Internal Revenue Bulletin 1998-17 (PDF rendition): IRS Revenue Procedures

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

INCOME TAX
REG–209682–94, page 20.
Proposed regulations under sections 743, 755, and 1017
of the Code provide guidance to partnerships and their part-
ners concerning the optional adjustments to the basis of
partnership property, the allocation of basis adjustments
among partnership assets, and the computation of a part-
ner’s share of the adjusted basis of depreciable partnership
property.
Rev. Proc. 98–30, page 6.
Automobile owners and lessees.This procedure provides
owners and lessees of passenger automobiles (including
electric automobiles) with tables detailing the limitations on
depreciation deductions for automobiles first placed in ser-
vice during calendar year 1998 and the amounts to be in-
cluded in income for automobiles first leased during calen-
dar year 1998. In addition, this revenue procedure provides
the maximum allowable value of employer-provided automo-
biles first made available to employees for personal use in
calendar year 1998 for which the vehicle cents-per-mile valu-
ation rule provided under section 1.61–21(e) of the Income
Tax Regulations may be applicable.
EMPLOYEE PLANS
Notice 98–24, page 5.
Qualified plans; net unrealized appreciation; capital
gains.This notice describes the holding period to be used
for determining the capital gains tax treatment of net unre-
alized appreciation in the distribution of employer securities
from a qualified plan as a result of section 311 of the Tax-
payer Relief Act of 1997, Pub. L. No. 105–34.
EXEMPT ORGANIZATIONS
Announcement 98–33, page 39.
A list is provided of organizations that no longer qualify as
organizations to which contributions are deductible under
section 170 of the Code.
Announcement 98–34, page 39.
A list is given of organizations now classified as private foun-
dations.
ADMINISTRATIVE
Rev. Proc. 98–32, page 11.
Information is provided about the Electronic Federal Tax Pay-
ment System (EFTPS) programs for Batch Filers and Bulk Fil-
ers (Filers). EFTPS is an electronic remittance processing
system for making federal tax deposits (FTDs) and federal
tax payments (FTPs). The Batch Filer and Bulk Filer pro-
grams are used by Filers for electronically submitting enroll-
ments, FTDs, and FTPs on behalf of multiple taxpayers.
Notice 98–22, page 5.
This notice announces that shareholders of passive foreign
investment companies may apply the rules of section
1.1295–1T(b)(4), (f), and (g) of the Income Tax Regulations
to taxable years beginning before January 1, 1998.
Announcement 98–30, page 38.
The penalty under section 6677 of the Code will not be im-
posed on a U.S. owner of a foreign trust for failure to timely
file if the foreign trust files Form 3520–A and furnishes the
required statements to the U.S. owners and U.S. beneficia-
ries in accordance with this announcement.
Announcement 98–32, page 39.
This announcement withdraws the notice issued under sec-
tion 7428(c) of the Code in Internal Revenue Bulletin
1997–52, dated December 29, 1997, with respect to the
organization At Cost Services, Inc.
Announcement 98–35, page 40.
An updated edition of Publication 954, Tax Incentives for Em-
powerment Zones and Other Distressed Communities (re-
vised March 1998), is now available.
Internal Revenue
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Bulletin No. 1998–17
April 27, 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 43.
Announcement of Declaratory Judgment Proceedings Under Section 7428 begins on page 41.

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
general interest. It is published weekly and may be obtained
from the Superintendent of Documents on a subscription
basis. Bulletin contents of a permanent nature are consoli-
dated semiannually into Cumulative Bulletins, which are sold
on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of in-
ternal management are not published; however, statements
of internal practices and procedures that affect the rights
and duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings
to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature
are deleted to prevent unwarranted invasions of privacy and
to comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have
the force and effect of Treasury Department Regulations,
but they may be used as precedents. Unpublished rulings
will not be relied on, used, or cited as precedents by Service
personnel in the disposition of other cases. In applying pub-
lished rulings and procedures, the effect of subsequent leg-
islation, regulations, court decisions, rulings, and proce-
dures must be considered, and Service personnel and oth-
ers concerned are cautioned against reaching the same con-
clusions in other cases unless the facts and circumstances
are substantially the same.
The Bulletin is divided into four parts as follows:
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-
parts. Also included in this part are Bank Secrecy Act Admin-
istrative Rulings. Bank Secrecy Act Administrative Rulings
are issued by the Department of the Treasury’s Office of the
Assistant Secretary (Enforcement).
Part IV.—Items of General Interest.
With the exception of the Notice of Proposed Rulemaking
and the disbarment and suspension list included in this part,
none of these announcements are consolidated in the Cumu-
lative Bulletins.
The first Bulletin for each month includes a cumulative index
for the matters published during the preceding months.
These monthly indexes are cumulated on a semiannual basis
and are published in the first Bulletin of the succeeding semi-
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 61.—Gross Income
Defined
26 CFR 61–21: Taxation of fringe benefits.
This procedure provides the maximum value of
employer-provided automobiles first made available
to employees for personal use in calendar year 1998
for which the vehicle cents-per-mile valuation rule
provided under § 1.61–21(e) of the Income Tax Reg-
ulations may be applicable. See Rev. Proc. 98–30,
page 6.
Section 280F.—Limitation on
Depreciation for Luxury
Automobiles; Limitation Where
Certain Property Used for
Personal Purposes
26 CFR 280F–7: Property leased after December
31, 1986.
This procedure provides owners and lessees of
passenger automobiles (including electric automo-
biles) with tables detailing the limitations on depre-
ciation deductions for automobiles first placed in
service during calendar year 1998 and the amounts
to be included in income for automobiles first leased
during calendar year 1998. See Rev. Proc. 98–30,
page 6.
Section 1295.—Qualified
Electing Funds
Notice 98–22 announces that final regulations
under section 1295 will permit shareholders of pas-
sive foreign investment companies treated as quali-
fied electing funds to apply the rules of
§ 1.1295–1T(b)(4) (joint return elections), the rules
of § 1.1295–1T(f) and (g) (simplified filing and re-
porting procedures), or both sets of rules to a taxable
year beginning before January 1, 1998. See Notice
98–22, page 5.
Section 6302.—Mode or Time of
Collection
26 CFR 31.6302–1: Federal tax deposit rules for
withheld income taxes and taxes under the Federal
Insurance Contributions Act (FICA) attributable to
payments made after December 31, 1992.
Information is provided about the Electronic Fed-
eral Tax Payment System (EFTPS) programs for
Batch Filers and Bulk Filers (Filers). EFTPS is an
electronic remittance processing system for making
federal tax deposits (FTDs) and federal tax pay-
ments (FTPs). The Batch Filer and Bulk Filer pro-
grams are used by Filers for electronically submit-
ting enrollments, FTDs, and FTPs on behalf of
multiple taxpayers. See Rev. Proc. 98–32, page 11.
April 27, 199841998–17 I.R.B.
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

Application of Section 1.1295–
1T(b)(4), (f), and (g) to Taxable
Years Beginning Before
January 1, 1998
Notice 98–22
This notice provides guidance to direct
or indirect shareholders of passive foreign
investment companies (PFICs), as de-
fined in section 1297 of the Internal Rev-
enue Code, concerning the effective date
of § 1.1295–1T(b)(4), (f), and (g) of the
temporary regulations published in the
Federal Registeron January 2, 1998, as
T.D. 8750. As described below, final reg-
ulations under section 1295 will permit
shareholders of PFICs to apply the rules
of § 1.1295–1T(b)(4), the rules of
§ 1.1295–1T(f) and (g), or both sets of
rules to a taxable year beginning before
January 1, 1998, for which the period of
limitations has not run as of the date of
publication of this notice, provided that,
in the case of § 1.1295–1T(b)(4), the
shareholders consistently apply the rules
to all subsequent taxable years.
BACKGROUND
Section 1.1295–1T(b)(4) of the tempo-
rary regulations provides rules concern-
ing a section 1295 election made by a tax-
payer in a joint return under section 6013.
Section 1.1295–1T(f) and (g) provide
simplified rules concerning the manner of
making and maintaining a section 1295
election to treat a PFIC as a qualified
electing fund (QEF). Prior to the publica-
tion of § 1.1295–1T(f) and (g), Notice
88–125, 1988–2 C.B. 535, provided such
guidance. Under § 1.1295–1T(k),
§ 1.1295–1T(b)(4), (f), and (g) is effective
for taxable years of shareholders begin-
ning after December 31, 1997.
APPLICATION TO EARLIER
TAXABLE YEARS
Commenters have requested that
§ 1.1295–1T(b)(4) apply on an elective
basis to taxable years beginning before
January 1, 1998, to provide taxpayers cer-
tainty with respect to elections made on
joint returns for such years. Commenters
also requested that § 1.1295–1T(f) and (g)
apply on an elective basis to taxable years
beginning before January 1, 1998, to en-
able taxpayers to use the simplified re-
porting procedures for 1997. In response
to these comments, the final regulations
will permit taxpayers to apply the rules of
temporary regulations § 1.1295–1T(b)(4),
the rules of § 1.1295–1T(f) and (g), or
both sets of rules, to a taxable year begin-
ning before January 1, 1998, for which
the statute of limitations on the assess-
ment of tax has not expired as of the date
of publication of this notice. Taxpayers
that filed a joint return in which the sec-
tion 1295 election was made may only
apply the rules of §1.1295–1T(b)(4) if
they have consistently applied the rules of
that section to all taxable years following
the year in which the election was made
and for which the statute of limitations for
the assessment of tax is open. Subject to
this consistency requirement, the rule of
§1.1295–1T(b)(4) may be applied to any
open year even if the section 1295 elec-
tion was made in a year for which the
statute of limitations has expired. No ac-
tion other than treatment consistent with
an effective section 1295 election is nec-
essary for the section 1295 election to be
treated as made by both spouses.
PAPERWORK REDUCTION ACT
The collections of information require-
ments contained in the temporary regula-
tions to which this notice applies were re-
viewed and, pending receipt and
evaluation of public comments, approved
by the Office of Management and Budget
(OMB) in accordance with the Paperwork
Reduction Act (44 U.S.C. 3507) under
control number 1545-1555.
FOR FURTHER INFORMATION CON-
TACT Teresa Hughes at (202) 622-3840
(not a toll-free call).
Net Unrealized Appreciation in
Employer Securities
Notice 98–24
PURPOSE
This notice provides guidance concern-
ing the tax treatment of net unrealized ap-
preciation in employer securities distrib-
uted from a qualified retirement plan, to
the extent such appreciation is realized in
a subsequent taxable transaction. Specifi-
cally, this notice provides guidance re-
garding the holding period to be used for
determining the capital gains tax rate that
applies with regard to net unrealized ap-
preciation under § 1(h) of the Internal
Revenue Code (“Code”) as amended by
§ 311 of the Taxpayer Relief Act of 1997
(“TRA ’97”), Pub. L. 105–34. This guid-
ance applies to sales or other dispositions
of employer securities that occur before
the later of January 1, 2001, or the date
further guidance is issued.
BACKGROUND
Section 402(e)(4)(A) of the Code pro-
vides that in the case of a distribution
other than a lump sum distribution, the
amount actually distributed to a distribu-
tee from a trust described in § 401(a)
which is exempt from tax under § 501(a)
shall not include any net unrealized ap-
preciation in employer securities attribut-
able to amounts contributed by the em-
ployee.
Section 402(e)(4)(B) provides that in
the case of a lump sum distribution which
includes employer securities, there shall
be excluded from gross income the net
unrealized appreciation attributable to the
employer securities.
Section 402(e)(4)(C) provides that, for
purposes of § 402(e)(4)(A) and (B), net
unrealized appreciation and the resulting
adjustments to basis are determined in ac-
cordance with regulations.
Section 1.402(a)–1(b)(1)(i) of the In-
come Tax Regulations provides that the
amount of net unrealized appreciation
which is not included in the basis of the
securities in the hands of the distributee at
the time of distribution is considered a
gain from the sale or exchange of a capital
asset held for more than six months to the
extent such appreciation is realized in a
subsequent taxable transaction. Net gain
realized by the distributee in a subsequent
taxable transaction that exceeds the
amount of the net unrealized appreciation
at the time of distribution shall constitute
a long-term or short-term capital gain, de-
pending on the holding period of the secu-
rities in the hands of the distributee. In
1998–17 I.R.B.5April 27, 1998
Part III. Administrative, Procedural, and Miscellaneous

1956, when this regulation was issued, the
long-term capital gains tax rate applied to
the sale or exchange of a capital asset held
for more than six months.
Rev. Rul. 81–122, 1981–1 C.B. 202,
states that the amount of net unrealized
appreciation that is not included in the
basis of the securities in the hands of a
distributee at the time of distribution is
considered a gain from the sale or ex-
change of a capital asset held for more
than one year to the extent it is realized in
a subsequent transaction. When this rev-
enue ruling was published, the long-term
capital gains tax rate applied to the sale or
exchange of a capital asset held for more
than one year.
Section 311 of TRA ’97 reduces the
capital gains tax rate on the sale or ex-
change of certain assets held for more
than 18 months from 28 percent to 20 per-
cent (10 percent in the case of gain that
would otherwise be taxed at 15 percent),
effective generally for amounts properly
taken into account after May 6, 1997. See
Notice 97–59, 1997–45 I.R.B. 7. The 28-
percent maximum capital gains tax rate
continues to apply to the sale or exchange
of assets held for 18 months or less but
more than one year.
CAPITAL GAINS RATE APPLICABLE
TO NET UNREALIZED
APPRECIATION
Under this notice, the amount of net
unrealized appreciation which is not in-
cluded in the basis of the securities in the
hands of the distributee at the time of dis-
tribution is considered a gain from the
sale or exchange of a capital asset held for
more than 18 months to the extent that
such appreciation is realized in a subse-
quent taxable transaction. Accordingly,
for a sale or other disposition of employer
securities that occurs after May 6, 1997,
the actual period that an employer secu-
rity was held by a qualified plan need not
be calculated in order to determine
whether, with respect to the net unrealized
appreciation, the disposition qualifies for
the rate for capital assets held for more
than 18 months. However, with respect to
any further appreciation in the employer
securities after distribution from the plan,
the actual holding period in the hands of
the distributee determines the capital
gains rate that applies.
The guidance provided in this notice
applies to sales or other dispositions of
employer securities that occur before the
later of January 1, 2001, or the date fur-
ther guidance is issued. This guidance is
for purposes of the Code and regulation
sections cited above. No inference is in-
tended with regard to any other section of
the Code or regulations that deals with
capital gains treatment.
COMMENTS
Beginning in 2001, § 311 of TRA ’97
reduces the capital gains tax rates for gain
from certain assets that are held for more
than 5 years (“qualified 5-year gain”).
The 10-percent rate is reduced to 8 per-
cent for taxable years beginning after De-
cember 31, 2000. The 20-percent rate is
reduced to 18 percent for property the
holding period for which begins after De-
cember 31, 2000.
The Service invites comments with re-
spect to the computation of the holding
period for purposes of the reduced capital
gains tax rates for qualified 5-year gain as
these rates apply to net unrealized appre-
ciation (for example, whether to use an
actual holding period, a deemed holding
period, or a combination). Comments
should be submitted by October 24, 1998.
Comments can be addressed to
CC:DOM:CORP:R (Notice 98–24), room
5228, Internal Revenue Service, POB
7604, Ben Franklin Station, Washington,
DC 20044. In the alternative, comments
may be hand delivered between the hours
of 8 a.m. and 5 p.m. to CC:DOM:CORP:
R (Notice 98–24), Courier’s Desk, Inter-
nal Revenue Service, 1111 Constitution
Avenue, NW, Washington, DC. Alterna-
tively, taxpayers may transmit comments
electronically via the IRS Internet site at
http://www.irs.ustreas.gov/prod/tax_regs/
comments.html.
DRAFTING INFORMATION
The principal author of this notice is
Steven Linder of the Employee Plans Divi-
sion. For further information regarding this
notice, please contact the Employee Plans
Division’s taxpayer assistance telephone
service at (202) 622-6074 or (202) 622-
6075, between the hours of 1:30 p.m. and
3:30 p.m. Eastern time, Monday through
Thursday, or Mr. Linder at (202) 622-
6214. These are not toll-free numbers.
26 CFR 601.105: Examination of returns and
claims for refund, credit, or abatement;
determination of correct tax liability.
(Also Part I, § 280F; 1.280F–7, 1.61–21.)
Rev. Proc. 98–30
SECTION 1. PURPOSE
This revenue procedure provides: (1)
limitations on depreciation deductions for
owners of passenger automobiles first
placed in service during calendar year
1998, including separate limitations on
passenger automobiles designed to be
propelled primarily by electricity and
built by an original equipment manufac-
turer (electric automobiles); (2) the
amounts to be included in income by
lessees of passenger automobiles first
leased during calendar year 1998, includ-
ing separate inclusion amounts for elec-
tric automobiles; and (3) the maximum
allowable value of employer-provided au-
tomobiles first made available to employ-
ees for personal use in calendar year 1998
for which the vehicle cents-per-mile valu-
ation rule provided under § 1.61–21(e) of
the Income Tax Regulations may be ap-
plicable. The tables detailing these depre-
ciation limitations and lessee inclusion
amounts reflect the automobile price
inflation adjustments required by
§ 280F(d)(7) of the Internal Revenue
Code. The maximum allowable automo-
bile value for applying the vehicle cents-
per-mile valuation rule reflects the auto-
mobile price inflation adjustment of
§ 280F(d)(7) as required by § 1.61–21(e)-
(1)(iii)(A).
SECTION 2. BACKGROUND
For owners of automobiles, § 280F(a)
imposes dollar limitations on the depreci-
ation deduction for the year that the auto-
mobile is placed in service and each suc-
ceeding year. In the case of electric
automobiles placed in service after Au-
gust 5, 1997, and before January 1, 2005,
§ 280F(a)(1)(C) requires tripling of these
limitation amounts. Section 280F(d)(7)
requires the amounts allowable as depre-
ciation deductions to be increased by a
price inflation adjustment amount for pas-
senger automobiles placed in service after
calendar year 1988.
For leased automobiles, § 280F(c) re-
quires a reduction in the deduction al-
lowed to the lessee of the automobile.
April 27, 199861998–17 I.R.B.

The reduction must be substantially
equivalent to the limitations on the depre-
ciation deductions imposed on owners of
automobiles. Under § 1.280F–7(a), this
reduction requires the lessees to include
in gross income an inclusion amount de-
termined by applying a formula to the
amount obtained from a table. There is a
table for lessees of electric automobiles
and a table for all other passenger auto-
mobiles. Each table shows inclusion
amounts for a range of fair market values
for each tax year after the automobile is
first leased.
For automobiles first provided by em-
ployers to employees that meet the re-
quirements of § 1.61–21(e)(1), the value
to the employee of the use of the automo-
bile may be determined under the vehicle
cents-per-mile valuation rule of § 1.61–
21(e). Section 1.61-21(e)(1)(iii)(A) pro-
vides that for an automobile first made
available after 1988 to any employee of
the employer for personal use, the value
of the use of the automobile may not be
determined under the vehicle cents-per-
mile valuation rule for a calendar year if
the fair market value of the automobile
(determined pursuant to § 1.61–21(d)-
(5)(i) through (iv)) on the first date the au-
tomobile is made available to the em-
ployee exceeds $12,800 as adjusted by
§ 280F(d)(7).
SECTION 3. SCOPE AND OBJECTIVE
01. The limitations on depreciation de-
ductions in section 4.02 of this revenue
procedure apply to automobiles (other
than leased automobiles) that are placed
in service in calendar year 1998 and con-
tinue to apply for each tax year that the
automobile remains in service.
02. The tables in section 4.03 of this
revenue procedure apply to leased auto-
mobiles for which the lease term begins in
calendar year 1998. Lessees of such auto-
mobiles must use these tables to deter-
mine the inclusion amount for each tax
year during which the automobile is
leased.
03. SeeRev. Proc. 96–25, 1996–1 C.B.
681, for information on determining in-
clusion amounts for automobiles first
leased before January 1, 1997; Rev. Proc.
97–20, 1997–11 I.R.B. 10, for automo-
biles first leased during calendar year
1997, including electric automobiles first
leased on or after January 1, 1997, and be-
fore August 6, 1997; and Rev. Proc.
98–24, 1998-10 I.R.B. 31, for electric au-
tomobiles first leased after August 5,
1997, and before January 1, 1998.
04. The maximum fair market value
figure in section 4.04(2) of this revenue
procedure applies to employer-provided
automobiles first made available to any
employee for personal use in calendar
year 1998. SeeRev. Proc. 97–20, for the
maximum fair market value figure for au-
tomobiles first made available in calendar
year 1997.
SECTION 4. APPLICATION
01. A taxpayer placing an automobile
in service for the first time during calen-
dar year 1998 is limited to the deprecia-
tion deduction shown in Table 1 of sec-
tion 4.02(2) or, in the case of an electric
automobile, Table 2. A taxpayer first
leasing an automobile in calendar year
1998 must determine the inclusion
amount that is added to gross income
using Table 3 of section 4.03 or, in the
case of an electric automobile, Table 4.
Otherwise, the procedures of § 1.280F–
7(a) must be followed. An employer pro-
viding an automobile for the first time in
calendar year 1998 for the personal use of
any employee may determine the value of
the use of the automobile by using the
cents-per-mile valuation rule in § 1.61–
21(e) if the fair market value of the auto-
mobile does not exceed the amount speci-
fied in section 4.04(2). If the fair market
value of the automobile exceeds the
amount specified in section 4.04(2), the
employer may determine the value of the
use of the automobile under the general
valuation rules of § 1.61–21(b) or under
the special valuation rules of § 1.61–21(d)
(Automobile lease valuation) or § 1.61–
21(f) (Commuting valuation) if the ap-
plicable requirements are met.
02. Limitations on Depreciation De-
ductions for Certain Automobiles.
(1) Amount of the Inflation Adjust-
ment. Under § 280F(d)(7)(B)(i), the auto-
mobile price inflation adjustment for any
calendar year is the percentage (if any) by
which the CPI automobile component for
October of the preceding calendar year
exceeds the CPI automobile component
for October 1987. The term “CPI auto-
mobile component” is defined in
§ 280F(d)(7)(B)(ii) as the “automobile
component” of the Consumer Price Index
for all Urban Consumers published by the
Department of Labor (the CPI). The new
car component of the CPI was 115.2 for
October 1987 and 140.6 for October
1997. The October 1997 index exceeded
the October 1987 index by 25.4. The In-
ternal Revenue Service has, therefore, de-
termined that the automobile price infla-
tion adjustment for 1998 is 22.05 percent
(25.4/115.2 3100%). This adjustment is
applicable to all automobiles that are first
placed in service in calendar year 1998.
The dollar limitations in § 280F(a) must
therefore be multiplied by a factor of
0.2205, and the resulting increases, after
rounding to the nearest $100, are added to
the 1988 limitations to give the deprecia-
tion limitations applicable to passenger
automobiles (other than electric automo-
biles) for 1998. To determine the dollar
limitations applicable to an electric auto-
mobile first placed in service during cal-
endar year 1998, the dollar limitations in
§ 280F(a) are tripled in accordance with
§ 280F(a)(1)(C) and are then multiplied
by a factor of 0.2205; the resulting in-
creases, after rounding to the nearest
$100, are added to the tripled 1988 limita-
tions to give the depreciation limitations
for 1998.
(2) Amount of the Limitation.For
automobiles (other than electric automo-
biles) placed in service in calendar year
1998, Table 1 contains the dollar amount
of the depreciation limitations for each
tax year. For electric automobiles placed
in service in calendar year 1998, Table 2
contains these amounts.
1998–17 I.R.B.7April 27, 1998
REV. PROC. 98–30 TABLE 1
DEPRECIATION LIMITATIONS
FOR AUTOMOBILES (OTHER
THAN ELECTRIC AUTOMO-
BILES) FIRST PLACED IN SER-
VICE IN CALENDAR YEAR 1998
Tax Year Amount
1st Tax Year $3,160
2nd Tax Year $5,000
3rd Tax Year $2,950
Each Succeeding Year$1,775

REV. PROC. 98–30 TABLE 3
DOLLAR AMOUNTS FOR AUTOMOBILES (OTHER THAN ELECTRIC AUTOMOBILES)
WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 1998
Fair Market Value of AutomobileTax Year During Lease
OverNot Over1st2nd3rd4th5th and Later
$ 15,80016,1001581214
16,10016,400410162225
16,40016,700615253136
16,70017,000920334147
17,00017,5001228435362
17,50018,0001637567080
18,00018,5002046708599
18,50019,000245583101117
19,00019,500286496117136
19,50020,0003273110133154
20,00020,5003682123149173
20,50021,000409136165191
21,00021,5004599150181209
21,50022,00049108163197228
22,00023,000 55122183221255
23,00024,00063140210252292
24,00025,00071158236 285329
25,00026,00079176 263316366
26,00027,00088193290348403
27,00028,00096211317380439
28,00029,000104 229343412477
29,00030,000112247370444513
30,00031,000120265396476550
31,00032,000128283423508587
32,000 33,000137 301449540624
33,00034,000145319476571661
34,000 35,000153337502604697
35,000 36,000161355529635 735
36,00037,000169 373556667771
37,00038,000178391582699808
38,00039,000186409608731845
39,00040,000194427635763882
03. Inclusions in Income of Lessees of
Automobiles.
The inclusion amounts for automobiles
first leased in calendar year 1998 are cal-
culated under the procedures described in
§ 1.280F-7(a). Lessees of automobiles
other than electric automobiles should use
Table 3 in applying these procedures,
while lessees of electric automobiles
should use Table 4.
April 27, 199881998–17 I.R.B.
REV. PROC. 98–30 TABLE 2
DEPRECIATION LIMITATIONS FOR ELECTRIC AUTOMOBILES
FIRST PLACED IN SERVICE IN CALENDAR YEAR 1998
Tax Year Amount
1st Tax Year $9,380
2nd Tax Year $15,000
3rd Tax Year $8,950
Each Succeeding Year$5,425

