Internal Revenue Bulletin 2000-36 (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
Rev. Rul. 2000–41, page 248.
Federal rates; adjusted federal rates; adjusted
federal long-term rate, and the long-term ex-
empt rate.
For purposes of sections 1274, 1288, 382,
and other sections of the Code, tables set forth the rates for
September 2000.
T.D. 8896, page 249.
REG–103735–00; REG–110311–98;
REG–103736–00, page 258.
Proposed and temporary regulations modify the disclosure,
registration, and list maintenance requirements relating to tax
shelters under sections 6011, 6111, and 6112 of the Code.
T.D. 8897, page 234.
Final regulations under section 263A of the Code provide
guidance relating to the application of the uniform capital-
ization rules to property produced in the trade or business
of farming. Notices 87–76, 88–24, and 88–86 (section V)
obsolete.
Notice 2000–44, page 255.
Tax avoidance using artificially high basis.
Taxpayers and their representatives are alerted that the pur-
ported losses arising from certain types of transactions are
not properly allowable for federal income tax purposes. Also,
the Service may impose penalties on participants in these
transactions or, as applicable, on persons who participate in
promoting or reporting these transactions.
Notice 2000–45, page 256.
Capitalization; business expenses; farmers.This no-
tice provides guidance to taxpayers engaged in the trade
or business of farming in determining whether a plant has
a preproductive period in excess of 2 years for purposes
of section 263A(d) of the Code.
Rev. Proc. 2000–33, page 257.
Acquisition of corporate debt.This procedure provides
guidance on whether an acquisition of corporate debt by a
beneficiary of the decedent creditor’s estate or by a bene-
ficiary of a revocable trust that became irrevocable upon
the creditor’s death is a direct acquisition within the mean-
ing of section 1.108–2(b) of the regulations.
EMPLOYEE PLANS
Announcement 2000–77, page 260.
This announcement provides guidance on the types of plan
amendments that may be needed to obtain a favorable deter-
mination letter for volume submitter plan applications.
ADMINISTRATIVE
T.D. 8896, page 249.
REG–103735–00; REG–110311–98;
REG–103736–00, page 258.
Proposed and temporary regulations modify the disclosure,
registration, and list maintenance requirements relating to tax
shelters under sections 6011, 6111, and 6112 of the Code.
Announcement 2000–76, page 260.
The Service expects to post planned changes to the 2001
Forms W-2 and W-3 on the IRS web site by mid-October
2000. Earlier drafts are being modified in response to
public comments.
Internal Revenue
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Bulletin No. 2000–36
September 5, 2000
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
Department of the Treasury
Internal Revenue Service
Finding Lists begin on page ii.
Announcement of Disbarments and Suspensions begins on page 262.
Index for August begins on page iv.

September 5, 20002000–36 I.R.B.
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi-
cial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
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 are consolidated 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.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
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.
The IRS Mission
Provide America’s taxpayers top quality service by help-
ing them understand and meet their tax responsibilities
and by applying the tax law with integrity and fairness to
all.
Introduction
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

September 5, 20002342000–36 I.R.B.
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 42.—Low-Income
Housing Credit
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of September 2000. See Rev. Rul. 2000–41, page
248.
Section 61.—Gross Income
26 CFR 1.61–12: Income from discharge of
indebtedness.
This revenue procedure provides guidance on
whether an acquisition of corporate debt by a benefi-
ciary of the decedent creditor’s estate or by a benefi-
ciary of a revocable trust that became irrevocable
upon the creditor’s death is a direct acquisition
within the meaning of § 1.108–2(b) of the Regula-
tions. See §§ 1.61–12(a), 1.108–2(a) and 1.108–2(b)
regarding income from the discharge of indebted-
ness by a person related to the debtor, and certain
exceptions that may be provided by Revenue Proce-
dure or other published guidance.
See Rev. Proc. 2000–33, page 257.
Section 108.—Income From
Discharge of Indebtedness
26 CFR 1.108–2: Acquisition of indebtedness by a
person related to the debtor.
This revenue procedure provides guidance on
whether an acquisition of corporate debt by a benefi-
ciary of the decedent creditor’s estate or by a benefi-
ciary of a revocable trust that became irrevocable
upon the creditor’s death is a direct acquisition
within the meaning of § 1.108–2(b) of the regula-
tions. See §§ 1.61–12(a), 1.108–2(a) and 1.108–2(b)
regarding income from the discharge of indebted-
ness by a person related to the debtor, and certain
exceptions that may be provided by Revenue Proce-
dure or other published guidance.
See Rev. Proc. 2000–33, page 257.
Section 263A.—Capitalization
and Inclusion in Inventory Costs
of Certain Expenses
26 CFR 1.263A–4: Rules for property produced in a
farming business.
T.D. 8897
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
Rules for Property Produced in
a Farming Business
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations relating to the applica-
tion of section 263A of the Internal Rev-
enue Code to property produced in the
trade or business of farming. These regu-
lations also provide guidance regarding
the election available to certain taxpayers
to not have section 263A apply to any
plant produced by the electing taxpayers
in each taxpayer’s farming trade or busi-
ness. These regulations affect taxpayers
engaged in the trade or business of farm-
ing.
DATES: Effective Date: These regula-
tions are effective August 21, 2000.
Applicability Date: For dates of applic-
ability, see §1.263A–4(f) of these regula-
tions.
FOR FURTHER INFORMATION CON-
TACT: Grant D. Anderson, (202) 622-
4970 (not a toll-free call).
SUPPLEMENTARY INFORMATION:
Background
On March 30, 1987, the IRS published in
the Federal Registera notice of proposed
rulemaking (LR–168–86, 1987–1 C.B. 808
[52 F.R. 10118]) by cross reference to tem-
porary regulations published the same day
(T.D. 8131, 1987–1 C.B. 98 [52 F.R.
10052]). Amendments to the notice of pro-
posed rulemaking and temporary regula-
tions were published in the Federal Regis-
teron August 7, 1987, by a notice of
proposed rulemaking (LR–37–87, 1987–2
C.B. 1054 [52 F.R. 29391]) that cross refer-
enced to temporary regulations published
the same day (T.D. 8148, 1987–2 C.B. 70
[52 F.R. 29375]). Notice 88–24 (1988–1
C.B. 491) provided that forthcoming regu-
lations would modify the proposed regula-
tions and the regulations under §1.471–6.
Notice 88–86 (1988–2 C.B. 401) provided
that forthcoming regulations would clarify
the definition of members of familyfor pur-
poses of the election out of section 263A.
In addition, Notice 88–86 provided that
forthcoming regulations would provide that
certain taxpayers could elect to use the sim-
plified production method for property
used in the trade or business of farming.
On August 5, 1994, the temporary regula-
tions relating to property produced in a
farming business were reissued and pub-
lished in the Federal Register(T.D. 8559,
1994–2 C.B. 32 [59 F.R. 39958]). On Au-
gust 22, 1997, proposed and revised tempo-
rary regulations were issued and published
in the Federal Register(T.D. 8729,
1997–2 C.B. 35 [62 F.R. 44542]). A public
hearing was held on November 19, 1997.
Written comments responding to the
notice of proposed rulemaking were re-
ceived. After consideration of all the pub-
lic comments, the regulations are adopted
as revised by this Treasury decision and
the corresponding temporary regulations
are withdrawn.
Explanation of Provisions and
Summary of Comments
Section 263A provides uniform capital-
ization rules that govern the treatment of
costs incurred in the production of property
or the acquisition of property for resale.
Section 263A generally requires taxpayers
to capitalize the direct costs and an alloca-
ble portion of indirect costs of producing
property in a farming business (including
both plants and animals). However, tax-
payers that are neither required to use an
accrual method by section 447 nor prohib-
ited by section 448(a)(3) from using the
cash receipts and disbursements method
(qualified taxpayers) are eligible for two
exceptions provided in section 263A(d).
First, under section 263A(d)(1), section
263A does not apply to a qualified tax-
payer’s cost of producing plants with a pre-
productive period of two years or less or
animals in a farming business. Second,
pursuant to section 263A(d)(3), a qualified
taxpayer may elect to have section 263A
not apply to the cost of producing plants in
a farming business.
Property Produced in a Farming
Business
Consistent with sections 263A(d)(1)(A)
and 263A(d)(3)(A), the proposed regula-
tions provided that the special rules of sec-
tion 263A(d) apply only to property pro-
duced by a taxpayer in a farming business.
The term farming businessmeans the cul-
tivation of land or the raising or harvesting

of any agricultural or horticultural com-
modity. Examples include operating a
nursery or sod farm; the raising or harvest-
ing of trees bearing fruit, nuts, or other
crops; the raising of ornamental trees
(other than evergreen trees that are more
than 6 years old at the time they are sev-
ered from their roots); and the raising,
shearing, feeding, caring for, training, and
management of animals.
The proposed regulations explained that
taxpayers engaged in contract harvesting,
reselling of plants or animals that are not
produced by the taxpayer, and processing
that is not incident to growing, raising, or
harvesting of agricultural or horticultural
commodities, are not producing property
in a farming business. Several commenta-
tors requested that the final regulations
permit some of these taxpayers to use the
special rules of section 263A(d). How-
ever, sections 263A(d)(1)(A) and
263A(d)(3)(A) limit the special rules of
section 263A(d) to property producedby
the taxpayer in a farming business. As
discussed below, the IRS and Treasury
Department continue to believe that tax-
payers that merely contract harvest, resell
plants or animals that they do not raise or
grow, or engage in processing agricultural
or horticultural commodities that is not in-
cident to growing, raising, or harvesting of
these commodities, are not producing
property in a farming business and there-
fore do not meet this requirement. Ac-
cordingly, the final regulations do not
adopt these suggestions.
The proposed regulations provided
that, for purposes of the definition of
farming business, harvesting, does not in-
clude contract harvesting of an agricul-
tural or horticultural commodity that is
not grown or raised by the taxpayer.
Some commentators were concerned that
this language may be used to disqualify
otherwise legitimate farmers who make
arrangements with their neighbors to har-
vest each others crops. First, the IRS and
Treasury Department believe that whether
and to what extent a taxpayer is engaged
in a farming business is to be determined
based on all the facts and circumstances.
No inference is intended that merely be-
cause a taxpayer engages in nonfarm ac-
tivities, such as contract harvesting, in ad-
dition to farm activities, that such
taxpayer is not engaged in a farming busi-
ness. Further, the exception under section
263A(d) is relevant only to taxpayers
whose costs are otherwise subject to capi-
talization under section 263A. Thus, for
example, while taxpayers that grow plants
are generally subject to section 263A with
respect to that production activity, taxpay-
ers that contract harvest horticultural
commodities are not, because they are en-
gaged in a service activity. A taxpayer
that harvests crops grown by the taxpayer
and contract harvests crops grown by an-
other is subject to section 263A (and the
exception contained in section 263A(d)),
but only for the costs of harvesting its
own crops. Accordingly, the final regula-
tions do not adopt the commentators’ sug-
gestion to include contract harvesting in
the special rules of section 263A(d).
Similarly, the proposed regulations
provided that the special rules of section
263A(d) do not apply to a taxpayer that
merely buys and resells plants or animals
grown or raised by another taxpayer. The
preamble to the proposed regulations in-
dicated that in evaluating whether the tax-
payer is engaged in the production, or
merely the resale, of plants or animals, it
is anticipated that consideration will be
given to factors including: the length of
time between the taxpayer’s acquisition
of a plant or animal and the time the plant
or animal is made available for sale to the
taxpayer’s customers, and, in the case of
plants, whether plants acquired by the
taxpayer are planted in the ground or kept
in temporary containers.
Many commentators expressed concern
that the proposed regulations’ concept of
“merely buying and reselling plants
grown by another” could be interpreted to
mean that only taxpayers growing a plant
from seed would be regarded as engaged
in a farming business. For example, the
commentators were concerned that a tax-
payer that buys a partially grown plant,
grows the plant to a larger size, and then
sells the plant would not be engaged in a
farming business. The final regulations
clarify that a taxpayer is engaged in the
production of property in a farming busi-
ness, rather than the mere resale of plants
or animals, if the plant or animal is held
for further cultivation and development
prior to sale. In addition, the final regula-
tions include an example illustrating that
a taxpayer that buys plants, grows them,
and sells them, is producing property in a
farming business; whereas a taxpayer that
buys plants and, without further cultiva-
tion and development, resells them is not
producing property in a farming business.
The example also illustrates that a tax-
payer engaged in both farming activities
and resale activities is not required to cap-
italize costs under section 263A with re-
spect to the resale activities if the tax-
payer has average annual gross receipts of
less than $10 million. See also, Ann.
97–120 (1997–50 I.R.B. 61) (confirming
that nursery growers using the farming
exception may deduct the costs of young
plants purchased for further development
and cultivation prior to sale as well as the
costs of growing the plants).
Some commentators suggested that the
final regulations disregard whether a plant
is kept in its container out of concern that
taxpayers who grow plants in containers
would not be considered to be producing
property in a farming business. The IRS
and Treasury Department continue to be-
lieve that this is a factor to be considered
in addition to all the other facts and cir-
cumstances. Accordingly, the final regu-
lations retain this factor. However, the
final regulations have been clarified to ex-
plain that a plant that is grownby a tax-
payer in a container is regarded as a plant
produced in a farming business.
One commentator requested that the
value added to a plant or animal by a tax-
payer also be a factor in determining
whether a taxpayer is engaged in the pro-
duction, or the mere resale, of plants or
animals. The final regulations provide
that a taxpayer’s addition of value to
plants or animals through agricultural or
horticultural processes is a factor to be
considered in evaluating whether a tax-
payer is producing property in a farming
business.
Some commentators requested that the
list of factors contained in the preamble
be included in the regulations. In re-
sponse to these comments, the final regu-
lations contain a list of factors, modified
as discussed above, to assist in the deter-
mination of whether a plant or animal is
held for further cultivation and develop-
ment prior to sale or merely held for re-
sale.
One commentator expressed concern
that under the proposed regulations a
farming business only includes process-
ing activities that are normally incident to
the growing, raising, or harvesting of
2000–36 I.R.B.235September 5, 2000

agricultural or horticultural commodities.
This commentator also suggested that
farmers are engaging in processing activi-
ties as the result of new technology and
changes in the market for agricultural or
horticultural products. The IRS and Trea-
sury Department believe that processing
activities that are not normally incident to
the growing, raising, or harvesting of
agricultural or horticultural products,
such as the canning of an agricultural
product or the combination of an agricul-
tural product with other ingredients to
produce a different edible item, are not
farming activities. Accordingly, the final
regulations, like the proposed regulations,
include in the definition of farming busi-
ness only those processing activities that
are normally incident to the growing, rais-
ing, or harvesting of agricultural or horti-
cultural products, such as the washing, in-
specting, and packaging of those
products.
Exceptions to Section 263A for Certain
Property
Taxpayers generally must capitalize di-
rect costs and an allocable portion of indi-
rect costs of producing all plants (without
regard to the length of the preproductive
period) and animals. Qualified taxpayers,
however, are eligible for an exception to
this general rule. Under this exception,
qualified taxpayers are not required to
capitalize under section 263A the costs of
producing plants that have a preproduc-
tive period of 2 years or less or with re-
spect to animals. Thus, under this excep-
tion, qualified taxpayers are required to
capitalize only those costs of producing
plants that have a preproductive period in
excess of 2 years.
A few commentators suggested that,
for purposes of determining the applica-
tion of section 263A, the preproductive
period of a plant should be determined
with reference to the length of time a par-
ticular taxpayer grows a plant rather than
with reference to how long it takes the
plant to reach a productive stage. The
commentators suggested this method
would, in essence, supplant the nation-
wide weighted average preproductive pe-
riod used for plants grown in commercial
quantities in the United States and the rea-
sonable estimate of the preproductive pe-
riod used for all other plants. For exam-
ple, a qualified taxpayer grows bushes
that have a preproductive period of 3
years and 3 months. If the taxpayer pur-
chases and plants the bushes when they
are 2 years old, the commentators suggest
that the preproductive period of the
bushes should be regarded as 2 years or
less (and the taxpayer would, therefore,
not be required to capitalize the costs as-
sociated with growing the bushes) be-
cause this taxpayer grows the bushes for
only 15 months before the bushes become
productive in marketable quantities. If,
however, another qualified taxpayer pur-
chased the same type of bushes when the
bushes were 14 months old and grew
them for 2 years and 1 month, the prepro-
ductive period of the bushes would be re-
garded as in excess of 2 years, and this
taxpayer would be required to capitalize
the costs of growing the bushes.
The final regulations do not adopt this
recommendation. First, the statute re-
quires that the preproductive period of a
plant grown in commercial quantities in
the United States be based on the nation-
wide weighted average preproductive pe-
riod of the plant. See Pelaez and Sons,
Inc., et al. v. Commissioner, 114 T.C. No.
28 (No. 18049–97 May 30, 2000). Fur-
ther, the IRS and Treasury Department
continue to believe that, for purposes of
determining whether section 263A ap-
plies, the preproductive period of a plant
not grown in commercial quantities in the
United States also should be determined
on a plant-by-plant basis rather than on a
taxpayer-by-taxpayer basis.
In the case of a plant that is not pro-
duced in commercial quantities in the
United States, the proposed regulations
provided that, at or before the time the
seed or plant is acquired or planted, the
taxpayer is required to reasonably esti-
mate whether the plant has a preproduc-
tive period in excess of 2 years. One
commentator suggested that the regula-
tions provide that if the United States De-
partment of Agriculture (USDA) or a state
department of agriculture certifies that a
plant is not grown in commercial quanti-
ties in the United States, the plant will be
deemed to have a preproductive period of
2 years or less. The effect of this sugges-
tion would be to provide an exemption
from section 263A for all qualified tax-
payers growing plants that are not grown
in commercial quantities in the United
States. The IRS and Treasury Department
believe that such a rule would be incon-
sistent with the statutory language of sec-
tion 263A. Accordingly, the final regula-
tions do not adopt this suggestion.
The proposed regulations provided
that, for purposes of determining whether
a plant has a preproductive period in ex-
cess of 2 years, in the case of a plant
grown in commercial quantities in the
United States, the nationwide weighted
average preproductive period of such
plant is used. One commentator re-
quested that a list of plants with nation-
wide weighted average preproductive pe-
riods in excess of 2 years be published
and kept current as needed. Notice
2000–45, page 256, issued contemporane-
ously with the publication of these final
regulations, provides a list of plants
grown in commercial quantities in the
United States that have a nationwide
weighted average preproductive period in
excess of 2 years. Notice 2000–45 will be
modified and superseded as needed.
Tax shelters, within the meaning of sec-
tion 448(a)(3), are not qualified taxpayers
and are therefore not eligible for the spe-
cial rules of section 263A(d). A tax shel-
ter, for purposes of section 448(a)(3),
means a farming business that is a farming
syndicate as defined under section 464(c)
or any partnership, entity, plan or arrange-
ment that is a tax shelter within the mean-
ing of section 6662(d)(2)(C)(iii) (that is,
its principal purpose is to avoid or evade
Federal income tax). See §1.448–
1T(b)(1)(iii). There is a presumption
under section 448 that marketed arrange-
ments, in which persons carry on farming
activities using the services of a common
managerial or administrative service, will
fall within the meaning of a tax shelter if a
substantial portion of farming expenses
are prepaid with borrowed funds. See
§1.448–1T(b)(4). The proposed regula-
tions repeated the text of §1.448–
1T(b)(1)(iii) and (4) to explain which
farming businesses are tax shelters.
A commentator suggested that the mar-
keted arrangement presumption set forth
in §1.448–1T(b)(4) and the proposed reg-
ulations is too broad in scope and should
be modified. The commentator is con-
cerned that this provision of the regula-
tions will cause taxpayers participating in
farming cooperatives to be treated as tax
shelters and, therefore, require them to
use an accrual method of accounting and
September 5, 20002362000–36 I.R.B.

