Internal Revenue Bulletin 1998-5 (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
T.D. 8742,page 4.
Final regulations under section 7805 of the Code provide
procedures for requesting an extension of time to make cer-
tain elections under the Code.
EMPLOYEE PLANS
Notice 98–12, page 12.
Group health plans; COBRA continuation coverage;
HIPAA portability.Information is provided on how the
HIPAA portability provisions may affect an individual’s deci-
sion whether to elect COBRA continuation coverage.
EXEMPT ORGANIZATIONS
Announcement 98–7, page 26.
A list is given of organizations now classified as private foun-
dations.
EMPLOYMENT TAXES
Rev. Proc. 98–16, page 19.
General standards for student FICA exception under
section 3121(b)(10) of the Code.This procedure sets
forth generally applicable standards for determining whether
services performed by students in the employ of certain in-
stitutions of higher education qualify for the exception from
FICA tax provided under section 3121(b)(10) of the Code.
ADMINISTRATIVE
Rev. Proc. 98–17, page 21.
Environmental cleanup costs; letter rulings.Special pro-
cedures are provided for requesting written guidance from
the Service on the tax treatment under sections 162, 165,
198, and 263 of the Code of environmental cleanup costs
incurred in projects that span several years.
Announcement 98–5, page 25.
This announcement informs the public of the Information Re-
porting Program’s Year 2000 date compliance changes for
tax year 1998 reporting.
Announcement 98–6, page 25.
This announcement clarifies Part B, Section 8 of Rev. Proc.
97–34, 1997–30, I.R.B. 14, regarding the use of the Form
5498, IRA, SEP, and SIMPLE Indicators to be used in the
magnetic or electronic filing of rollovers and fair market
value.
Internal Revenue
bbuulllleettiinn
Bulletin No. 1998–5
February 2, 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 29.
Index for January on page 31.

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. Acitation 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 162.—Trade or
Business Expenses
26 CFR 1.162–1: Trade or business expenses.
What are the procedures for taxpayers to obtain
written guidance from the Service on the tax treat-
ment under § 162 of the Code of environmental
cleanup costs incurred in projects that span several
years? See Rev. Proc. 98–17, page 21.
Section 165.—Losses
26 CFR 1.165–1: Losses.
What are the procedures for taxpayers to obtain
written guidance from the Service on the tax treat-
ment under § 165 of the Code of environmental
cleanup costs incurred in projects that span several
years? See Rev. Proc. 98–17, page 21.
Section 198.—Expensing of
Environmental Remediation
Costs
What are the procedures for taxpayers to obtain
written guidance from the Service on the tax treat-
ment under § 198 of the Code of environmental
cleanup costs incurred in projects that span several
years? See Rev. Proc. 98–17, page 21.
Section 263.—Capital
Expenditures
26 CFR 1.263(a)–1: Capital expenditures; in
general.
What are the procedures for taxpayers to obtain
written guidance from the Service on the tax treat-
ment under § 263 of the Code of environmental
cleanup costs incurred in projects that span several
years? See Rev. Proc. 98–17, page 21.
Section 7805.—Rules and
Regulations
26 CFR 301.9100–1: Extensions of time to make
elections.
T.D. 8742
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 301, 601, and
602
Requirements Respecting the
Adoption or Change of
Accounting Method; Extensions
of Time To Make Elections
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations providing the procedures
for requesting an extension of time to
make certain elections under the Internal
Revenue Code. In addition, the regula-
tions provide the standards that the Com-
missioner will use in determining whether
to grant taxpayers extensions of time to
make certain elections including changes
in accounting method and accounting pe-
riod. The regulations also set forth the
time for filing a Form 3115, Application
for Change in Accounting Method, with
the Commissioner. The regulations affect
taxpayers requesting an extension of time
to make certain elections and taxpayers
requesting to change their method of ac-
counting for federal income tax purposes.
EFFECTIVE DATE: These regulations
are effective December 31, 1997.
FOR FURTHER INFORMATION CON-
TACT: Cheryl Lynn Oseekey, (202) 622-
4970 (not a toll-free number).
SUPPLEMENTARYINFORMATION:
Paperwork Reduction Act
The collection of information con-
tained in these final regulations has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act (44
U.S.C. 3507) under control number
1545–1488. Responses to this collection
of information are required to obtain an
extension of time to make an election.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the col-
lection of information displays a valid
control number.
The estimated annual burden per re-
spondent is 10 hours.
Comments concerning the accuracy of
this burden estimate and suggestions for
reducing this burden should be sent to the
Internal Revenue Service,Attn: IRS
Reports Clearance Officer, T:FP, Wash-
ington, DC 20224, and to the Office of
Management and Budget,Attn: Desk
Officer for the Department of the Trea-
sury, Office of Information and Regula-
tory Affairs, Washington, DC 20503.
Books or records relating to this collec-
tion of information must be retained as
long as their contents may be material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
Background
On June 27, 1996, temporary regula-
tions relating to the standards the Com-
missioner will use to grant taxpayers
extensions of time to make certain elec-
tions were published in the Federal Reg-
ister(TD 8680, 61 FR 33365 [1996–2
C.B. 194]), and cross-referenced to a no-
tice of proposed rulemaking published in
the Federal Registeron the same date
(61 FR 33408 [IA–29–96 C.B. 483]).
The regulations, §§301.9100–1Tthrough
301.9100–3T, provide an automatic 6-
month extension from the due date of the
return excluding extensions to make
statutory and regulatory elections whose
due dates are the due date of the return or
the due date of the return including exten-
sions. The regulations also provide an au-
tomatic 12-month extension of time to
make certain regulatory elections. For
regulatory elections not eligible for the
automatic extensions of time, the regula-
tions provide the standards the Commis-
sioner will use to determine whether to
grant an extension of time to make the
election. Apublic hearing on the regula-
tions was held on October 30, 1996.
On May 15, 1997, temporary regula-
tions setting forth the time for requesting
a change in accounting method and the
standards the Commissioner will use to
grant an extension of time to request a
February 2, 199841998–5 I.R.B.
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

change in accounting method were pub-
lished in the Federal Register(TD 8719,
62 FR 26740), and cross-referenced to a
notice of proposed rulemaking published
in the Federal Registeron the same date
(62 FR 26755). On May 27, 1997, cor-
rections to TD 8719 were published in the
Federal Register(62 FR 28630). The
regulations extend the time for filing a
Form 3115, Application for Change in
Accounting Method, pursuant to
§§1.446–1(e)(3)(i) and 601.204(b) by al-
lowing a taxpayer to file its Form 3115
with the Commissioner anytime during
the taxable year in which the taxpayer de-
sires to make the change in method of ac-
counting. The regulations also revised
§§301.9100–1Tand 301.9100–3Tto pro-
vide that an extension of time to file a
Form 3115 beyond the year provided in
the regulations will be granted only in un-
usual and compelling circumstances. No
public hearing on the regulations was re-
quested or held.
One comment responding to the notice
of proposed rulemaking published in the
Federal Registeron June 27, 1996 (61
FR 33408) was received. No comments
responding to the notice of proposed rule-
making published in the Federal Regis-
teron May 15, 1997 (62 FR 26755) were
received. After consideration of the com-
ment received, the regulations are
adopted as modified by this Treasury de-
cision.
Public Comment
The commentator recommended sev-
eral modifications to the regulations prior
to their adoption as final regulations.
The commentator suggested that a re-
quest for extension of time to make an
election should not be denied on the basis
that the taxpayer fails to qualify for the
underlying election. The commentator
noted that the regulations provide that the
granting of §301.9100 relief is not a de-
termination that the taxpayer is otherwise
eligible to make the election. This sug-
gested modification has not been adopted.
The IRS and the Treasury Department be-
lieve it is in the interest of sound tax ad-
ministration to deny §301.9100 relief
when it becomes apparent in considering
the request for an extension of time that
the taxpayer is not otherwise eligible to
make the election. This ensures that the
resources of the IRS are brought to bear in
the resolution of the issue regarding eligi-
bility at the earliest stage of the adminis-
trative process.
The commentator recommended that
an extension of time to make an election
be made available even when alternative
relief is provided by a statute, a regulation
published in the Federal Register,or a
revenue ruling, revenue procedure, no-
tice, or announcement published in the In-
ternal Revenue Bulletin. This suggested
modification has not been adopted. The
IRS and the Treasury Department want to
retain the ability to tailor relief for spe-
cific elections.
The commentator recommended mea-
suring the 12-month automatic extension
for eligible regulatory elections whose
deadlines are the due date of the return or
the due date of the return including exten-
sions from the extended due date when
the taxpayer has obtained an extension.
This suggested modification has been
adopted. The commentator also recom-
mended that the automatic 6-month ex-
tension for statutory and regulatory elec-
tions be available even when the return
for the year of the election was not timely
filed. This suggested modification has
not been adopted.
The commentator recommended that
the regulations not provide that the inter-
ests of the Government are ordinarily
prejudiced if the taxable year in which the
regulatory election should have been
made or any affected taxable years are
closed by the period of limitations on as-
sessment. This suggested modification
was not adopted. There are two policies
that must be balanced in formulating the
standards for §301.9100 relief. The first
is the policy of promoting efficient tax ad-
ministration by providing limited time pe-
riods for taxpayers to choose among alter-
ative tax treatments and encouraging
prompt tax reporting. The second is the
policy of permitting taxpayers that are in
reasonable compliance with the tax laws
to minimize their tax liability by collect-
ing from them only the amount of tax they
would have paid if they had been fully in-
formed and well advised. The IRS and
the Treasury Department believe that the
regulation achieves an appropriate bal-
ance between these policies. Further-
more, the language of the regulation does
not foreclose in all circumstances consid-
eration of whether the interests of the
Government will not be prejudiced.
The commentator questioned the spe-
cial rules for accounting method and ac-
counting period regulatory elections. The
regulations provide limited relief for ac-
counting methods or periods subject to
advance written consent from the Com-
missioner ordinarily not to exceed 90
days from the deadline for filing the Form
3115, Application for Change in Account-
ing Method, or the Form 1128, Applica-
tion to Adopt, Change, or Retain a Tax
Year. The commentator suggested that
the 90-day period be extended. The regu-
lations published in the Federal Register
on May 15, 1997 (TD 8719, 62 FR
26740) and corrected on May 27, 1997
(62 FR 28630) effectively extended the
90-day period for accounting methods by
allowing the Form 3115 to be filed any-
time during the taxable year in which the
taxpayer desires to make the change in
method of accounting. This rule is incor-
porated into the final regulations. How-
ever, a similar amendment was not made
in regard to accounting period elections
because extending the 90-day period
would delay the filing of the short period
return and result in less efficient tax ad-
ministration.
The commentator recommended that
the special rules for other accounting
method regulatory elections be modified
by eliminating the rule that, ordinarily, the
interests of the Government are deemed
to be prejudiced when the election re-
quires an adjustment under section
481(a). This suggested modification was
not adopted. The IRS and the Treasury
Department believe it is in the interest of
sound tax administration to generally pre-
clude taxpayers from requesting, or other-
wise making, a retroactive change in an
adopted method of accounting, whether
the change is from a permissible or imper-
missible method. See generally, Rev. Rul.
90–38 (1990–1 C.B. 57). In considering
an exception, the IRS and the Treasury
Department believe that §301.9100 relief
is most appropriate for accounting
method elections that relate to nonrecur-
ring transactions. These elections are
generally made on a cut-off basis and a
missed election would preclude account-
ing for a transaction in the year of the
missed election under the elective
method. In contrast, accounting method
1998–5 I.R.B5February 2, 1998

