Internal Revenue Bulletin 2002-45 (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.

# Internal Revenue bulletin

## HIGHLIGHTS OF THIS ISSUE

These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.

## INCOME TAX

Rev. Rul. 2002-66, page 812.
Effect of collars on qualified covered calls. Guidance is pro-
vided under section 1092 of the Code regarding the effect of col-
lars upon qualified covered call options.

Rev. Rul. 2002-68, page 808.
2002 base period T-bill rate. The "base period T-bill rate" for
the period ending September 30, 2002, is published, as re-
quired by section 995(f) of the Code.

Rev. Rul. 2002-74, page 814.
Federal rates; adjusted federal rates; adjusted fed-
eral long-term rate and the long-term exempt rate.
For purposes of sections 382, 1274, 1288, and other sec-
tions of the Code, tables set forth the rates for November 2002.

Rev. Rul. 2002-75, page 812.

Tax-free exchange of annuity contracts. This ruling states
that the transfer of an entire annuity contract into another pre-
existing annuity contract qualifies as a tax-free exchange and de-
fines the basis and investment in the contract for the surviving
contract.

Rev. Rul. 2002-77, page 806.
LIFO; price indexes; department stores. The September
2002 Bureau of Labor Statistics price indexes are accepted for
use by department stores employing the retail inventory and last-
in, first-out inventory methods for valuing inventories for tax years
ended on, or with reference to, September 30, 2002.

T.D. 9017, page 815.
REG-103735-00, page 832.

Temporary and proposed regulations under section 6011 of the
Code modify the disclosure requirements relating to report-
able transactions. Six new provisions are added pursuant to sec-
tion 6011 requiring the disclosure of listed transactions that are
related to estate, gift, employment, and pension and exempt or-
ganizations excise tax. A public hearing on the proposed regu-
lations is scheduled for December 11, 2002.

T.D. 9018, page 823.
REG-103736-00, page 834.

Temporary and proposed regulations under section 6112 of the
Code modify the requirement for sellers and organizers to main-
tain lists or persons in potentially abusive tax shelters. A public
hearing on the proposed regulations is scheduled for Decem-
ber 11, 2002.

## EMPLOYEE PLANS

Rev. Rul. 2002-63, page 803.

Covered compensation tables; 2003. Covered compensa-
tion tables under section 401 of the Code for the year 2003 are
provided for use in determining contributions to defined ben-
efit plans and permitted disparity.

Rev. Rul. 2002-73, page 805.

Deductibility; timing. This ruling modifies Rev. Rul. 2002-46
to provide that the scope limitations imposed by Rev. Proc.
2002-9 (providing for automatic consent to change a method
of accounting) are waived for taxpayers who wish to change their
method of accounting to comply with the holding of Rev. Rul.
2002-46. This applies only for the taxpayers' first taxable year
ending on or after October 16, 2002, effective on that date. Rev.
Rul. 2002-46 modified. Rev. Proc. 2002-9 modified and am-
plified.

Finding Lists begin on page ii.

Department of the Treasury
Internal Revenue Service

(Continued on the next page)

Notice 2002-71, page 830.
Retirement plans; year 2003 section 415(d) limitations.

This notice sets forth certain cost-of-living adjustments effec-
tive January 1, 2003, applicable to the dollar limits on benefits
under qualified defined benefit pension plans and to other pro-
visions affecting (1) certain plans of deferred compensation and
(2) "control employees."

## EXEMPT ORGANIZATIONS

### Announcement 2002-103, page 836.

This announcement corrects Announcement 2002-92, 2002-41
I.R.B. 709, by amending the e-mail address to which comments
may be sent. These two announcements request comments re-
garding proposed revisions of Form 1023, Application for Rec-
ognition of Exemption Under Section 501(c)(3) of the Internal
Revenue Code, and Instructions for Form 1023.

## Announcement 2002-104, page 836.

A list is provided of organizations now classified as private foun-
dations.

## ADMINISTRATIVE

Rev. Proc. 2002-69, page 831.

This procedure provides guidance on the classification for fed-
eral tax purposes of a qualified entity (described in section 3.02
of this procedure) that is owned solely by a husband and wife as
community property under the laws of a state, a foreign coun-
try, or a possession of the United States.

## The IRS Mission

Provide America's taxpayers top quality service by helping them
understand and meet their tax responsibilities and by applying
the tax law with integrity and fairness to all.

## Introduction

The Internal Revenue Bulletin is the authoritative instrument of the
Commissioner of Internal Revenue for announcing official rul-
ings and procedures of the Internal Revenue Service and for pub-
lishing Treasury Decisions, Executive Orders, Tax Conventions,
legislation, court decisions, and other items of general inter-
est. It is published weekly and may be obtained from the Super-
intendent 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 pub-
lished rulings apply retroactively unless otherwise indicated. Pro-
cedures relating solely to matters of internal management are
not published; however, statements of internal practices and pro-
cedures that affect the rights and duties of taxpayers are pub-
lished.

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 taxpay-
ers or technical advice to Service field offices, identifying de-
tails 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 re-
lied on, used, or cited as precedents by Service personnel in the
disposition of other cases. In applying published rulings and pro-
cedures, the effect of subsequent legislation, regulations, court

decisions, rulings, and procedures must be considered, and Ser-
vice personnel and others concerned are cautioned against reach-
ing the same conclusions in other cases unless the facts and
circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

### Part I. - 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 Other Related Items, and Subpart B, Legisla-
tion and Related Committee Reports.

Part III .- Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these sub-
jects are contained in the other Parts and Subparts. Also in-
cluded in this part are Bank Secrecy Act Administrative Rulings.
Bank Secrecy Act Administrative Rulings are issued by the De-
partment of the Treasury's Office of the Assistant Secretary (En-
forcement).

### 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 semiannual pe-
riod, respectively.

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.

## 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 November 2002. See Rev. Rul. 2002-74, page 814.

### Section 263 .- Capital Expen- ditures

If a taxpayer writes a qualified covered call, owns
the underlying equity, and holds a put option on the
same underlying stock, do the combined positions form
a straddle that triggers to the capitalization rules of
section 263(g). See Rev. Rul. 2002-66, page 812.

### Section 280G .- Golden Para- chute Payments

Federal short-term, mid-term, and long-term rates
are set forth for the month of November 2002. See
Rev. Rul. 2002-74, page 814.

### Section 382 .- Limitation on Net Operating Loss Carryfor- wards and Certain Built-In Losses Following Ownership Change

The adjusted applicable federal long-term rate is
set forth for the month of November 2002. See Rev.
Rul. 2002-74, page 814.

### Section 401. - Qualified Pension, Profit-Sharing, and Stock Bonus Plans

26 CFR 1.401(1)-1: Permitted disparity in
employer-provided contributions or benefits.

Covered compensation tables; 2003.
The covered compensation tables for the
year 2003 are provided for use in deter-
mining contributions to defined benefit plans
and permitted disparity.

## Rev. Rul. 2002-63

This revenue ruling provides tables of
covered compensation under section
401(l)(5)(E) of the Internal Revenue Code
(the "Code") and the Income Tax Regula-
tions, thereunder, for the 2003 plan year.

Section 401(l)(5)(E)(i) defines covered
compensation with respect to an employee,
as the average of the contribution and ben-
efit bases in effect under section 230 of the
Social Security Act (the "Act") for each
year in the 35-year period ending with the
year in which the employee attains social
security retirement age.

Section 401(l)(5)(E)(ii) states that the de-
termination for any year preceding the year
in which the employee attains social secu-
rity retirement age shall be made by as-
suming that there is no increase in covered
compensation after the determination year
and before the employee attains social se-
curity retirement age.

Section 1.401(1)-1(c)(34) of the Income
Tax Regulations defines the taxable wage
base as the contribution and benefit base un-
der section 230 of the Act.

Section 1.401(l)-1(c)(7)(i) defines cov-
ered compensation for an employee as the
average (without indexing) of the taxable
wage bases in effect for each calendar year
during the 35-year period ending with the
last day of the calendar year in which the
employee attains (or will attain) social se-
curity retirement age. A 35-year period is
used for all individuals regardless of the
year of birth of the individual. In deter-
mining an employee's covered compensa-
tion for a plan year, the taxable wage base
for all calendar years beginning after the
first day of the plan year is assumed to be
the same as the taxable wage base in ef-
fect as of the beginning of the plan year.
An employee's covered compensation for
a plan year beginning after the 35-year pe-
riod applicable under § 1.401(I)-1(c)(7)(i)
is the employee's covered compensation for
a plan year during which the 35-year pe-
riod ends. An employee's covered com-
pensation for a plan year beginning before
the 35-year period applicable under
§ 1.401(!)-1(c)(7)(i) is the taxable wage base
in effect as of the beginning of the plan
year.

Section 1.401(1)-1(c)(7)(ii) provides that,
for purposes of determining the amount of
an employee's covered compensation un-
der § 1.401(1)-1(c)(7)(i), a plan may use
tables, provided by the Commissioner, that
are developed by rounding the actual
amounts of covered compensation for dif-
ferent years of birth.

For purposes of determining covered
compensation for the 2003 year, the tax-
able wage base is $87,000.

The following tables provide covered
compensation for 2003:

2003 COVERED COMPENSATION TABLE

CALENDAR YEAR OF BIRTH

CALENDAR YEAR OF SOCIAL SECURITY RETIREMENT AGE

2003 COVERED COMPENSATION TABLE II

1907

1972

$4,488

1908

1973

4,704

1909

1974

5,004

1910

1975

5,316

1911

1976

5,664

1912

1977

6,060

1913

1978

6,480

# 2003 COVERED COMPENSATION TABLE

CALENDAR YEAR OF BIRTH

CALENDAR YEAR OF SOCIAL SECURITY RETIREMENT AGE

2003 COVERED COMPENSATION TABLE II

1914

1979

7,044

1915

1980

7,692

1916

1981

8,460

1917

1982

9,300

1918

1983

10,236

1919

1984

11,232

1920

1985

12,276

1921

1986

13,368

1922

1987

14,520

1923

1988

15,708

1924

1989

16,968

1925

1990

18,312

1926

1991

19,728

1927

1992

21,192

1928

1993

22,716

1929

1994

24,312

1930

1995

25,920

1931

1996

27,576

1932

1997

29,304

1933

1998

31,128

1934

1999

33,060

1935

2000

35,100

1936

2001

37,212

1937

2002

39,444

1938

2004

43,968

1939

2005

46,236

1940

2006

48,492

1941

2007

50,724

1942

2008

52,908

1943

2009

55,008

1944

2010

57,096

1945

2011

59,148

1946

2012

61,152

1947

2013

63,132

1948

2014

64,968

1949

2015

66,720

1950

2016

68,352

1951

2017

69,912

1952

2018

71,376

1953

2019

72,780

1954

2020

74,136

1955

2022

76,656

1956

2023

77,856

1957

2024

78,972

1958

2025

79,992

1959

2026

80,952

1960

2027

81,852

## 2003 COVERED COMPENSATION TABLE

2003 ROUNDED COVERED COMPENSATION TABLE

CALENDAR YEAR OF BIRTH

CALENDAR YEAR OF SOCIAL SECURITY RETIREMENT AGE

2003 COVERED COMPENSATION TABLE II

1961

2028

82,692

1962

2029

83,448

1963

2030

84,180

1964

2031

84,876

1965

2032

85,500

1966

2033

86,028

1967

2034

86,436

1968

2035

86,748

1969

2036

86,940

1970 or later

2037

87,000

YEAR OF BIRTH

COVERED COMPENSATION

1937

39,000

1938-1939

45,000

1940

48,000

1941

51,000

1942-1943

54,000

1944

57,000

1945-1946

60,000

1947

63,000

1948-1949

66,000

1950-1951

69,000

1952-1953

72,000

1954

75,000

1955-1957

78,000

1958-1960

81,000

1961-1964

84,000

1965 and later

87,000

The principal author of this revenue rul-
ing is Todd Newman of Employee Plans
Customer Education and Outreach of the
Tax Exempt and Government Entities Di-
vision. For further information regarding this
revenue ruling, please contact the Em-
ployee Plans taxpayer assistance telephone
service at 1-877-829-5500, between the
hours of 8:00 a.m. and 6:30 p.m. Eastern
time, Monday through Friday (a toll-free
number). Mr. Newman's number is (202)
283-9702 (not a toll-free number).

Section 404 .- Deduction for Con-
tributions of an Employer to an
Employees' Trust or Annuity Plan
and Compensation Under a
Deferred-Payment Plan

Deductibility; timing. This ruling modi-
fies Rev. Rul. 2002-46 to provide that the
scope limitations imposed by Rev. Proc.
2002-9 (providing for automatic consent to
change a method of accounting) are waived
for taxpayers who wish to change their
method of accounting to comply with the
holding of Rev. Rul. 2002-46. This ap-

plies only for the taxpayers' first taxable
year ending on or after October 16, 2002,
effective on that date.

### Rev. Rul. 2002-73

Rev. Rul. 2002-46, 2002-29 I.R.B. 117,
holds that grace period contributions to a
qualified cash or deferred arrangement
within the meaning of § 401(k) of the In-
ternal Revenue Code or to a defined con-
tribution plan as matching contributions
within the meaning of § 401(m) are not de-
ductible by the employer for a taxable year

if the contributions are attributable to com-
pensation earned by plan participants af-
ter the end of that taxable year.

Rev. Rul. 2002-46 modifies Rev. Proc.
2002-9, 2002-3 I.R.B. 327 (as modified
and amplified by Rev. Proc. 2002-19,
2002-13 I.R.B. 696, modified and clari-
fied by Announcement 2002-17, 2002-8
I.R.B. 561, and amplified, clarified, and
modified by Rev. Proc. 2002-54, 2002-35
I.R.B. 432) to add to the Appendix of Rev.
Proc. 2002-9 a change in method of ac-
counting to conform to the holding of Rev.
Rul. 2002-46. Thus, taxpayers wishing to
change to a method consistent with Rev.
Rul. 2002-46 must apply for automatic ap-
proval under Rev. Proc. 2002-9. Rev. Rul.
2002-46 provides that the scope limita-
tions in section 4.02 of Rev. Proc. 2002-9
do not apply to a change to a method con-
sistent with Rev. Rul. 2002-46, unless the
taxpayer's method of accounting is an is-
sue under consideration for a taxable year
under examination within the meaning of
section 3.09(1) of Rev. Proc. 2002-9 when
the Form 3115, Application to Change a
Method of Accounting, is filed with the na-
tional office.

Upon further consideration, the Inter-
nal Revenue Service has determined that it
is appropriate to waive the scope limita-
tions of section 4.02 for this change only
for a limited period of time. Accordingly,
the APPLICATION section of Rev. Rul.
2002-46 is modified to read as follows:

# APPLICATION

A change in a taxpayer's treatment of
contributions to a method consistent with
this revenue ruling is a change in method
of accounting to which §§ 446 and 481 ap-
ply. A taxpayer that wants to change its
treatment of contributions to a method con-
sistent with this revenue ruling must fol-
low the automatic change in method of
accounting provisions in Rev. Proc. 2002-9,
2002-3 I.R.B. 327 (as modified and am-
plified by Rev. Proc. 2002-19, 2002-13
I.R.B. 696, modified and clarified by An-
nouncement 2002-17, 2002-8 I.R.B. 561,
and amplified, clarified, and modified by
Rev. Proc. 2002-54, 2002-35 I.R.B. 432),
with the following modifications:

(1) The scope limitations in section 4.02
of Rev. Proc. 2002-9 do not apply to a tax-

payer that wants to make the change for its
first taxable year ending on or after Octo-
ber 16, 2002, provided the taxpayer's
method of accounting for contributions ad-
dressed in this revenue ruling is not an is-
sue under consideration for taxable years
under examination, within the meaning of
section 3.09(1) of Rev. Proc. 2002-9, at the
time the Form 3115 is filed with the na-
tional office;

(2) To assist the Service in processing
changes in method of accounting under this
revenue ruling, and to ensure proper han-
dling, section 6.02(4)(a) of Rev. Proc.
2002-9 is modified to require that a Form
3115 filed under this revenue ruling in-
clude the statement: "Automatic Change
Filed Under Rev. Rul. 2002-46." This state-
ment should be legibly printed or typed on
the appropriate line on any Form 3115 filed
under this revenue ruling."

## EFFECTIVE DATE

This modification is effective October
16, 2002.

# EFFECT ON OTHER DOCUMENTS

Rev. Rul. 2002-46 is modified. Rev.
Proc. 2002-9 is modified and amplified.

## DRAFTING INFORMATION

The principal author of this revenue rul-
ing is Grant D. Anderson of the Office of
Associate Chief Counsel (Income Tax and
Accounting). For further information re-
garding this revenue ruling, contact Mr.
Anderson at (202) 622-4970 (not a toll-
free call). For information regarding any
other aspect of Rev. Rul. 2002-46, con-
tact the Employee Plans taxpayer assis-
tance telephone service at 1-877-829-
5500 (a toll-free number) between the hours
of 8:00 a.m. and 4:00 p.m., Eastern Time,
Monday through Friday.

## Section 412 .- Minimum Funding Standards

The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of November 2002. See Rev. Rul. 2002-74, page 814.

## Section 467 .- Certain Pay- ments 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 November 2002. See Rev. Rul. 2002-74, page 814.

### 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 November 2002. See Rev. Rul. 2002-74, page 814.

### Section 472 .- Last-in, First- out Inventories

26 CFR 1.472-1: Last-in, first-out inventories.

LIFO; price indexes; department
stores. The September 2002 Bureau of La-
bor Statistics price indexes are accepted for
use by department stores employing the re-
tail inventory and last-in, first-out inven-
tory methods for valuing inventories for tax
years ended on, or with reference to, Sep-
tember 30, 2002.