to capitalize the direct costs and an alloca-
ble portion of indirect costs of producing
all plants and animals. The commentator
explained that such a result is unwar-
ranted with respect to individual farmers
and farming businesses that join together
to form farming cooperatives for non-tax
reasons, such as to obtain supplies at
lower prices and have a steady market for
their farm products.
The IRS and Treasury Department be-
lieve that the marketed arrangement pre-
sumption is necessary to preclude taxpay-
ers from investing in farming operations
in order to generate losses, often without
making economic outlays, that may be
used to shelter income from other
sources. However, the IRS and Treasury
Department do not believe that the mar-
keted arrangement presumption, as de-
scribed in the temporary Income Tax Reg-
ulations under section 448 and the
proposed section 263A regulations, would
cause a taxpayer producing property in a
farming business to be regarded as a tax
shelter merely because the taxpayer
joined a farming cooperative. Therefore,
the marketed arrangement presumption is
not modified in the final regulations.
Preparatory and Preproductive Period
Costs
The IRS and Treasury Department be-
lieve that, in general, section 263A does
not change the rules under section 263 re-
garding the need to capitalize preparatory
costs (that is, costs incurred prior to rais-
ing agricultural or horticultural commodi-
ties or that otherwise enable a farmer to
begin the farming process). Thus, the
proposed regulations clarified that, as
under prior law, taxpayers generally must
capitalize preparatory expenditures (for
example, the cost of seeds, seedlings, and
animals; clearing, leveling and grading
land; drilling and equipping wells; irriga-
tion systems; budding trees, etc.). How-
ever, because section 263A requires the
capitalization of certain additional costs,
the amount of preparatory expenditures
capitalized to property that is subject to
section 263A may be greater than under
prior law. By requiring the capitalization
of all the direct costs and the allocable
portion of indirect costs incurred during
the preparatory period, section 263A en-
sures that the income from farming will
be appropriately matched with all of the
costs of producing property in a farming
business.
Section 263A expanded the circum-
stances under which costs that were once
termed developmental expendituresor
cultural practices expenditures(that is,
costs incurred by a taxpayer so that the
growing process can continue in the de-
sired manner) must be capitalized. The
proposed regulations clarified that these
costs are included in the category of pre-
productive period costs that are required
to be capitalized under section 263A.
Thus, the proposed regulations provided
that all appropriate costs incurred during
the preproductive period of property sub-
ject to section 263A must be capitalized,
including the costs of certain soil and
water conservation expenditures and fer-
tilizing incurred during the preproductive
period.
One commentator requested that ex-
penditures for soil and water conserva-
tion, described in section 175, and fertil-
izer, described in section 180, be excepted
from capitalization under section 263A.
However, the legislative history of former
section 447(b) indicates that Congress be-
lieved that soil and water conservation ex-
penditures incurred during the preproduc-
tive period were required to be capitalized
into the basis of the plants produced. See
H.R. Rep. No. 658, 94
th
Cong., 1
st
Sess.
95 (1975), 1976–3 (Vol. 2) C.B. 787. See
also, Staff of the Joint Committee on Tax-
ation, General Explanation of the Tax Re-
form Act of 1976, H.R. Rep. No. 10612,
94
th
Cong., 2
nd
Sess. 55 (1976), 1976–3
(Vol. 2) C.B. 67. In addition, the legisla-
tive history to section 464 indicates that
Congress believed that the costs of fertil-
izer incurred during the preproductive pe-
riod was capitalized under former section
278. See Senate Report No. 938, 94
th
Cong., 2
nd
Sess. 62 (1976), 1976–3 (Vol.
3) C.B. 100. See also, Staff of the Joint
Committee on Taxation, General Expla-
nation of the Tax Reform Act of 1976,
H.R. Rep. No. 10612, 94
th
Cong., 2
nd
Sess. 49 (1976), 1976–3 (Vol. 2) C.B. 61.
Because section 263A was intended to
continue the principles of sections 447
and 278, the IRS and Treasury Depart-
ment believe that expenditures for soil
and water conservation and fertilizer in-
curred during the preproductive period
are costs of producing those plants. Fur-
ther, the IRS and Treasury Department
believe that providing a single rule re-
garding when expenditures for soil and
water conservation and fertilizer incurred
during the preproductive period must be
capitalized is consistent with the intent of
Congress to provide uniform capitaliza-
tion rules. Accordingly, the final regula-
tions retain the proposed regulations’ pro-
vision that these costs incurred during the
preproductive period are included in the
category of costs that are required to be
capitalized under section 263A. How-
ever, the IRS and Treasury Department do
not believe that Congress intended to re-
quire capitalization of expenditures for
soil and water conservation deductible
under section 175 and fertilizer deductible
under section 180 that are not incurred
during the preproductive period. Accord-
ingly, the final regulations clarify that
these expenditures are not subject to capi-
talization under section 263A except to
the extent they are required to be capital-
ized as a preproductive period cost.
Capitalization Period
Preproductive period costs (for exam-
ple, irrigating, fertilizing, real estate taxes)
are capitalized during the actual prepro-
ductive period of a plant or animal. A tax-
payer that grows a plant that will have
more than 1 crop or yield is engaged in the
production of two types of property, the
plant and the crop or yield of the plant (for
example, the orange tree and the orange).
The proposed regulations clarified the
capitalization period for plants that will
have more than 1 crop or yield, for crops
or yields of plants that will have more than
1 crop or yield, and for other plants.
The proposed regulations provided that
the preproductive period of a plant gener-
ally begins when a taxpayer first incurs
costs with respect to the plant, for exam-
ple, when the plant is acquired or the seed
is planted. In the case of crops or yields
of a plant that has more than 1 crop or
yield, the preproductive period of the crop
or yield begins when the plant has be-
come productive in marketable quantities
and the crop or yield first appears,
whether in the form of a sprout, bloom,
blossom, bud, etc.
One commentator suggested that the
preproductive period for crops or yields
that require several years of growth (for
example, biennial crops) begins upon first
appearance of the crop in the year the
2000–36 I.R.B.237September 5, 2000

crop actually develops. For example, a
biennial plant produces fruit buds in the
first year, but the buds do not develop
until the second year. In the second year,
the plant produces blossoms, which sub-
sequently grow into an edible food prod-
uct that is harvested and sold in that year.
However, if weather conditions are harsh,
the buds produced in the first year may
not blossom and develop in the second
year. The commentator suggests that the
preproductive period begin not when the
buds first appear in the first year but when
the blossoms appear in the second year as
that is the first sign of actual develop-
ment. The IRS and Treasury Department
are concerned that the suggested rule
would be difficult to apply because a tax-
payer may not know in any case whether
the appearance of a crop will actually de-
velop. Accordingly, the final regulations
do not adopt this suggestion.
In the case of a plant that will have
more than 1 crop or yield, the preproduc-
tive period of the plant ends when the
plant becomes productive in marketable
quantities. In the case of the crop or yield
of a plant that has more than 1 crop or
yield that has become productive in mar-
ketable quantities, the preproductive pe-
riod of the crop or yield ends when the
crop or yield is disposed of. Finally, in
the case of other plants, the preproductive
period ends when the plant is disposed of.
One commentator requested that the
proper tax treatment of field costs (such
as the costs of irrigating, fertilizing, etc.)
that are incurred after a crop or yield is
harvested but before the crop or yield is
disposed of, which do not benefit and are
unrelated to the crop or yield that has
been harvested, be clarified. The com-
mentator is concerned that the proposed
regulations subject such field costs to cap-
italization under the general principles of
section 263A. The IRS and Treasury De-
partment agree with the commentator’s
concerns. Accordingly, the final regula-
tions provide that field costs incurred
after a crop or yield is harvested but be-
fore the crop or yield is disposed of do not
have to be capitalized to the harvested
crop or yield because such costs relate to
the plant or a future crop or yield rather
than to the harvested crop or yield.
One commentator requested that the
definition of when a plant that will have
more than 1 crop or yield becomes pro-
ductive in marketable quantities be clari-
fied. Under the proposed regulations
such a plant becomes productive in mar-
ketable quantities when it is (or would be
considered) placed in service for purposes
of section 168 (without regard to the ap-
plicable convention). The commentator
noted that some taxpayers regard a plant
as being placed in service for purposes of
depreciation at the time the preproductive
period ends for purposes of section 263A.
The commentator requested that the final
regulations adopt a rule that provides
more guidance with respect to the end of
the preproductive period.
The IRS and Treasury Department
agree with the commentator’s concerns.
Accordingly, the final regulations provide
that a plant becomes productive in mar-
ketable quantities once a crop or yield is
produced in sufficient quantities to be
harvested and marketed in the ordinary
course of the taxpayer’s business. Factors
that are relevant in determining whether
the crop or yield is produced in sufficient
quantities to be harvested and marketed in
the ordinary course include: whether a
crop or yield is harvested that is more
than de minimis, although it may be less
than expected at the maximum bearing
stage, based on a comparison of the quan-
tities per acre harvested in the year in
question to the quantities per acre ex-
pected to be harvested when the plant
reaches full maturity; and whether the
sales proceeds exceed the costs of harvest
and make a reasonable contribution to an
allocable share of farm expenses.
Election not to Capitalize Costs
Qualified taxpayers may elect not to
capitalize under section 263A the costs of
producing certain plants even though such
plants have a preproductive period in ex-
cess of 2 years and would otherwise be
subject to the capitalization requirements
of section 263A. Taxpayers making this
election may continue to deduct (subject
to other limitations of the Internal Rev-
enue Code) the costs that were deductible
under the rules in effect before the enact-
ment of section 263A.
A taxpayer may make this election auto-
matically on its original federal income tax
return for the first taxable year in which the
taxpayer would otherwise be required to
capitalize costs under section 263A. The
final regulations provide that if a taxpayer
does not make this election in this first tax-
able year, the taxpayer may make this elec-
tion by filing Form 3115, “Application for
Change in Accounting Method,” using the
appropriate procedures that govern the fil-
ing of the Form 3115.
A taxpayer and any person related to
the taxpayer (including a member of the
taxpayer’s family) electing to not capital-
ize costs under section 263A for certain
plants are required to use the alternative
depreciation system of section 168(g)(2)
for any property used predominantly in a
farming business that is placed in service
in a taxable year for which the election is
in effect. In Notice 88–86, the IRS noted
that commentators had suggested that
guidance be provided clarifying the defin-
ition of members of a family. This guid-
ance was provided in the proposed regula-
tions. One commentator suggested that
this proposed guidance be modified so
that elections made by some family mem-
bers do not bind other family members.
The statutory language provides that an
election affects family members and de-
fines family members for this purpose.
Thus, the IRS and Treasury Department
believe that Congress’s intent was to bind
all family members when one member
makes an election not to capitalize costs
under section 263A. Accordingly, the
final regulations do not adopt the sugges-
tion.
Casualty Loss Exception
Section 263A(d)(2) provides an excep-
tion from capitalization under section
263A for costs incurred with respect to
plants that are replacing certain plants that
were lost by reason of certain casualties.
The proposed regulations clarified that
this exception does not apply to prepara-
tory expenditures or the costs of capital
assets. In addition, the regulations clari-
fied that the casualty loss exception ap-
plies whether the plants are replanted on
the same parcel of land as the plants de-
stroyed by casualty or a parcel of land of
the same acreage in the United States.
The regulations additionally clarified that
the exception applies to all plants re-
planted on such acreage, even if the plants
are replanted in greater density than the
plants destroyed by the casualty.
One commentator requested that the
casualty loss exception be expanded to
allow a current deduction for the expendi-
September 5, 20002382000–36 I.R.B.

tures incurred for replacing capital assets.
The final regulations do not adopt this
recommendation. Prior to the enactment
of section 263A, preparatory expenditures
as well as acquisition costs incurred dur-
ing the preparatory period were generally
capitalized under section 263. Also, prior
to the enactment of section 263A, certain
preproductive period costs were capital-
ized under former sections 447(b) and
278. Former section 278(c) provided an
exception to the capitalization of prepro-
ductive period costs where such costs
were incurred to replant a grove, orchard,
or vineyard which had been lost or de-
stroyed by reason of a casualty. However,
this exception only applied to preproduc-
tive period costs capitalized under former
section 278 and did not apply to prepara-
tory expenditures and acquisition costs
capitalized under section 263. The spe-
cial exception in section 263A(d)(2) was
intended to be a continuation, as modified
to include all plants bearing an edible
crop for human consumption, of the ex-
ception found in former section 278(c).
Nothing in the statute or legislative his-
tory of section 263A indicates an inten-
tion to expand the exception to include
other costs, such as the costs of replacing
capital assets, in addition to the prepro-
ductive period costs.
Unit Livestock Price Method
The unit livestock price method pro-
vides for the valuation of different classes
of animals in inventory at a standard unit
price for each animal within a class. A
taxpayer who elects to use the unit live-
stock price method must apply it to all
livestock raised, whether for sale or for
draft, breeding, or dairy purposes. In No-
tice 88–24, the IRS indicated that forth-
coming regulations would modify the rule
contained in §1.471–6 and require that
taxpayers adjust the unit prices upward,
from time to time as specified by those
regulations, to reflect increases in costs
taxpayers experience in raising livestock.
Contemporaneous with the section 263A
proposed regulations published August
22, 1997, §1.471–6 was modified to re-
quire a taxpayer to annually reevaluate
the unit livestock prices and adjust the
prices upward to reflect increases in the
costs of raising livestock. Under this reg-
ulation, the consent of the Commissioner
is not required to make such upward ad-
justments; however, consent is required to
make any other change in animal classifi-
cation or unit prices.
One commentator expressed concern
that if taxpayers are required to annually
reevaluate their unit prices, they should
be able to both increase and decrease the
unit price to reflect all changes in the cost
of raising livestock. In addition, this
commentator suggested that the unit live-
stock price method should be modified to
allow a taxpayer to remove from inven-
tory animals that have been raised for use
in the taxpayer’s trade or business (such
as a breeding cow) and depreciate the in-
ventory value of the animal.
Although these comments are outside
the scope of this regulation, the IRS and
Treasury Department understand the
commentator’s concerns. In addition, the
IRS and Treasury Department recognize a
broader concern that the requirement to
annually reevaluate unit prices may have
eliminated much of the simplicity of the
unit livestock price method, especially for
farmers neither required to use an accrual
method by section 447 nor prohibited
from using the cash method by section
448(a)(3). Accordingly, the IRS and
Treasury Department intend to study the
unit livestock price method to determine
whether the method may be made simpler
to apply and will take into account the
commentator’s suggestions as part of this
study.
Record Keeping Requirements
Pursuant to 26 U.S.C. 7805(f)(1),
copies of the 1997 notice of proposed
rulemaking and temporary rule were pro-
vided to the Chief Counsel for Advocacy
of the Small Business Administration for
comment. The Chief Counsel for Advo-
cacy submitted comments requesting that
the IRS conduct a regulatory flexibility
analysis under the Regulatory Flexibility
Act (5 U.S.C. chapter 6) (RFA) on how
the notice of proposed rulemaking would
affect recordkeeping burdens imposed on
small business taxpayers engaged in a
farming business.
Under the RFA, the IRS is required to
prepare a regulatory flexibility analysis if
the proposed rule imposes a collection of
information requirement (including a
recordkeeping requirement) on small enti-
ties and that requirement is likely to have
a significant economic impact on a sub-
stantial number of small entities (5 U.S.C
603(a)). The RFA defines a recordkeep-
ing requirementas “a requirement im-
posed by an agency on persons to main-
tain specified records” (5 U.S.C. 601(7)
and (8)). Since neither the proposed nor
final regulation contain a collection of in-
formation requirement (including a re-
quirement that persons maintain specified
records), an analysis is not required by the
RFA.
Effective Date And Method Changes
The final regulations provide that, in
the case of property that is not inventory
in the hands of the taxpayer, the regula-
tions are applicable to costs incurred after
August 21, 2000, in taxable years ending
after August 21, 2000. In the case of in-
ventory property, the final regulations are
applicable to taxable years beginning
after August 21, 2000.
For property that is not inventory, a
taxpayer is granted the consent of the
Commissioner to change its method of ac-
counting to comply with the provisions of
these final regulations for costs incurred
after August 21, 2000, provided the
change is made for the first taxable year
ending after August 21, 2000. For inven-
tory property, a taxpayer is granted the
consent of the Commissioner to change
its method of accounting to comply with
the provisions of these final regulations
for the first taxable year beginning after
August 21, 2000. To make such a change,
a taxpayer must follow the automatic con-
sent procedures in Rev. Proc. 99–49
(1999–52 I.R.B. 725) (see §601.601(d)(2)
of this chapter), as modified by these reg-
ulations.
Effect on Other Documents
The following publications are obsolete
as of August 22, 2000: Notice 87–76
(1987–2 C.B. 384); Notice 88–24
(1988–1 C.B. 491); and section V of No-
tice 88–86 (1988–2 C.B. 401).
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assess-
ment is not required. It has also been de-
termined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C.
2000–36 I.R.B.239September 5, 2000

chapter 5) does not apply to these regula-
tions, and because the regulations do not
impose a collection of information on
small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply.
Pursuant to section 7805(f) of the Internal
Revenue Code, the notice of proposed
rulemaking that preceded these regula-
tions was submitted to the Chief Counsel
for Advocacy of the Small Business Ad-
ministration for comment on their impact
on small business.
Drafting Information
The principal authors of these final reg-
ulations are Jan Skelton and Richard C.
Farley, Jr. previously of the Office of the
Associate Chief Counsel (Income Tax and
Accounting). However, other personnel
from the IRS and Treasury Department
participated in their development.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR Part 1 is
amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.162–12 is amended
by revising the ninth sentence of para-
graph (a) to read as follows:
§1.162–12 Expenses for farmers.
(a) * * * For rules regarding the capital-
ization of expenses of producing property
in the trade or business of farming, see
section 263A of the Internal Revenue
Code and §1.263A–4. * * *
* * * * *
Par. 3. Section 1.263A–0 is amended
by revising the introductory text and
adding entries for §1.263A–4 to read as
follows:
§1.263A–0 Outline of regulations under
section 263A.
This section lists the paragraphs in
§§1.263A–1 through 1.263A–4 and
§§1.263A–7 through 1.263A–15 as fol-
lows:
* * * * *
§1.263A–4 Rules for property produced
in a farming business.
(a)Introduction.
(1)In general.
(2)Exception.
(i)In general.
(ii)Tax shelter.
(A) In general.
(B)Presumption.
(iii)Examples.
(3) Costs required to be capitalized or
inventoried under another provi-
sion.
(4)Farming business.
(i)In general.
(A)Plant.
(B)Animal.
(ii)Incidental activities.
(A)In general.
(B)Activities that are not incidental.
(iii) Examples.
(b) Application of section 263A to
property produced in a farming
business.
(1)In general.
(i)Plants.
(ii)Animals.
(2)Preproductive period.
(i)Plant.
(A)In general.
(B)Applicability of section 263A.
(C)Actual preproductive period.
(1)Beginning of the preproductive pe-
riod.
(2)End of the preproductive period.
(i)In general.
(ii)Marketable quantities.
(D)Examples.
(ii)Animal.
(A)Beginning of the preproductive pe-
riod.
(B)End of the preproductive period.
(C)Allocation of costs between animal
and first yield.
(c)Inventory methods.
(1)In general.
(2)Available for property used in a
trade or business.
(3)Exclusion of property to which
section 263A does not apply.
(d)Election not to have section 263A
apply.
(1)Introduction.
(2)Availability of the election.
(3)Time and manner of making the
election.
i.Automatic election.
ii.Nonautomatic election.
(4)Special rules.
(i)Section 1245 treatment.
(ii) Required use of alternative depre-
ciation system.
(iii) Related person.
(A)In general.
(B)Members of family.
(5)Examples.
(e)Exception for certain costs result-
ing from casualty losses.
(1) In general.
(2)Ownership.
(3)Examples.
(4)Special rule for citrus and almond
groves.
(i)In general.
(ii)Example.
(f)Effective date and change in
method of accounting.
(1)Effective date.
(2)Change in method of accounting.
* * * * *
§1.263A–0T [Removed]
Par. 4. Section 1.263A–0T is removed.
Par. 5. Section 1.263A–1 is amended
as follows:
1. The last sentence of paragraph
(b)(3) is revised.
2. The last sentence of paragraph
(b)(4) is revised.
The revisions read as follows:
§1.263A–1 Uniform capitalization of
costs.
* * * * *
(b) * * *
(3) * * * See §1.263A–4 for specific
rules relating to taxpayers engaged in the
trade or business of farming.
(4) * * * See §1.263A–4, however, for
rules relating to taxpayers producing cer-
tain trees to which section 263A applies.
* * * * *
Par. 6. Section 1.263A–4 is revised to
read as follows:
§1.263A–4 Rules for property produced
in a farming business.
(a) Introduction—(1) In general. This
section provides guidance with respect to
the application of section 263A to property
produced in a farming business as defined
in paragraph (a)(4) of this section. Except
as otherwise provided by the rules of this
section, the general rules of §§1.263A–1
through 1.263A–3 and §§1.263A–7
through 1.263A–15 apply to property pro-
duced in a farming business. A taxpayer
that engages in the raising or growing of
September 5, 20002402000–36 I.R.B.