elections subject to section 481(a) gener-
ally will provide the benefit of the elec-
tive method for a transaction in the year
of the missed election through an adjust-
ment under section 481(a).
The commentator suggested that the
regulations clarify when taxpayers may
obtain an extension of time to file a re-
quest to change an accounting method or
an accounting period under an unusual
and compelling circumstances standard.
This suggested modification was not
adopted. What are unusual and com-
pelling circumstances must be decided on
a case-by-case basis in light of all applica-
ble facts and circumstances.
Effective Date
The rules relating to the time for filing
an application for change in accounting
method apply to Forms 3115 submitted
on or after December 31, 1997.
The rules relating to requests for an ex-
tension of time apply to requests submit-
ted to the IRS on or after December 31,
1997. The rules relating to automatic ex-
tensions apply to elections for which cor-
rective action is taken on or after Decem-
ber 31, 1997.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in EO 12866.
Therefore, a regulatory assessment is not
required. It also has been determined that
section 553(b) of the Administrative Pro-
cedure Act (5 U.S.C. chapter 5) does not
apply to these regulations.
Sections 1.446–1(e)(3)(i) and
601.204(b) in this regulation, originally
published in the Federal Registerfor
May 15, 1997 as a temporary regulation
and cross-reference notice of proposed
rulemaking, merely extend the time for
filing a Form 3115, Application for
Change in Accounting Method, with the
Commissioner and, therefore, do not con-
tain a new collection of information. Sec-
tions 301.9100–2 and 301.9100–3 of this
regulation, originally published in the
Federal Registerfor June 27, 1996 as a
temporary regulation and cross-reference
notice of proposed rulemaking, contain a
collection of information. However, an
initial regulatory flexibility analysis was
not required because the regulations were
published within 90 days of the enactment
of Subtitle D of the Contract with Amer-
ica Advancement Act of 1996 (Public
Law 104–21, 110 Stat. 847, 868 (1996)).
With respect to these final regulations, it
is hereby certified that the collection of
information in those sections will not
have a significant economic impact on a
substantial number of small entities. This
certification is based on the fact that, on
average, no more than 500 requests for an
extension of time to make an election are
received on an annual basis. Therefore, a
Regulatory Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required.
Pursuant to section 7805(f) of the Inter-
nal Revenue Code, these regulations were
submitted to the Small Business Adminis-
tration for comment on their impact on
small business.
Drafting Information
The principal author of these regula-
tions is Cheryl Lynn Oseekey, Office of
Assistant Chief Counsel (Income Tax and
Accounting). However, other personnel
from the IRS and the Treasury Depart-
ment participated in their development.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1, 301, 601,
and 602 are amended as follows:
PART1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805. * * *
§1.446–1 [Amended]
Par. 2. Section 1.446–1 is amended as
follows:
1. The first sentence of paragraph
(e)(3)(i) is amended by removing the lan-
guage “within 180 days after the begin-
ning of” and adding “during” in its place.
2. Paragraph (e)(3)(iii) is revised to
read as follows:
§1.446–1 General rule for methods of
accounting.
* * * * *
(e) * * *
(3) * * *
(iii) This paragraph (e)(3) applies to
Forms 3115 filed on or after December
31, 1997. For other Forms 3115, see
§1.446–1(e)(3) in effect prior to Decem-
ber 31, 1997 (§1.446–1(e)(3) as contained
in the 26 CFR part 1 edition revised as of
April 1, 1997).
§1.446–1T[Removed]
Par. 3. Section 1.446–1Tis removed.
PART301—PROCEDURE AND
ADMINISTRATION
Par. 4. The authority citation for part
301 continues to read in part as follows:
Authority: 26 U.S.C. 7805. * * *
Par. 5. Section 301.9100–0 is added to
read as follows:
§301.9100–0 Outline of regulations.
This section lists the paragraphs in
§§301.9100–1 through 301.9100–3.
§301.9100–1 Extensions of time to make
elections.
(a)Introduction.
(b)Terms.
(c)General standards for relief.
(d)Exceptions.
(e)Effective dates.
§301.9100–2 Automatic extensions.
(a)Automatic 12-month extension.
(1)In general.
(2)Elections eligible for automatic
12-month extension.
(b)Automatic 6-month extension.
(c)Corrective action.
(d)Procedural requirements.
(e)Examples.
§301.9100–3 Other extensions.
(a)In general.
(b)Reasonable action and good faith.
(1)In general.
(2)Reasonable reliance on a qualified
tax professional.
(3)Taxpayer deemed to have not
acted reasonably or in good faith.
(c)Prejudice to the interests of the
Government.
(1)In general.
(i)Lower tax liability.
(ii)Closed years.
February 2, 199861998–5 I.R.B.

(2)Special rules for accounting
method regulatory elections.
(3)Special rules for accounting pe-
riod regulatory elections.
(d)Effect of amended returns.
(1)Second examination under section
7605(b).
(2)Suspension of the period of limita-
tions under section 6501(a).
(e)Procedural requirements.
(1)In general.
(2)Affidavit and declaration from
taxpayer.
(3)Affidavits and declarations from
other parties.
(4)Other information.
(5)Filing instructions.
(f)Examples.
Par. 6. Section 301.9100–1 is revised
to read as follows:
§301.9100–1 Extensions of time to make
elections.
(a) Introduction.The regulations
under this section and §§301.9100–2 and
301.9100–3 provide the standards the
Commissioner will use to determine
whether to grant an extension of time to
make a regulatory election. The regula-
tions under this section and §301.9100–2
also provide an automatic extension of
time to make certain statutory elections.
An extension of time is available for elec-
tions that a taxpayer is otherwise eligible
to make. However, the granting of an ex-
tension of time is not a determination that
the taxpayer is otherwise eligible to make
the election. Section 301.9100–2 pro-
vides automatic extensions of time for
making regulatory and statutory elections
when the deadline for making the election
is the due date of the return or the due
date of the return including extensions.
Section 301.9100–3 provides extensions
of time for making regulatory elections
that do not meet the requirements of
§301.9100–2.
(b) Terms. The following terms have
the meanings provided below—
Electionincludes an application for re-
lief in respect of tax; a request to adopt,
change, or retain an accounting method or
accounting period; but does not include
an application for an extension of time for
filing a return under section 6081.
Regulatory electionmeans an election
whose due date is prescribed by a regula-
tion published in the Federal Register,or
a revenue ruling, revenue procedure, no-
tice, or announcement published in the In-
ternal Revenue Bulletin (see §601.601(d)-
(2) of this chapter).
Statutory electionmeans an election
whose due date is prescribed by statute.
Taxpayermeans any person within the
meaning of section 7701(a)(1).
(c) General standards for relief.The
Commissioner in exercising the Commis-
sioner’s discretion may grant a reasonable
extension of time under the rules set forth
in §§301.9100–2 and 301.9100–3 to make
a regulatory election, or a statutory elec-
tion (but no more than 6 months except in
the case of a taxpayer who is abroad),
under all subtitles of the Internal Revenue
Code except subtitles E, G, H, and I.
(d) Exceptions. Notwithstanding the
provisions of paragraph (c) of this sec-
tion, an extension of time will not be
granted—
(1) For elections under section
4980A(f)(5); or
(2) For elections that are expressly ex-
cepted from relief or where alternative re-
lief is provided by a statute, a regulation
published in the Federal Register,or a
revenue ruling, revenue procedure, no-
tice, or announcement published in the In-
ternal Revenue Bulletin (see §601.601(d)-
(2) of this chapter).
(e) Effective dates.In general, this
section and §§301.9100–2 and 301.9100–
3 apply to all requests for an extension of
time submitted to the Internal Revenue
Service (IRS) on or after December 31,
1997. However, the automatic 12-month
and 6-month extensions provided in
§301.9100–2 apply to elections for which
corrective action is taken on or after De-
cember 31, 1997. For other requests for
an extension of time, see §§301.9100–1T
through 301.9100–3Tin effect prior to
December 31, 1997 (§§301.9100–1T
through 301.9100–3Tas contained in the
26 CFR part 1 edition revised as of April
1, 1997).
Par. 7. Sections 301.9100–2 and
301.9100–3 are added to read as follows:
§301.9100–2 Automatic extensions.
(a) Automatic 12-month extension—
(1) In general. An automatic extension
of 12 months from the due date for mak-
ing a regulatory election is granted to
make elections described in paragraph
(a)(2) of this section provided the tax-
payer takes corrective action as defined in
paragraph (c) of this section within that
12-month extension period. For purposes
of this paragraph (a), the due date for
making a regulatory election is the ex-
tended due date of the return if the due
date of the election is the due date of the
return or the due date of the return includ-
ing extensions and the taxpayer has ob-
tained an extension of time to file the re-
turn. This extension is available
regardless of whether the taxpayer timely
filed its return for the year the election
should have been made.
(2) Elections eligible for automatic 12-
month extension.The following regula-
tory elections are eligible for the auto-
matic 12-month extension described in
paragraph (a)(1) of this section—
(i) The election to use other than the
required taxable year under section 444;
(ii) The election to use the last-in, first-
out (LIFO) inventory method under sec-
tion 472;
(iii) The 15-month rule for filing an
exemption application for a section
501(c)(9), 501(c)(17), or 501(c)(20) orga-
nization under section 505;
(iv) The 15-month rule for filing an ex-
emption application for a section
501(c)(3) organization under section 508;
(v) The election to be treated as a
homeowners association under section
528;
(vi) The election to adjust basis on
partnership transfers and distributions
under section 754;
(vii) The estate tax election to spe-
cially value qualified real property (where
the Internal Revenue Service (IRS) has
not yet begun an examination of the filed
return) under section 2032A(d)(1);
(viii) The chapter 14 gift tax election
to treat a qualified payment right as other
than a qualified payment under section
2701(c)(3)(C)(i); and
(ix) The chapter 14 gift tax election to
treat any distribution right as a qualified
payment under section 2701(c)(3)(C)(ii).
(b) Automatic 6-month extension.An
automatic extension of 6 months from the
due date of a return excluding extensions
is granted to make regulatory or statutory
elections whose due dates are the due date
of the return or the due date of the return
including extensions provided the tax-
payer timely filed its return for the year
the election should have been made and
1998–5 I.R.B7February 2, 1998

the taxpayer takes corrective action as de-
fined in paragraph (c) of this section
within that 6-month extension period.
This paragraph (b) does not apply to regu-
latory or statutory elections that must be
made by the due date of the return exclud-
ing extensions.
(c) Corrective action.For purposes of
this section, corrective action means
taking the steps required to file the elec-
tion in accordance with the statute or the
regulation published in the Federal Reg-
ister, or the revenue ruling, revenue pro-
cedure, notice, or announcement pub-
lished in the Internal Revenue Bulletin
(see §601.601(d)(2) of this chapter). For
those elections required to be filed with a
return, corrective action includes filing an
original or an amended return for the year
the regulatory or statutory election should
have been made and attaching the appro-
priate form or statement for making the
election. Taxpayers who make an elec-
tion under an automatic extension (and all
taxpayers whose tax liability would be af-
fected by the election) must file their re-
turn in a manner that is consistent with the
election and comply with all other re-
quirements for making the election for the
year the election should have been made
and for all affected years; otherwise, the
IRS may invalidate the election.
(d) Procedural requirements.Any re-
turn, statement of election, or other form
of filing that must be made to obtain
an automatic extension must provide the
following statement at the top of the
document: “FILED PURSUANTTO
§ 301.9100–2.” Any filing made to obtain
an automatic extension must be sent to the
same address that the filing to make the
election would have been sent had the fil-
ing been timely made. No request for a
letter ruling is required to obtain an auto-
matic extension. Accordingly, user fees
do not apply to taxpayers taking corrective
action to obtain an automatic extension.
(e) Examples.The following examples
illustrate the provisions of this section:
Example 1. Automatic 12-month extension. Tax-
payer Afails to make an election described in para-
graph (a)(2) of this section when filing A’s 1997 in-
come tax return on March 16, 1998, the due date of
the return. This election does not affect the tax liabil-
ity of any other taxpayer. The applicable regulation
requires that the election be made by attaching the
appropriate form to a timely filed return including
extensions. In accordance with paragraphs (a) and
(c) of this section, Amay make the regulatory elec-
tion by taking the corrective action of filing an
amended return with the appropriate form by March
15, 1999 (12 months from the March 16, 1998 due
date of the return). If Aobtained a 6-month exten-
sion to file its 1997 income tax return, Amay make
the regulatory election by taking the corrective action
of filing an amended return with the appropriate form
by September 15, 1999 (12 months from the Septem-
ber 15, 1998 extended due date of the return).
Example 2. Automatic 6-month extension.Tax-
payer B fails to make an election not described in
paragraph (a)(2) of this section when filing B’s 1997
income tax return on March 16, 1998, the due date
of the return. This election does not affect the tax li-
ability of any other taxpayer. The applicable regula-
tion requires that the election be made by attaching
the appropriate form to a timely filed return includ-
ing extensions. In accordance with paragraphs (b)
and (c) of this section, B may make the regulatory
election by taking the corrective action of filing an
amended return with the appropriate form by Sep-
tember 15, 1998 (6 months from the March 16, 1998
due date of the return).
§301.9100–3 Other extensions.
(a) In general.Requests for ex-
tensions of time for regulatory elections
that do not meet the requirements of
§301.9100–2 must be made under the
rules of this section. Requests for relief
subject to this section will be granted
when the taxpayer provides the evidence
(including affidavits described in para-
graph (e) of this section) to establish to
the satisfaction of the Commissioner that
the taxpayer acted reasonably and in good
faith, and the grant of relief will not preju-
dice the interests of the Government.
(b) Reasonable action and good
faith—(1) In general.Except as pro-
vided in paragraphs (b)(3)(i) through (iii)
of this section, a taxpayer is deemed to
have acted reasonably and in good faith if
the taxpayer—
(i) Requests relief under this section
before the failure to make the regulatory
election is discovered by the Internal Rev-
enue Service (IRS);
(ii) Failed to make the election because
of intervening events beyond the tax-
payer’s control;
(iii) Failed to make the election be-
cause, after exercising reasonable dili-
gence (taking into account the taxpayer’s
experience and the complexity of the re-
turn or issue), the taxpayer was unaware
of the necessity for the election;
(iv) Reasonably relied on the written
advice of the Internal Revenue Service
(IRS); or
(v) Reasonably relied on a qualified
tax professional, including a tax profes-
sional employed by the taxpayer, and the
tax professional failed to make, or advise
the taxpayer to make, the election.
(2) Reasonable reliance on a qualified
tax professional.For purposes of this
paragraph (b), a taxpayer will not be con-
sidered to have reasonably relied on a
qualified tax professional if the taxpayer
knew or should have known that the pro-
fessional was not—
(i) Competent to render advice on the
regulatory election; or
(ii) Aware of all relevant facts.
(3) Taxpayer deemed to have not acted
reasonably or in good faith.For purposes
of this paragraph (b), a taxpayer is
deemed to have not acted reasonably and
in good faith if the taxpayer—
(i) Seeks to alter a return position for
which an accuracy-related penalty has
been or could be imposed under section
6662 at the time the taxpayer requests re-
lief (taking into account any qualified
amended return filed within the meaning
of §1.6664–2(c)(3) of this chapter) and
the new position requires or permits a reg-
ulatory election for which relief is re-
quested;
(ii) Was informed in all material re-
spects of the required election and related
tax consequences, but chose not to file the
election; or
(iii) Uses hindsight in requesting re-
lief. If specific facts have changed since
the due date for making the election that
make the election advantageous to a tax-
payer, the IRS will not ordinarily grant re-
lief. In such a case, the IRS will grant re-
lief only when the taxpayer provides
strong proof that the taxpayer’s decision
to seek relief did not involve hindsight.
(c) Prejudice to the interests of the
Government—(1) In general.The Com-
missioner will grant a reasonable exten-
sion of time to make a regulatory election
only when the interests of the Govern-
ment will not be prejudiced by the grant-
ing of relief. This paragraph (c) provides
the standards the Commissioner will use
to determine when the interests of the
Government are prejudiced.
(i) Lower tax liability.The interests of
the Government are prejudiced if granting
relief would result in a taxpayer having a
lower tax liability in the aggregate for all
taxable years affected by the election than
the taxpayer would have had if the elec-
tion had been timely made (taking into ac-
February 2, 199881998–5 I.R.B.