1998–17 I.R.B.9April 27, 1998
REV. PROC. 98–30 TABLE 3—Continued
DOLLAR AMOUNTS FOR AUTOMOBILES (OTHER THAN ELECTRIC AUTOMOBILES)
WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 1998
Fair Market Value of AutomobileTax Year During Lease
OverNot Over1st2nd3rd4th5th and Later
40,00041,000202445662794919
41,00042,000 210463688827955
42,00043,000218481715859992
43,00044,0002274987428911,028
44,00045,0002355167699221,066
45,00046,0002435347959551,102
46,00047,0002515528229861,140
47,00048,0002595708491,0181,176
48,00049,000268588875 1,0501,213
49,00050,0002766069011,0821,250
50,00051,0002846249281,1141,286
51,000 52,0002926429551,1451,324
52,00053,0003006609811,1781,360
53,00054,0003086781,0081,2091,398
54,00055,0003176951,0351,2411,434
55,00056,0003257131,0621,2731,471
56,000 57,0003337321,0871,3051,508
57,00058,0003417501,1141,3371,544
58,00059,0003497681,1401,3691,582
59,00060,0003587851,1681,4001,619
60,000 62,0003708121,2071,4491,674
62,00064,0003868481,2611,5121,747
64,00066,0004038841,3131,5771,821
66,00068,0004199201,3671,6401,894
68,00070,0004359561,4201,7041,968
70,00072,0004529911,4741,7672,042
72,00074,0004681,0271,5271,8322,115
74,00076,0004841,0631,5801,8962,189
76,000 78,0005011,0991,6331,9592,263
78,000 80,0005171,1351,6862,0232,337
80,00085,000 5461,1981,7792,1342,466
85,00090,000 5871,2871,9132,2942,649
90,00095,0006271,3772,0462,4532,834
95,000100,0006681,4672,1782,6133,018
100,000110,0007301,6012,3782,8523,294
110,000120,0008121,7802,6443,1723,662
120,000130,0008931,9602,9103,4904,031
130,000140,0009752,1393,1763,8104,398
140,000150,0001,0572,3183,4434,1284,767
150,000160,0001,1392,4983,7084,4475,135
160,000170,0001,2212,6773,9744,7665,504
170,000 180,0001,3022,8574,2405,0855,872
180,000 190,0001,3843,0364,5065,4046,241
190,000 200,0001,4663,2154,7725,7246,608
200,000 210,000 1,5483,3945,0396,0426,977
210,000 220,0001,6303,5745,3046,3617,345
220,000 230,000 1,7123,7535,5706,6807,714
230,000 240,0001,7933,9325,8376,9998,082
240,000 250,0001,8754,1126,1027,3188,450

April 27, 1998101998–17 I.R.B.
REV. PROC. 98–30 TABLE 4
DOLLAR AMOUNTS FOR ELECTRIC AUTOMOBILES
WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 1998
Fair Market Value of AutomobileTax Year During Lease
OverNot Over1st2nd3rd4th5th and Later
$ 47,00048,000511182123
48,00049,000 1329455260
49,00050,000 2147718596
50,00051,000 296598116134
51,00052,000 3883124148171
52,00053,000 46101151180207
53,00054,000 54119177212244
54,00055,000 62137204244281
55,00056,000 70155231275318
56,00057,000 79172258307355
57,00058,000 87190284340391
58,00059,000 95208311372428
59,00060,000 103226338403465
60,00062,000 115253378451520
62,00064,000 132289430515594
64,00066,000 148325484578668
66,00068,000 164361537643741
68,00070,000 181396591706815
70,00072,000 197432644770888
72,000 74,000 214468697834962
74,00076,000 230504750898 1,035
76,00078,000 246540803962 1,109
78,00080,000 263576856 1,025 1,183
80,00085,000 291639949 1,137 1,312
85,00090,000 332728 1,083 1,296 1,496
90,000 95,000 373818 1,215 1,456 1,681
95,000 100,000 414908 1,348 1,615 1,865
100,000 110,000 475 1,042 1,548 1,855 2,141
110,000 120,000 557 1,221 1,814 2,174 2,509
120,000 130,000 639 1,401 2,080 2,492 2,878
130,000 140,000 721 1,580 2,346 2,812 3,245
140,000 150,000 803 1,759 2,612 3,131 3,614
150,000 160,000 884 1,939 2,878 3,450 3,982
160,000 170,000 966 2,118 3,144 3,769 4,350
170,000 180,000 1,048 2,297 3,410 4,088 4,719
180,000 190,000 1,1302,4773,6764,4065,087
190,000 200,000 1,2122,6563,9424,7265,455
200,000 210,000 1,2932,8354,2095,0445,824
210,000 220,000 1,3753,0154,4745,3646,191
220,000 230,000 1,4573,1944,7405,6836,560
230,000 240,000 1,5393,3735,0066,0026,928
240,000 250,000 1,6213,5525,2736,3207,297

04. Maximum Automobile Value for
Using the Cents-per-mile Valuation Rule.
(1) Amount of Adjustment.Under
§ 1.61–21(e)(1)(iii)(A), the limitation on
the fair market value of an employer-pro-
vided automobile first made available to
any employee for personal use after 1988
is to be adjusted in accordance with
§ 280F(d)(7). Accordingly, the adjust-
ment for any calendar year is the percent-
age (if any) by which the CPI automobile
component for October of the preceding
calendar year exceeds the CPI automobile
component for October 1987 (See,section
4.02(1).) The new car component of the
CPI was 115.2 for October 1987 and
140.6 for October 1997. The October
1997 index exceeded the October 1987
index by 25.4. The Internal Revenue Ser-
vice has, therefore, determined that the
adjustment for 1998 is 22.05 percent
(25.4/115.2 3100%). This adjustment is
applicable to all employer-provided auto-
mobiles first made available to any em-
ployee for personal use in calendar year
1998. The maximum fair market value
specified in § 1.61–21(e)(1)(iii)(A) must
therefore be multiplied by a factor of
0.2205, and the resulting increase, after
rounding to the nearest $100, is added to
$12,800 to give the maximum value for
1998.
(2) The Maximum Automobile Value.
For automobiles first made available in
calendar year 1998 to any employee of
the employer for personal use, the vehicle
cents-per-mile valuation rule may be ap-
plicable if the fair market value of the au-
tomobile on the date it is first made avail-
able does not exceed $15,600.
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective for
automobiles (other than leased automo-
biles) that are first placed in service dur-
ing calendar year 1998, to leased automo-
biles that are first leased during calendar
year 1998, and to employer-provided au-
tomobiles first made available to employ-
ees for personal use in calendar year
1998.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Bernard P. Harvey of the Of-
fice of the Assistant Chief Counsel
(Passthroughs and Special Industries).
For further information regarding the de-
preciation limitations and lessee inclusion
amounts in this revenue procedure, con-
tact Mr. Harvey at (202) 622-3110; for
further information regarding the maxi-
mum automobile value for applying the
vehicle cents-per-mile valuation rule,
contact Ms. Janine Cook of the Office of
the Associate Chief Counsel (Employee
Benefits and Exempt Organizations) at
(202) 622-6040 (not toll-free calls).
26 CFR 601.602: Tax forms and instructions.
(Also Part I, §§ 6302; 31.6302–1)
Rev. Proc. 98–32
Table of Contents
SECTION 1.PURPOSE
SECTION 2.BACKGROUND
SECTION 3.DEFINITIONS
SECTION 4.OVERVIEW
SECTION 5.REGISTRATION
SECTION 6.ASSIGNMENT TO A FI-
NANCIAL AGENT
SECTION 7.AUTHORIZATIONS
SECTION 8. ENROLLMENT
SECTION 9.ACH DEBIT ENTRY
SECTION 10. ACH CREDIT ENTRY
SECTION 11. ELECTRONIC TAX AP-
PLICATION TRANSAC-
TION
SECTION 12. PROOF OF PAYMENT
SECTION 13. REFUNDS
SECTION 14.DISASTER PROCE-
DURES
SECTION 15. RESPONSIBILITIES OF
A FILER
SECTION 16. ADVERTISING STAN-
DARDS
SECTION 17. REASONS FOR SUS-
PENSION
SECTION 18. ADMINISTRATIVE RE-
VIEW PROCESS FOR
PROPOSED SUSPEN-
SION
SECTION 19. EFFECT OF SUSPEN-
SION
SECTION 20. APPEAL OF SUSPEN-
SION
SECTION 21. PENALTIES
SECTION 22.FORMS, PUBLICA-
TIONS, IMPLEMENTA-
TION GUIDES, AND
ADDITIONAL INFOR-
MATION
SECTION 23. EFFECT ON OTHER
DOCUMENTS
SECTION 24. EFFECTIVE DATE
SECTION 25. PAPERWORK REDUC-
TION ACT
SECTION 1. PURPOSE
This revenue procedure provides infor-
mation about the Electronic Federal Tax
Payment System (EFTPS) programs for
Batch Filers and Bulk Filers (Filers).
EFTPS is an electronic remittance pro-
cessing system for making federal tax de-
posits (FTDs) and federal tax payments
(FTPs). The Batch Filer and Bulk Filer
programs are used by Filers for electroni-
cally submitting enrollments, FTDs, and
FTPs on behalf of multiple taxpayers.
SECTION 2. BACKGROUND
.01 Section 6302(c) of the Internal
Revenue Code provides that the Secretary
of the Treasury (Secretary) may authorize
Federal Reserve banks, and incorporated
banks and other financial institutions that
are depositories or financial agents of the
United States, to receive any tax imposed
under the internal revenue laws, in such
manner, at such times, and under such
conditions as the Secretary may prescribe.
Section 6302(c) also provides that the
Secretary shall prescribe the manner,
times, and conditions under which the re-
ceipt of such tax by such banks and other
financial institutions is to be treated as a
payment of such tax to the Secretary.
.02 Section 6302(h) requires the Secre-
tary to establish an electronic funds trans-
fer (EFT) system to collect depositary
taxes (FTDs). EFTPS is the EFT system
developed by the Secretary to collect fed-
eral taxes (FTDs and FTPs). See
§ 31.6302–1(h)(4)(i) of the Employment
Tax and Collection of Income Tax at
Source Regulations, and Rev. Proc. 97–
33, 1997–30 I.R.B. 10.
.03 Some taxpayers are required by the
regulations issued under § 6302(h)
to make FTDs using EFTPS. See
§ 31.6302–1(h)(2)(i)(A). Taxpayers not
required to make FTDs using EFTPS may
choose to do so voluntarily. Taxpayers
also may choose to make FTPs using
EFTPS.
.04 All Filers using the Batch Filer or
Bulk Filer programs must comply with
this revenue procedure, and with the Im-
plementation Guide for EFTPS Batch Fil-
ers, or the Implementation Guide for
1998–17 I.R.B.11April 27, 1998

EFTPS Bulk Filers, whichever is applica-
ble.
.05 The two primary remittance meth-
ods in EFTPS are an Automated Clearing
House (ACH) debit entry and an ACH
credit entry. Filers may also use an Elec-
tronic Tax Application (ETA) transaction.
These remittance methods are defined in
section 3 and described in sections 9, 10,
and 11 of this revenue procedure.
.06 Filers participating in EFTPS must
ensure that taxpayers’ funds are remitted
on a timely basis. See § 31.6302–1(h)(8)
for rules regarding when an FTD remitted
by EFTPS is deemed made. For FTDs
and FTPs remitted by EFTPS, see
§ 31.6302–1(h)(9) for rules regarding
when the tax is deemed paid.
.07 If a taxpayer is required by regula-
tions to make an FTD by EFTPS, a Filer
may not use a paper FTD coupon (Form
8109, Federal Tax Deposit Coupon) or the
magnetic tape FTD program (described in
Rev. Proc. 89–48, 1989–2 C.B. 599) to
make an FTD for the taxpayer. If a tax-
payer is a voluntary participant in EFTPS
(that is, a participant not required by regu-
lations to make an FTD by EFTPS) and
the Filer is unable, for any reason, to
make an FTD using EFTPS or chooses
not to use EFTPS to make an FTD, the
Filer may make a timely FTD for the tax-
payer by using a paper FTD coupon, or
the magnetic tape FTD program if autho-
rized by the taxpayer.
.08 EFTPS does not change the compu-
tation of tax liability, interest or penalties,
or FTD or FTP due dates.
SECTION 3. DEFINITIONS
.01 The definitions provided in this sec-
tion will be used for the Batch Filer and
Bulk Filer programs.
.02 Administrative FRB Head Office
Local Zone Time. “Administrative FRB
Head Office Local Zone Time” is the
local zone time of the Administrative Fed-
eral Reserve Bank head office through
which a financial institution, or its autho-
rized correspondent bank, sends a Same-
Day Payment.
.03 Authorization.An “Authorization”
is an instrument used by a taxpayer to
designate a Filer as the taxpayer’s agent
for submitting enrollments and for mak-
ing FTDs or FTPs.
.04 Automated Clearing House(ACH).
“Automated Clearing House” is a funds
transfer system, governed by the ACH
Rules (the Operating Rules and the Oper-
ating Guidelines published by National
Automated Clearing House Association
(NACHA)) that provides for the interbank
clearing of electronic entries for partici-
pating financial institutions.
.05 ACH credit entry.An “ACH credit
entry” is a transaction in which a financial
institution, upon instructions from a Filer,
originates an FTD or FTP to the appropri-
ate Treasury Department account through
the ACH system. An ACH credit entry is
a transfer of funds representing one FTD
or FTP. There are no “bulk” ACH credit
entries. See section 10 of this revenue
procedure for information on an ACH
credit entry.
.06 ACH debit entry.An “ACH debit
entry” is a transaction in which one of the
Financial Agents, upon instructions from
a Filer, instructs the Filer’s or the tax-
payer’s financial institution to withdraw
funds from a designated account for an
FTD or FTP and to route the FTD or FTP
to the appropriate Treasury Department
account through the ACH system. A sin-
gle ACH debit entry is a transfer of funds
representing one FTD or FTP. A bulk
ACH debit entry (a remittance method
available only in the Bulk Filer program)
is a transfer of funds representing multi-
ple FTDs or FTPs. See section 9 of this
revenue procedure for information on an
ACH debit entry.
.07 Batch Filer.A Batch Filer is a Filer
that is registered under the Batch Filer
program. A Batch Filer submits multiple
electronic enrollment files at one time and
uses a personal computer or telephone for
making FTDs or FTPs.
.08 Bulk Filer.A Bulk Filer is a Filer
that is registered under the Bulk Filer pro-
gram. A Bulk Filer uses Electronic Data
Interchange (EDI) files to transmit and re-
ceive enrollment or payment information.
A Bulk Filer also has additional remit-
tance methods (bulk ACH debit entries
and bulk ETA entries).
.09 Electronic tax application (ETA)
transaction. An “ETA transaction” (also
referred to as “Same-Day Payment”) is a
transfer of funds through the ETA subsys-
tem of EFTPS that receives, processes,
and transmits an FTD or FTP and the re-
lated tax payment information for Same-
Day Payments through Fedwire value
transfers, Fedwire non-value transactions,
and Direct Access transactions. A single
ETA transaction is a transfer of funds rep-
resenting one FTD or FTP. A bulk ETA
transaction (a remittance method avail-
able only in the Bulk Filer program) is a
transfer of funds representing multiple
FTDs or FTPs. See section 11 of this rev-
enue procedure for information on an
ETA transaction.
.10 Employer identification number
(EIN). An “EIN” is a unique nine digit
taxpayer identifying number issued by the
Internal Revenue Service to business tax-
payers for the purpose of reporting tax re-
lated information.
.11 Federal Reserve Bank(FRB). The
“FRB” is the U.S. Government’s fiscal
agent. The FRB also processes ACH
transactions to a commercial financial in-
stitution account or to a Treasury Depart-
ment account.
.12 Filer.A “Filer” is a person making
FTDs or FTPs on behalf of multiple tax-
payers in the Batch Filer or Bulk Filer
program. Each Filer must be either the
taxpayer or a person authorized to act on
behalf of the taxpayer.
.13 Financial Agent.For purposes of
EFTPS, a “Financial Agent” (also re-
ferred to as a “Treasury Financial Agent”)
is a financial institution that is designated
as an agent of the Treasury Department.
The Secretary has designated Nations-
Bank and First National Bank of Chicago
(First Chicago) to be the Financial Agents
for EFTPS. A Financial Agent processes
Batch Filer and Bulk Filer registrations,
processes taxpayer enrollments, receives
payment information, originates ACH
debit entries upon instructions from tax-
payers or Filers, and provides customer
service assistance for EFTPS enrollment
and payment information.
.14 IRS individual taxpayer identifica-
tion number(ITIN). An “ITIN” is a tax-
payer identifying number issued by the
Service to an alien individual who is inel-
igible to receive a social security number
(SSN) for the purpose of reporting tax re-
lated information.
.15 Prenotification ACH credit. “Pre-
notification ACH credit” is a process
whereby a financial institution verifies the
appropriate Treasury Routing Transit
Number (RTN), the Treasury Depart-
ment’s account number, and the tax-
payer’s taxpayer identification number
(TIN).
April 27, 1998121998–17 I.R.B.

.16 Prenotification ACH debit. “Preno-
tification ACH debit” is a process
whereby the appropriate Financial Agent
verifies the RTN of the financial institu-
tion, the account number, and the account
type.
.17 Social security number(SSN). An
“SSN” is a taxpayer identifying number
assigned to an individual or estate by the
Social Security Administration.
.18 Taxpayer identification number
(TIN). A “TIN” is a taxpayer identifying
number assigned to a taxpayer for the pur-
pose of reporting tax related information.
A TIN includes an EIN, ITIN, or SSN.
SECTION 4. OVERVIEW
Filers must follow the following proce-
dures to participate in the Batch Filer or
Bulk Filer programs:
(1) register as a Filer with the appropri-
ate Financial Agent (see sections 5 and 6
of this revenue procedure);
(2) obtain an Authorization from each
taxpayer for which the Filer will be sub-
mitting enrollments and making FTDs or
FTPs, and submit these Authorizations to
the Service (see section 7 of this revenue
procedure); and
(3) enroll each of those taxpayers with
the appropriate Financial Agent (see sec-
tion 8 of this revenue procedure).
SECTION 5. REGISTRATION
.01 A Filer may register for the Batch
Filer or Bulk Filer program if the Filer an-
ticipates making FTDs or FTPs for multi-
ple taxpayers.
.02 The Batch Filer program is recom-
mended for Filers who anticipate submit-
ting 50 or more enrollments. Additional
information for Batch Filers is furnished
in the Implementation Guide for EFTPS
Batch Filers. A copy of this implementa-
tion guide may be obtained from EFTPS
Customer Service (see section 22 of this
revenue procedure).
.03 The Bulk Filer program is recom-
mended for Filers who anticipate making
750 or more FTDs or FTPs on a peak day.
Additional information for Bulk Filers is
furnished in the Implementation Guide
for EFTPS Bulk Filers. A copy of this im-
plementation guide may be obtained from
EFTPS Customer Service (see section 22
of this revenue procedure).
.04 A Filer wanting to participate in ei-
ther the Batch Filer or Bulk Filer program
must submit the appropriate registration
letter (also referred to as an “Agree-
ment”). Some Bulk Filers may wish to
use the Batch Filer program as a backup.
To participate in both programs, a Filer
must submit a Batch Filer registration let-
ter and a Bulk Filer registration letter.
Blank registration letter(s) may be ob-
tained by contacting the appropriate Fi-
nancial Agent (listed in section 6 of this
revenue procedure).
.05 A Filer must submit the registration
letter to the address designated in the in-
structions accompanying the registration
letter.
.06 If an unregistered entity acquires a
registered Filer, a new registration letter
must be submitted by the unregistered en-
tity if it wants to participate in either the
Batch Filer or Bulk Filer program.
.07 A Filer should notify the appropri-
ate Financial Agent if the Filer chooses to
withdraw from either the Batch Filer or
Bulk Filer program. A Filer that is inac-
tive in the Batch Filer or Bulk Filer pro-
gram (that is, the Filer has submitted no
enrollments, FTDs, or FTPs in that pro-
gram) for 6 months or more is treated as
having withdrawn from that program. If
a Bulk Filer uses the Batch Filer program
as a backup, the Filer must submit an
FTD or FTP through the Batch Filer pro-
gram at least once every six months to
prevent the Filer from being treated as
having withdrawn from the Batch Filer
program. If a Filer withdraws (or is
treated as having withdrawn) from a pro-
gram, the Filer must reregister to partici-
pate in that program.
SECTION 6. ASSIGNMENT TO A
FINANCIAL AGENT
.01 A Filer’s assignment to a Financial
Agent is based on the location of the
Filer’s principal place of business. Each
Financial Agent has responsibility for
certain geographic locations as listed
below:
1998–17 I.R.B.13April 27, 1998
NationsBank (800) 555-4477
Alabama
American Samoa
Arizona
Arkansas
California (Los Angeles,
Orange, San Bernardino, Riverside, San Diego, and
Imperial counties only)
Commonwealth of the Northern Mariana Islands
Commonwealth of Puerto Rico
Delaware
District of Columbia
Florida
Georgia
Guam
Kentucky
Louisiana
Maryland
Mississippi
Nevada
New Mexico
First Chicago (800) 945-0966
Alaska
California (except Los Angeles, Orange, San Bernardino,
Riverside, San Diego, and Imperial counties)
Colorado
Connecticut
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Maine
Massachusetts
Michigan
Minnesota
Missouri
Montana
Nebraska
New Hampshire
New Jersey

.02 If a Filer wants to use the other Fi-
nancial Agent, the Filer must submit a
written request detailing the reasons for
the request and providing the name and
telephone number of a contact person.
This request may be submitted to:
FTD & Electronic Payments Section,
T:S:C:F
Internal Revenue Service
5000 Ellin Rd
Lanham, MD 20706
or faxed to FTD & Electronic Payments
Section at (202) 283-7434 (not a toll-free
number).
.03 A Filer, registered with a Financial
Agent on April 27, 1998, may continue
using the services of that Financial Agent,
regardless of the geographic assignments
in section 6.01 of this revenue procedure.
SECTION 7. AUTHORIZATIONS
.01 If a Filer is not the taxpayer, the
Filer must submit a taxpayer’s Authoriza-
tion to the Service before submitting the
taxpayer’s enrollment to the Financial
Agent.
.02 Except as provided under the
grandfather rule in section 24.02 of this
revenue procedure, an Authorization must
be submitted on Form 8655, Reporting
Agent Authorization for Magnetic
Tape/Electronic Filers, or any other in-
strument that complies with Rev. Proc.
96–17, 1996–1 C.B. 633, as modified by
Rev. Proc. 97–47, 1997–42 I.R.B. 19.
.03 A Filer that acquires all or some of
the clients of another Filer must obtain
new Authorizations from those clients and
submit the new Authorizations to the Ser-
vice before making FTDs and FTPs on
behalf of those clients.
.04 An Authorization permits a Filer to
submit enrollments and to make FTDs or
FTPs on behalf of a taxpayer. An Autho-
rization may also permit the Filer to re-
ceive certain tax information on behalf of
the taxpayer. Although EFTPS is de-
signed for the payment of various types of
tax, the Authorization may limit the types
of tax information the Filer is permitted to
receive. For example, a Filer may make
FTDs and FTPs on behalf of the taxpayer,
but may be authorized to receive only no-
tices regarding FTDs for Form 941, Em-
ployer’s Quarterly Federal Tax Return,
and Form 940, Employer’s Annual Fed-
eral Unemployment (FUTA) Tax Return.
.05 Except as provided in section 7.07
of this revenue procedure, a Filer submit-
ting Authorizations to the Service for the
Batch Filer and Bulk Filer programs on or
after April 27, 1998, must include a list of
all taxpayers for whom the Filer is sub-
mitting Authorizations. The list must in-
clude each taxpayer’s complete name (for
example, business name on file with Ser-
vice), address (including zip code), and
TIN. EINs, SSNs, and ITINs should each
be grouped separately. Within each
group, the taxpayers must be listed in TIN
number sequence.
.06 Except as provided in section 7.07
of this revenue procedure, the Authoriza-
tions and the accompanying list must be
submitted to:
EFTPS Coordinator—Authorizations
5333 Getwell Road
Stop 532
Memphis, TN 38118
or faxed to the EFTPS Coordinator at
(901) 546-4112 (not a toll-free number).
.07 If a Filer has submitted Authoriza-
tions to the Service for the Form 941 ELF
program, as described in Rev. Proc. 97–
47, or the Form 941 or Form 940 Mag
Tape Programs, as described in Rev. Proc.
96–18, 1996–1 C.B. 637, and these Au-
thorizations allow the Filer to make pay-
ments on behalf of the taxpayer, the Filer
is not required to resubmit the Authoriza-
tions or to submit a list containing those
Authorizations to the Service. Similarly,
if a Filer has submitted Authorizations to
the Service for the magnetic tape FTD
program, as described in Rev. Proc. 89–
48, the Filer is not required to resubmit
the Authorizations or to submit a list con-
taining those Authorizations to the Ser-
vice.
.08 To delete Authorizations that a Filer
previously submitted to the Service, the
Filer must submit a list of the taxpayers to
be deleted to the EFTPS Coordinator.
The list must be submitted in the format
prescribed in section 7.05 of this revenue
procedure and to the address (or fax num-
ber) provided in section 7.06 of this rev-
enue procedure.
SECTION 8. ENROLLMENT
.01 A Filer must submit electronic tax-
payer enrollments to the appropriate Fi-
nancial Agent in accordance with the ap-
plicable implementation guide. As part of
completing each taxpayer enrollment, the
Filer may choose to use the ACH debit
entry or ACH credit entry remittance
method on a taxpayer-by-taxpayer basis.
In both the Batch Filer and the Bulk Filer
programs, enrollment of a taxpayer in the
ACH Debit remittance method will auto-
matically enroll the taxpayer in the ACH
Credit remittance method. In the Bulk
Filer program, enrollment of a taxpayer in
the ACH Credit remittance method will
automatically enroll the taxpayer in the
ACH Debit remittance method. How-
ever, in the Batch Filer program, enroll-
ment of a taxpayer in the ACH Credit re-
mittance method will not automatically
enroll the taxpayer in the ACH Debit re-
mittance method.
.02 The Financial Agent will verify the
accuracy of the enrollment information
for each taxpayer and enter the verified
April 27, 1998141998–17 I.R.B.
NationsBank (800) 555-4477
North Carolina
Ohio
Oklahoma
Pennsylvania
South Carolina
Tennessee
Texas
U.S. Virgin Islands
Virginia
West Virginia
First Chicago (800) 945-0966
New York
North Dakota
Oregon
Rhode Island
South Dakota
Utah
Vermont
Washington
Wisconsin
Wyoming
Foreign countries