## Rev. Rul. 2002-77

The following Department Store Inven-
tory Price Indexes for September 2002 were
issued by the Bureau of Labor Statistics.
The indexes are accepted by the Internal
Revenue Service, under § 1.472-1(k) of the
Income Tax Regulations and Rev. Proc. 86-
46, 1986-2 C.B. 739, for appropriate ap-
plication to inventories of department stores
employing the retail inventory and last-
in, first-out inventory methods for tax years
ended on, or with reference to September
30, 2002.

The Department Store Inventory Price
Indexes are prepared on a national basis and
include (a) 23 major groups of depart-
ments, (b) three special combinations of the
major groups - soft goods, durable goods,
and miscellaneous goods, and (c) a store to-
tal, which covers all departments, includ-
ing some not listed separately, except for
the following: candy, food, liquor, tobacco,
and contract departments.

# BUREAU OF LABOR STATISTICS, DEPARTMENT STORE INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS (January 1941 = 100, unless otherwise noted)

Groups

Sep. 2001

Sep. 2002

Percent Change from Sep. 2001 to Sep. 20021

1. Piece Goods

509.9

484.6

-5.0

2. Domestics and Draperies

589.1

574.2

-2.5

3. Women's and Children's Shoes

668.9

658.0

-1.6

4. Men's Shoes

854.7

886.9

3.8

5. Infants' Wear

625.4

618.5

-1.1

6. Women's Underwear

571.0

548.2

-4.0

7. Women's Hosiery

356.7

343.2

-3.8

8. Women's and Girls' Accessories.

557.9

549.2

-1.6

9. Women's Outerwear and Girls' Wear

392.0

385.7

-1.6

10. Men's Clothing

578.4

561.1

-3.0

11. Men's Furnishings

603.1

593.8

-1.5

12. Boys' Clothing and Furnishings

477.1

446.2

-6.5

13. Jewelry

899.0

896.7

-0.3

14. Notions

795.0

809.1

1.8

15. Toilet Articles and Drugs

979.9

971.4

-0.9

16. Furniture and Bedding

632.8

625.9

-1.1

17. Floor Coverings

622.9

601.1

-3.5

18. Housewares

767.5

748.9

-2.4

19. Major Appliances

227.0

222.2

-2.1

20. Radio and Television

52.9

47.7

-9.8

21. Recreation and Education2

89.3

85.4

-4.4

22. Home Improvements2

125.6

124.9

-0.6

23. Auto Accessories2

110.1

112.0

1.7

Groups 1 - 15: Soft Goods

588.6

578.4

-1.7

Groups 16 - 20: Durable Goods

421.2

407.9

-3.2

Groups 21 - 23: Misc. Goods2

98.3

96.0

-2.3

Store Total3

526.8

515.8

-2.1

1
" Absence of a minus sign before the percentage change in this column signifies a price increase.

2
Indexes on a January 1986=100 base.

3 The store total index covers all departments, including some not listed separately, except for the following: candy, food,
liquor, tobacco, and contract departments.

## DRAFTING INFORMATION

The principal author of this revenue rul-
ing is Michael Burkom of the Office of As-
sociate Chief Counsel (Income Tax and
Accounting). For further information re-
garding this revenue ruling, contact Mr.
Burkom at (202) 622-7718 (not a toll-
free call).

## 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 November 2002. See
Rev. Rul. 2002-74, page 814.

## 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 November 2002. See Rev. Rul. 2002-74, page 814.

# Section 642 .- Special Rules for Credits and Deductions

Federal short-term, mid-term, and long-term rates
are set forth for the month of November 2002. See
Rev. Rul. 2002-74, page 814.

# Section 807 .- Rules for Cer- tain Reserves

The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of November 2002. See Rev. Rul. 2002-74, page 814.

# 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 November 2002. See Rev. Rul. 2002-74, page 814.

# Section 995 .- Taxation of DISC Income to Shareholders

2002 base period T-bill rate. The "base
period T-bill rate" for the period ending
September 30, 2002, is published, as re-
quired by section 995(f) of the Code.

## Rev. Rul. 2002-68

Section 995(f)(1) of the Internal Rev-
enue Code provides that a shareholder of
a DISC shall pay interest each taxable year
in an amount equal to the product of the
shareholder's DISC-related deferred tax li-
ability for the year and the "base period
T-bill rate." Under section 995(f)(4), the
base period T-bill rate is the annual rate of
interest determined by the Secretary to be
equivalent to the average of the 1-year con-
stant maturity Treasury yields, as pub-
lished by the Board of Governors of the
Federal Reserve System, for the 1-year pe-
riod ending on September 30 of the calen-
dar year ending with (or of the most recent
calendar year ending before) the close of
the taxable year of the shareholder. The base
period T-bill rate for the period ending Sep-
tember 30, 2002 is 2.18 percent.

Pursuant to section 6222 of the Code, in-
terest must be compounded daily. The table
below provides factors for compounding the
base period T-bill rate daily for any num-
ber of days in the shareholder's taxable year
(including a 52-53 week accounting pe-

riod) for the 2002 base period T-bill rate.
To compute the amount of the interest
charge for the shareholder's taxable year,
multiply the amount of the shareholder's
DISC-related deferred tax liability (as de-
fined in section 995(f)(2)) for that year by
the base period T-bill rate factor corre-
sponding to the number of days in the
shareholder's taxable year for which the in-
terest charge is being computed. Gener-
ally, one would use the factor for 365 days.
One would use a different factor only if the
shareholder's taxable year for which the in-
terest charge being determined is a short
taxable year, if the shareholder uses the
52-53 week taxable year, or if the share-
holder's taxable year is a leap year.

For the base period T-bill rates for the
periods ending in prior years, see Rev. Rul.
2001-56, 2001-2 C.B. 500, and Rev. Rul.
2000-52, 2000-2 C.B. 516.

## DRAFTING INFORMATION

The principal author of this revenue rul-
ing is David Bergkuist of the Office of the
Associate Chief Counsel (International). For
further information about this revenue rul-
ing, contact Mr. Bergkuist at (202) 622-
3850 (not a toll-free call).

ANNUAL RATE, COMPOUNDED DAILY

DAYS

2.180 PERCENT FACTOR

.000059726

.000119456

.000179189

.000238926

.000298666

.000358410

.000418157

.000477908

.000537663

.000597421

.000657183

.000716948

.000776717

.000836489

.000896265

DAYS

2.180 PERCENT
FACTOR

.000956045

.001015828

.001075614

.001135405

.001195199

.001254996

.001314797

.001374602

.001434410

.001494221

.001554037

.001613855

.001673678

.001733504

.001793333

.001853167

.001913003

.001972844

.002032687

.002092535

.002152386

.002212240

.002272099

.002331960

.002391826

.002451694

.002511567

.002571443

.002631323

.002691206

.002751093

.002810983

.002870877

.002930774

.002990675

.003050580

.003110488

.003170400

.003230315

.003290234

# ANNUAL RATE, COMPOUNDED DAILY-CONTINUED

DAYS

2.180 PERCENT FACTOR

DAYS

2.180 PERCENT FACTOR

DAYS

2.180 PERCENT FACTOR

.003350157

.005749996

136

.008155574

.003410083

.005810065

137

.008215787

.003470013

.005870138

138

.008276004

.003529946

.005930215

139

.008336224

.003589883

100

.005990295

140

.008396448

.003649823

101

.006050379

141

.008456676

.003709767

102

.006110466

142

.008516907

.003769715

103

.006170557

143

.008577142

.003829666

104

.006230652

144

.008637380

.003889621

105

.006290750

145

.008697622

.003949579

106

.006350852

146

.008757867

.004009541

107

.006410957

147

.008818116

.004069507

108

.006471066

148

.008878369

.004129476

109

.006531178

149

.008938625

.004189448

110

.006591294

150

.008998885

.004249425

111

.006651414

151

.009059149

.004309404

112

.006711537

152

.009119416

.004369388

113

.006771664

153

.009179687

.004429375

114

.006831795

154

.009239961

.004489365

115

.006891929

155

.009300239

.004549360

116

.006952066

156

.009360520

.004609357

117

.007012208

157

.009420805

.004669359

118

.007072353

158

.009481094

.004729364

119

.007132501

159

.009541386

.004789372

120

.007192653

160

.009601682

.004849384

121

.007252809

161

.009661982

.004909400

122

.007312968

162

.009722285

.004969419

123

.007373131

163

.009782592

.005029442

124

.007433297

164

.009842902

.005089468

125

.007493467

165

.009903216

.005149498

126

.007553641

166

.009963533

.005209532

127

.007613818

167

.010023854

.005269569

128

.007673999

168

.010084179

.005329610

129

.007734183

169

.010144507

.005389654

130

.007794371

170

.010204839

.005449702

131

.007854562

171

.010265175

.005509754

132

.007914758

172

.010325514

.005569809

133

.007974956

173

.010385857

.005629867

134

.008035159

174

.010446203

.005689930

135

.008095365

175

.010506553

# ANNUAL RATE, COMPOUNDED DAILY-CONTINUED

DAYS

2.180 PERCENT FACTOR

DAYS

2.180 PERCENT FACTOR

DAYS

2.180 PERCENT FACTOR

176

.010566906

216

.012984006

256

.015406887

177

.010627264

217

.013044508

257

.015467534

178

.010687624

218

.013105013

258

.015528183

179

.010747989

219

.013165522

259

.015588837

180

.010808357

220

.013226034

260

.015649494

181

.010868728

221

.013286550

261

.015710155

182

.010929103

222

.013347070

262

.015770819

183

.010989482

223

.013407593

263

.015831487

184

.011049865

224

.013468120

264

.015892159

185

.011110251

225

.013528650

265

.015952834

186

.011170640

226

.013589184

266

.016013513

187

.011231033

227

.013649722

267

.016074195

188

.011291430

228

.013710263

268

.016134881

189

.011351831

229

.013770808

269

.016195571

190

.011412235

230

.013831356

270

.016256264

191

.011472642

231

.013891908

271

.016316961

192

.011533054

232

.013952464

272

.016377662

193

.011593468

233

.014013024

273

.016438366

194

.011653887

234

.014073587

274

.016499074

195

.011714309

235

.014134153

275

.016559785

196

.011774735

236

.014194723

276

.016620500

197

.011835164

237

.014255297

277

.016681219

198

.011895597

238

.014315875

278

.016741941

199

.011956033

239

.014376456

279

.016802667

200

.012016473

240

.014437040

280

.016863397

201

.012076917

241

.014497629

281

.016924130

202

.012137364

242

.014558221

282

.016984867

203

.012197815

243

.014618816

283

.017045607

204

.012258270

244

.014679415

284

.017106351

205

.012318728

245

.014740018

285

.017167099

206

.012379190

246

.014800624

286

.017227850

207

.012439655

247

.014861234

287

.017288605

208

.012500124

248

.014921848

288

.017349364

209

.012560597

249

.014982465

289

.017410126

210

.012621073

250

.015043086

290

.017470892

211

.012681553

251

.015103711

291

.017531662

212

.012742036

252

.015164339

292

.017592435

213

.012802523

253

.015224970

293

.017653212

214

.012863014

254

.015285606

294

.017713992

215

.012923508

255

.015346245

295

.017774776

## ANNUAL RATE, COMPOUNDED DAILY-CONTINUED

DAYS

2.180 PERCENT FACTOR

DAYS

2.180 PERCENT FACTOR

DAYS

2.180 PERCENT FACTOR

296

.017835564

321

.019356435

346

.020879579

297

.017896355

322

.019417317

347

.020940552

298

.017957150

323

.019478203

348

.021001529

299

.018017948

324

.019539092

349

.021062510

300

.018078750

325

.019599985

350

.021123494

301

.018139556

326

.019660882

351

.021184481

302

.018200366

327

.019721782

352

.021245472

303

.018261179

328

.019782686

353

.021306467

304

.018321995

329

.019843594

354

.021367466

305

.018382816

330

.019904505

355

.021428468

306

.018443640

331

.019965420

356

.021489474

307

.018504467

332

.020026338

357

.021550484

308

.018565299

333

.020087261

358

.021611497

309

.018626133

334

.020148186

359

.021672514

310

.018686972

335

.020209116

360

.021733534

311

.018747814

336

.020270049

361

.021794558

312

.018808660

337

.020330985

362

.021855586

313

.018869509

338

.020391926

363

.021916617

314

.018930362

339

.020452870

364

.021977652

315

.018991219

340

.020513817

365

.022038691

316

.019052079

341

.020574769

366

.022099733

317

.019112943

342

.020635723

367

.022160779

318

.019173811

343

.020696682

368

.022221829

319

.019234682

344

.020757644

369

.022282882

320

.019295557

345

.020818610

370

.022343939

371

.022404999

# Section 1035 .- Certain Exchanges of Insurance Policies

26 CFR 1.1035-1: Certain exchanges of insurance
policies.
(Also Part I, §§ 72, 1031)

Tax-free exchange of annuity con-
tracts. This ruling states that the transfer
of an entire annuity contract into another
pre-existing annuity contract qualifies as a
tax-free exchange and defines the basis and
investment in the contract for the surviv-
ing contract.

## Rev. Rul. 2002-75

### ISSUES

Is the taxpayer's assignment of an en-
tire annuity contract to a second insur-
ance company, which then deposits the cash
surrender value of the assigned annuity con-
tract into a pre-existing annuity contract
owned by the same taxpayer, and issued by
the second insurance company, a tax-free
exchange under § 1035? What is the ba-
sis under § 1035 and the investment in the
surviving contract under § 72 after the
transfer?

### FACTS

A owns Contract B, an annuity con-
tract issued by Company B, and Contract
C, an annuity contract issued by Com-
pany C. A is the obligee for both contracts.
A seeks to consolidate Contract B and Con-
tract C. A assigns Contract B to Company
C. Company B transfers the entire cash sur-
render value of Contract B directly to Com-
pany C. Company C includes the transferred
cash surrender value of Contract B in Con-
tract C. A will not receive any of the cash
surrender value of Contract B that is trans-
ferred to Company C and deposited into
Contract C. No other consideration will be
paid by A in this transaction. The terms of
Contract C are unchanged by this transac-
tion, and Contract B terminates.

### LAW AND ANALYSIS

Section 1035(a)(3) provides that no gain
or loss shall be recognized on the exchange
of an annuity contract for an annuity con-
tract. Section 1.1035-1 of the Income Tax
Regulations provides that the exchange,

without recognition of gain or loss, of an
annuity contract for another annuity con-
tract under § 1035(a)(3) is limited to cases
where the same person or persons are the
obligee or obligees under the contract re-
ceived in the exchange as under the origi-
nal contract.

The legislative history of § 1035 states
that exchange treatment is appropriate for
"individuals who have merely exchanged
one insurance policy for another better
suited to their needs and who have not ac-
tually realized gain." H.R. Rep. No. 1337,
83d Cong., 2d Sess. 81 (1954).

Section 1035(d)(2) cross-references
§ 1031 for the rules to determine the ba-
sis of property acquired in a § 1035 ex-
change. Section 1031(d) provides that
property acquired in a § 1035 exchange has
the same basis as that of the property ex-
changed, decreased by the amount of any
money received by the taxpayer and in-
creased by any gain (or decreased by any
loss) recognized by the taxpayer on the ex-
change.

Section 1.1031(d)-1 provides, in part,
that in a § 1035 exchange the basis of the
property acquired is the same as the basis
of the property transferred by the taxpayer
with proper adjustments to the date of the
exchange.

Section 72 governs the federal tax treat-
ment of distributions from an annuity con-
tract. For purposes of determining income,
gain, or loss from an annuity contract, § 72
contains two special definitions of invest-
ment in the contract. When amounts re-
ceived are not annuity payments, § 72(e)(6)
defines the investment in the contract. For
purposes of § 72(b), which applies to an-
nuity payments, § 72(c)(1) defines the in-
vestment in the contract in a similar, but not
identical, manner.

After completion of the transaction, A
owns only Contract C, which has been in-
creased in value to reflect the cash surren-
der value transferred into it from Contract
B. A had no access to the cash surrender
value transferred in the exchange. There-
fore, this transaction is treated as an ex-
change that is tax-free under § 1035.

As a result of the application of
§ 1035(d), A's basis in Contract B is in-
cluded in A's basis in Contract C immedi-
ately after the exchange, and under
§ 72(c)(1) and § 72(e)(6), A's investment

in Contract B is included in A's invest-
ment in Contract C immediately after the
exchange.

## HOLDINGS

(1) The assignment by A of Con-
tract B to Company C for consolidation
with pre-existing Contract C is a tax-free
exchange under § 1035.

(2) After the assignment, pursu-
ant to § 1035, A's basis in Contract C im-
mediately after the exchange equals the sum
of A's basis in Contract B and A's basis in
Contract C immediately prior to the ex-
change.

(3) After the assignment, A's in-
vestment in Contract C under § 72 equals
the sum of A's investment in Contract B and
A's investment in Contract C immediately
prior to the exchange.

## DRAFTING INFORMATION

The principal author of this revenue rul-
ing is Ann H. Logan of the Office of As-
sociate Chief Counsel (Financial Institutions
and Products). For further information re-
garding this revenue ruling, contact her at
(202) 622-3970 (not a toll-free call).

### Section 1092 .- Straddles

26 CFR 1.1092(c)-1: Qualified covered call op-
tions.

(Also § 263; 1.1092(c)-2; 1.1092(c)-3;
1.1092(c)-4.)

Effect of collars on qualified covered
calls. Guidance is provided under section
1092 of the Code regarding the effect of
collars upon qualified covered call op-
tions.

### Rev. Rul. 2002-66

ISSUE

If the grantor of a qualified covered call
option holds a put option on the same un-
derlying equity, is the straddle consisting of
the underlying equity and the written call
option part of a larger straddle and there-
fore not excluded from straddle treatment
by § 1092(c)(4)(A) of the Internal Rev-
enue Code?