any agricultural or horticultural commod-
ity, including both plants and animals, is
engaged in the production of property. Sec-
tion 263A generally requires the capitaliza-
tion of the direct costs and an allocable por-
tion of the indirect costs that directly
benefit or are incurred by reason of the pro-
duction of this property. The direct and in-
direct costs of producing plants or animals
generally include preparatory costs alloca-
ble to the plant or animal and preproductive
period costs of the plant or animal. Except
as provided in paragraphs (a)(2) and (e) of
this section, taxpayers must capitalize the
costs of producing all plants and animals
unless the election described in paragraph
(d) of this section is made.
(2) Exception—(i) In general. Section
263A does not apply to the costs of produc-
ing plants with a preproductive period of 2
years or less or the costs of producing ani-
mals in a farming business, if the taxpayer
is not—
(A) A corporation or partnership re-
quired to use an accrual method of account-
ing (accrual method) under section 447 in
computing its taxable income from farm-
ing; or
(B) A tax shelter prohibited from using
the cash receipts and disbursements method
under section 448(a)(3).
(ii) Tax shelter—(A) In general. A
farming business is considered a tax shelter,
and thus a taxpayer prohibited from using
the cash method under section 448(a)(3), if
the farming business is—
(1) A farming syndicate as defined in
section 464(c); or
(2) A tax shelter, within the meaning of
section 6662(d)(2)(C)(iii).
(B) Presumption. Marketed arrange-
ments in which persons carry on farming
activities using the services of a common
managerial or administrative service will
be presumed to have the principal purpose
of tax avoidance, within the meaning of
section 6662(d)(2)(C)(iii), if such persons
prepay a substantial portion of their farm-
ing expenses with borrowed funds.
(iii) Examples. The following examples
illustrate the provisions of this
paragraph(a)(2):
Example 1. Farmer A grows trees that have a pre-
productive period in excess of 2 years, and that pro-
duce an annual crop. Farmer A is not required by sec-
tion 447 to use an accrual method or prohibited by
section 448(a)(3) from using the cash method. Ac-
cordingly, Farmer A qualifies for the exception de-
scribed in this paragraph (a)(2). Since the trees have a
preproductive period in excess of 2 years, Farmer A
must capitalize the direct costs and an allocable por-
tion of the indirect costs that directly benefit or are in-
curred by reason of the production of the trees. Since
the annual crop has a preproductive period of 2 years
or less, Farmer A is not required to capitalize the costs
of producing the crops.
Example 2. Assume the same facts as Example 1,
except that Farmer A is required by section 447 to use
an accrual method or prohibited by 448(a)(3) from
using the cash method. Farmer A does not qualify for
the exception described in this paragraph (a)(2).
Farmer A is required to capitalize the direct costs and
an allocable portion of the indirect costs that directly
benefit or are incurred by reason of the production of
the trees and crops.
(3) Costs required to be capitalized or
inventoried under another provision. The
exceptions from capitalization provided in
paragraphs (a)(2), (d) and (e) of this section
do not apply to any cost that is required to
be capitalized or inventoried under another
Internal Revenue Code or regulatory provi-
sion, such as section 263 or 471.
(4) Farming business—(i) In general.
A farming business means a trade or busi-
ness involving the cultivation of land or the
raising or harvesting of any agricultural or
horticultural commodity. Examples in-
clude the trade or business of operating a
nursery or sod farm; the raising or harvest-
ing of trees bearing fruit, nuts, or other
crops; the raising of ornamental trees (other
than evergreen trees that are more than 6
years old at the time they are severed from
their roots); and the raising, shearing, feed-
ing, caring for, training, and management
of animals. For purposes of this section,
the term harvesting does not include con-
tract harvesting of an agricultural or horti-
cultural commodity grown or raised by an-
other. Similarly, merely buying and
reselling plants or animals grown or raised
entirely by another is not raising an agricul-
tural or horticultural commodity. A tax-
payer is engaged in raising a plant or ani-
mal, rather than the mere resale of a plant
or animal, if the plant or animal is held for
further cultivation and development prior
to sale. In determining whether a plant or
animal is held for further cultivation and
development prior to sale, consideration
will be given to all of the facts and circum-
stances, including: the value added by the
taxpayer to the plant or animal through
agricultural or horticultural processes; the
length of time between the taxpayer’s ac-
quisition of the plant or animal and the time
that the taxpayer makes the plant or animal
available for sale; and in the case of a plant,
whether the plant is kept in the container in
which purchased, replanted in the ground,
or replanted in a series of larger containers
as it is grown to a larger size.
(A) Plant.A plant produced in a farm-
ing business includes, but is not limited to,
a fruit, nut, or other crop bearing tree, an or-
namental tree, a vine, a bush, sod, and the
crop or yield of a plant that will have more
than one crop or yield raised by the tax-
payer. Sea plants are produced in a farming
business if they are tended and cultivated as
opposed to merely harvested.
(B) Animal. An animal produced in a
farming business includes, but is not lim-
ited to, any stock, poultry or other bird, and
fish or other sea life raised by the taxpayer.
Thus, for example, the term animal may in-
clude a cow, chicken, emu, or salmon
raised by the taxpayer. Fish and other sea
life are produced in a farming business if
they are raised on a fish farm. A fish farm
is an area where fish or other sea life are
grown or raised as opposed to merely
caught or harvested.
(ii) Incidental activities—(A) In gen-
eral. A farming business includes process-
ing activities that are normally incident to
the growing, raising, or harvesting of agri-
cultural or horticultural products. For ex-
ample, a taxpayer in the trade or business of
growing fruits and vegetables may harvest,
wash, inspect, and package the fruits and
vegetables for sale. Such activities are nor-
mally incident to the raising of these crops
by farmers. The taxpayer will be consid-
ered to be in the trade or business of farm-
ing with respect to the growing of fruits and
vegetables and the processing activities in-
cident to their harvest.
(B) Activities that are not incidental.
Farming business does not include the pro-
cessing of commodities or products beyond
those activities that are normally incident to
the growing, raising, or harvesting of such
products.
(iii) Examples. The following exam-
ples illustrate the provisions of this para-
graph (a)(4):
Example 1. Individual A operates a retail nurs-
ery. Individual A has three categories of plants. The
first category is comprised of plants that Individual
A grows from seeds or cuttings. The second cate-
gory is comprised of plants that Individual A pur-
chases in containers and grows for a period of from
several months to several years. Individual A re-
plants some of these plants in the ground. The oth-
ers are replanted in a series of larger containers as
they grow. The third category is comprised of plants
that are purchased by Individual A in containers. In-
dividual A does not grow these plants to a larger size
before making them available for resale. Instead,
Individual A makes these plants available for resale,
2000–36 I.R.B.241September 5, 2000

in the container in which purchased, shortly after re-
ceiving them. Thus, no value is added to these
plants by Individual A through horticultural
processes. Individual A also sells soil, mulch, chem-
icals, and yard tools. Individual A is producing
property in the farming business with respect to the
first two categories of plants because these plants
are held for further cultivation and development
prior to sale. The plants in the third category are not
held for further cultivation and development prior to
sale and, therefore, are not regarded as property pro-
duced in a farming business for purposes of section
263A. Accordingly, Individual A must account for
the third category of plants, along with the soil,
mulch, chemicals, and yard tools, as property ac-
quired for resale. If Individual A’s average annual
gross receipts are less than $10 million, Individual A
will not be required to capitalize costs with respect
to its resale activities under section 263A.
Example 2. Individual B is in the business of
growing and harvesting wheat and other grains. Indi-
vidual B also processes grain that Individual B has
harvested in order to produce breads, cereals, and
other similar food products, which Individual B then
sells to customers in the course of its business. Al-
though Individual B is in the farming business with re-
spect to the growing and harvesting of grain, Individ-
ual B is not in the farming business with respect to the
processing of such grain to produce the food products.
Example 3. Individual C is in the business of rais-
ing poultry and other livestock. Individual C also op-
erates a meat processing operation in which the poul-
try and other livestock are slaughtered, processed, and
packaged or canned. The packaged or canned meat is
sold to Individual C’s customers. Although Individ-
ual C is in the farming business with respect to the
raising of poultry and other livestock, Individual C is
not in the farming business with respect to the slaugh-
tering, processing, packaging, and canning of such
animals to produce the food products.
(b) Application of section 263A to
property produced in a farming
business—(1) In general. Unless other-
wise provided in this section, section
263A requires the capitalization of the di-
rect costs and an allocable portion of the
indirect costs that directly benefit or are
incurred by reason of the production of
any property in a farming business (in-
cluding animals and plants without regard
to the length of their preproductive pe-
riod). Section 1.263A–1(e) describes the
types of direct and indirect costs that gen-
erally must be capitalized by taxpayers
under section 263A and paragraphs
(b)(1)(i) and (ii) of this section provide
specific examples of the types of costs
typically incurred in the trade or business
of farming. For purposes of this section,
soil and water conservation expenditures
that a taxpayer has elected to deduct
under section 175 and fertilizer that a tax-
payer has elected to deduct under section
180 are not subject to capitalization under
section 263A, except to the extent these
costs are required to be capitalized as a
preproductive period cost of a plant or an-
imal.
(i) Plants. The costs of producing a
plant typically required to be capitalized
under section 263A include the costs in-
curred so that the plant’s growing process
may begin (preparatory costs), such as the
acquisition costs of the seed, seedling, or
plant, and the costs of planting, cultivat-
ing, maintaining, or developing the plant
during the preproductive period (prepro-
ductive period costs). Preproductive pe-
riod costs include, but are not limited to,
management, irrigation, pruning, soil and
water conservation (including costs that
the taxpayer has elected to deduct under
section 175), fertilizing (including costs
that the taxpayer has elected to deduct
under section 180), frost protection,
spraying, harvesting, storage and han-
dling, upkeep, electricity, tax depreciation
and repairs on buildings and equipment
used in raising the plants, farm overhead,
taxes (except state and Federal income
taxes), and interest required to be capital-
ized under section 263A(f).
(ii) Animals. The costs of producing
an animal typically required to be capital-
ized under section 263A include the costs
incurred so that the animal’s raising
process may begin (preparatory costs),
such as the acquisition costs of the ani-
mal, and the costs of raising or caring for
such animal during the preproductive pe-
riod (preproductive period costs). Prepro-
ductive period costs include, but are not
limited to, management, feed (such as
grain, silage, concentrates, supplements,
haylage, hay, pasture and other forages),
maintaining pasture or pen areas (includ-
ing costs that the taxpayer has elected to
deduct under sections 175 or 180), breed-
ing, artificial insemination, veterinary ser-
vices and medicine, livestock hauling,
bedding, fuel, electricity, hired labor, tax
depreciation and repairs on buildings and
equipment used in raising the animals (for
example, barns, trucks, and trailers), farm
overhead, taxes (except state and Federal
income taxes), and interest required to be
capitalized under section 263A(f).
(2) Preproductive period—(i) Plant—
(A) In general. The preproductive period
of property produced in a farming busi-
ness means—
(1) In the case of a plant that will have
more than one crop or yield (for example,
an orange tree), the period before the first
marketable crop or yield from such plant;
(2) In the case of the crop or yield of a
plant that will have more than one crop or
yield (for example, the orange), the period
before such crop or yield is disposed of; or
(3) In the case of any other plant, the
period before such plant is disposed of.
(B) Applicability of section 263A. For
purposes of determining whether a plant
has a preproductive period in excess of 2
years, the preproductive period of plants
grown in commercial quantities in the
United States is based on the nationwide
weighted average preproductive period
for such plant. The Commissioner will
publish a noninclusive list of plants with a
nationwide weighted average preproduc-
tive period in excess of 2 years. In the
case of other plants grown in commercial
quantities in the United States, the nation-
wide weighted average preproductive pe-
riod must be determined based on avail-
able statistical data. For all other plants,
the taxpayer is required, at or before the
time the seed or plant is acquired or
planted, to reasonably estimate the pre-
productive period of the plant. If the tax-
payer estimates a preproductive period in
excess of 2 years, the taxpayer must capi-
talize the costs of producing the plant. If
the estimate is reasonable, based on the
facts in existence at the time it is made,
the determination of whether section
263A applies is not modified at a later
time even if the actual length of the pre-
productive period differs from the esti-
mate. The actual length of the preproduc-
tive period will, however, be considered
in evaluating the reasonableness of the
taxpayer’s future estimates. The nation-
wide weighted average preproductive pe-
riod or the estimated preproductive period
is only used for purposes of determining
whether the preproductive period of a
plant is greater than 2 years.
(C) Actual preproductive period. The
plant’s actual preproductive period is used
for purposes of determining the period
during which a taxpayer must capitalize
preproductive period costs with respect to
a particular plant.
(1) Beginning of the preproductive pe-
riod. The actual preproductive period of a
plant begins when the taxpayer first in-
curs costs that directly benefit or are in-
curred by reason of the plant. Generally,
this occurs when the taxpayer plants the
September 5, 20002422000–36 I.R.B.

seed or plant. In the case of a taxpayer
that acquires plants that have already been
permanently planted, or plants that are
tended by the taxpayer or another prior to
permanent planting, the actual preproduc-
tive period of the plant begins upon acqui-
sition of the plant by the taxpayer. In the
case of the crop or yield of a plant that
will have more than one crop or yield, the
actual preproductive period begins when
the plant has become productive in mar-
ketable quantities and the crop or yield
first appears, for example, in the form of a
sprout, bloom, blossom, or bud.
(2) End of the preproductive period—
(i) In general. In the case of a plant that
will have more than one crop or yield, the
actual preproductive period ends when the
plant first becomes productive in mar-
ketable quantities. In the case of any other
plant (including the crop or yield of a plant
that will have more than one crop or yield),
the actual preproductive period ends when
the plant, crop, or yield is sold or otherwise
disposed of. Field costs, such as irrigating,
fertilizing, spraying and pruning, that are
incurred after the harvest of a crop or yield
but before the crop or yield is sold or other-
wise disposed of are not required to be in-
cluded in the preproductive period costs of
the harvested crop or yield because they do
not benefit and are unrelated to the har-
vested crop or yield.
(ii) Marketable quantities. A plant that
will have more than one crop or yield be-
comes productive in marketable quanti-
ties once a crop or yield is produced in
sufficient quantities to be harvested and
marketed in the ordinary course of the
taxpayer’s business. Factors that are rele-
vant to determining whether a crop or
yield is produced in sufficient quantities
to be harvested and marketed in the ordi-
nary course include: whether the crop or
yield is harvested that is more than de
minimis, although it may be less than ex-
pected at the maximum bearing stage,
based on a comparison of the quantities
per acre harvested in the year in question
to the quantities per acre expected to be
harvested when the plant reaches full ma-
turity; and whether the sales proceeds ex-
ceed the costs of harvest and make a rea-
sonable contribution to an allocable share
of farm expenses.
(D) Examples. The following exam-
ples illustrate the provisions of this para-
graph (b)(2):
Example 1. (i) Farmer A, a taxpayer that quali-
fies for the exception in paragraph (a)(2) of this sec-
tion, grows plants that will have more than one crop
or yield. The plants are grown in commercial quan-
tities in the United States. Farmer A acquires 1 year-
old plants by purchasing them from an unrelated
party, Corporation B, and plants them immediately.
The nationwide weighted average preproductive pe-
riod of the plant is 4 years. The particular plants
grown by Farmer A do not begin to produce in mar-
ketable quantities until 3 years and 6 months after
they are planted by Farmer A.
(ii) Since the plants are deemed to have a prepro-
ductive period in excess of 2 years, Farmer A is re-
quired to capitalize the costs of producing the plants.
See paragraphs (a)(2) and (b)(2)(i)(B) of this sec-
tion. In accordance with paragraph (b)(2)(i)(C)(1)
of this section, Farmer A must begin to capitalize the
preproductive period costs when the plants are
planted. In accordance with paragraph
(b)(2)(i)(C)(2) of this section, Farmer A must con-
tinue to capitalize preproductive period costs to the
plants until the plants begin to produce in mar-
ketable quantities. Thus, Farmer A must capitalize
the preproductive period costs for a period of 3 years
and 6 months (that is, until the plants are 4 years and
6 months old), notwithstanding the fact that the
plants, in general, have a nationwide weighted aver-
age preproductive period of 4 years.
Example 2. (i) Farmer B, a taxpayer that quali-
fies for the exception in paragraph (a)(2) of this sec-
tion, grows plants that will have more than one crop
or yield. The plants are grown in commercial quan-
tities in the United States. The nationwide weighted
average preproductive period of the plant is 2 years
and 5 months. Farmer B acquires 1 month-old
plants by purchasing them from an unrelated party,
Corporation B. Farmer B enters into a contract with
Corporation B under which Corporation B will re-
tain and tend the plants for 7 months following the
sale. At the end of 7 months, Farmer B takes posses-
sion of the plants and plants them in the permanent
orchard. The plants become productive in mar-
ketable quantities 1 year and 11 months after they
are planted by Farmer B.
(ii) Since the plants are deemed to have a prepro-
ductive period in excess of 2 years, Farmer B is re-
quired to capitalize the costs of producing the plants.
See paragraphs (a)(2) and (b)(2)(i)(B) of this sec-
tion. In accordance with paragraph (b)(2)(i)(C)(1)
of this section, Farmer B must begin to capitalize the
preproductive period costs when the purchase oc-
curs. In accordance with paragraph (b)(2)(i)(C)(2)
of this section, Farmer B must continue to capitalize
the preproductive period costs to the plants until the
plants begin to produce in marketable quantities.
Thus, Farmer B must capitalize the preproductive
period costs of the plants for a period of 2 years and
6 months (the 7 months the plants are tended by
Corporation B and the 1 year and 11 months after
the plants are planted by Farmer B), that is, until the
plants are 2 years and 7 months old, notwithstanding
the fact that the plants, in general, have a nationwide
weighted average preproductive period of 2 years
and 5 months.
Example 3. (i) Assume the same facts as in Ex-
ample 2, except that Farmer B acquires the plants by
purchasing them from Corporation B when the
plants are 8 months old and that the plants are
planted by Farmer B upon acquisition.
(ii) Since the plants are deemed to have a prepro-
ductive period in excess of 2 years, Farmer B is re-
quired to capitalize the costs of producing the plants.
See paragraphs (a)(2) and (b)(2)(i)(B) of this sec-
tion. In accordance with paragraph (b)(2)(i)(C)(1)
of this section, Farmer B must begin to capitalize the
preproductive period costs when the plants are
planted. In accordance with paragraph
(b)(2)(i)(C)(2) of this section, Farmer B must con-
tinue to capitalize the preproductive period costs to
the plants until the plants begin to produce in mar-
ketable quantities. Thus, Farmer B must capitalize
the preproductive period costs of the plants for a pe-
riod of 1 year and 11 months.
Example 4. (i) Farmer C, a taxpayer that quali-
fies for the exception in paragraph (a)(2) of this sec-
tion, grows plants that will have more than one crop
or yield. The plants are grown in commercial quan-
tities in the United States. Farmer C acquires 1
month-old plants from an unrelated party and plants
them immediately. The nationwide weighted aver-
age preproductive period of the plant is 2 years and
3 months. The particular plants grown by Farmer C
begin to produce in marketable quantities 1 year and
10 months after they are planted by Farmer C.
(ii) Since the plants are deemed to have a nation-
wide weighted average preproductive period in ex-
cess of 2 years, Farmer C is required to capitalize the
costs of producing the plants, notwithstanding the
fact that the particular plants grown by Farmer C be-
come productive in less than 2 years. See paragraph
(b)(2)(i)(B) of this section. In accordance with para-
graph (b)(2)(i)(C)(1) of this section, Farmer C must
begin to capitalize the preproductive period costs
when it plants the plants. In accordance with para-
graph (b)(2)(i)(C)(2) of this section, Farmer C prop-
erly ceases capitalization of preproductive period
costs when the plants become productive in mar-
ketable quantities (that is, 1 year and 10 months after
they are planted, which is when they are 1 year and
11 months old).
Example 5. (i) Farmer D, a taxpayer that quali-
fies for the exception in paragraph (a)(2) of this sec-
tion, grows plants that will have more than one crop
or yield. The plants are not grown in commercial
quantities in the United States. Farmer D acquires
and plants the plants when they are 1 year old and
estimates that they will become productive in mar-
ketable quantities 3 years after planting. Thus, at the
time the plants are acquired and planted Farmer D
reasonably estimates that the plants will have a pre-
productive period of 4 years. The actual plants
grown by Farmer D do not begin to produce in mar-
ketable quantities until 3 years and 6 months after
they are planted by Farmer D.
(ii) Since the plants have an estimated prepro-
ductive period in excess of 2 years, Farmer D is re-
quired to capitalize the costs of producing the plants.
See paragraph (b)(2)(i)(B) of this section. In accor-
dance with paragraph (b)(2)(i)(C)(1) of this section,
Farmer D must begin to capitalize the preproductive
period costs when it acquires and plants the plants.
In accordance with paragraph (b)(2)(i)(C)(2) of this
section, Farmer D must continue to capitalize the
preproductive period costs until the plants begin to
produce in marketable quantities. Thus, Farmer D
must capitalize the preproductive period costs of the
plants for a period of 3 years and 6 months (that is,
until the plants are 4 years and 6 months old),
notwithstanding the fact that Farmer D estimated
2000–36 I.R.B.243September 5, 2000