count the time value of money). Simi-
larly, if the tax consequences of more than
one taxpayer are affected by the election,
the Government’s interests are prejudiced
if extending the time for making the elec-
tion may result in the affected taxpayers,
in the aggregate, having a lower tax liabil-
ity than if the election had been timely
made.
(ii) Closed years.The interests of the
Government are ordinarily prejudiced if
the taxable year in which the regulatory
election should have been made or any
taxable years that would have been af-
fected by the election had it been timely
made are closed by the period of limita-
tions on assessment under section 6501(a)
before the taxpayer’s receipt of a ruling
granting relief under this section. The
IRS may condition a grant of relief on the
taxpayer providing the IRS with a state-
ment from an independent auditor (other
than an auditor providing an affidavit pur-
suant to paragraph (e)(3) of this section)
certifying that the interests of the Govern-
ment are not prejudiced under the stan-
dards set forth in paragraph (c)(1)(i) of
this section.
(2) Special rules for accounting
method regulatory elections.The inter-
ests of the Government are deemed to be
prejudiced except in unusual and com-
pelling circumstances if the accounting
method regulatory election for which re-
lief is requested—
(i) Is subject to the procedure de-
scribed in §1.446–1(e)(3)(i) of this chap-
ter (requiring the advance written consent
of the Commissioner);
(ii) Requires an adjustment under sec-
tion 481(a) (or would require an adjust-
ment under section 481(a) if the taxpayer
changed to the method of accounting for
which relief is requested in a taxable year
subsequent to the taxable year the election
should have been made);
(iii) Would permit a change from an
impermissible method of accounting that
is an issue under consideration by exami-
nation, an appeals office, or a federal
court and the change would provide a
more favorable method or more favorable
terms and conditions than if the change
were made as part of an examination; or
(iv) Provides a more favorable method
of accounting or more favorable terms
and conditions if the election is made by a
certain date or taxable year.
(3) Special rules for accounting period
regulatory elections.The interests of the
Government are deemed to be prejudiced
except in unusual and compelling circum-
stances if an election is an accounting pe-
riod regulatory election (other than the
election to use other than the required tax-
able year under section 444) and the re-
quest for relief is filed more than 90 days
after the due date for filing the Form 1128,
Application to Adopt, Change, or Retain a
Tax Year (or other required statement).
(d) Effect of amended returns—(1)
Second examination under section
7605(b).Taxpayers requesting and re-
ceiving an extension of time under this
section waive any objections to a second
examination under section 7605(b) for the
issue(s) that is the subject of the relief re-
quest and any correlative adjustments.
(2) Suspension of the period of limita-
tions under section 6501(a).Arequest for
relief under this section does not suspend
the period of limitations on assessment
under section 6501(a). Thus, for relief to
be granted, the IRS may require the tax-
payer to consent under section 6501(c)(4)
to an extension of the period of limita-
tions on assessment for the taxable year in
which the regulatory election should have
been made and any taxable years that
would have been affected by the election
had it been timely made.
(e) Procedural requirements—(1) In
general.Requests for relief under this
section must provide evidence that satis-
fies the requirements in paragraphs (b)
and (c) of this section, and must provide
additional information as required by this
paragraph (e).
(2) Affidavit and declaration from tax-
payer.The taxpayer, or the individual
who acts on behalf of the taxpayer with
respect to tax matters, must submit a de-
tailed affidavit describing the events that
led to the failure to make a valid regula-
tory election and to the discovery of the
failure. When the taxpayer relied on a
qualified tax professional for advice, the
taxpayer’s affidavit must describe the en-
gagement and responsibilities of the pro-
fessional as well as the extent to which
the taxpayer relied on the professional.
The affidavit must be accompanied by a
dated declaration, signed by the taxpayer,
which states: “Under penalties of perjury,
I declare that I have examined this re-
quest, including accompanying docu-
ments, and, to the best of my knowledge
and belief, the request contains all the rel-
evant facts relating to the request, and
such facts are true, correct, and com-
plete.” The individual who signs for an
entity must have personal knowledge of
the facts and circumstances at issue.
(3) Affidavits and declarations from
other parties. The taxpayer must submit
detailed affidavits from the individuals
having knowledge or information about
the events that led to the failure to make a
valid regulatory election and to the discov-
ery of the failure. These individuals must
include the taxpayer’s return preparer, any
individual (including an employee of the
taxpayer) who made a substantial contri-
bution to the preparation of the return, and
any accountant or attorney, knowledge-
able in tax matters, who advised the tax-
payer with regard to the election. An affi-
davit must describe the engagement and
responsibilities of the individual as well as
the advice that the individual provided to
the taxpayer. Each affidavit must include
the name, current address, and taxpayer
identification number of the individual,
and be accompanied by a dated declara-
tion, signed by the individual, which
states: “Under penalties of perjury, I de-
clare that I have examined this request, in-
cluding accompanying documents, and, to
the best of my knowledge and belief, the
request contains all the relevant facts relat-
ing to the request, and such facts are true,
correct, and complete.”
(4) Other information.The request for
relief filed under this section must also
contain the following information—
(i) The taxpayer must state whether the
taxpayer’s return(s) for the taxable year in
which the regulatory election should have
been made or any taxable years that
would have been affected by the election
had it been timely made is being exam-
ined by a district director, or is being con-
sidered by an appeals office or a federal
court. The taxpayer must notify the IRS
office considering the request for relief if
the IRS starts an examination of any such
return while the taxpayer’s request for re-
lief is pending;
(ii) The taxpayer must state when the
applicable return, form, or statement used
to make the election was required to be
filed and when it was actually filed;
(iii) The taxpayer must submit a copy of
any documents that refer to the election;
1998–5 I.R.B9February 2, 1998

(iv) When requested, the taxpayer
must submit a copy of the taxpayer’s re-
turn for any taxable year for which the
taxpayer requests an extension of time to
make the election and any return affected
by the election; and
(v) When applicable, the taxpayer
must submit a copy of the returns of other
taxpayers affected by the election.
(5) Filing instructions.Arequest for
relief under this section is a request for a
letter ruling. Requests for relief should be
submitted in accordance with the applica-
ble procedures for requests for a letter rul-
ing and must be accompanied by the ap-
plicable user fee.
(f) Examples. The following examples
illustrate the provisions of this section:
Example 1.Taxpayer discovers own error.Tax-
payer Aprepares A’s 1997 income tax return. Ais
unaware that a particular regulatory election is avail-
able to report a transaction in a particular manner. A
files the 1997 return without making the election
and reporting the transaction in a different manner.
In 1999, Ahires a qualified tax professional to pre-
pare A’s 1999 return. The professional discovers
that Adid not make the election. Apromptly files
for relief in accordance with this section. Assume
paragraphs (b)(3)(i) through (iii) of this section do
not apply. Under paragraph (b)(1)(i) of this section,
Ais deemed to have acted reasonably and in good
faith because Arequested relief before the failure to
make the regulatory election was discovered by the
IRS.
Example 2. Reliance on qualified tax profes-
sional.Taxpayer B hires a qualified tax professional
to advise B on preparing B’s 1997 income tax return.
The professional was competent to render advice on
the election and B provided the professional with all
the relevant facts. The professional fails to advise B
that a regulatory election is necessary in order for B
to report income on B’s 1997 return in a particular
manner. Nevertheless, B reports this income in a
manner that is consistent with having made the elec-
tion. In 2000, during the examination of the 1997
return by the IRS, the examining agent discovers
that the election has not been filed. B promptly files
for relief in accordance with this section, including
attaching an affidavit from B’s professional stating
that the professional failed to advise B that the elec-
tion was necessary. Assume paragraphs (b)(3)(i)
through (iii) of this section do not apply. Under
paragraph (b)(1)(v) of this section, B is deemed to
have acted reasonably and in good faith because B
reasonably relied on a qualified tax professional and
the tax professional failed to advise B to make the
election.
Example 3. Accuracy-related penalty.Taxpayer
C reports income on its 1997 income tax return in a
manner that is contrary to a regulatory provision. In
2000, during the examination of the 1997 return, the
IRS raises an issue regarding the reporting of this in-
come on C’s return and asserts the accuracy-related
penalty under section 6662. C requests relief under
this section to elect an alternative method of report-
ing the income. Under paragraph (b)(3)(i) of this
section, C is deemed to have not acted reasonably
and in good faith because C seeks to alter a return
position for which an accuracy-related penalty could
be imposed under section 6662.
Example 4. Election not requiring adjustment
under section 481(a).Taxpayer D prepares D’s
1997 income tax return. D is unaware that a particu-
lar accounting method regulatory election is avail-
able. D files D’s 1997 return without making the
election and uses another permissible method of ac-
counting. The applicable regulation provides that
the election is made on a cut-off basis (without an
adjustment under section 481(a)). In 1998, D re-
quests relief under this section to make the election
under the regulation. If D were granted an extension
of time to make the election, D would pay no less
tax than if the election had been timely made. As-
sume that paragraphs (c)(2)(i), (iii), and (iv) of this
section do not apply. Under paragraph (c)(2)(ii) of
this section, the interests of the Government are not
deemed to be prejudiced because the election does
not require an adjustment under section 481(a).
Example 5. Election requiring adjustment under
section 481(a).The facts are the same as in Exam-
ple 4 of this paragraph (f) except that the applicable
regulation provides that the election requires an ad-
justment under section 481(a). Under paragraph
(c)(2)(ii) of this section, the interests of the Govern-
ment are deemed to be prejudiced except in unusual
or compelling circumstances.
Example 6. Under examination by the IRS. A
regulation permits an automatic change in method of
accounting for an item on a cut-off basis. Taxpayer
E reports income on E’s 1997 income tax return
using an impermissible method of accounting for the
item. In 2000, during the examination of the 1997
return by the IRS, the examining agent notifies E in
writing that its method of accounting for the item is
an issue under consideration. Any change from the
impermissible method made as part of an examina-
tion is made with an adjustment under section
481(a). E requests relief under this section to make
the change pursuant to the regulation for 1997. The
change on a cut-off basis under the regulation would
be more favorable than if the change were made
with an adjustment under section 481(a) as part of
an examination. Under paragraph (c)(2)(iii) of this
section, the interests of the Government are deemed
to be prejudiced except in unusual and compelling
circumstances because E seeks to change from an
impermissible method of accounting that is an issue
under consideration in the examination on a basis
that is more favorable than if the change were made
as part of an examination.
§§301.9100–1T, 301.9100–2T, and
301.9100–3T[Removed]
Par. 8. Sections 301.9100–1T,
301.9100–2T, and 301.9100–3Tare re-
moved.
PART601—STATEMENTOF
PROCEDURALRULES
Par. 9. The authority citation for part
601 continues to read as follows:
Authority: 26 U.S.C. 301 and 552, un-
less otherwise noted.
§601.204 [Amended]
Par. 10. Section 601.204 is amended as
follows:
1. In paragraph (b), the fourth sentence
is amended by removing the language
“within 180 days after the beginning of”
and adding “during” in its place.
2. In paragraph (b), the last sentence is
removed.
§601.204T[Removed]
Par. 11. Section 601.204Tis removed.
PART602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 12. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805. * * *
Par. 13. Section 602.101(c) is amended
by removing the entries for §§301.9001–
2Tand 301.9001–3T, and adding the fol-
lowing entry in numerical order to the
table to read as follows:
§602.101 OMB Control numbers
* * * * *
(c) * * *
CFR part or sectionCurrent OMB
where identifiedcontrol No.
and described
* * * * *
301.9100–1 . . . . . . . . . . . . . .1545–1488
* * * * *
(2) Removing the following entries
from the table:
CFR part or sectionCurrent OMB
where identifiedcontrol No.
and described
* * * * *
§301.9100–1T . . . . . . . . . . . .1545–1488
§301.9100–2T . . . . . . . . . . . .1545–1488
§301.9100–3T . . . . . . . . . . . .1545–1488
* * * * *
February 2, 1998101998–5 I.R.B.

Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
Approved December 10, 1997.
Donald C. Lubick,
Acting Assistant Secretary
of the Treasury.
(Filed by the Office of the Federal Register on
December 30, 1997, 8:45 a.m., and published in the
issue of the Federal Register for December 31, 1997,
62 F.R. 68167)
1998–5 I.R.B11February 2, 1998

February 2, 1998121998–5 I.R.B.
Deciding Whether to Elect COBRA Health Care Continuation Coverage After Enactment of HIPAA
Notice 98–12
INTRODUCTION
Akey decision that millions of Americans face each year is whether to elect “COBRA
1
” health care continuation coverage. The
purpose of this notice is to help people decide whether to elect COBRAcoverage. In order to make that decision, they need to know
about two laws, COBRAand HIPAA.
2
This notice provides information — in the form of questions and answers — about some fac-
tors that employees and their families should take into account in deciding whether to elect COBRAcontinuation coverage.
An employer maintaining a group health plan is not required to provide this notice. The information in this notice may be used by
employers and plan administrators who want to supplement the information they are required to give to covered employees and ben-
eficiaries. The notice may be modified to provide information specific to a plan. The information in this notice is not a substitute for
any of the notices required to be furnished under COBRAor for any other information required by law to be furnished to participants
or beneficiaries in employer group health plans.
SHOULD I ELECTCOBRAHEALTH CARE CONTINUATION COVERAGE?
Questions and Answers
If you lose or leave your job, or if another event occurs that would cause you to lose coverage under an employer’s group health
plan, you may have the right to elect COBRAhealth care continuation coverage under the plan. In making this important decision,
there are a number of considerations you should take into account, including:
•whether other group health coverage — such as coverage under another employer’s plan — is available;
•whether any other available health coverage would exclude benefits for a medical condition that you or a family member has;
•when you will have the right to enroll in the other coverage;
•the cost, scope, and level of COBRAcoverage compared with that of any other available group coverage or individual health cov-
erage; and
•whether a guaranteed right to buy individual health coverage is important to you.
The following questions and answers are divided into three parts. Read Part I for background information about COBRAcover-
age and an important recent law, HIPAA, that might affect your COBRAdecision. Read Part II if group health coverage other than
COBRAcoverage is available to you. Read Part III if you do not have other group health coverage available. These questions and
answers reflect the law as in effect in January 1998.
3
These questions and answers are available at the IRS Internet site at:
http://www.irs.ustreas.gov
These questions and answers are also available at the Department of Labor (DOL) Internet site at:
http://www.dol.gov/dol/pwba
and at the Health Care Financing Administration (HCFA) Internet site at:
http://www.hcfa.gov
Part III. Administrative, Procedural, and Miscellaneous
1
COBRAis the Consolidated Omnibus Budget Reconciliation Act of 1985, the law that added the health care continuation coverage requirements.
2
HIPAAis the Health Insurance Portability and Accountability Act of 1996.
3
In most cases, HIPAAis effective by January 1998. However, a later effective date applies to certain employer group health plans and certain health coverage.
The questions and answers below assume that HIPAAis in effect.

1998–5 I.R.B13February 2, 1998
PARTI: Overview of COBRAand HIPAA
COBRA
What rights to health care continuation coverage does COBRA provide?
If you are covered by an employer’s group health plan, COBRAmay give you the right to stay covered even if something hap-
pens, like losing your job, that would otherwise cause you to lose coverage. This continuation coverage under an employer’s plan is
called “COBRAcoverage.” COBRAcoverage usually lasts only for a limited time, and you usually have to pay for it.
If you are covered by an employer’s group health plan, and an event occurs that would otherwise cause you to lose that group
health coverage, you need to understand whether COBRAapplies to your specific situation and, if so, what your rights are under
COBRA.
Which employer
plans are subject to COBRA?
COBRAapplies to most employer group health plans but not to all of them. For example, it does not apply to plans of employers
with fewer than 20 employees or to church plans. Many plans of small employers, though, are subject to State laws similar to
COBRA. If you are covered under a plan of an employer with fewer than 20 employees, you can contact the department or commis-
sion of insurance in your State to find out if you have rights to continuation coverage under your State’s insurance laws. (Federal
employees, while not protected by COBRA, have similar continuation coverage rights under another federal law.)
What events result in COBRA rights and for how long is COBRA coverage available?
Even if COBRAapplies to your group health plan, it gives rights only to certain people who would be losing health coverage for
certain specific reasons. Some of the most common situations that give people COBRArights are:
•Loss of job.If you are covered by your employer’s group health plan and you lose or leave your job, COBRAgenerally gives
you the right to stay in the employer’s plan for up to 18 months. The same rights apply if you are the spouse or dependent child
of an employee who loses his or her job. (The 18-month period can be increased to 29 months if someone in the family is dis-
abled.)
•Reduced hours. If you are covered by your employer’s group health plan and your hours are reduced, the employer’s plan may
provide that you lose coverage unless you elect COBRA. In this case, COBRAgenerally gives you the right to stay in the em-
ployer’s plan for up to 18 months. The same rights apply if you are the spouse or dependent child of an employee whose hours
are reduced. (The 18-month period can be increased to 29 months if someone in the family is disabled.)
•Death or divorce of spouse. You have the right to COBRAcoverage if you are covered by a group health plan of your spouse’s
employer and you would lose coverage because your spouse dies or you and your spouse divorce or legally separate. In these
cases, COBRAgives you the right to stay in the plan for up to 36 months.
•Death or divorce of parent.You have the right to COBRAcoverage if you are a dependent child covered by a group health
plan of your parent’s employer and you would lose coverage because your parent dies or your parents divorce or legally sepa-
rate. In these cases, COBRAgives you the right to stay in the plan for up to 36 months.
•Change of Status as Dependent. COBRAalso gives you rights if you are a dependent child covered by a group health plan of
your parent’s employer and you would lose coverage because you reach an age or condition that causes you to no longer be
covered as a dependent under the plan. In these cases, COBRAgives you the right to stay in the plan for up to 36 months.
If you become covered by another group health plan or by Medicare before your COBRAcoverage would otherwise end, you usu-
ally lose the right to COBRAcoverage. However, you do not lose the right to COBRAcoverage if the new group health plan does
not cover illnesses or conditions because you had them before you became covered under the plan.
What ar
e the requirements for obtaining COBRA coverage?
If you want COBRAcoverage, you can be required to elect it within 60 days after your coverage would otherwise end. If you
elect COBRAcoverage, the plan is required to continue the same coverage for you but can charge you for it.

February 2, 1998141998–5 I.R.B.
•Cost of COBRAcoverage.If you elect COBRAcoverage, the plan can require you to pay for the entire cost of coverage, plus
a small (2%) additional charge for administration. (If you are getting a longer period of coverage because of disability, you
may have to pay more.) The cost of COBRAcoverage will probably be more than what you were paying for coverage before.
You can pay for COBRAcoverage in monthly installments.
How can I get more information about COBRA ?
COBRAhas a number of special rules, and the information above covers only basic points. The plan administrator of your group
health plan is required to give you information about your COBRArights. You should read that information carefully. If you have
any questions about your COBRArights or would like additional information about COBRAand your group health plan, contact
your plan administrator.
If you want to know more, the Department of Labor has a booklet called “Health Benefits under the Consolidated Omnibus Bud-
get Reconciliation Act (COBRA).” You can request this booklet free of charge by calling 1-800-998-7542. The booklet is also
available on the Internet at:
http://www.dol.gov/dol/pwba
HIPAA
What is HIPAA and why is it important in deciding whether to elect COBRA coverage?
HIPAAis a federal law that regulates employer group health plans and health insurance companies. HIPAAis important to your
decision whether to elect COBRAcoverage because HIPAAmay affect when other coverage is available to you and the types of
other coverage available to you, including the extent to which coverage can be restricted under a “preexisting condition exclusion.”
What is a preexisting condition exclusion?
Some employer group health plans do not provide coverage for an illness or condition you had before you became covered under
the plan. These illnesses or conditions are commonly called “preexisting conditions.” Aspecial limit on coverage for a preexisting
condition is called a “preexisting condition exclusion.”
How are preexisting condition exclusions limited by HIPAA?
HIPAAimposes the following limits on the situations in which employer group health plans may have preexisting condition ex-
clusions and the length of time that such exclusions can apply:
•Treatment or advice received in 6 months before enrollment.An employer group health plan cannot exclude coverage for a pre-
existing condition you have unless medical advice, diagnosis, care, or treatment was received by you (or recommended to you)
for the condition during a 6-month period. If there is a waiting period to get into the plan, the 6-month period is the 6 months be-
fore the start of the waiting period. If the plan has no waiting period, the 6-month period is the 6 months before you enter the
plan.
•Preexisting condition exclusion cannot last for more than 12 (or 18) months.An employer group health plan cannot exclude
coverage for a preexisting condition for more than 12 months after the start of the waiting period for coverage. If there is no wait-
ing period, the plan cannot exclude coverage for a preexisting condition for more than 12 months after you enter the plan. How-
ever, if you do not enroll when you are first eligible and do not enroll when you have “special enrollment rights” (as described
below), the plan can refuse to cover preexisting conditions for up to 18 months after you enter the plan.
•Previous coverage reduces length of exclusion. If you had other health coverage — for example, under another group health
plan (including COBRAcoverage) or under an individual insurance policy, Medicare, or Medicaid — your new plan’s preexisting
condition exclusion period generally must be reduced by the period of your other coverage. For example, if you were covered by
your old employer’s plan for 4 months and your new employer’s plan has a 12-month preexisting condition exclusion, your new
employer’s plan cannot exclude coverage for you for any preexisting condition for more than 8 months. However, your new em-
ployer’s plan does not have to count coverage before a 63-day break in coverage.
•63-day break in coverage.If there has been a break of 63 days or more during which you had no health coverage, then the plan
can disregard your old coverage that preceded this break. Thus, if you had no coverage for at least 63 days just before you began
working for your new employer, the new employer’s plan can refuse to cover any preexisting conditions for up to 12 months (or

1998–5 I.R.B15February 2, 1998
18 months, depending on when you enroll in the new plan). Time spent in any waiting period for coverage does not count toward
the 63-day break.
•No preexisting condition exclusion permitted for pregnancy, or for newborn and adopted children. Aplan cannot impose a pre-
existing condition exclusion relating to pregnancy. In addition, a plan cannot impose a preexisting condition exclusion on new-
born children, adopted children, and children placed for adoption who are covered under a plan on the 30th day after their birth,
adoption, or placement for adoption.
•State insurance laws.State insurance laws may further limit the extent to which insurance under an employer’s plan can exclude
coverage for preexisting conditions.
How does HIP
AA affect my ability to enroll in an employer’s plan?
•Special enrollment rights.HIPAAgives you and your family a special opportunity to enroll in your employer’s plan in two situ-
ations: (1) if you lose other coverage (including COBRAcoverage) or (2) if you have a new spouse or dependent. In these two
situations, you (or your spouse or dependent) can be enrolled in your employer’s plan even if the plan normally would not allow
enrollment at that time.
•Special enrollment because of loss of othercoverage.You (and your spouse and dependents) might have been eligible to en-
roll in your employer’s plan at an earlier time but you decided not to because at that time you (or your family members) had
other coverage (say, under the plan of your spouse’s employer). In that case, if you (or your family members) later lose the
other coverage, your employer’s plan generally must allow you (and your family members) to enroll. The plan has to give you
at least 30 days after that other coverage is lost to request enrollment, and must allow enrollment by the first day of the month
after the plan receives your completed request.
•This special enrollment right generally is available only if the coverage is lost because it is no longer available (and
not lost because of failure to pay for it or for cause, such as making a fraudulent claim). You are not required to elect
COBRAcoverage in order to have a special enrollment right; however, if you do elect COBRAcoverage, you must
continue it for the entire period it is available to you in order to preserve this special enrollment right.
•Special enrollment because of a new spouse ordependent.If you marry, then you, your spouse, and any new dependents
you get as a result of the marriage have special rights to enroll. If a new child is born, you adopt a child, or a child is placed for
adoption with you, then you, your spouse, and the new child also get special rights to enroll.
•To be entitled to special enrollment on account of a new spouse or dependent, you must either be covered under the
plan or be eligible to be covered under the plan. The plan has to give you at least 30 days after the marriage, birth,
adoption, or placement for adoption to request enrollment.
•If you get married, the plan must cover you, your spouse, and any new dependent by the first day of the month after
the plan receives your completed request.
•If you have a new child, the plan must cover you and your spouse and the child from the date of birth, adoption, or
placement for adoption.
•The plan cannot exclude you (or make you pay more) based on health status.HIPAAprohibits employer group health plans
from discriminating in their eligibility rules on the basis of your health.
•For example, a plan cannot require you to pass a physical examination before you can enroll in the plan, or prevent you from en-
rolling because of your medical claims experience, medical history, genetic information, evidence of insurability, or disability.
In addition, a plan generally cannot require you to pay a higher contribution than similarly situated people covered under the plan
due to your health or any of these other factors.
Which Employer
Plans Are Subject to HIPAA?
HIPAA’s limits on preexisting condition exclusions, special enrollment rights, and restrictions on discrimination based on health
status apply to most but not all employer group health plans. For example, HIPAAgenerally does not apply to plans where fewer
than 2 of the participants are current employees. In addition, special exceptions apply to certain plans maintained by State or local
governments and certain plans maintained by church organizations. Further, the HIPAArules generally do not apply to coverage for
certain types of excepted benefits.