In each of the following situations, as-
sume that:

1\) at the time the call option is writ-
ten and at the time the put option is ac-
quired, there is an inverse relationship
between the value of the underlying eq-
uity and the value of each option posi-
tion;

2\) as a result of the magnitude of the in-
verse relationships, each option position
substantially diminishes the risk arising from
holding the equity;

3\) The acquisition of the put option sub-
stantially diminishes the risk of loss with
respect to the combined position consist-
ing of the equity and the qualified cov-
ered call option on that equity; and

4\) the call option is a qualified cov-
ered call option under § 1092(c)(4)(B).

Situation 1. On August 1, 2002, A pur-
chases 100 shares of Corporation X stock
for $100 per share, writes a 12-month call
option on 100 shares of X stock with a
strike price of $110, and purchases a 12-
month put option on 100 shares of X stock
with a strike price of $100.

Situation 2. On September 3, 2002, B
purchases 100 shares of Corporation Y stock
for $102 per share. On September 6, 2002,
when the fair market value of Y stock is
$100, B writes a 12-month call option for
100 shares of Y stock with a strike price of
$110 and purchases a 12-month put op-
tion on 100 shares of Y stock with a strike
price of $100.

Situation 3. On October 1, 2002, C pur-
chases 100 shares of Corporation Z stock
for $102 per share. On October 3, 2002,
when the fair market value of Z stock is
$100, C writes a 12-month call option on
100 shares of Z stock with a strike price of
$110. On December 2, 2002, when the fair
market value of the Z stock remains $100,
C purchases a 12-month put option on 100
shares of Z stock with a strike price of
$100.

### LAW AND ANALYSIS

Section 1092(a) limits the recognition of
losses on one or more positions in a straddle
to the amount by which the losses exceed
the unrecognized gain in any offsetting po-
sitions in that straddle. Section 1092(c) de-
fines a straddle as offsetting positions with
respect to personal property, and
§ 1092(d)(3) treats stock as personal prop-

erty if the stock is a position in the straddle
and an option on that stock or on substan-
tially identical stock or securities is an off-
setting position in that straddle.

Section 1092(c)(4)(A) provides that a
straddle will not be treated as a straddle for
purposes of §§ 1092 or 263(g) if:

(i) all of the offsetting positions mak-
ing up any straddle consist of one or more
qualified covered call options and the stock
to be purchased from the taxpayer under
such options, and

(ii) such straddle is not part of a larger
straddle. The two clauses of § 1092(c)(4)(A)
work together to delineate the scope of the
exemption from straddle treatment pro-
vided by § 1092(c)(4). Clause (i) requires
that, in order to obtain this exemption with
respect to a given straddle, the straddle must
consist only of one or more qualified cov-
ered call options and the stock to be pur-
chased from the taxpayer under the options.
Even if this requirement is satisfied, how-
ever, clause (ii) precludes the exemption
from applying if the taxpayer holds at least
one other position (i.e., a position other than
qualified covered call options and the stock
to be purchased thereunder) that, when con-
sidered together with the stock and quali-
fied covered call options described in clause
(i), creates a larger straddle.

Neither the statutory language nor the
legislative history of § 1092(c)(4) defines
the term "part of a larger straddle." Sec-
tion 1092(a)(2)(B)(iii) uses the same phrase
in the definition of an identified straddle but
does not define the term "larger straddle."
The legislative history to § 1092(a)(2)(B)(iii)
also does not define the term but does state
that "[i]n addition, an identified straddle
cannot constitute part of a larger straddle
(for example, a butterfly)." S. Rep. No. 144,
97th Cong., 1st Sess. 148 (1981), 1981-2
C.B. 412, 471. An example of a "butter-
fly" is a commodity straddle consisting of
a 5 unit short position expiring in May
2002, a 10 unit long position expiring in
June 2002, and a 5 unit short position ex-
piring in July 2002. The relationship among
the three positions in a butterfly is ex-
plained in Leslie v. Commissioner, T.C.
Memo 1996-86, aff'd, 146 F.3d 643 (9th
Cir. 1998), cert. denied, 525 U.S. 1071
(1999):

The center position or body of a but-
terfly spread is twice as large as either
wing, and the time periods for the de-
livery of the commodity from the first

wing to the body and from the body to
the second wing are equal. Essentially,
a butterfly spread creates two spreads,
one bullish and one bearish. Thus, a but-
terfly spread presents less chance of ei-
ther an adverse or a favorable spread
movement and is, therefore, less likely
to result in a different loss or gain than
an ordinary straddle.

The 1981 legislative history to § 1092(a)(2)
(B)(iii), while not directly applicable to
§ 1092(c)(4), supports the treatment of a
qualified covered call option as being "part
of a larger straddle" if the taxpayer holds
one or more additional positions that sub-
stantially diminish the risk of holding the
equity by itself and the risk of the combi-
nation of holding the equity and writing the
qualified covered call option.

The legislative history of the qualified
covered call option exception to § 1092
straddle treatment does not clarify the mean-
ing of the phrase "larger straddle" but does
discuss considerations underlying the de-
cision to create the exemption. The re-
port of the House Committee on Ways and
Means contains this explanation:

One widely used investment strategy that
would be affected by the extension of the
straddle rules to stock options and stock
involves writing call options on stock
owned by the taxpayer. The commit-
tee believes that it may be appropriate
to exempt these transactions where they
are undertaken primarily to enhance the
taxpayer's investment return on the stock
and not to reduce the taxpayer's risk of
loss on the stock.

H. R. Rep. No. 432, 98th Cong., 2d Sess.
1266 (1984).

In the three situations described above,
the presence of a purchased put substan-
tially reduces the taxpayer's risk of loss with
respect to the stock, and also reduces any
potential for enhancing the taxpayer's in-
vestment return through premium income.
In each of the three situations, the put op-
tion protects against a decrease in the value
of the stock below the exercise price of the
put option and also reduces the impact of
changes in the value of the stock through
the inverse relationship between the value
of the stock and the value of the put op-
tion. Both factors substantially diminish the
risk of loss with respect to the holding of
the stock by itself and the risk of loss with

respect to the combination of the stock and
the written qualified covered call option. In
addition, when the owner of the stock ac-
quires the put, the amount of the premium
received from the call option is offset, in
whole or in part, by the amount of the pre-
mium paid for the put option, thus reduc-
ing any potential enhancement of investment
return on the stock resulting from the re-
ceipt of the call option premium. In ef-
fect, when the writer of the call option
purchases the put, the writer gives up po-
tential enhancement of return on invest-
ment to acquire additional risk protection.

Accordingly, in each of the three situ-
ations described above, the presence of the
purchased put causes the stock and the
qualified covered call option to constitute
part of a larger straddle within the mean-
ing of § 1092(c)(4)(A).

#### HOLDINGS

Situation 1. All of the positions in X
stock are treated as part of a larger straddle.
Section 1092(c)(4) does not apply to any
of the positions in X stock.

Situation 2. All of the positions in Y
stock are part of a larger straddle begin-
ning on September 6, 2002. Section
1092(c)(4) does not apply to any of the po-
sitions in Y stock beginning on that date.

Situation 3. Prior to December 2, 2002,
the combination of the qualified covered call
option and the underlying shares are not
treated as a straddle for purposes of §§ 1092
and 263(g). However, beginning on De-
cember 2, 2002, all of the positions in Z
stock are part of a larger straddle, and
§ 1092(c)(4), therefore, does not apply to
any of the positions in Z stock beginning
on that date.

### DRAFTING INFORMATION

The principal author of this revenue rul-
ing is Pamela Lew of the Office of Asso-
ciate Chief Counsel (Financial Institutions
and Products). For further information re-
garding this revenue ruling, contact
Pamela Lew at (202) 622-3950 (not a toll-
free call).

# Section 1274 .- Determina- tion 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 382, 1274, 1288, and other sec-
tions of the Code, tables set forth the rates
for November 2002.

# Rev. Rul. 2002-74

This revenue ruling provides various pre-
scribed rates for federal income tax pur-
poses for November 2002 (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 appropriate per-
centages 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 determining the present
value of annuity, an interest for life or for
a term of years, or a remainder or a rever-
sionary interest for purposes of section
7520.

REV. RUL. 2002-74 TABLE 1 Applicable Federal Rates (AFR) for November 2002 Period for Compounding

Annual

Semiannual

Quarterly

Monthly

Short-Term

AFR

1.82%

1.81%

1.80%

110% AFR

2.00%

1.99%

1.98%

120% AFR

2.18%

2.17%

2.16%

130% AFR

2.36%

2.35%

2.34%

Mid-Term

AFR

3.06%

3.04%

3.03%

3.02%

110% AFR

3.37%

3.34%

3.33%

3.32%

120% AFR

3.68%

3.65%

3.63%

3.62%

130% AFR

3.99%

3.95%

3.93%

3.92%

150% AFR

4.61%

4.56%

4.53%

4.52%

175% AFR

5.39%

5.32%

5.29%

5.26%

Long-Term

AFR

4.60%

4.55%

4.52%

4.51%

110% AFR

5.07%

5.01%

4.98%

4.96%

120% AFR

5.53%

5.46%

5.42%

5.40%

130% AFR

6.01%

5.92%

5.88%

5.85%

REV. RUL. 2002-74 TABLE 2 Adjusted AFR for November 2002 Period for Compounding

Annual

Semiannual

Quarterly

Monthly

Short-term adjusted AFR

1.64%

1.63%

1.62%

Mid-term adjusted AFR

2.82%

2.80%

2.79%

2.78%

Long-term adjusted AFR

4.31%

4.26%

4.24%

4.22%

REV. RUL. 2002-74 TABLE 3
Rates Under Section 382 for November 2002

## Adjusted federal long-term rate for the current month 4.31%

Long-term tax-exempt rate for ownership changes during the current month (the highest of the
adjusted federal long-term rates for the current month and the prior two months.)

4.63%

# REV. RUL. 2002-74 TABLE 4 Appropriate Percentages Under Section 42(b)(2) for November 2002

Appropriate percentage for the 70% present value low-income housing credit

7.89%

Appropriate percentage for the 30% present value low-income housing credit

3.38%

# REV. RUL. 2002-74 TABLE 5 Rate Under Section 7520 for November 2002

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 interest

3.6%

## 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 November 2002. See Rev. Rul. 2002-74, page 814.

## Section 6011 .- General Re- quirement of Return, Statement, or List

26 CFR 1.6011-4T: Requirement of statement dis-
closing participation in certain transactions by
taxpayers (temporary).

### T.D. 9017

DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 1, 20, 25, 31,
53, 54, 56, and 301

## Tax Shelter Disclosure Statements

AGENCY: Internal Revenue Service
(IRS), Treasury.

ACTION: Temporary regulations.

SUMMARY: These temporary regulations
modify the rules relating to the filing by cer-
tain taxpayers of a disclosure statement with
their Federal tax returns under section
6011(a) and include conforming changes to
the rules relating to the registration of con-
fidential corporate tax shelters under sec-
tion 6111(d). These regulations affect
taxpayers participating in reportable trans-
actions and persons responsible for regis-
tering confidential corporate tax shelters.
The text of these temporary regulations also
serves as the text of the proposed regula-
tions set forth in the notice of proposed rule-
making on this subject on page 832 in
this issue of the Bulletin.

DATES: Effective Date: These tempo-
rary regulations are effective January 1,
2003.

Applicability date: For dates of appli-
cability, see § 1.6011-4T(h), § 20.6011-
4T(b), § 25.6011-4T(b), §31.6011-4T(b),
§ 53.6011-4T(b), § 54.6011-4T(b),
§ 56.6011-4T(b), and § 301.6111-2T(h).

FOR FURTHER INFORMATION
CONTACT: Tara P. Volungis, Danielle M.
Grimm, or Charlotte Chyr, 202-622-3070
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

### Paperwork Reduction Act

These regulations are being issued with-
out prior notice and public procedure pur-
suant to the Administrative Procedure Act
(5 U.S.C. 553). For this reason, the col-
lections of information contained in these
regulations have been reviewed and, pend-
ing receipt and evaluation of public com-
ments, approved by the Office of
Management and Budget under control
numbers 1545-1685 and 1545-1687. Re-
sponses to these collections of informa-
tion are mandatory.

An agency may not conduct or spon-
sor, and a person is not required to re-
spond to, a collection of information unless
the collection of information displays a valid
OMB control number.

For further information concerning these
collections of information, and where to
submit comments on the collections of in-
formation and the accuracy of the esti-
mated burden, and suggestions for reducing
this burden, please refer to the preamble to
the cross-referencing notice of proposed
rulemaking published in the Proposed Rules
section of this issue of the Federal Reg-
ister.

Books and records relating to a collec-
tion of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required by
26 U.S.C. 6103.

### Background

This document amends 26 CFR parts 1
and 301 to provide modified rules relat-
ing to the disclosure of reportable transac-
tions by certain taxpayers on their Federal
income tax returns under section 6011 and

includes conforming changes to the rules
regarding the registration of confidential cor-
porate tax shelters under section 6111. This
document also amends 26 CFR parts 20, 25,
31, 53, 54, and 56 to provide rules for pur-
poses of estate, gift, employment, and pen-
sion and exempt organizations excise taxes
requiring the disclosure of listed transac-
tions by certain taxpayers on their Fed-
eral tax returns under section 6011.

On February 28, 2000, the IRS issued
temporary and proposed regulations re-
garding sections 6011 and 6111 (T.D. 8877,
2000-1 C.B. 747; REG-103735-00, 2000-1
C.B. 770; T.D. 8876, 2000-1 C.B. 753;
REG-110311-98, 2000-1 C.B. 767) (the
February 2000 regulations). The Febru-
ary 2000 regulations were published in the
Federal Register (65 FR 11205, 65 FR
11269; 65 FR 11215, 65 FR 11272) on
March 2, 2000. On August 11, 2000, the
IRS issued temporary and proposed regu-
lations modifying the rules under sections
6011 and 6111 (T.D. 8896, 2000-2 C.B.
249; REG-103735-00, REG-110311-98,
2000-2 C.B. 258) (the August 2000 regu-
lations). The August 2000 regulations were
published in the Federal Register (65 FR
49909, 65 FR 49955) on August 16, 2000.
On August 2, 2001, the IRS issued tem-
porary and proposed regulations modify-
ing the rules under sections 6011 and 6111
(T.D. 8961, 2001-2 C.B. 194; REG-
103735-00, REG-110311-98, 2001-2 C.B.
204) (the August 2001 regulations). The Au-
gust 2001 regulations were published in the
Federal Register (66 FR 41133, 66 FR
41169) on August 7, 2001. On June 14,
2002, the IRS issued temporary and pro-
posed regulations modifying the rules un-
der sections 6011 and 6111 (T.D. 9000,
2002-28 I.R.B. 87; REG-103735-00,
REG-110311-98, 2002-28 I.R.B. 109) (the
June 2002 regulations). The June 2002 regu-
lations were published in the Federal Reg-
ister (67 FR 41324, 67 FR 41362) on June
18, 2002.

The rules under sections 6011, 6111, and
6112 for disclosure, registration, and list
maintenance are intended to provide the IRS
and Treasury with information needed to
evaluate potentially abusive transactions.
The IRS and Treasury have considered and
evaluated compliance with those rules, and
have determined that certain additional
changes to the current temporary and pro-
posed regulations are necessary to improve
compliance and to carry out the purposes

of sections 6011, 6111, and 6112. On March
20, 2002, Treasury released its Plan to Com-
bat Abusive Tax Avoidance Transactions
(PO-2018), which describes changes to the
rules under sections 6011, 6111, and 6112
that will establish a more effective disclo-
sure regime and improve compliance. See
http://www.treas.gov/press/releases/po
2018.htm.

The amended temporary regulations un-
der section 6011 revise the categories of
transactions that must be disclosed on re-
turns. Certain conforming changes are be-
ing made to the temporary regulations under
section 6111. Concurrent with these
amended temporary regulations under sec-
tions 6011 and 6111, the IRS and Trea-
sury are publishing elsewhere in this issue
of the Bulletin temporary regulations un-
der section 6112. The amendments to the
temporary regulations under section 6112
generally require organizers and sellers (ma-
terial advisors) to maintain lists of per-
sons for transactions required to be
registered under section 6111 and for re-
portable transactions subject to disclosure
under § 1.6011-4T, 20.6011-4T, 25.6011-
4T, 31.6011-4T, 53.6011-4T, 54.6011-
4T, or 56.6011-4T.

Pending legislation would modify sec-
tion 6111 to require registration of trans-
actions that are required to be disclosed
under section 6011. The IRS and Trea-
sury intend to revise the regulations un-
der section 6111 when such legislation is
enacted.

## Explanation of Provisions

### 1. In General

Section 1.6011-4T generally provides
that certain taxpayers must disclose their di-
rect or indirect participation in reportable
transactions when they file their Federal in-
come tax returns. Under the current tem-
porary regulations, in the case of a
partnership or an S corporation that par-
ticipates in a listed transaction, that part-
nership or S corporation must disclose its
participation and the partners and share-
holders also must disclose their participa-
tion in the listed transaction. A reportable
transaction is either: (1) a listed transac-
tion, or (2) a transaction that meets two of
five characteristics, satisfies a projected tax
effect test, and does not satisfy any of the
exceptions provided in the regulations. The
IRS and Treasury have found that taxpay-
ers are interpreting the five characteris-

tics in an overly narrow manner and are
interpreting the exceptions in an overly
broad manner.

These new temporary regulations pro-
vide more objective rules. The regulations
redefine a reportable transaction as a trans-
action that satisfies any one of six catego-
ries of transactions. The regulations also
eliminate the projected tax effect test and
the general exceptions. The six categories
of reportable transactions are: listed trans-
actions, confidential transactions, transac-
tions with contractual protection, loss
transactions, transactions with a signifi-
cant book-tax difference, and transactions
involving a brief asset holding period. Fur-
ther, the new temporary regulations re-
quire disclosure of participation in reportable
transactions by all direct and indirect par-
ticipants. Disclosure must be made on Form
8886, "Reportable Transaction Disclo-
sure Statement", which will be available
when these regulations become effective.