that the plants would become productive after 4
years.
Example 6. (i) Farmer E, a taxpayer that quali-
fies for the exception in paragraph (a)(2) of this sec-
tion grows plants from seed. The plants are not
grown in commercial quantities in the United States.
The plants do not have more than 1 crop or yield. At
the time the seeds are planted Farmer E reasonably
estimates that the plants will have a preproductive
period of 1 year and 10 months. The actual plants
grown by Farmer E are not ready for harvesting and
disposal until 2 years and 2 months after the seeds
are planted by Farmer E.
(ii) Because Farmer E’s estimate of the prepro-
ductive period (which was 2 years or less) was rea-
sonable at the time made based on the facts, Farmer
E will not be required to capitalize the costs of pro-
ducing the plants under section 263A, notwithstand-
ing the fact that the actual preproductive period of
the plants exceeded 2 years. See paragraph
(b)(2)(i)(B) of this section. However, Farmer E
must take the actual preproductive period of the
plants into consideration when making future esti-
mates of the preproductive period of such plants.
Example 7. (i) Farmer F, a calendar year tax-
payer that does not qualify for the exception in para-
graph (a)(2) of this section, grows trees that will
have more than one crop. Farmer F acquires and
plants the trees in April, Year 1. On October 1, Year
6, the trees become productive in marketable quanti-
ties.
(ii) The costs of producing the plant, including
the preproductive period costs incurred by Farmer F
on or before October 1, Year 6, are capitalized to the
trees. Preproductive period costs incurred after Oc-
tober 1, Year 6, are capitalized to a crop when in-
curred during the preproductive period of the crop
and deducted as a cost of maintaining the tree when
incurred between the disposal of one crop and the
appearance of the next crop. See paragraphs
(b)(2)(i)(A), (b)(2)(i)(C)(1) and (b)(2)(i)(C)(2) of
this section.
Example 8. (i) Farmer G, a taxpayer that quali-
fies for the exception in paragraph (a)(2) of this sec-
tion, produces fig trees on 10 acres of land. The fig
trees are grown in commercial quantities in the
United States and have a nationwide weighted aver-
age preproductive period in excess of 2 years.
Farmer G acquires and plants the fig trees in their
permanent grove during Year 1. When the fig trees
are mature, Farmer G expects to harvest 10x tons of
figs per acre. At the end of Year 4, Farmer G har-
vests .5x tons of figs per acre that it sells for $100x.
During Year 4, Farmer G incurs expenses related to
the fig operation of: $50x to harvest the figs and
transport them to market and other direct and indi-
rect costs related to the fig operation in the amount
of $1000x.
(ii) Since the fig trees have a preproductive pe-
riod in excess of 2 years, Farmer G is required to
capitalize the costs of producing the fig trees. See
paragraphs (a)(2) and (b)(2)(i)(B) of this section. In
accordance with paragraph (b)(2)(i)(C)(2) of this
section, Farmer G must continue to capitalize pre-
productive period costs to the trees until they be-
come productive in marketable quantities. The fol-
lowing factors weigh in favor of a determination that
the fig trees did not become productive in Year 4:
the quantity of harvested figs is de minimisbased on
the fact that the yield is only 5 percent of the ex-
pected yield at maturity and the proceeds from the
sale of the figs are sufficient, after covering the costs
of harvesting and transporting the figs, to cover only
a negligible portion of the allocable farm expenses.
Based on these facts and circumstances, the fig trees
did not become productive in marketable quantities
in Year 4.
(ii) Animal. An animal’s actual pre-
productive period is used to determine the
period that the taxpayer must capitalize
preproductive period costs with respect to
a particular animal.
(A) Beginning of the preproductive pe-
riod. The preproductive period of an ani-
mal begins at the time of acquisition,
breeding, or embryo implantation.
(B) End of the preproductive period.
In the case of an animal that will be used
in the trade or business of farming (for ex-
ample, a dairy cow), the preproductive
period generally ends when the animal is
(or would be considered) placed in ser-
vice for purposes of section 168 (without
regard to the applicable convention).
However, in the case of an animal that
will have more than one yield (for exam-
ple, a breeding cow), the preproductive
period ends when the animal produces
(for example, gives birth to) its first yield.
In the case of any other animal, the pre-
productive period ends when the animal is
sold or otherwise disposed of.
(C) Allocation of costs between animal
and yields. In the case of an animal that
will have more than one yield, the costs
incurred after the beginning of the prepro-
ductive period of the first yield but before
the end of the preproductive period of the
animal must be allocated between the ani-
mal and the yield using any reasonable
method. Any depreciation allowance on
the animal may be allocated entirely to
the yield. Costs incurred after the begin-
ning of the preproductive period of the
second yield, but before the first yield is
weaned from the animal must be allocated
between the first and second yield using
any reasonable method. However, a tax-
payer may elect to allocate these costs en-
tirely to the second yield. An allocation
method used by a taxpayer is a method of
accounting that must be used consistently
and is subject to the rules of section 446
and the regulations thereunder.
(c) Inventory methods—(1) In gen-
eral. Except as otherwise provided, the
costs required to be allocated to any plant
or animal under this section may be deter-
mined using reasonable inventory valua-
tion methods such as the farm-price
method or the unit-livestock-price
method. See §1.471–6. Under the unit-
livestock-price method, unit prices must
include all costs required to be capitalized
under section 263A. A taxpayer using the
unit-livestock-price method may elect to
use the cost allocation methods in
§1.263A–1(f) or 1.263A–2(b) to allocate
its direct and indirect costs to the property
produced in the business of farming. In
such a situation, section 471 costs are the
costs taken into account by the taxpayer
under the unit-livestock-price method
using the taxpayer’s standard unit price as
modified by this paragraph (c)(1). Tax
shelters, as defined in paragraph (a)(2)(ii)
of this section, that use the unit-livestock-
price method for inventories must include
in inventory the annual standard unit price
for all animals that are acquired during
the taxable year, regardless of whether the
purchases are made during the last 6
months of the taxable year. Taxpayers re-
quired by section 447 to use an accrual
method or prohibited by section 448(a)(3)
from using the cash method that use the
unit-livestock-price method must modify
the annual standard price in order to rea-
sonably reflect the particular period in the
taxable year in which purchases of live-
stock are made, if such modification is
necessary in order to avoid significant
distortions in income that would other-
wise occur through operation of the unit-
livestock-price method.
(2) Available for property used in a
trade or business. The farm-price method
or the unit-livestock-price method may be
used by any taxpayer to allocate costs to
any plant or animal under this section, re-
gardless of whether the plant or animal is
held or treated as inventory property by
the taxpayer. Thus, for example, a tax-
payer may use the unit-livestock-price
method to account for the costs of raising
livestock that will be used in the trade or
business of farming (for example, a
breeding animal or a dairy cow) even
though the property in question is not in-
ventory property.
(3) Exclusion of property to which sec-
tion 263A does not apply. Notwithstand-
ing a taxpayer’s use of the farm-price
method with respect to farm property to
which the provisions of section 263A
apply, that taxpayer is not required, solely
by such use, to use the farm-price method
September 5, 20002442000–36 I.R.B.

with respect to farm property to which the
provisions of section 263A do not apply.
Thus, for example, assume Farmer A
raises fruit trees that have a preproductive
period in excess of 2 years and to which
the provisions of section 263A, therefore,
apply. Assume also that Farmer A raises
cattle and is not required to use an accrual
method by section 447 or prohibited from
using the cash method by section
448(a)(3). Because Farmer A qualifies
for the exception in paragraph (a)(2) of
this section, Farmer A is not required to
capitalize the costs of raising the cattle.
Although Farmer A may use the farm-
price method with respect to the fruit
trees, Farmer A is not required to use the
farm-price method with respect to the cat-
tle. Instead, Farmer A’s accounting for
the cattle is determined under other provi-
sions of the Code and regulations.
(d) Election not to have section 263A
apply—(1) Introduction. This paragraph
(d) permits certain taxpayers to make an
election not to have the rules of this sec-
tion apply to any plant produced in a
farming business conducted by the elect-
ing taxpayer. The election is a method of
accounting under section 446, and once
an election is made, it is revocable only
with the consent of the Commissioner.
(2) Availability of the election. The
election described in this paragraph (d) is
available to any taxpayer that produces
plants in a farming business, except that
no election may be made by a corpora-
tion, partnership, or tax shelter required to
use the accrual method under section 447
or prohibited from using the cash method
by section 448(a)(3). Moreover, the elec-
tion does not apply to the costs of plant-
ing, cultivation, maintenance, or develop-
ment of a citrus or almond grove (or any
part thereof) incurred prior to the close of
the fourth taxable year beginning with the
taxable year in which the trees were
planted in the permanent grove (including
costs incurred prior to the permanent
planting). If a citrus or almond grove is
planted in more than one taxable year, the
portion of the grove planted in any one
taxable year is treated as a separate grove
for purposes of determining the year of
planting.
(3) Time and manner of making the
election—(i) Automatic election. A tax-
payer makes the election under this para-
graph (d) by not applying the rules of sec-
tion 263A to determine the capitalized
costs of plants produced in a farming
business and by applying the special rules
in paragraph (d)(4) of this section on its
original return for the first taxable year in
which the taxpayer is otherwise required
to capitalize section 263A costs. Thus, in
order to be treated as having made the
election under this paragraph (d), it is
necessary to report both income and ex-
penses in accordance with the rules of this
paragraph (d) (for example, it is necessary
to use the alternative depreciation system
as provided in paragraph (d)(4)(ii) of this
section). For example, a farmer who
deducts costs that are otherwise required
to be capitalized under section 263A but
fails to use the alternative depreciation
system under section 168(g)(2) for applic-
able property placed in service has not
made an election under this paragraph (d)
and is not in compliance with the provi-
sions of section 263A. In the case of a
partnership or S corporation, the election
must be made by the partner, shareholder,
or member.
(ii) Nonautomatic election. A taxpayer
that does not make the election under this
paragraph (d) as provided in paragraph
(d)(3)(i) must obtain the consent of the
Commissioner to make the election by fil-
ing a Form 3115, Application for Change
in Method of Accounting, in accordance
with §1.446–1(e)(3).
(4) Special rules. If the election under
this paragraph (d) is made, the taxpayer is
subject to the special rules in this para-
graph (d)(4).
(i) Section 1245 treatment. The plant
produced by the taxpayer is treated as sec-
tion 1245 property and any gain resulting
from any disposition of the plant is recap-
tured (that is, treated as ordinary income)
to the extent of the total amount of the de-
ductions that, but for the election, would
have been required to be capitalized with
respect to the plant. In calculating the
amount of gain that is recaptured under
this paragraph (d)(4)(i), a taxpayer may
use the farm-price method or another sim-
plified method permitted under these reg-
ulations in determining the deductions
that otherwise would have been capital-
ized with respect to the plant.
(ii) Required use of alternative depre-
ciation system. If the taxpayer or a re-
lated person makes an election under this
paragraph (d), the alternative depreciation
system (as defined in section 168(g)(2))
must be applied to all property used pre-
dominantly in any farming business of the
taxpayer or related person and placed in
service in any taxable year during which
the election is in effect. The requirement
to use the alternative depreciation system
by reason of an election under this para-
graph (d) will not prevent a taxpayer from
making an election under section 179 to
deduct certain depreciable business as-
sets.
(iii) Related person—(A) In general.
For purposes of this paragraph (d)(4), re-
lated person means—
(1) The taxpayer and members of the
taxpayer’s family;
(2) Any corporation (including an S
corporation) if 50 percent or more of the
stock (in value) is owned directly or indi-
rectly (through the application of section
318) by the taxpayer or members of the
taxpayer’s family;
(3) A corporation and any other corpo-
ration that is a member of the same con-
trolled group (within the meaning of sec-
tion 1563(a)(1)); and
(4) Any partnership if 50 percent or
more (in value) of the interests in such
partnership is owned directly or indirectly
by the taxpayer or members of the tax-
payer’s family.
(B) Members of family. For purposes
of this paragraph (d)(4)(iii), the terms
“members of the taxpayer’s family,” and
“members of family” (for purposes of ap-
plying section 318(a)(1)), means the
spouse of the taxpayer (other than a
spouse who is legally separated from the
individual under a decree of divorce or
separate maintenance) and any of the tax-
payer’s children (including legally
adopted children) who have not reached
the age of 18 as of the last day of the tax-
able year in question.
(5) Examples. The following exam-
ples illustrate the provisions of this para-
graph (d):
Example 1. (i) Farmer A, an individual, is en-
gaged in the trade or business of farming. Farmer A
grows apple trees that have a preproductive period
greater than 2 years. In addition, Farmer A grows
and harvests wheat and other grains. Farmer A
elects under this paragraph (d) not to have the rules
of section 263A apply to the costs of growing the
apple trees.
(ii) In accordance with paragraph (d)(4) of this
section, Farmer A is required to use the alternative
depreciation system described in section 168(g)(2)
with respect to all property used predominantly in
2000–36 I.R.B.245September 5, 2000

any farming business in which Farmer A engages (in-
cluding the growing and harvesting of wheat) if such
property is placed in service during a year for which
the election is in effect. Thus, for example, all assets
and equipment (including trees and any equipment
used to grow and harvest wheat) placed in service
during a year for which the election is in effect must
be depreciated as provided in section 168(g)(2).
Example 2. Assume the same facts as in Example
1, except that Farmer A and members of Farmer A’s
family (as defined in paragraph (d)(4)(iii)(B) of this
section) also own 51 percent (in value) of the inter-
ests in Partnership P, which is engaged in the trade
or business of growing and harvesting corn. Part-
nership P is a related person to Farmer A under the
provisions of paragraph (d)(4)(iii) of this section.
Thus, the requirements to use the alternative depre-
ciation system under section 168(g)(2) also apply to
any property used predominantly in a trade or busi-
ness of farming which Partnership P places in ser-
vice during a year for which an election made by
Farmer A is in effect.
(e) Exception for certain costs resulting
from casualty losses—(1) In general. Sec-
tion 263A does not require the capitaliza-
tion of costs that are attributable to the re-
planting, cultivating, maintaining, and
developing of any plants bearing an edible
crop for human consumption (including,
but not limited to, plants that constitute a
grove, orchard, or vineyard) that were lost
or damaged while owned by the taxpayer
by reason of freezing temperatures, disease,
drought, pests, or other casualty (replanting
costs). Such replanting costs may be in-
curred with respect to property other than
the property on which the damage or loss
occurred to the extent the acreage of the
property with respect to which the replant-
ing costs are incurred is not in excess of the
acreage of the property on which the dam-
age or loss occurred. This paragraph (e)
applies only to the replanting of plants of
the same type as those lost or damaged.
This paragraph (e) applies to plants re-
planted on the property on which the dam-
age or loss occurred or property of the same
or lesser acreage in the United States irre-
spective of differences in density between
the lost or damaged and replanted plants.
Plants bearing crops for human consump-
tion are those crops normally eaten or
drunk by humans. Thus, for example, costs
incurred with respect to replanting plants
bearing jojoba beans do not qualify for the
exception provided in this paragraph (e) be-
cause that crop is not normally eaten or
drunk by humans.
(2) Ownership. Replanting costs de-
scribed in paragraph (e)(1) of this section
generally must be incurred by the tax-
payer that owned the property at the time
the plants were lost or damaged. Para-
graph (e)(1) of this section will apply,
however, to costs incurred by a person
other than the taxpayer that owned the
plants at the time of damage or loss if—
(i) The taxpayer that owned the plants
at the time the damage or loss occurred
owns an equity interest of more than 50
percent in such plants at all times during
the taxable year in which the replanting
costs are paid or incurred; and
(ii) Such other person owns any por-
tion of the remaining equity interest and
materially participates in the replanting,
cultivating, maintaining, or developing of
such plants during the taxable year in
which the replanting costs are paid or in-
curred. A person will be treated as materi-
ally participating for purposes of this pro-
vision if such person would otherwise
meet the requirements with respect to ma-
terial participation within the meaning of
section 2032A(e)(6).
(3) Examples. The following exam-
ples illustrate the provisions of this para-
graph (e):
Example 1. (i) Farmer A grows cherry trees that
have a preproductive period in excess of 2 years and
produce an annual crop. These cherries are nor-
mally eaten by humans. Farmer A grows the trees
on a 100 acre parcel of land (parcel 1) and the
groves of trees cover the entire acreage of parcel 1.
Farmer A also owns a 150 acre parcel of land (parcel
2) that Farmer A holds for future use. Both parcels
are in the United States. In 2000, the trees and the
irrigation and drainage systems that service the trees
are destroyed in a casualty (within the meaning of
paragraph (e)(1) of this section). Farmer A installs
new irrigation and drainage systems on parcel 1,
purchases young trees (seedlings), and plants the
seedlings on parcel 1.
(ii) The costs of the irrigation and drainage sys-
tems and the seedlings must be capitalized. In accor-
dance with paragraph (e)(1) of this section, the costs
of planting, cultivating, developing, and maintaining
the seedlings during their preproductive period are
not required to be capitalized by section 263A.
Example 2. (i) Assume the same facts as in Ex-
ample 1except that Farmer A decides to replant the
seedlings on parcel 2 rather than on parcel 1. Ac-
cordingly, Farmer A installs the new irrigation and
drainage systems on 100 acres of parcel 2 and plants
seedlings on those 100 acres.
(ii) The costs of the irrigation and drainage sys-
tems and the seedlings must be capitalized. Because
the acreage of the related portion of parcel 2 does not
exceed the acreage of the destroyed orchard on par-
cel 1, the costs of planting, cultivating, developing,
and maintaining the seedlings during their prepro-
ductive period are not required to be capitalized by
section 263A. See paragraph (e)(1) of this section.
Example 3. (i) Assume the same facts as in Ex-
ample 1except that Farmer A replants the seedlings
on parcel 2 rather than on parcel 1, and Farmer A ad-
ditionally decides to expand its operations by grow-
ing 125 rather than 100 acres of trees. Accordingly,
Farmer A installs new irrigation and drainage sys-
tems on 125 acres of parcel 2 and plants seedlings
on those 125 acres.
(ii) The costs of the irrigation and drainage sys-
tems and the seedlings must be capitalized. The
costs of planting, cultivating, developing, and main-
taining 100 acres of the trees during their preproduc-
tive period are not required to be capitalized by sec-
tion 263A. The costs of planting, cultivating,
maintaining, and developing the additional 25 acres
are, however, subject to capitalization under section
263A. See paragraph (e)(1) of this section.
(4) Special rule for citrus and almond
groves—(i) In general. The exception in
this paragraph (e) is available with respect
to replanting costs of a citrus or almond
grove incurred prior to the close of the
fourth taxable year after replanting,
notwithstanding the taxpayer’s election to
have section 263A not apply (described in
paragraph (d) of this section).
(ii) Example. The following example
illustrates the provisions of this paragraph
(e)(4):
Example. (i) Farmer A, an individual, is en-
gaged in the trade or business of farming. Farmer A
grows citrus trees that have a preproductive period
of 5 years. Farmer A elects, under paragraph (d) of
this section, not to have section 263A apply. This
election, however, is unavailable with respect to the
costs of producing a citrus grove incurred within the
first 4 years beginning with the year the trees were
planted. See paragraph (d)(2) of this section. In
year 10, after the citrus grove has become produc-
tive in marketable quantities, the citrus grove is de-
stroyed by a casualty within the meaning of para-
graph (e)(1) of this section. In year 10, Farmer A
acquires and plants young citrus trees in the same
grove to replace those destroyed by the casualty.
(ii) Farmer A must capitalize the costs of produc-
ing the citrus grove incurred before the close of the
fourth taxable year beginning with the year in which
the trees were permanently planted. As a result of
the election not to have section 263A apply, Farmer
A may deduct the preproductive period costs in-
curred in the fifth year. In year 10, Farmer A must
capitalize the acquisition cost of the young trees.
However, the costs of planting, cultivating, develop-
ing, and maintaining the young trees that replace
those destroyed by the casualty are exempted from
capitalization under this paragraph (e).
(f) Effective date and change in method
of accounting—(1) Effective date. In the
case of property that is not inventory in the
hands of the taxpayer, this section is applic-
able to costs incurred after August 21,
2000, in taxable years ending after August
21, 2000. In the case of inventory property,
this section is applicable to taxable years
beginning after August 21, 2000.
(2) Change in method of accounting.
Any change in a taxpayer’s method of ac-
counting necessary to comply with this sec-
tion is a change in method of accounting to
September 5, 20002462000–36 I.R.B.