February 2, 1998161998–5 I.R.B.
Where can I get more information about HIPAA?
HIPAAhas a number of special rules, and the information above covers only basic points. If you want to know more about how
HIPAAapplies to group health plans, the Department of Labor has a booklet called “Questions and Answers: Recent Changes in
Health Care Law.” You may request this booklet free of charge by calling 1-800-998-7542. The booklet is also available on the In-
ternet at:
http://www.dol.gov/dol/pwba
More information about HIPAAis also available at the Health Care Financing Administration (HCFA) Internet site at:
http://www.hcfa.gov
PARTII: Should I Elect COBRACoverage If I Have OtherGroup Health Coverage Available?
The questions and answers in this Part are designed to assist you if you have group health coverage available in addition to
COBRAcoverage. In deciding whether to elect COBRAcoverage, an important factor is whether the other group health coverage
has a preexisting condition exclusion that applies to you.
How do I know if an employer group health plan has a preexisting condition exclusion that applies to me?
You should first determine whether you received medical advice, diagnosis, care, or treatment (or they were recommended to you)
for a medical condition during the 6-month period before the start of the plan’s waiting period (or before you enter the plan, if there
is no waiting period). For this purpose, only medical advice, diagnosis, care, or treatment from a physician or other licensed or au-
thorized person counts.
•If not, the employer’s group health plan cannot apply a preexisting condition exclusion to you.
•If so, contact the plan administrator to find out whether and for how long the plan excludes your condition. Then, determine
whether and to what extent your prior health coverage will reduce any preexisting condition exclusion period.
•While you must be notified if the plan has a preexisting condition exclusion before the exclusion can be applied to you, the plan is
not required to give you this notice before your coverage begins. You have to ask for the information if you need it earlier.
How do I know how long I will be subject to the plan’s preexisting condition exclusion?
Aplan with a preexisting condition exclusion should specify the maximum period that the exclusion can apply. That period is re-
duced by your prior health coverage, so you will need to determine how much prior health coverage you had. Remember that if there
has been a break of 63 days or more during which you had no health coverage, then the plan may be able to disregard your old cov-
erage. Time spent in any waiting period for coverage does not count toward the 63-day break.
•Proof of Previous Health Coverage.Your old plan must give you a certificate showing how much coverage you had under that
plan. The plan must give you the certificate shortly after you become eligible for COBRAcoverage, shortly after your coverage
ends, and at any other time you request it while you are covered or up to 24 months after your coverage ends. If you become cov-
ered by a plan that has a preexisting condition exclusion, you may use the certificate to show your new plan how long you had
coverage under your old plan.
•If you do not have a certificate, you can prove your prior coverage by producing documentation or other evidence.
•The new plan must notify you of any length of time that a preexisting condition exclusion may apply to you after counting
your previous coverage.
What should I consider
in deciding whether to elect COBRA coverage if I have other group health coverage available with
a preexisting condition exclusion that applies to me?
If you have other group health coverage available, and that coverage has a preexisting condition exclusion that applies to you,
your choices are to have (1) COBRAcoverage instead of that other group coverage, (2) the other coverage instead of COBRAcov-
erage (despite the preexisting condition exclusion), or (3) both COBRAcoverage and the other coverage.

Your decision may depend on several factors, such as:
•how long your new coverage will be subject to the preexisting condition exclusion;
•how likely you are to need treatment for the preexisting condition before it is covered;
•the seriousness of your preexisting condition, how much the treatment would cost you in the absence of coverage, and the risks
to you if treatment is delayed;
•the cost, level and scope of benefits of the COBRAcoverage compared to the other coverage; and
•the HIPAArules that require plans to offer special enrollment rights in certain cases and prohibit enrollment restrictions based
on your health status (as discussed in Part I and below in this Part II).
What should I consider in deciding whether to elect COBRA coverage if I have other group health coverage available with
no preexisting condition exclusion that applies to me?
If you have other group health coverage available that does not exclude coverage for a preexisting medical condition you have,
your decision whether to elect COBRAcoverage may be influenced by a variety of factors, including —
•COBRAcut-off due to other coverage.In general, if you get coverage from another employer’s group health plan that is not
subject to a preexisting condition exclusion, or from Medicare, your COBRAcoverage can be cut off. This means that in most
situations you would have to decline the other coverage if you decide you prefer the COBRAcoverage. (Note that if you have
been receiving disability payments from Social Security, you should not decline Medicare coverage without first consulting
your Social Security office or the Medicare program.)
•Cost, scope, and level of coverage.Plans differ in their cost, and in the level and scope of benefits (such as particular medical
services) they cover. You should take these differences into account in comparing the COBRAcoverage with the other avail-
able coverage.
•Employers often pay for a large portion of the cost of group health coverage for employees, while people on COBRAcover-
age typically have to pay for the entire cost of the coverage. This means it usually is cheaper to pay for the employee share
of the cost of the other coverage than to pay for COBRAcoverage. However, you might prefer more costly coverage if it
provides more comprehensive benefits for treatment you may need.
•Waiting period before other coverage begins. If you (or your spouse or parent) get a new job that offers health coverage after
some waiting period, you might want to elect to have COBRAcoverage for that waiting period.
•Special enrollment rights.If you elect COBRAcoverage instead of taking other available group health plan coverage, HIPAA
generally gives you the right to enroll in the new plan within 30 days after the COBRAcoverage ends, or within 30 days after
you get married or have a new dependent child — even if the plan would not otherwise allow you to enroll at that time.
•But, once you have elected COBRAcoverage, your special enrollment right for the loss of the coverage applies only if you
keep the COBRAcoverage for the entire period it is available to you. (Thus, this special enrollment right does not apply if
the COBRAcoverage ends because you stop paying for it.)
•HIPAALimits on Enrollment Restrictions Based on Health Status.If you elect COBRAcoverage instead of taking other
group health plan coverage, but you later decide you want to enroll in the new plan, your new plan cannot exclude you (or
charge you more) on the basis of your health.
PARTIII: Should I Elect COBRACoverage If I Do Not Have OtherGroup Health Coverage Available?
The questions and answers in this Part are designed to assist you if you do not have other group health coverage available.
Why do I need health coverage?
You need health coverage to help pay for medical services for any health problems you might have after your current plan cover-
age ends.
1998–5 I.R.B17February 2, 1998

February 2, 1998181998–5 I.R.B.
Does HIPAA give me the right to buy individual health coverage?
If you meet certain requirements, HIPAAgives you the right to buy individual health coverage with no preexisting condition ex-
clusion, without having to give evidence of good health. Depending on the State, the individual health coverage may be a policy is-
sued by an insurance company, or coverage through a State high-risk pool or other governmental program. You must meet all of the
following requirements to have this right:
•Your most recent period of health coverage must have been under an employer group health plan.
•If you were eligible for COBRAcoverage (or coverage due to a similar State provision) under that plan, you must have elected
and continued that coverage for the entire period it was available to you.
•You would not have to continue COBRAcoverage for the entire period to maintain these rights if the only COBRAcoverage
available was in an HMO and you ceased to reside, live, or work in the HMO service area.
•You must have at least 18 months of prior health coverage, disregarding coverage before a break of 63 days or more during
which you had no health coverage.
•You must not have lost your most recent health coverage because you failed to pay the premiums or because you committed
fraud.
•You must not now be eligible for coverage under any employer group health plan, Medicare, or Medicaid.
•You must not now have any other health insurance coverage.
For more information on your right to buy individual health coverage, contact your State’s department or commission of insurance.
What should I consider
in deciding whether to elect COBRA coverage?
•COBRAcoverage compared to individual health coverage.In comparing COBRAcoverage with any individual coverage you
have available, consider differences in cost and in the level and scope of benefits (such as particular medical services) covered.
•COBRAcoverage compared to no health coverage.You may want to elect COBRAcoverage to make sure you are covered for
any medical services you need. Many people consider the benefits from having the protection that COBRAcoverage provides to
be well worth the cost of COBRAcoverage.
•You might also want to elect COBRAcoverage because, in the future, you could become covered under an employer group
health plan that has a preexisting condition exclusion. If you have a 63-day break in coverage, then your existing coverage
may be disregarded. COBRAcoverage can help you avoid having a 63-day break in coverage and also counts toward re-
ducing any preexisting condition exclusion. See Part I for more information on these rules.
•COBRAcoverage to protect your right to buy individual health coverage with no preexisting condition exclusion.As described
above, if certain requirements are met, you and your family may have the right to buy individual health coverage with no preex-
isting condition exclusion, without having to give evidence of good health. These requirements include electing COBRAcover-
age as long as it is available to you. THUS, FAILURE TO ELECTCOBRACOVERAGE MAYCAUSE YOU TO LOSE YOUR
GUARANTEED RIGHTS TO PURCHASE INDIVIDUALHEALTH COVERAGE.
Is ther
e any State-sponsored coverage available to me?
Individuals in a family whose income is temporarily reduced (for example, due to loss of a job) may be eligible for low-cost or no-
cost health insurance through public programs. Children are especially likely to be eligible for low-cost coverage. Eligibility for these
programs varies by State and sometimes within a State. You can contact State government officials to find out if you are eligible.
CONCLUSION
There are many factors to consider in making the important decision whether to elect COBRAcontinuation coverage for you and
each of the members of your family. The information above highlights factors that people in typical circumstances may want to take
into account in deciding whether to elect COBRAcoverage. You will need to consider your own family’s circumstances in making
your decision.

26 CFR 401: Employment taxes.
(Also Part I, §§ 3121; 31.3121(b)(10)–2.)
Rev. Proc. 98–16
SECTION 1. PURPOSE
This revenue procedure sets forth gen-
erally applicable standards for determin-
ing whether service in the employ of cer-
tain public or private nonprofit schools,
colleges, universities, or affiliated organi-
zations described in § 509(a)(3) of the In-
ternal Revenue Code (the Code) per-
formed by a student qualifies for the
exception from Federal Insurance Contri-
butions Act (FICA) tax provided under
§ 3121(b)(10) of the Code (Student FICA
exception). These standards are intended
to provide objective and administrable
guidelines for determining employment
tax liability. The Student FICAexception
standards were developed in response to
requests for guidance by many public and
private nonprofit institutions of higher ed-
ucation.
SECTION 2. SCOPE
.01 Institutions of higher education typ-
ically distinguish between career employ-
ees and student employees. Sections 5
and 6 of this revenue procedure contain
generally applicable standards for deter-
mining whether or not services performed
by career employees and student employ-
ees are eligible for the Student FICAex-
ception.
.02 The standards contained in this rev-
enue procedure do not apply to employees
who are postdoctoral students, postdoc-
toral fellows, medical residents, or med-
ical interns because the services per-
formed by these employees cannot be
assumed to be incidental to and for the
purpose of pursuing a course of study.
.03 The standards contained in this rev-
enue procedure do not constitute the ex-
clusive method for determining whether
the Student FICAexception applies.
Thus, for example, if the standard for
qualifying for the exclusion described in
section 6 of this revenue procedure is not
met, whether or not service in the employ
of a school, college, university, or affili-
ated organization described in § 509(a)(3)
of the Code will qualify for the Student
FICAexception will depend on consider-
ation of all the facts and circumstances.
SECTION 3. BACKGROUND
.01 Sections 3101 and 3111 of the Code
impose social security and Medicare taxes
(FICAtaxes) on employees and employ-
ers, respectively, equal to a percentage of
the wages received by an individual with
respect to employment.
.02 Section 3121(a) of the Code defines
“wages” for purposes of FICAtaxes as all
remuneration for employment, with cer-
tain exceptions. Section 3121(b) of the
Code defines “employment” as services
performed by an employee for an em-
ployer, with certain exceptions.
.03 Section 3121(b)(10) of the Code
excepts from the definition of employ-
ment services performed in the employ of
a school, college, or university (whether
or not that organization is exempt from
income tax), or an affiliated organization
described in § 509(a)(3) of the Code, if
the service is performed by a student who
is enrolled and regularly attending classes
at that school, college or university. Re-
muneration for services excluded from
the definition of employment under
§ 3121(b)(10) of the Code is not subject
to FICAtaxes.
.04 Section 31.3121(b)(10)–2 of the
Employment Tax Regulations provides
that whether an employee has the status of
a student is determined on the basis of the
employee’s relationship with the school,
college, or university for which the ser-
vices are being performed. An employee
who performs services in the employ of a
school, college, or university as an inci-
dent to and for the purpose of pursuing a
course of study at the school, college, or
university has the status of a student in the
performance of those services. Employ-
ment that is not incident to and for the
purpose of pursuing a course of study
does not qualify for the exception. If the
employee does perform services as an in-
cident to and for the purpose of pursuing a
course of study and, therefore, has the sta-
tus of a student, the amount of remunera-
tion for services performed by the em-
ployee, the type of services performed by
the employee, and the place where the
services are performed are immaterial for
purposes of the Student FICAexception.
.05 Section 218 of the Social Security
Act (the Act), 42 U.S.C. section 418, al-
lows states to provide Social Security
coverage for services performed by stu-
dents for the public school the student is
attending under agreements established
with the Social Security Administration.
If a state has exercised its option under
§ 218 of the Act to provide for coverage
of student services, § 3121(b)(10) of the
Code provides that those services will not
qualify for the Student FICAexception.
SECTION 4. INSTITUTIONS OF
HIGHER EDUCATION
.01 The standards contained in this rev-
enue procedure apply to institutions of
higher education. For purposes of this
revenue procedure, the term “institution
of higher education” includes any public
or private nonprofit school, college, uni-
versity, or affiliated organization de-
scribed in § 509(a)(3) of the Code that
meets the requirements set forth in De-
partment of Education regulations at 34
C.F.R. § 600.4 (1997), as amended from
time to time, and that is accredited or
preaccredited by a nationally recognized
accrediting agency as defined in the De-
partment of Education regulations at 34
C.F.R. § 600.2 (1997).
.02 Services for other institutions may
also be eligible for the Student FICAex-
ception. Thus, for example, services per-
formed by a student for a secondary
school may be eligible for the Student
FICAexception. Whether or not services
for other institutions, such as secondary
schools, qualify for the Student FICAex-
ception is determined based on the facts
and circumstances of each case.
SECTION 5. STANDARDS
APPLICABLE TO CAREER
EMPLOYEES
.01 Services performed by career em-
ployees are not eligible for the Student
FICAexception under the standard in sec-
tion 6 of this revenue procedure because
their employment cannot generally be
considered to be incident to and for the
purpose of pursuing a course of study.
However, a career employee may be eligi-
ble for the Student FICAexception, based
on consideration of all the facts and cir-
cumstances.
.02 For purposes of this revenue proce-
dure, the term “career employee” is de-
fined as any individual performing ser-
vices for an institution of higher
education who—
1998–5 I.R.B19February 2, 1998

