with IRS if
the number of allowances is more than ten (10) or exempt status is claimed.) Field
must be right justified and zero filled. If no entry, or employee claimed exempt status,
enter blanks.
157–163Additional Amount7REQUIRED. Enter any additional amount of withholding the employee wants de-
ducted from each pay. Amount must be entered in U.S. dollars and cents. The right-
most two positions represent cents. Do not enter dollar signs, commas, decimal
points, or negative numbers. Right-justify and zero fill. If no entry, zero-fill.
164–169 BLANK6Enter Blanks.
170–178Employer9REQUIRED. The 9-digit number assigned to the employer. DO NOT ENTER
IdentificationHYPHENS, ALPHA CHARACTERS. All zeroes, ones, twos, etc. will have the effect
Numberof an incorrect TIN.
179–213Employer Name35REQUIRED.Enter the name of the employer as it appears on employment tax forms
Line 1(e.g., Form 941). Any extraneous information must be deleted from this name line.
Left-justify and fill with blanks. Position 179 must be alpha or numeric; hyphens and
slashes must be surrounded by alphas or numerics; blanks must be surrounded by al-
phas or numerics or continued to the end of the field (e.g., ab...b, aba).
+Note: The only allowable characters are alphas, blanks, numerics, ampersand, hyphens and slashes. Punctuation, such as,
periods and commas are not allowed and will cause your file to be returned.
214–247Employer Name 34 If the employer name requires more space than is available in Employer Name Line 1,
Line 3enter the remaining portion of the name in this field. Left- justify and fill with blanks.
Position 214 must be alpha or numeric; hyphens must be surrounded by alphas or nu-
merics; blanks must be surrounded by alphas or numerics or continued to the end of
the field (e.g.,ab...b, aba).

1998–13 I.R.B.39March 30, 1998
FORM W–4 RECORD FORMAT (CONTINUED)
Field
PositionField TitleLengthDescription and Remarks
+Note: The same exceptions apply as set forth in “Employer Name Line 1” plus the use of a percent sign (%) is not valid—
use c/o if necessary.
248–282Employer Street35REQUIRED. Enter mailing address of employer. Street address should include num-
ber, street, apartment or suite number (or P O Box if mail is not delivered to street ad-
dress). Left-justify and fill unused positions with blanks. Position 248 must be alpha
or numeric; hyphens must be surrounded by alphas or numerics; blanks must be sur-
rounded by alphas or numerics or continued to the (e.g.,ab...b, aba).
+Note: The only allowable characters are alphas, blanks, numerics, ampersand, hyphens and slashes. Punctuation such as
periods and commas are not allowed and will cause your file to be returned. For example, the address 210 N. Queen St.,
Suite #300 must be entered as 210 N Queen St Suite 300.
283–307 Employer City25REQUIRED.Enter the city, town or post office. Enter APO or FPO if applicable. Do
not enter state and ZIP Code information in this field.Position 283 must be alpha or nu-
meric; hyphens must be surrounded by alphas or numerics; blanks must be surrounded
by alphas or numerics or continued to the end of the field (e.g., ab.b, aba).
+Note: The only allowable characters are alphas, blanks, numerics, ampersand, hyphens and slashes. Punctuation such as
periods and commas are not allowed and will cause your file to be returned. For example, the city St. Louis must be entered
as St Louis.
308–309 Employer State2 REQUIRED.Enter location code of employer. Must use abbreviation shown in the
Codelocation abbreviation table for Employee Location Code (field positions 140–141).
310–318Employer ZIP Code9 REQUIRED.Enter the validnine digit ZIP Code of employer. IF YOU ONLY
HAVE FIVE (5)DIGITS AVAILABLE, LEFT-JUSTIFY AND ZERO FILL.
Blank fill only if employer’s ZIP Code is unavailable.
319–323Transmitter5 REQUIRED.Enter 5-character Transmitter Control Code (TCC) assigned by
Control CodeIRS/MCC.
324–331 Form W–4 Date8 REQUIRED.Enter date located on signature line of Form W–4. If no date entered,
generate current system date. Format as YYYYMMDD (e.g.19981231). Exempt Sta-
tus Form W–4—Compare “year effective date” on Line 7 to signature date. If year en-
tered on Line 7 is later than signature date, use Form W–4 date as a 01/01 receipt for
subsequent calendar year (e.g., Line 7 of Form W–4 shows an exempt status date of
1999 but signature date is 19981031, use 19990101 as Form W–4 date.)
332–348 BLANK 21Enter Blanks.