A provision has been added to
§ 1.6011-4T allowing taxpayers to request
a ruling as to whether a transaction must
be disclosed under § 1.6011-4T. A trans-
action will not be considered a reportable
transaction, or will be excluded from any
individual category of reportable transac-
tion, if the Commissioner makes a deter-
mination, by published guidance, individual
ruling under § 1.6011-4T, or otherwise, that
the transaction is not subject to the disclo-
sure requirements of § 1.6011-4T. While
some exceptions to the disclosure require-
ments are included in these regulations, the
IRS and Treasury specifically request com-
ments on particular types of transactions that
should be either treated as not subject to the
disclosure requirements of § 1.6011-4T or
excluded from an individual category of re-
portable transaction.

The major changes to the categories of
reportable transactions are discussed be-
low.

### 2. Confidential Transactions

A confidential transaction is a transac-
tion that is offered under conditions of con-
fidentiality, unless the presumption in the
regulations regarding written authoriza-
tion to disclose the structure and tax as-
pects of the transaction is satisfied. These
regulations clarify, however, that the pre-
sumption is available only in cases in which

the written authorization to disclose is ef-
fective without limitation of any kind from
the commencement of discussions.

### 3. Loss Transactions

A loss transaction is any transaction re-
sulting in, or that is reasonably expected to
result in, a loss under section 165 of at least:
$10 million in any single taxable year or
$20 million in any combination of tax-
able years for corporations; $5 million in
any single taxable year or $10 million in
any combination of taxable years for part-
nerships or S corporations, whether or not
any losses flow through to one or more
partners or shareholders; $2 million in any
single taxable year or $4 million in any
combination of taxable years for individu-
als or trusts, whether or not any losses flow
through to one or more beneficiaries; and
$50,000 in any single taxable year for in-
dividuals or trusts, whether or not the loss
flows through from an S corporation or
partnership, if the loss arises with respect
to a section 988 transaction (as defined in
section 988(c)(1) relating to foreign cur-
rency transactions). In determining the mon-
etary thresholds, the amount of a section
165 loss is adjusted for any salvage value
and for any insurance or other compensa-
tion received. However, a section 165 loss
does not take into account offsetting gains
or other income or limitations.

A section 165 loss includes an amount
deductible by virtue of a provision that
treats a transaction as a sale or other dis-
position, or otherwise results in a deduc-
tion under section 165. A section 165 loss
includes, for example, a loss resulting from
a sale or exchange of a partnership inter-
est under section 741 and a loss resulting
from a section 988 transaction. Under these
regulations, casualty losses and losses re-
sulting from involuntary conversions are not
subject to the disclosure requirements un-
der § 1.6011-4T.

The IRS and Treasury also are consid-
ering adding two other exceptions. One ex-
ception would be for losses resulting from
a sale of securities on an established secu-
rities market within the meaning of
§ 1.7701-1(b), but only if the amount of ba-
sis used in computing the amount of the
loss is equal to the amount of cash paid by
the taxpayer for the securities. The other po-
tential exception would be for losses

claimed under section 475(a) or section
1296(a). The IRS and Treasury specifi-
cally request comments on whether these
or other exceptions should be added to the
regulations.

#### 4. Transactions with a Significant Book-Tax Difference

A transaction with a significant book-
tax difference is a transaction where the
treatment for Federal income tax purposes
of any item or items from the transaction
differs, or is reasonably expected to dif-
fer, by more than $10 million on a gross
basis from the treatment of the item or items
for book purposes in any taxable year.
When making this determination, offset-
ting items are not netted for either tax or
book purposes. Book income is determined
by applying U.S. generally accepted ac-
counting principles (GAAP) for world-
wide income.

This category of transaction generally ap-
plies to taxpayers that are reporting com-
panies under the Securities Exchange Act
of 1934 (15 USCS 78a) (and related busi-
ness entities) and to business entities that
have $100 million or more in gross as-
sets. Specific rules are provided for tax-
payers that file consolidated returns, foreign
persons, disregarded entities, partnerships,
and shareholders of certain foreign corpo-
rations. For example, where a taxpayer is
considered to participate in a transaction in-
directly through a partnership or foreign cor-
poration, items from the transaction that
otherwise may be considered items of the
partnership or foreign corporation (for tax
or book purposes) are treated as items of
the taxpayer (to the extent of the taxpay-
er's allocable share). The mere fact that an
item may be reported by different per-
sons for tax and book purposes (e.g., on the
taxpayer's U.S. tax return and on the en-
tity's books and records), without more, is
not considered a significant book-tax dif-
ference in such cases. Instead, the tax-
payer must test such items for a book-tax
difference in the same manner as items from
a transaction in which the taxpayer partici-
pated directly.

The regulations provide various excep-
tions for this category of transaction. The
IRS and Treasury specifically request com-
ments on the exceptions and whether other
exceptions should be provided.

### 5. Transactions Involving a Brief Asset Holding Period

A transaction involving a brief asset
holding period is a transaction resulting in,
or that is reasonably expected to result in,
a tax credit exceeding $250,000 (includ-
ing a foreign tax credit) if the underlying
asset giving rise to the credit is held by the
taxpayer for less than 45 days. For pur-
poses of determining the holding period, the
principles in section 246(c)(3) and (c)(4) ap-
ply.

6\. Application of Section 6011 to Estate,
Gift, Employment, and Pension and
Exempt Organizations Excise Taxes

A listed transaction that involves Fed-
eral estate, gift, employment, or pension or
exempt organizations excise taxes must be
disclosed in accordance with published
guidance identifying such transaction as a
listed transaction.

## Effective Date

These regulations apply to transactions
entered into on or after January 1, 2003.

## 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 assessment
is not required. It also has been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does not
apply to these regulations. Because no no-
tice of proposed rulemaking is required, the
provisions of the Regulatory Flexibility Act
(5 U.S.C. chapter 6) do not apply. Pursu-
ant to section 7805(f) of the Internal Rev-
enue Code, these regulations will be
submitted to the Chief Counsel for Advo-
cacy of the Small Business Administra-
tion for comment on their impact on small
business.

### Drafting Information

The principal authors of these regula-
tions are Tara P. Volungis, Danielle M.
Grimm, and Charlotte Chyr, Office of the
Associate Chief Counsel (Passthroughs and
Special Industries). However, other per-
sonnel from the IRS and Treasury Depart-
ment participated in their development.

# * * * * *

## Adoption of Amendments to the Regulations

Accordingly, 26 CFR parts 1, 20, 25, 31,
53, 54, 56, 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 revised to
read as follows:

§ 1.6011-4T Requirement of statement
disclosing participation in certain
transactions by taxpayers (temporary).

(a) In general. Every taxpayer that has
participated, 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 (e) of this section a disclosure
statement in the form prescribed by para-
graph (d) of this section. The fact that a
transaction is a reportable transaction shall
not affect the legal determination of whether
the taxpayer's treatment of the transac-
tion is proper.

(b) Reportable transactions-(1) In gen-
eral. A reportable transaction is a transac-
tion described in any of the paragraphs
(b)(2) through (7) of this section. The term
transaction includes all of the factual ele-
ments relevant to the expected tax treat-
ment of any investment, entity, plan, or
arrangement, and includes any series of
steps carried out as part of a plan, and any
series of substantially similar transactions
entered into in the same taxable year. There
are six categories of reportable transactions:
listed transactions, confidential transac-
tions, transactions with contractual protec-
tion, loss transactions, transactions with a
significant book-tax difference, and trans-
actions involving a brief asset holding pe-
riod.

(2) Listed transactions. A listed trans-
action is a transaction that is the same as
or substantially similar to one of the types
of transactions that the Internal Revenue
Service has determined to be a tax avoid-
ance transaction and identified by notice,
regulation, or other form of published guid-
ance as a listed transaction.

(3) Confidential transactions-(i) In gen-
eral. A confidential transaction is a trans-

action that is offered under conditions of
confidentiality. All the facts and circum-
stances relating to the transaction will be
considered when determining whether a
transaction is offered under conditions of
confidentiality, including the prior con-
duct of the parties. If a taxpayer's disclo-
sure of the structure or tax aspects of the
transaction is limited in any way by an ex-
press or implied understanding or agree-
ment with or for the benefit of any person
who makes or provides a statement, oral or
written, (or for whose benefit a statement
is made or provided) as to the potential tax
consequences that may result from the trans-
action, a transaction is considered offered
under conditions of confidentiality, whether
or not such understanding or agreement is
legally binding. A transaction also will be
considered offered under conditions of con-
fidentiality if the taxpayer knows or has rea-
son to know that the taxpayer's use or
disclosure of information relating to the
structure or tax aspects of the transaction
is limited in any other manner (such as
where the transaction is claimed to be pro-
prietary or exclusive) for the benefit of any
person, other than the taxpayer, who makes
or provides a statement, oral or written, (or
for whose benefit a statement is made or
provided) as to the potential tax conse-
quences that may result from the transac-
tion.

(ii) Privilege. A taxpayer's privilege to
maintain the confidentiality of a commu-
nication relating to a reportable transac-
tion in which the taxpayer might participate
or has agreed to participate, including a tax-
payer's confidential communication with the
taxpayer's attorney, is not itself a condi-
tion of confidentiality.

(iii) Securities law exception. A trans-
action is not considered offered under con-
ditions 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
otherwise limited.

(iv) Presumption. Unless the facts and
circumstances indicate otherwise, a trans-
action is not considered offered under con-
ditions of confidentiality if every person
who makes or provides a statement, oral or
written, (or for whose benefit a statement
is made or provided) as to the potential tax
consequences that may result from the trans-
action, provides express written authoriza-

tion to the taxpayer permitting the taxpayer
(and each employee, representative, or other
agent of such taxpayer) to disclose to any
and all persons, without limitation of any
kind, the structure and tax aspects of the
transaction, and all materials of any kind
(including opinions or other tax analyses)
that are provided to the taxpayer related to
such structure and tax aspects. This pre-
sumption is available only in cases in which
the written authorization to disclose is ef-
fective without limitation of any kind from
the commencement of discussions.

(4) Transactions with contractual pro-
tection. A transaction with contractual pro-
tection is a transaction for which the
taxpayer has obtained or been provided with
contractual protection against the possibil-
ity that part or all of the intended tax con-
sequences from the transaction will not be
sustained, including, but not limited to, re-
cission rights, the right to a full or partial
refund of fees paid to any person, fees that
are contingent on the taxpayer's realiza-
tion of tax benefits from the transaction, in-
surance protection with respect to the tax
treatment of the transaction, or a tax in-
demnity or similar agreement (other than
a customary indemnity provided by a prin-
cipal to the transaction that did not partici-
pate in the promotion or offering of the
transaction to the taxpayer). Notwithstand-
ing the foregoing, a transaction will not be
considered to have contractual protection
solely because the issuer of a debt instru-
ment agrees to pay additional interest to
compensate the holder of such debt instru-
ment for withholding tax imposed on in-
terest paid on the debt instrument, or
because the requirement to pay such addi-
tional interest entitles the issuer to redeem
the debt instrument.

(5) Loss transactions-(i) In general. A
loss transaction is any transaction result-
ing in, or that is reasonably expected to re-
sult in, a taxpayer claiming a loss under
section 165 of at least-

(A) $10 million in any single taxable
year or $20 million in any combination of
taxable years for corporations;

(B) $5 million in any single taxable year
or $10 million in any combination of tax-
able years for partnerships or S corpora-
tions, whether or not any losses flow
through to one or more partners or share-
holders;

able years for individuals or trusts, whether
or not any losses flow through to one or
more beneficiaries; or

(D) $50,000 in any single taxable year
for individuals or trusts, whether or not the
loss flows through from an S corporation
or partnership, if the loss arises with re-
spect to a section 988 transaction (as de-
fined in section 988(c)(1) relating to foreign
currency transactions).

(ii) Section 165 loss. (A) For purposes
of this section, in determining the thresh-
olds in paragraph (b)(5)(i) of this section,
the amount of a section 165 loss is ad-
justed for any salvage value and for any in-
surance or other compensation received. See
§ 1.165-1(c)(4). However, a section 165 loss
does not take into account offsetting gains
or other income or limitations. For ex-
ample, a section 165 loss does not take into
account the limitation in section 165(d)(re-
lating to wagering losses) or the limita-
tions in sections 165(f), 1211, and 1212
(relating to capital losses).

(B) For purposes of this section, a sec-
tion 165 loss includes an amount deduct-
ible by virtue of a provision that treats a
transaction as a sale or other disposition, or
otherwise results in a deduction under sec-
tion 165. A section 165 loss includes, for
example, a loss resulting from a sale or ex-
change of a partnership interest under sec-
tion 741 and a loss resulting from a section
988 transaction.

(iii) Exceptions. Transactions that re-
sult in the following losses under section
165 are not loss transactions under this para-
graph (b)(5)-

(A) A loss from fire, storm, shipwreck,
or other casualty, or from theft, as defined
in section 165(c)(3); or

(B) A loss from a compulsory or invol-
untary conversion as described in section
1231(a)(3)(A)(ii) and section 1231(a)(4)(B).

(6) Transactions with a significant book-
tax difference-(i) In general. A transac-
tion with a significant book-tax difference
is a transaction where the treatment for Fed-
eral income tax purposes of any item or
items from the transaction differs, or is rea-
sonably expected to differ, by more than
$10 million on a gross basis from the treat-
ment of the item or items for book pur-
poses in any taxable year. For purposes of
this determination, offsetting items shall not
be netted for either tax or book purposes.
For purposes of this paragraph (b)(6), book
income is determined by applying U.S. gen-

erally accepted accounting principles
(GAAP) for worldwide income. Adjust-
ments to any reserve for taxes are disre-
garded for purposes of determining the
book-tax difference.

(ii) Applicability-(A) In general. This
paragraph (b)(6) applies only to-

(1) Taxpayers that are reporting com-
panies under the Securities Exchange Act
of 1934 (15 USCS 78a) and related busi-
ness entities (as described in section 267(b)
or 707(b)); or

(2) Business entities that have $100 mil-
lion or more in gross assets (the assets of
all related business entities (as defined in
section 267(b) or 707(b)) must be aggre-
gated).

(B) Consolidated returns. For purposes
of this paragraph (b)(6), in the case of tax-
payers that are members of a group of af-
filiated corporations filing a consolidated
return, transactions solely between or among
members of the group will be disregarded.
Moreover, where two or more members of
the group participate in a transaction that
is not solely between or among members
of the group, items shall be aggregated (as
if such members were a single taxpayer),
but any offsetting items shall not be net-
ted.

(C) Foreign persons. In the case of a
taxpayer that is a foreign person (other than
a foreign corporation that is treated as a do-
mestic corporation for Federal tax pur-
poses under section 269B, 953(d), 1504(d)
or any other provision of the Internal Rev-
enue Code), only assets that are U.S. as-
sets under § 1.884-1(d) shall be taken into
account for purposes of paragraph
(b)(6)(ii)(A)(2) of this section, and only
transactions that give rise to income that is
effectively connected with the conduct of
a trade or business within the United States
(or to losses, expenses, or deductions al-
located or apportioned to such income) shall
be taken into account for purposes of this
paragraph (b)(6).

(D) Owners of disregarded entities. In
the case of an eligible entity that is disre-
garded as an entity separate from its owner
for Federal tax purposes, items of income,
loss, expense, or deduction that otherwise
are considered items of the entity for book
purposes shall be treated as items of its
owner, and items arising from transac-
tions between the entity and its owner shall
be disregarded, for purposes of this para-
graph (b)(6).

(E) Partners of partnerships. In the case
of a taxpayer that is a member or a part-
ner of an entity that is treated as a part-
nership for Federal tax purposes, items of
income, loss, expense, or deduction that are
allocable to the taxpayer for Federal tax pur-
poses but otherwise are considered items of
the entity for book purposes shall be treated
as items of the taxpayer, for purposes of this
paragraph (b)(6).

(F) Shareholders of certain foreign cor-
porations. To the extent that a taxpayer is
considered under paragraph (c)(3)(ii) of this
section to have indirectly participated in a
transaction to which a foreign corpora-
tion is a direct party, all items from the
transaction that otherwise are considered
items of the foreign corporation for Fed-
eral tax purposes or book purposes shall be
considered items of the taxpayer for pur-
poses of this paragraph (b)(6).

(iii) Exceptions. Items listed in para-
graphs (b)(6)(iii)(A) through (M) of this sec-
tion are not items for which reporting is
required under this paragraph (b)(6).

(A) Items to the extent a book loss or
expense is reported before or without a loss
or deduction for Federal income tax pur-
poses.

(B) Items to the extent income or gain
for Federal income tax purposes is reported
before or without book income or gain.

(C) Depreciation, depletion, and amor-
tization relating solely to differences in
methods, lives (for example, useful lives,
recovery periods), or conventions.

(D) Bad debts or cancellation of indebt-
edness income.

(E) Federal, state, local, and foreign
taxes.

(F) Compensation of employees and in-
dependent contractors, including stock op-
tions and pensions.

(G) Items that for Federal tax purposes
cannot be deducted or capitalized, such as
certain payments for meals and entertain-
ment, and certain fines and penalties.

(H) Charitable contributions of cash or
tangible property.

(I) Tax exempt interest, including mu-
nicipal bond interest.

(J) Dividends, including amounts treated
as dividends under section 78, distribu-
tions of previously taxed income under sec-
tions 959 and 1293, and income inclusions
under sections 551, 951, and 1293.

(K) Items resulting from transactions un-
der section 1033.

(L) Gains and losses arising under sec-
tion 475 or section 1296.

(M) Section 481 adjustments.

(7) Transactions involving a brief as-
set holding period. A transaction involv-
ing a brief asset holding period is a
transaction resulting in, or that is reason-
ably expected to result in, a tax credit ex-
ceeding $250,000 (including a foreign tax
credit) if the underlying asset giving rise to
the credit is held by the taxpayer for less
than 45 days. For purposes of determin-
ing the holding period, the principles in sec-
tion 246(c)(3) and (c)(4) apply.