(1) is eligible to participate in any re-
tirement plan described in § 401(a) of the
Code that is established or maintained by
the institution, or would be eligible to par-
ticipate if age and service requirements
were met;
(2) is eligible to receive an allocation of
employer contributions other than contri-
butions described in § 402(g) of the Code
under an arrangement described in
§ 403(b) of the Code, or would be eligible
to receive such allocations if age and ser-
vice requirements were met, or if contri-
butions described in § 402(g) of the Code
were made by the employee;
(3) is eligible for reduced tuition (other
than qualified tuition reduction under
§ 117(d)(5) of the Code provided to a
teaching or research assistant who is a
graduate student as described in section
7.03 of this revenue procedure) because
of the individual’s employment relation-
ship with the institution; or
(4) is classified by the institution of
higher education as a career employee.
.03 If an individual performs services
in multiple job positions, the individual
will be deemed a career employee with
respect to all of the positions if the indi-
vidual is a career employee in any one or
more of the job positions.
SECTION 6. STANDARDS
APPLICABLE TO UNDERGRADUATE
AND GRADUATE STUDENTS
.01 An individual who is a half-time
undergraduate student or a half-time grad-
uate or professional student and who is
not a career employee will qualify for the
Student FICAexception under this rev-
enue procedure with respect to services
performed at or for institutions of higher
education in which they are enrolled or at
affiliated organizations described in
§ 509(a)(3) of the Code. Services per-
formed by a student for any other em-
ployer do not qualify for this exception.
.02 An individual is deemed to be a
half-time undergraduate or half-time
graduate or professional student if the in-
dividual is not a career employee and is
an undergraduate or graduate student who
is in the last semester, trimester, or quarter
of a course of study requiring at least two
semesters, trimesters, or quarters to com-
plete and is enrolled in the number of
credit or unit hours needed to complete
the requirements for obtaining a degree,
certificate, or other recognized educa-
tional credential offered by that institution
of higher education even if enrolled in
less than half the number required of full-
time students.
.03 The determination of student status
should be made at the end of the drop-add
period and may be adjusted thereafter at
the institution of higher education’s op-
tion. The determination of student status
for payroll periods ending before the end
of the drop-add period may be based on
the number of semester, trimester, or
quarter hours being taken at the end of the
registration period for that semester,
trimester, or quarter.
.04 If an individual is described in sec-
tion 6.01 or 6.02 of this revenue proce-
dure, services performed by the individ-
ual are eligible for the Student FICA
exception with respect to all services per-
formed during all payroll periods of a
month or less that fall wholly or partially
within the academic term.
.05 The Student FICAexception does
not apply to services performed by an in-
dividual who is not enrolled in classes
during school breaks of more than five
weeks (including summer breaks of more
than five weeks), other than services de-
scribed in section 6.04. SeeRev. Rul. 72–
142, 1972–1 C.B. 317, and Rev. Rul. 74–
109, 1974–1 C.B. 288. However, the Stu-
dent FICAexception applies to employ-
ment which continues during normal
school breaks of 5 weeks or less during
which the individual is not eligible for the
Student FICAexception pursuant to sec-
tion 6.01 of this revenue procedure pro-
vided that the individual qualifies for the
Student FICAexception pursuant to sec-
tion 6.01 of this revenue procedure on the
last day of classes or examinations pre-
ceding the break and is eligible to enroll
in classes for the first academic period
following the break.
.06 If the standards of this revenue pro-
cedure are met (and section 8 does not
apply), the amount of remuneration for
services performed by the employee, the
type of services performed by the em-
ployee, the place where the services are
performed, and the number of hours
worked by the employee are immaterial.
If the services performed by a student oth-
erwise described in section 6.01 or 6.02
are covered under an agreement pursuant
to § 218 of the Act, the Student FICAex-
ception does not apply.
.07 For provisions relating to domestic
service performed by a student in a local
college club, or local chapter of a college
fraternity or sorority, see § 31.3121(b)2–1.
SECTION 7. DEFINITIONS
For purposes of the standard contained
in section 6 of this revenue procedure, the
following definitions must be used.
.01 Undergraduate student.The term
“undergraduate student” has the meaning
attributed to that term in the Department
of Education regulations at 34 C.F.R.
§ 674.2 (1997).
.02 Half-time undergraduate student.
The term “half-time undergraduate stu-
dent” has the meaning attributed to that
term in the Department of Education reg-
ulations at 34 C.F.R. § 674.2 (1997).
.03 Graduate or professional student.
The term “graduate or professional stu-
dent” means a student who—
(1) is enrolled at an institution of higher
education for the purpose of obtaining a
degree, certificate, or other recognized
educational credential above the bac-
calaureate level or is enrolled in a pro-
gram leading to a professional degree;
(2) has completed the equivalent of at
least three years of full-time study at an
institution of higher education, either
prior to entrance into the program or as
part of the program itself; and
(3) is not a postdoctoral student, post-
doctoral fellow, medical resident, or med-
ical intern.
.04 Half-time graduate or professional
student.The term “half-time graduate or
professional student” means an enrolled
graduate or professional student, as de-
fined in section 7.03 of this revenue pro-
cedure, who is carrying at least a half-
time academic workload at an institution
of higher education as determined by that
institution according to its own standards
and practices.
SECTION 8. ANTI-ABUSE RULE
The standards in this revenue proce-
dure must be applied in a reasonable
manner, consistent with the purpose of
excluding from employment only ser-
vices that are performed as an incident to
and for the purpose of pursuing a course
of study at a school, college or university.
February 2, 1998201998–5 I.R.B.

See§ 31.3121(b)(10)–2(c). If the stan-
dards are inappropriately applied in a
manner that conflicts with this underly-
ing purpose so as to manipulate or mis-
characterize the nature of the relationship
between an employee and an institution
of higher education, resulting in the im-
proper avoidance of payment of FICA
taxes, then whether the Student FICAex-
ception applies will be determined on the
basis of all the facts and circumstances,
rather than on the basis of the specific
standards set forth in sections 5 and 6 of
this revenue procedure. For example, the
standards would be inappropriately ap-
plied through the manipulation of the re-
lationship between employees and the in-
stitution of higher education if a
university claimed that the Student FICA
exception applied to research laboratory
workers, who had been career employ-
ees, but were converted to non-career sta-
tus and required to enroll in a certificate
program granting six credit hours per se-
mester for work experience in the labora-
tory. As another example, if an individ-
ual who was not a student worked for a
university on a full-time basis for many
years, in a job generally performed by
non-students (but nonetheless failed to
meet the literal definition of career em-
ployee), and then enrolled at the univer-
sity for six credit hours of course work
per semester while continuing the full-
time work in the same job, it may not be
appropriate to apply the standards of this
revenue procedure to conclude that the
individual’s work has become incident to
and for the purpose of pursuing a course
of study solely because the individual en-
rolled for this course work. In both of
these examples, whether the work is per-
formed incident to and for the purpose of
pursuing a course of study must be deter-
mined on the basis of all the relevant
facts and circumstances.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Neil D. Shepherd of the Of-
fice of Assistant Chief Counsel (Em-
ployee Benefits & Exempt Organiza-
tions). For further information regarding
this revenue procedure, please contact Mr.
Shepherd at (202) 622-4606 (not a toll-
free number).
26 CFR 601.201: Rulings and determination letters.
(Also Part I, §§ 162, 165, 198, 263.)
Rev. Proc. 98–17
SECTION 1. PURPOSE
This revenue procedure provides spe-
cial procedures for requesting written
guidance from the Internal Revenue Ser-
vice on the tax treatment under §§ 162,
165, 198, and 263 of the Internal Revenue
Code of environmental cleanup costs in-
curred in projects that span several years,
including future years and prior years
(whether or not under examination).
These special procedures are available for
letter ruling requests submitted during the
two-year period beginning on February 2,
1998. The purpose of this revenue proce-
dure is to facilitate the resolution of issues
involving the capitalization or deduction
of environmental cleanup costs for both
prior and future years of an environmental
cleanup project.
SECTION 2. BACKGROUND
.01 Section 162(a) allows a deduction
for all the ordinary and necessary ex-
penses paid or incurred during the taxable
year in carrying on any trade or business.
.02 Section 165(a) allows a deduction
for any loss sustained during the taxable
year and not compensated by insurance or
otherwise.
.03 Section 198 permits a taxpayer to
elect to treat any qualified environmental
remediation expenditure that is paid or in-
curred by the taxpayer as an expense that
is not chargeable to capital account. Sec-
tion 198(b) provides that the term “quali-
fied environmental remediation expendi-
ture” means any expenditure that is
otherwise chargeable to capital account
and that is paid or incurred in connection
with the abatement or control of haz-
ardous substances at a qualified contami-
nated site.
.04 Section 263 generally prohibits de-
ductions for capital expenditures. Section
263(a)(1) provides that no deduction is
generally allowed for any amount paid
out for permanent improvements or bet-
terments made to increase the value of
any property or estate. Under § 263(a)(2),
no deduction is allowed for any amount
expended in restoring property or in mak-
ing good the exhaustion thereof for which
an allowance is or has been made.
.05 Rev. Proc. 98–1, 1998–1 I.R.B. 7
(Jan. 5, 1998), provides procedures under
which the Service issues letter rulings, de-
termination letters, and information let-
ters on specific issues. Section 2.01 of
Rev. Proc. 98–1 defines a “letter ruling”
as a written statement issued to a taxpayer
by the national office that interprets and
applies the tax laws to the taxpayer’s spe-
cific set of facts. Ordinarily, the national
office issues letter rulings on income tax
issues only on prospective transactions or
completed transactions if the letter ruling
request is submitted before the return is
filed for the year in which the transaction
was completed. All references to Rev.
Proc. 98–1 in this revenue procedure shall
include Rev. Proc. 98–1’s successors.
.06 Rev. Proc. 98–2, 1998–1 I.R.B. 74
(Jan. 5, 1998), provides procedures under
which the national office issues technical
advice to a district director or a chief, ap-
peals office. Section 2 of Rev. Proc. 98–2
defines “technical advice” as advice or
guidance in the form of a memorandum
furnished by the national office upon the
request of a district director or a chief, ap-
peals office, submitted in accordance with
Rev. Proc. 98–2 in response to any techni-
cal or procedural question that develops
during any proceeding on the interpreta-
tion and proper application of tax law, tax
treaties, regulations, revenue rulings, no-
tices, or other precedents published by the
national office to a specific set of facts.
All references to Rev. Proc. 98–2 in this
revenue procedure shall include Rev.
Proc. 98–2’s successors.
SECTION 3. SCOPE
.01 In general.Except as provided in
section 3.06 below, this revenue proce-
dure applies to a request for guidance on
the deductibility (under §§ 162, 165, or
198) or capitalization (under § 263) of en-
vironmental cleanup costs incurred in a
continuing project (e.g.,one that occurs
over prior and future taxable years). Gen-
erally, a taxpayer may request a letter rul-
ing under this revenue procedure that will
cover all tax years in which the costs of
the environmental cleanup project that are
the subject of the request are taken into
account for federal income tax purposes
(“project years”). Thus, the letter ruling
1998–5 I.R.B21February 2, 1998