which the provisions of sections 446 and
481 and the regulations thereunder apply.
For property that is not inventory in the
hands of the taxpayer, a taxpayer is granted
the consent of the Commissioner to change
its method of accounting to comply with the
provisions of this section for costs incurred
after August 21, 2000, provided the change
is made for the first taxable year ending
after August 21, 2000. For inventory prop-
erty, a taxpayer is granted the consent of the
Commissioner to change its method of ac-
counting to comply with the provisions of
this section for the first taxable year begin-
ning after August 21, 2000. A taxpayer
changing its method of accounting under
this paragraph (f)(2) must file a Form 3115,
“Application for Change in Accounting
Method,” in accordance with the automatic
consent procedures in Rev. Proc. 99–49
(1999–52 I.R.B. 725) (see §601.601(d)(2)
of this chapter). However, the scope limita-
tions in section 4.02 of Rev. Proc. 99–49 do
not apply, provided the taxpayer’s method
of accounting for property produced in a
farming business is not an issue under con-
sideration within the meaning of section
3.09 of Rev. Proc. 99–49. If the taxpayer is
under examination, before an appeals office,
or before a federal court at the time that a
copy of the Form 3115 is filed with the na-
tional office, the taxpayer must provide a
duplicate copy of the Form 3115 to the ex-
amining agent, appeals officer, or counsel
for the government, as appropriate, at the
time the copy of the Form 3115 is filed. The
Form 3115 must contain the name(s) and
telephone number(s) of the examining
agent, appeals officer, or counsel for the
government, as appropriate. Further, in the
case of property that is not inventory in the
hands of the taxpayer, a change under this
paragraph (f)(2) is made on a cutoff basis as
described in section 2.06 of Rev. Proc.
99–49 and without the audit protection pro-
vided in section 7 of Rev. Proc. 99–49.
However, a taxpayer may receive such audit
protection for non-inventory property by
taking into account any section 481(a) ad-
justment that results from the change in
method of accounting to comply with this
section. A taxpayer that opts to determine a
section 481(a) adjustment (and, thus, obtain
audit protection) for non-inventory property
must take into account only additional sec-
tion 263A costs incurred after December 31,
1986, in taxable years ending after Decem-
ber 31, 1986. Any change in method of ac-
counting that is not made for the taxpayer’s
first taxable year ending or beginning after
August 21, 2000, whichever is applicable,
must be made in accord with the procedures
in Rev. Proc. 97–27 (1997–1 C.B. 680) (see
§601.601(d)(2) of this chapter).
§1.263A–4T [Removed]
Par. 7. Section 1.263A–4T is removed.
Par. 8. Section 1.471–6 is amended as
follows:
1. The third sentence of paragraph (d)
is revised.
2. The last sentence of paragraph (f) is
revised.
The revisions read as follows:
§1.471–6 Inventories of livestock raisers
and other farmers.
* * * * *
(d) * * * However, see §1.263A–
4(c)(3) for an exception to this rule. * * *
* * * * *
(f) * * * See §1.263A–4 for rules re-
garding the computation of costs for pur-
poses of the unit-livestock-price-method.
* * * * *
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
Approved August 10, 2000.
Jonathan Talisman,
Acting Assistant Secretary
of the Treasury (Tax Policy).
(Filed by the Office of the Federal Register on Au-
gust 18, 2000, 8:45 a.m., and published in the issue
of the Federal Register for August 21, 2000, 65 F.R.
50638)
Section 280G.—Golden
Parachute Payments
Federal short-term, mid-term, and long-term
rates are set forth for the month of September 2000.
See Rev. Rul. 2000–41, page 248.
Section 382.—Limitation on Net
Operating Loss Carryforwards
and Certain Built-In Losses
Following Ownership Change
The adjusted applicable federal long-term rate is
set forth for the month of September 2000. See Rev.
Rul. 2000–41, page 248.
Section 412.—Minimum Funding
Standards
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of September 2000. See Rev. Rul. 2000–41, page
248.
Section 467.—Certain Payments
for the Use of Property or
Services
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of September 2000. See Rev. Rul. 2000–41, page
248.
Section 468.—Special Rules for
Mining and Solid Waste
Reclamation and Closing Costs
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of September 2000. See Rev. Rul. 2000–41, page
248.
Section 482.—Allocation of
Income and Deductions Among
Taxpayers
Federal short-term, mid-term, and long-term
rates are set forth for the month of September 2000.
See Rev. Rul. 2000–41, page 248.
Section 483.—Interest on
Certain Deferred Payments
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of September 2000. See Rev. Rul. 2000–41, page
248.
Section 642.—Speical Rules for
Credits and Deductions
Federal short-term, mid-term, and long-term
rates are set forth for the month of September 2000.
See Rev. Rul. 2000–41, page 248.
Section 807.—Rules for Certain
Reserves
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of September 2000. See Rev. Rul. 2000–41, page
248.
2000–36 I.R.B.247September 5, 2000

Section 846.—Discounted
Unpaid Losses Defined
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of September 2000. See Rev. Rul. 2000–41, on this
page.
Section 1274.—Determination
of Issue Price in the Case of
Certain Debt Instruments Issued
for Property
(Also sections 42, 280G, 382, 412, 467, 468, 482,
483, 642, 807, 846, 1288, 7520, 7872.)
Federal rates; adjusted federal rates;
adjusted federal long-term rate, and
the long-term exempt rate.For purposes
of sections 1274, 1288, 382, and other
sections of the Code, tables set forth the
rates for September 2000.
Rev. Rul. 2000–41
This revenue ruling provides various
prescribed rates for federal income tax
purposes for September 2000 (the current
month.) Table 1 contains the short-term,
mid-term, and long-term applicable fed-
eral rates (AFR) for the current month for
purposes of section 1274(d) of the Inter-
nal Revenue Code. Table 2 contains the
short-term, mid-term, and long-term ad-
justed applicable federal rates (adjusted
AFR) for the current month for purposes
of section 1288(b). Table 3 sets forth the
adjusted federal long-term rate and the
long-term tax-exempt rate described in
section 382(f). Table 4 contains the ap-
propriate percentages for determining the
low-income housing credit described in
section 42(b)(2) for buildings placed in
service during the current month. Finally,
Table 5 contains the federal rate for deter-
mining the present value of an annuity, an
interest for life or for a term of years, or a
remainder or a reversionary interest for
purposes of section 7520.
September 5, 20002482000–36 I.R.B.
REV. RUL. 2000–41 TABLE 1
Applicable Federal Rates (AFR) for September 2000
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-Term
AFR6.33%6.23%6.18%6.15%
110% AFR6.97%6.85%6.79%6.75%
120% AFR7.62%7.48%7.41%7.37%
130% AFR8.26%8.10%8.02%7.97%
Mid-Term
AFR6.22%6.13%6.08%6.05%
110% AFR6.85%6.74%6.68%6.65%
120% AFR7.50%7.36%7.29%7.25%
130% AFR8.13%7.97%7.89%7.84%
150% AFR9.41%9.20%9.10%9.03%
175% AFR11.02%10.73%10.59%10.50%
Long-Term
AFR6.09%6.00%5.96%5.93%
110% AFR6.71%6.60%6.55%6.51%
120% AFR7.33%7.20%7.14%7.09%
130% AFR7.95%7.80%7.73%7.68%
REV. RUL. 2000–41 TABLE 2
Adjusted AFR for September 2000
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
adjusted AFR4.38%4.33%4.31%4.29%
Mid-term
adjusted AFR4.67%4.62%4.59%4.58%
Long-term
adjusted AFR5.41%5.34%5.30%5.28%

Section 1288.—Treatment of
Original Issue Discounts on Tax-
Exempt Obligations
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of September 2000. See Rev. Rul. 2000–41, page
248.
Section 6111.—General
Requirement of Return,
Statement, or List
26 CFR 6011–4T: Requirement of statement
disclosing participation in certain transactions by
corporate taxpayers (Temporary).
T.D. 8896
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301
Modification of Tax Shelter
Rules
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Temporary regulations.
SUMMARY: These temporary regula-
tions modify the rules relating to the filing
by certain corporate taxpayers of a state-
ment with their Federal corporate income
tax returns under section 6011(a), the reg-
istration of confidential corporate tax
shelters under section 6111(d), and the
maintenance of lists of investors in poten-
tially abusive tax shelters under section
6112. These regulations provide the pub-
lic with additional guidance needed to
comply with the disclosure rules, the reg-
istration requirement, and the list mainte-
nance requirement applicable to tax shel-
ters. The temporary regulations affect
corporations participating in certain re-
portable transactions, persons responsible
for registering confidential corporate tax
shelters, and organizers of potentially
abusive tax shelters. The text of these
temporary regulations also serves as the
text of the proposed regulations set forth
in the notice of proposed rulemaking on
this subject in REG–103735–00,
REG–110311–98, and REG–103736–00
on page 258.
DATES: Effective Date: These temporary
regulations are effective August 11, 2000.
Applicability Date: For dates of applic-
ability, see §§1.6011–4T(g), 301.6111–
2T(h), and 301.6112–1T, A-22.
FOR FURTHER INFORMATION CON-
TACT: Catherine Moore, (202) 622-3080,
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information con-
tained in these regulations previously
have been reviewed and approved by the
Office of Management and Budget under
control numbers 1545-1685 and 1545-
1686. No material changes to these col-
lections of information are made by these
regulations.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the col-
lection of information displays a valid
OMB control number.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
This document amends 26 CFR parts 1
and 301 to provide modified rules relating
to the disclosure of certain tax shelters by
corporate investors on their Federal cor-
porate income tax returns under section
6011, the registration of confidential cor-
porate tax shelters under section 6111,
and the maintenance of lists of investors
in potentially abusive tax shelters under
section 6112.
On February 28, 2000, the IRS issued
temporary and proposed regulations re-
garding section 6011 (T.D. 8877, 2000–11
I.R.B. 747; REG–103735–00, 2000–11
I.R.B. 770), section 6111 (T.D. 8876,
2000–11 I.R.B. 753; REG–110311–98,
2000–36 I.R.B.249September 5, 2000
REV. RUL. 2000-41 TABLE 3
Rates Under Section 382 for September 2000
Adjusted federal long-term rate for the current month5.41%
Long-term tax-exempt rate for ownership changes during the current month (the highest of the
adjusted federal long-term rates for the current month and the prior two months.)5.79%
REV. RUL. 2000-41 TABLE 4
Appropriate Percentages Under Section 42(b)(2) for September 2000
Appropriate percentage for the 70% present value low-income housing credit8.44%
Appropriate percentage for the 30% present value low-income housing credit3.62%
REV. RUL. 2000-41 TABLE 5
Rate Under Section 7520 for September 2000
Applicable federal rate for determining the present value of an annuity, an interest for life or
a term of years, or a remainder or reversionary interest7.6%

2000–11 I.R.B. 767), and section 6112
(T.D. 8875, 2000–11 I.R.B. 761;
REG–103736–00, 2000–11 I.R.B. 768).
The regulations were published in the
Federal Register(65 F.R. 11205, 65 F.R.
11215, 65 F.R. 11211) on March 2, 2000.
Based on comments that have been re-
ceived, the IRS and Treasury have deter-
mined that certain interim changes to the
temporary and proposed regulations are
warranted. The changes in the proposed
rules are published in REG–103735–00,
REG–110311–98, and REG–103736–00
on page 258. The interim changes are in-
tended to clarify certain provisions of the
regulations, address certain practical
problems relating to compliance with the
regulations, and make certain other
changes relating to the scope of the regu-
lations.
It is anticipated that other changes will
be made in the final regulations. The IRS
and Treasury have determined that addi-
tional time is needed to evaluate a number
of the comments and recommendations.
The IRS and Treasury continue to invite
comments on all provisions of the tempo-
rary and proposed regulations, including
provisions modified by this document.
Furthermore, to the extent that taxpayers
or other persons believe that there are spe-
cific types of transactions for which dis-
closure is required under the regulations,
and that such disclosure is not consistent
with the purposes of the regulations, the
IRS and Treasury solicit comments that
identify such types of transactions and ex-
plain those concerns. Such comments
will be taken into account in establishing
the scope of the final regulations and will
also assist the IRS and Treasury in deter-
mining whether there are classes of trans-
actions that should be specifically ex-
cepted from disclosure under the final
regulations.
Explanation of Provisions
1. Disclosure Statement Required for
Certain Corporate Taxpayers
The temporary regulations under sec-
tion 6011 provide that every taxpayer that
is required to file a return for a taxable
year with respect to any tax imposed
under section 11 and that has participated,
directly or indirectly, in a reportable
transaction shall attach a disclosure state-
ment to its return for each taxable year for
which the taxpayer’s Federal income tax
liability is affected by its participation in
the reportable transaction. It has come to
the attention of the IRS and Treasury that
the temporary regulations under section
6011 may have technically failed to in-
clude insurance companies and mutual
savings banks conducting life insurance
business. The IRS and Treasury intended
those corporations to be subject to the dis-
closure requirement in the regulations.
The regulations are amended accordingly.
2. Record Retention Requirement for
Certain Reportable Transactions
The temporary regulations under sec-
tion 6011 provide that a taxpayer must re-
tain all documents relating to a reportable
transaction until the expiration of the
statute of limitations for the first taxable
year for which a disclosure statement is
filed with the taxpayer’s tax return.
The IRS and Treasury seek to clarify
the record retention requirement. As
modified, the temporary regulations pro-
vide that a taxpayer must retain a copy of
all documents and other records related to
a transaction subject to disclosure under
this section that are material to an under-
standing of the facts of the transaction,
the expected tax treatment of the transac-
tion, or the corporation’s decision to par-
ticipate in the transaction.
3. Confidentiality
Under section 6111(d), a confidential
corporate tax shelter must be registered.
In describing confidentiality, the tempo-
rary regulations under section 6111(d)
provide that if an offeree’s disclosure of
the structure or tax aspects of the transac-
tion is limited in any way by an express or
implied understanding or agreement with
or for the benefit of any tax shelter pro-
moter, an offer is considered made under
conditions of confidentiality, whether or
not such understanding or agreement is
legally binding. An offer will also be
considered made under conditions of con-
fidentiality in the absence of any such un-
derstanding or agreement if any tax shel-
ter promoter knows or has reason to know
that the transaction is protected from dis-
closure or use in any other manner. How-
ever, unless the facts and circumstances
clearly indicate otherwise, an offer is not
considered made under conditions of con-
fidentiality if the tax shelter promoter en-
ters into a written agreement with each
person who participates or discusses par-
ticipation in the transaction and such
agreement expressly authorizes such per-
sons to disclose every aspect of the trans-
action with any and all persons, without
limitation of any kind.
The IRS and Treasury understand that,
in certain circumstances, limitations on
disclosure of the structure or tax aspects
of a transaction may be considered neces-
sary to comply with Federal or state secu-
rities laws. Consequently, the temporary
regulations under section 6111(d) are
modified to provide an exception for re-
strictions on disclosure of the structure or
tax aspects of the transaction reasonably
necessary to comply with those securities
laws.
The IRS and Treasury received com-
ments inquiring whether an exclusivity
agreement (i.e., an agreement requiring
the offeree to pay a fee to a promoter if
the offeree engages in the transaction,
whether or not the offeree uses the ser-
vices of that promoter) is a condition of
confidentiality. It is the view of the IRS
and Treasury that an exclusivity agree-
ment is within the scope of section
6111(d)(2)(B) because it is a limitation on
use, and the temporary regulations have
been clarified to so provide. However,
the regulations have also been clarified to
provide that an exclusivity arrangement
ordinarily will not result in an offer being
treated as made under conditions of confi-
dentiality if the tax shelter promoter pro-
vides express written authorization for
disclosure. As modified, the written au-
thorization rule is applicable if the pro-
moter expressly authorizes each offeree to
disclose the structure and tax aspects of
the transaction to any and all persons,
without limitation of any kind on such
disclosure.
In addition, the temporary regulations
are modified to provide that, under sec-
tion 6111(d)(2)(B), limitations on disclo-
sure or use create a condition of confiden-
tiality only if the limitations relate to the
structure or tax aspects of the transaction
and such limitations are for the benefit of
any person other than the offeree.
4. Tax Shelter Promoter
The temporary regulations under sec-
tion 6111(d) provide that the term tax
shelter promoterincludes a tax shelter or-
September 5, 20002502000–36 I.R.B.

ganizer under section 6111(e)(1) and
§301.6111–1T(Q&A-26 through Q&A-
32) and any other person who participates
in the organization, management or sale
of a tax shelter (other than a person who
merely performs services of the kind de-
scribed in §301.6111–1T Q&A-33) or any
person related (within the meaning of sec-
tion 267 or 707) to such tax shelter orga-
nizer or such other person.
The IRS and Treasury recognize that
the definition of a promoter as currently
worded implies that a person can be a pro-
moter by participating in the organization,
management or sale of a tax shelter in a
way other than as described in section
6111(e)(1) and §301.6111–1T(Q&A-26
through Q&A-32). The regulations under
section 6111(d) are amended to clarify
that a person is a promoter only if the per-
son participates in the organization, man-
agement or sale of a tax shelter under the
rules in section 6111(e)(1) and
§301.6111–1T(Q&A-26 through Q&A-
33), or is related to such person under sec-
tion 267 or 707(b).
The regulations are also modified to
clarify that only promoters that are classi-
fied as organizers under section
6111(e)(1) are required to register tax
shelters.
5. Investor List Requirement of Section
6112
Any person who organizes or sells an
interest in a confidential corporate tax
shelter must maintain a list of persons
who were sold an interest in the tax shel-
ter and such other information as required
by section 6112. See §301.6112–1T. The
temporary regulations under section 6112
require that, in addition to the lists re-
quired for confidential corporate tax shel-
ters, lists must also be maintained with re-
spect to transactions for which the
avoidance or evasion of Federal income
tax is considered to be a significant pur-
pose of the structure of the transaction, as
determined in section 6111(d)(1)(A) and
§301.6111–2T(b), whether or not the
transactions are offered under conditions
of confidentiality.
Section 6111(d)(1)(A) provides that the
term tax shelterincludes any entity, plan,
arrangement, or transaction a significant
purpose of the structure of which is the
avoidance or evasion of Federal income
tax for a direct or indirect participant
which is a corporation. The temporary
regulations cross-reference section
6111(d)(1)(A) to provide the standard for
determining whether the structure of a
transaction has a significant purpose of
avoidance or evasion of Federal income
tax. The temporary regulations are
amended to provide that a transaction
may be subject to the list maintenance re-
quirement whether or not the transaction
is offered to corporate investors. Thus, a
list of noncorporate investors will be re-
quired to be maintained whether or not
the transaction is ever offered to a corpo-
rate investor. However, as discussed
below, the temporary regulations are
modified to include fee and tax reduction
thresholds for list maintenance.
Two additional modifications are made
to the temporary regulations. First, the
definitions of organizer and seller are
clarified for purposes of section 6112.
Second, the procedure for designating a
person to maintain the list under section
6112 is modified for transactions other
than section 6111(c) shelters and pro-
jected income investments.
6. Tax Reduction and Fee Thresholds for
Investor List Requirement of Section 6112
The temporary regulations under sec-
tion 6112 do not limit the investors who
must be included on the list. In response
to comments, the IRS and Treasury have
determined that in certain cases organizers
and sellers of interests in potentially abu-
sive tax shelters should be required to in-
clude on the list only investors that meet
fee and tax reduction thresholds. Accord-
ingly, the temporary regulations under
section 6112 are amended to provide that,
for a potentially abusive tax shelter that is
not required to be registered under section
6111, is not a listed transaction described
in §301.6111–2T(b)(2), and is not a pro-
jected income investment as described in
§301.6111–1T A-57A, an organizer or
seller of an interest in a shelter may, but is
not required to, list an investor if the total
consideration paid to all organizers and
sellers with respect to such investor’s ac-
quisition of the interest is less than
$25,000, or if the organizer reasonably be-
lieves that such investor’s acquisition of
the interest will not result in a reduction of
the Federal income tax liability of any cor-
poration or corporations that exceeds, or
exceeds in the aggregate, $1 million in any
single taxable year or a total of $2 million
for any combination of taxable years and
will not result in a reduction of the Federal
income tax liability of any noncorporate
taxpayer or taxpayers that exceeds, or ex-
ceeds in the aggregate, $250,000 in any
single taxable year or a total of $500,000
for any combination of taxable years.
7. Effective Date
The regulations are applicable August
11, 2000. However, in general, taxpayers
may rely on the regulations after February
28, 2000.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assess-
ment is not required. It has also been de-
termined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regula-
tions. Because these regulations impose
no new collection of information on small
entities, a Regulatory Flexibility Analysis
under the Regulatory Flexibility Act (5
U.S.C. chapter 6) is not required. Pur-
suant to section 7805(f) of the Internal
Revenue Code, these temporary regula-
tions will be submitted to the Chief Coun-
sel for Advocacy of the Small Business
Administration for comment on their im-
pact on small business.
Drafting Information
The principal author of these regula-
tions is Catherine Moore, Office of the
Associate Chief Counsel (Passthroughs
and Special Industries). However, other
personnel from the IRS and Treasury De-
partment participated in their develop-
ment.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 301
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.6011–4T is amended
as follows:
2000–36 I.R.B.251September 5, 2000