enrollment information in its enrollment
record database. As part of the verifica-
tion process for an ACH debit entry in the
Batch Filer program, the Financial Agent
will originate a prenotification ACH
debit, if requested by the Batch Filer. In
the Bulk Filer program, prenotification
ACH debits are not available. When a
prenotification ACH debit is not made,
the Filer assumes responsibility for the
accuracy of the information, including the
RTN of the financial institution.
.03 When the enrollment process for a
taxpayer is completed, the Financial
Agent will provide the Filer with an en-
rollment response record that either ac-
cepts or rejects the taxpayer’s enrollment.
A rejected enrollment will identify neces-
sary corrections. Any necessary correc-
tions must be submitted by the Filer as a
new enrollment of that taxpayer.
.04 If a Filer attempts to make an FTD
or FTP through EFTPS before a taxpayer
is enrolled, the FTD or FTP generally will
be rejected and the taxpayer may be sub-
ject to a penalty for a late FTD or FTP.
SECTION 9. ACH DEBIT ENTRY
.01 For an FTD or FTP to be timely, a
Filer must complete the initiation of an
ACH debit entry with a Financial Agent at
least one business day prior to the FTD or
FTP due date.
.02 A Filer may “warehouse” an ACH
debit entry for a business taxpayer by ar-
ranging for the entry up to 30 days in ad-
vance of the due date. A Filer may ware-
house an ACH debit entry for an
individual taxpayer by arranging for the
entry up to 105 days in advance of the due
date.
.03 After a Batch Filer or a Bulk Filer
initiates a single ACH debit entry, the Fi-
nancial Agent will validate the taxpayer’s
payment information and issue an ac-
knowledgment number to the Filer. The
acknowledgment number verifies when
the necessary payment information was
received by a Financial Agent but does
not constitute proof of payment. See sec-
tion 12 of this revenue procedure regard-
ing proof of payment.
.04 After a Bulk Filer initiates a bulk
ACH debit entry, the Financial Agent will
validate the taxpayers’ payment informa-
tion and issue acknowledgment numbers
to the Filer for accepted payments. The
Bulk Filer will receive an acknowledg-
ment number for the bulk ACH debit
entry and separate acknowledgement
numbers for each accepted FTD or FTP
included in the bulk ACH debit entry.
The acknowledgment numbers verify
when the necessary payment information
was received by a Financial Agent but do
not constitute proof of payment. See sec-
tion 12 of this revenue procedure regard-
ing proof of payment.
.05 In a bulk ETA debit entry, any re-
jected payment will be returned to the
Bulk Filer without an acknowledgement
number and subtracted from the bulk
ACH debit entry, as specified in the Im-
plementation Guide for EFTPS Bulk Fil-
ers. The Bulk Filer assumes responsibil-
ity for reinitiating any rejected payments.
.06 Pursuant to the Filer’s instructions,
the Financial Agent, on the date desig-
nated by the Filer, will originate the trans-
fer of funds from the taxpayer’s or Filer’s
account to the appropriate Treasury De-
partment account. The Financial Agent
also will transmit the related payment in-
formation, supplied by the Filer, to the
Service for posting to the tax account(s)
of the taxpayer(s).
.07 The Service will deem an FTD or
FTP made by an ACH debit entry to have
been made at the time of the debit (that is,
when the amount is withdrawn from the
taxpayer’s or Filer’s account and not re-
turned or reversed).
.08 When a timely ACH debit entry
cannot be made, a Filer may instruct the
Financial Agent to complete the transac-
tion at the next opportunity to submit an
ACH debit entry. The Filer may also use
an ACH credit entry or an ETA transac-
tion. If a taxpayer is not required to use
EFTPS for FTDs, the Filer may use a
paper FTD coupon or, if authorized by the
taxpayer, the magnetic tape FTD program.
To avoid penalties, the FTD or FTP must
be received by an appropriate means on or
before the FTD or FTP due date.
.09 The ACH Rules will govern ACH
debit entry returns and reversals.
SECTION 10. ACH CREDIT ENTRY
.01 If a Filer chooses the ACH credit
entry remittance method to make an FTD
or FTP, the Filer may use any financial in-
stitution capable of originating an ACH
credit entry.
.02 For each TIN used in making ACH
credit entries through a financial institu-
tion, the Filer may request that the finan-
cial institution originate a prenotification
ACH credit.
.03 To initiate a timely ACH credit
entry, a Filer must take into account the
financial institution’s deadline for origi-
nating an ACH credit entry.
.04 When a timely ACH credit entry
cannot be made, a Filer may instruct the
financial institution to complete the trans-
action at the next opportunity to submit an
ACH credit entry. The Filer may also
use an ETA transaction. A Bulk Filer may
initiate an ACH debit entry. However, a
Batch Filer may initiate an ACH debit
entry only if the taxpayer is enrolled for
the ACH debit remittance method. If a
taxpayer is not required to use EFTPS for
FTDs, the Filer may use a paper FTD
coupon or, if authorized by the taxpayer,
the magnetic tape FTD program. To
avoid penalties, the FTD or FTP must be
received by an appropriate means on or
before the FTD or FTP due date.
.05 The Financial Agent will receive
and process the ACH credit entry pay-
ment information. The Financial Agent
will compare the transaction’s payment
information with the taxpayer’s enroll-
ment record. If they match, the Financial
Agent will send the payment information
to the Service for posting to the tax-
payer’s tax account.
.06 If the Financial Agent cannot iden-
tify the taxpayer, the ACH credit entry
will be returned to the originating finan-
cial institution.
.07 Failure to provide correct, com-
plete, and properly formatted payment in-
formation may cause an ACH credit entry
to be returned. In the event of a return, a
Filer may instruct the financial institution
to submit a corrected ACH credit entry at
the next opportunity to submit an ACH
credit entry. The Filer may also use an
ETA transaction. A Bulk Filer may initi-
ate an ACH debit entry. However, a
Batch Filer may initiate an ACH debit
entry only if the taxpayer is enrolled for
the ACH debit remittance method. If a
taxpayer is not required to use EFTPS for
FTDs, the Filer may use a paper FTD
coupon or, if authorized by the taxpayer,
the magnetic tape FTD program. To
avoid penalties, the FTD or FTP must be
received by an appropriate means on or
before the FTD or FTP due date.
.08 An ACH Credit entry that is not re-
turned or reversed will be deemed made
1998–17 I.R.B.15April 27, 1998

at the time that the funds are paid into the
appropriate Treasury Department ac-
count.
.09 The ACH Rules will govern ACH
credit entry returns and reversals.
SECTION 11. ELECTRONIC TAX
APPLICATION TRANSACTION
.01 A Filer may use an ETA transaction
to make an FTD or FTP. The Filer should
contact the financial institution through
which the ETA payment will be made to
determine if the financial institution is ca-
pable of making an ETA payment.
.02 A Bulk Filer may use a bulk ETA
transaction to make FTDs or FTPs. The
Bulk Filer should contact the financial in-
stitution through which the bulk ETA pay-
ment will be made to determine if the fi-
nancial institution is capable of making a
bulk ETA payment.
.03 If a Filer uses a single ETA trans-
action, the transfer of funds and the trans-
mission of the related payment informa-
tion occur together. If a Bulk Filer uses a
bulk ETA transaction, the transmission of
the payment information precedes the re-
lated transfer of funds, both of which
occur on the same day.
.04 The Service generally will deem an
ETA payment to have been made on the
date the payment is received by the FRB.
A Filer should contact the financial insti-
tution through which the ETA payment
will be made to determine the deadline for
initiating ETA payments for a particular
day. ETA payments received by the FRB
after the deadline set forth in the Treasury
Financial Manual, Volume IV (IV TFM),
will not be accepted. Currently, the dead-
line in IV TFM is 2:00 p.m. Administra-
tive FRB Head Office Local Zone Time.
If a payment is not accepted, the Filer
must reoriginate the payment using an
ETA transaction or any other permissible
remittance method.
.05 Additional ETA information may be
found in the sections on Same-Day Pay-
ments in the Implementation Guide for
EFTPS Bulk Filers and the EFTPS Pay-
ment Instruction Booklets for businesses.
SECTION 12. PROOF OF PAYMENT
.01 For an ACH debit or credit entry
posted to the taxpayer’s account in a fi-
nancial institution, a statement prepared
by that financial institution showing a
transfer (that is, a decrease to the tax-
payer’s account balance) will be accepted
as proof of payment if the statement:
(1) shows the amount and the date of
the transfer; and
(2) identifies the U.S. Government
as the payee (for example, “USA tax”).
.02 For an ETA payment posted to the
taxpayer’s account in a financial institu-
tion, a taxpayer may request that its finan-
cial institution obtain a statement from the
FRB that executed the transfer. This
statement will be accepted as proof of
payment if the statement:
(1) shows the amount and the date of
the transfer; and
(2) identifies the U.S. Government
as the payee (for example, “USA tax”).
.03 For purposes of this section, state-
ments prepared by a financial institution
include statements prepared by a third
party that is contractually obligated to
prepare statements for the financial insti-
tution.
.04 A taxpayer’s payment to a Filer (in-
cluding a subsidiary’s payment to its par-
ent) is not a payment of tax by the tax-
payer. Therefore, a statement prepared by
the taxpayer’s financial institution show-
ing a transfer from the taxpayer’s account
to the Filer as payee is not proof of pay-
ment. Further, a statement prepared by
the Filer’s financial institution showing a
transfer of funds from the Filer’s account
to the U.S. Government is not proof of
payment because the payment may not
have been made on behalf of the taxpayer.
The taxpayer will need the acknowledge-
ment number for an FTD or FTP made
from the Filer’s account to establish that
the FTD or FTP was made on behalf of
the taxpayer. The acknowledgement
number allows the Service to trace the
payment. The Filer has the acknowledge-
ment number or may obtain it from the Fi-
nancial Agent.
SECTION 13. REFUNDS
No refunds of FTDs or FTPs will be
made through EFTPS. However, a refund
request may be made using existing tax
refund procedures. If a taxpayer’s error
results in a significant hardship, the tax-
payer may contact the Service at (800)
829-1040 for assistance.
SECTION 14. DISASTER
PROCEDURES
.01 A taxpayer’s ability to make FTDs
and FTPs timely may be affected by the
time, severity, and extent of a major disas-
ter. In such circumstances, the Service
provides relief through the nonassertion
or abatement of certain penalties. The
Service publicizes the relief for a particu-
lar disaster area through the publication of
a News Release, Notice, or Announce-
ment. Generally, the Service identifies
the taxpayers who qualify for this disaster
relief.
.02 If a disaster affects a Filer, the Filer
should provide the Service with the infor-
mation necessary to identify those FTDs
and FTPs of taxpayers outside the disaster
area which were or will be late due to the
disaster. The Service will then determine
if the nonassertion or abatement of certain
penalties is appropriate.
.03 In addition, if a Bulk Filer’s pri-
mary processing system is affected by a
disaster and the Bulk Filer’s backup pro-
cessing system fails, the Bulk Filer may
use an emergency bulk ETA transaction
under which the transfer of funds occurs
before the transmission of the related pay-
ment information.
SECTION 15. RESPONSIBILITIES OF
A FILER
.01 Each Filer must:
(1) comply with this revenue proce-
dure and the applicable implementation
guide (Implementation Guide for EFTPS
Batch Filers or Implementation Guide for
EFTPS Bulk Filers);
(2) maintain a high degree of in-
tegrity, compliance, and accuracy;
(3) ensure that FTDs and FTPs are
accurately and timely made;
(4) ensure the security of all trans-
mitted information; and
(5) ensure that after a disabling event
the Filer is able to operate its Batch Filer
or Bulk Filer programs with minimal in-
terruption (generally, less than 24 hours).
.02 A Filer that is not the taxpayer
must:
(1) retain copies of each Authoriza-
tion and each enrollment at its principal
place of business for 4 years after the pre-
scribed due date of the last return to
which the any FTD or FTP relates, unless
April 27, 1998161998–17 I.R.B.

the Filer is otherwise notified by the Ser-
vice;
(2) retain any payment information
(including acknowledgement numbers) at
its principal place of business for 4 years
after the prescribed due date of the return
to which the FTD or FTP relates, unless
the Filer is otherwise notified by the Ser-
vice. A shorter retention period for pay-
ment information may be substituted for
this “4-year” retention period, provided
the Filer notifies the taxpayer in writing
that the Filer will not be retaining the pay-
ment information after the shorter reten-
tion period and the Filer gives such infor-
mation to the taxpayer. The shorter
retention period must be at least 90 days;
and
(3) advise the taxpayer to enroll it-
self separately in EFTPS. If the Filer is
not authorized to make all the taxpayer’s
required FTDs and FTPs, the taxpayer’s
separate enrollment will allow the tax-
payer to make its own FTDs and FTPs
through EFTPS. To enroll separately, a
taxpayer must submit a completed Form
9779, EFTPS Business Enrollment Form,
or Form 9783, EFTPS Individual Enroll-
ment Form, to the EFTPS Enrollment
Processing Center at the address provided
in the applicable form’s instructions. See
Rev. Proc. 97-33 for more information.
.03 A Filer that is the taxpayer must:
(1) absent a specific retention period
prescribed by regulations, retain the pay-
ment information and any supporting ma-
terial at its principal place of business for
as long as the contents thereof may be-
come material in the administration of
any internal revenue law; and
(2) retain copies of each enrollment
at its principal place of business for 4
years after the prescribed due date of the
return to which the last FTD or FTP re-
lates, unless otherwise notified by the
Service.
SECTION 16. ADVERTISING
STANDARDS
.01 A Filer must comply with the ad-
vertising and solicitation provisions of 31
C.F.R. Part 10 (Treasury Department Cir-
cular No. 230). This circular prohibits the
use or participation in the use of any form
of public communication containing a
false, fraudulent, misleading, deceptive,
unduly influencing, coercive, or unfair
statement or claim.
.02 A Filer must adhere to all relevant
federal, state, and local consumer protec-
tion laws that relate to advertising and so-
liciting.
.03 A Filer must not use the Service’s
name, “Internal Revenue Service” or
“IRS”, within a firm’s name.
.04 A Filer must not use improper or
misleading advertising in relation to
EFTPS.
.05 Advertising materials must not
carry the Service, FMS, or other Treasury
Seals.
.06 If a Filer uses radio or television
broadcasting to advertise, the broadcast
must be pre-recorded. The Filer must
keep a copy of the pre-recorded advertise-
ment for a period of at least 36 months
from the date of the last transmission or
use.
.07 If a Filer uses direct mail or fax
communications to advertise, the Filer
must retain a copy of the actual mailing or
fax, along with a list or other description
of the firms, organizations, or individuals
to whom the communication was mailed,
faxed, or otherwise distributed for a pe-
riod of at least 36 months from the date of
the last mailing, fax, or distribution.
.08 If a Filer uses a Web site or print
media (including newspapers, magazines,
or yellow pages) to advertise, the Filer
must retain a copy of the advertising for a
period of at least 36 months from the date
of the last posting or publication.
.09 Acceptance in the Batch Filer or
Bulk Filer programs is not an endorse-
ment by the Service, FMS, or the Trea-
sury Department of the quality of the ser-
vices provided by the Filer.
SECTION 17. REASONS FOR
SUSPENSION
.01 The Service reserves the right to
suspend a Filer from the Batch Filer or
Bulk Filer programs for the following rea-
sons (this list is not all-inclusive):
(1) failing to submit payment infor-
mation in accordance with this revenue
procedure and the applicable implementa-
tion guides;
(2) failing to maintain and make
available the required records for the pe-
riod specified in section 15 of this rev-
enue procedure;
(3) submitting payment information
on behalf of taxpayers for which the Ser-
vice did not receive Authorizations;
(4) failing to abide by the advertising
standards in section 16 of this revenue
procedure;
(5) failing to cooperate with the Ser-
vice’s efforts to monitor Filers and inves-
tigate abuse in the Batch Filer or Bulk
Filer programs; or
(6) generating significant complaints
about the Filer’s performance in the Batch
Filer or Bulk Filer programs.
.02 If the Service informs a Filer that a
certain action is a reason for suspension
and the action continues, the Service may
send the Filer a notice proposing suspen-
sion of the Filer from the Batch Filer or
Bulk Filer program. However, a notice
proposing suspension may be sent with-
out a warning if the Filer’s action indi-
cates an intentional disregard of rules. A
notice proposing suspension will describe
the reason(s) for the proposed suspension,
and indicate the length of the suspension
and the conditions that need to be met be-
fore the suspension will terminate.
SECTION 18. ADMINISTRATIVE
REVIEW PROCESS FOR PROPOSED
SUSPENSION
.01 A Filer that receives a notice
proposing suspension from the Batch
Filer or Bulk Filer program, as described
in section 17.02 of this revenue proce-
dure, may request an administrative re-
view prior to the proposed suspension
taking effect.
.02 The request for an administrative
review must be in writing and contain de-
tailed reasons, with supporting documen-
tation, for withdrawal of the proposed
suspension.
.03 The written request for an adminis-
trative review and a copy of the notice
proposing suspension must be delivered
to the address designated in the notice
within 30 days of the effective date on the
notice.
.04 After consideration of the written
request for an administrative review, the
Service will either issue a suspension let-
ter or notify the Filer in writing that the
proposed suspension is withdrawn.
.05 If a Filer receives a suspension let-
ter, the Service’s subsequent determina-
tion of whether a reason for suspension
has been corrected is not subject to ad-
ministrative review or appeal.
.06 Failure to submit a written request
for an administrative review within the
1998–17 I.R.B.17April 27, 1998

30-day period described in section 18.03
of this revenue procedure irrevocably ter-
minates the Filer’s right to an administra-
tive review of the proposed suspension,
and the Service will issue a suspension
letter.
SECTION 19. EFFECT OF
SUSPENSION
.01 The Filer’s suspension will con-
tinue for the length of time specified in
the suspension letter, or until the condi-
tions for terminating the suspension have
been met, whichever is later.
.02 After suspension, a Filer may sub-
mit an FTD under the Batch Filer or Bulk
Filer program only if the FTD is due not
more than 30 days after the effective date
on the suspension letter. No FTPs may be
submitted by the Filer under the Batch
Filer or Bulk Filer programs during the
suspension period.
.03 A Filer must provide written notifi-
cation of a suspension from the Batch
Filer or Bulk Filer programs to each tax-
payer in the program(s) within 10 days
from the date on the suspension letter.
This notification must be provided even
though the Filer may believe that the Filer
will be able to meet the conditions for ter-
minating the suspension within the 30-
day period provided in section 19.02 of
this revenue procedure.
.04 A Filer will be able to submit pay-
ment information under the Batch Filer or
Bulk Filer programs without reregistering
for those programs after:
(1) the stated suspension period ex-
pires; and
(2) the reason(s) for suspension are
corrected.
SECTION 20. APPEAL OF A
SUSPENSION
.01 If a Filer receives a suspension let-
ter from the Service, the Filer is entitled
to appeal, by written protest, to the Ser-
vice. The written protest must be deliv-
ered to the address designated on the sus-
pension letter. During the appeals
process, the suspension remains in effect.
.02 The written protest must be re-
ceived by the Service within 30 days of
the effective date on the suspension letter.
The written protest must contain detailed
reasons, with supporting documentation,
for withdrawal of the suspension.
.03 Failure to appeal within the 30-day
period described in section 20.02 of this
revenue procedure irrevocably terminates
the Filer’s right to appeal the suspension
under section 20.01 of this revenue proce-
dure.
SECTION 21. PENALTIES
.01 Section 6656 imposes a failure-to-
deposit penalty if a taxpayer does not
make a timely FTD, unless such failure is
due to reasonable cause and not due to
willful neglect. SeeRev. Rul. 94–46,
1994–2 C.B. 278. Absent reasonable
cause, a taxpayer that is required to de-
posit federal taxes by EFTPS is subject to
the failure-to-deposit penalty if FTDs are
made by means other than EFTPS (for ex-
ample, using a paper FTD coupon). See
Rev. Rul. 95–68, 1995–2 C.B. 272. How-
ever, for a taxpayer that was first required
to deposit by EFTPS on or after July 1,
1997, this penalty will not be imposed
solely by reason of a failure to deposit by
EFTPS prior to July 1, 1998.
.02 Section 6655 imposes a penalty for
underpayments of estimated tax by a cor-
poration, private foundation, tax-exempt
organization, or qualified settlement fund.
.03 Section 6651 imposes a failure-to-
pay penalty if a taxpayer does not make a
timely FTP, unless such failure is due to
reasonable cause and not due to willful
neglect.
SECTION 22. FORMS,
PUBLICATIONS, IMPLEMENTATION
GUIDES, AND ADDITIONAL
INFORMATION
.01 A Filer may obtain copies of this
revenue procedure, enrollment forms
(Forms 9779 and 9783), implementation
guides, payment instruction booklets, reg-
istration letters, and additional informa-
tion on EFTPS by calling EFTPS Cus-
tomer Service at (800) 945-0966 (First
Chicago) or (800) 555-4477 (Nations-
Bank).
.02 A Filer may obtain enrollment
forms and Authorizations (Forms 8655)
by calling the IRS Distribution Center at
(800) TAX-FORM ((800) 829-3676).
.03 A Filer may obtain information on
the submission of Authorizations by call-
ing the EFTPS Coordinator at (901) 546-
4103 (not a toll-free call).
SECTION 23. EFFECT ON OTHER
DOCUMENTS
Section 9.03 of Rev. Proc. 97–33,
1997–30 I.R.B. 10, 13, is modified to pro-
vide the same rule (regarding the FRB’s
nonacceptance of late ETA payments) as
set forth in section 11.04 of this revenue
procedure.
SECTION 24. EFFECTIVE DATE
.01 In general.This revenue procedure
is effective April 27, 1998.
.02 Grandfather rule.A power of attor-
ney on Form 2848, Power of Attorney and
Declaration of Representative, or other
document that satisfies the requirements
of § 601.503(a) of the Statement of Proce-
dural Rules, that was submitted to the
Service on or before April 27, 1998, will
be treated as an Authorization for pur-
poses of this revenue procedure, even
though it does not comply with section
7.02 of this revenue procedure.
SECTION 25. PAPERWORK
REDUCTION ACT
The collections of information con-
tained in this revenue procedure have
been reviewed and approved by the Of-
fice of Management and Budget in accor-
dance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545-1601.
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 collections of information in this
revenue procedure are in sections 5, 6, 7,
8, 12, 14, 15, and 16 of this revenue pro-
cedure. This information is required to
implement EFTPS, and verify that tax-
payers have met their obligations to pay
their taxes and make FTDs by EFTPS.
This information will be used to identify
persons paying taxes and making FTDs
on behalf of taxpayers and to credit tax-
payers’ tax accounts for FTDs and FTPs
made through EFTPS. The collections of
information are mandatory. The likely re-
spondents are business or other for-profit
institutions.
The estimated total annual reporting
and recordkeeping burden will be 51,885
hours.
April 27, 1998181998–17 I.R.B.