may cover project years for which a re-
turn has been filed, even if such return is
under examination or before an appeals
office.
.02 Environmental cleanup costs.For
purposes of this revenue procedure, envi-
ronmental cleanup costs include, in gen-
eral, any costs associated with the assess-
ment, mitigation, removal or remediation
of environmental hazards, whether latent
or imminent, on the taxpayer’s property
or on the property of another.
.03 Environmental cleanup project. An
environmental cleanup project may con-
sist of one or more related environmental
cleanup activities. For example, a tax-
payer may request a letter ruling under
this procedure on the tax treatment of
costs paid or incurred over several years:
(1) to study, remediate, and monitor
soil and groundwater at a former manu-
facturing site;
(2) to remove and replace asbestos in
manufacturing equipment located at sev-
eral of the taxpayer’s operating plants; or
(3) to remove underground storage
tanks, treat contaminated soil and ground-
water, and remove asbestos from a retail
facility where the taxpayer intends to
begin operations.
Aletter ruling issued under this rev-
enue procedure will cover only the costs
of activities described in the taxpayer’s
request.
.04 Factual nature of question.Section
7.01 of Rev. Proc. 98–1 provides that the
national office ordinarily will not issue
letter rulings in certain areas because of
the factual nature of the problem. Al-
though the question of whether amounts
are deductible or must be capitalized is
generally dependent upon the taxpayer’s
specific facts, only in rare or unusual cir-
cumstances will the national office de-
cline to issue a letter ruling under this rev-
enue procedure solely because of the
factual nature of the question.
.05 Alternative plans and hypothetical
situations.Section 7.02 of Rev. Proc. 98–
1 provides that the national office ordinar-
ily will not issue a letter ruling on alterna-
tive plans of proposed transactions or on
hypothetical situations. Thus, the tax-
payer must have a proposed environmen-
tal cleanup plan on which to base the rul-
ing request. However, the Service
recognizes that all aspects of any environ-
mental cleanup project may not be defi-
nite at the time of the request, particularly
if the assessment of the contamination is
not yet complete. Ordinarily, this will not
preclude issuance of a letter ruling, pro-
vided that the Service is given sufficient
facts to reach a determination. If the tax-
payer’s environmental cleanup project
changes after the letter ruling is issued,
the taxpayer may request that the national
office modify or supplement its letter rul-
ing to address the changes to the project.
See section 8 of this revenue procedure.
.06 Identical issue in litigation. Tax-
payers may not request guidance under
this revenue procedure if the identical en-
vironmental cleanup issue is in the tax-
payer’s return for an earlier period and
that issue is pending in litigation in a case
involving the taxpayer (or a related tax-
payer within the meaning of § 267, or a
member of an affiliated group of which
the taxpayer is also a member within the
meaning of § 1504).
.07 Requests more appropriately made
under Rev. Proc. 98–1 or 98–2. The na-
tional office may determine that a request
for written guidance under this revenue
procedure would be more appropriately
made under Rev. Proc. 98–1 or 98–2. In
such a case, the taxpayer will be notified
and given an opportunity to explain why
the request is more appropriately made
under this revenue procedure.
SECTION 4. REQUESTING ALETTER
RULING
.01 Taxpayers not under examination or
before appeals office.Ataxpayer request-
ing a letter ruling on the tax treatment of
environmental cleanup costs may do so
under this section 4.01 if no return for any
project year is under examination or be-
fore an appeals office. Except as provided
by this revenue procedure, a request under
this section 4.01 must meet the require-
ments of Rev. Proc. 98–1 for a letter ruling
request. In addition, if a taxpayer submits
a letter ruling request under this section
4.01 covering a project year for which a
return has already been filed, a copy of the
letter ruling request must also be submit-
ted to the district office having jurisdiction
over the taxpayer’s return.
.02 Taxpayers under examination or
before appeals office.Ataxpayer request-
ing a letter ruling on the tax treatment of
environmental cleanup costs incurred
under a continuing project must do so
under this section 4.02 if any project year
is under examination or before an appeals
office. Except as provided in this revenue
procedure, a letter ruling request made
under this subsection must meet the gen-
eral requirements of Rev. Proc. 98–2 for a
taxpayer-initiated request for technical
advice. Once an environmental cleanup
issue is identified, all requests for letter
rulings should be made at the earliest pos-
sible stage in any proceeding. The tax-
payer must submit its request (and the ap-
plicable user fee) for each letter ruling
under this section 4.02 to the district or
appeals office having jurisdiction over its
return. The district or appeals office will,
in all cases, forward the original request,
and any additional statements of the tax-
payer and the district or appeals office, to
the national office using Form 4463 (Re-
quest for Technical Advice), with the fol-
lowing statement typed or printed at the
top of the form: “REQUESTED UNDER
REV. PROC. 98–17.”
SECTION 5. PROCESSING THE
RULING REQUEST
.01 Taxpayers not under examination
or before appeals office.Aletter ruling
request submitted under section 4.01 of
this revenue procedure generally will be
processed under the procedures set forth
in Rev. Proc. 98–1. Thus, the procedures
for requesting additional information,
conferences, withdrawal of requests, etc.
are the same as those provided in Rev.
Proc. 98–1. The original letter ruling will
be issued to the taxpayer that requested it,
and a copy of the letter ruling, whether fa-
vorable or adverse, will be sent to the dis-
trict director that has jurisdiction over the
taxpayer’s return.
.02 Taxpayers under examination or
before appeals office.Aletter ruling re-
quest submitted under section 4.02 of this
revenue procedure generally will be
processed under the procedures set forth
in Rev. Proc. 98–2 for a taxpayer-initiated
request for technical advice, except as
provided in this section.
(1) Contacting the taxpayer.Usually,
within 21 calendar days after the national
office receives a taxpayer’s letter ruling
request, a Service representative will con-
tact both the taxpayer (or the taxpayer’s
authorized representative) and the exam-
ining or appeals officer to discuss the sub-
stantive or procedural issues in the letter
February 2, 1998221998–5 I.R.B.

ruling request and to ask for any addi-
tional information necessary in order to
process the request.
(2) Coordination with district and ap-
peals office.During the processing of a
taxpayer’s letter ruling request, the na-
tional office will continuously coordinate
the evaluation of the request with the dis-
trict or appeals office having jurisdiction
over the case. If the district or appeals of-
fice either determines that the national of-
fice should not consider the taxpayer’s re-
quest or disagrees with the taxpayer’s
statement of facts and issues, then the dis-
trict or appeals office will notify the tax-
payer in writing. For these purposes, the
Service will follow the procedures set
forth in section 10.04 of Rev. Proc. 98–2,
except that the district or appeals office
will, in all cases, forward the taxpayer’s
request, with any additional statements, to
the national office as provided in section
4.02 of this revenue procedure.
(3) Withdrawing the ruling request.
The district director or chief, appeals of-
fice, may not withdraw a request for a let-
ter ruling submitted under section 4.02 of
this revenue procedure. However, a tax-
payer may withdraw such a request at any
time before the letter ruling is signed by
the national office, provided that the dis-
trict director or the chief, appeals office,
consents to the withdrawal. If the district
director or the chief, appeals office, con-
sents to this withdrawal, the national of-
fice will send its views to the district di-
rector or the chief, appeals office. If the
district director or the chief, appeals of-
fice, does not consent to the withdrawal,
then the letter ruling request will be
processed as a request for technical ad-
vice under Rev. Proc. 98–2 and the scope
of the technical advice memorandum will
be limited to years under examination.
Pursuant to the principles of Rev. Proc.
98–1, including but not limited to section
15.10 thereof, the user fee generally will
not be refunded if the taxpayer withdraws
its request for a letter ruling under this
section.
(4) Reply by national office.Replies to
letter ruling requests issued under section
4.02 are made in two parts. Each part
identifies the taxpayer by name, address,
taxpayer identification number, and the
years under examination by the district di-
rector or under consideration by an ap-
peals office. The first part is a transmittal
memorandum addressed to the district or
appeals office. The second part is a letter
ruling as defined in section 2.01 of Rev.
Proc. 98–1 that covers the project years
addressed in the taxpayer’s request. The
national office will forward the transmittal
memorandum and a copy of the letter rul-
ing to the district director or the chief, ap-
peals office, having jurisdiction over the
taxpayer’s return. At the same time, the
national office will issue the original letter
ruling to the taxpayer that requested it.
.03 Coordination with industry special-
ization program.Prior to issuance of a
letter ruling to a taxpayer under this rev-
enue procedure, the national office will
coordinate review of the proposed letter
ruling with a representative of the envi-
ronmental cleanup costs issue specializa-
tion team.
.04 Disclosure.The text of a letter rul-
ing issued under this revenue procedure is
open to public inspection under § 6110.
The Service will make appropriate dele-
tions from the text before it is made avail-
able for inspection. To help the Service
make the deletions required by § 6110, a
request made under this revenue proce-
dure must be accompanied by the state-
ment described in section 8.01(9) of Rev.
Proc. 98–1.
SECTION 6. EFFECTOF THE LETTER
RULING
.01 General rule.Ataxpayer ordinarily
may rely on a letter ruling issued by the
Service pursuant to this revenue proce-
dure subject to the conditions and limita-
tions described in section 12 of Rev. Proc.
98–1. Aletter ruling issued on a specific
environmental cleanup project represents
a holding by the Service on that project
only. It will not apply to any project not
specifically addressed in the letter ruling.
.02 Return previously filed.The con-
clusion in the letter ruling, whether ad-
verse or favorable to the taxpayer, will
generally be applied prospectively to all
future project years. In addition, if a letter
ruling involves tax years for which a re-
turn has already been filed, it will gener-
ally apply retroactively to all open years
unless the Service exercises discretionary
authority under § 7805(b) to limit the
retroactive effect of the conclusion.
.03 Use in examining the taxpayer’s re-
turn. If a taxpayer is under examination
or is later selected for examination, the
letter ruling will be used by the district di-
rector in examining the taxpayer’s returns
for prior and future project years in the
manner described in section 12.03 of Rev.
Proc. 98–1.
.04 Prior settlement or closing agree-
ment.Aletter ruling issued under this
revenue procedure will not affect any tax-
able year(s) that are the subject of a prior
settlement or closing agreement entered
into with a district director or an appeals
office.
SECTION 7. REVOCATION OR
MODIFICATION
Aletter ruling found to be in error or
not in accord with the current views of
the Service may be revoked or modified.
If a letter ruling under this revenue proce-
dure is revoked or modified, the revoca-
tion or modification applies to all open
years under the statute of limitations un-
less the Service uses its discretionary au-
thority under § 7805(b) to limit the
retroactive effect of the revocation or
modification. The criteria and proce-
dures for revoking or modifying a letter
ruling issued under this revenue proce-
dure are the same as those provided in
section 12 of Rev. Proc. 98–1. In addi-
tion, the procedures for requesting
§ 7805(b) relief, and the criteria for
granting it, are the same as those pro-
vided in section 12.11 of Rev. Proc. 98–1.
SECTION 8. REQUESTING
SUPPLEMENTALLETTER RULINGS
If the material facts underlying a letter
ruling issued under this revenue procedure
change after the letter ruling is issued, the
taxpayer may request that the Service
modify or supplement the letter ruling.
The request must comply with the require-
ments of sections 4.01 or 4.02 of this rev-
enue procedure, whichever applies.
SECTION 9. CHANGE IN
ACCOUNTING METHOD
Under § 446(e), a taxpayer receiving a
letter ruling under this revenue procedure
may be required to seek the Commis-
sioner’s consent to change its method of
accounting, and § 481 may be applicable.
In these cases, the national office will in-
form the taxpayer of the procedures for
obtaining this consent.
1998–5 I.R.B23February 2, 1998

SECTION 10. USER FEE
REQUIREMENTS
Except as provided in sections 15.03
and 15.04 of Rev. Proc. 98–1, all requests
submitted under this revenue procedure
(including supplemental letter ruling re-
quests under section 8 of this revenue pro-
cedure) must be accompanied by a user
fee. The appropriate user fee is deter-
mined from the fee schedule provided in
Appendix Aof Rev. Proc. 98–1.
SECTION 11. ADDRESS FOR
SUBMISSION
.01 Taxpayers not under examination
or before an appeals office.All requests
for letter rulings submitted under section
4.01 of this revenue procedure (including
the applicable user fee) should be sent to
the Associate Chief Counsel (Domestic)
at the addresses provided in section
8.03(1) of Rev. Proc. 98–1.
.02 Taxpayers under examination or
before appeals office. All requests for let-
ter rulings submitted under section 4.02
of this revenue procedure (including the
applicable user fee) should be sent to the
examining or appeals officer, who must
forward the request to the national office
using the same address provided in sec-
tion 9.03 of Rev. Proc. 98–2.
SECTION 12. EFFECTON OTHER
DOCUMENTS
Rev. Proc. 98–1 is amplified. Rev.
Proc. 98–2 is amplified and modified.
SECTION 13. EFFECTIVE DATE
This revenue procedure is effective for
requests for letter rulings submitted dur-
ing the two-year period from February 2,
1998 to February 2, 2000.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Merrill D. Feldstein of the
Office of Assistant Chief Counsel (In-
come Tax & Accounting). For further in-
formation regarding this revenue proce-
dure, contact Ms. Feldstein on (202)
622-4950 (not a toll-free call).
February 2, 1998241998–5 I.R.B.

1998–5 I.R.B25February 2, 1998
Year 2000 Changes
Announcement 98–5
The purpose of this announcement is to
identify forms and date fields that will be
affected by the impending expansion of
the date field to accommodate the Year
2000.
The Information Reporting Program
has date fields within the information re-
turn records filed magnetically/electroni-
cally to the Martinsburg Computing Cen-
ter. Currently we allow a two-position
field for the year (YY) which appears in
both the Payer “A” Record and Payee “B”
Record. All other dates within the Payee
Records are currently six-digit fields in
the format of MMDDYY.
For Tax Year 1998, the information re-
turns date fields will be expanded and re-
formatted by changing the two-digit tax
year field to four-digits in preparation for
the Year 2000. To accommodate the
change, the four-digit tax year field in the
Payer “A” Record will be in positions 2-
5. The sequence number field will be
eliminated due to the date expansion. The
tax year will be dropped in the Payee “B”
record since the tax year of the return can
be determined by the tax year provided in
the Payer “A” Record. By expanding the
tax year field to four-positions, the Infor-
mation Reporting Program will be consis-
tent with the industry standard.
The record format for information re-
turns filed magnetically/electronically
will have the following changes:
—Two-digit date fields (YY) will be
expanded to four-digits (YYYY)
—Six-digit date fields (MMDDYY)
will be changed to eight-digits
(YYYYMMDD)
In addition to the necessary Year 2000
changes, there are changes that will be
made as a result of legislative require-
ments. The current 420 position record
will be expanded to accommodate this
new information. It is our intention to
make the Publication 1220, which will
identify these changes, available as soon
as possible.
This announcement refers specifically
to the information returns designated
below that are received and processed
magnetically/electronically at the Internal
Revenue Service, Martinsburg Comput-
ing Center. The related publications will
be revised accordingly.
1098Mortgage Interest State-
ment
1099–AAcquisition and Aban-
donment of Secured
Property
1099–BProceeds From Broker
and Barter Exchange
Transactions
1099–CCancellation of Debt
1099–DIVDividends and Distribu-
tions
1099–GCertain Government Pay-
ments
1099–INTInterest Income
1099–LTCLong Term Care and Ac-
celerated Death Benefits
1099–MISCMiscellaneous Income
1099–MSADistributions from Med-
ical Savings Accounts
1099–OIDOriginal Issue Discount
1099–PATRTaxable Distributions
Received from Coopera-
tives
1099–RDistributions From Pen-
sion, Annuities, Retire-
ment or Profit-Sharing
Plans, IRAs, Insurance
Contracts, Etc.
1099–SProceeds From Real Es-
tate Transactions
5498Individual Retirement
Arrangement Informa-
tion
5498MSAMedical Savings Ac-
count Information
W–2GCertain Gambling Win-
nings
1042SForeign Person’s U.S.
Source Income Subject
to Withholding
W–4Employee’s Withholding
Allowance Certificate
The date field expansion will be effec-
tive for Tax Year 1998 data filed in Calen-
dar Year 1999.
Announcement 98–6
The Form 5498 IRA/SEP/SIMPLE In-
dicator instructions on page 42 of the
TY97 Publication 1220 are causing con-
fusion to both filers and to the Internal
Revenue Bulletin (I.R.B.). In your publi-
cation, please cross out the phrase “and
not reporting contributions in Amount
Codes 1, 6, or 7”. (See below.)
The TY97 paper instructions advise fil-
ers to use the IRA/SEP/SIMPLE Indicators
with Payment Amount Fields 2 and 4 only
if there is no money reported in Payment
Amount Fields 1, 6, or 7. Our program re-
quiresan indicator if there is money in
Payment Amount Fields 2 and 4. For filing
information returns magnetically or elec-
tronically, the Publication 1220 instructions
take precedent over the paper instructions.
An I.R.B. will be issued to clarify the
problem.
Please notify ISS if there are any other
areas of concern with the new pub.
Part IV. Items of General Interest
141Form 5498IRA1Required.Form 5498 only.Enter ‘1’if reporting a rollover (Amount Code 2)
Indicator (Individualor Fair Market Value (Amount Code 4) for an IRA.Otherwise,enter a blank.
RetirementArrangement)
142Form 5498 SEPIndicator1Required.Form 5498 only.Enter ‘1’if reporting a rollover (Amount Code 2)
(SimplifiedEmployeePension)or Fair Market Value (Amount Code 4) for a SEP. Otherwise,enter a blank.
143Form 5498SIMPLE1Required. Form 5498 only.Enter ‘1’if reporting a rollover (Amount Code 2)
Indicator (SavingsIncentiveor Fair Market Value (Amount Code 4) for a SIMPLE. Otherwise,enter a
MatchPlan forEmployeesblank.
of Small employers)