349–350 BLANK 2 Enter blanks, or carriage return/line feed (cr/lf) characters.
FORM W–4 RECORD LAYOUT
1–910–4445–7980–114115–139
Employee Tax
Identification
Number
Employee
Name
Line 1
Employee
Name
Line 2
Employee
Street
Address
Employee
City

FORM W–4 RECORD LAYOUT
140–141142–150151152153154–156
157–163164–169170–178179–213214–247
248–282283–307308–309310–318319–323
324–331332–348349–350
SEC. 8. EFFECT ON OTHER DOCUMENTS
Revenue Procedure 92–80, Publication 1245 (Rev. 9–92), is superseded.
SEC. 9. EFFECTIVE DATE
Use the record length and processing capabilities of this revenue procedure to file Forms W-4 submitted for the quarters ending
June 30, 1998 and for all subsequent filings.
March 30, 1998401998–13 I.R.B.
Employee
State
Employee ZIP
Code
Marital
Status
Exempt
Status
BlankAllowances
Additional
Amount
Blank
Employer
Identification
Number
Employer
Name Line 1
Employer
Name Line 2
Employer
Street
Employer
City
Employer
State Code
Employer ZIP
Code
Transmitter
Control Code
Form W–4 DateBlank
Blank or
cr/lf

1998–13 I.R.B.41March 30, 1998
I R B
Special Projects
Box of
I R B
Special Projects
Box of
I R B
Special Projects
Box of
Internal Revenue Service
Martinsburg Computing Center
Special Projects
P O Box 1359
Martinsburg WV 25402
I R B
Special Projects
Box of
I R B
Special Projects
Box of
I R B
Special Projects
Box of
Internal Revenue Service
Martinsburg Computing Center
Special Projects
Route 9 and Needy Road
Martinsburg WV 25401
(Reproduce as needed)
To expedite handling, please affix this label, or a substitute
label, to your OUTSIDE shipping container.
(use this label for U S Postal deliveries)(use this label for truck or air freight deliveries)

March 30, 1998421998–13 I.R.B.
Notice of Proposed Rulemaking
and Notice of Public Hearing
Obligations of States and
Political Subdivisions
REG–110965–97
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Partial withdrawal of notice of
proposed rulemaking; notice of proposed
rulemaking by cross-reference to tempo-
rary regulations; and notice of public
hearing.
SUMMARY: This document withdraws
portions of the notice of proposed rule-
making published in the Federal Regis-
ter(59 F.R. 67658 [FI–72–88, 1995–1
C.B. 859]) on December 30, 1994. In
T.D. 8757, the IRS is issuing temporary
regulations that provide guidance to state
and local governments that issue bonds
for output facilities and to certain non-
governmental persons that are engaged in
the local furnishing of electric energy or
gas using facilities financed with state or
local bonds. These proposed regulations
reflect changes made by the Tax Reform
Act of 1986 and the Small Business Job
Protection Act of 1996. The text of those
temporary regulations also serves as the
text of these proposed regulations. This
document provides a notice of public
hearing on these proposed regulations.
DATES: Written comments must be re-
ceived by April 22, 1998. Outlines of top-
ics to be discussed at the public hearing
scheduled for April 28, 1998, at 10 a.m.
must be received by April 7, 1998.
ADDRESSES: Send Submissions to:
CC:DOM:CORP:R (REG–110965–97),
room 5226, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington, DC 20044. Submissions may be
hand delivered between the hours of 8
a.m. and 5 p.m. to: CC:DOM:CORP:R
(REG–110965–97), Courier’s Desk, In-
ternal Revenue Service, 1111 Constitution
Avenue NW, Washington, DC. Alterna-
tively, taxpayers may submit comments
electronically via the Internet by selecting
the “Tax Regs” option on the IRS Home
Page, or by submitting comments directly
to the IRS Internet site at http://www.irs.
ustreas.gov/prod/tax_regs/comments.html.
The public hearing will be held in the Au-
ditorium, Internal Revenue Building,
1111 Constitution Avenue NW, Washing-
ton, DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations, Allan
B. Seller, 202-622-3980; concerning sub-
missions and the hearing, Michael L.
Slaughter, Jr., 202-622-7190 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
Background
Proposed regulations §§1.141–7 and
1.141–8, published on December 30,
1994 (59 F.R. 67658) addressed the appli-
cation of the private activity bond tests of
section 141(b)(2) to output contract for
output facilities and the application of the
$15 million limitation on output facility
financings of section 141(b)(4). These
proposed sections are withdrawn. These
sections were issued as part of proposed
regulations under §§1.141–0 through
1.141–16, Definition of Private Activity
Bonds, which were finalized in part in
T.D. 8712 published in the Federal Reg-
isteron January 16, 1997.