The estimated annual burden per re-
spondent/recordkeeper will vary from 71
hours to 91 hours, depending on individ-
ual circumstances, with an estimated aver-
age of 74.33 hours. The estimated number
of respondents and recordkeepers is 620.
The estimated annual frequency of re-
sponses is on occasion.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
1998–17 I.R.B.19April 27, 1998

April 27, 1998201998–17 I.R.B.
Partial Withdrawal of, and
Amendment to, Notice of
Proposed Rulemaking; Notice
of Proposed Rulemaking and
Notice of Public Hearing
Adjustments Following Sales of
Partnership Interests
REG–209682–94
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Partial withdrawal of notice of
proposed rulemaking, amendment to no-
tice of proposed rulemaking; notice of
proposed rulemaking and notice of public
hearing.
SUMMARY: This document withdraws
a portion of the notice of proposed rule-
making published in the Federal Regis-
ter, February 16, 1984 (49 F.R. 5940);
contains proposed regulations relating to
the optional adjustments to the basis of
partnership property following certain
transfers of partnership interests under
section 743, the calculation of gain or
loss under section 751(a) following the
sale or exchange of a partnership interest,
the allocation of basis adjustments
among partnership assets under section
755, and the allocation of a partner’s
basis in its partnership interest to proper-
ties distributed to the partner by the part-
nership under section 732(c); and, finally,
amends proposed regulations relating to
the computation of a partner’s propor-
tionate share of the adjusted basis of de-
preciable property (or depreciable real
property) under section 1017. The
changes are necessary to provide clearer
guidance on the the proper application of
these sections and will effect partnerships
and partners where there are transfers of
partnership interests, distributions of
property, or elections under sections
108(b)(5) or (c). In addition, the pro-
posed regulations under section 732(c)
reflect changes to the law made by the
Taxpayer Relief Act of 1997.
DATES: Written comments must be re-
ceived by April 29, 1998. Outlines of top-
ics to be discussed at the public hearing
scheduled for Wednesday, July 8, 1998, at
10 a.m. must be received by Wednesday,
June 24, 1998.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (REG–209682–94),
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–209682–94), Courier’s Desk, In-
ternal Revenue Service, 1111 Constitution
Avenue, NW, Washington, DC.
Alternatively, taxpayers may submit
comments electronically via the internet
by selecting the “Tax Regs” option on the
IRS Home Page, or by submitting com-
ments 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
IRS Auditorium, Internal Revenue Build-
ing, 1111 Constitution Avenue, NW,
Washington, DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations, Terri
A. Belanger, (202) 622-3070; concerning
submissions and the hearing, LaNita
VanDyke, (202) 622-7180 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information con-
tained in this notice of proposed rulemak-
ing has been submitted to the Office of
Management and Budget for review in ac-
cordance with the Paperwork Reduction
Act of 1995 (44 U.S.C. 3507(d)). Com-
ments on the collection of information
should be sent to the Office of Manage-
ment and Budget,Attn: Desk Officer for
the Department of the Treasury, Office of
Information and Regulatory Affairs,
Washington, DC 20503, with copies to
the Internal Revenue Service, Attn: IRS
Reports Clearance Officer, T:FP, Wash-
ington, DC 20224. Comments on the col-
lection of information should be received
by March 30, 1998. Comments are
specifically requested concerning:
Whether the proposed collection of in-
formation is necessary for the proper per-
formance of the functions of the Internal
Revenue Service,including whether the
information will have practical utility;
The accuracy of the estimated burden
associated with the proposed collection of
information (see below);
How the quality, utility, and clarity of
the information to be collected may be en-
hanced;
How the burden of complying with the
proposed collection of information may
be minimized, including through the ap-
plication of automated collection tech-
niques or other forms of information tech-
nology; and
Estimates of capital or start-up cost and
costs of operation, maintenance, and pur-
chase of service to provide information.
The collection of information in this
proposed regulation is in §§1.743–1(b),
1.743–1(k), and 1.755–1. This informa-
tion is required in order for partners to
have adequate knowledge to comply with
section 743 and for the IRS to verify com-
pliance with section 743. This informa-
tion will be used to determine whether the
amount of tax has been computed cor-
rectly. Responses to this collection of in-
formation are mandatory for partnerships
that have made an election under section
754 and for which a section 743 transfer
has been made. The likely respondents
are businesses or other for-profit institu-
tions.
Estimated total annual recordkeeping bur-
den under §1.743–1(b): 600,000 hours
The estimated annual burden per record-
keeper varies from 1 hourto 300 hours,
depending on the individual circum-
stances, with an estimated average of 4
hours.
Estimated number of recordkeepers:
150,000
Estimated total annual reporting burden
under §1.743–1(k)(1): 225,000 hours
The estimated annual burden per respon-
dent is estimated at an average of 3 hours.
Estimated number of respondents:
75,000
Estimated frequency of responses: On
occasion.
Estimated total annual reporting burden
under §1.743–1(k)(2): 75,000 hours
The estimated annual burden per respon-
dent is estimated at an average of 1 hour.
Estimated number of respondents:
75,000
Part IV. Items of General Interest

1998–17 I.R.B.21April 27, 1998
Estimated frequency of responses: On
occasion.
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
OMB control number.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
This document proposes to (a) revise
§§1.743–1 and 1.755–1 of the Income
Tax Regulations (26 CFR part 1), (b)
withdraw §1.168–2(n) of the proposed In-
come Tax Regulations published on Feb-
ruary 16, 1984 (49 F.R. 5940), and (c)
amend §§1.732–1, 1.732–2, 1.734–1,
1.751–1 of the Income Tax Regulations,
and §1.1017–1 of the proposed Income
Tax Regulations published January 7,
1997 (62 F.R. 955).
Section 743(b) provides for an optional
adjustment to the basis of partnership
property following certain transfers of
partnership interests. The Code provides
for basis adjustments in an attempt to co-
ordinate the transferee’s tax consequences
and economic consequences. The amount
of the basis adjustment is the difference
between the transferee’s basis in the part-
nership interest (outside basis) and its
share of the partnership’s basis in the part-
nership’s assets (inside basis). Once the
amount of the basis adjustment is deter-
mined, it is allocated among the partner-
ship’s various assets pursuant to section
755.
The proposed regulations coordinate
sections 704(c), 743, 751, and 755, and
reflect changes in the Code and Income
Tax Regulations since the adoption of
the current regulations. The proposed
regulations also provide rules concerning
adjustments to the basis of partnership
property made pursuant to section
1017(b)(3)(C). The proposed regulations
describe how to determine a partner’s
proportionate share of the adjusted basis
of depreciable property (or depreciable
real property) under section 1017, and
clarify that an adjustment to the basis of
partnership property made under section
1017(b)(3)(C) is treated in the same man-
ner as an adjustment to the basis of part-
nership property made under section 743.
Section 732(c) provides for the alloca-
tion of a partner’s basis in its partnership
interest upon certain distributions of prop-
erty to the partner by the partnership.
Section 732(c) was amended by the Tax-
payer Relief Act of 1997, Pub. L. No.
105–34, §1061, 111 Stat. 788, 945–46
(1997). Under prior law, the allocation
was made based on the adjusted basis of
the distributed property to the partnership
immediately before the distribution.
Under the new law, the allocation is
made, in general, based on the fair market
value of the distributed property on the
date of distribution. The proposed regula-
tions amend the existing regulations
under section 732 to reflect this change.
Explanation of Provisions
A. Section 743
In General
If an election is in effect under section
754, section 743 requires the partnership
to adjust the basis of partnership property
upon the transfer of an interest in the part-
nership by sale or exchange or on the
death of a partner. The partnership is re-
quired to increase the adjusted basis of
partnership property by the excess of the
transferee’s basis in the transferred part-
nership interest over the transferee’s share
of the adjusted basis to the partnership of
the partnership’s property. The partner-
ship is also required to decrease the ad-
justed basis of partnership property by the
excess of the transferee’s share of the ad-
justed basis to the partnership of partner-
ship property over the transferee’s basis in
the transferred partnership interest.
The proposed regulations address a
number of issues raised in connection
with the calculation, treatment, and re-
porting of basis adjustments under section
743. In particular, the proposed regula-
tions (i) clarify the manner in which the
partnership calculates a transferee’s in-
come, gain, loss, or deduction when the
transferee has a basis adjustment under
section 743 (including the recovery of
negative basis adjustments) and (ii) coor-
dinate sections 743 and 704(c) when part-
nerships elect the remedial allocation
method under §1.704–3(d). The proposed
regulations also provide that partnerships
(rather than partners) are required to make
and report the basis adjustments under
section 743(b). Partnerships are required
to adjust the transferee’s distributive share
of partnership tax items so that the infor-
mation reported on the transferee’s
Schedule K–1 reflects the adjustments to
the transferee’s distributive share of the
partnership items affected by the basis ad-
justment.
Determining the Amount of the Basis
Adjustment
The amount of the basis adjustment
with respect to partnership property under
section 743 is the difference between the
transferee’s share of the partnership’s in-
side basis and the transferee’s outside
basis. The current regulations provide
that a partner’s share of the adjusted basis
of partnership property is equal to the sum
of the partner’s interest as a partner in
partnership capital and surplus, plus the
partner’s share of partnership liabilities.
The current regulations also provide that
where section 704(c) applies to property
contributed to the partnership, section
704(c) is taken into account in determin-
ing a partner’s share of the adjusted basis
of partnership property.
The current regulations do not provide,
other than by example, specific guidance
on how to determine a transferee partner’s
share of the adjusted basis of partnership
property. The proposed regulations pro-
vide that a transferee’s share of the ad-
justed basis to the partnership of partner-
ship property is equal to the sum of the
transferee’s interest as a partner in the
partnership’s previously taxed capital,
plus the transferee’s share of partnership
liabilities. The partner’s share of the part-
nership’s previously taxed capital is deter-
mined by reference to a hypothetical
transaction in which (immediately after
the transfer of the partnership interest) the
partnership is assumed to have sold all of
its assets in a fully taxable transaction for
cash equal to the fair market value of the
assets. The partner’s share of the partner-
ship’s previously taxed capital is equal to
(i) the amount of cash that the transferee
would receive on liquidation of the part-
nership immediately following the hypo-
thetical transaction, increased by (ii) the
amount of tax loss that would be allocated

April 27, 1998221998–17 I.R.B.
to the transferee from the hypothetical
transaction, and decreased by (iii) the
amount of tax gain that would be allo-
cated to the transferee from the hypotheti-
cal transaction.
Calculation of Income, Gain, or Loss
The basis adjustment under section
743, like any other basis amount, is a ref-
erence used to calculate income, gain,
loss, and deduction. However, generally
the basis adjustment under section 743 is
an adjustment with respect to the trans-
feree. No adjustment is made to the com-
mon basis of partnership property (i.e.,
the partnership’s adjusted basis for the
property). Thus, for purposes of income,
deduction, gain, loss, and distribution, the
transferee will have a special basis for
those partnership properties that are ad-
justed under section 743(b). The pro-
posed regulations clarify the rules con-
tained in the current regulations.
The basis adjustment under section 743
does not affect the partnership’s computa-
tion of any item under section 703, and
does not have any effect on the partners’
capital accounts. Partnerships compute
their tax items at the partnership level
under section 703 without regard to the
basis adjustments. Partnership level tax
items (including any remedial allocations
under §1.704–3(d)) are then allocated
among the partners, including the trans-
feree, in accordance with section 704. Fi-
nally, the partnership adjusts the trans-
feree’s distributive share of partnership
tax items to reflect the transferee’s special
basis in the properties that give rise to the
tax items. A transferee’s income, gain, or
loss from the sale of partnership property
in which the transferee has a basis adjust-
ment is equal to the transferee’s distribu-
tive share of partnership income, gain, or
loss (including any remedial allocations
under §1.704–3(d)) from the sale of the
property adjusted to account for the
amount of the transferee’s basis adjust-
ment with respect to the property.
Coordination of Section 743 with
Section 704(c)
Section 704(c) is taken into account in
determining a transferee’s share of the
partnership’s basis in the partnership’s as-
sets. As a result, some or all of a trans-
feree’s basis adjustment may be attribut-
able to section 704(c) built-in gain or loss
when a transferee purchases a partnership
interest from a partner that contributed
section 704(c) property to the partnership.
For example, assume that A contributes
property with a fair market value of $100
and an adjusted tax basis of $10 to a part-
nership for a fifty percent interest and B
contributes $100 of cash for the remain-
ing fifty percent interest. Immediately
after the formation of the partnership, A’s
share of the partnership’s basis in the part-
nership property is $10, while B’s share is
$100. The contributed asset then appreci-
ates in value to $120, and A transfers its
entire interest to T for $110 while an elec-
tion is in effect under section 754. T will
have a basis adjustment of $100. The first
$90 of the basis adjustment is attributable
to the section 704(c) built-in gain, while
the remaining $10 of the basis adjustment
is attributable to T’s fifty percent share of
the $20 of post-contribution appreciation
in the contributed property.
Despite the fact that a portion of the
basis adjustment may be attributable to a
property’s section 704(c) built-in gain,
section 704(c) and section 743 operate in-
dependently. Section 1.704–1(b)(2)(iv)-
(g)(3) requires a partnership to recover
the value of section 704(c) property on
the books of the partnership over the
property’s remaining useful life, deter-
mined with reference to the property’s
useful life in the hands of the contributing
partner. At the same time, §1.168–2(n)(1)
of the proposed Income Tax Regulations
provides that the entire basis adjustment
is recovered as though it is new property.
Cf. Sections 168(i)(7) and 197(f)(2). As a
result, the book and tax items represent-
ing the section 704(c) built-in gain are re-
covered over different periods.
Although a portion of the basis adjust-
ment may represent actual tax basis equal
to the amount of the section 704(c) built-
in gain, the deductions attributable to the
basis adjustment cannot be allocated to
the noncontributing partner. The basis ad-
justment does not, therefore, eliminate
any book-tax disparities that result from
ceiling rule problems relating to the sec-
tion 704(c) property. Because the basis
adjustment only affects the transferee, the
Service and Treasury believe that it is ap-
propriate for sections 704(c) and 743(b)
to operate independently.
When a partnership adopts the remedial
allocation method, however, the partners
may be viewed as agreeing to shift, over
time, a portion of the partnership’s basis
in its assets from the noncontributing
partner to the contributing partner. Part-
nership basis that was considered part of
the noncontributing partner’s share of the
partnership’s basis at the time the adjust-
ment to basis was made will be trans-
ferred to the contributing partner as the
property is recovered on the partnership’s
books. In addition, a partnership that
adopts the remedial allocation method
with respect to contributed property must
depreciate or amortize the portion of the
contributed property’s book basis that is
attributable to section 704(c) built-in gain
as though it is new property at the time of
contribution. As a result, the Service and
Treasury believe that it is appropriate to
coordinate the recovery periods of the
section 704(c) built-in gain and the built-
in gain portion of the basis adjustment
where the partnership uses the remedial
allocation method.
Where a partnership adopts the reme-
dial allocation method, the proposed reg-
ulations treat the portion of any basis ad-
justment that is attributable to section
704(c) built-in gain differently from the
rest of the basis adjustment. Instead of
treating the section 704(c) built-in gain
portion of the basis adjustment and the
basis adjustment in excess of such amount
as newly acquired property, the section
704(c) built-in gain portion of the basis
adjustment is recovered over the remain-
ing cost recovery period for the section
704(c) built-in gain. The recovery period
for the partner’s share of common basis
continues to be determined by reference
to the property’s useful life in the hands of
the contributing partner, and the remain-
ing basis adjustment in excess of the sec-
tion 704(c) built-in gain portion of the
basis adjustment is recovered as if it were
new property.
If a partnership receives remedial allo-
cations of income under §1.704–3(d) with
respect to an item of adjusted partnership
property, the partner does not offset the
cost recovery deductions from the prop-
erty against the remedial allocations of in-
come. Rather, the partner will receive an
allocation of remedial income and a sepa-
rate cost recovery deduction. If a partner
receives remedial allocations of deduc-
tions under §1.704–3(d) with respect to
an item of partnership property that has a

1998–17 I.R.B.23April 27, 1998
negative basis adjustment, the partner
first adds the amount of the remedial allo-
cation of deduction to any common basis
deductions received from the property.
The partner then reduces the total amount
of deductions from the property by the
amount of the negative basis adjustment
recovered in that year.
One result of this proposal is that the
interests in a partnership will generally be
fungible (i.e. the tax consequences that
stem from the purchase of a partnership
interest do not vary with the identity of
the transferor), if (i) each partnership in-
terest has an identical right in capital and
profits, and (ii) each item of the partner-
ship’s section 704(c) property is subject to
the remedial allocation method. The Ser-
vice and Treasury request comments on
situations in which the fungibility of part-
nership interests may otherwise be ac-
commodated without significantly adding
to the complexity of subchapter K. In ad-
dition, comments are requested concern-
ing the application of the remedial alloca-
tion method to contributed property
where there are no distortions caused by
the ceiling rule at the time the property is
contributed to the partnership.
Recovery of Negative Basis Adjustments
Section 1.168–2(n)(2) of the proposed
Income Tax Regulations provides that a
negative basis adjustment to depreciable
property is recovered over the property’s
remaining recovery period in the hands of
the partnership (i.e., the adjustment made
to the common basis of the partnership
property). The portion of the adjustment
that is recovered in any year is equal to
the product of (i) the amount of the de-
crease to the item’s adjusted basis (deter-
mined as of the date of the transfer), mul-
tiplied by (ii) a fraction, the numerator of
which is the portion of the adjusted basis
of the item recovered by the partnership
in that year, and the denominator of which
is the adjusted basis of the item on the
date of transfer (determined prior to any
basis adjustments).
Because the basis adjustment under
section 743 is personal to the transferee,
the primary method adopted by the pro-
posed regulations for recovering a nega-
tive basis adjustment provides that the
basis adjustment does not affect the com-
mon basis of partnership property and
does not affect the tax consequences of
partners other than the transferee. Under
this method, the recovery of the negative
basis adjustment may generate ordinary
income to the extent that it exceeds the
transferee’s share of the depreciation de-
ductions. The proposed regulations pro-
vide that, unless the partnership elects to
make a common basis adjustment, as de-
scribed below, the amount of the basis ad-
justment recovered in any year first de-
creases the transferee’s distributive share
of the partnership’s deductions from the
adjusted item of property for that year. If,
in any year, a partnership does not allo-
cate to a transferee sufficient deductions
from the adjusted property to offset the
recovery of the negative basis adjustment,
then the transferee’s distributive share of
the deductions from other items of part-
nership property is decreased. The trans-
feree then recognizes income equal to the
excess of the amount of the negative basis
adjustment recovered in the year over the
transferee’s share of deductions from the
other items of property for the year.
As an alternative, the proposed regula-
tions also allow partnerships to elect to
follow the approach of the old proposed
regulations. If this election is made, the
partnership treats the amount of the nega-
tive basis adjustment as an item of built-in
gain, decreasing the total amount of de-
preciation or amortization that the part-
nership may allocate for tax purposes.
This election would prevent the transferee
from ever recognizing income in situa-
tions where the partnership did not allo-
cate to the transferee sufficient deprecia-
tion to offset the negative basis
adjustment. It should be noted, however,
that this election has no effect on the part-
ners’ capital accounts, which continue to
be adjusted to reflect the depreciation or
amortization of the adjusted property as
though there was no basis adjustment to
the property. Consequently, to the extent
that the basis adjustment causes the
amount of the deductions allocated to the
non-transferee partners for book purposes
to exceed the amount of tax depreciation
available to be allocated to them by the
partnership, a book-tax disparity results
for the non-transferee partners.
The Service and Treasury request com-
ments concerning the recovery of nega-
tive basis adjustments under section 743.
Specifically, the Service and Treasury re-
quest comments regarding whether there
are other possible ways of accounting for
the recovery of negative basis adjust-
ments that treat the basis adjustment as
personal to the transferee and, at the same
time, do not interfere with the economic
agreement among the partners.
Reporting and Returns
The statutory language of section
743(b) indicates that partnerships are re-
sponsible for making the basis adjust-
ments. This mandate is repeated in the
language of the current regulations issued
under both sections 743 and 755. Not-
withstanding that partnerships are re-
quired to make and allocate basis adjust-
ments under the current regulations,
transferees are required to report the basis
adjustments. Transferees accomplish this
by attaching statements to their returns
that show how the section 743(b) adjust-
ment was determined and how the adjust-
ment was allocated among the various
partnership properties. No existing guid-
ance indicates when (i.e., before or after
the Schedule K–1) the effect of the basis
adjustment to specific partnership items is
to be determined or who is required to
make and report the adjustments to the
partnership items.
The proposed regulations clarify that
partnerships are required to make the
basis adjustments. In addition, the pro-
posed regulations place the responsibility
for reporting basis adjustments on part-
nerships. Partnerships report basis adjust-
ments by attaching statements to their
partnership returns when they acquire
knowledge of transfers subject to section
743. In addition, partnerships are re-
quired to adjust specific partnership items
in light of the basis adjustments. Conse-
quently, amounts reported on the trans-
feree’s Schedule K–1 are adjusted
amounts.
Transferees are subject to an affirma-
tive obligation to notify partnerships of
their basis in acquired partnership inter-
ests. To accommodate partnership con-
cerns about the reliability of the informa-
tion provided, partnerships are entitled to
rely on the written representations of
transferees concerning either the amount
paid for the partnership interest or the
transferee’s basis in the partnership inter-
est under section 1014 (unless clearly er-
roneous).

April 27, 1998241998–17 I.R.B.
B. Section 751
Section 751(a) provides that to the ex-
tent an amount realized on the sale or ex-
change of a partnership interest is attribut-
able to the transferor’s interest in
unrealized receivables or inventory items
of the partnership, the amount realized is
considered to be an amount realized from
the sale or exchange of property other
than a capital asset. Thus, the transferor
partner may recognize ordinary income or
loss on the sale or exchange of its partner-
ship interest. Under the current section
751 regulations, the amount of income or
loss realized by a partner on the sale or
exchange of an interest in section 751
property is equal to the difference be-
tween (i) the portion of the total amount
realized for the partnership interest allo-
cated to section 751 property, and (ii) the
portion of the transferor partner’s basis in
its partnership interest allocated to the
property. Generally, the portion of the
total amount realized allocated to section
751 property is determined by the seller
and purchaser in an arm’s length agree-
ment. The portion of the partner’s ad-
justed basis in the partnership interest al-
located to the section 751 property equals
the basis that the property would have had
under section 732 if the transferor partner
had received its proportionate share of the
property in a current distribution immedi-
ately before the sale.
The proposed regulations amend these
rules for determining the transferor part-
ner’s gain or loss from the sale or ex-
change of its interest in section 751 prop-
erty. Rather than attempting to allocate a
portion of the transferor partner’s amount
realized and adjusted basis to the section
751 property, the proposed regulations
adopt a hypothetical sale approach.
Thus, the income or loss realized by a
partner from section 751 property upon
the sale or exchange of its interest is the
amount of income or loss that would
have been allocated to the partner from
section 751 property (to the extent attrib-
utable to the partnership interest sold or
exchanged) if the partnership had sold all
of its property in a fully taxable transac-
tion for fair market value immediately
prior to the partner’s transfer of the part-
nership interest.
C.Section 755
In General
The current regulations under section
755 contain a number of problems that
prevent partnerships from allocating the
section 743(b) basis adjustments to appro-
priate assets. The proposed regulations
resolve these problems and implement the
purposes of section 743(b) by focusing on
the items that the transferee partner would
receive upon a fair market value sale of
all of the partnership’s assets.
At the same time, the proposed regula-
tions recognize that adjustments under
section 734 differ significantly from ad-
justments under section 743. Specifically,
adjustments under section 743(b) are in-
tended to affect the transferee partner
only. In contrast, adjustments under sec-
tion 734 affect all of the partners. As a
result, the proposed regulations under
section 755 contain two separate
regimes—one that applies to adjustments
under section 734, and another that ap-
plies to adjustments under section 743.
While the regime allocating adjustments
under section 743 focuses on the trans-
feree, the regime allocating adjustments
under section 734 focuses on the differ-
ence between value and basis at the part-
nership entity level.
Allocating Adjustments under
Section 743(b)
The proposed regulations provide that
allocations of basis adjustments under
section 743 among partnership assets are
made based on the amount of income,
gain, or loss (including remedial alloca-
tions under §1.704–3(d)) that the trans-
feree would be allocated if, immediately
after the section 743(b) transfer, all of the
partnership’s assets were disposed of in a
fully taxable transaction at fair market
value. By adopting this method, in some
situations the proposed regulations will
require adjustments to be made that in-
crease the basis of some assets and de-
crease the basis of others.
Hypothetical sale
The current regulations do not take
each partner’s interest in specific assets
into account. The amount of the section
743 adjustment is allocated among part-
nership properties to reduce the difference
between the fair market value and the ad-
justed basis of partnership properties at
the partnership entity level rather than at
the partner level. This formulation of the
rule fails to take into account special allo-
cations or the varying treatment of differ-
ent partners by virtue of the operation of
section 704(c) or the minimum gain
chargeback. Therefore, basis adjustments
will often be made to the wrong assets,
exposing the partners to tax consequences
that may vary significantly from the part-
ners’ economic consequences.
Rather than attempt to define a part-
ner’s share of the basis or fair market
value of a specific partnership asset, the
proposed regulations focus on the actual
tax items that would be allocated to the
transferee in a fully taxable, fair market
value sale. Under the proposed regula-
tions, partnerships are required to adjust
the basis of partnership assets in a manner
that reflects the amount of income, gain,
or loss that the transferee would recognize
if all of the partnership’s assets were sold
in the hypothetical transaction.
Two-way Adjustments
Under the current regulations, the part-
nership may not increase the basis of as-
sets that have a fair market value in ex-
cess of basis and, at the same time,
decrease the basis of assets that have a
basis in excess of fair market value.
Thus, if the section 743(b) adjustment is
positive, the partnership may only in-
crease the basis of assets that have a basis
that is less than their fair market value.
This restriction prevents the partnership
from adjusting the basis of its assets in a
manner that coordinates a transferee’s tax
consequences with its economic conse-
quences.
The proposed regulations remove this
restriction. Instead, the amount of the
section 743 adjustment is viewed as a net
adjustment. This net amount is then allo-
cated between the partnership’s two
classes of assets (capital gain property
and ordinary income property). The
amount of the adjustment allocated to or-
dinary income property may be an in-
crease while the amount of the adjustment
allocated to capital gain property is a de-
crease. The amount of the adjustment al-