(8) Exceptions-(i) In general. A trans-
action will not be considered a reportable
transaction, or will be excluded from any
individual category of reportable transac-
tion under paragraphs (b)(2) through (7) of
this section, if the Commissioner makes a
determination, by published guidance, in-
dividual ruling under paragraph (f) of this
section, or otherwise, that the transaction
is not subject to the reporting requirements
of this section.

(ii) Special rules for RICs. For pur-
poses of this section, a regulated invest-
ment company as defined in section 851 is
not required to disclose transactions de-
scribed in paragraph (b)(5) or (6) of this
section.

(1) Taxpayer. The term taxpayer means
any person described in section 7701(a)(1),
including S corporations. The term tax-
payer also includes, unless specifically pro-
vided elsewhere in this section, an affiliated
group of corporations that joins in the fil-
ing of a consolidated return under section
1501.

(2) Corporation. When used specifi-
cally in this section, the term corporation
means an entity that is required to file a re-
turn for a taxable year on any 1120 series
form, or successor form, excluding S cor-
porations.

(3) Indirect participation-(i) In gen-
eral. A taxpayer will have indirectly par-
ticipated in a reportable transaction if the
taxpayer's Federal tax liability is affected
(or in the case of a partnership or an S cor-
poration, if a partner's or shareholder's Fed-
eral tax liability is reasonably expected to
be affected) by the transaction even if the
taxpayer is not a direct party to the trans-
action (e.g., the taxpayer participates as a

partner in a partnership, as a shareholder in
an S corporation, or through a trust or a
controlled entity). Moreover, a taxpayer will
have indirectly participated in a report-
able transaction if the taxpayer knows or
has reason to know that the tax benefits
claimed from the taxpayer's transaction are
derived from a reportable transaction.

(ii) Shareholders of foreign corpora-
tions-(A) In general. A taxpayer that is a
shareholder in a foreign corporation will not
be considered to have participated indi-
rectly in a transaction to which the for-
eign corporation is a direct party merely
because the taxpayer is a shareholder in the
foreign corporation unless the taxpayer is
a reporting shareholder (as defined in para-
graph (c)(3)(ii)(B) of this section) and the
transaction either is described in any of the
paragraphs (b)(2) through (5) or in para-
graph (b)(7) of this section, or reduces or
eliminates an income inclusion that other-
wise would be required under section 551,
951, or 1293.

(B) Reporting shareholder. For pur-
poses of paragraph (c)(3)(ii)(A) of this sec-
tion, the term reporting shareholder means
a United States shareholder (as defined in
section 551(a)) in a foreign personal hold-
ing company (as defined in section 552),
a United States shareholder (as defined in
section 951(b)) in a controlled foreign cor-
poration (as defined in section 957), or a
10 percent shareholder (by vote or value)
of a qualified electing fund (as defined in
section 1295).

(iii) Example .. The following example
illustrates the provisions of paragraph
(c)(3)(i) of this section:

Example Notice 95-53, 1995-2 C.B. 334 (see
§ 601.601(d)(2) of this chapter), describes a lease strip-
ping transaction in which one party (the transferor)
assigns the right to receive future payments under a
lease of tangible property and receives consider-
ation which the transferor treats as current income. The
transferor later transfers the property subject to the
lease in a transaction intended to qualify as a substi-
tuted basis transaction, for example, a transaction de-
scribed in section 351. In return, the transferor receives
stock (with low value and high basis) from the trans-
feree corporation. The transferee corporation claims
the deductions associated with the high basis prop-
erty subject to the lease. The transferor and trans-
feree corporation have directly participated in the listed
transaction. If the transferor subsequently transfers the
high basis/low value stock to a taxpayer in another
transaction intended to qualify as a substituted basis
transaction and the taxpayer uses the stock to gener-
ate a loss, and if the taxpayer knows or has reason to
know that the tax loss claimed was derived from the
lease stripping transaction, then the taxpayer is indi-
rectly participating in a reportable transaction. Ac-

cordingly, the taxpayer must disclose the reportable
transaction and the manner of the taxpayer's indi-
rect participation in the reportable transaction under
the rules of this section.

(4) Substantially similar. The term sub-
stantially similar includes any transaction
that is expected to obtain the same or simi-
lar types of tax consequences and that is ei-
ther factually similar or based on the same
or similar tax strategy. Receipt of an opin-
ion regarding the tax consequences of the
transaction is not relevant to the determi-
nation of whether the transaction is the same
as or substantially similar to another trans-
action. Further, the term substantially simi-
lar must be broadly construed in favor of
disclosure. The following examples illus-
trate situations where a transaction is the
same as or substantially similar to a listed
transaction under paragraph (b)(2) of this
section. (Such transactions may also be re-
portable transactions under paragraphs (b)(3)
through (7) of this section.) The follow-
ing examples illustrate the provisions of this
paragraph (c)(4):

Example 1. Notice 2000-44, 2000-2 C.B. 255 (see
§ 601.601(d)(2) of this chapter), sets forth a listed trans-
action involving offsetting options transferred to a part-
nership where the taxpayer claims basis in the
partnership for the cost of the purchased options but
does not adjust basis under section 752 as a result of
the partnership's assumption of the taxpayer's obli-
gation with respect to the options. Transactions us-
ing short sales, futures, derivatives or any other type
of offsetting obligations to inflate basis in a partner-
ship interest would be the same as or substantially
similar to the transaction described in Notice 2000-
44. Moreover, use of the inflated basis in the part-
nership interest to diminish gain that would otherwise
be recognized on the transfer of a partnership asset
would also be the same as or substantially similar to
the transaction described in Notice 2000-44.

Example 2. Notice 2001-16, 2001-1 C.B. 730 (see
§ 601.601(d)(2) of this chapter), sets forth a listed trans-
action involving a seller (X) who desires to sell stock
of a corporation (T), an intermediary corporation (M),
and a buyer (Y) who desires to purchase the assets
(and not the stock) of T. M agrees to facilitate the sale
to prevent the recognition of the gain that T would oth-
erwise report. Notice 2001-16 describes M as a mem-
ber of a consolidated group that has a loss within the
group or as a party not subject to tax. Transactions uti-
lizing different intermediaries to prevent the recog-
nition of gain would be the same as or substantially
similar to the transaction described in Notice 2001-
16. An example is a transaction in which M is a cor-
poration that does not file a consolidated return but
which buys T stock, liquidates T, sells assets of T to
Y, and offsets the gain recognized on the sale of those
assets with currently generated losses.

(d) Form and content of disclosure state-
ment. The IRS will release Form 8886, "Re-
portable Transaction Disclosure Statement"
(or a successor form), for use by taxpay-
ers in accordance with this paragraph (d).

A taxpayer required to file a disclosure
statement under this section must file a
completed Form 8886 in accordance with
the instructions to the form. The form must
be attached to the appropriate tax returns
as provided in paragraph (e) of this sec-
tion. If a copy of a disclosure statement is
required to be sent to the Office of Tax
Shelter Analysis (OTSA) under paragraph
(e) of this section, it must be sent to: In-
ternal Revenue Service LM:PFTG:OTSA,
Large & Mid-Size Business Division, 1111
Constitution Ave., NW, Washington, DC
20224, or to such other address as pro-
vided by the Commissioner.

(e) Time of providing disclosure-(1) In
general. The disclosure statement for a re-
portable transaction must be attached to the
taxpayer's Federal income tax return for
each taxable year for which the taxpay-
er's Federal income tax liability is affected
by the taxpayer's participation in the trans-
action. In addition, a copy of the disclo-
sure statement must be sent to OTSA at the
same time that any disclosure statement is
first filed with the taxpayer's Federal in-
come tax return. If a reportable transac-
tion results in a loss which is carried back
to a prior year, the disclosure statement for
the reportable transaction must be attached
to the taxpayer's application for tentative
refund or amended Federal income tax re-
turn for that prior year. In the case of a tax-
payer that is a partnership or S corporation,
the disclosure statement for a reportable
transaction must be attached to the part-
nership's or S corporation's Federal in-
come tax return for each taxable year
ending with or within the taxable year of
any partner or shareholder whose income
tax liability is affected or is reasonably ex-
pected to be affected by the partnership's
or S corporation's participation in the trans-
action. If a transaction becomes a report-
able transaction (e.g., the transaction
subsequently becomes one identified in pub-
lished guidance as a listed transaction de-
scribed in paragraph (b)(2) of this section,
or there is a change in facts affecting the
expected Federal income tax effect of the
transaction such that the transaction is re-
portable under any of the paragraphs (b)(5)
through (7)) on or after the date the tax-
payer has filed the return for the first tax-
able year for which the transaction affected
the taxpayer's or a partner's or a share-
holder's Federal income tax liability, the dis-
closure statement must be filed as an

attachment to the taxpayer's Federal in-
come tax return next filed after the date the
transaction becomes a reportable transac-
tion (whether or not the transaction af-
fects the taxpayer's or any partner's or
shareholder's Federal income tax liability
for that year). The taxpayer must disclose
the transaction in the time and manner pro-
vided for under the provisions of this sec-
tion regardless of whether the taxpayer also
plans to disclose the transaction under other
published guidance, for example, Rev. Proc.
94-69, 1994-2 C.B. 804 (see
§ 601.601(d)(2) of this chapter).

(2) Example. The following example il-
lustrates the application of this paragraph
(e):

Example. In January of 2003, F, a domestic cal-
endar year corporation, enters into a transaction that
F reasonably expects will result in an $8 million sec-
tion 165 loss in a single year and a $15 million sec-
tion 165 loss over a combination of years. Assume that
the transaction is not a transaction described in any
of the paragraphs (b)(2) through (7) of this section,
and, therefore, is not a reportable transaction under
paragraph (b) of this section. On March 1, 2005, the
IRS publishes a notice identifying the transaction as
a listed transaction described in paragraph (b)(2) of
this section. Thus, upon issuance of the notice, the
transaction becomes a reportable transaction de-
scribed in paragraph (b) of this section. F is required
to file Form 8886 for the transaction as an attach-
ment to F's next filed Federal income tax return. If
F's 2004 Federal income tax return has not been filed
on or before the date the Service identifies the trans-
action as a listed transaction, the disclosure state-
ment must be attached to F's 2004 return and at that
time a copy of the form must be sent to OTSA.

(f) Rulings and protective disclosures-
(1) Requests for ruling. If a taxpayer is un-
certain whether a transaction must be
disclosed under this section, that taxpayer
may, on or before the date that disclosure
would otherwise be required under this sec-
tion, submit a request to the IRS for a rul-
ing as to whether the transaction is subject
to the disclosure requirements of this sec-
tion. If the request fully discloses all rel-
evant facts relating to the transaction, the
potential obligation of that taxpayer to dis-
close the transaction will be suspended dur-
ing the period that the ruling request is
pending and, if the IRS subsequently con-
cludes that the transaction is a reportable
transaction subject to disclosure under this
section, until the 60th day after the issu-
ance of the ruling (or, if the request is with-
drawn, 60 days after the date that the
request is withdrawn).

(2) Protective disclosures. If a taxpayer
is uncertain whether a transaction must be
disclosed under this section, the taxpayer

may disclose the transaction in accordance
with the requirements of this section, and
indicate on the disclosure statement that the
taxpayer is uncertain whether the transac-
tion is required to be disclosed under this
section and that the disclosure statement is
being filed on a protective basis.

(g) 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 treat-
ment of the transaction, or the taxpayer's
decision to participate in the transaction.
Such documents must be retained until the
expiration of the statute of limitations ap-
plicable to the final taxable year for which
disclosure of the transaction was made in
accordance with the requirements of this
section. (This document retention require-
ment is in addition to any document reten-
tion requirements that section 6001
generally imposes on the taxpayer.) Such
documents generally include, but are not
limited to, the following: marketing mate-
rials related to the transaction; written analy-
ses used in decision-making related to the
transaction; correspondence and agree-
ments between the taxpayer and any advi-
sor, lender, or other party to the reportable
transaction that relate to the transaction;
documents discussing, referring to, or dem-
onstrating the tax benefits arising from the
reportable transaction; and documents, if
any, referring to the business purposes for
the reportable transaction.

(h) Effective dates. This section applies
to Federal income tax returns filed after
February 28, 2000. However, paragraphs (a)
through (g) of this section apply to trans-
actions entered into on or after January 1,
2003. The rules that apply with respect to
transactions entered into on or before De-
cember 31, 2002, are contained in
§ 1.6011-4T in effect prior to January 1,
2003 (see 26 CFR part 1 revised as of April
1, 2002, and 2002-28 I.R.B. 90 (see
§ 601.601(d)(2) of this chapter)).

PART 20-ESTATE TAX; ESTATES OF
DECEDENTS DYING AFTER
AUGUST 16, 1954

Par. 3. The authority citation for part 20
continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 4. Section 20.6011-4T is added to
read as follows:

§ 20.6011-4T Requirement of statement dis-
closing participation in certain transac-
tions by taxpayers (temporary).

(a) In general. If a transaction is iden-
tified as a "listed transaction" as defined in
§ 1.6011-4T of this chapter by the Com-
missioner in published guidance (see
§ 601.601(d)(2) of this chapter), and the
listed transaction involves an estate tax un-
der chapter 11 of subtitle B of the Inter-
nal Revenue Code, the transaction must be
disclosed in the manner stated in such pub-
lished guidance.

(b) Effective date. This section applies
to transactions entered into on or after Janu-
ary 1, 2003.

### PART 25-GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954

Par. 5. The authority citation for part 25
continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 6. Section 25.6011-4T is added to
read as follows:

§ 25.6011-4T Requirement of statement dis-
closing participation in certain transac-
tions by taxpayers (temporary).

(a) In general. If a transaction is iden-
tified as a "listed transaction" as defined in
§ 1.6011-4T of this chapter by the Com-
missioner in published guidance (see
§ 601.601(d)(2) of this chapter), and the
listed transaction involves a gift tax un-
der chapter 12 of subtitle B of the Inter-
nal Revenue Code, the transaction must be
disclosed in the manner stated in such pub-
lished guidance.

(b) Effective date. This section applies
to transactions entered into on or after Janu-
ary 1, 2003.

PART 31-EMPLOYMENT TAXES
AND COLLECTION OF INCOME TAX
AT THE SOURCE

Par. 7. The authority citation for part 31
continues to read in part as follows:

Authority: 26 U.S.C. 7805 * **

Par. 8. Section 31.6011-4T is added to
read as follows:

§ 31.6011-4T Requirement of statement dis-
closing participation in certain transac-
tions by taxpayers (temporary).

(a) In general. If a transaction is iden-
tified as a "listed transaction" as defined in
§ 1.6011-4T of this chapter by the Com-

missioner in published guidance (see
§ 601.601(d)(2) of this chapter), and the
listed transaction involves an employment
tax under chapters 21 through 25 of sub-
title C of the Internal Revenue Code, the
transaction must be disclosed in the man-
ner stated in such published guidance.

(b) Effective date. This section applies
to transactions entered into on or after Janu-
ary 1, 2003.

### PART 53-FOUNDATION AND SIMILAR EXCISE TAXES

Par. 9. The authority citation for part 53
continues to read as follows:

Authority: 26 U.S.C. 7805

Par. 10. Section 53.6011-4T is added to
read as follows:

§ 53.6011-4T Requirement of statement
disclosing participation in certain
transactions by taxpayers (temporary).

(a) In general. If a transaction is iden-
tified as a "listed transaction" as defined in
§ 1.6011-4T of this chapter by the Com-
missioner in published guidance (see
§ 601.601(d)(2) of this chapter), and the
listed transaction involves an excise tax un-
der chapter 42 of subtitle D of the Inter-
nal Revenue Code (relating to private
foundations and certain other tax-exempt or-
ganizations), the transaction must be dis-
closed in the manner stated in such
published guidance.

(b) Effective date. This section applies
to transactions entered into on or after Janu-
ary 1, 2003.

PART 54-PENSION EXCISE TAXES

Par. 11. The authority citation for part
54 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *
Par. 12. Section 54.6011-4T is added to
read as follows:

§ 54.6011-4T Requirement of statement
disclosing participation in certain
transactions by taxpayers (temporary).

(a) In general. If a transaction is iden-
tified as a "listed transaction" as defined in
§ 1.6011-4T of this chapter by the Com-
missioner in published guidance (see
§ 601.601(d)(2) of this chapter), and the
listed transaction involves an excise tax un-
der chapter 43 of subtitle D of the Inter-
nal Revenue Code (relating to qualified

pension, etc., plans), the transaction must
be disclosed in the manner stated in such
published guidance.

(b) Effective date. This section applies
to transactions entered into on or after Janu-
ary 1, 2003.

PART 56-PUBLIC CHARITY EXCISE
TAXES

Par. 13. The authority citation for part
56 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 14. Section 56.6011-4T is added to
read as follows:

§ 56.6011-4T Requirement of statement
disclosing participation in certain
transactions by taxpayers (temporary).

(a) In general. If a transaction is iden-
tified as a "listed transaction" as defined in
§ 1.6011-4T of this chapter by the Com-
missioner in published guidance (see
§ 601.601(d)(2) of this chapter), and the
listed transaction involves an excise tax un-
der chapter 41 of subtitle D of the Inter-
nal Revenue Code (relating to public
charities), the transaction must be disclosed
in the manner stated in such published guid-
ance.

(b) Effective date. This section applies
to transactions entered into on or after Janu-
ary 1, 2003.

#### PART 301-PROCEDURE AND ADMINISTRATION

Par. 15. The authority citation for part
301 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 16. Section 301.6111-2T is amended
as follows:

1\. Paragraphs (a)(3) and (b)(3)(i) are re-
vised.

2\. Paragraph (c)(3) is amended by add-
ing a sentence at the end of the paragraph.

3\. Paragraph (h) is amended by revis-
ing the paragraph heading and removing the
third sentence through the last sentence and
adding two new sentences in their place.