Sections 1.141–7T, 1.141–8T, 1.141–
15T, 1.142(f)(4)–1T, and 1.150–5T pub-
lished in T.D. 8757 are issued to provide
guidance on certain aspects of the private
activity bond restrictions under section
141 of the Internal Revenue Code.
The text of those temporary regulations
also serves as the text of these proposed
regulations. The preamble to the tempo-
rary regulations explains the temporary
regulations.
Special Analyses
It has been determined that this notice of
proposed rulemaking is not a significant
regulatory action as defined in EO 12866.
Therefore, a regulatory assessment is not
required. It has also been determined that
section 553(b) of the Administrative Pro-
cedure Act (5 U.S.C. chapter 5) does not
apply to these regulations.
It is hereby certified that these regula-
tions do not have a significant impact on a
substantial number of small entities. This
certification is based upon the fact that in
the years 1987 through 1993 a total of 61
different state or local government issuers
of exempt facility bonds issued under sec-
tion 142(f) for the local furnishing of
electric energy or gas filed information
returns with the Internal Revenue Service
under section 149(e). Further, an election
under section 142(f)(4) is in no event re-
quired to be filed with the Internal Rev-
enue Service more than once by a person
engaged in the local furnishing of electric
energy or gas. Therefore, a Regulatory
Flexibility Analysis under the Regulatory
Flexibility Act (5 U.S.C. Chapter 6) is not
required. Pursuant to section 7805(f) of
the Internal Revenue 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
regulations, consideration will be given to
any written comments that are submitted
timely (a signed original and eight (8)
copies) to the IRS. All comments will be
available for public inspection and copying.
A public hearing has been scheduled for
April 28, 1998, at 10 a.m. in the Audito-
rium, Internal Revenue Building, 1111
Constitution Avenue, NW, Washington,
DC. Because of access restrictions, visitors
will not be admitted beyond the lobby more
than 15 minutes before the hearing starts.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing.
Persons that wish to present oral com-
ments at the hearing must submit written
comments by April 22, 1998 and submit
an outline of the topics to be discussed
and the time to be devoted to each topic
by April 7, 1998.
A period of 10 minutes will be allotted
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.
Drafting Information
The principal authors of these regula-
tions are Michael G. Bailey and Allan
Part IV. Items of General Interest

1998–13 I.R.B.43March 30, 1998
Seller, Office of the Assistant Chief
Counsel (Financial Institutions and Prod-
ucts), and Nancy M. Lashnits, formerly of
that office. However, other personnel
from the IRS and Treasury Department
participated in their development.
Partial Withdrawal of Notice of Proposed
Rulemaking
Under the authority of 26 U.S.C. 7805,
§§1.141–7 and 1.141–8 in the notice of
proposed rulemaking that was published
on December 30, 1994 (59 F.R. 67658)
are withdrawn.
*****
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.141–7 is added to read
as follows:
§1.141–7 Special rules for output
facilities.
[The text of this proposed section is the
same as the text of §§1.141–7T published
in T.D. 8757.]
Par. 3. Section 1.141–8 is amended by
adding the text of the section to read as
follows:
§1.141–8 $15 million limitation for
output facilities.
[The text of this proposed section is the
same as the text of §1.141–8T published
in T.D. 8757.]
Par. 4. Section 1.141–15 is amended
by adding paragraphs (f) through (i) to
read as follows:
§1.141–15 Effective dates.
*****
(f) through (i) [The text of proposed
paragraphs (f) through (i) are the same as
the text of §1.141–15T(f) through (i) pub-
lished in T.D. 8757.]
Par. 5. Section 1.142(f)(4)–1 is added
to read as follows:
§1.142(f)(4)–1 Manner of making
election to terminate tax-exempt bond
financing.
[The text of this proposed section is the
same as the text of §1.142(f)(4)–1T pub-
lished in T.D. 8757.]
Par. 6. Section 1.150–5 is added to
read as follows:
§1.150–5 Filing notices and elections.
[The text of this proposed section is the
same as the text of §1.150–5T published
in T.D. 8757.]