1998–17 I.R.B.25April 27, 1998
located to each class is then allocated
among the assets within each class. The
amount of the adjustment allocated to one
item within the class may also be an in-
crease even if the amount allocated to an-
other item is a decrease.
Allocation between Classes
The amount of the basis adjustment al-
located to the class of ordinary income
property is equal to the total amount of in-
come, gain, or loss (including any reme-
dial allocations under §1.704–3(d)) that
would be allocated to the transferee from
the sale of all ordinary income property in
the hypothetical transaction. The amount
of the basis adjustment to capital gain
property is equal to (i) the total amount of
the basis adjustment under section 743,
less (ii) the amount of the basis adjust-
ment allocated to ordinary income; pro-
vided, however, that in no event may the
amount of any decrease in basis allocated
to capital gain property exceed the part-
nership’s basis in capital gain property. In
the event that a decrease in basis allocated
to capital gain property exceeds the part-
nership’s basis in capital gain property,
the excess is applied to reduce the basis of
ordinary income property.
Allocation within Classes
The amount of the basis adjustment al-
located to each item of property within
the class of ordinary income property
equals:
(a) the amount of income, gain, or loss
(including any remedial allocations under
§1.704–3(d)) that would be allocated to
the transferee from the hypothetical sale
of the item, minus
(b) the product of (1) any decrease to
the amount of the basis adjustment to or-
dinary income property required because
the partnership did not have enough basis
in capital gain property to reduce, multi-
plied by (2) a fraction, the numerator of
which is the fair market value of the item
of property to the partnership and the de-
nominator of which is the total fair market
value of all items of the partnership’s or-
dinary income property.
The amount of the basis adjustment al-
located to each item of property within
the class of capital gain property equals:
(a) the amount of income, gain, or loss
(including any remedial allocations under
§1.704–3(d)) that would be allocated to
the transferee from the hypothetical sale
of the item, minus
(b) the product of (1) the total amount of
gain or loss (including any remedial allo-
cations under §1.704–3(d)) that would be
allocated to the transferee from the hypo-
thetical sale of all items of capital gain
property, minus the amount of the positive
basis adjustment to all items of capital gain
property or plus the amount of the negative
basis adjustment to all items of capital gain
property, multiplied by (2) a fraction, the
numerator of which is the fair market value
of the item of property to the partnership
and the denominator of which is the total
fair market value of all of the partnership’s
items of capital gain property.
Allocating Adjustments under
Section 734
As under the current regulations, the
proposed regulations provide that alloca-
tions of section 734 adjustments among
partnership assets are made based on the
difference between the value of the prop-
erty and the property’s basis. Where there
is a distribution of partnership property
resulting in an adjustment to the basis of
undistributed partnership property under
section 734(b)(1)(B) or (b)(2)(B), the ad-
justment must be allocated to remaining
partnership property of a character similar
to that of the distributed property with re-
spect to which the adjustment arose. If
there is an increase in basis to be allocated
within a class of property, the increase
must be allocated first to properties with
unrealized appreciation in proportion to
their respective amounts of unrealized ap-
preciation before such increase (but only
to the extent of each property’s unrealized
appreciation). Any remaining increase
must be allocated among the properties
within the class in proportion to their fair
market values. If there is a decrease in
basis to be allocated within a class, the
decrease must be allocated first to proper-
ties with unrealized depreciation in pro-
portion to their respective amounts of un-
realized depreciation before such
decrease (but only to the extent of each
property’s unrealized depreciation). Any
remaining decrease must be allocated
among the properties within the class in
proportion to their adjusted bases (as ad-
justed under the preceding sentence).
D. Section 1017
Section 1017 provides rules concerning
basis reductions resulting from a tax-
payer’s exclusion of cancellation of in-
debtedness income. In general, under
§1.1017–1(f) of the proposed Income Tax
Regulations, if a partner makes an elec-
tion under section 108(b)(5) or section
108(c), the partner may treat a partnership
interest as depreciable property (or depre-
ciable real property) to the extent the part-
nership correspondingly reduces the part-
ner’s proportionate share of the adjusted
basis of depreciable property (or depre-
ciable real property) held by the partner-
ship. These proposed regulations provide
guidance regarding the determination of a
partner’s proportionate share of the part-
nership’s basis in depreciable property (or
depreciable real property) and the conse-
quences of the basis reductions required
under sections 108 and 1017.
In general, these proposed regulations
provide that a partner’s share of the part-
nership’s basis in depreciable property (or
depreciable real property) equals the sum
of (a) the partner’s section 743(b) basis
adjustment, if any, in the partnership
items of depreciable property (or depre-
ciable real property) and (b) the common
basis depreciation deductions (not includ-
ing remedial allocations of depreciation
under §1.704–3(d)) that are reasonably
expected to be allocated to the partner
over the partnership property’s remaining
useful life. The amount of common basis
depreciation deductions that a partner
may reasonably expect to be allocated
over the partnership property’s useful life
is based on all the facts and circumstances
in effect at the time of the basis reduction.
It is per se unreasonable, however, for the
partnership to treat the same depreciation
deductions as “reasonably expected” by
more than one partner. Thus, the amount
of the partners’ total basis reductions
under sections 108(b)(5) and 108(c) can-
not exceed the partnership’s basis in de-
preciable property (or depreciable real
property).
The proposed regulations further pro-
vide that any reduction to the basis of de-
preciable property required under sections
108 and 1017 constitutes an adjustment to
the basis of partnership property with re-
spect to the partner only. These adjust-
ments, therefore, are similar to the basis

April 27, 1998261998–17 I.R.B.
adjustments required under section
743(b). Accordingly, the proposed regu-
lations provide that these adjustments
have the same effect and are recovered in
the same manner as basis adjustments re-
quired under section 743(b); provided,
however, that the election to treat the neg-
ative basis adjustment as an item of built-
in gain (which decreases the amount of
depreciation or amortization that the part-
nership may allocate) is not applicable.
Consequently, if a partner’s actual share
of the partnership’s common basis depre-
ciation deductions in any year is less than
the amount that was included in determin-
ing the partner’s proportionate share of
the partnership’s common basis deprecia-
tion deductions for that year, the partner
will recognize income.
E. Section 732
In General
With some exceptions, partners gener-
ally may receive distributions of partner-
ship property without recognition of gain
or loss. Rules are provided for determin-
ing the basis of the distributed property in
the hands of the distributee. In the event
that multiple properties are distributed by
a partnership, section 732(c) provides al-
location rules for determining their bases
in the distributee partner’s hands.
Section 732(c) was amended by the
Taxpayer Relief Act of 1997, Pub. L. No.
105–34, §1061, 111 Stat. 788, 945–46
(1997). Under prior law, a partner’s basis
in its partnership interest was allocated
among property distributed to the partner
based on the distributed properties’ ad-
justed bases. The rules allocated the part-
ner’s basis in its partnership interest first
to unrealized receivables and inventory
items in an amount equal to the partner-
ship’s adjusted basis (or if the basis to be
allocated was less than the partnership’s
basis, then in proportion to the partner-
ship’s basis). To the extent that there was
any basis remaining to be allocated
among distributed properties, the basis
was allocated among the other properties
in proportion to their adjusted bases to the
partnership.
Section 1061 of the Taxpayer Relief
Act of 1997, Pub. L. No. 105–34, § 1061,
111 Stat. 788, 945–46 (1997), revised the
allocation rules for determining basis in
the distributee partner’s hands. As under
prior law, basis is allocated first to any
distributed unrealized receivables and in-
ventory items before it is allocated to any
other distributed property. Basis is then
allocated among the other distributed
properties to the extent of each such prop-
erty’s adjusted basis to the partnership.
Any remaining basis adjustment, if an in-
crease, is allocated among properties with
unrealized appreciation in proportion to
their respective amounts of unrealized ap-
preciation (to the extent of each prop-
erty’s appreciation), and then in propor-
tion to their respective fair market values.
If the remaining basis adjustment is a de-
crease, it is allocated among properties
with unrealized depreciation in proportion
to their respective amounts of unrealized
depreciation (to the extent of each prop-
erty’s depreciation), and then in propor-
tion to their respective adjusted bases
(taking into account the adjustment al-
ready made). The proposed regulations
amend the current regulations to incorpo-
rate these changes to section 732(c).
Section 732(d)
Section 732(d) provides a special rule
that applies to determine the basis of
property distributed to a transferee partner
who acquired any part of its partnership
interest in a transfer when an election
under section 754 was not in effect.
When the special rule applies, the basis of
distributed property is adjusted immedi-
ately before the distribution to reflect the
basis that the property would have had if
the partnership had a section 754 election
in effect at the time the transferee ac-
quired the partnership interest. As a re-
sult, the basis of the distributed property
in the hands of the partnership immedi-
ately before the distribution more closely
approximates its fair market value. Con-
sequently, the transferee’s basis in the dis-
tributed property will also more closely
approximate its fair market value.
Section 1.732–1(d)(4) of the current
regulations requires transferees to apply
the special basis rule in certain cases.
Specifically, transferees are required to
apply the special basis rule if at the time of
the acquisition of the partnership interest—
(i) the fair market value of all partner-
ship property (other than money) ex-
ceeded 110 percent of its adjusted basis to
the partnership,
(ii) an allocation of basis under section
732(c) upon a liquidation of the partner-
ship interest immediately after the trans-
fer of the interest would have resulted in a
shift of basis from property not subject to
an allowance for depreciation, depletion,
or amortization, to property subject to
such an allowance, and
(iii) a basis adjustment under section
743(b) would change the basis to the
transferee partner of the property actually
distributed.
The purpose of §1.732–1(d)(4) was to
prevent distortions caused by section
732(c) that might inflate the basis of de-
preciable, depletable, or amortizable
property above its fair market value. At
the time that the regulations were
adopted, such distortions might occur be-
cause section 732(c) allocated basis
among distributed properties based on
their relative bases. The changes made to
section 732(c) by the Taxpayer Relief Act
of 1997, Pub. L. No. 105–34, §1061, 111
Stat. 788, 945–46 (1997), make the dis-
tortions targeted by the regulations less
likely to occur. As a result, the Service
and Treasury request comments on the
proper scope of section 732(d), and
specifically, under what circumstances, if
any, the Secretary should exercise its au-
thority to mandate the application of sec-
tion 732(d) to a transferee.
Proposed Effective Date
The regulations are proposed to be ef-
fective (i) for all transfers of partnership
interests on and after the date the regula-
tions are published as final regulations in
the Federal Register, (ii) for all distribu-
tions from partnerships on and after the
date the regulations are published as final
regulations in the Federal Register, and
(iii) for all elections under sections
108(b)(5) and 108(c) made on or after the
date the regulations are published as final
regulations in the Federal Register.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in EO
12866. Therefore, a regulatory assess-
ment is not required. An initial regulatory
flexibility analysis has been prepared for
the collection of information in this notice
of proposed rulemaking under 5 U.S.C.

1998–17 I.R.B.27April 27, 1998
603. A summary of the analysis is set
forth below under the heading “Summary
of Initial Regulatory Flexibility Analy-
sis.” Pursuant to section 7805(f) of the
Internal Revenue Code, this notice of pro-
posed rulemaking will be submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
Summary of Initial Regulatory Flexibility
Analysis
This initial analysis is prepared pur-
suant to the Regulatory Flexibility Act (5
U.S.C. chapter 6). In general, the pro-
posed regulations require a transferee that
acquires an interest in a partnership with
an election under section 754 in effect, to
notify the partnership of the transfer. This
notification must include the name and
taxpayer identification number of the
transferee and the transferee’s basis in the
acquired partnership interest. The part-
nership is required to include a statement
with its Form 1065, U.S. Partnership Re-
turn of Income for the taxable year in
which the partnership acquires knowledge
of the transfer. This statement must iden-
tify the name and taxpayer identification
number of the transferee and the compu-
tation of the basis adjustment and the allo-
cation of that adjustment to partnership
properties. These requirements will en-
sure that the partnership has notice that a
transfer has occurred and that the proper
basis adjustments are computed. The
legal basis for this requirement is con-
tained in sections 743(b), 6001, 7805(a).
There were approximately 1,494,000
partnerships in 1994. However, these
proposed regulations apply only to part-
nerships that have made an election under
section 754. The election under section
754 is generally not made unless there has
been a transfer of a partnership interest or
a distribution by the partnership. More-
over, the effects of the election attach to
specific items of partnership property and
may provide only temporary benefits for
the partners. The election also cannot be
revoked without the consent of the Secre-
tary. Accordingly, the Service and Trea-
sury believe that most partnerships do not
make the election under section 754.
Therefore, most partnerships will not be
affected by the proposed regulations in
any given year.
After a partner conveys information to
the partnership concerning a transfer of a
partnership interest, the partnership must
adjust the partner’s interest in the basis of
partnership property. Because these basis
adjustments will affect the partner’s share
of depreciation or amortization deduc-
tions and amounts of gain or loss on the
disposition of certain items of partnership
property, the partnership must prepare
and maintain special entries on its books.
However, in many cases, partnership re-
turns are prepared using computer soft-
ware that can prepare and maintain these
special entries after the initial year.
The IRS and Treasury Department are
not aware of any federal rules that may
duplicate, overlap, or conflict with the
proposed rule.
As an alternative to the disclosure de-
scribed above, the Service and Treasury
considered, but rejected, a rule that would
have required the partners, and not the
partnerships, to make the basis reductions
and to determine the effects of the basis
adjustments on the partner’s distributive
shares. This alternative was rejected be-
cause the Service and Treasury believe
that partnerships generally have better ac-
cess to the information necessary to report
section 743 basis adjustments properly.
To require the partners rather than the
partnerships to bear the burden of report-
ing would require the partnerships to pro-
vide the partners with significant amounts
of information not otherwise needed by
the partners. There are no known alterna-
tive rules that are less burdensome to the
partnerships and their partners but that ac-
complish the purpose of the statute. The
Service and Treasury request comments
concerning possible alternatives.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any written com-
ments (a signed original and eight (8)
copies) that are timely submitted to the
IRS. All comments will be available for
public inspection and copying.
A public hearing has been scheduled
for Wednesday, July 8, 1998, at 10 a.m. in
the IRS Auditorium of the Internal Rev-
enue Building. Because of access restric-
tions, visitors will not be admitted be-
yond the Internal Revenue Building
lobby more than 15 minutes before the
hearing starts.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing. Persons that wish to
present oral comments at the hearing must
submit written comments by April 29,
1998, and submit an outline of the topics
to be discussed and the time to be devoted
to each topic (signed original and eight
(8) copies) by Wednesday, June 24, 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 proposed
regulations are Brian M. Blum and Terri
A. Belanger of the Office of the Assistant
Chief Counsel (Passthroughs and Special
Industries). However, personnel from
other offices of the Internal Revenue Ser-
vice and the Treasury Department partici-
pated in their development.
Partial Withdrawal of Notice of Proposed
Rulemaking
Accordingly, under the authority of 26
U.S.C. 7805, §1.168–2(n) in the notice of
proposed rulemaking published February
16, 1984 (49 F.R. 5940) is 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 is amended by adding entries in nu-
merical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.168–2 also issued under 26
U.S.C. 168. * * *
Section 1.732–1 also issued under 26
U.S.C. 732.
Section 1.732–2 also issued under 26
U.S.C. 732.
Section 1.734–1 also issued under 26
U.S.C. 734.
Section 1.743–1 also issued under 26
U.S.C. 743.

April 27, 1998281998–17 I.R.B.
Section 1.751–1 also issued under 26
U.S.C. 751.
Section 1.755–1 also issued under 26
U.S.C. 755. * * *
Section 1.1017–1 also issued under 26
U.S.C. 1017. * * *
Par. 2. Section 1.732–1 is amended by
revising paragraphs (c), (d)(1)(vi),
(d)(4)(iii) and the last sentence in para-
graph (d)(1)(v) and removing the undes-
ignated text including the examples im-
mediately following paragraph (d)(4)(iii)
to read as follows:
§1.732–1 Basis of distributed property
other than money.
*****
(c) Allocation of basis among proper-
ties distributed to a partner—(1) General
rule—(i) Unrealized receivables and in-
ventory items.The basis to be allocated
to properties distributed to a partner under
section 732(a)(2) or (b) is allocated first
to any unrealized receivables (as defined
in section 751(c)) and inventory items (as
defined in section 751(d)(2)) in an
amount equal to the adjusted basis of each
such property to the partnership immedi-
ately before the distribution. If the basis
to be allocated is less than the sum of the
adjusted bases to the partnership of the
distributed unrealized receivables and in-
ventory items, the adjusted basis of the
distributed property must be decreased in
the manner provided in paragraph
(c)(2)(i) of this section.
(ii) Other distributed property.Any
basis not allocated to unrealized receiv-
ables or inventory items under paragraph
(c)(1)(i) of this section is allocated to any
other property distributed to the partner in
the same transaction by assigning to each
distributed property an amount equal to the
adjusted basis of the property to the part-
nership immediately before the distribu-
tion. However, if the sum of the adjusted
bases to the partnership of such other dis-
tributed property does not equal the basis
to be allocated among the distributed prop-
erty, any increase or decrease required to
make the amounts equal is allocated
among the distributed property as provided
in paragraph (c)(2) of this section.
(2) Adjustment to basis allocation—(i)
Decrease in basis.Any decrease to the
basis of distributed property required
under paragraph (c)(1) of this section is
allocated first to distributed property with
unrealized depreciation in proportion to
each property’s respective amount of un-
realized depreciation before any decrease
(but only to the extent of each property’s
unrealized depreciation). If the required
decrease exceeds the amount of unreal-
ized depreciation in the distributed prop-
erty, the excess is allocated to the distrib-
uted property in proportion to the adjusted
bases of the distributed property, as ad-
justed pursuant to the immediately pre-
ceding sentence.
(ii) Increase in basis.Any increase to
the basis of distributed property required
under paragraph (c)(1)(ii) of this section
is allocated first to distributed property
(other than unrealized receivables and
inventory items) with unrealized appreci-
ation in proportion to each property’s re-
spective amount of unrealized apprecia-
tion before any increase (but only to the
extent of each property’s unrealized ap-
preciation). If the required increase ex-
ceeds the amount of unrealized apprecia-
tion in the distributed property, the excess
is allocated to the distributed property
(other than unrealized receivables or in-
ventory items) in proportion to the fair
market value of the distributed property.
(3) Unrealized receivables and inven-
tory items.If the basis to be allocated
upon a distribution in liquidation of the
partner’s entire interest in the partnership
is greater than the adjusted basis to the
partnership of the unrealized receivables
and inventory items distributed to the
partner, and if there is no other property
distributed to which the excess can be al-
located, the distributee partner sustains a
capital loss under section 731(a)(2) to the
extent of the unallocated basis of the part-
nership interest.
(4) Examples. The provisions of this
paragraph (c) are illustrated by the fol-
lowing examples:
Example 1.A is a one-fourth partner in partner-
ship PRS and has an adjusted basis in its partnership
interest of $650. PRS distributes inventory items
and Assets X and Y to A in liquidation of A’s entire
partnership interest. The distributed inventory items
have a basis to the partnership of $100 and a fair
market value of $200. Asset X has an adjusted basis
to the partnership of $50 and a value of $400. Asset
Y has an adjusted basis to the partnership and value
of $100. Neither Asset X nor Asset Y consists of in-
ventory items or unrealized receivables. Under this
paragraph (c), A’s basis in its partnership interest is
allocated first to the inventory items in an amount
equal to their adjusted basis to the partnership. A,
therefore, has an adjusted basis in the inventory
items of $100. The remaining basis, $550, is allo-
cated to the distributed property first in an amount
equal to the property’s adjusted basis to the partner-
ship. Thus, Asset X is allocated $50 and Asset Y is
allocated $100. Asset X is then allocated $350, the
amount of unrealized appreciation in Asset X. Fi-
nally, the remaining basis, $50, is allocated to Assets
X and Y in proportion to their fair market values:
$40 to Asset X (400/500 x $50), and $10 to Asset Y
(100/500 x $50). Therefore, after the distribution, A
has an adjusted basis of $440 in Asset X and $110 in
Asset Y.
Example 2. B is a one-fourth partner in partner-
ship PRS and has an adjusted basis in its partnership
interest of $200. PRS distributes Asset X and Asset
Y to B in liquidation of its entire partnership inter-
est. Asset X has an adjusted basis to the partnership
and fair market value of $150. Asset Y has an ad-
justed basis to the partnership of $150 and a fair
market value of $50. Neither of the assets consists
of inventory items or unrealized receivables. Under
this paragraph (c), B’s basis is first assigned to the
distributed property to the extent of the partnership’s
basis in each distributed property. Thus, Asset X
and Asset Y are each assigned $150. Because the
aggregate adjusted basis of the distributed property,
$300, exceeds the basis to be allocated, $200, a de-
crease of $100 in the basis of the distributed prop-
erty is required. Assets X and Y have unrealized de-
preciation of zero and $100, respectively. Thus, the
entire decrease is allocated to Asset Y. After the dis-
tribution, B has an adjusted basis of $150 in Asset X
and $50 in Asset Y.
Example 3.C, a partner in partnership PRS, re-
ceives a distribution in liquidation of its entire part-
nership interest of $6,000 cash, inventory items hav-
ing an adjusted basis to the partnership of $6,000,
and real property having an adjusted basis to the
partnership of $4,000. C’s basis in its partnership
interest is $9,000. The cash distribution reduces C’s
basis to $3,000, which is allocated entirely to the in-
ventory items. The real property has a zero basis in
C’s hands. The partnership bases not carried over to
C for the distributed properties are lost unless an
election under section 754 is in effect requiring the
partnership to adjust the bases of remaining partner-
ship properties under section 734(b).
Example 4.Assume the same facts as in Example
3of this paragraph except C receives a distribution in
liquidation of its entire partnership interest of $1,000
cash and inventory items having a basis to the part-
nership of $6,000. The cash distribution reduces C’s
basis to $8,000, which can be allocated only to the
extent of $6,000 to the inventory items. The remain-
ing $2,000 basis, not allocable to the distributed
property, constitutes a capital loss to partner C under
section 731(a)(2). If the election under section 754 is
in effect, see section 734(b) for adjustment of the
basis of undistributed partnership property.
(5) Effective date. This paragraph (c)
applies to distributions of property from a
partnership that occur on or after the date
final regulations are published in the Fed-
eral Register.
(d) * * *
(1) * * *

(v) * * * (For a shift of transferee’s
basis adjustment to like property, see
§1.743–1(g).)
(vi) The provisions of this paragraph
(d)(1) may be illustrated by the following
example:
Example. (i) Transferee partner, T, purchased a
one-fourth interest in partnership PRS for $17,000.
At the time T purchased the partnership interest, the
election under section 754 was not in effect and the
partnership inventory had a basis to the partnership
of $14,000 and a value of $16,000. T’s purchase
price reflected $500 of this difference. Thus, $4,000
of the $17,000 paid by T for the partnership interest
was attributable to T’s share of partnership inventory
with a basis of $3,500. Within 2 years after T ac-
quired the partnership interest, T retired from the
partnership and received in liquidation of its entire
partnership interest the following property:
Assets
Adjusted Market
Basis toValue
PRS
Cash $1,500 $1,500
Inventory$3,500$4,000
Asset X$2,000$4,000
Asset Y$4,000$5,000
(ii) The value of the inventory received by T was
one-fourth of the value of all partnership inventory
and was T’s share of such property. It is immaterial
whether the inventory T received was on hand when
T acquired the interest. In accordance with T’s elec-
tion under section 732(d), the amount of T’s share of
partnership basis that is attributable to partnership
inventory is increased by $500 (one-fourth of the
$2,000 difference between the value of the property,
$16,000, and its $14,000 basis to the partnership at
the time T purchased its interest). This adjustment
under section 732(d) applies only for purposes of
distributions to T, and not for purposes of partner-
ship depreciation, depletion, or gain or loss on dis-
position. Thus, the amount to be allocated among
the properties received by T in the liquidating distri-
bution is $15,500 ($17,000, T’s basis for the partner-
ship interest, reduced by the amount of cash re-
ceived, $1,500). This amount is allocated as
follows: The basis of the inventory items received is
$4,000, consisting of the $3,500 common partner-
ship basis, plus the basis adjustment of $500 which
T would have had under section 743(b). The re-
maining basis of $11,500 ($15,500 minus $4,000) is
allocated among the remaining property distributed
to T by assigning to each property the adjusted basis
to the partnership of such property and adjusting that
basis by any required increase or decrease. Thus,
the adjusted basis to T of Asset X is $5,111 ($2,000,
the adjusted basis of Asset X to the partnership, plus
$2,000, the amount of unrealized appreciation in
Asset X, plus $1,111 ($4,000/9000 multiplied by
$2,500). Similarly, the adjusted basis of Asset Y to
T is $6,389 ($4,000, the adjusted basis of Asset Y to
the partnership, plus $1,000, the amount of unreal-
ized appreciation in Asset Y, plus, $1,389
($5,000/$9,000 multiplied by $2,500).
*****
(4) * * *
(iii) A basis adjustment under section
743(b) would change the basis to the
transferee partner of the property actually
distributed.
*****
Par. 3. Section 1.732–2 is amended by
adding a new sentence at the end of the
Example in paragraph (b) to read as fol-
lows:
§1.732–2 Special partnership basis of
distributed property.
*****
(b) * * *
Example. * * * See §1.743–1(g).
*****
Par. 4. In §1.734–1, paragraph (e) is
added to read as follows:
§1.734–1 Optional adjustment to basis of
undistributed partnership property.
*****
(e) Recovery of adjustments to basis of
partnership property—(1) Increases in
basis. For purposes of section 168, if the
basis of a partnership’s recovery property
is increased as a result of the distribution
of property to a partner, then the increased
portion of the basis must be taken into ac-
count as if it were newly-purchased re-
covery property placed in service when
the distribution occurs. Consequently,
any applicable recovery period and
method may be used to determine the re-
covery allowance with respect to the in-
creased portion of the basis. However, no
change is made for purposes of determin-
ing the recovery allowance under section
168 for the portion of the basis for which
there is no increase.
(2) Decreases in basis. For purposes of
section 168, if the basis of a partnership’s
recovery property is decreased as a result
of the distribution of property to a partner,
then the decrease in basis must be ac-
counted for over the remaining recovery
period of the property beginning with the
recovery period in which the basis is de-
creased.
(3) Effective date.This paragraph (e)
applies to distributions of property from a
partnership that occur on or after the date
final regulations are published in the Fed-
eral Register.
Par. 5. Section 1.743–1 is revised to
read as follows:
§1.743–1 Optional adjustment to basis of
partnership property.
(a) Generally.The basis of partnership
property is adjusted as a result of the
transfer of an interest in a partnership by
sale or exchange or on the death of a part-
ner only if the election provided by sec-
tion 754 (relating to optional adjustments
to the basis of partnership property) is in
effect with respect to the partnership.
Whether or not the election provided in
section 754 is in effect, the basis of part-
nership property is not adjusted as the re-
sult of a contribution of property, includ-
ing money, to the partnership.
(b) Determination of adjustment. In
the case of the transfer of an interest in a
partnership, either by sale or exchange or
as a result of the death of a partner, a part-
nership that has an election under section
754 in effect—
(1) Increases the adjusted basis of part-
nership property by the excess of the
transferee’s basis for the transferred part-
nership interest over the transferee’s share
of the adjusted basis to the partnership of
the partnership’s property; or
(2) Decreases the adjusted basis of
partnership property by the excess of the
transferee’s share of the adjusted basis to
the partnership of the partnership’s prop-
erty over the transferee’s basis for the
transferred partnership interest.
(c) Determination of transferee’s basis
in the transferred partnership interest.In
the case of the transfer of a partnership in-
terest by sale or exchange or as a result of
the death of a partner, the transferee’s
basis in the transferred partnership inter-
est is determined under section 742. See
also section 752 and §§1.752–1 through
1.752–5.
(d) Determination of transferee’s share
of the adjusted basis to the partnership of
the partnership’s property—(1) Gener-
ally.A transferee’s share of the adjusted
basis to the partnership of partnership
property is equal to the sum of the trans-
feree’s interest as a partner in the partner-
ship’s previously taxed capital, plus the
transferee’s share of partnership liabili-
ties. Generally, a transferee’s interest as a
partner in the partnership’s previously
taxed capital is equal to—
(i) The amount of cash that the trans-
feree would receive on a liquidation of the
1998–17 I.R.B.29April 27, 1998