1. The first sentence of paragraph (a) is
revised.
2. Paragraph (d)(1), second sentence,
is amended by removing the language
“LM:PF” and adding “LM:PFTG:OTSA”
in its place.
3. Paragraphs (e) and (g) are revised.
The revisions read as follows:
§1.6011–4T Requirement of statement dis-
closing participation in certain transac-
tions by corporate taxpayers (Temporary).
(a) In general. Every taxpayer that is
required to file a return for a taxable year
with respect to a tax imposed under sec-
tion 11, 594, 801, or 831 and that has par-
ticipated, directly or indirectly, in a re-
portable transaction within the meaning of
paragraph (b) of this section must attach to
its return for the taxable year described in
paragraph (d) of this section a disclosure
statement in the form prescribed by para-
graph (c) of this section. * * *
* * * * *
(e) Retention of documents. The tax-
payer must retain a copy of all documents
and other records related to a transaction
subject to disclosure under this section
that are material to an understanding of
the facts of the transaction, the expected
tax treatment of the transaction, or the
corporation’s decision to participate in the
transaction. Such documents must be re-
tained until the expiration of the statute of
limitations applicable to the first taxable
year for which disclosure of the transac-
tion was made in accordance with the re-
quirements of this section. (This docu-
ment retention requirement is in addition
to any document retention requirements
that section 6001 generally imposes on
the taxpayer.) Such documents generally
include, but are not limited to, the follow-
ing: marketing materials related to the
transaction; written analyses used in deci-
sion-making related to the transaction;
correspondence and agreements between
the taxpayer and any promoter, advisor,
lender, or other party to the reportable
transaction that relate to the transaction;
documents discussing, referring to, or
demonstrating the tax benefits arising
from the reportable transaction; and docu-
ments, if any, referring to the business
purposes for the reportable transaction.
* * * * *
(g) Effective date. This section applies
to Federal corporate income tax returns
filed after February 28, 2000. However,
paragraphs (a) and (e) of this section
apply to Federal corporate income tax re-
turns filed after August 11, 2000 and to
documents and other records that the tax-
payer acquires, prepares, or has in its pos-
session on or after August 11, 2000. Tax-
payers may rely on the rules in paragraphs
(a) and (e) of this section for Federal cor-
porate income tax returns filed after Feb-
ruary 28, 2000, and for documents and
other records that the taxpayer acquires,
prepares, or has in its possession on or
after February 28, 2000. Otherwise, the
rules that apply with respect to Federal
corporate income tax returns filed after
February 28, 2000, and records that the
taxpayer acquires, prepares, or has in its
possession prior to August 11, 2000, are
contained in §1.6011–4T in effect prior to
August 11, 2000 (see 26 CFR part 1 re-
vised as of April 1, 2000).
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 3. The authority citation for part
301 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 4. Section 301.6111–2T is
amended as follows:
1. Paragraph (b)(3)(ii) is amended by
removing the word “corporate”.
2. Paragraph (c) is amended as fol-
lows:
a. The last two sentences of paragraph
(c)(1) are revised.
b. Paragraph (c)(2) is revised.
c. Paragraph (c)(3) is added.
3. Paragraphs (f) and (g)(1) are re-
vised.
4. Paragraph (h) is amended by adding
three sentences at the end of the para-
graph.
The revisions and additions read as fol-
lows:
§301.6111–2T Confidential corporate
tax shelters (temporary).
* * * * *
(c) * * * (1) * * * Pursuant to section
6111(d)(2)(B), an offer will also be con-
sidered made under conditions of confi-
dentiality in the absence of any such un-
derstanding or agreement if any tax shelter
promoter knows or has reason to know
that the offeree’s use or disclosure of in-
formation relating to the structure or tax
aspects of the transaction is limited for the
benefit of any person other than the of-
feree in any other manner, such as where
the transaction is claimed to be proprietary
or exclusive to the tax shelter promoter or
any party other than the offeree. An of-
feree’s privilege to maintain the confiden-
tiality of a communication relating to a tax
shelter in which the offeree might partici-
pate or has agreed to participate, including
an offeree’s confidential communication
with the offeree’s attorney, is not itself a
condition of confidentiality.
(2) Securities law exception. An offer
is not considered made under conditions
of confidentiality if disclosure of the
structure or tax aspects of the transaction
is subject to restrictions reasonably neces-
sary to comply with federal or state secu-
rities laws and such disclosure is not oth-
erwise limited.
(3) Presumption. Unless facts and cir-
cumstances clearly indicate otherwise, an
offer is not considered made under condi-
tions of confidentiality if the tax shelter
promoter provides express written autho-
rization to each offeree permitting the of-
feree (and each employee, representative,
or other agent of such offeree) to disclose
the structure and tax aspects of the trans-
action to any and all persons, without lim-
itation of any kind on such disclosure.
* * * * *
(f) Definition of tax shelter promoter.
For purposes of section 6111(d)(2) and
this section, the term tax shelter promoter
includes a tax shelter organizer and any
other person who participates in the orga-
nization, management or sale of a tax
shelter (as those persons are described in
section 6111(e)(1) and §301.6111–1T
(Q&A-26 through Q&A-33) or any per-
son related (within the meaning of section
267 or 707) to such tax shelter organizer
or such other person.
(g) Person required to register—(1)
Tax shelter promoters. The rules in sec-
tion 6111(a) and (e) and §301.6111–1T
(Q&A-34 through Q&A-39) determine
who is required to register a confidential
corporate tax shelter. A promoter of a
confidential corporate tax shelter must
register the tax shelter only if it is a per-
son required to register under the rules in
section 6111(a) and (e) and §301.6111–1T
(Q&A-34 through Q&A-39).
* * * * *
(h) * * * However, paragraphs
(b)(3)(ii), (c)(1),(2) and (3), (f), and (g)(1)
September 5, 20002522000–36 I.R.B.

of this section apply to confidential cor-
porate tax shelters in which any interests
are offered for sale after August 11, 2000.
The rules in paragraphs (b)(3)(ii),
(c)(1),(2) and (3), (f), and (g)(1) of this
section may be relied upon for confiden-
tial corporate tax shelters in which any in-
terests are offered for sale after February
28, 2000. Otherwise, the rules that apply
to confidential corporate tax shelters in
which any interests are offered for sale
after February 28, 2000, are contained in
§301.6111–2T in effect prior to August
11, 2000 (see 26 CFR part 301 revised as
of April 1, 2000).
Par. 5. Section 301.6112–1T is
amended as follows:
1. A-4(a) is revised.
2. The last two sentences of A-5 are re-
moved and a new sentence is added in
their place.
3. A-6 is amended as follows:
a. Paragraph (b) is amended by remov-
ing the language “and” at the end of the
paragraph.
b. Paragraph (c) is amended by remov-
ing the period at the end of the paragraph
and adding “; and” in its place.
c. Paragraph (d) is added immediately
after paragraph (c).
4. The last sentence of A-7 is revised.
5. A-8 is amended as follows:
a. In A-8, introductory text and para-
graphs (a) through (e) are redesignated as
paragraph (a) introductory text and para-
graphs (a)(1) through (a)(5), respectively.
b. New paragraph (b) is added imme-
diately after Example (2)in newly desig-
nated paragraph (a)(5).
6. The last two sentences of A-9 are
amended by removing the language
“paragraph (e)” and adding
“paragraph(a)(5)” in its place.
7. One sentence is added at the end of
A-10.
8. A-11 is amended as follows:
a. In A-11, introductory text and para-
graphs (a) and (b) are redesignated as
paragraph (a) introductory text and para-
graphs (a)(1) and (a)(2), respectively.
b. New paragraph (b) is added.
9. A-17 is amended as follows:
a. Paragraph (a)(3) is revised.
b. Paragraph (c) is added.
10. The first and second sentences of A-
19 are amended by removing the language
“paragraph (d) or paragraph (e)” and adding
“paragraph (a)(4) or (5)” in its place.
11. A-22 is amended by adding three
sentences before the last sentence.
The additions and revisions read as fol-
lows:
§301.6112–1T Questions and answers re-
lating to the requirement to maintain a
list of investors in potentially abusive tax
shelters (temporary).
* * * * *
A-4.(a) Yes; for purposes of the list re-
quirement, a tax shelter includes any tax
shelter that is a projected income invest-
ment, as defined in §301.6111–1T A-57A,
and any transaction a significant purpose
of the structure of which is the avoidance
or evasion of Federal income tax within
the meaning of section 6111(d)(1)(A) and
§301.6111–2T(b) (whether or not offered
to any direct or indirect corporate partici-
pant). For this purpose, as under
§301.6111–2T, the term transactionin-
cludes all of the factual elements neces-
sary to support the tax benefits that are
expected to be claimed with respect to
any entity, plan, or arrangement, includ-
ing any series of related steps carried out
as part of a prearranged plan.
* * * * *
A-5. * * * In addition, an organizer is
any other person who participates in the or-
ganization or management of the tax shelter
within the meaning of §301.6111–1T A-28
or A-29, except those persons whose activi-
ties do not constitute participation in the or-
ganization or management of a tax shelter
under §301.6111–1T A-30 or A-33.
* * * * *
A-6. * * *
(d) Any other person who receives con-
sideration in connection with another per-
son’s right to participate in a tax shelter,
for services necessary to the organization
or structure of such tax shelter (other than
services that do not constitute participa-
tion in the organization or management of
a tax shelter under §301.6111–1T A-30 or
A-33), or for information that is integral
to participation in such tax shelter.
* * * * *
A-7. * * * In addition, in any case in
which a person has directly or indirectly
paid consideration to an organizer or
seller for the right to participate in a tax
shelter, for services necessary to the orga-
nization or structure of such tax shelter
(other than services that do not constitute
participation in the organization or man-
agement of a tax shelter under
§301.6111–1T A-30 or A-33), or for in-
formation that is integral to participation
in such tax shelter, the participant shall be
considered to have acquired an interest in
the tax shelter and to have been sold an
interest in the tax shelter by the organizer
or seller.
* * * * *
A-8. * * *
(b) An organizer may, but is not re-
quired to, list a person that acquired an in-
terest in a potentially abusive tax shelter if
the shelter is not subject to registration
under section 6111, is not a listed transac-
tion described in §301.6111–2T(b)(2),
and is not a projected income investment
described in §301.6111–1T A-57A, if the
total consideration paid to all organizers
and sellers with respect to such person’s
acquisition of the interest is less than
$25,000, or if the organizer reasonably
believes that such person’s acquisition of
the interest will not result in a reduction
of the Federal income tax liability of any
corporation or corporations that exceeds,
or exceeds in the aggregate, $1 million in
any single taxable year or a total of $2
million for any combination of taxable
years and will not result in a reduction of
the Federal income tax liability of any
noncorporate taxpayer or taxpayers that
exceeds, or exceeds in the aggregate,
$250,000 in any single taxable year or a
total of $500,000 for any combination of
taxable years. For purposes of this para-
graph (b), the fees paid by or to, and the
tax savings of, persons related within the
meaning of section 267 or section 707(b)
are aggregated.
* * * * *
A-10. * * * However, a seller may, but
is not required to, list a person that is de-
scribed in A-8(b) of this section.
* * * * *
A-11. * * *
(b) In the case of a confidential corpo-
rate tax shelter under section 6111(d) and
§301.6111–2T or a tax shelter described
in Q&A-4 of this section (other than one
required to be registered under section
6111(c) or a projected income investment
as described in §301.6111–1T A-57A),
the rules contained in A-11(a)(1), A-
13(a)(2), the second sentence of A-13(b),
A-13(c) and A-14 of this section do not
apply.
* * * * *
2000–36 I.R.B.253September 5, 2000

A-17. (a) * * *
(3) The name, address, and TIN (as de-
fined in section 7701(a)(41)) of each per-
son who is required to be included on the
list under A-8 or A-10 of this section and,
in the case of a tax shelter that is a trans-
action described in section 6111(d)(1)(A)
and §301.6111–2T(b) whether or not the
direct or indirect participant is a corpora-
tion, the name, address, and TIN of each
investor and any indirect corporate partic-
ipant in the shelter if known to the orga-
nizer or seller;
* * * * *
(c) No information needs to be in-
cluded on a list with regard to any tax
shelter for which no person is an investor
required to be included on the list under
A-8(b) or A-10 of this section.
* * * * *
A-22. * * * However, the rules in A-
4(a), A-5, A-6(d), A-7, A-8(b), A-10, A-
11(b), and A-17(a)(3) and (c) of this sec-
tion apply to any interest acquired by an
investor (within the meaning of paragraph
(c) of A-6 of this section) in a potentially
abusive tax shelter after August 11, 2000.
The rules in A-4(a), A-5, A- 6(d), A-7, A-
8(b), A-10, A-11(b), and A-17(a)(3) and
(c) of this section may be relied upon for
any interest acquired by an investor
(within the meaning of paragraph (c) of
A-6 of this section) in a potentially abu-
sive tax shelter after February 28, 2000.
Otherwise, the rules that apply with re-
spect to interests acquired in potentially
abusive tax shelters after February 28,
2000, are contained in §301.6112–1T in
effect prior to August 11, 2000 (see 26
CFR part 301 revised as of April 1, 2000).
* * *
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
Approved August 8, 2000.
Jonathan Talisman,
Acting Assistant Secretary
of the Treasury.
(Filed by the Office of the Federal Register on Au-
gust 11, 2000, 8:45 a.m., and published in the issue
of the Federal Register for August 16, 2000, 65 F.R.
49909)
Section 7520.—Valuation Tables
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of September 2000. See Rev. Rul. 2000–41, page
248.
Section 7872.—Treatment of
Loans with Below-Market
Interest Rates
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of September 2000. See Rev. Rul. 2000–41, page
248.
September 5, 20002542000–36 I.R.B.

Tax Avoidance Using Artificially
High Basis
Notice 2000–44
In Notice 99–59, 1999–52 I.R.B. 761,
the Internal Revenue Service and the
Treasury Department described certain
transactions that were being marketed to
taxpayers for the purpose of generating
artificial tax losses. This notice concerns
other similar transactions that purport to
generate tax losses for taxpayers.
As stated in Notice 99–59, a loss is al-
lowable as a deduction for federal income
tax purposes only if it is bona fide and re-
flects actual economic consequences. An
artificial loss lacking economic substance
is not allowable. See ACM Partnership v.
Commissioner, 157 F.3d 231, 252 (3d Cir.
1998), cert. denied, 526 U.S. 1017 (1999)
(“Tax losses such as these . . . which do
not correspond to any actual economic
losses, do not constitute the type of ‘bona
fide’ losses that are deductible under the
Internal Revenue Code and regula-
tions.”); Scully v. United States, 840 F.2d
478, 486 (7th Cir. 1988) (to be deductible,
a loss must be a “genuine economic
loss”); Shoenberg v. Commissioner, 77
F.2d 446, 448 (8th Cir. 1935) (to be de-
ductible, a loss must be “actual and real”);
§ 1.165–1(b) of the Income Tax Regula-
tions (“Only a bona fide loss is allowable.
Substance and not mere form shall govern
in determining a deductible loss.”).
Notice 99–59 describes an arrangement
that purported to give rise to deductible
losses on disposition of stock by applying
the rules relating to distributions of en-
cumbered property to shareholders in
order to create artificially high basis in the
stock. The Service and the Treasury have
become aware of similar arrangements
that have been designed to produce
noneconomic tax losses on the disposition
of partnership interests. These arrange-
ments purport to give taxpayers artificially
high basis in partnership interests and
thereby give rise to deductible losses on
disposition of those partnership interests.
One variation involves a taxpayer’s
borrowing at a premium and a partner-
ship’s subsequent assumption of that in-
debtedness. As an example of this varia-
tion, a taxpayer may receive $3,000X in
cash from a lender under a loan agree-
ment that provides for an inflated stated
rate of interest and a stated principal
amount of only $2,000X. The taxpayer
contributes the $3,000X to a partnership,
and the partnership assumes the indebted-
ness. The partnership thereafter engages
in investment activities. At a later time,
the taxpayer sells the partnership interest.
Under the position advanced by the
promoters of this arrangement, the tax-
payer claims that only the stated principal
amount of the indebtedness, $2,000X in
this example, is considered a liability as-
sumed by the partnership that is treated as
a distribution of money to the taxpayer
that reduces the basis of the taxpayer’s
partnership interest under § 752 of the In-
ternal Revenue Code. Therefore, disre-
garding any additional amounts the tax-
payer may contribute to the partnership,
transaction costs, and any income realized
or expenses incurred at the partnership
level, the taxpayer purports to have a
basis in the partnership interest equal to
the excess of the cash contributed over the
stated principal amount of the indebted-
ness, even though the taxpayer’s net eco-
nomic outlay to acquire the partnership
interest and the value of the partnership
interest are nominal or zero. In this ex-
ample, the taxpayer purports to have a
basis in the partnership interest of
$1,000X (the excess of the cash con-
tributed ($3,000X) over the stated princi-
pal amount of the indebtedness
($2,000X)). On disposition of the part-
nership interest, the taxpayer claims a tax
loss with respect to that basis amount,
even though the taxpayer has incurred no
corresponding economic loss.
In another variation, a taxpayer pur-
chases and writes options and purports to
create substantial positive basis in a part-
nership interest by transferring those op-
tion positions to a partnership. For exam-
ple, a taxpayer might purchase call
options for a cost of $1,000X and simulta-
neously write offsetting call options, with
a slightly higher strike price but the same
expiration date, for a premium of slightly
less than $1,000X. Those option posi-
tions are then transferred to a partnership
which, using additional amounts con-
tributed to the partnership, may engage in
investment activities.
Under the position advanced by the
promoters of this arrangement, the tax-
payer claims that the basis in the tax-
payer’s partnership interest is increased
by the cost of the purchased call options
but is not reduced under § 752 as a result
of the partnership’s assumption of the tax-
payer’s obligation with respect to the
written call options. Therefore, disre-
garding additional amounts contributed to
the partnership, transaction costs, and any
income realized and expenses incurred at
the partnership level, the taxpayer pur-
ports to have a basis in the partnership in-
terest equal to the cost of the purchased
call options ($1,000X in this example),
even though the taxpayer’s net economic
outlay to acquire the partnership interest
and the value of the partnership interest
are nominal or zero. On the disposition of
the partnership interest, the taxpayer
claims a tax loss ($1,000X in this exam-
ple), even though the taxpayer has in-
curred no corresponding economic loss.
The purported losses resulting from the
transactions described above do not repre-
sent bona fide losses reflecting actual eco-
nomic consequences as required for pur-
poses of § 165. The purported losses
from these transactions (and from any
similar arrangements designed to produce
noneconomic tax losses by artificially
overstating basis in partnership interests)
are not allowable as deductions for fed-
eral income tax purposes. The purported
tax benefits from these transactions may
also be subject to disallowance under
other provisions of the Code and regula-
tions. In particular, the transactions may
be subject to challenge under § 752, or
under § 1.701–2 or other anti-abuse rules.
In addition, in the case of individuals,
these transactions may be subject to chal-
lenge under § 165(c)(2). See Fox v. Com-
missioner, 82 T.C. 1001 (1984). Further-
more, tax losses from similar transactions
designed to produce noneconomic tax
losses by artificially overstating basis in
corporate stock or other property are not
allowable as deductions for federal in-
come tax purposes.
Appropriate penalties may be imposed
on participants in these transactions or, as
applicable, on persons who participate in
the promotion or reporting of these trans-
actions, including the accuracy-related
2000–36 I.R.B.255September 5, 2000
Part III. Administrative, Procedural, and Miscellaneous

penalty under § 6662, the return preparer
penalty under § 6694, the promoter
penalty under § 6700, and the aiding and
abetting penalty under § 6701.
Transactions that are the same as or
substantially similar to the transactions de-
scribed in this Notice 2000–44 are identi-
fied as “listed transactions” for the pur-
poses of § 1.6011–4T(b)(2) of the
Temporary Income Tax Regulations and
§ 301.6111– 2T(b)(2) of the Temporary
Procedure and Administration Regula-
tions. See also § 301.6112–1T, A-4. It
should be noted that, independent of their
classification as “listed transactions” for
purposes of §§ 1.6011–4T(b)(2) and
301.6111–2T(b)(2), the transactions de-
scribed in this Notice 2000–44 may al-
ready be subject to the tax shelter registra-
tion and list maintenance requirements of
§§ 6111 and 6112 under the regulations is-
sued in February 2000 (§§ 301.6111–2T
and 301.6112–1T, A-4), as well as the reg-
ulations issued in 1984 and amended in
1986 (§§ 301.6111–1T and 301.6112–1T,
A-3). Persons required to register these
tax shelters who have failed to register the
shelters may be subject to the penalty
under § 6707(a) and to the penalty under
§ 6708(a) if the requirements of § 6112 are
not satisfied.
In addition, the Service and the Treasury
have learned that certain persons who have
promoted participation in transactions de-
scribed in this notice have encouraged in-
dividual taxpayers to participate in such
transactions in a manner designed to avoid
the reporting of large capital gains from
unrelated transactions on their individual
income tax returns (Form 1040). Certain
promoters have recommended that taxpay-
ers participate in these transactions through
grantor trusts and use the same grantor
trusts as vehicles to realize the capital
gains. Further, although each separate cap-
ital gain and loss attributable to a portion
of a trust that is treated as owned by a
grantor under the grantor trust provisions
of the Code (§ 671 and following) is prop-
erly reported as a separate item on the
grantor’s individual income tax return (see
§ 1.671–2(c) and the Instructions to Form
1041, U.S. Income Tax Return for Estates
and Trusts), the Service and the Treasury
understand that these promoters have ad-
vised that the capital gains and losses from
these transactions may be netted, so that
only a small net capital gain or loss is re-
ported on the taxpayer’s individual income
tax return. In addition to other penalties,
any person who willfully conceals the
amount of capital gains and losses in this
manner, or who willfully counsels or ad-
vises such concealment, may be guilty of a
criminal offense under §§ 7201, 7203,
7206, or 7212(a) or other provisions of
federal law.
The principal authors of this notice are
David A. Shulman of the Office of Asso-
ciate Chief Counsel (Passthroughs and
Special Industries) and Victoria S. Bal-
acek of the Office of Associate Chief
Counsel (Financial Instruments and Prod-
ucts). For further information regarding
this notice, contact Mr. Shulman at (202)
622-3080 or Ms. Balacek at (202) 622-
3930 (not toll free calls).
List of Plants, Grown in
Commercial Quantities in the
United States, Having a
Preproductive Period in Excess
of Two Years Based on the
Nationwide Weighted Average
Preproductive Period for Such
Plant
Notice 2000–45
PURPOSE
This notice provides guidance to tax-
payers engaged in the trade or business of
farming in determining whether a plant
has a preproductive period in excess of 2
years for purposes of § 263A(d) of the In-
ternal Revenue Code. This guidance is
derived from the nationwide weighted av-
erage preproductive period for various
plants grown in commercial quantities in
the United States.
BACKGROUND
Section 263A requires generally that the
direct costs and an allocable share of indi-
rect costs of real or tangible personal prop-
erty produced by a taxpayer be capitalized.
Under § 263A, taxpayers generally are re-
quired to capitalize the costs of producing
property in a farming business (including
animals and plants without regard to the
length of their preproductive period).
Sections 263A(d) and (e) set forth spe-
cial rules for property produced in the
trade or business of farming. Under
§ 263A(d)(1) and § 1.263A–4(a)(2) of the
Income Tax Regulations, taxpayers nei-
ther required by § 447 to use an accrual
method nor prohibited by § 448(a)(3)
from using the cash method (“qualified
taxpayers”) are not required to capitalize
the costs of producing plants that have a
preproductive period of 2 years or less or
animals. In addition, under § 263A(d)(3)
and § 1.263A–4(d), a qualified taxpayer
may elect to have § 263A not apply to the
cost of producing plants in a farming
business. Thus, unless an election is
made to have § 263A not apply in accor-
dance with § 263A(d)(3), qualified tax-
payers generally are required to capitalize
the costs of producing plants that have a
preproductive period in excess of 2 years.
Section 263A(e)(3)(B) and § 1.263A–
4(b)(2)(i)(B) provide that, for purposes of
determining whether a plant has a prepro-
ductive period in excess of 2 years, the pre-
productive period of plants grown in com-
mercial quantities in the United States must
be based on the nationwide weighted aver-
age preproductive period for such plants.
The legislative history of § 263A explains
that Congress expected the Treasury De-
partment to periodically publish a list of the
preproductive periods of various plants
based on the nationwide weighted averages
for such plants. SeeH.R. Rep. No. 426, 99
th
Cong., 1
st
Sess. 628 (1985), 1986–3 (Vol. 2)
C.B. 628. A proposed list was included in
the preamble of the proposed § 1.263A–4
regulations (62 FR 44542). The Internal
Revenue Service and Treasury Department
received and considered comment letters re-
lating to this proposed list.
Based upon information provided by
the United States Department of Agricul-
ture, the Service Treasury Department
have determined that plants producing the
following crops or yields have a nation-
wide weighted average preproductive pe-
riod in excess of 2 years:
almonds, apples, apricots, avocados,
blackberries, blueberries, cherries,
chestnuts, coffee beans, currants, dates,
figs, grapefruit, grapes, guavas, ki-
wifruit, kumquats, lemons, limes,
macadamia nuts, mangoes, nectarines,
olives, oranges, papayas, peaches,
pears, pecans, persimmons, pistachio
nuts, plums, pomegranates, prunes,
raspberries, tangelos, tangerines, tan-
gors, and walnuts.
September 5, 20002562000–36 I.R.B.