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on
January 21, 1998, 8:45 a.m., and published in the
issue of the Federal Register for January 22, 1998,
63 F.R. 3296)
Foundations Status of Certain
Organizations
Announcement 98–25
The following organizations have
failed to establish or have been unable to
maintain their status as public charities or
as operating foundations. Accordingly,
grantors and contributors may not, after
this date, rely on previous rulings or des-
ignations in the Cumulative List of Orga-
nizations (Publication 78), or on the pre-
sumption arising from the filing of notices
under section 508(b) of the Code. This
listing does notindicate that the organiza-
tions have lost their status as organiza-
tions described in section 501(c)(3), eligi-
ble to receive deductible contributions.
Former Public Charities.The following
organizations (which have been treated as
organizations that are not private founda-
tions described in section 509(a) of the
Code) are now classified as private foun-
dations:
A Miriam Jamison Children Center
Foundation, Bakersfield, CA
Asian Community Immigration Clinic,
San Francisco, CA
The Berry Farm, Vashon, WA
Centralia Schools Foundation, Centralia,
WA
Childrens Rights Council of Illinois,
Pekin, IL
Childrens Safe House Inc., Philadelphia,
PA
Chipper of New Jersey Inc., Caldwell, NJ
Choice Inc-Creative Homeless Options
Involving Community Exchange,
Marietta, GA
Christmas in October Miami County,
Inc., Paola, KS
Christmas in September Inc., Butte, MT
Christos Society Inc., Louisville, KY
Christs Sanctified Holy Church
Foundation Trust of Atlanta, GA,
Clarkston, GA
Chronic Fatigue Syndrome Foundation of
Greater Baton Rouge, Inc., Baton
Rouge, LA
Citizens Foster Care Review Board Inc.,
Naples, FL
Citizens Health Care Foundation, El
Paso, TX
Daily Bread Inc., Bucyrus, KS
Dakar Foundation for the Performing
Arts, Berkeley, CA
Dakota Aids Life Foundation, Fargo, ND
East Palo Alto Teen Home Inc., E. Palo
Alto, CA
Ellis County Ministerial Alliance, Hays,
KS
Elmas Little Lambs, Jackson, MS
Emerald Coast Sailing Association Inc.,
Fort Walton Beach, FL
Florida Judicial Education Foundation
Inc., Tallahassee, FL
Florida Registry & Living Will Registry
of America Inc., Palatka, FL
Folio Theatre Company Inc., Chicago, IL
Food for Thought, Washington, DC
Fort Towson School and Community
Foundation, Ft. Towson, OK
Foxes for Kids Inc., Parker, CO
Franciscan Friars of Mary Immaculate
Inc., Mt. Morris, MI
Free the Children Inc., Cocoa, FL
Friends of Guatemala Inc., Toledo, OH
Friends of J.L. Long Middle School,
Dallas, TX
Friends of Jung in Fort Wayne Indiana
Inc., Ft. Wayne, IN
Fund to End the Deficit Inc., Silver
Spring, MD
Fuquay-Varina Area Education, Fuquay
Varina, NC
Fuse, Boulder, CO
Forney Pee Wee Association, Forney, TX
Greater East Canton Community
Development Association, E. Canton,
OH
Greater Houston Church Directory,
Houston, TX

March 30, 1998441998–13 I.R.B.
Greater Houston Puppetry Guild,
Houston, TX
Hands Across Watts, Los Angeles, CA
Hawaii Youth Congress, Honolulu, HI
Head Injury Association of Kern County,
Bakersfield, CA
The Healing Forest Conservancy,
Washington, DC
Healthy Options for Teens, Portland, OR
Helping Hand Vocational Training Camp,
Orleans, CA
Hemophilia-HIV Peer Association,
Cardiff, CA
Heritage Discovery Center Inc.,
Mokelumne Hill, CA
Heritage Village Committee Inc., Sidney,
MI
Hickman County Historical Society,
Centerville, TN
High Blood Pressure Control Program of
Western New York Inc., Buffalo, NY
The Highlands Pipes & Drum
Incorporated, West Hills, CA
High on Kids, Hummelstown, PA
Hilo Rotary Club Foundation, Hilo, HI
Hindu Mandir, San Jose, CA
H I S Group Homes, Ceres, CA
Historic Bullock Cemetery Association,
Coppell, TX