partnership following the hypothetical
transaction, as defined in paragraph (d)(2)
of this section; increased by
(ii) The amount of tax loss (including
any remedial allocations under §1.704–
3(d)) that would be allocated to the trans-
feree from the hypothetical transaction, as
defined in paragraph (d)(2) of this sec-
tion; and decreased by
(iii) The amount of tax gain (including
any remedial allocations under §1.704–
3(d)) that would be allocated to the trans-
feree from the hypothetical transaction, as
defined in paragraph (d)(2) of this section.
(2) Hypothetical transaction defined.
For purposes of paragraph (d)(1) of this
section, the hypothetical transaction means
the disposition by the partnership of all of
the partnership’s assets, immediately after
the transfer of the partnership interest, in a
fully taxable transaction for cash equal to
the fair market value of the assets. For ex-
ample, if the partnership properly main-
tains capital accounts under the rules of
§1.704–1(b)(2)(iv), the transferee’s interest
as a partner in the partnership’s previously
taxed capital is equal to—
(i) The transferee’s capital account ad-
justed for the hypothetical transaction; in-
creased by
(ii) The amount of tax loss (including
any remedial allocations under §1.704–
3(d)) that would be allocated to the trans-
feree from the hypothetical transaction;
and decreased by
(iii) The amount of tax gain (including
any remedial allocations under
§1.704–3(d)) that would be allocated to
the transferee from the hypothetical trans-
action.
(3) Examples. The provisions of this
paragraph (d) are illustrated by the fol-
lowing examples:
Example 1.(i) A is a member of partnership PRS
in which the partners have equal interests in capital
and profits. The partnership has made an election
under section 754, relating to the optional adjust-
ment to the basis of partnership property. A sells its
interest to T for $22,000. The balance sheet of the
partnership at the date of sale shows the following:
Assets
AdjustedMarket
BasisValue
Cash . . . . . . . . . . . . . . . .$ 5,000$5,000
Accounts receivable . . . .10,00010,000
Inventory . . . . . . . . . . . . .20,00021,000
Depreciable assets . . . . . . 20,000
40,000
Total . . . . . . . . . . . . . .$55,000$76,000
Liabilities and Capital
Adjusted Market
per books value
Liabilities$10,000$10,000
Capital:
A15,00022,000
B15,00022,000
C 15,000
22,000
Total$55,000$76,000
(ii) The amount of the basis adjustment under
section 743(b) is the difference between the basis of
T’s interest in the partnership and T’s share of the
adjusted basis to the partnership of the partnership’s
property. Under section 742, the basis of T’s interest
is $25,333 (the cash paid for A’s interest, $22,000,
plus $3,333, T’s share of partnership liabilities). T’s
interest in the partnership’s previously taxed capital
is $15,000 ($22,000, the amount of cash T would re-
ceive if PRS liquidated immediately after the hypo-
thetical transaction, decreased by $7,000, the
amount of tax gain allocated to T from the hypothet-
ical transaction). T’s share of the adjusted basis to
the partnership of the partnership’s property is
$18,333 ($15,000 share of previously taxed capital,
plus $3,333 share of the partnership’s liabilities).
The amount of the basis adjustment to partnership
property therefore, is $7,000, the difference between
$25,333 and $18,333.
Example 2. A, B, and C form partnership PRS, to
which A contributes land worth $1,000 (Asset 1) with
an adjusted basis to A of $400, and B and C each con-
tribute $1,000 cash. Each partner has $1,000 credited
to it on the books of the partnership as its capital con-
tribution. The partners share in profits equally. Dur-
ing the partnership’s first taxable year, Asset 1 appre-
ciates in value to $1,300. A sells its one-third interest
in the partnership to T for $1,100, when an election
under section 754 is in effect. The amount of tax gain
that would be allocated to T from the hypothetical
transaction is $700 ($600 section 704(c) built-in gain,
plus one-third of the additional gain). Thus, T’s inter-
est in the partnership’s previously taxed capital is
$400 ($1,100, the amount of cash T would receive if
PRS liquidated immediately after the hypothetical
transaction, decreased by $700, T’s share of gain from
the hypothetical transaction). The amount of T’s
basis adjustment to partnership property is $700 (the
excess of $1,100, T’s cost basis for its interest, over
$400, T’s share of the adjusted basis to the partnership
of partnership property).
(e) Allocation of basis adjustment. For
the allocation of the basis adjustment
under this section among the individual
items of partnership property, see section
755 and the regulations thereunder.
(f) Subsequent transfers.Where there
has been more than one transfer of a part-
nership interest, a transferee’s basis ad-
justment is determined without regard to
any prior transferee’s basis adjustment.
In the case of a gift of an interest in a part-
nership, the donor is treated as transfer-
ring, and the donee as receiving, that por-
tion of the basis adjustment attributable to
the gifted partnership interest. The provi-
sions of this paragraph (f) may be illus-
trated by the following example:
Example.(i) A, B, and C form partnership PRS.
A and B each contribute $1,000 cash and C con-
tributes land with a basis and value of $1,000.
When the land has appreciated in value to $1,300, A
sells its interest to T1 for $1,100 (one-third of
$3,300, the value of the partnership property). An
election under section 754 is in effect; therefore, T1
has a basis adjustment of $100.
(ii) After the land has further appreciated in value
to $1,600, T1 sells its interest to T2 for $1,200 (one-
third of $3,600, the value of the partnership property).
T2 has a basis adjustment of $200. This amount is
determined without regard to any basis adjustment
that T1 may have had in the partnership assets.
(iii) During the following year, T2 makes a gift to
T3 of fifty percent of T2’s interest in PRS. At the
time of the transfer, T2 has a $200 basis adjustment.
T2 is treated as transferring $100 of the basis adjust-
ment to T3 with the gift of the partnership interest.
(g) Distributions—(1) Distribution of
adjusted property to the transferee—(i)
Coordination with section 732.If a part-
nership distributes property to a transferee
and the transferee has a basis adjustment
for the property, the basis adjustment is
taken into account under section 732. See
§1.732–2(b).
(ii) Coordination with section 734.For
certain adjustments to the common basis
of remaining partnership property after
the distribution of adjusted property to a
transferee, see §1.734–2(b).
(2) Distribution of adjusted property to
another partner—(i) Coordination with
section 732.If a partner receives a distri-
bution of property with respect to which
another partner has a basis adjustment,
the distributee does not take the basis ad-
justment into account under section 732.
(ii) Reallocation of basis.A transferee
with a basis adjustment in property that is
distributed to another partner reallocates
the basis adjustment among the remaining
items of partnership property pursuant to
§1.755–1(c).
(3) Distributions in complete liquida-
tion of a partner’s interest. If a transferee
receives a distribution of property
(whether or not the transferee has a basis
adjustment in such property) in liquida-
tion of its interest in the partnership, the
adjusted basis to the partnership of the
distributed property immediately before
the distribution includes the transferee’s
basis adjustment for the property in which
the transferee relinquished an interest (ei-
April 27, 1998301998–17 I.R.B.

ther because it remained in the partner-
ship or was distributed to another part-
ner). Any basis adjustment to property in
which the transferee is deemed to relin-
quish its interest is reallocated among the
properties distributed to the transferee
under §1.755–1(c).
(4) Coordination with other provisions.
The rules of sections 704(c)(1)(B), 731,
737, and 751 apply before the rules of this
paragraph (g).
(5) Example.The provisions of this
paragraph (g) are illustrated by the fol-
lowing example:
Example. (i) A, B, and C are equal partners in
partnership PRS. Each partner originally con-
tributed $10,000 in cash, and PRS used the contribu-
tions to purchase five nondepreciable capital assets.
PRS has no liabilities. After five years, PRS’s bal-
ance sheet appears as follows:
Assets
AdjustedMarket
BasisValue
Asset 1 . . . . . . . . . . . . .$10,000$10,000
Asset 2 . . . . . . . . . . . . .4,0006,000
Asset 3 . . . . . . . . . . . . .6,000 6,000
Asset 4 . . . . . . . . . . . . .7,0004,000
Asset 5 . . . . . . . . . . . . . 3,000
13,000
Total . . . . . . . . . . . . .$30,000$39,000
Capital
AdjustedMarket
per books Value
Partner A . . . . . . . . . . .$10,000$13,000
Partner B . . . . . . . . . . .10,000 13,000
Partner C . . . . . . . . . . . 10,000
13,000
Total . . . . . . . . . . . . .$30,000$39,000
(ii) A sells its interest to T for $13,000 when PRS
has an election in effect under section 754. T re-
ceives a basis adjustment in the partnership property
that is equal to $3,000 (the excess of T’s basis in the
partnership interest, $13,000, over T’s share of the
adjusted basis to the partnership of partnership prop-
erty, $10,000). The basis adjustment is allocated
under section 755, and the partnership’s balance
sheet appears as follows:
Assets
AdjustedMarket Basis
Basis ValueAdjustment
Asset 1 . . . . . . $10,000$10,000$ 0.00
Asset 2 . . . . . .4,0006,000666.67
Asset 3 . . . . . .6,000 6,0000.00
Asset 4 . . . . . .7,0004,000 (1,000.00)
Asset 5 . . . . . 3,000
13,000 3,333.33
Total . . . . . . $30,000$39,000$3,000.00
Capital
AdjustedMarketSpecial
per books ValueBasis
Partner T . . . . . .$10,000$13,000$3,000
Partner B . . . . . .10,000 13,0000
Partner C . . . . . 10,000
13,000 0
Total . . . . . . .$30,000$39,000$3,000
(iii) Assume that PRS distributes Asset 2 to T in
partial liquidation of T’s interest in the partnership.
T has a basis adjustment of $666.67 in Asset 2.
Under paragraph (g)(1)(i) of this section, T takes the
basis adjustment into account under section 732.
Therefore, T will have a basis in Asset 2 of
$4,666.67 following the distribution.
(iv) Assume instead that PRS distributes Asset 5
to C in complete liquidation of C’s interest in PRS.
T has a basis adjustment of $3,333.33 in Asset 5.
Under paragraph (g)(2)(i) of this section, C does not
take T’s basis adjustment into account under section
732. Therefore, the partnership’s basis for purposes
of sections 732 and 734 is $3,000. Under paragraph
(g)(2)(ii) of this section, T’s $3,333.33 basis adjust-
ment is reallocated among the remaining partnership
assets under §1.755–1(c).
(v) Assume instead that PRS distributes Asset 5
to T in complete liquidation of its interest in PRS.
Under paragraph (g)(3) of this section, immediately
prior to the distribution of Asset 5 to T, PRS must
adjust the basis of Asset 5. Therefore, immediately
prior to the distribution, PRS’s basis in Asset 5 is
equal to $6,000, which is the sum of (A) $3,000,
PRS’s common basis in Asset 5, plus (B) $3,333.33,
T’s basis adjustment to Asset 5, plus (C) ($333.33),
the sum of T’s basis adjustments in Assets 2 and 4.
For purposes of sections 732 and 734, therefore,
PRS will be treated as having a basis in Asset 5
equal to $6,000.
(h) Contributions of adjusted pro-
perty—(1)Section 721(a) transactions.
If, in a transaction described in section
721(a), a partnership (the upper tier) con-
tributes to another partnership (the lower
tier) property with respect to which a basis
adjustment has been made, the basis ad-
justment is treated as contributed to the
lower tier, regardless of whether the lower
tier partnership makes a section 754 elec-
tion. The lower tier’s basis in the con-
tributed assets and the upper tier’s basis in
the partnership interest received in the
transaction are determined with reference
to the basis adjustment. However, that
portion of the basis of the upper tier’s in-
terest in the lower tier attributable to the
basis adjustment must be segregated and
allocated solely to the transferee partner
for whom the basis adjustment was made.
Similarly, that portion of the lower tier’s
basis in its assets attributable to the basis
adjustment must be segregated and allo-
cated solely to the upper tier and the trans-
feree. A partner with a basis adjustment in
property held by a partnership that termi-
nates under section 708(b)(1)(B) will con-
tinue to have the same basis adjustment
with respect to property deemed con-
tributed by the terminated partnership to
the new partnership under §1.708–
1(b)(1)(iv), regardless of whether the new
partnership makes a section 754 election.
(2) Section 351 transactions—(i) Basis
in transferred property.A corporation’s
adjusted tax basis in property transferred
to the corporation by a partnership in a
transaction described in section 351 is de-
termined with reference to any basis ad-
justment to the property under section
743(b) (other than any basis adjustment
that reduces a partner’s gain under para-
graph (h)(2)(ii) of this section).
(ii) Partnership gain.The amount of
gain, if any, recognized by the partnership
on a transfer of property by the partner-
ship to a corporation in a transfer de-
scribed in section 351 is determined with-
out reference to any basis adjustment to
the transferred property under section
743(b). The amount of gain, if any, rec-
ognized by the partnership on the transfer
that is allocated to a partner with a basis
adjustment in the transferred property is
adjusted to reflect the partner’s basis ad-
justment in the transferred property.
(iii) Basis in stock.The partnership’s
adjusted tax basis in stock received from a
corporation in a transfer described in sec-
tion 351 is determined without reference
to the basis adjustment in property trans-
ferred to the corporation in the section
351 exchange. A partner with a basis ad-
justment in property transferred to the
corporation, however, has a special basis
adjustment in the stock received by the
partnership in the section 351 exchange in
an amount equal to the partner’s basis ad-
justment in the transferred property, re-
duced by any basis adjustment that re-
duced the partner’s gain under paragraph
(h)(2)(ii) of this section.
(i) [Reserved].
(j) Effect of basis adjustment—(1) In
general.The basis adjustment constitutes
an adjustment to the basis of partnership
property with respect to the transferee
only. No adjustment is made to the com-
mon basis of partnership property. Thus,
for purposes of income, deduction, gain,
loss, and distribution, the transferee will
have a special basis for those partnership
properties the bases of which are adjusted
under section 743(b) and this section.
The adjustment to the basis of partnership
property under section 743 has no effect
on the partnership’s computation of any
item under section 703.
(2) Computation of partner’s distribu-
tive share of partnership items. The part-
nership first computes its items of in-
1998–17 I.R.B.31April 27, 1998

come, deduction, gain, or loss at the part-
nership level under section 703. The part-
nership then allocates the partnership
items among the partners, including the
transferee, in accordance with section
704, and adjusts the partners’ capital ac-
counts accordingly. The partnership then
adjusts the transferee’s distributive share
of the items of partnership income, de-
duction, gain, or loss, in accordance with
paragraphs (j)(3) and (4) of this section,
to reflect the effects of the transferee’s
basis adjustment to the property that is the
source of the item of partnership income,
deduction, gain, or loss. These adjust-
ments to the transferee’s distributive
shares do not affect the transferee’s capi-
tal account.
(3) Effect of basis adjustment in deter-
mining items of income, gain, or loss—(i)
In general.The amount of a transferee’s
income, gain, or loss from the sale or ex-
change of a partnership asset in which the
transferee has a basis adjustment is equal
to the transferee’s share of the partner-
ship’s gain or loss from the sale of the
asset (including any remedial allocations
of gain or loss under §1.704–3(d)), minus
the amount of the transferee’s positive
basis adjustment for the partnership asset
(determined by taking into account the re-
covery of the basis adjustment under para-
graph (j)(4)(i)(B) of this section) or plus
the amount of the transferee’s negative
basis adjustment for the partnership asset
(determined by taking into the account the
recovery of the basis adjustment under
paragraph (j)(4)(ii)(B) of this section).
(ii) Examples.The following examples
illustrate the principles of this paragraph
(j)(3):
Example 1. A and B form equal partnership PRS.
A contributes nondepreciable property with a fair
market value of $50 and an adjusted tax basis of
$100. PRS will use the traditional allocation method
under §1.704–3(b). B contributes $50 cash. A sells
its interest to T for $50. PRS has an election in ef-
fect to adjust the basis of partnership property under
section 754. T receives a negative $50 basis adjust-
ment that, under section 755, is allocated to the non-
depreciable property. PRS then sells the property
for $60. PRS recognizes a book gain of $10 and a
tax loss of $40. T will receive an allocation of $40
of tax loss under the principles of section 704(c).
Because T has a negative $50 basis adjustment in the
nondepreciable property, T recognizes a $10 gain
from the partnership’s sale of the property.
Example 2. A and B form equal partnership PRS.
A contributes nondepreciable property with a fair
market value of $100 and an adjusted tax basis of
$50. B contributes $100 cash. PRS will use the tra-
ditional allocation method under §1.704–3(b). A
sells its interest to T for $100. PRS has an election
in effect to adjust the basis of partnership property
under section 754. Therefore, T receives a $50 basis
adjustment that, under section 755, is allocated to
the nondepreciable property. PRS then sells the
nondepreciable property for $90. PRS recognizes a
book loss of $10 and a tax gain of $40. T will re-
ceive an allocation of the entire $40 of tax gain
under the principles of section 704(c). Because T
has a $50 basis adjustment in the property, T recog-
nizes a $10 loss from the partnership’s sale of the
property.
Example 3.A and B form equal partnership PRS.
PRS will make allocations under section 704(c)
using the remedial allocation method described in
§1.704–3(d). A contributes property with a fair mar-
ket value of $100 and an adjusted tax basis of $150.
B contributes $100 cash. A sells its partnership in-
terest to T for $100. PRS has an election in effect to
adjust the basis of partnership property under sec-
tion 754. T receives a negative $50 basis adjustment
that, under section 755, is allocated to the property.
The partnership then sells the property for $120.
The partnership recognizes a $20 book gain and a
$30 tax loss. The book gain will be allocated
equally between the partners. The entire $30 tax
loss will be allocated to T under the principles of
section 704(c). To match its $10 share of book gain,
B will be allocated $10 of remedial gain and T will
be allocated an offsetting $10 of remedial loss. T
was allocated a total of $40 of tax loss with respect
to the property. Because T has a negative $50 basis
adjustment to the property, T recognizes a $10 gain
from the partnership’s sale of the property.
(4) Effect of basis adjustment in deter-
mining items of deduction—(i) In-
creases—(A) Additional deduction. The
amount of any positive basis adjustment
that is recovered by the transferee in any
year is added to the transferee’s distribu-
tive share of the partnership’s deprecia-
tion or amortization deductions for the
year. The basis adjustment is adjusted
under section 1016(a)(2) to reflect the re-
covery of the basis adjustment.
(B) Recovery period—(1) In general.
Except as provided in paragraph (j)(4)(i)-
(B)(2) of this section, for purposes of sec-
tion 168, if the basis of a partnership’s re-
covery property is increased as a result of
the transfer of a partnership interest, then
the increased portion of the basis is taken
into account as if it were newly-purchased
recovery property placed in service when
the transfer occurs. Consequently, any
applicable recovery period and method
may be used to determine the recovery al-
lowance with respect to the increased por-
tion of the basis. However, no change is
made for purposes of determining the re-
covery allowance under section 168 for
the portion of the basis for which there is
no increase.
(2) Remedial allocation method.If a
partnership elects to use the remedial allo-
cation method described in §1.704–3(d)
with respect to an item of the partner-
ship’s recovery property, then the portion
of any increase in the basis of the item of
the partnership’s recovery property under
section 743(b) that is attributable to sec-
tion 704(c) built-in gain is recovered over
the remaining recovery period for the
partnership’s excess book basis in the
property as determined in the final sen-
tence of §1.704–3(d)(2). Any remaining
portion of the basis increase is recovered
under paragraph (j)(4)(i)(B)(1) of this
section.
(C) Examples.The provisions of this
paragraph (j)(4)(i) are illustrated by the
following examples:
Example 1. (i) A, B, and C are equal partners in
partnership PRS, which owns Asset 1, an item of de-
preciable property that has a fair market value in ex-
cess of its adjusted tax basis. C sells its interest in
PRS to T while PRS has an election in effect under
section 754. PRS, therefore, increases the basis of
Asset 1 with respect to T.
(ii) Assume that in the year following the transfer
of the partnership interest to T, T’s distributive share
of the partnership’s common basis depreciation de-
ductions from Asset 1 is $1,000. Also assume that,
under paragraph (j)(4)(i)(B) of this section, the
amount of the basis adjustment that T recovers dur-
ing the year is $500. The total amount of deprecia-
tion deductions from Asset 1 reported by T is equal
to $1,500.
Example 2.(i) A and B form equal partnership
PRS. A contributes property with an adjusted basis
of $100,000 and a fair market value of $500,000. B
contributes $500,000 cash. When PRS is formed,
the property has five years remaining in its recovery
period. The partnership’s adjusted basis of $100,000
will, therefore, be recovered over the five years re-
maining in the property’s recovery period. PRS
elects to use the remedial allocation method under
§1.704–3(d) with respect to the property. If PRS
had purchased the property at the time of the part-
nership’s formation, the basis of the property would
have been recovered over a 10 year period. The
$400,000 of section 704(c) built-in gain will, there-
fore, be amortized under §1.704–3(d) over a 10 year
period beginning at the time of the partnership’s for-
mation.
(ii) Except for the depreciation deductions, PRS’s
expenses equal its income in each year of the first
two years commencing with the year the partnership
is formed. After two years, A’s share of the adjusted
basis of partnership property is $120,000, while B’s
is $440,000:
April 27, 1998321998–17 I.R.B.