The revisions and additions read as
follows:

§ 301.6111-2T Confidential corporate
tax shelters (temporary).

(a) * * *

(3) For purposes of this section, refer-
ences to the term "transaction" include all
of the factual elements relevant to the ex-

pected tax treatment of any investment, en-
tity, plan, or arrangement, and include any
series of steps carried out as part of a plan.
For purposes of this section, the term "sub-
stantially similar" includes any transac-
tion that is expected to obtain the same or
similar types of tax consequences and that
is either factually similar or based on the
same or similar tax strategy. Receipt of an
opinion regarding the tax consequences of
the transaction is not relevant to the deter-
mination of whether the transaction is the
same as or substantially similar to another
transaction. Further, the term "substan-
tially similar" must be broadly construed in
favor of registration. For examples, see
§ 1.6011-4T(c)(4) of this chapter.

* * * * *

(b) * * *

(3) * * *

(i) The potential participant is expected
to participate in the transaction in the or-
dinary course of its business in a form con-
sistent with customary commercial practice
(a transaction involving the acquisition, dis-
position, or restructuring of a business, in-
cluding the acquisition, disposition, or other
change in the ownership or control of an
entity that is engaged in a business, or a
transaction involving a recapitalization or
an acquisition of capital for use in the tax-
payer's business, shall be considered a trans-
action carried out in the ordinary course of
a taxpayer's business); and

* * * * *

(c)
(3) * * * This presumption is avail-
able only in cases in which the written au-
thorization to disclose is effective without
limitation of any kind from the commence-
ment of discussions.

* * * * *

(h) Effective dates. * * * However, para-
graphs (a)(3), (b)(3)(i), and (c)(3) of this
section apply to confidential corporate tax
shelters in which any interests are offered
for sale on or after January 1, 2003. The
rules that apply to confidential corporate tax
shelters in which any interests are offered
for sale after February 28, 2000, and on or
before December 31, 2002, are contained
in § 301.6111-2T in effect prior to Janu-
ary 1, 2003 (see 26 CFR part 301 revised
as of April 1, 2002, and 2002-28 I.R.B. 91
(see § 601.601(d)(2) of this chapter)).

Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.

Approved October 15, 2002.

Pamela F. Olson,
Assistant Secretary of the Treasury.

(Filed by the Office of the Federal Register on October 17,
2002, 3:10 p.m., and published in the issue of the Federal Reg-
ister for October 22, 2002, 67 F.R. 64799)

# Section 6112 .- Organizers and Sellers of Potentially Abu- sive Tax Shelters Must Keep Lists of Inventors

301.6112-1T: Requirement to prepare, maintain, and
furnish lists with respect to potentially abusive tax shel-
ters (temporary).

## T.D. 9018

DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 301

## Requirement to Maintain a List of Investors in Potentially Abusive Tax Shelters

AGENCY: Internal Revenue Service
(IRS), Treasury.

ACTION: Temporary regualations.

SUMMARY: These temporary regulations
relate to the preparation, maintenance, and
furnishing of lists of persons in poten-
tially abusive tax shelters under section
6112. These regulations apply to organiz-
ers and sellers of potentially abusive tax
shelters. The text of these temporary regu-
lations also serves as the text of the pro-
posed regulations set forth in the notice of
proposed rulemaking on this subject on page
834 of this Bulletin.

DATES: Effective Date: These tempo-
rary regulations are effective January 1,
2003.

Applicability date: For dates of appli-
cability, see § 301.6112-1T(j).

FOR FURTHER INFORMATION
CONTACT: Charlotte Chyr, Tara P.
Volungis, or Danielle M. Grimm, 202-
622-3070 (not a toll-free number).

# SUPPLEMENTARY INFORMATION:

## Paperwork Reduction Act

These regulations are being issued with-
out prior notice and public procedure pur-
suant to the Administrative Procedure Act
(5 U.S.C. 553). For this reason, the col-
lections of information contained in these
regulations have been reviewed and, pend-
ing receipt and evaluation of public com-
ments, approved by the Office of
Management and Budget under control
number 1545-1686. Responses to these col-
lections of information are mandatory.

An agency may not conduct or spon-
sor, and a person is not required to re-
spond to, a collection of information unless
the collection of information displays a valid
OMB control number.

## Background

This document amends 26 CFR part 301
regarding the requirement to maintain lists
of persons for potentially abusive tax shel-
ters under section 6112. Section 6708 pro-
vides penalties for failing to maintain a list
under section 6112.

On February 28, 2000, the IRS issued
temporary and proposed regulations re-
garding section 6112 (T.D. 8875, 2000-1
C.B. 761; REG-103736-00, 2000-1 C.B.
768). The February regulations were pub-
lished in the Federal Register (65 FR
11211; 65 FR 11271) on March 2, 2000. On
August 11, 2000, the IRS issued tempo-
rary and proposed regulations regarding sec-
tion 6112 (T.D. 8896, 2000-2 C.B. 249;
REG-103736-00, 2000-2 C.B. 258). The
August 2000 regulations were published in
the Federal Register (65 FR 49909; 65 FR
49955) on August 16, 2000, modifying the
previous regulations.

The list maintenance rules under sec-
tion 6112, along with the rules relating to
disclosure of reportable transactions un-
der section 6011 and the rules for regis-
tration of tax shelters under section 6111,
are intended to provide the IRS and Trea-
sury with information needed to evaluate
potentially abusive transactions. The IRS
and Treasury have considered and evalu-
ated compliance with these rules and have
determined that certain additional changes
to the current temporary and proposed regu-
lations are necessary to improve compli-
ance and to carry out the purposes of
sections 6011, 6111, and 6112. On March
20, 2002, Treasury released its Plan to Com-
bat Abusive Tax Avoidance Transactions
(PO-2018), which describes changes to the
rules under sections 6011, 6111, and 6112
that will establish a more effective disclo-
sure regime and improve compliance. See
http://www.treas.gov/press/releases/po
2018.htm.

These amendments to the temporary
regulations under section 6112 generally re-
quire organizers and sellers (material ad-
visors) to maintain lists of persons for
transactions required to be registered un-
der section 6111 and for reportable trans-
actions defined in § 1.6011-4T(b) of the
Income Tax Regulations.

Concurrent with these amended tempo-
rary regulations under section 6112, the IRS
and Treasury are publishing elsewhere in
this issue of the Bulletin amended tempo-
rary regulations under section 6011. The
amended temporary regulations under sec-
tion 6011 revise the categories of transac-
tions that must be disclosed on returns.

## Explanation of Provisions

### A. Potentially Abusive Tax Shelter

Section 6112 provides that any person
who organizes or sells any interest in a po-
tentially abusive tax shelter must main-
tain a list identifying each person who was
sold an interest in such shelter and con-
taining any other information required by
regulations. A potentially abusive tax shel-
ter under section 6112 includes any tax shel-
ter that is required to be registered with the

IRS as a tax shelter under section 6111, and
any transaction that has a potential for tax
avoidance or evasion.

Under these regulations, a transaction has
the potential for tax avoidance or evasion
if it is a listed transaction or if a potential
material advisor, at the time the transac-
tion is entered into, knows or has reason to
know that the transaction is otherwise a re-
portable transaction as defined in § 1.6011-
4T. For purposes of section 6112, listed
transactions that involve Federal estate, gift,
employment, and pension and exempt or-
ganizations excise taxes are also poten-
tially abusive tax shelters that require list
maintenance. If a transaction that involves
Federal income taxes becomes a listed trans-
action on or after January 1, 2003, it is a
potentially abusive tax shelter for pur-
poses of section 6112 and, whether or not
the material advisor is already required to
maintain a list, the material advisor must
begin, at the time of listing, to include on
the list those persons who acquired an in-
terest in the transaction after February 28,
2000.

### B. Organizer and Seller (Material Advisor)

The regulations provide that a person is
an organizer of, or a seller of any interest
in, a transaction that is a potentially abu-
sive tax shelter if that person is a mate-
rial advisor with respect to that transaction.
In general, a material advisor is any per-
son who (i) receives, or expects to receive,
at least a minimum fee in connection with
a transaction that is a potentially abusive
tax shelter, and (ii) who makes or pro-
vides any statement, oral or written, to any
person as to the potential tax consequences
of that transaction. The Internal Revenue
Service and Treasury are considering
whether the minimum fee requirement
should be eliminated with respect to listed
transactions.

The minimum fee is $250,000 for a
transaction that is a potentially abusive tax
shelter if all persons who acquire an inter-
est, directly or indirectly, in the transac-
tion are corporations (other than S
corporations). The minimum fee for any
other transaction that is a potentially abu-
sive tax shelter is $50,000. In calculating
the minimum fee, each transaction that is
a potentially abusive tax shelter is evalu-
ated separately to determine whether the
minimum fee threshold is satisfied with re-

spect to that particular transaction. If the
minimum fee threshold is satisfied with re-
spect to one transaction that is a poten-
tially abusive tax shelter, but not with
respect to another separate transaction
(whether or not it is substantially simi-
lar), a person is a material advisor with re-
spect to only the transaction for which the
minimum fee threshold is satisfied. Ac-
cordingly, the list required to be main-
tained includes only those persons who are
participants in the transaction for which the
minimum fee threshold is satisfied.

### C. Preparing, Maintaining and Furnishing Lists

In general, a material advisor must pre-
pare and maintain a separate list of per-
sons for each transaction that is a potentially
abusive tax shelter. However, to ensure that
the IRS is able to identify all of the per-
sons who are participants in potentially abu-
sive tax shelters that are substantially
similar, the regulations further provide that
the material advisor must keep one list for
all transactions that are substantially simi-
lar and are potentially abusive tax shel-
ters.

Any person to whom a material advi-
sor makes or provides a statement, oral or
written, as to the potential tax consequences
of a transaction that is a potentially abu-
sive tax shelter must be included on a list
if the material advisor knows or has rea-
son to know that the person, or any re-
lated party, participated or will participate
in the transaction. A person (including any
related party) is treated as having partici-
pated in a transaction that is a potentially
abusive tax shelter if the material advisor
knows or has reason to know that the per-
son sold or transferred, or will sell or trans-
fer to another person (subsequent
participant) an interest in that type of trans-
action that, if entered into, would be a po-
tentially abusive tax shelter. The material
advisor also must list any subsequent par-
ticipant if the material advisor knows or has
reason to know the identity of that subse-
quent participant and the material advisor
knows or reasonably expects that the sub-
sequent participant will participate in, or sell
or transfer to another subsequent partici-

pant an interest in that type of transaction
that, if entered into, would be a poten-
tially abusive tax shelter.

The required list must be maintained for
ten years following the date on which the
material advisor last made a statement, oral
or written, as to the potential tax conse-
quences that may result from the transac-
tion that is a potentially abusive tax shelter.
If a material advisor that is an entity dis-
solves or liquidates before the expiration of
the ten-year period, the person respon-
sible under state law for winding up the af-
fairs of the material advisor is (or if state
law does not specify any person, then each
of the directors of the corporation, the gen-
eral partners of the partnership, or the trust-
ees, owners, or members of the entity are)
responsible for preparing, maintaining, and
furnishing the list, unless the dissolved or
liquidated entity submits the list to the Of-
fice of Tax Shelter Analysis (OTSA) within
60 days after the dissolution or liquida-
tion. The responsible person must also pro-
vide notice to OTSA of such dissolution or
liquidation within 60 days after the disso-
lution or liquidation.

Each material advisor must, upon writ-
ten request by the IRS, furnish the list of
persons to the IRS within 20 business days
after the date of the request. The list may
be furnished to the IRS in any form that en-
ables the IRS to determine without undue
delay or difficulty the information required
to be contained in the list.

As a general rule, the name of a par-
ticipant in a transaction that is a poten-
tially abusive tax shelter is not protected by
either the attorney-client privilege or by the
tax practitioner privilege under section 7525.
No participant in a transaction that is a po-
tentially abusive tax shelter should have a
reasonable expectation of confidentiality
with respect to that person's identity. More-
over, a claim of privilege that is not based
on a reasonable belief that the privilege ap-
plies may subject the material advisor to
penalties under section 6708.

### D. Substantially Similar Transactions

For purposes of section 6112, a sub-
stantially similar transaction includes any
transaction that is expected to obtain the

same or similar types of tax consequences
and that is either factually similar or based
on the same or similar tax strategy. Re-
ceipt of an opinion regarding the tax con-
sequences of a transaction is not relevant
to the determination of whether that trans-
action is the same as or substantially simi-
lar to another transaction. Further, the term
substantially similar must be broadly con-
strued in favor of list maintenance.

### E. Effective Date

These amended temporary regulations
apply to transactions that are potentially
abusive tax shelters entered into, or inter-
ests acquired therein, on or after January 1,
2003. However, these regulations shall ap-
ply to any transaction that was entered into,
or in which an interest was acquired, af-
ter February 28, 2000, if the transaction be-
comes a listed transaction as defined in
§ 1.6011-4T on or after January 1, 2003,
and is subject to disclosure under § 1.6011-
4T.

## Special Analysis

## Drafting Information

The principal authors of these regula-
tions are Charlotte Chyr, Tara P. Volungis,
and Danielle M. Grimm, Office of the As-
sociate Chief Counsel (Passthroughs and
Special Industries). However, other per-
sonnel from the IRS and Treasury Depart-
ment participated in their development.

## Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 301 is
amended as follows:

PART 301-PROCEDURE AND
ADMINISTRATION

Paragraph 1. The authority citation for
part 301 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 301.6112-1T is revised
to read as follows:

§ 301.6112-1T Requirement to prepare,
maintain, and furnish lists with respect
to potentially abusive tax shelters
(temporary).

(a) In general. Each organizer and seller,
as described in paragraph (c) of this sec-
tion, of a transaction that is a potentially
abusive tax shelter, as described in para-
graph (b) of this section, shall prepare and
maintain a list of persons in accordance with
paragraph (e) of this section and upon re-
quest shall furnish such list to the Inter-
nal Revenue Service in accordance with
paragraph (g) of this section.

(b) Potentially abusive tax shelters. For
purposes of this section, a potentially abu-
sive tax shelter is any transaction that is a
section 6111 tax shelter, as described in
paragraph (b)(1) of this section, or that has
a potential for tax avoidance or evasion, as
described in paragraph (b)(2) of this sec-
tion. The term "transaction" includes all of
the factual elements relevant to support the
expected tax treatment of any investment,
entity, plan, or arrangement, and includes
any series of steps carried out as part of a
plan.

(1) Transaction that is a section 6111 tax
shelter. A section 6111 tax shelter is any
transaction that is required to be regis-
tered with the Internal Revenue Service un-
der section 6111, regardless of whether that
tax shelter is properly registered pursuant
to section 6111.

(2) Transaction that has a potential for
tax avoidance or evasion. A transaction that
has a potential for tax avoidance or eva-
sion is any transaction that is a listed trans-
action as defined in § 1.6011-4T of this
chapter and is subject to disclosure under
§ 1.6011-4T, 20.6011-4T, 25.6011-4T,
31.6011-4T, 53.6011-4T, 54.6011-4T, or
56.6011-4T of this chapter, or any trans-

action that a potential material advisor
knows or has reason to know, at the time
the transaction is entered into or an inter-
est is acquired, meets one of the catego-
ries of a reportable transaction under
§ 1.6011-4T(b)(3) through (7) of this chap-
ter.

(i) The determination of whether a trans-
action has the potential for tax avoidance
or evasion does not depend upon whether
the transaction is properly disclosed pur-
suant to § 1.6011-4T, 20.6011-4T, 25.6011-
4T, 31.6011-4T, 53.6011-4T, 54.6011-
4T, or 56.6011-4T of this chapter.

(ii) If a transaction becomes a listed
transaction as defined in § 1.6011-4T of this
chapter and is subject to disclosure under
§ 1.6011-4T of this chapter, after the trans-
action is entered into or an interest in the
transaction is acquired, this section shall ap-
ply with respect to any interests acquired
after February 28, 2000. If a transaction be-
comes a listed transaction as defined in
§ 1.6011-4T of this chapter and is sub-
ject to disclosure under § 20.6011-4T,
25.6011-4T, 31.6011-4T, 53.6011-4T,
54.6011-4T, or 56.6011-4T of this chap-
ter, after the transaction is entered into or
an interest in the transaction is acquired, this
section shall apply with respect to any in-
terests acquired on or after January 1, 2003.

(c) Organizer and seller-(1) In gen-
eral. A person is an organizer of, or a seller
of an interest in, a transaction that is a po-
tentially abusive tax shelter if that person
is a material advisor, as described in para-
graph (c)(2) of this section, with respect to
that transaction.

(2) Material advisor. A material advi-
sor is any person who (or through its em-
ployees, shareholders, partners, or agents)
receives, or expects to receive, at least a
minimum fee, as defined in paragraph (c)(3)
of this section, in connection with a trans-
action that is a potentially abusive tax shel-
ter and who makes or provides any
statement, oral or written, to any person as
to the potential tax consequences of that
transaction. A person shall be treated as a
material advisor if that person forms or
avails of an entity with the purpose of
avoiding the rules of section 6111 or 6112
or the penalties under section 6707 or 6708.

(3) Minimum fee-(i) In general. For
purposes of this paragraph (c), the mini-
mum fee is $250,000 for a transaction that
is a potentially abusive tax shelter if all per-
sons who acquire an interest, directly or in-

directly, are corporations (other than S
corporations), and $50,000 for any other
transaction that is a potentially abusive tax
shelter.

(ii) Determination of fees. In determin-
ing whether the minimum fee threshold is
satisfied, all fees for advice (whether or not
tax advice) regarding, or for implementa-
tion of, a transaction that is a potentially
abusive tax shelter are taken into account.
For purposes of this section, fees include
consideration in whatever form paid,
whether in cash or in kind, and whether
paid or denominated as fees for tax ad-
vice or for some other function such as the
preparation of documentation or tax re-
turn preparation. The Internal Revenue Ser-
vice will scrutinize carefully all of the facts
and circumstances in determining whether
consideration received in connection with
a transaction that is a potentially abusive
tax shelter constitutes fees for purposes of
this section.