2000–36 I.R.B.257September 5, 2000
This guidance is not an all-inclusive list
of plants that have a nationwide weighted
average preproductive period in excess of 2
years. In the case of other plants grown in
commercial quantities in the United States,
the nationwide weighted average prepro-
ductive period must be determined based
on available statistical data. The Service
and Treasury Department intend to update
this guidance periodically as needed.
DRAFTING INFORMATION
The principal author of this notice is
Richard C. Farley, Jr. previously of the
Office of the Associate Chief Counsel (In-
come Tax and Accounting). For further
information regarding this notice contact
Grant D. Anderson at (202) 622-4970 (not
a toll-free call).
26 CFR 601.105: Examination of returns and
claims for refund, credit, or abatement;
determination of correct tax liability.
(Also Part I, §§ 61, 108; 1.61-12, 1.108-2).
Rev. Proc. 2000–33
SECTION 1. PURPOSE
This revenue procedure provides guid-
ance on whether an acquisition of corpo-
rate debt by a beneficiary of the decedent
creditor’s estate or by a beneficiary of a
revocable trust that became irrevocable
upon the creditor’s death is a direct acqui-
sition within the meaning of § 1.108–2(b)
of the Income Tax Regulations.
SECTION 2. BACKGROUND
Section 61(a)(12) of the Internal Rev-
enue Code provides that gross income in-
cludes income from the discharge of in-
debtedness.
Section 108(e)(4) provides that for pur-
poses of determining the income of the
debtor from discharge of indebtedness, to
the extent provided in regulations pre-
scribed by the Secretary, the acquisition
of outstanding indebtedness by a person
bearing a relationship to the debtor speci-
fied in § 267(b) or § 707(b)(1) from a per-
son who does not bear such a relationship
to the debtor shall be treated as the acqui-
sition of such indebtedness by the debtor.
Section 1.108–2(a) provides that the
acquisition of outstanding indebtedness
by a person related to the debtor from a
person who is not related to the debtor re-
sults in the realization by the debtor of in-
come from discharge of indebtedness.
The rules of that paragraph apply if in-
debtedness is acquired directly by a per-
son related to the debtor in a direct acqui-
sition or if a holder of indebtedness
becomes related to the debtor in an indi-
rect acquisition.
Section 1.108–2(b) provides in part
that an acquisition of outstanding indebt-
edness is a direct acquisition if a person
related to the debtor acquires the indebt-
edness from a person who is not related to
the debtor. That paragraph further pro-
vides that notwithstanding the foregoing,
the Commissioner may provide by Rev-
enue Procedure or other published guid-
ance that certain acquisitions of indebted-
ness described in the preceding sentence
are not direct acquisitions for purposes of
this section.
SECTION 3. SCOPE
This revenue procedure applies to any
acquisition of corporate debt by a benefi-
ciary of a decedent creditor’s estate or by
a beneficiary of a revocable trust that be-
came irrevocable upon the creditor’s
death where the beneficiary of the estate
is related to the corporate debtor, the
decedent creditor was also related to the
corporate debtor, but the estate or trust is
not related to the corporate debtor.
SECTION 4. APPLICATION
The acquisition of a debt in the situa-
tion described in section 3 is not a direct
acquisition within the meaning of
§ 1.108–2(b).
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective Au-
gust 16, 2000. However, the Service will
not challenge a taxpayer’s application of
the rule provided in section 4 of this rev-
enue procedure in prior years to an acqui-
sition of an indebtedness, provided the
rule is applied consistently with respect to
that indebtedness by the taxpayer and any
relevant related parties in all affected
years.
SECTION 6. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Vincent Daly of the Office of
the Associate Chief Counsel (Corporate).
For further information regarding this
revenue procedure contact Mr. Daly on
(202) 622-7770 (not a toll free call).

September 5, 20002582000–36 I.R.B.
Notice of Proposed Rulemaking
Modification of Tax Shelter
Rules
REG–103735–00;
REG–110311–98;
REG–103736–00
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Cross-reference notice of pro-
posed rulemaking.
SUMMARY: These proposed rules relate
to the modification of tax shelters under
sections 6011, 6111, and 6112. The pro-
posed rules provide the public with addi-
tional guidance needed to comply with
the disclosure rules, the registration re-
quirement, and the list maintenance re-
quirement applicable to tax shelters. The
proposed rules affect corporations partici-
pating in certain reportable transactions,
persons responsible for registering confi-
dential corporate tax shelters, and orga-
nizers of potentially abusive tax shelters.
The IRS is issuing temporary regulations,
T.D. 8896 on page 249, modifying the
rules relating to the requirement that cer-
tain corporate taxpayers file a statement
with their Federal corporate income tax
returns under section 6011(a), the regis-
tration of confidential corporate tax shel-
ters under section 6111(d), and the main-
tenance of lists of investors in potentially
abusive tax shelters under section 6112.
The text of those temporary regulations
also serves as the text of these proposed
regulations.
DATES: Written or electronic comments
and requests for a public hearing must be
received by November 14, 2000.
ADDRESSES: Send submissions to:
CC:M&SP:RU (REG–103735–00; REG–
110311–98; REG–103736–00), room 5226,
Internal Revenue Service, POB 7604, Ben
Franklin Station, Washington, DC 20044.
Submissions may be hand delivered be-
tween the hours of 8 a.m. and 5 p.m. to:
CC:M&SP:RU (REG–103735–00; REG–
110311–98; REG–103736– 00), Courier’s
Desk, Internal Revenue Service, 1111 Con-
stitution Avenue NW., Washington DC. Al-
ternatively, taxpayers may submit com-
ments electronically via the Internet by se-
lecting the “Tax Regs” option of the IRS
Home Page or by submitting comments di-
rectly to the IRS Internet site at
http://www.irs.gov/tax_regs/regslist.html.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations,
Catherine Moore, (202) 622-3070; con-
cerning submissions, Guy Traynor, (202)
622-7180.
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information con-
tained in this notice of proposed rulemak-
ing previously have been reviewed and
approved by the Office of Management
and Budget in accordance with the Paper-
work Reduction Act of 1995 (44 U.S.C.
3507(d)). No material changes to these
collections of information are proposed in
these regulations.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it dis-
plays a valid control number assigned by
the Office of Management and Budget.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
The temporary regulations in T.D.
8896 on page 249 amend the Income
Tax Regulations (26 CFR part 1) regard-
ing rules relating to the filing and
records requirements for certain corpo-
rate taxpayers under section 6011. The
temporary regulations also amend the
temporary procedure and administration
regulations (26 CFR part 301) regarding
the registration of confidential corporate
tax shelters under section 6111 and the
maintenance of lists of investors in po-
tentially abusive tax shelters under sec-
tion 6112.
The text of the temporary regulations
also serves as the text of these proposed
regulations. The preamble to the tempo-
rary regulations explains the regulations.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in Exec-
utive Order 12866. Therefore, a regula-
tory assessment is not required. It has
also been determined that section 553(b)
of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these
regulations. Because these regulations
impose no new collection of information
on small entities, a Regulatory Flexibility
Analysis under the Regulatory Flexibility
Act (5 U.S.C. chapter 6) is not required.
Pursuant to section 7805(f) of the Internal
Revenue Code, this notice of proposed
rulemaking will be submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on its
impact on small business.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written comments
(preferably a signed original and eight (8)
copies) or electronically generated com-
ments that are submitted timely to the IRS.
The IRS and Treasury request comments
on the clarity of the proposed rules and how
they can be made easier to understand. All
comments will be available for public in-
spection and copying. A public hearing
will be scheduled if requested in writing by
any person that timely submits written
comments. If a public hearing is sched-
uled, notice of the date, time, and place for
the public hearing will be published in the
Federal Register.
Drafting Information
The principal author of these regulations
is Catherine Moore, Office of the Associate
Chief Counsel (Passthroughs and Special
Industries). However, other personnel from
the IRS and Treasury Department partici-
pated in their development.
* * * * *
Proposed Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 301,
which were proposed to be amended on
Part IV. Items of General Interest

2000–36 I.R.B.259September 5, 2000
August 29, 1984, and March 2, 2000, are
proposed to be further amended as fol-
lows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.6011–4 as proposed
to be added at 65 F.R. 11271 (March 2,
2000) is amended as follows:
1. The first sentence of paragraph (a) is
revised.
2. Paragraph (d)(1), second sentence,
is amended by removing the language
“LM:PF” and adding “LM:PFTG:OTSA”
in its place.
3. Paragraphs (e) and (g) are revised.
The revisions read as follows:
§1.6011–4 Requirement of statement dis-
closing participation in certain transac-
tions by corporate taxpayers.
[The text of the amendments to this
proposed section is the same as the text of
the amendments to §1.6011–4T published
in T.D. 8896.]
PART 301— PROCEDURE AND
ADMINISTRATION
Par. 3. The authority citation for part
301 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 4. Section 301.6111–2 as pro-
posed to be added at 65 F.R. 11274
(March 2, 2000) is amended as follows:
1. Paragraph (b)(3)(ii) is amended by
removing the word “corporate”.
2. Paragraph (c) is amended as fol-
lows:
a. The last two sentences of paragraph
(c)(1) are revised.
b. Paragraph (c)(2) is revised.
c. Paragraph (c)(3) is added.
3. Paragraphs (f) and (g)(1) are re-
vised.
4. Paragraph (h) is amended by adding
three sentences at the end of the para-
graph.
The revisions and additions read as fol-
lows:
§301.6111–2 Confidential corporate tax
shelters.
[The text of the amendments to this
proposed section is the same as the text of
the amendments to §301.6111–2T pub-
lished in T.D. 8896.]
Par. 5. Section 301.6112–1 as pro-
posed to be added at 49 F.R. 34246 (Au-
gust 29, 1984) and 65 F.R. 11272 (March
2, 2000) is amended as follows:
0. The section heading is added.
1. A-4(a) is revised.
2. The last two sentences of A-5 are re-
moved and a new sentence is added in
their place.
3. A-6 is amended as follows:
a. Paragraph (b) is amended by remov-
ing the language “and” at the end of the
paragraph.
b. Paragraph (c) is amended by remov-
ing the period at the end of the paragraph
and adding “; and” in its place.
c. Paragraph (d) is added immediately
after paragraph (c).
4. The last sentence of A-7 is revised.
5. A-8 is amended as follows:
a. In A-8,introductory text and para-
graphs (a) through (e) are redesignated as
paragraph (a) introductory text and para-
graphs (a)(1) through (a)(5), respectively.
b. New paragraph (b) is added imme-
diately after Example (2)in newly desig-
nated paragraph (a)(5).
6. The last two sentences of A-9 are
amended by removing the language
“paragraph (e)” and adding “paragraph
(a)(5)” in its place.
7. One sentence is added at the end of
A-10.
8. A-11 is amended as follows:
a. In A-11, introductory text and para-
graphs (a) and (b) are redesignated as
paragraph (a) introductory text and para-
graphs (a)(1) and (a)(2), respectively.
b. New paragraph (b) is added.
9. A-17 is amended as follows:
a. Paragraph (a)(3) is revised.
b. Paragraph (c) is added.
10. The first and second sentences of
A-19 are amended by removing the lan-
guage “paragraph (d) or paragraph (e)”
and adding “paragraph (a)(4) or (5)” in its
place.
11. A-22 is amended by adding three
sentences before the last sentence.
The additions and revisions read as fol-
lows:
§301.6112-1 Questions and answers re-
lating to the requirement to maintain a
list of investors in potentially abusive tax
shelters.
[The text of the amendments to this
proposed section is the same as the text of
the amendments to §301.6112-1T pub-
lished in T.D. 8896.]
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
(Filed by the Office of the Federal Register on Au-
gust 11, 2000, 8:45 a.m., and published in the issue
of the Federal Register for August 16, 2000, 65 F.R.
49955)

September 5, 20002602000–36 I.R.B.
Availability of the Revised Forms W-2 and W-3
Announcement 2000–76
BackgroundBased on recommendations from the Information Reporting Program
Advisory Committee (IRPAC), the Social Security Administration
(SSA), and others, the Internal Revenue Service (IRS) initiated plans
to revise Form W-2, Wage and Tax Statement, and Form W-3, Trans-
mittal of Wage and Tax Statements, for 2001 to be filed in 2002.
An April 26, 2000, announcement on the IRS Web Site requested
comments on proposed changes to the 2001 Forms W-2 and W-3. Cur-
rent drafts of the forms on the web site include adopted comments
from the public.
PurposeThe purpose of this announcement is to provide guidance on when the
2001 Forms W-2 and W-3 containing all planned changes will be
available.
Planned Changes to Forms W-2 and W-3The IRS expects to post the 2001 Forms W-2 and W-3 containing all
planned changes on the IRS Web Site by mid-October 2000. Access
the latest drafts of Forms W-2 and W-3 on the IRS Web Site at
http://www
.irs.gov. Follow the links for “Tax Info for Business” /
“Tax Professionals’ Corner” / “Early Release DRAFTS of Forms.”
Determination Letter
Applications for Volume
Submitter Plans
Announcement 2000–77
Purpose
The purpose of this announcement is to
assist practitioners and plan sponsors in
filing determination letter applications for
volume submitter plans where the volume
submitter specimen plan has not received
an advisory letter that considers all the
changes in the qualification requirements
made by GUST. The announcement pro-
vides guidance on the types of plan
amendments that may be needed to obtain
a favorable determination letter. It also
discusses certain procedural requirements
related to the application process.
Background
Rev. Proc. 2000–27, 2000–26 I.R.B.
1272, provides that determination letter
applications for individually-designed
plans, including volume submitter plans,
that are filed with the Service on or after
June 26, 2000, will generally be reviewed
taking into account all the changes in the
qualification requirements made by
GUST. (GUST is an acronym for the
Uruguay Round Agreements Act (GATT),
the Uniformed Services Employment and
Reemployment Rights Act of 1994
(USERRA), the Small Business Job Pro-
tection Act of 1996 (SBJPA), the Tax-
payer Relief Act of 1997 (TRA ‘97) and
the Internal Revenue Service Restructur-
ing and Reform Act of 1998 (RRA ‘98).)
A letter that takes into account all of the
requirements of GUST is referred to as a
GUST II letter.
Prior to June 26, 2000, plan sponsors
could not request complete GUST letters
except for terminating plans. Rather, they
had the option of requesting one of two
limited scope determination letters: a let-
ter that excludes consideration of any of
the qualification changes made by GUST,
or a letter that generally considers GUST
but excludes consideration of certain
qualification changes effective after 1998.
These letters are referred to as pre-GATT
and GUST I letters, respectively. Until
further notice, plan sponsors will continue
to have the option of requesting either of
these limited scope letters, except, of
course, in the case of terminating plans.
However, unless the plan sponsor re-
quests a limited scope review in the cover
letter for its application, a determination
letter application for an individually-de-
signed plan, including a volume submitter
plan, that is filed on or after June 26,
2000, will be reviewed taking into ac-
count all of the requirements of GUST.
Seesection 3.01 of Rev. Proc. 2000–27.
Volume submitter practitioners have
been able to obtain GUST II advisory let-
ters for their volume submitter specimen
plans since March 8, 2000. However, as
of now, the latest advisory letter issued
for most specimen plans is either a pre-
GATT letter or a GUST I letter.
General Guidelines for Determination
Letter Applications for Volume
Submitter Plans That Have Not
Received GUST II Advisory Letters
The guidelines that follow are intended
to ensure that volume submitter determi-
nation letter applications are processed ef-
ficiently and correctly. Practitioners and
plan sponsors should note that failure to
follow these guidelines may result in pro-
cessing delays, unnecessary taxpayer con-
tacts, requests for plan restatement, new
applications or additional user fees, and
possible issuance of incorrect letters.
The effect of Rev. Proc. 2000–27 on
the review of applications for determina-
tion letters for volume submitter plans
that are filed on or after June 26, 2000, is
as follows: These applications will be re-
viewed as GUST II applications in all
cases, even if the latest advisory letter for
the specimen plan is a GUST I or pre-
GATT letter, unless the application or
cover letter specifically requests a GUST
I or pre-GATT determination letter.
Consequently, practitioners and plan
sponsors who will be filing determination
letter applications for volume submitter
plans where a GUST II advisory letter has

2000–36 I.R.B.261September 5, 2000
not been issued for the specimen plan
should carefully consider the require-
ments that may have to be satisfied in
order to receive a GUST II determination
letter. In addition to necessary plan
amendments, these requirements may en-
tail plan restatement, the filing of Form
5300 instead of Form 5307 and the pay-
ment of a higher user fee. These require-
ments, including certain plan amend-
ments that may be needed, are discussed
below under Specific Guidelines for De-
termination Letter Applications for Vol-
ume Submitter Plans That Have Not Re-
ceived GUST II Advisory Letters.
In addition, practitioners and plan
sponsors are reminded that until proposed
regulations under § 411(d)(6) of the Code
are finalized, the Service will not issue a
favorable determination letter for a plan
that is amended to eliminate or reduce
benefits in a manner that is not permitted
under regulations now in effect. There-
fore, plan sponsors who are considering
submitting determination letter applica-
tions before the proposed regulations
under § 411(d)(6) are finalized should
also be aware that they may have to sub-
mit another application and pay another
user fee if they wish to adopt plan amend-
ments as a result of the final regulations.
In view of the foregoing, plan sponsors
may wish to consider deferring their re-
quests for determination letters until the
final § 411(d)(6) regulations have been is-
sued and a GUST II letter has been issued
for the volume submitter specimen plan.
Also seesection 19 of Rev. Proc.
2000–20, 2000–6 I.R.B. 553, and section
4 of Rev. Proc. 2000–27 regarding the re-
medial amendment period for volume
submitter plan sponsors.
If the plan sponsor desires a GUST II
letter, the determination letter application
should include all necessary GUST
amendments as well as any other permis-
sible amendments the plan sponsor
wishes to make. The practitioner and
plan sponsor are also urged to include a
cover letter stating that the application is
for a GUST II determination letter. In ac-
cordance with section 9.08(2)(e) of Rev.
Proc. 2000–6, 2000–1 I.R.B. 187, the ap-
plication must also include a statement by
the practitioner identifying and describing
each deviation from the language of the
approved specimen plan.
If the plan sponsor does not desire a
GUST II letter, it must indicate on the ap-
plication or in a cover letter whether it is
requesting a pre-GATT or GUST I deter-
mination letter.
Specific Guidelines for Determination
Letter Applications for Volume
Submitter Plans That Have Not
Received GUST II Advisory Letters
The following guidelines address the
plan amendments that may be needed to
obtain a GUST II determination letter
where the specimen plan’s latest advisory
letter is a GUST I letter. The guidelines
also address the situations in which a re-
quest for a GUST II determination letter
may require plan restatement, use of
Form 5300 instead of Form 5307 and pay-
ment of a higher user fee.
1.Where the latest advisory letter
for the specimen plan is a GUST
I letter:
A.If the plan is not intended to sat-
isfy the safe harbors under
§ 401(k)(12) and § 401(m)(11),
the plan amendments that may
be needed for a GUST II deter-
mination letter should in most
cases be limited. These include
amendments related to the repeal
of the combined plan limitation
of § 415(e) and, for § 401(k),
profit–sharing and stock bonus
plans, amendments related to the
addition of § 402(c)(4)(C) which
changed the definition of eligible
rollover distribution. SeeNotice
99–44, 1999–35 I.R.B. 326, No-
tice 99–5, 1999–3 I.R.B. 10, and
Notice 2000–32, 2000–26 I.R.B.
1274, regarding these changes.
These amendments should usu-
ally be minor and should not, of
themselves, either require plan
restatement or affect the plan
sponsor’s ability to use Form
5307.
B.If the plan is adding the safe har-
bors under § 401(k)(12) and
§ 401(m)(11), the plan must be
restated and the plan sponsor
cannot use Form 5307 but must
instead use Form 5300 and pay
the user fee for an individually-
designed plan that is not a vol-
ume submitter plan.
2.Where the latest advisory letter
for the specimen plan is a pre-
GATT letter:
A.Except as provided in B., below,
the plan must be restated and the
plan sponsor cannot use Form
5307 but must instead use Form
5300 and pay the user fee for an
individually-designed plan that
is not a volume submitter plan.
B.If the plan is a defined contribu-
tion plan under which the only
contributions are nonelective
employer contributions, then the
plan does not have to be restated
and the plan sponsor can use
Form 5307.