Historic Hudson Community Association,
Newark, OH
Hoboken Waterfront Corporation,
Hoboken, NJ
Hollywood Youth Advisory Committee
Inc., Hollywood, FL
Holopolis Inc., Chattanooga, TN
Holton Youth Baseball and Softball Inc.,
Holton, KS
Holy Spirit Ministries, Las Vegas, NV
Horizon International Relief Services,
San Diego, CA
Hot Springs Youth Center, Hot Springs, SD
Housing Hope Properties, Everett, WA
Housing Opportunity Center Mountain
Vista Villas, Phoenix, AZ
Houston Alternative Ministers
Fellowship Inc., Houston, TX
Houston Area Association for Bilingual
Education, Spring, TX
Houston Area Community Development
Corporation, Houston, TX
Houston Area Dekalb Association,
Houston, TX
Houston Institute for the Protection of
Youth Inc., Houston, TX
Houston Safe Boating Council Inc.,
Houston, TX
Houston Slam & Jam, Houston, TX
Houston Songwriters Performing Artists,
Galena Park, TX
Houston Wee Care Shelter, Houston, TX
HRS Employee Disaster Relief Fund,
Tallahassee, FL
Hudson Volunteer Fire Department Inc.,
Lufkin, TX
Hula Hui O Kawai Aloha, Waimanalo, HI
Jesus Christ Unlimited Evangelistic
Association Incorporated, Kokomo, IN
Jesus House Inc., Florence, AL
Jesus is Alpha and Omega Ministries
Inc., Houston, TX
Jesus Saves and Heals Ministries Inc.,
Tampa, FL
Jet Age Museum of Technology Inc.,
Richardson, TX
Jewish Learning Foundation, Chicago, IL
Mass Healing Foundation, Olympia, WA
Matanuska Valley American Baptist
Homes Inc., Palmer, AK
McKinley District Housing Association,
Tacoma, WA
The Medical Staff of Santa Barbara
Cottage Hospital, Santa Barbara, CA
Metamorphosis, Gardena, CA
Mexican Dialysis Assistance League,
Santa Paula, CA
Mid-State Evangelistic Crusade Inc.,
Paso Robles, CA
Mission Global Harvest, Huntington
Park, CA
Montreux Healthy Start Foundation,
Reno, NV
Morningside Group Home Inc., Los
Angeles, CA
Mothers for Help Inc., Kirkland, WA
Mount Hope-Helix Heights Residents
Association Inc., San Diego, CA
Multicultural Assistance Program,
Corvallis, OR
Myrtlewood Youth Services Inc.,
Corvallis, OR
Child Abuse Prevention Committee of
Albuquerque-Bernalillo County Inc.,
Albuquerque, NM
Child Care Inc., Grand Junction, CO
Chris Keeney Fund, Houston, TX
Christ in My Life Productions
Foundation, Inc., Indianapolis, IN
Christian Action Council of Ministry and
Education, Lancaster, PA
Chuck Cooper Youth Development
Association, Pittsburgh, PA
CHWPC Education and Training Fund,
Washington, DC
Dale Youth Soccer Club Limited,
Chesterfield, VA
Dallas Chinese Community Center,
Richardson, TX
Denver Dry Development Corporation,
Denver, CO
Depere Development Corporation,
Depere, WI
Disabled Professionals Network,
Cleveland, OH
Disabled Sports USA Adaptive Ski
Program, Albuquerque, NM
Dolores Foundation Inc., Chamblee, GA
Dolphin Alliance Inc., Melbourne Beach,
FL
Dover Housing Development Inc., Dover,
DE
Dovia of the Pikes Peak Region Inc.,
Colorado Springs, CO
Down Syndrome Interest Group of
Delaware County, Upper Darby, PA
Educational Adventures Inc., Sanford, FL
Educational Council for Hope and
Opportunity, Inc., New Orleans, LA
Educational Enhancement Services Inc.,
Salt Lake City, UT
Educational Foundation Inc., Houston,
TX
Freedom Club Inc., Amarillo, TX
Freedom Forum Inc., Colleyville, TX
Freedom From Drugs Outreach
Movement, Detroit, MI
Freedom House Inc., Cleveland, OH
Freedom Ministries Incorporated,
Martinsville, VA
Freedom Now Inc., Chicago, IL
Fremont Area Elderly Needs Fund,
Fremont, MI
Fremont Soup Kitchen Inc., Fremont,
OH
Grace Prison Outreach Inc., Austell, GA
Graceville Informed Parents Inc.,
Graceville, FL
Graham County Community Foundation
Inc., Hill City, KS
Hatchers Day Care & Learning Center
Inc., Augusta, GA
Hatteras Island Maritime Museum Inc.,
Hatteras, NC
Haven Foundation Inc., Parma, OH