(d) Definitions. For purposes of this sec-
tion, the following terms are defined as
follows:

(1) Interest. The term interest includes,
but is not limited to, any right to partici-
pate in a transaction by reason of a part-
nership interest, a shareholder interest, or
a beneficial interest in a trust; any inter-
est in property (including a leasehold in-
terest); the entry into a leasing arrangement
or a consulting, management or other agree-
ment for the performance of services; or any
interest in any other investment, entity, plan,
or arrangement. The term interest includes
any interest that purportedly entitles the di-
rect or indirect holder of the interest to any
tax consequence (including, but not lim-
ited to, a deduction, loss, or adjustment to
tax basis in an asset) arising from the trans-
action. An interest also includes the re-
ceipt of information or services regarding
the organization or structure of the trans-
action if the information or services are rel-
evant to the potential tax consequences of
the transaction.

(2) Substantially similar. The term sub-
stantially similar includes any transaction
that is expected to obtain the same or simi-
lar types of tax consequences and that is ei-
ther factually similar or based on the same
or similar tax strategy. Receipt of an opin-
ion regarding the tax consequences of the
transaction is not relevant to the determi-
nation of whether the transaction is the same
as or substantially similar to another trans-

action. Further, the term substantially simi-
lar must be broadly construed in favor of
list maintenance.

(3) Person. The term person means any
person described in section 7701(a)(1), in-
cluding an affiliated group of corpora-
tions that join in the filing of a consolidated
return under section 1501.

(4) Related party. A person is a related
party with respect to another person if such
person bears a relationship to such other
person described in section 267 or 707.

(e) Preparation and maintenance of
lists-(1) In general. A separate list of per-
sons must be prepared and maintained for
each transaction that is a potentially abu-
sive tax shelter. However, one list must be
maintained for substantially similar trans-
actions that are potentially abusive tax shel-
ters.

(2) Persons required to be included on
lists. (i) A material advisor is required to
list each person to whom the material ad-
visor makes or provides a statement, oral
or written, as to the potential tax conse-
quences of a transaction that is a poten-
tially abusive tax shelter, if the material
advisor knows or has reason to know that
the person or any related party partici-
pated in or will participate in the transac-
tion (or a substantially similar transaction
that is a potentially abusive tax shelter).

(ii) A material advisor shall treat a per-
son (including any related party) as hav-
ing participated in a transaction that is a
potentially abusive tax shelter if the ma-
terial advisor knows or has reason to know
that the person sold or transferred, or will
sell or transfer, to another person (subse-
quent participant) an interest in that type of
transaction that, if entered into, would be
a potentially abusive tax shelter. The ma-
terial advisor also must list any subse-
quent participant if the material advisor
knows or has reason to know the identity
of that subsequent participant, and the ma-
terial advisor knows or reasonably expects
that the subsequent participant will partici-
pate in, or sell or transfer to another sub-
sequent participant an interest in that type
of transaction that, if entered into, would
be a potentially abusive tax shelter.

(iii) The following examples illustrate the
provisions of this section:

Example 1. An investment firm provides a state-
ment describing the potential tax consequences of a
type of transaction to three taxpayers: Corporation X,
Corporation Y, and Corporation Z. Each taxpayer
agrees to pay the investment firm $300,000 in con-

nection with the transaction, and each taxpayer en-
gages in a separate transaction (transaction X,
transaction Y, and transaction Z, respectively). At the
time the transactions are entered into, the invest-
ment firm knows, or has reason to know, that the trans-
actions will result in a single taxable year loss of $9
million for Corporation X, $15 million for Corpora-
tion Y, and $12 million for Corporation Z. The trans-
actions do not satisfy the definitions of a reportable
transaction under § 1.6011-4T(b)(2), (3), (4), (6) or
(7) of this chapter. All the persons who acquired an
interest directly or indirectly in the transactions are
C corporations.

(i) Transaction X. At the time transaction X is en-
tered into, the investment firm does not know, or have
reason to know, that the transaction is a reportable
transaction, because the $9 million loss does not sat-
isfy the $10 million threshold under § 1.6011-4T(b)(5)
of this chapter (relating to loss transactions). Accord-
ingly, transaction X is not a potentially abusive tax
shelter. The investment firm is not required to main-
tain a list with respect to transaction X.

(ii) Transactions Y and Z. The investment firm sat-
isfies the three requirements for being a material ad-
visor with respect to transaction Y and with respect
to transaction Z. First, both of the transactions are po-
tentially abusive tax shelters with respect to the in-
vestment firm because the investment firm knows, or
has reason to know, at the time the transactions are
entered into, that the losses for each of Corporation
Y and Z are expected to exceed the $10 million thresh-
old and, thus, the transactions are reportable trans-
actions under § 1.6011-4T(b)(5) of this chapter
(relating to loss transactions). Second, the invest-
ment firm provides a statement as to the potential tax
consequences of the transactions. Third, the invest-
ment firm receives $300,000 in connection with each
transaction, which exceeds the minimum fee with re-
spect to each transaction ($250,000). Accordingly, the
investment firm must maintain a list with respect to
transactions Y and Z. Because transactions Y and Z
are based on the same or similar tax strategy, trans-
actions Y and Z are substantially similar transac-
tions, and the investment firm must keep one list with
respect to both transactions. The list must contain in-
formation about Corporation Y and Corporation Z (see
paragraph (e)(2)(i) of this section).

Example 2. (i) Corporation M provides a state-
ment to Corporation N describing the potential tax con-
sequences of a type of transaction. Corporation N pays
Corporation M $90,000 for the information about that
type of transaction. Corporation M knows that Cor-
poration N will sell the information to Taxpayer O (a
corporation) and Taxpayer P (an individual), and rea-
sonably expects Taxpayer O and Taxpayer P to par-
ticipate in transactions of the type that Corporation M
described to Corporation N. Corporation N, in turn,
provides a statement as to the potential tax conse-
quences of that type of transaction to Taxpayer O and
Taxpayer P. Each taxpayer agrees to pay Corpora-
tion N $80,000 in connection with their respective
transactions, and each taxpayer engages in a sepa-
rate transaction (transaction O and transaction P, re-
spectively). At the time the transactions are entered
into, both Corporation M and Corporation N know,
or have reason to know, that the transactions are re-
portable transactions under § 1.6011-4T(b) of this
chapter. All the persons who acquire an interest di-
rectly or indirectly in transaction O are C corpora-
tions.

(ii) Corporation N is not a material advisor with
respect to transaction O because Corporation N re-
ceives only $80,000 in connection with transaction O,
which is less than the minimum fee for that transac-
tion ($250,000). Corporation N is a material advisor
with respect to transaction P. First, at the time trans-
action P is entered into, Corporation N knows, or has
reason to know, that transaction P is a reportable trans-
action and, thus, is a potentially abusive tax shelter.
Second, Corporation N provides a statement as to the
potential tax consequences of transaction P. Third, Cor-
poration N receives $80,000 in connection with trans-
action P, which exceeds the minimum fee for that
transaction ($50,000). Accordingly, Corporation N must
keep a list with respect to transaction P. The list must
contain information about Taxpayer P (see para-
graph (e)(2)(ii) of this section).

(iii) Corporation M is not a material advisor with
respect to transaction O because Corporation M re-
ceives only $90,000 in connection with transaction O,
which is less than the minimum fee for that transac-
tion ($250,000). Corporation M is a material advi-
sor with respect to transaction P. First, at the time
transaction P is entered into, Corporation M knows,
or has reason to know, that transaction P is a report-
able transaction and, thus, is a potentially abusive tax
shelter. Second, Corporation M provides a state-
ment as to the potential tax consequences of trans-
action P, and Corporation M receives $90,000 in
connection with transaction P, which exceeds the mini-
mum fee for that transaction ($50,000). Accord-
ingly, Corporation M must keep a list with respect to
transaction P. The list must contain information about
Corporation N (see paragraph (e)(2)(ii) of this sec-
tion) and Taxpayer P (see paragraph (e)(2)(ii) of this
section).

(3) Contents-(i) In general. Each list
must contain the following information-

(A) The name of each transaction that
is a potentially abusive tax shelter and the
registration number, if any, obtained un-
der section 6111;

(B) The TIN (as defined in section
7701(a)(41)), if any, of each transaction;

(D) If applicable, the number of units
(i.e., percentage of profits, number of shares,
etc.) acquired by each person required to
be included on the list;

(E) The date on which each interest was
acquired;

(F) The amount invested in each trans-
action by each person required to be in-
cluded on the list;

(G) A detailed description of each trans-
action that describes both the structure and
its expected tax consequences;

(H) A summary or schedule of the tax
consequences that each person is intended
or expected to derive from participation in
each transaction, if known by the mate-
rial advisor;

(I) Copies of any additional written ma-
terials, including tax analyses or opin-
ions, relating to each transaction that have
been shown or provided to any person who
acquired or may acquire an interest in the
transactions, or to their representatives, tax
advisors, or agents, by the material advi-
sor or any related party or agent of the ma-
terial advisor; and

(J) For each person, if the interest in the
transaction was not acquired from the ma-
terial advisor maintaining the list, the name
of the person from whom the interest was
acquired.

(ii) Claims of privilege. In any case in
which an attorney or federally authorized
tax practitioner within the meaning of sec-
tion 7525 is required to maintain a list with
respect to a transaction that is a poten-
tially abusive tax shelter, and that person
has a reasonable belief that information re-
quired to be disclosed under this para-
graph (e)(3) is protected by the attorney-
client privilege or by the confidentiality
privilege of section 7525(a), the attorney or
federally authorized tax practitioner must
still maintain the list of persons pursuant
to the requirements of this section. When
the list is requested by the Internal Rev-
enue Service, as provided in paragraph (g)
of this section, the material advisor may as-
sert a privilege claim subject to the re-
quirements of this paragraph (e)(3)(ii).

(A) The claimed privilege must be sup-
ported by a statement that is signed by the
attorney or federally authorized tax prac-
titioner under penalties of perjury, must
identify and describe (as set forth in para-
graph (e)(3)(ii)(B) of this section) the na-
ture of each document or category of
information that is not produced which will
allow the Service to determine the appli-
cability of the privilege or protection
claimed, without revealing the privileged in-
formation itself, and must include the fol-
lowing representations with respect to each
document or category of information for
which the privilege is claimed-

(1) Specifically represent that the infor-
mation was a confidential practitioner-
client communication and, in the case of
information which a federally authorized tax
practitioner claims is privileged under sec-
tion 7525, that the omitted information was
not part of tax advice that constituted the
promotion of the direct or indirect partici-
pation of a corporation in any tax shelter
(as defined in section 662(d)(2)(iii)); and

(2) Specifically represent that to the best
of such person's knowledge and belief, all
others in possession of the omitted infor-
mation did not disclose the omitted infor-
mation to any person whose receipt of such
information would result in a waiver of the
privilege.

(B) Identification and description of a
document or category of information in-
cludes, but is not limited to-

(1) The date appearing on such docu-
ment or, if it has no date, the date or ap-
proximate date that such document was
created;

(2) The general nature, description and
purpose of such document and the iden-
tity of the person who signed such docu-
ment, and, if it was not signed, the identity
of each person who prepared it; and

(3) The identity of each person to whom
such document was addressed and the iden-
tity of each person, other than such ad-
dressee, to whom such document, or a copy
thereof, was given or sent.

(f) Retention of lists. Each material ad-
visor must maintain the list described in
paragraph (e) of this section for ten years
following the date on which the material ad-
visor last made a statement, oral or writ-
ten, as to the potential tax consequences of
the transaction. If the material advisor re-
quired to prepare, maintain, and furnish the
list is a corporation, partnership, or other
entity (entity) that has dissolved or liqui-
dated before completion of the ten-year pe-
riod, the person responsible under state law
for winding up the affairs of the entity must
prepare, maintain and furnish the list on be-
half of the entity, unless the entity sub-
mits the list to the Office of Tax Shelter
Analysis (OTSA) within 60 days after the
dissolution or liquidation. If state law does
not specify any person as responsible for
winding up the affairs, then each of the di-
rectors of the corporation, the general part-
ners of the partnership, or the trustees,
owners, or members of the entity are re-
sponsible for preparing, maintaining and fur-
nishing the list on behalf of the entity,
unless the entity submits the list to the Of-
fice of Tax Shelter Analysis (OTSA) within
60 days after the dissolution or liquida-
tion. The responsible person must also pro-
vide notice to OTSA of such dissolution or
liquidation within 60 days after the disso-
lution or liquidation. The list and the no-
tice provided to OTSA may be sent to:
Internal Revenue Service, LM:PFTG:OTSA,

Large & Mid-Size Business Division, 1111
Constitution Ave., NW, Washington, DC
20224, or to such other address as pro-
vided by the Commissioner.

(g) Furnishing of lists. Each material ad-
visor and person responsible for maintain-
ing a list of persons must, upon written
request by the Internal Revenue Service,
furnish the list to the Internal Revenue Ser-
vice within 20 business days after the date
of the request. The request is not required
to be in the form of an administrative sum-
mons. The list may be furnished to the In-
ternal Revenue Service on paper, card file,
magnetic media, or in any other form, pro-
vided the method of furnishing the list en-
ables the Internal Revenue Service to
determine without undue delay or diffi-
culty the information required in para-
graph (e)(3) of this section.

(h) Designation agreements. If more than
one material advisor is required to main-
tain a list of persons, in accordance with
paragraph (e) of this section, for a poten-
tially abusive tax shelter, the material ad-
visors may designate by written agreement
a single material advisor to maintain the list
or a portion of the list. The designation of
one material advisor to maintain the list
does not relieve the other material advi-
sors from their obligation to furnish the list
to the Internal Revenue Service in accor-
dance with paragraph (g) of this section.
The fact that a material advisor is unable
to obtain the list from any designated ma-
terial advisor, the fact that any designated
material advisor did not maintain a list, or
the fact that the list maintained by any des-
ignated material advisor is not complete,
will not relieve any material advisor from
the requirements of this section.

(i) Procedure for obtaining rulings. A
person may submit a request to the Inter-
nal Revenue Service for a ruling as to
whether a transaction is a potentially abu-
sive tax shelter for purposes of this sec-
tion and whether that person is a material
advisor with respect to that transaction. If
the request fully discloses all relevant facts
relating to the transaction (including all facts
relevant to the person's relationship to such
transaction), then the requirement to main-
tain a list shall be suspended for that per-
son during the period that such ruling
request is pending and for 60 days there-
after; however, if it is ultimately deter-
mined that the transaction is a potentially
abusive tax shelter, the pendency of such

a ruling request shall not affect the require-
ment to maintain the list, nor shall it af-
fect the persons required to be included on
the list (including persons who acquired in-
terests in the potentially abusive tax shel-
ter prior to and during the pendency of the
ruling request), or the other information re-
quired to be included as part of the list.

(j) Effective date. This section applies to
any transaction that is a potentially abu-
sive tax shelter entered into, or any inter-
est acquired therein, on or after January 1,
2003. However, this section shall apply to
any transaction that was entered into, or in
which an interest was acquired, after Feb-
ruary 28, 2000, if the transaction becomes
a listed transaction as defined in
§ 1.6011-4T of this chapter on or after
January 1, 2003, and is subject to disclo-
sure under § 1.6011-4T of this chapter. Oth-
erwise, the rules that apply with respect to
any other transaction that is a potentially
abusive tax shelter entered into, or any in-
terest acquired therein, on or before De-

cember 31, 2002, are contained in
§ 301.6112-1T in effect prior to Decem-
ber 31, 2002 (see 26 CFR part 301 re-
vised as of April 1, 2002).

Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.

Approved October 15, 2002.

Pamela F. Olson,
Assistant Secretary of the Treasury.

(Filed by the Office of the Federal Register on October 17,
2002, 3:10 p.m., and published in the issue of the Federal Reg-
ister for October 22, 2002, 67 F.R. 64807)

### Section 7520 .- Valuation Tables

The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of November 2002. See Rev. Rul. 2002-74, page 814.

## Section 7701 .- Definitions

26 CFR 301.7701-3: Classification of certain busi-
ness entities.

How do taxpayers treat, for federal tax purposes,
an entity that is owned solely by a husband and wife
as community property under the laws of a state, a for-
eign country, or a possession of the United States? See
Rev. Proc. 2002-69, page 831.

### Section 7872 .- Treatment of Loans With Below-Market In- terest Rates

The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of November 2002. See Rev. Rul. 2002-74, page 814.

# Part III. Administrative, Procedural, and Miscellaneous

2003 Limitations Adjusted As
Provided in Section 415(d),
etc.1

## Notice 2002-71

Section 415 of the Internal Revenue
Code (the Code) provides for dollar limi-
tations on benefits and contributions un-
der qualified retirement plans. Section 415
also requires that the Commissioner annu-
ally adjust these limits for cost-of-living in-
creases. Other limitations applicable to
deferred compensation plans are also af-
fected by these adjustments. Many of the
limitations will not change for 2003. For
most of the limitations, the increase in the
cost-of-living index fell below the statu-
tory thresholds that would otherwise trig-
ger their adjustment. However, several of
these limitations, set by the Economic
Growth and Tax Relief Reconciliation Act
of 2001 (EGTRRA), are scheduled to in-
crease at the beginning of 2003. For ex-
ample, under EGTRRA, the limitation under
§ 402(g)(1) of the Code on the exclusion
for elective deferrals described in
§ 402(g)(3) is increased from $11,000 to
$12,000. This limitation affects elective de-
ferrals to § 401(k) plans and to the Fed-
eral Government's Thrift Savings Plan,
among other plans.