September 5, 20002622000–36 I.R.B.
Under 31 Code of Federal Regulations,
Part 10, an attorney, certified public ac-
countant, enrolled agent or enrolled actu-
ary, in order to avoid the institution or
conclusion of a proceeding for his disbar-
ment or suspension from practice before
the Internal Revenue Service, may offer
his consent to suspension from such prac-
tice. The Director of Practice, in his dis-
cretion, may suspend an attorney, certi-
fied public accountant, enrolled agent or
enrolled actuary in accordance with the
consent offered.
Attorneys, certified public accountants,
enrolled agents and enrolled actuaries are
prohibited in any Internal Revenue Ser-
vice matter from directly or indirectly em-
ploying, accepting assistance from, being
employed by or sharing fees with, any
practitioner disbarred or suspended from
practice before the Internal Revenue Ser-
vice.
To enable attorneys, certified public ac-
countants, enrolled agents and enrolled
actuaries to identify practitioners under
consent suspension from practice before
the Internal Revenue Service, the Director
of Practice will announce in the Internal
Revenue Bulletin the names and ad-
dresses of practitioners who have been
suspended from such practice, their desig-
nation as attorney, certified public ac-
countant, enrolled agent or enrolled actu-
ary, and date or period of suspension.
This announcement will appear in the
weekly Bulletin at the earliest practicable
date after such action and will continue to
appear in the weekly Bulletins for five
successive weeks or for as many weeks as
is practicable for each attorney, certified
public accountant, enrolled agent or en-
rolled actuary so suspended and will be
consolidated and published in the Cumu-
lative Bulletin.
The following individuals have been
placed under consent suspension from
practice before the Internal Revenue Ser-
vice:
Announcement of the Consent Voluntary Suspension of Attorneys,
Certified Public Accountants, Enrolled Agents, and Enrolled Actuaries
From Practice Before the Internal Revenue Service
Date of
NameAddressDesignationSuspension
Stoppenhagen, Larry Ft. Wayne, INCPAApril 14, 2000
to
April 13, 2001
Chon, James N. Hollywood, CACPAMay 22, 2000
to
May 21, 2003
Bleyer, Stephen A.Bala Cynwyd, PACPAJune 26, 2000
to
December 25, 2000
Knutson, OwenOuray, COCPAJuly 3, 2000
to
January 2, 2003
Silverman, Richard E.Fayetteville, NYCPAAugust 1, 2000
to
March 31, 2004
Holt, JeffreyLittle Rock, AREnrolledOctober 1, 2000
Agentto
March 31, 2003
Barbagallo, JosephNewton, PACPAOctober 15, 2000
to
October 14, 2004

2000–36 I.R.B.263September 5, 2000
Under Section 330, Title 31 of the
United States Code, the Secretary of the
Treasury, after due notice and opportunity
for hearing, is authorized to suspend or
disbar from practice before the Internal
Revenue Service any person who has vio-
lated the rules and regulations governing
the recognition of attorneys, certified
public accountants, enrolled agents or en-
rolled actuaries to practice before the In-
ternal Revenue Service.
Attorneys, certified public accountants,
enrolled agents, and enrolled actuaries are
prohibited in any Internal Revenue Ser-
vice matter from directly or indirectly em-
ploying, accepting assistance from, being
employed by or sharing fees with, any
practitioner disbarred or under suspension
from practice before the Internal Revenue
Service.
To enable attorneys, certified public ac-
countants, enrolled agents and enrolled
actuaries to identify such disbarred or sus-
pended practitioners, the Director of Prac-
tice will announce in the Internal Revenue
Bulletin the names and addresses of prac-
titioners who have been suspended from
such practice, their designation as attor-
ney, certified public accountant, enrolled
agent or enrolled actuary, and the date of
disbarment or period of suspension. This
announcement will appear in the weekly
Bulletin for five successive weeks or as
long as it is practicable for each attorney,
certified public accountant, enrolled agent
or enrolled actuary so suspended or dis-
barred and will be consolidated and pub-
lished in the Cumulative Bulletin.
After due notice and opportunity for
hearing before an administrative law
judge, the following individuals has been
disbarred from further practice before the
Internal Revenue Service:
Announcement of the Disbarment and Suspension of Attorneys,
Certified Public Accountants, Enrolled Agents, and Enrolled Actuaries
From Practice Before the Internal Revenue Service
NameAddressDesignation Effective Date
Luebben, WilliamHot Springs, AR CPAFebruary 11, 2000

September 5, 2000i2000–36 I.R.B.
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously
published ruling and points out an essen-
tial difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it ap-
plies to both A and B, the prior ruling is
modified because it corrects a published
position. (Compare with amplified and
clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. A ruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is super-
seded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be pub-
lished that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current use and for-
merly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
Definition of Terms

2000–36 I.R.B.iiSeptember 5, 2000
Numerical Finding List
1
Bulletins 2000–27 through 2000–35
Announcements:
2000–57, 2000–28 I.R.B. 115
2000–58, 2000–30 I.R.B. 135
2000–59, 2000–29 I.R.B. 120
2000–60, 2000–31 I.R.B. 149
2000–61, 2000–30 I.R.B. 136
2000–62, 2000–30 I.R.B. 137
2000–63, 2000–31 I.R.B. 149
2000–64, 2000–31 I.R.B. 149
2000–65, 2000–31 I.R.B. 150
2000–66, 2000–32 I.R.B. 160
2000–67, 2000–32 I.R.B. 160
2000–68, 2000–32 I.R.B. 161
2000–69, 2000–33 I.R.B. 183
2000–70, 2000–34 I.R.B. 204
2000–72, 2000–35 I.R.B. 226
2000–73, 2000–35 I.R.B. 230
2000–74, 2000–35 I.R.B. 230
Court Decisions:
2068, 2000–28 I.R.B. 109
Notices:
2000–33, 2000–27 I.R.B. 97
2000–34, 2000–33 I.R.B. 172
2000–35, 2000–29 I.R.B. 118
2000–36, 2000–33 I.R.B. 173
2000–37, 2000–29 I.R.B. 118
2000–38, 2000–33 I.R.B. 174
2000–39, 2000–30 I.R.B. 132
2000–40, 2000–30 I.R.B. 134
2000–41, 2000–33 I.R.B. 177
2000–43, 2000–35 I.R.B. 209
Proposed Regulations:
REG–209038–89, 2000–34 I.R.B. 191
REG–105316–98, 2000–27 I.R.B. 98
REG–116495–99, 2000–33 I.R.B. 179
REG–108522–00, 2000–34 I.R.B. 187
Railroad Retirement Quarterly Rate:
2000–28, I.R.B. 112
2000–29, I.R.B. 117
Revenue Procedures:
2000–28, 2000–27 I.R.B. 60
2000–29, 2000–28 I.R.B. 113
2000–30, 2000–28 I.R.B. 113
2000–31, 2000–31 I.R.B. 146
2000–32, 2000–33 I.R.B. 172
2000–34, 2000–34 I.R.B. 186
2000–35, 2000–35 I.R.B. 211
Revenue Rulings:
2000–32, 2000–27 I.R.B. 1
2000–33, 2000–31 I.R.B. 142
2000–34, 2000–29 I.R.B. 116
2000–35, 2000–31 I.R.B. 138
2000–36, 2000–31 I.R.B. 140
2000–37, 2000–32 I.R.B. 156
2000–38, 2000–32 I.R.B. 157
2000–39, 2000–34 I.R.B. 184
2000–40, 2000–35 I.R.B. 208
Treasury Decisions:
8886, 2000–27 I.R.B. 3
8888, 2000–27 I.R.B. 3
8889, 2000–30 I.R.B. 124
8890, 2000–30 I.R.B. 122
8891, 2000–32 I.R.B. 152
8892, 2000–32 I.R.B. 158
8893, 2000–31 I.R.B. 143
8894, 2000–33 I.R.B. 162
1
A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 2000–1 through 2000–26
is in Internal Revenue Bulletin 2000–27, dated July
3, 2000.

September 5, 2000iii2000–36 I.R.B.
Finding List of Current Actions on
Previously Published Items
1
Bulletins 2000–27 through 2000–35
Proposed Regulations:
FI–42–90
Withdrawn by
Announcement 2000–63, 2000–31 I.R.B. 149
IA–38–93
Withdrawn by
Announcement 2000–68, 2000–32 I.R.B. 161
REG–107644–98
Corrected by
Announcement 2000–66, 2000–32 I.R.B. 160
Revenue Procedures:
88–23
Superseded by
Rev. Proc. 2000–35, 2000–35 I.R.B. 211
98–50
Modified and superseded by
Rev. Proc. 2000–31, 2000–31 I.R.B. 146
98–51
Modified and superseded by
Rev. Proc. 2000–31, 2000–31 I.R.B. 146
99–18
Modified by
Rev. Proc. 2000–29, 2000–28 I.R.B. 113
99–34
Superseded by
Rev. Proc. 2000–28, 2000–27 I.R.B. 60
Treasury Decisions:
8873
Corrected by
Announcement 2000–74, 2000–35 I.R.B. 230
8883
Corrected by
Announcement 2000–57, 2000–28 I.R.B. 115
8884
Corrected by
Announcement 2000–73, 2000–35 I.R.B. 230
1
A cumulative list of current actions on previously
published items in Internal Revenue Bulletins
2000–1 through 2000–26 is in Internal Revenue
Bulletin 2000–27, dated July 3, 2000.

Index
Internal Revenue Bulletins
2000–27 Through 2000–35
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:
AnnAnnouncement
CDCourt Decision
DODelegation Order
EOExecutive Order
PLPublic Law
PTEProhibited Transaction
Exemption
RPRevenue Procedure
RRRevenue Ruling
SPRStatement of Procedural
Rules
TCTax Convention
TDTreasury Decision
TDOTreasury Department Order
EMPLOYEE PLANS
Accrued benefits, involuntary cash-out of
(TD 8891) 32, 152
Cafeteria plans (Ann 65) 31, 150
Elective deferrals, section 403(b) plans
(RR 35) 31, 138
Full funding limitations, weighted aver-
age interest rate for July 2000 (Notice
40) 30, 134
Letter rulings, determination letters, and
information letters issued by the
Office of Chief Counsel (Notice 35)
29, 118
Loans to plan participants (TD 8894) 33,
162; (REG–116495–99) 33, 179
New technologies in retirement plans,
notices and consents (Ann 74) 35, 230
Nonqualified deferred compensation:
Cash or deferred arrangements (RR
33) 31, 142
State and local governments or tax-
exempt organizations (Notice 38)
33, 174
Proposed Regulations:
26 CFR 1.72(p)–1, amended; loans to
plan participants (REG–116495–99)
33, 179
Protected benefits, direct rollover (RR
36) 31, 140
Prototype plans, automatic enrollment
features (Ann 60) 31, 149
Regulations:
26 CFR 1.72–17A, amended;
1.72(p)–1, added; loans to plan par-
ticipants (TD 8894) 33, 162
26 CFR 31.3121(b)(7)–2, amended;
accrued benefits, involuntary cash-
out of (TD 8891) 32, 152
26 CFR 35.3405–1, correction; new
technologies in retirement plans
(Ann 74) 35, 230
EMPLOYMENT TAX
Comprehensive case resolution program
(Notice 43) 35, 209
Nonqualified deferred compensation,
state and local governments or tax-
exempt organizations (Notice 38) 33,
174
Railroad retirement, rate determination,
quarterly:
April 1, 2000, 28, 112
July 1, 2000, 29, 117
ESTATE TAX
Actuarial tables for valuation of annu-
ities, interests for life or term of years,
and remainder or reversionary interests
(TD 8886) 27, 3
Charitable remainder trusts sample
forms, revision (Notice 37) 29, 118
Regulations:
26 CFR 20.2031-0, -7, amended;
20.2031-7T, removed; 20.7520-1,
amended; 20.7520-1T, removed; actu-
arial tables for valuation of annuities,
interests for life or term of years, and
remainder or reversionary interests
(TD 8886) 27, 3
EXCISE TAX
Taxable fuel, measurement of (Notice
33) 27, 97
EXEMPT
ORGANIZATIONS
Forms:
8871, Political Organization Notice of
Section 527 Status (Notice 36) 33, 173
8872, Political Organization Report of
Contributions and Expenditures
(Notice 41) 33, 177
Letter rulings, determination letters, and
information letters issued by the Office
of Chief Counsel (Notice 35) 29, 118
List of organizations classified as private
foundations (Ann 61) 30, 136; (Ann
67) 32,160; (Ann 70) 34,204
Political organizations:
Contributions and expenditures, Form
8872 (Notice 41) 33, 177
Notice of section 527 status, Form
8871 (Notice 36) 33, 173
Proposed revenue ruling on reporting
requirements (Ann 72) 35, 226
Revocations (Ann 62) 30, 137; (Ann 69)
33,183
GIFT TAX
Actuarial tables for valuation of annu-
ities, interests for life or term of years,
and remainder or reversionary interests
(TD 8886) 27, 3
Adequate disclosure, status of limitations
(RP 34) 34, 186
Regulations:
26 CFR 25.2512-0, amended;
25.2512-5, amended; 25.2512-5T,
removed; 25.7520-1, amended;
25.7520-1T, removed; actuarial
tables for valuation of annuities,
interests for life or term of years,
and remainder or reversionary inter-
ests (TD 8886) 27, 3
INCOME TAX
Actuarial tables for valuation of annu-
ities, interests for life or term of years,
and remainder or reversionary interests
(TD 8886) 27, 3
Bad debt reserves of thrift institutions
(Ann 63) 31, 149
Charitable remainder trusts sample
forms, revision (Notice 37) 29, 118
Collateralized debt obligations (CDOs),
reporting requirements (TD 8888) 27, 3
2000–36 I.R.B.ivSeptember 5, 2000
EMPLOYEE PLANS—
cont.

Comprehensive case resolution program
(Notice 43) 35, 209
Consolidated returns, limitations on the
use of certain credits (Ann 73) 35, 230
Corporations, disposition of stock in a
taxable transaction (Ann 57) 28, 115
Credit, Targeted Jobs Tax Credit, settle-
ment initiative (Ann 58) 30, 135
Debt roll-ups, election to treat certain
debt substitutions as realization events
(RP 29) 28, 113
Foreign trusts:
Transfers of:
Appreciated property to
(REG–108522–00) 34, 187
Property to trusts with U.S. benefi-
ciaries (REG–209038–89) 34, 191
Forms:
1040, e-fileprogram (RP 31) 31, 146
1096, 1098, 1099, 5498, and W-2G,
substitute forms specifications (RP
28) 27, 60
8871, Political Organization Notice of
Section 527 Status (Notice 36) 33,
173
8872, Political Organization Report of
Contributions and Expenditures
(Notice 41) 33, 177
Fringe benefits, aircraft valuation formu-
la (RR 40) 35, 208
Gross income, de minimispremiums,
treatment of (RP 30) 28, 113
Guidance regarding claims for certain
income tax convention benefits (TD
8889) 30, 124
Individual retirement arrangements,
returned or recharacterized contribu-
tions, net income calculation (Notice
39) 30, 132
Information reporting, payments and
reimbursements of qualified tuition
and related expenses (REG-105316-
98) 27, 98
Information returns, magnetic media fil-
ing requirements (REG-105316-98)
27, 98
Insurance companies:
Differential earnings rate and recom-
puted differential earnings rate for
mutual life insurance companies
(RR 37) 32, 156
Foreign companies, minimum effec-
tively connected net investment
income (RP 32) 33, 172
Interest:
Investment:
Federal short-term, mid-term, and
long-term rates for:
July 2000 (RR 32) 27, 1
August 2000 (RR 38) 32,157
Inventory:
LIFO:
Price indexes, department stores, for:
May 2000 (RR 34) 29, 116
June 2000 (RR 39) 34,184
Dollar-value LIFO and inventory price
index computation (IPIC) methods
(Ann 66) 32, 160
Letter rulings, determination letters, and
information letters issued by the Office
of Chief Counsel (Notice 35) 29, 118
Loss deductions, challenge of, Blue
Cross Blue Shield organizations
(Notice 34) 33, 172
Private foundations, organizations now
classified as (Ann 61) 30, 136; (Ann
67) 32,160; (Ann 70) 34,204
Proposed Regulations:
26 CFR 1.679–1, –2, –3, –4, –5, –6,
–7, added; 1.958–1, –2, amended;
foreign trusts with U.S. beneficia-
ries (REG–209038–89) 34, 191
26 CFR 1.684–1, –2, –3, –4, –5,
added; tax on transfers of appreciat-
ed property to foreign trusts and for-
eign estates (REG–108522–00) 34,
187
26 CFR 1.6050S-0, -1,-2, added;
301.6011-2, amended; information
reporting, payments and reimburse-
ments of qualified tuition and relat-
ed expenses (REG-105316-98) 27,
98
Publications:
515, changes in tables 1 and 2 for
Denmark treaty (Ann 59) 29, 120
901, changes in tables 1 and 2 for
Denmark treaty (Ann 59) 29, 120
1212, supplemental information on
short-term Treasury bills (Ann 64)
31, 149
Real estate mortgage investment conduits
(REMICs), reporting requirements
(TD 8888) 27, 3
Regulations:
26 CFR 1.170A-12, amended; 1.170A-
12T, removed; 1.642(c)-6, amended;
1.642(c)-6T, removed; 1.664-4,
amended; 1.664-4T, removed; 1.7520-
1, amended; 1.7520-1T, removed;
actuarial tables for valuation of annu-
ities, interests for life or term of years,
and remainder or reversionary inter-
ests (TD 8886) 27, 3
26 CFR 1.401(a)–20, amended;
1.401(a)(4)–4, amended;
1.401(a)(26)–4, –6, amended;
1.411(a)–7, –11, amended;
1.411(a)–7T, removed;
1.411(a)–11T, removed; 1.411(d)–4,
amended; 1.417(e)–1, amended;
accrued benefits, involuntary cash-
out of (TD 8891) 32, 152
26 CFR 1.472–8, correction; dollar-
value LIFO regulations, inventory
price index computation (IPIC)
method (Ann 66) 32, 160
26 CFR 1.643(h)-1, amended; 1.671-
2(e), revised; 1.671-2T, removed;
1.672(f)-2, -3, -4, -5, amended; defi-
nition of grantor (TD 8890) 30, 122
26 CFR 1.894-1, revised; guidance
regarding claims for certain income
tax convention benefits (TD 8889)
30, 124
26 CFR 1.1032-3, correction; disposi-
tion of stock in a taxable transaction
(Ann 57) 28, 115
26 CFR 1.1502–3, correction; consoli-
dated returns, limitations on the use
of certain credits (Ann 73) 35, 230
26 CFR 1.6012–7T, removed;
1.6061–2T, removed; 1.6065–2T,
removed; 602.101(c), amended;
telefile voice signature test (TD
8892) 32, 158
26 CFR 1.6049-7, amended; real estate
mortgage investment conduits; re-
porting requirements and other
administrative matters (TD 8888)
27, 3
26 CFR 1.6695-1, amended; 1.6695-
1T, removed; requirement to retain
copy of return or claim signed by
preparer (TD 8893) 31, 143
Retention of return or claim signed by
tax preparer (TD 8893) 31, 143
Revocations, exempt organizations (Ann
62) 30, 137; (Ann 69) 33,183
Substitute forms, 1096, 1098, 1099,
5498, and W-2G, rules and specifica-
tions (RP 28) 27, 60
September 5, 2000v2000–36 I.R.B.
INCOME TAX—cont.INCOME TAX—cont.INCOME TAX—cont.

Tax claims in bankruptcy court (CD
2068) 28, 109
Telefile voice signature test:
Notice of proposed rulemaking with-
drawn (Ann 68) 32, 161
Temporary regulations removed (TD
8892) 32, 158
Treaties:
Denmark, Publications 515 and 901
(Ann 59) 29, 120
Withholding rates, tax treaty benefits
(TD 8889) 30, 124
Trusts, definition of grantor (TD 8890)
30,122
Withholding certificate guidance (RP 35)
35, 211
2000–36 I.R.B.viSeptember 5, 2000
INCOME TAX—cont.

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