Haven House of Pickaway County,
Circleville, OH
Helping Hand Group Incorporated,
Indianapolis, IN
Helping Miami Rebuild Inc., Miami, FL
Helping Others Purse Excellence Hope,
Birmingham, AL
Hope Community Charitable Trust,
Plano, TX
Hope for Life, Westchester, OH

1998–13 I.R.B.45March 30, 1998
Hope House-Franklin County Christian
Caring Center Inc., Ottawa, KS
Hope House of Delaware Valley,
Rosemont, PA
Jacksonville Concert Ballet Company
Inc., Jacksonville, FL
Jacksonville Education Foundation Inc.,
Jacksonville, TX
Jaguars Amateur Basketball Organization
of Prince Georges, Laurel, MD
James Memorial Preservation Society
LTD, Williston, ND
Kankakee Valley Tennis Association Inc.,
Bourbonnais, IL
Kansas City African Tennis Association,
Kansas City, MO
Kansas Crime Prevention Association,
Salina, KS
Kansas Institute on Alcohol and Other
Drug Abuse in Higher Education,
Topeka, KS
Latrobe Chapter Society of Architectural
Historian, Washington, DC
Lee Headquarters Trust Inc., Ronceverte,
WV
Leesville-Vernon Boys and Girls Club
Inc., Leesville, LA
Legal Aid Society of the Martin County
Bar Association Inc., Jensen Beach, FL
Legal Assistance for Vietnamese Asylum
Seekers, Fairfax, VA
Lehighton Ambulance Association Inc.,
Lehighton, PA
Lend a Hand Inc., Fort Smith, AR
Lesbian Gay and Bisexual Community
Center Inc., Miami Beach, FL
Mindpower Incorporated, Hammond, IN
Mini-Productions Inc., Pittsburgh, PA
Ministerio Torre Fuerte Inc., Miami, FL
Ministries of Faith Hope and Love Inc.,
Jacksonville, FL
Ministry Center Inc., Lima, OH
Ministry for Theological Education,
Memphis, TN
Minnesota Deaf Skiers Association, St.
Paul, MN
Minnesota Environmental Initiative Inc.,
Minneapolis, MN
Minnesota Foundation for
Communication and Education
Through Storytelling, Minneapolis,
MN
Minnesota Ninth District American
Legion Band, Inc., Crookston, MN
Minnesota Walk to Emmaus Inc.,
Oakdale, MN
Minolas Place of Texas Inc., Houston,
TX
Minority Advisory Panel, Southfield,
MI
Miracle House Ministries Inc., Fort
Lauderdale, FL
Network Ministries Inc., Tallahassee, FL
Network of Ambassadors NOA
Foundation, Omaha, NE
New Abundant and Everlasting Life
Ministries, Inc., Naperville, IL
New Beginnings Day Care & Pre-School,
Inc., Clyde, KS
New Caney Horizons Inc., New Caney,
TX
New Center North Neighbors, Detroit,
MI
New Century Learning & Development
Center, Inc., Duluth, MN
New Covenant Ministries Counseling and
Training Center, Mesa, AZ
Stafford County Alcohol and Drug
Services, Inc., St. John, KS
New Day Multi Purpose Service Center,
Inc., Detroit, MI
New Directions Association, Washington,
DC
New Directions Training USA Inc., Cave
Creek, AZ
New Dominion Housing Inc., Norfolk,
VA
New Focus Tennessee, Parrotsville, TN
New Friends Inc., Altamonte Springs, FL
New Generation Youth Center Inc.,
Plymouth, NC
Norma B. Summerville Scholarship
Foundation, Akron, OH
Norma Wilson Ministries Inc., Harrison,
AR
Norman Life Services Inc., Norman, OK
North American Conference for Itinerant
Evangelists, Minneapolis, MN
North American Strawberry Growers
Research Foundation, Inc., Amherst,
OH
North Bean Street Neighborhood
Association, Spartanburg, SC
North Canton Chautauqua Foundation,
Inc., Canton, OH
North Carolina Shakespeare Festival
Endowment Fund, High Point, NC
North Carolina Interfaith Network on
Alcoholism and Other Drug Abuse,
Kannapolis, NC
North Central PA Military Museum Inc.,
Williamsport, PA
North Dade Trauma Center Inc., Sunny
Isles, FL
North Detroit Jets Athletic Association,
Detroit, MI
North Ellis County Economic
Development Commission, Inc., Red
Oak, TX
North End Dental Care Assistance Inc.,
Flint, MI
North Henry Athletic Association Inc.,
Stockbridge, GA
North Jefferson Charity Run, Gardendale,
AL
North Muskegon Booster Club Inc., N.