(iii) A sells its interest in PRS to T for its fair
market value of $440,000. A valid election under
section 754 is in effect with respect to the sale of the
partnership interest. Accordingly, PRS makes an ad-
justment, pursuant to section 743(b), to increase the
basis of partnership property. Under section 743(b),
the amount of the basis adjustment is equal to
$320,000. Under section 755, the entire basis ad-
justment is allocated to the property.
(iv) At the time of the transfer, $320,000 of sec-
tion 704(c) built-in gain from the property was still
reflected on the partnership’s books, and all of the
basis adjustment is attributable to section 704(c)
built-in gain. Therefore, the basis adjustment will be
recovered over the remaining recovery period for
the section 704(c) built-in gain under §1.704–3(d).
(ii) Decreases—(A) Effect on deprecia-
tion deductions—(1) Reduced deduction
to transferee.Except as provided in para-
graph (j)(4)(ii)(A)(2) of this section, the
amount of the basis adjustment to an item
of depreciable or amortizable property
that is recovered in any year first de-
creases the transferee’s distributive share
of the partnership’s depreciation or amor-
tization deductions from that item of
property for the year. If the amount of the
basis adjustment recovered in any year
exceeds the transferee’s distributive share
of the partnership’s depreciation or amor-
tization deductions from the item of prop-
erty, then the transferee’s distributive
share of the partnership’s depreciation or
amortization deductions from other items
of partnership property is decreased. The
transferee then recognizes ordinary in-
come to the extent of the excess, if any, of
the amount of the basis adjustment recov-
ered in any year over the transferee’s dis-
tributive share of the partnership’s depre-
ciation or amortization deductions from
all items of property.
(2) Election to reduce deduction of
other partners by excess adjustment. The
partnership may elect to treat the amount
of the basis adjustment as an item of built-
in gain, decreasing the amount of depreci-
ation or amortization that the partnership
may allocate for tax purposes. This elec-
tion has no effect on the depreciation or
amortization of the property on the books
of the partnership. The partnership must
make this election on the statement re-
quired to be attached to its return pursuant
to paragraph (k) of this section for the
year that the adjustment is made to the
item of property.
(B) Recovery period.For purposes of
section 168, if the basis of an item of a
partnership’s recovery property is de-
creased as the result of the transfer of an
interest in the partnership then the de-
crease is recovered over the remaining
useful life of the item of the partnership’s
recovery property. The portion of the de-
crease that is recovered in any year during
the recovery period is equal to the product
of—
(1) The amount of the decrease to the
item’s adjusted basis (determined as of
the date of the transfer); multiplied by
(2) A fraction, the numerator of which
is the portion of the adjusted basis of the
item recovered by the partnership in that
year, and the denominator of which is the
adjusted basis of the item on the date of
the transfer (determined prior to any basis
adjustments).
(C) Examples.The provisions of this
paragraph (j)(4)(ii) are illustrated by the
following examples:
Example 1.(i) A, B, and C are equal partners in
partnership PRS, which owns Asset 2, an item of de-
preciable property that has a fair market value that is
less than its adjusted tax basis. C sells its interest in
PRS to T while PRS has an election in effect under
section 754. PRS, therefore, decreases the basis of
Asset 2 with respect to T.
(ii) Assume that in the year following the transfer
of the partnership interest to T, T’s distributive share
of the partnership’s common basis depreciation de-
ductions from Asset 2 is $1,000. Also assume that,
under paragraph (j)(4)(ii)(B) of this section, the
amount of the basis adjustment that T recovers dur-
ing the year is $500. The total amount of deprecia-
tion deductions from Asset 2 reported by T is equal
to $500.
Example 2.(i) A and B form equal partnership
PRS. A contributes property with an adjusted basis
of $100,000 and a fair market value of $50,000. B
contributes $50,000 cash. When PRS is formed, the
property has five years remaining in its recovery pe-
riod. The partnership’s adjusted basis of $100,000
will, therefore, be recovered over the five years re-
maining in the property’s recovery period. PRS uses
the traditional allocation method under §1.704–3(b)
with respect to the property. As a result, B will re-
ceive $5,000 of depreciation deductions from the
property in each of years 1–5, and A, as the con-
tributing partner, will receive $15,000 of deprecia-
tion deductions in each of these years.
(ii) Except for the depreciation deductions,
PRS’s expenses equal its income in each of the first
two years commencing with the year the partnership
is formed. After two years, A’s share of the adjusted
basis of partnership property is $70,000, while B’s is
$40,000. A sells its interest in PRS to T for its fair
market value of $40,000. A valid election under sec-
tion 754 is in effect with respect to the sale of the
partnership interest. Accordingly, PRS makes an ad-
justment, pursuant to section 743(b), to decrease the
basis of partnership property. Under section 743(b),
the amount of the adjustment is equal to ($30,000).
Under section 755, the entire adjustment is allocated
to the property.
(iii) The basis of the property at the time of the
transfer of the partnership interest was $60,000. In
each of years 3 through 5, the partnership will real-
ize depreciation deductions of $20,000 from the
property. Thus, one third of the negative basis ad-
justment ($10,000) will be recovered in each of
years 3 through 5. Consequently, T will be allocated
for tax purposes depreciation of $15,000 each year
from the partnership and will recover $10,000 of its
negative basis adjustment. Thus, T’s net deprecia-
tion deduction from the partnership in each year is
$5,000.
Example 3.(i) A, B, and C are equal partners in
partnership PRS, which owns Asset 2, an item of de-
preciable property that has a fair market value that is
less than its adjusted tax basis. C sells its interest in
PRS to T while PRS has an election in effect under
section 754. PRS, therefore, decreases the basis of
Asset 2 with respect to T.
(ii) Assume that in the year following the transfer
of the partnership interest to T, T’s distributive share
of the partnership’s common basis depreciation de-
ductions from Asset 2 is $500. PRS allocates no
other depreciation to T. Also assume that, under
paragraph (j)(4)(ii)(B) of this section, the amount of
the negative basis adjustment that T recovers during
the year is $1,000. T will report $500 of ordinary in-
come because the amount of the negative basis ad-
justment recovered during the year exceeds T’s dis-
tributive share of the partnership’s common basis
depreciation deductions from Asset 2.
1998–17 I.R.B.33April 27, 1998
Capital Accounts
AB
BookTaxBookTax
Initial Contribution$500,000 $100,000$500,000$500,000
Depreciation Year 1 (30,000)(30,000)(20,000)
Remedial 10,000 (10,000)
470,000110,000470,000470,000
Depreciation Year 2(30,000)(30,000)(20,000)
Remedial 10,000 (10,000)
$440,000 $120,000$440,000$440,000

Example 4.(i) A and B are equal partners in
partnership PRS. PRS has one depreciable asset that
it purchased with cash. On the first day of a year, A
transfers its interest to T at a time when the fair mar-
ket value of the depreciable asset is $50 and its ad-
justed tax basis is $200. The partnership has an
election in effect under section 754, resulting in a
$75 decrease in the basis of the depreciable asset to
T under section 743.
(ii) The depreciable asset has a remaining useful
life of two years and is being recovered using the
straight-line method. The partnership elects, under
paragraph (j)(4)(ii)(A)(2) of this section, to treat the
decrease in basis under section 743 as an item of
built-in gain, decreasing the amount of depreciation
that the partnership can allocate from $200 to $125.
This reduces the amount of depreciation available to
be allocated to the partners in each year from $100
to $62.50. This election has no effect on the depre-
ciation or amortization of the property on the books
of the partnership. Therefore, the partnership will
recover $100 of depreciation on its books in each
year.
(iii) At the end of the year, the partnership allo-
cates each partner $50 of depreciation for book pur-
poses. Under the principles of section 704(c), the
first $50 of tax depreciation is allocated to B. The re-
maining $12.50 of tax depreciation is allocated to T.
(5) Depletion. Where an adjustment is
made under section 743(b) to the basis of
partnership property subject to depletion,
any depletion allowance is determined
separately for each partner, including the
transferee partner, based on the partner’s
interest in such property. See §1.702–
1(a)(8).
(6) Example.The provisions of para-
graph (j)(5) of this section are illustrated
by the following example:
Example.A, B, and C each contributes $5,000
cash to form partnership PRS, which purchases oil
property for $15,000. A, B, and C have equal inter-
ests in capital and profits. C subsequently sells its
partnership interest to T for $100,000 when the elec-
tion under section 754 is in effect. T has a basis ad-
justment for the oil property of $95,000 (the differ-
ence between T’s basis, $100,000, and its share of
the basis of partnership property, $5,000). Assume
that the depletion allowance computed under the
percentage method would be $21,000 for the taxable
year so that each partner would be entitled to $7,000
as its share of the deduction for depletion. However,
under the cost depletion method, at an assumed rate
of 10 percent, the allowance with respect to T’s one-
third interest which has a basis to him of $100,000
($5,000, plus its basis adjustment of $95,000) is
$10,000, although the cost depletion allowance with
respect to the one-third interest of A and B in the oil
property, each of which has a basis of $5,000, is only
$500. For partners A and B, the percentage deple-
tion is greater than cost depletion and each will
deduct $7,000 based on the percentage depletion
method. However, as to T, the transferee partner, the
cost depletion method results in a greater allowance
and T will, therefore, deduct $10,000 based on cost
depletion. See section 613(a).
(k) Returns—(1) Statement of adjust-
ments.A partnership that must adjust the
bases of partnership properties under sec-
tion 743 must attach a statement to the
partnership return for the year of the
transfer setting forth the name and tax-
payer identification number of the trans-
feree as well as the computation of the ad-
justment and the partnership properties to
which the adjustment has been allocated.
(2) Requirement that transferee notify
partnership—(i) Sale or exchange.A
transferee that acquires, by sale or ex-
change, an interest in a partnership with
an election under section 754 in effect,
must notify the partnership, in writing,
within 30 days of the sale or exchange (or,
if earlier, by January 15 of the calendar
year following the calendar year in which
the sale or exchange occurred). The writ-
ten notice to the partnership must include
the names and addresses of both parties to
the sale or exchange, the taxpayer identi-
fication numbers of the transferee and (if
known) of the transferor, the date of the
transfer, and the amount of any money
and the fair market value of any other
property delivered or to be delivered for
the transferred interest in the partnership.
(ii) Transfer on death.A transferee that
acquires, on the death of a partner, an in-
terest in a partnership with an election
under section 754 in effect, must notify
the partnership, in writing, within one
year of the death of the deceased partner.
The written notice to the partnership must
include the names and addresses of the
deceased partner and the transferee, the
taxpayer identification numbers of the de-
ceased partner and the transferee, the date
on which the transferee became the owner
of the partnership interest, the fair market
value of the partnership interest on the ap-
plicable date of valuation set forth in sec-
tion 1014, and the manner in which the
fair market value of the partnership inter-
est was determined.
(3) Reliance.In making the adjust-
ments under section 743 and any state-
ment or return relating to such adjust-
ments under this section, a partnership
may rely on the written notice provided
by a transferee pursuant to paragraph
(k)(2) of this section to determine the
transferee’s basis in a partnership interest.
The previous sentence shall not apply if
the tax matters partner (as defined under
section 6231(a)(7)) or any other partner
who has responsibility for federal income
tax reporting by the partnership has
knowledge of facts indicating that the
statement is clearly erroneous.
(4) Partnership not required to make or
report adjustments under section 743
until it has notice of the transfer.A part-
nership is not required to make the adjust-
ments under section 743 (or any statement
or return relating to those adjustments)
with respect to any transfer until it has
been notified of the transfer. For pur-
poses of this section, a partnership is noti-
fied of a transfer when either—
(i) The partnership receives the written
notice from the transferee required under
paragraph (k)(2) of this section; or
(ii) The tax matters partner (as defined
under section 6231(a)(7)) or any other
partner who has responsibility for federal
income tax reporting by the partnership
has knowledge that there has been a trans-
fer of a partnership interest.
(5) Effect on partnership of the failure
of the transferee to comply.If the trans-
feree fails to provide the partnership with
the written notice required by paragraph
(k)(2) of this section, the partnership must
attach a statement to its return in the year
that the partnership is otherwise notified
of the transfer. This statement must set
forth the name and taxpayer identification
number (if known) of the transferee. In
addition, the following statement must be
prominently displayed in capital letters on
the first page of the partnership’s return
for such year, and on the first page of any
schedule or information statement relat-
ing to such transferee’s share of income,
credits, deductions, etc.: “RETURN
FILED PURSUANT TO §1.743–
1(k)(5).” The partnership will then be en-
titled to report the transferee’s share of
partnership items without adjustment to
reflect the transferee’s basis adjustment in
partnership property. If, following the fil-
ing of a return pursuant to this paragraph
(k)(5), the transferee provides the applica-
ble written notice to the partnership, the
partnership must make such adjustments
as are necessary to adjust the basis of
partnership property (as of the date of the
transfer) in any amended return otherwise
to be filed by the partnership or in the
next annual partnership return of income
to be regularly filed by the partnership.
At such time, the partnership must also
provide the transferee with such informa-
April 27, 1998341998–17 I.R.B.

tion as is necessary for the transferee to
amend its prior returns to properly reflect
the adjustment under section 743.
(l) Effective date.This section applies
to transfers of partnership interests that
occur on or after the date final regulations
are published in the Federal Register.
Par. 6. Section 1.751–1 is amended by:
1. Revising paragraphs (a)(2) and
(a)(3) and Example 1of paragraph (g).
2. Adding a sentence at the end of para-
graph (f).
The addition and revisions read as fol-
lows:
§1.751–1 Unrealized receivables and
inventory items.
(a) * * *
(2) Determination of gain or loss.The
income or loss realized by a partner upon
the sale or exchange of its interest in sec-
tion 751 property is the amount of income
or loss from section 751 property (includ-
ing any remedial allocation under
§1.704–3(d)) that would have been allo-
cated to the partner (to the extent attribut-
able to the partnership interest sold or ex-
changed) if the partnership had sold all of
its property in a fully taxable transaction
immediately prior to the partner’s transfer
of the interest in the partnership. Any
gain or loss recognized that is attributable
to section 751 property will be ordinary
gain or loss. The difference between the
amount of capital gain or loss that the
partner would realize in the absence of
section 751 and the amount of ordinary
income or loss determined under this
paragraph (a)(2) is the transferor’s capital
gain or loss on the sale of its partnership
interest.
(3) Statement required.A partner sell-
ing or exchanging any part of an interest
in a partnership that has any section 751
property at the time of sale or exchange
must submit with its income tax return for
the taxable year in which the sale or ex-
change occurs a statement setting forth
separately the following information—
(i) The date of the sale or exchange;
(ii) The amount of any gain or loss at-
tributable to the section 751 property; and
(iii) The amount of any gain or loss at-
tributable to capital gain or loss on the
sale of the partnership interest.
*****
(f) * * * The rules contained in para-
graphs (a)(2) and (3) of this section apply
to transfers of partnership interests that
occur on or after the date final regulations
are published in the Federal Register.
(g) * * *
Example 1. (i) A and B are equal partners in per-
sonal service partnership PRS. B transfers its inter-
est in PRS to T for $15,000 when PRS’s balance
sheet (reflecting a cash receipts and disbursements
method of accounting) is as follows:
ASSETS
Adjusted Market
BasisValue
Cash . . . . . . . . . . . . . . . . . . $ 3,000$ 3,000
Loans Receivable. . . . . . . . 10,00010,000
Capital Assets . . . . . . . . . . 7,0005,000
Unrealized receivables . . . 0
14,000
Total . . . . . . . . . . . . . . . . 20,00032,000
LIABILITIES AND CAPITAL
AdjustedMarket
Per booksValue
Liabilities . . . . . . . . . . . . $ 2,000$ 2,000
Capital:
A . . . . . . . . . . . . . . . . .9,00015,000
B . . . . . . . . . . . . . . . . 9,000
15,000
Total . . . . . . . . . . . .20,00032,000
(ii) None of the assets owned by PRS is section
704(c) property. The total amount realized by B is
$16,000, consisting of the cash received, $15,000,
plus $1,000, B’s share of the partnership liabilities
assumed by T. See section 752. B’s undivided half-
interest in the partnership property includes a half-
interest in the partnership’s unrealized receivables
items. B’s basis for its partnership interest is
$10,000 ($9,000, plus $1,000, B’s share of partner-
ship liabilities). If section 751(a) did not apply to
the sale, B would recognize $6,000 of capital gain
from the sale of the interest in PRS. However, sec-
tion 751(a) does apply to the sale.
(iii) If PRS sold all of its section 751 property in
a fully taxable transaction immediately prior to the
transfer of B’s partnership interest to T, B would
have been allocated $7,000 of ordinary income from
the sale of PRS’s unrealized receivables. Therefore,
B will recognize $7,000 of ordinary income with re-
spect to the unrealized receivables. The difference
between the amount of capital gain or loss that the
partner would realize in the absence of section 751
($6,000) and the amount of ordinary income or loss
determined under paragraph (a)(2) of this section
($7,000) is the transferor’s capital gain or loss on the
sale of its partnership interest. In this case, B will
recognize a $1,000 capital loss.
*****
Par. 7. Section 1.755–1 is revised to
read as follows:
§1.755–1 Rules for allocation of basis.
(a) Generally. A partnership that has an
election in effect under section 754 must
adjust the basis of partnership property
under the provisions of section 734(b) and
section 743(b) pursuant to the provisions
of this section. The basis adjustment is
first allocated between the two classes of
property described in section 755(b).
These classes of property consist of—
(1) Capital assets and section 1231(b)
property (capital gain property); and
(2) Any other property of the partner-
ship (ordinary income property). The
portion of the basis adjustment allocated
to each class is then allocated among the
items within the class. Adjustments under
section 743(b) are allocated under para-
graph (b) of this section. Adjustments
under section 734(b) are allocated under
paragraph (c) of this section.
(b) Adjustments under section 743(b)—
(1) Generally.In general, the allocation
of the basis adjustment under section 743
between the classes of property and
among the items of property within each
class are made based on the allocations of
income, gain, or loss (including remedial
allocations under §1.704–3(d)) that the
transferee partner would receive (to the
extent attributable to the acquired partner-
ship interest) if, immediately after the
transfer of the partnership interest, all of
the partnership’s assets were disposed of
in a fully taxable transaction for fair mar-
ket value (the hypothetical transaction).
The portion of the basis adjustment allo-
cated to one class of property may be an
increase while the portion allocated to the
other class is a decrease. This would be
the case even though the total amount of
the basis adjustment is zero. The portion
of the basis adjustment allocated to one
item of property within a class may be an
increase while the portion allocated to an-
other is a decrease. This would be the
case even though the basis adjustment al-
located to the class is zero.
(2) Allocations between classes of
property—(i) In general. The amount of
the basis adjustment allocated to the class
of ordinary income property is equal to
the total amount of income, gain, or loss
(including any remedial allocations under
§1.704–3(d)) that would be allocated to
the transferee (to the extent attributable to
the acquired partnership interest) from the
sale of all ordinary income property in the
hypothetical transaction. The amount of
the basis adjustment to capital gain prop-
erty is equal to—
1998–17 I.R.B.35April 27, 1998

(A) The total amount of the basis ad-
justment under section 743; less
(B) The amount of the basis adjustment
allocated to ordinary income property
under the preceding sentence; provided,
however, that in no event may the amount
of any decrease in basis allocated to capital
gain property exceed the partnership’s
basis (or in the case of property subject to
the remedial allocation method, the trans-
feree’s share of any remedial loss under
§1.704–3(d) from the hypothetical transac-
tion) in capital gain property. In the event
that a decrease in basis allocated to capital
gain property would otherwise exceed the
partnership’s basis in capital gain property,
the excess must be applied to reduce the
basis of ordinary income property.
(ii) Examples.The provisions of this
paragraph (b)(2) are illustrated by the fol-
lowing example:
Example 1. (i) A and B form equal partnership
PRS. A contributes $50,000 and Asset 1, a capital
asset with a fair market value of $50,000 and an ad-
justed tax basis of $25,000. B contributes $100,000.
PRS uses the cash to purchase Assets 2, 3, and 4.
After a year, A sells its interest in PRS to T for
$120,000. At the time of the transfer, A’s share of the
partnership’s basis in partnership assets is $75,000.
Therefore, T receives a $45,000 basis adjustment.
(ii) Immediately after the transfer of the partner-
ship interest to T, the adjusted basis and fair market
value of PRS’s assets are as follows:
Assets
AdjustedMarket
Basis Value
Capital Gain Property:
Asset 1 . . . . . . . . . . . . . $ 25,000$ 75,000
Asset 2 . . . . . . . . . . . . . 100,000117,500
Ordinary Income Property:
Asset 3 . . . . . . . . . . . . . $ 40,000$ 45,000
Asset 4 . . . . . . . . . . . . . 10,000
2,500
Total . . . . . . . . . . . . . $175,000$240,000
(iii) If PRS sold all of its assets in a fully taxable
transaction at fair market value immediately after
the transfer of the partnership interest to T, the total
amount of capital gain that would be allocated to T
is equal to $46,250 ($25,000 section 704(c) built-in
gain from Asset 1, plus fifty percent of the $42,500
appreciation in capital gain property). T would also
be allocated a $1,250 ordinary loss from the sale of
the ordinary income property.
(iv) The amount of the basis adjustment that is
allocated to ordinary income property is equal to
($1,250) (the amount of the loss allocated to T from
the hypothetical sale of the ordinary income prop-
erty).
(v) The amount of the basis adjustment that is al-
located to capital gain property is equal to $46,250
(the amount of the basis adjustment, $45,000, less
($1,250), the amount of loss allocated to T from the
hypothetical sale of the ordinary income property).
Example 2.(i) A and B form equal partnership
PRS. A and B each contribute $1,000 cash which
the partnership uses to purchase Assets 1, 2, 3, and
4. After a year, A sells its partnership interest to T
for $1,000. T’s basis adjustment under section 743
is zero.
(ii) Immediately after the transfer of the partner-
ship interest to T, the adjusted basis and fair market
value of PRS’s assets are as follows:
Assets
AdjustedMarket
Basis Value
Capital Gain Property:
Asset 1 . . . . . . . . . . . . . . . .$ 500$ 750
Asset 2 . . . . . . . . . . . . . . .500500
Ordinary Income Property:
Asset 3 . . . . . . . . . . . . . . . .$ 500$ 250
Asset 4 . . . . . . . . . . . . . . . 500
500
Total . . . . . . . . . . . . . . . . $2,000$2,000
(iii) If, immediately after the transfer of the part-
nership interest to T, PRS sold all of its assets in a
fully taxable transaction at fair market value, T
would be allocated a loss of $125 from the sale of
the ordinary income property. Thus, the amount of
the basis adjustment to ordinary income property is
($125). The amount of the basis adjustment to capi-
tal gain property is $125 (zero, the amount of the
basis adjustment under section 743, less ($125),
amount of the basis adjustment allocated to ordinary
income property).
(3) Allocation within the class—(i) Or-
dinary income property.The amount of
the basis adjustment to each item of prop-
erty within the class of ordinary income
property is equal to—
(A) The amount of income, gain, or
loss (including any remedial allocations
under §1.704–3(d)) that would be allo-
cated to the transferee (to the extent at-
tributable to the acquired partnership in-
terest) from the hypothetical sale of the
item; reduced by
(B) The product of—
(1) Any decrease to the amount of the
basis adjustment to ordinary income prop-
erty required pursuant to the last sentence
of paragraph (b)(2)(i) of this section; mul-
tiplied by
(2) A fraction, the numerator of which
is the fair market value of the item of
property to the partnership and the de-
nominator of which is the total fair market
value of all of the partnership’s items of
ordinary income property.
(ii) Capital gain property.The amount
of the basis adjustment to each item of
property within the class of capital gain
property is equal to—
(A) The amount of income, gain, or
loss (including any remedial allocations
under §1.704–3(d)) that would be allo-
cated to the transferee (to the extent at-
tributable to the acquired partnership in-
terest) from the hypothetical sale of the
item; minus
(B) The product of—
(1) The total amount of gain or loss (in-
cluding any remedial allocations under
§1.704–3(d)) that would be allocated to
the transferee (to the extent attributable to
the acquired partnership interest) from the
hypothetical sale of all items of capital
gain property, minus the amount of the
positive basis adjustment to all items of
capital gain property or plus the amount
of the negative basis adjustment to capital
gain property; multiplied by
(2) A fraction, the numerator of which
is the fair market value of the item of
property to the partnership and the de-
nominator of which is the total fair market
value of all of the partnership’s items of
capital gain property.
(iii) Examples.The provisions of this
paragraph (b)(3) are illustrated by the fol-
lowing example:
Example 1.(i) Assume the same facts as Exam-
ple 1 in paragraph (b)(2)(ii) of this section. Of the
$45,000 basis adjustment, $46,250 was allocated to
capital gain property. The amount allocated to ordi-
nary income property was ($1,250).
(ii) Asset 1 is a capital gain asset, and T would be
allocated $37,500 from the sale of Asset 1 in the hy-
pothetical transaction. Therefore, the amount of the
adjustment to Asset 1 is $37,500.
(iii) Asset 2 is a capital gain asset, and T would
be allocated $8,750 from the sale of Asset 2 in the
hypothetical transaction. Therefore, the amount of
the adjustment to Asset 2 is $8,750.
(iv) Asset 3 is ordinary income property, and T
would be allocated $2,500 from the sale of Asset 3
in the hypothetical transaction. Therefore, the
amount of the adjustment to Asset 3 is $2,500.
(v) Asset 4 is ordinary income property, and T
would be allocated ($3,750) from the sale of Asset 4
in the hypothetical transaction. Therefore, the
amount of the adjustment to Asset 4 is ($3,750).
Example 2.(i) Assume the same facts as Exam-
ple 1 in paragraph (b)(2)(ii) of this section, except
that A sold its interest in PRS to T for $110,000
rather than $120,000. T, therefore, receives a basis
adjustment under section 743 of $35,000. Of the
$35,000 basis adjustment, ($1,250) is allocated to
ordinary income property, and $36,250 is allocated
to capital gain property.
(ii) Asset 3 is ordinary income property, and T
would be allocated $2,500 from the sale of Asset 3
in the hypothetical transaction. Therefore, the
amount of the adjustment to Asset 3 is $2,500.
(iii) Asset 4 is ordinary income property, and T
would be allocated ($3,750) from the sale of Asset 4
in the hypothetical transaction. Therefore, the
amount of the adjustment to Asset 4 is ($3,750).
April 27, 1998361998–17 I.R.B.