February 2, 1998261998–5 I.R.B.
Foundations Status of Certain
Organizations
Announcement 98–7
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:
Anchorage Education Community
Winning With Stronger Education,
Anchorage, AK
Armenian Film Society, Northridge, CA
Association of Alpha Development
Corporations, Los Angeles, CA
Association of Black Families for
Cultural and Educational
Development, Oakland, CA
Auburn Resident Council, Auburn, CA
Ayuda Homes, Walnut, CA
Bakersfield Korean Academy,
Bakersfield, CA
Bardia Foundation Inc., Westlake, CA
Bay Area Black Professionals, Oakland,
CA
Believers Quartet Inc., Sacramento, CA
Berkeley Community Homes, Oakland,
CA
Big Blue Foundation Inc., Los Angeles,
CA
Big Rock Productions Inc., Malibu, CA
Black Eyes Productions Inc., San Jose,
CA
Boise Blue Society, Inc., Boise, ID
Borinquen Culture Through Agriculture
Learning Center, Holualoa, HI
Broader Horizon Inc., Cupertino, CA
Business and Employment Training
Foundation of Napa County Inc.,
Napa, CA
The California Citizenship Foundation,
Sacramento, CA
Calistoga Music Ministries, Angwin, CA
Caring Friends Foundation Incorporated,
Rialto, CA
Carson Community Emergency Shelter,
Carson, CA
Celebrity AIDS Benefit, Wrightwood,
CA
Center for ANew Generation, East Palo
Alto, CA
Central Area Business Development
Center, Seattle, WA
Central Recovery & Development
Project, Los Angeles, CA
Champions Foundation Inc., Athens, GA
Chandler Parents Club Inc., Chandler, OK
Change Masters Inc., Greeley, CO
Channel Housing Ministries Inc., New
Era, MI
Channel Vision Inc., Los Angeles, CA
Chapel Foundation, Nashville, TN
Chapel Perilous Theater Ensemble,
Chicago, IL
Charity of the Three Fishermen, Houston,
TX
Charleston Stage Company, Charleston,
WV
Chase Homeless Assistance Fund Inc.,
Montpelier, OH
Chassidic Center Nusach Ari of the West
Inc., Denver, CO
Chattanooga Hamilton Area Community
Development Corporation,
Chattanooga, TN
Circus Earth Foundation, San Diego, CA
Council for Safer Communities, Chicago,
IL
Farish Street Historic District
Neighborhood Foundation Inc.,
Jackson, MS
Farm Plan Advocates Inc., Charlotte, NC
Farmers Harvest Inc., Philadelphia, PA
Farragut Dugout Club Inc., Knoxville,
TN
Fast Food Inc., Tulsa, OK
Father & Son Mission Housing
Corporation, Memphis, TN
Fauquier County Soccer Clubs,
Gainesville, VA
Fawn Ridge Wildlife Refuge Inc., Cream
Ridge, NJ
Halifax County HIVAIDS Task Force,
Inc., Halifax, NC
Harrison County Drug and Alcohol
Council Inc., Clarksburg, WV
Highlands Forum Inc., Highlands, NC
Highview Resident Council Inc.,
Maryland Heights, MO
Highways and Hedges Inc., Onalaska, WI
Hill Country Childrens Advocacy Center,
Llano, TX
Hill Country Social Services Inc., Sachse,
TX
Hill Country Victims Inc., Burnett, TX
Hillcrest Community Development Inc.,
Bentonia, MS
Hillsborough County Law Enforcement
Charity Inc., Tampa, FL
Hillsdale County Celebration of Christ,
Hillsdale, MI
Hilton Head Island Soccer Club, Hilton
Head Island, SC
Hilton Head Wildlife Rescue Service
Inc., Hilton Head Island, SC
His House Ministries Inc., Warner
Robins, GA
Hispanic American Association of SA
Rasota Manatee Counties Inc.,
Sarasota, FL
Hispanic American Construction Industry
Ed & Civic Awareness Org., Chicago,
IL
Hispanic American Foundation
Corporation, Miami, FL
Hispanic Sports Hall of Fame and
Hispanic Oldtimers All-Star Base,
Chicago, IL
Hispanic Veterans Project of Kansas Inc.,
Olathe, KS
INK Investing N Kids, Hilmar, CA
Institution of Housing and Community
Development, Maywood, IL
NAIOPCharities Inc., McLean, VA
Nasau Volunteer Dive Rescue Team,
Fernandina Beach, FL
National Arthrogryposis Foundation Inc.,
Birmingham, AL
National Association for Grass Roots
Program, Chicago, IL
National Association of African
American Entrepreneurs, Inc.,
Indianapolis, IN
North American Institute for International
Communications, Washington, DC
Northern Virginia Interdenominational
Mass Choir, Alexandria, VA
Northland Homes and Properties Inc.,
Fostoria, OH
Northland Partners in Progress, Duluth,
MN
Northside Athletes Foundation
Corporation, Atlanta, GA
Northside Community Development
Corporation, Houston, TX

1998–5 I.R.B27February 2, 1998
Northside Rotary Foundation Inc.,
Fayetteville, AR
Northwest Athletic Association, Houston,
TX
Northwest Education Coalition, Houston,
TX
Northwest Houston Education
Foundation, Inc., Houston, TX
Northwest Independent Living Group
Inc., Schaumburg, IL
Northwest Nutritional Center, Houston,
TX
Northwest Ohio Youth Soccer League,
Maumee, OH
Northwest Striders Track and Field,
Towson, MD
Northwoods Wilderness Recovery Inc.,
Houghton, MI
Nosotros Unidos Multicultural Gang, Ft.
Worth, TX
Novice Volunteer Fire Department Inc.,
Paris, TX
Novus Foundation Incorporated,
Mountainside, NJ
Nowata’s Historical Main Street Inc.,
Nowata, OK
NTID Alumni Chapter of Greater
Houston, Houston, TX
Nueva Esperanza Childrens Home Inc.,
Plano, TX
Nursing Health Center, Cleveland, OH
Salem Elementary Academic Foundation
Inc., Salem, IL
Stop Up the Cracks and Let Them Learn,
Houston, TX
Stretch for Greatness Inc., Richardson, TX
Texas Neurosciences Foundation, San
Antonio, TX
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.

February 2, 1998281998–5 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 de-
scribe 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 Abut not
to B, and the new ruling holds that it ap-
plies to both Aand 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. Aruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is super-
seded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be pub-
lished that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current use and for-
merly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C.—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Proc..—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedral Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
Definition of Terms

1998–5 I.R.B29February 2, 1998
1
Acumulative 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 1998–4
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
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
Proposed Regulations:
REG–102894–97, 1998–3 I.R.B. 59
REG–109704–97, 1998–3 I.R.B. 60
REG–209463–82, 1998–4 I.R.B. 27
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
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
Treasury Decisions:
8740, 1998–3 I.R.B. 4
8741, 1998–3 I.R.B. 6

February 2, 1998301998–5 I.R.B.
Finding List of Current Action on
Previously Published Items
1
Bulletins 1998–1 through 1998–4
Revenue Procedures:
97–1
Superseded by
98–1, 1998–1 I.R.B. 7
97–2
Superseded by
98–2, 1998–1 I.R.B. 74
97–3
Superseded by
98–3, 1998–1 I.R.B. 100
97–4
Superseded by
98–4, 1998–1 I.R.B. 113
97–5
Superseded by
98–5, 1998–1 I.R.B. 155
97–6
Superseded by
98–6, 1998–1 I.R.B. 183
97–7
Superseded by
98–7, 1998–1 I.R.B. 222
97–8
Superseded by
98–8, 1998–1 I.R.B. 225
97–21
Superseded by
98–2, 1998–1 I.R.B. 74
97–53
Superseded by
98–3, 1998–1 I.R.B. 100
Revenue Rulings:
75–17
Supplemented and superseded by
98–5, 1998–2 I.R.B. 20
92–19
Supplemented in part by
98–2, 1998–2 I.R.B. 15
1
Acumulative 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.

Index
Internal Revenue Bulletins
1998–1 through 1998–4
For the index of items published during
the first six months of 1997, see I.R.B.
1998–1, dated January 5, 1998.
The abbreviation and number in paren-
thesis following the index entry refer to
the specific item; numbers in roman and
italic type following the parenthesis refer
to the Internal Revenue Bulletin in which
the item may be found and the page
number on which it appears.
Key to Abbreviations:
RRRevenue Ruling
RPRevenue Procedure
TDTreasury Decision
CDCourt Decision
PLPublic Law
EOExecutive Order
DODelegation Order
TDOTreasury Department Order
TCTax Convention
SPRStatement of Procedural
Rules
PTEProhibited Transaction
Exemption
ESTATE TAX
Revocable trust; election (RP13) 4, 21
Underpayment interest, interest expense
deduction, estates (RP15) 4, 25
EXCISE TAX
Bows and arrows; taxable and nontaxable
articles (RR 5) 2, 20
Proposed regulations:
26 CFR 40.0–1T, added; 40.6011(a)–
1T, added; 40.6302(c)–2T, added;
deposits of excise taxes (REG–
102894–97) 3, 59
Regulations:
26 CFR 40.0–1(a), amended; 40.6011(a)–
1(a)(2)(iii), 40.5302(c)–1, amended;
40.6302(c)–2(b)(2)(iii), added; de-
posits of excise taxes (TD 8740) 3, 4
INCOME TAX
Education loans (Notice 7) 3, 54
Elections under section 7704(g) (Notice
3) 3, 48
Employee Plans:
Determination letters (RP6) 1, 183;
(RP14) 4,22
Discrimination; CODAs (Notice 1) 3,
42
Eligible deferred compensation plans
(Notice 8) 4, 6
Funding:
Full funding limitations, weighted av-
erage interest rate (Notice 9) 4, 8
Letter rulings, etc. (RP4) 1, 113
Limitations on benefits and contribu-
tions (RR 1) 2, 5
Minimum funding standards (RP10)
2, 35
Proposed regulations:
26 CFR 1.401(a)(9)–1, amended;
qualified plans and individual re-
tirement plans, required distribu-
tions (REG– 209463–82) 4, 27
Recovery of basis; retirees (Notice
2) 2, 22
SIMPLE-IRAs (Notice 4) 2,25
Technical advice (RP5) 1, 155
User fees (RP8) 1, 225
Exempt Organizations:
Letter rulings, etc. (RP4) 1, 113
Technical advice (RP5) 1, 155
User fees (RP8) 1, 225
Foreign tax credit abuse (Notice 5) 3, 49
Insurance companies:
Discounting estimated salvage recover-
able (RP12) 4, 18
Interest rate tables (RR 2) 2,15
Loss reserves; discounting unpaid
losses (RP11) 4, 9
Inventory:
LIFO:
Price indexes; department stores for
November 1997 (RR 6) 4, 4
Letter rulings, determination letters, and
information letters issued by Associate
Chief Counsel (Domestic), Associate
Chief Counsel (EBEO), Associate
Chief Counsel (Enforcement Litiga-
tion), and Associate Chief Counsel
(International) (RP1) 1, 7
INCOME TAX—Continued
Low-income housing credit:
Satisfactory bond; “bond factor”
amounts for the period October
through December 1997 (RR 3) 2, 4
Proposed regulations:
26 CFR 54.9812–1, added; mental
health parity; HIPAA(REG–
109704–97) 3, 60
Qualified Funeral Trust; guidance (Notice
6) 3, 52
Qualified Zone Academy Zone Bonds
(RP9) 3, 56
Regulations:
26 CFR 54.9801–2T, amended;
54.9801–4T, –5T, revised; 54.9804–
1T, redesignated; 54.9806–1T, redes-
ignated; 54.9812–1T, added; mental
health parity, interim rules (TD
8741) 3, 6
Rulings:
Areas in which advance rulings will not
be issued:
Associate Chief Counsel (Domes-
tic), Associate Chief Counsel
(EBEO)(RP3) 1, 100
Associate Chief Counsel (Interna-
tional) (RP7) 1, 222
Technical advice to district directors and
chiefs, appeals offices, Associate Chief
Counsel (Domestic), Associate Chief
Counsel (EBEO), Associate Chief
Counsel (Enforcement Litigation), and
Associate Chief Counsel (International)
(RP2) 1, 74
1998–5 I.R.B31February 2, 1998