Muskegon, MI
If an organization listed above submits
information that warrants the renewal of its
classification as a public charity or as a pri-
vate operating foundation, the Internal
Revenue Service will issue a ruling or de-
termination letter with the revised classifi-
cation as to foundation status. Grantors and
contributors may thereafter rely upon such
ruling or determination letter as provided
in section 1.509(a)–7 of the Income Tax
Regulations. It is not the practice of the
Service to announce such revised classifi-
cation of foundation status in the Internal
Revenue Bulletin.

March 30, 1998461998–13 I.R.B.
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously
published ruling and points out an essen-
tial difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it ap-
plies to both A and B, the prior ruling is
modified because it corrects a published
position. (Compare with amplified and
clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. A ruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is super-
seded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be pub-
lished that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current use and for-
merly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C.—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Proc..—Revenue Ruling.
S—Subsidiary.
S.P.R.—
Statements of
Procedral Rules.
Stat.—Statutes
at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
Definition of Terms
* * * * *

1998–13 I.R.B.47March 30, 1998
1
A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 1997–27 through
1997–52 will be found in Internal Revenue Bulletin
1998–1, dated January 5, 1998.
Numerical Finding List
1
Bulletins 1998–1 through 1998–12
Announcements:
98–1, 1998–2 I.R.B. 38
98–2, 1998–2 I.R.B.38
98–3, 1998–2 I.R.B.38
98–4, 1998–4 I.R.B.31
98–5, 1998–5 I.R.B. 25
98–6, 1998–5 I.R.B. 25
98–7, 1998–5 I.R.B. 26
98–8, 1998–6 I.R.B. 96
98–9, 1998–7 I.R.B. 35
98–10, 1998–7 I.R.B. 35
98–11, 1998–8 I.R.B. 42
98–12, 1998–8 I.R.B. 43
98–13, 1998–8 I.R.B. 43
98–14, 1998–8 I.R.B. 44
98–15, 1998–10 I.R.B.36
98–16, 1998–9 I.R.B. 17
98–17, 1998–9 I.R.B. 16
98–18, 1998–10 I.R.B.44
98–19, 1998–10 I.R.B.44
98–20, 1998–11 I.R.B. 25
98–21, 1998–11 I.R.B. 26
98–22, 1998–12 I.R.B. 33
98–23, 1998–12 I.R.B. 34
98–24, 1998–12 I.R.B. 35
Notices:
98–1, 1998–3 I.R.B. 42
98–2, 1998–2 I.R.B. 22
98–3, 1998–3 I.R.B. 48
98–4, 1998–2 I.R.B. 25
98–5, 1998–3 I.B.R.49
98–6, 1998–3 I.R.B. 52
98–7, 1998–3 I.R.B. 54
98–8, 1998–4 I.R.B. 6
98–9, 1998–4 I.R.B. 8
98–10, 1998–6 I.R.B.9
98–11, 1998–6 I.R.B. 18
98–12, 1998–5 I.R.B.12
98–13, 1998–6 I.R.B.19
98–14, 1998–8 I.R.B. 27
98–15, 1998–9 I.R.B. 8
98–17, 1998–11 I.R.B. 6
98–18, 1998–12 I.R.B. 11
Proposed Regulations:
PS–158–86, 1998–11 I.R.B. 13
REG–100841–97, 1998–8 I.R.B. 30
REG–102894–97, 1998–3 I.R.B. 59
REG–104062–97, 1998–10 I.R.B. 34
REG–104691–97, 1998–11 I.R.B. 13
REG–105163–97, 1998–8 I.R.B. 31
REG–109333–97, 1998–9 I.R.B. 9
REG–109704–97, 1998–3 I.R.B. 60
REG–115795–97, 1998–8 I.R.B.33