(iv) Asset 1 is a capital gain asset, and T would
be allocated $37,500 from the sale of Asset 1 in the
hypothetical transaction. Asset 2 is a capital gain
asset, and T would be allocated $8,750 from the sale
of Asset 2 in the hypothetical transaction. The total
amount of gain that would be allocated to T from the
sale of the capital gain assets in the hypothetical
transaction is $46,250, which exceeds the amount of
the basis adjustment allocated to capital gain prop-
erty. The amount of the adjustment to Asset 1 is
$33,604 (the sum of $37,500, less $3,896 ($10,000
3$75,000/192,500)). The amount of the basis ad-
justment to Asset 2 is $2,646 (the sum of $8,750,
less $6,104 ($10,000 3$117,500/192,500)).
(c) Adjustments under section 734(b)—
(1) Allocations between classes of prop-
erty—(i) General rule.Where there is a
distribution of partnership property result-
ing in an adjustment to the basis of undis-
tributed partnership property under sec-
tion 734(b)(1)(B) or (b)(2)(B), the
adjustment must be allocated to remain-
ing partnership property of a character
similar to that of the distributed property
with respect to which the adjustment
arose. Thus, when the partnership’s ad-
justed basis of distributed capital gain
property immediately prior to distribution
exceeds the basis of the property to the
distributee partner (as determined under
section 732), the basis of the undistrib-
uted capital gain property remaining in
the partnership is increased by an amount
equal to the excess. Conversely, when the
basis to the distributee partner (as deter-
mined under section 732) of distributed
capital gain property exceeds the partner-
ship’s adjusted basis of such property im-
mediately prior to the distribution, the
basis of the undistributed capital gain
property remaining in the partnership is
decreased by an amount equal to such ex-
cess. Similarly, where there is a distribu-
tion of ordinary income property, and the
basis of the property to the distributee
partner (as determined under section 732)
is not the same as the partnership’s ad-
justed basis of the property immediately
prior to distribution, the adjustment is
made only to undistributed property of the
same class remaining in the partnership.
(ii) Special rule.Where there is a dis-
tribution resulting in an adjustment under
section 734(b)(1)(A) or (b)(2)(A) to the
basis of undistributed partnership prop-
erty, the adjustment is allocated only to
capital gain property.
(2) Allocations within the classes—(i)
Increases.If there is an increase in basis
to be allocated within a class, the increase
must be allocated first to properties with
unrealized appreciation in proportion to
their respective amounts of unrealized ap-
preciation before such increase (but only
to the extent of each property’s unrealized
appreciation). Any remaining increase
must be allocated among the properties
within the class in proportion to their fair
market values.
(ii) Decreases. If there is a decrease in
basis to be allocated within a class, the
decrease must be allocated first to proper-
ties with unrealized depreciation in pro-
portion to their respective amounts of un-
realized depreciation before such
decrease (but only to the extent of each
property’s unrealized depreciation). Any
remaining decrease must be allocated
among the properties within the class in
proportion to their adjusted bases (as ad-
justed under the preceding sentence).
(3) Limitation in decrease of basis.
Where a decrease in the basis of partner-
ship assets is required under section
734(b)(2) and the amount of the decrease
exceeds the adjusted basis to the partner-
ship of property of the required character,
the basis of such property is reduced to
zero (but not below zero).
(4) Carryover adjustment.Where, in
the case of a distribution, an increase or a
decrease in the basis of undistributed
property cannot be made because the part-
nership owns no property of the character
required to be adjusted, or because the
basis of all the property of a like character
has been reduced to zero, the adjustment
is made when the partnership subse-
quently acquires property of a like charac-
ter to which an adjustment can be made.
(5) Goodwill. The application of the
rules with respect to the allocation of an
adjustment in basis under this paragraph
(c) requires that a portion of the adjustment
be allocated to partnership goodwill, to the
extent that goodwill exists and is reflected
in the value of the property distributed in
accordance with the difference between
such value of the goodwill and its adjusted
basis at the time of the distribution.
(6) Example.The following example il-
lustrates this paragraph (c):
Example. (i) A, B, and C form equal partnership
PRS. A contributes $50,000 and Asset 1, capital
gain property with a fair market value of $50,000
and an adjusted tax basis of $25,000. B and C each
contributes $100,000. PRS uses the cash to pur-
chase Assets 2, 3, 4, 5, and 6. None of the partner-
ship’s assets are section 751 property. The partner-
ship has an election in effect under section 754.
After five years, the adjusted basis and fair market
value of PRS’s assets are as follows:
Assets
AdjustedMarket
Basis Value
Capital Gain Property:
Asset 1 . . . . . . . . . . . . . .$ 25,000 $ 75,000
Asset 2 . . . . . . . . . . . . . .100,000117,500
Asset 3 . . . . . . . . . . . . . .50,00060,000
Ordinary Income Property:
Asset 4 . . . . . . . . . . . . ..$ 40,000$ 45,000
Asset 5 . . . . . . . . . . . . . .50,00060,000
Asset 6 . . . . . . . . . . . . . . 10,000
2,500
Total . . . . . . . . . . . . .$275,000 $360,000
(ii) Allocation between classes. Assume that
PRS distributes Assets 3 and 5 to A in complete liq-
uidation of A’s interest in the partnership. A’s basis
in the partnership interest was $75,000. The partner-
ship’s basis in Assets 3 and 5 was $50,000 each. A’s
$75,000 basis in its partnership interest is allocated
between Assets 3 and 5 under sections 732(b) and
(c). A will, therefore, have a basis of $37,500 in
each of Assets 3 and 5. The distribution results in a
$12,500 increase in the basis of both capital gain
property and ordinary income property.
(iii) Allocation within classes—(A) Capital gain
property.The amount of the basis increase to capital
gain property is $12,500, and must be allocated
among the remaining capital gain assets in propor-
tion to the difference between the value and basis of
each. The fair market value of Asset 1 exceeds its
basis by $50,000. The fair market value of Asset 2
exceeds its basis by $17,500. Therefore, the basis of
Asset 1 will be increased by $9,260 ($12,500, multi-
plied by $50,000, divided by $67,500), and the basis
of Asset 2 will be increased by $3,240 ($12,500
multiplied by $17,500, divided by $67,500).
(B) Ordinary income property. The amount of
the basis increase to ordinary income property is
$12,500, and must be allocated among the remain-
ing ordinary income assets in proportion to the dif-
ference between the value and basis of each. Be-
cause the basis of Asset 6 exceeds its fair market
value, no part of the basis adjustment will be allo-
cated to Asset 6. The fair market value of Asset 4,
$45,000, exceeds its basis, $40,000, by $5,000. Be-
cause the partnership owns no other ordinary in-
come property that has a value in excess of its basis,
the entire basis adjustment will be allocated to Asset
4, increasing its basis from $40,000 to $52,500.
(d) Effective date.This section applies
to transfers of partnership interests and
distributions of property from a partner-
ship that occur on or after the date final
regulations are published in the Federal
Register.
Par. 8. Section 1.1017–1 as proposed
to be revised at 62 F.R. 958, January 7,
1997, is amended by:
1. Revising paragraph (f)(2)(iv).
2. Adding paragraph (f)(2)(v).
The addition and revision read as fol-
lows:
1998–17 I.R.B.37April 27, 1998

§1.1017–1 Basis reductions following a
discharge of indebtedness.
*****
(f) * * *
(2) * * *
(iv) Partner’s share of partnership
basis—(A) In general. For purposes of
this paragraph (f), a partner’s proportion-
ate share of the partnership’s basis in de-
preciable property (or depreciable real
property) is equal to the sum of—
(1) The partner’s section 743(b) basis
adjustments to items of partnership depre-
ciable property (or depreciable real prop-
erty); and
(2) The common basis depreciation de-
ductions (but not including remedial allo-
cations of depreciation deductions under
§1.704–3(d)) that, under the terms of the
partnership agreement, are reasonably ex-
pected to be allocated to the partner over
the property’s remaining useful life. The
assumptions made by a partnership in de-
termining the reasonably expected alloca-
tion of depreciation deductions must be
consistent for each partner. For example,
a partnership may not treat the same de-
preciation deductions as being reasonably
expected by more than one partner.
(B) Effective date.This paragraph
(f)(2)(iv) applies to elections made under
sections 108(b)(5) and 108(c) on or after
the date the regulations are published as
final regulations in the Federal Register.
(v) Treatment of basis reduction—(A)
Basis adjustment.The amount of the re-
duction to the basis of depreciable part-
nership property constitutes an adjust-
ment to the basis of partnership property
with respect to the partner only. No ad-
justment is made to the common basis of
partnership property. Thus, for purposes
of income, deduction, gain, loss, and dis-
tribution, the partner will have a special
basis for those partnership properties the
bases of which are adjusted under section
1017 and this section.
(B) Recovery of adjustments to basis of
partnership property.Adjustments to the
basis of partnership property under this
section are recovered in the manner de-
scribed in §1.743–1.
(C) Effect of basis reduction.Adjust-
ments to the basis of partnership property
under this section are treated in the same
manner and have the same effect as an
adjustment to the basis of partnership
property under section 743, provided,
however, that the election in §1.743–1(j)-
(4)(ii)(A)(2) is not available. The follow-
ing example illustrates this paragraph
(f)(2)(v):
Example. (i) A, B, and C are equal partners in
partnership PRS, which owns (among other things)
Asset 1, an item of depreciable property with a basis
of $30,000. A’s basis in its partnership interest is
$20,000. Under the terms of the partnership agree-
ment, A’s share of the depreciation deductions from
Asset 1 over its remaining useful life will be
$10,000. Under section 1017, A requests, and PRS
agrees to decrease the basis of Asset 1 with respect
to A by $10,000.
(ii) In the year following the reduction of basis
under section 1017, PRS amends its partnership
agreement to provide that items of depreciation and
loss from Asset 1 will be allocated equally between
B and C. In that year, A’s distributive share of the
partnership’s common basis depreciation deductions
from Asset 1 is now $0. Under §1.743–1(j)(4)-
(ii)(B), the amount of the section 1017 basis adjust-
ment that A recovers during the year is $1,000. A
will report $1,000 of ordinary income because A’s
distributive share of the partnership’s common basis
depreciation deductions from Asset 1 ($0) is insuffi-
cient to offset the amount of the section 1017 basis
adjustment recovered by A during the year ($1,000).
(iii) In the following year, PRS sells Asset 1 for
$15,000 and recognizes a $12,000 loss. This loss is
allocated equally between B and C, and A’s share of
the loss is $0. Upon the sale of Asset 1, A recovers
its entire remaining section 1017 basis adjustment
($9,000). A will report $9,000 of ordinary income.
(D) Effective date.This paragraph
(f)(2)(v) applies to elections made under
sections 108(b)(5) and 108(c) on or after
the date the regulations are published as
final regulations in the Federal Register.
*****
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on
January 28, 1998, 8:45 a.m., and published in the
issue of the Federal Register for January 29, 1998,
63 F.R. 4408)
Penalty Relief for Failure to
Timely File the 1997 Form
3520–A
Announcement 98–30
Because the 1997 Form 3520–A, An-
nual Information Return of Foreign Trust
With a U.S. Owner, was not available in
time for foreign trusts to meet their filing
requirements, no penalties will be im-
posed under section 6677 of the Internal
Revenue Code on the U.S. owner of a for-
eign trust for failure to timely file if a for-
eign trust files its 1997 Form 3520–A
with the Philadelphia Service Center and
furnishes the required statements to the
U.S. owners and U.S. beneficiaries by the
later of the—
• Fifteenth day of the seventh month fol-
lowing the end of its taxable year begin-
ning in 1997, or
• Extension date granted under Form
2758, Application for Extension of
Time To File Certain Excise, Income,
Information, and Other Returns.
In section VIII of Notice 97–34,
1997–1 C.B. 422, the Service provided
that no penalties would be imposed under
section 6677 on U.S. owners of foreign
trusts under certain circumstances if the
foreign trust filed Form 3520–A for its
taxable year that included August 20,
1996 (“1996 Form 3520–A”) by the due
date for filing the trust’s 1997 Form
3520–A. The relief discussed in this an-
nouncement (98–30) also applies to the
filing of the 1996 Form 3520–A by these
trusts. If such a trust has not yet filed
Form 3520–A pursuant to Section IV of
Notice 97–34 for its 1996 taxable year,
the trust should file a 1997 Form 3520–A
to report information for that year and
strike out “1997” at the top right-hand
corner and replace it with “1996”. If a
trust has already filed Form 3520–A pur-
suant to Section IV of Notice 97–34 for
its 1996 and 1997 taxable years, the trust
is not required to refile the revised forms.
The relief discussed in this announce-
ment does not extend the time for (1) pay-
ment of any income taxes due for the
owner’s 1996 and 1997 taxable years or
(2) filing the 1996 Form 3520 and the
1997 Form 3520, Annual Return To Re-
port Transactions With Foreign Trusts and
Receipt of Certain Foreign Gifts. Be-
cause Form 3520 is filed on an annual
basis with the U.S. owner’s or U.S. bene-
ficiary’s income tax return, an extension
of time to file Form 3520 may be obtained
by getting an extension of time to file the
applicable income tax return.
April 27, 1998381998–17 I.R.B.

Notice of Correction
Announcement 98–32
This announcement withdraws the no-
tice issued in Internal Revenue Bulletin
Number 1997–52, dated December 29,
1997, under section 7428(c) validation of
certain contributions made during pen-
dency of declaratory judgment proceed-
ings, with respect to the organization
listed below.
At Cost Services, Inc.
New York, NY
Deletions From Cumulative List
of Organizations Contributions
to Which Are Deductible Under
Section 170 of the Code
Announcement 98–33
The names of organizations that no
longer qualify as organizations described
in section 170(c)(2) of the Internal Rev-
enue Code of 1986 are listed below.
Generally, the Service will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletin that an organization no longer
qualifies. However, the Service is not
precluded from disallowing a deduction
for any contributions made after an orga-
nization ceases to qualify under section
170(c)(2) if the organizaion has not
timely filed a suit for declaratory judg-
ment under section 7428 and if the con-
tributor (1) had knowledge of the revoca-
tion of the ruling or determination letter,
(2) was aware that such revocation was
imminent, or (3) was in part responsible
for or was aware of the activities or omis-
sions of the organization that brought
about this revocation.
If on the other hand a suit for declara-
tory judgment has been timely filed, con-
tributions from individuals and organiza-
tions described in section 170(c)(2) that
are otherwise allowable will continue to
be deductible. Protection under section
7428(c) would begin on (Date) 1998, and
would end on the date the court first de-
termines that the organization is not de-
scribed in section 170(c)(2) as more par-
ticularly set forth in section 7428 (c)(1).
For individual contributors, the maximum
deduction protected is $1,000, with a hus-
band and wife treated as one contributor.
This benefit is not extended to any indi-
vidual, in whole or in part, for the acts or
omissions of the organization that were
the basis for revocation.
Bala Books, Inc.
San Diego, CA
De’Unique, Inc.
Cheverly, MD
Michigan Affordable Housing Coalition
Denver, CO
Foundations Status of Certain
Organizations
Announcement 98–34
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:
W A M What About Me, Dubuque, IA
W D Smith Environmental Foundation,
Hammond, LA
WORKInc. of Charleston, Charleston,
SC
Wade Hampton Cherokees Youth
Organization Inc., Greenville, SC
Wakulla Adult Education Foundation
Inc., Crawfordville, FL
Walk of Faith Ministries Inc., New Hope,
PA
Walk Thru Ministries Inc., Mount
Vernon, IN
Wallingford Youth Football Association,
Wallingford, PA
Walton Clean & Beautiful Inc., Monroe,
GA
Walton Regional Hospital Booster Club
Incorporated, DeFuniak Springs, FL
Wamego Area Senior Citizens
Association, Wamego, KS
Warbirds of Indiana Inc., Indianapolis, IN
Warcry Ministries, Irvington, AL
Ward County Community Corrections
Advisory Board, Minot, ND
Warm Souls Projects Inc., Nashville, TN
Warriors Youth Basketball Association,
El Paso, TX
Warwick Education Systems Inc.,
Newport News, VA
Wasatch Eye Foundation, Salt Lake City,
UT
Washington County African American
Aids Network Incorporated,
Greenville, MS
Washington High School Baseball
Boosters Club Inc., Pensacola, FL
Washington International Foundation for
Global Strategy, Richmond, VA
Washington Place Inc., Sumter, SC
Waste Reduction Action Coalition,
Edwardsville, IL
Water Development International Inc.,
Golden, CO
Waterman Foundation, Columbus, OH
Waxahachie Community Development
Council, Waxahachie, TX
Wayne Caretakers Preservation Club Inc.,
Lebanon, OH
Wayne County Performing Arts Council,
Wooster, OH
Wayne County Track Club, Wooster, OH
We Help Others, Denver, CO
Webster Illinois Shepherd E Upshur Inc.,
Washington, DC
Wedr Relief Foundation Inc., Miami, FL
Wee World Incorporated, Landover, MD
Welcome-Homes for the Parentless Child
Inc., Bartlesville, OK
Wellington Community Education
Foundation Inc., Wellington, FL
Wellington Farm Park Inc., Grayling,
MI
Wellspring Inc., Sarasota, FL
Welte Institute for Oaxacan Studies Inc.,
Atlanta, GA
Wesley Day Care Services, Andalusia, AL
Wesleyan Foundation of South Dakota
Inc., Rapid City, SD
West Alabama Diabetes Education Center
Inc., Eutaw, AL
West Broward Quilters Guild Inc.,
Plantation, FL
West Conn Affordable Housing Corp.,
Beverly Hills, FL
1998–17 I.R.B.39April 27, 1998

West Georgia Christian Campus
Fellowship, Carrollton, GA
West Michigan Wildlife Rescue,
Caledonia, MI
West Texas Heat, Midland, TX
West Virginia Rails-To-Trails Council
Inc., Cairo, WV
West Virginia Youth Alliance Inc.,
Charleston, WV
Westbury-Parkwest Citizens on Patrol,
Houston, TX
Western Arkansas NSCIA Inc., Fort
Smith, AR
Western Carteret Baseball & Softball
League, Emerald Isle, NC
Western Colorado Songwriters Group,
Clifton, CO
Western Springs Foundation for
Education Excellence, Western
Springs, IL
Western Valley Arts Council, Monte
Vista, CO
Westfield Downtown Committee Inc.,
Westfield, NJ
Westlake Youth Basketball Association,
Austin, TX
Westside All Stars, Fort Worth, TX
WFPNJ Scholarship Fund, Newark, NJ
Wheelin Around, Tucson, AZ
White Deer Volunteer EMS, White Deer,
TX
White Rock United Methodist Church
Foundation Inc., Dallas, TX
Whiteville Christian Association, Hot
Springs, AR
Whitewing Productions Company, Baton
Rouge, LA
Whitfield County Foster Care
Association, Dalton, GA
Whitley County Wild Game Club Inc.,
Williamsburg, KY
Whitney House II, Ann Arbor, MI
Whos for Dinner Inc., Dallas, TX
Widowed Persons Service of Helena Area
Inc., Helena, MT
Wild Care, Harrisburg, PA
Wild Life Theatre Company, Chicago, IL
Wild Pine Nature Center of Southwest
Florida Inc., Sarasota, FL
Wildcare Inc., Lawrence, KS
Wildcats Baseball Club, Orient, OH
Wildlife Response Inc., Chesapeake, VA
Wiley Branton Community Development
Corporation, Washington, DC
William B. Fitzgerald Scholarship Fund,
Washington, DC.
William J. Fanning Foundation, New
Orleans, LA
Willow Run Adventist Apartments Inc.,
Huntsville, AL
Willow Run Nutrition Food Program,
Houston, TX
Willowood Crime Watch Association,
Houston, TX
Win for Life Foundation Inc., Grapevine,
TX
Windom Park Citizens in Action,
Minneapolis, MN
Windsor Terrace Resident Council
Rosewind Inc., Columbus, OH
Wings for Life Inc., Atlanta, GA
Wings of Eagles Inc., Kensington, MD
Wings of Eagles Ministries Inc.,
Morganton, NC
Wings of Praise Inc., Lauderhill, FL
Wings Women in Need of Growth
Services Inc., Naples, FL
Winnebago Countryside Bible Chapel,
Winnebago, IL
Winning Decisions Inc., Mansfield, TX
Winter Park Committee Inc., Mahwah,
NJ
Wisconsin CISO Network Inc., Milton,
WI
Wisdoms Way, Jerome, AZ
Wise County Crime Stoppers Inc., Chico,
TX
Wish-U-Well Foundation, Sandy, UT
Wish Upon a Star Foundation, Pittsburgh,
PA
Wishingstar Foundation Inc., Suches, GA
Witnessing Ministries Inc., San Antonio,
TX
Womack Foundation Inc., Indianapolis,
IN
Womans Exchange of Greater Harrisburg
Inc., Harrisburg, PA
Women Children & Families at Risk,
Phoenix, AZ
Women to Women Retreat, Columbia, SC
Women Working the Word Inc.,
Philadelphia, PA
Woodford County River Association Inc.,
Versailles, KY
Woodridge Foundation Inc., Clayton, GA
Woodrow Stanley Foundation, Flint, MI
Woodside Housing Resource Foundation,
Kissimmee, FL
Woodson County Presevation Inc., Yates
Center, KS
Woodstock Animal Foundation Inc.,
Hanover Park, IL
Wooster All-Sports Booster Club,
Wooster, OH
World Bible Ministry Incorporated, Boca
Raton, FL
World Community School of Music Inc.,
Washington, DC
World Food Museum, Philadelphia, PA
World Freestyle Federation, Carrollton,
TX
World Heritage Center Inc., Gentry, AR
World Institute for Spiritually Centered
Education, Phoenix, AZ
World Mission Centre Inc., Columbia,
SC
World Mission Partners Inc., Dallas, TX
World Model Soldier Federation Inc.,
Chicago, IL
World of Raptors Inc., Knoxville, TN
Worldreach-the Childrens Foundation,
Westfield, NJ
Worldworks Communication Inc.,
Washington, DC
Worshipworks Inc., Knoxville, TN
WWOCB We Want Our Children Back,
Tanner, AL
Wyandotte Christian Counseling and
Family Life Center, Kansas City, KS
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.
New Revision of Publication
954,
Tax Incentives for
Empowerment Zones and Other
Distressed Communities
Announcement 98–35
Publication 954, recently updated, is
now available from the Internal Revenue
Service. It replaces the December 1993
revision.
This publication is primarily for busi-
ness owners who want to find out whether
they qualify for certain tax incentives cre-
ated to increase business activity in dis-
tressed communities.
You can get a copy of this publication
by calling 1-800-TAX-FORM (1-800-
829-3676). You can also write to the IRS
April 27, 1998401998–17 I.R.B.

Forms Distribution Center nearest you.
Check your income tax package for the
address. The publication is also available
on the IRS Internet Web Site at www.
irs.ustreas.gov.
Section 7428(c) Validation of
Certain Contributions Made
During Pendency of Declaratory
Judgment Proceedings
This announcement serves notice to po-
tential donors that the organizations listed
below have recently filed timely declara-
tory judgment suits under section 7428 of
the Code, challenging revocation of their
status as eligible donees under section
170(c)(2).
Protection under section 7428(c) of the
Code begins on the date that the notice of
revocation is published in the Internal
Revenue Bulletin and ends on the date on
which a court first determines that an or-
ganization is not described in section
170(c)(2), as more particularly set forth in
section 7428(c)(1). In the case of individ-
ual contributors, the maximum amount of
contributions protected during this period
is limited to $1,000.00, with a husband
and wife being treated as one contributor.
This protection is not extended to any in-
dividual who was responsible, in whole or
in part, for the acts or omissions of the or-
ganization that were the basis for the re-
vocation. This protection also applies
(but without limitation as to amount) to
organizations described in section
170(c)(2) which are exempt from tax
under section 501(a). If the organization
ultimately prevails in its declaratory judg-
ment suit, deductibility of contributions
would be subject to the normal limitations
set forth under section 170.
Hanover Society for the Deaf, Inc.
Ashland, VA
Saint Matthew Publishing, Inc.
Los Angeles, CA
1998–17 I.R.B.41April 27, 1998

April 27, 1998421998–17 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. Rul.—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.
X—Corporation.
Y—Corporation.
Z—Corporation.
Definition of Terms

1998–17 I.R.B.43April 27, 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 1998–16
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
98–25, 1998–13 I.R.B.43
98–26, 1998–14 I.R.B. 28
98–27, 1998–15 I.R.B. 30
98–28, 1998–15 I.R.B. 30
98–29, 1998–16 I.R.B. 48
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
98–16, 1998–15 I.R.B. 12
98–17, 1998–11 I.R.B. 6
98–18, 1998–12 I.R.B. 11
98–19, 1998–13 I.R.B.24
98–20, 1998–13 I.R.B.25
98–21, 1998–15 I.R.B. 14
Proposed Regulations:
PS–158–86, 1998–11 I.R.B. 13
REG–100841–97, 1998–8 I.R.B. 30
REG–102144–98, 1998–15 I.R.B.25
REG–102894–97, 1998–3 I.R.B. 59
REG–104062–97, 1998–10 I.R.B. 34
REG–104537–97, 1998–16 I.R.B. 21
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–110965–97, 1998–13 I.R.B. 42
Proposed Regulations—Continued
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–120882–97, 1998–14 I.R.B. 25
REG–121755–97, 1998–9 I.R.B. 13
REG–208299–90, 1998–16 I.R.B. 26
REG–209276–87, 1998–11 I.R.B. 18
REG–209322–82, 1998–15 I.R.B. 26
REG–209373–81, 1998–14 I.R.B. 26
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
98–26, 1998–13 I.R.B.26
98–27, 1998–15 I.R.B.15
98–28, 1998–15 I.R.B.14
98–29, 1998–15 I.R.B. 22
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
98–16, 1998–13 I.R.B. 18
98–17, 1998–13 I.R.B. 21
98–18, 1998–14 I.R.B. 22
98–19, 1998–15 I.R.B. 5
98–20, 1998–15 I.R.B. 8
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
8757, 1998–13 I.R.B.4
8758, 1998–13 I.R.B. 15
8759, 1998–13 I.R.B. 19
8760, 1998–14 I.R.B. 4
8761, 1998–14 I.R.B. 13
8762, 1998–14 I.R.B. 15
8763, 1998–15 I.R.B. 5
8764, 1998–15 I.R.B. 9
8765, 1998–16 I.R.B. 11
8766, 1998–16 I.R.B. 17
8767, 1998–16 I.R.B. 4

April 27, 1998441998–17 I.R.B.
Finding List of Current Action on
Previously Published Items
1
Bulletins 1998–1 through 1998–16
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
93–62
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
97–26
Obsoleted by
98–28, 1998–15 I.R.B. 14
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
1998–17 I.R.B.45April 27, 1998

Notes
April 27, 1998461998–17 I.R.B.

INTERNAL REVENUE BULLETIN
The Introduction on page 3 describes the purpose and content of this publication. The weekly Internal Revenue Bulletin is sold
on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superintendent of
Documents when their subscriptions must be renewed.
CUMULATIVE BULLETINS
The contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are
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ly Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of print
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allow two to six weeks, plus mailing time, for delivery.
WE WELCOME COMMENTS ABOUT THE
INTERNAL REVENUE BULLETIN
If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we
would be pleased to hear from you. You can e-mail us your suggestions or comments through the IRS Internet Home Page
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