REG–119449–97, 1998–10 I.R.B. 35
REG–120200–97, 1998–12 I.R.B. 32
REG–121755–97, 1998–9 I.R.B. 13
REG–209276–87, 1998–11 I.R.B. 18
REG–209463–82, 1998–4 I.R.B. 27
REG–209476–82, 1998–8 I.R.B. 36
REG–209484–87, 1998–8 I.R.B.40
REG–209485–86, 1998–11 I.R.B. 21
REG–209807–95, 1998–8 I.R.B. 40
REG–251502–96, 1998–9 I.R.B. 14
Revenue Procedures:
98–1, 1998–1 I.R.B. 7
98–2, 1998–1 I.R.B. 74
98–3, 1998–1 I.R.B. 100
98–4, 1998–1 I.R.B. 113
98–5, 1998–1 I.R.B. 155
98–6, 1998–1 I.R.B. 183
98–7, 1998–1 I.R.B. 222
98–8, 1998–1 I.R.B. 225
98–9, 1998–3 I.R.B. 56
98–10, 1998–2 I.R.B. 35
98–11, 1998–4 I.R.B.9
98–12, 1998–4 I.R.B. 18
98–13, 1998–4 I.R.B. 21
98–14, 1998–4 I.R.B. 22
98–15, 1998–4 I.R.B. 25
98–16, 1998–5 I.R.B. 19
98–17, 1998–5 I.R.B. 21
98–18, 1998–6 I.R.B. 20
98–19, 1998–7 I.R.B. 30
98–20, 1998–7 I.R.B. 32
98–21, 1998–8 I.R.B. 27
98–22, 1998–12 I.R.B. 11
98–23, 1998–10 I.R.B. 30
98–24, 1998–10 I.R.B. 31
98–25, 1998–11 I.R.B. 7
Revenue Rulings:
98–1, 1998–2 I.R.B. 5
98–2, 1998–2 I.R.B. 15
98–3, 1998–2 I.R.B. 4
98–4, 1998–2 I.R.B. 18
98–5, 1998–2 I.R.B. 20
98–6, 1998–4 I.R.B. 4
98–7, 1998–6 I.R.B.6
98–8, 1998–7 I.R.B. 24
98–9, 1998–6 I.R.B. 5
98–10, 1998–10 I.R.B. 11
98–11, 1998–10 I.R.B. 13
98–12, 1998–10 I.R.B. 5
98–13, 1998–11 I.R.B. 4
98–14, 1998–11 I.R.B. 4
98–15, 1998–12 I.R.B. 6
Treasury Decisions:
8740, 1998–3 I.R.B. 4
8741, 1998–3 I.R.B. 6
8742, 1998–5 I.R.B.4
8743, 1998–7 I.R.B. 26
8744, 1998–7 I.R.B. 20
8745, 1998–7 I.R.B. 15
8746, 1998–7 I.R.B. 4
8747, 1998–7 I.R.B. 18
8748, 1998–8 I.R.B. 24
8749, 1998–7 I.R.B. 16
8750, 1998–8 I.R.B. 4
8751, 1998–10 I.R.B. 23
8752, 1998–9 I.R.B. 4
8753, 1998–9 I.R.B. 6
8754, 1998–10 I.R.B. 15
8755, 1998–10 I.R.B. 21
8756, 1998–12 I.R.B.4

March 30, 1998481998–13 I.R.B.
Finding List of Current Action on
Previously Published Items
1
Bulletins 1998–1 through 1998–12
Revenue Procedures:
91–59
Updated and superseded by
98–25, 1998–11 I.R.B. 7
94–16
Modified and superseded by
98–22, 1998–12 I.R.B. 11
94–62
Modified and superseded by
98–22, 1998–12 I.R.B. 11
95–35
95–35A
Superseded by
98–19, 1998–7 I.R.B. 30
96–29
Modified and superseded by
98–22, 1998–12 I.R.B. 11
97–1
Superseded by
98–1, 1998–1 I.R.B. 7
97–2
Superseded by
98–2, 1998–1 I.R.B. 74
97–3
Superseded by
98–3, 1998–1 I.R.B. 100
97–4
Superseded by
98–4, 1998–1 I.R.B. 113
97–5
Superseded by
98–5, 1998–1 I.R.B. 155
97–6
Superseded by
98–6, 1998–1 I.R.B. 183
97–7
Superseded by
98–7, 1998–1 I.R.B. 222
97–8
Superseded by
98–8, 1998–1 I.R.B. 225
97–21
Superseded by
98–2, 1998–1 I.R.B. 74
97–53
Superseded by
98–3, 1998–1 I.R.B. 100
Revenue Rulings:
75–17
Supplemented and superseded by
98–5, 1998–2 I.R.B. 20
92–19
Supplemented in part by
98–2, 1998–2 I.R.B. 15
1
A cumulative finding list for previously published
items mentioned in Internal Revenue Bulletins
1997–27 through 1997–52 will be found in Internal
Revenue Bulletin 1998–1, dated January 5, 1998.

Notes
1998–13 I.R.B.49March 30, 1998

Notes
March 30, 1998501998–13 I.R.B.

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