## Cost-of-Living limits for 2003

Effective January 1, 2003, the limita-
tion on the annual benefit under a defined
benefit plan under § 415(b)(1)(A) remains
unchanged at $160,000. For participants
who separated from service before Janu-
ary 1, 2003, the limitation for defined ben-
efit plans under § 415(b)(1)(B) is computed
by multiplying the participant's compen-
sation limitation, as adjusted through 2002,
by 1.0159.

The limitation for defined contribution
plans under § 415(c)(1)(A) remains un-
changed at $40,000.

The Code provides that various other
dollar amounts are to be adjusted at the
same time and in the same manner as the
dollar limitation of § 415(b)(1)(A). These
dollar amounts and the adjusted amounts are
as follows:

The annual compensation limit under
§§ 401(a)(17), 404(l), 408(k)(3)(C), and
408(k)(6)(D)(ii) remains unchanged at
$200,000.

The dollar limitation under § 416(i)(1)(A)
(i) concerning the definition of key em-
ployee in a top-heavy plan remains un-
changed at $130,000.

The dollar amount under § 409(o)(1)(C)
(ii) for determining the maximum ac-
count balance in an employee stock
ownership plan subject to a 5-year dis-
tribution period is increased from
$800,000 to $810,000, while the dol-
lar amount used to determine the length-
ening of the 5-year distribution period
remains unchanged at $160,000.

The limitation used in the definition of
highly compensated employee under
§ 414(q)(1)(B) remains unchanged at
$90,000.

The annual compensation limitation un-
der § 401(a)(17) for eligible partici-
pants in certain governmental plans that,
under the plan as in effect on July 1,
1993, allowed cost-of-living adjustments
to the compensation limitation under the
plan under § 401(a)(17) to be taken into
account, is increased from $295,000 to
$300,000.

The compensation amount under
§ 408(k)(2)(C) regarding simplified em-
ployee pensions (SEPs) remains un-
changed at $450.

The compensation amounts under
§ 1.61-21(f)(5)(i) of the Income Tax
Regulations concerning the definition of
"control employee" for fringe benefit
valuation purposes remains unchanged
at $80,000. The compensation amount
under § 1.61-21(f)(5)(iii) remains un-
changed at $160,000.

## Limitations specified by statute

The Code, as amended by EGTRRA,
specifies the applicable dollar amount for
a particular year for certain limitations.
These applicable dollar amounts are as
follows:

The limitation under § 402(g)(1) on the
exclusion for elective deferrals described
in § 402(g)(3) is increased from $11,000
to $12,000.

The limitation under § 408(p)(2)(E) re-
garding SIMPLE retirement accounts is
increased from $7,000 to $8,000.

The limitation on deferrals under
§ 457(e)(15) concerning deferred com-
pensation plans of state and local gov-
ernments and tax-exempt organizations
is increased from $11,000 to $12,000.

The dollar limitation under
§ 414(v)(2)(B)(i) for catch-up contribu-
tions to an applicable employer plan
other than a plan described in
§ 401(k)(11) or 408(p) for individuals
aged 50 or over is increased from $1,000
to $2,000. The dollar limitation under
§ 414(v)(2)(B)(ii) for catch-up contri-
butions to an applicable employer plan
described in § 401(k)(11) or 408(p) for
individuals aged 50 or over is increased
from $500 to $1,000.

Administrators of defined benefit or de-
fined contribution plans that have received
favorable determination letters should not
request new determination letters solely be-
cause of yearly amendments to adjust maxi-
mum limitations in the plans.

## Drafting Information

The principal author of this notice is
John Heil of the Employee Plans, Tax Ex-
empt and Government Entities Division. For
further information regarding the data in this
notice, please contact the Employee Plans'
taxpayer assistance telephone service at
1-877-829-5500 (a toll-free call) between
the hours of 8 a.m. and 6:30 p.m. Eastern
time Monday through Friday. For informa-
tion regarding the methodology used at ar-
riving at the data in this notice, please
contact Mr. Heil at 1-202-283-9888 (not
a toll-free call).

1 Based on News Release IR-2002-111 dated October 18, 2002.

26 CFR 301.7701-3: Classification of certain busi-
ness entities.
(Also § 301.7701-2.)

Rev. Proc. 2002-69

### SECTION 1. PURPOSE

The Treasury Department and the In-
ternal Revenue Service have become aware
that taxpayers are unsure of the classifica-
tion for an entity that is owned solely by
a husband and wife as community prop-
erty under the laws of a state, a foreign
country, or a possession of the United
States. To alleviate this uncertainty and in
the interest of administrative simplicity, this
revenue procedure provides that the Inter-
nal Revenue Service will respect a taxpay-
er's treatment of these entities as either
disregarded entities or partnerships.

This revenue procedure provides guid-
ance on the classification for federal tax pur-
poses of a qualified entity (described in
section 3.02 of this revenue procedure) that
is owned solely by a husband and wife as
community property under the laws of a
state, a foreign country, or a possession of
the United States.

### SECTION 2. BACKGROUND

Section 301.7701-1(a)(1) states that the
Code prescribes the classification of vari-
ous organizations for federal tax purposes.
Whether an organization is an entity sepa-
rate from its owners for federal tax pur-
poses is a matter of federal tax law and does
not depend on whether the organization is
recognized as an entity under local law.

Section 301.7701-1(b) provides that the
classification of organizations that are rec-
ognized as separate entities is determined
under §§ 301.7701-2, 301.7701-3, and
301.7701-4 unless a provision of the Code
provides for special treatment of that or-
ganization.

Section 301.7701-2(a) defines the term
"business entity" as any entity recognized
for federal tax purposes (including an en-
tity with a single owner that may be dis-
regarded as an entity separate from its
owner under § 301.7701-3) that is not prop-
erly classified as a trust under § 301.7701-4
or otherwise subject to special treatment un-
der the Code. A business entity with two
or more members is classified for federal

tax purposes as either a corporation or a
partnership. A business entity with only one
owner is classified as a corporation or is dis-
regarded; if the entity is disregarded, its ac-
tivities are treated in the same manner as
a sole proprietorship, branch, or division of
the owner.

### SECTION 3. SCOPE

.01 In General. This revenue proce-
dure provides guidance on the classifica-
tion for federal tax purposes of a qualified
entity (described in section 3.02 of this rev-
enue procedure).

.02 Qualified Entity. A business entity is
a qualified entity if:

(1) The business entity is wholly
owned by a husband and wife as commu-
nity property under the laws of a state, a
foreign country, or a possession of the
United States;

(2) No person other than one or
both spouses would be considered an owner
for federal tax purposes; and

(3) The business entity is not treated
as a corporation under § 301.7701-2.

#### SECTION 4. APPLICATION

.01 If a qualified entity (as described in
section 3.02 of this revenue procedure), and
the husband and wife as community prop-
erty owners, treat the entity as a disre-
garded entity for federal tax purposes, the
Internal Revenue Service will accept the po-
sition that the entity is a disregarded en-
tity for federal tax purposes.

.02 If a qualified entity (as described in
section 3.02 of this revenue procedure), and
the husband and wife as community prop-
erty owners, treat the entity as a partner-
ship for federal tax purposes and file the
appropriate partnership returns, the Inter-
nal Revenue Service will accept the posi-
tion that the entity is a partnership for
federal tax purposes.

.03 A change in reporting position will
be treated for federal tax purposes as a con-
version of the entity.

##### SECTION 5. EFFECTIVE DATE

This revenue procedure is effective on
the date published in the Internal Rev-
enue Bulletin.

##### SECTION 6. DRAFTING INFORMATION

The principal author of this revenue pro-
cedure is Laura Nash of the Office of the
Associate Chief Counsel (Passthroughs and
Special Industries). For further informa-
tion regarding this revenue procedure, con-
tact Ms. Nash or Ms. Rebekah Myers at
(202) 622-3050 (not a toll-free call).

## Part IV. Items of General Interest

Notice of Proposed
Rulemaking by
Cross-Reference to
Temporary Regulations;
Notice of Public Hearing

### Tax Shelter Disclosure Statements

REG-103735-00; REG-154117-02;
REG-154116-02; REG-154115-02;
REG-154429-02; REG-154423-02;
REG-154426-02; REG-110311-98

AGENCY: Internal Revenue Service
(IRS), Treasury.

ACTION: Notice of proposed rulemak-
ing by cross-reference to temporary regu-
lations; notice of public hearing.

SUMMARY: These proposed rules pro-
vide the public with additional guidance
needed to comply with the disclosure rules
under section 6011(a). The rules also make
conforming changes to the registration re-
quirements under section 6111(d). The pro-
posed rules affect taxpayers participating in
certain reportable transactions. On page 815
of this Bulletin, the IRS is issuing tempo-
rary regulations that modify the rules re-
lating to the requirement that certain
taxpayers file a statement with their Fed-
eral tax returns under section 6011(a) for
certain transactions, including transac-
tions involving Federal income, estate, gift,
employment, and pension or exempt orga-
nizations excise taxes. The temporary regu-
lations also make conforming changes to the
rules relating to the registration of tax shel-
ters under section 6111(d). The text of the
temporary regulations also serves as the text
of these proposed regulations.

DATES: Written or electronic comments
and requests to speak and outlines of top-
ics to be discussed at the public hearing
scheduled for December 11, 2002, at 10
a.m., must be received by December 2,
2002.

ADDRESSES: Send submissions to:
CC:ITA:RU, (REG-103735-00; REG-
154117-02; REG-154116-02; REG-
154115-02; REG-154429-02; REG-
154423-02; REG-154426-02; REG-

110311-98), room 5226, Internal Revenue
Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may
be hand delivered Monday through Fri-
day between the hours of 8 a.m. and 5 p.m.
to: CC:ITA:RU (REG-103735-00; REG-
154117-02; REG-154116-02; REG-
154115-02; REG-154429-02; REG-
154423-02; REG-154426-02; REG-
110311-98), Courier's Desk, Internal
Revenue Service, 1111 Constitution Av-
enue, NW, Washington, DC. Alternatively,
taxpayers may submit electronic comments
directly to the IRS Internet site at
www.irs.gov/regs. The public hearing will
be held in room 6718, Internal Revenue
Building, 1111 Constitution Ave., NW,
Washington, DC.

FOR FURTHER INFORMATION
CONTACT: Tara P. Volungis, Danielle M.
Grimm, or Charlotte Chyr, 202-622-3080
(not a toll-free number); concerning sub-
missions, Sonya Cruse, 202-622-7180 (not
a toll-free number).

SUPPLEMENTARY INFORMATION:

## Paperwork Reduction Act

The collections of information contained
in this notice of proposed rulemaking have
been submitted to the Office of Manage-
ment and Budget for review in accordance
with the Paperwork Reduction Act of 1995
(44 U.S.C. 3507(d). Comments on the col-
lections of information should be sent to the
Office of Management and Budget, Attn:
Desk Officer for the Department of the
Treasury, Office of Information and Regu-
latory Affairs, Washington, DC 20503, with
copies to the Internal Revenue Service, Attn:
IRS Reports Clearance Officer, W:CAR:
MP:FP:S, Washington, DC 20224. Com-
ments on the collection of information
should be received by December 23, 2002.
Comments are specifically requested
concerning:

Whether the proposed collections of in-
formation are necessary for proper perfor-
mance of the functions of the Internal
Revenue Service, including whether the in-
formation will have practical utility;

The accuracy of the estimated burden as-
sociated with the proposed collections of in-
formation (see below);

How the quality, utility, and clarity of the
information to be collected may be en-
hanced;

How the burden of complying with the
proposed collections of information may be
minimized, including through the applica-
tion of automated collection techniques or
other forms of information technology; and
Estimates of capital or start-up costs and
costs of operation, maintenance, and pur-
chase of service to provide information.

The collections of information in this
proposed regulation are in § 1.6011-4T(a),
(d), (e), (f), and (g), and in § 301.6111-
2T(b), (e), and (f). This information is re-
quired to provide the IRS with notice of
transactions that are potentially abusive. This
information will be used to ensure com-
pliance with the Federal tax laws. The col-
lections of information are mandatory. The
likely respondents and recordkeepers are in-
dividuals, business or other for-profit in-
stitutions, and small businesses or
organizations.

The burden for the collection of infor-
mation in § 1.6011-4T will be reflected on
Form 8886, "Reportable Transaction Dis-
closure Statement". The burden for the col-
lection of information in § 301.6111-2T is
reflected on Form 8264, "Application for
Registration of a Tax Shelter".

An agency may not conduct or spon-
sor, and a person is not required to re-
spond to, a collection of information unless
it displays a valid control number assigned
by the Office of Management and Bud-
get.

Books or records relating to a collec-
tion of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required by
26 U.S.C. 6103.

## Background

The temporary regulations amend the
rules in 26 CFR parts 1, 20, 25, 31, 53, 54,
and 56 regarding the filing and records re-
quirements of certain taxpayers under sec-
tion 6011. The temporary regulations also
amend the rules in 26 CFR part 301 re-
garding the registration of confidential cor-
porate tax shelters under section 6111. The
text of the temporary regulations also serves
as the text of these proposed regulations.

The preamble to the temporary regula-
tions explains the regulations.

## Special Analyses

It has been determined that these no-
tices of proposed rulemaking are not sig-
nificant regulatory actions as defined in
Executive Order 12866. Therefore, a regu-
latory assessment is not required. It also has
been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regula-
tions. It is hereby certified that the collec-
tion of information in these regulations will
not have a significant economic impact on
a substantial number of small entities. This
certification is based upon the fact that the
time required to prepare or retain the dis-
closure or registration is not lengthy and
will not have a significant impact on those
small entities that are required to provide
disclosure or to register. Therefore, a Regu-
latory Flexibility Analysis under the Regu-
latory Flexibility Act (5 U.S.C. chapter 6)
is not required. Pursuant to section 7805(f)
of the Internal Revenue Code, these no-
tices of proposed rulemaking will be sub-
mitted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on their impact on small busi-
ness.

## Comments and 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 has been scheduled for
December 11, 2002, beginning at 10 a.m.
in room 6718 of the Internal Revenue
Building, 1111 Constitution Avenue, NW,
Washington, DC. Due to building secu-
rity procedures, visitors must enter at the
Constitution Avenue entrance. In addi-
tion, all visitors must present photo iden-
tification to enter the building. Because of
access restrictions, visitors will not be ad-
mitted beyond the immediate entrance area
more than 30 minutes before the hearing

starts. For information about having your
name placed on the building access list to
attend the hearing, see the "FOR FUR-
THER INFORMATION CONTACT" sec-
tion of this preamble.

The rules of 26 CFR 606.601(a)(3) ap-
ply to the hearing. Persons who wish to
present oral comments at the hearing must
submit electronic or written comments and
an outline of the topics to be discussed and
the time to be devoted to each topic (signed
original and eight (8) copies) by Decem-
ber 2, 2002. A period of 10 minutes will be
allotted to each person for making com-
ments. An agenda showing the schedul-
ing of the speakers will be prepared after
the deadline for receiving outlines has
passed. Copies of the agenda will be avail-
able free of charge at the hearing.

## Drafting Information

* * * * *

## Proposed Amendments to the Regulations

Accordingly, 26 CFR parts 1 and 301,
which were proposed to be amended at 67
FR 41362 (June 18, 2002), are proposed to
be further amended and 26 CFR parts 20,
25, 31, 53, 54, and 56 are proposed to be
amended as follows:

PART 1-INCOME TAXES

Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805

Par. 2. Section 1.6011-4, as proposed to
be added at 66 FR 41169 (August 7, 2001)
and amended at 67 FR 41362 (June 18,
2002), is revised to read as follows:

§ 1.6011-4 Requirement of statement
disclosing participation in certain
transactions by taxpayers.

[The text of the revision of this pro-
posed section is the same as the text of the

revision of § 1.6011-4T published else-
where in this issue of the Federal Regis-
ter.]

PART 20-ESTATE TAX; ESTATES OF
DECEDENTS DYING AFTER
AUGUST 16, 1954

Par. 3. The authority citation for part 20
continues to read in part as follows:

Authority: 26 U.S.C. 7805 * *

Par. 4. Section 20.6011-4 is added to
read as follows:

§ 20.6011-4 Requirement of statement
disclosing participation in certain
transactions by taxpayers.

[The text of this proposed section is the
same as the text of § 20.6011-4T pub-
lished elsewhere in this issue of the Fed-
eral Register.]

PART 25-GIFT TAX; GIFTS MADE
AFTER DECEMBER 31, 1954

Par. 5. The authority citation for part 25
continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 6. Section 25.6011-4 is added to
read as follows:

§ 25.6011-4 Requirement of statement
disclosing participation in certain
transactions by taxpayers.

[The text of this proposed section is the
same as the text of § 25.6011-4T pub-
lished elsewhere in this issue of the Fed-
eral Register.]

PART 31-EMPLOYMENT TAXES
AND COLLECTION OF INCOME TAX
AT SOURCE

Par. 7. The authority citation for part 31
continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 8. Section 31.6011-4 is added to
read as follows:

§ 31.6011-4 Requirement of statement
disclosing participation in certain
transactions by taxpayers.

[The text of proposed section is the same
as the text of § 31.6011-4T published else-
where in this issue of the Federal Regis-
ter.]

# PART 53-FOUNDATION AND SIMILAR EXCISE TAXES

Par. 9. The authority citation for part 53
continues to read as follows:

Authority: 26 U.S.C. 7805.

Par. 10. Section 53.6011-4 is added to
read as follows:

§ 53.6011-4 Requirement of statement
disclosing participation in certain
transactions by taxpayers.

[The text of this proposed section is the
same as the text of § 53.6011-4T pub-
lished elsewhere in this issue of the Fed-
eral Register.]

# PART 54-PENSION EXCISE TAXES

Par. 11. The authority citation for part
54 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * *

Par. 12. Section 54.6011-4 is added to
read as follows:

§ 54.6011-4 Requirement of statement
disclosing participation in certain
transactions by taxpayers.

[The text of this proposed section is the
same as the text of § 54.6011-4T pub-
lished elsewhere in this issue of the Fed-
eral Register.]

PART 56-PUBLIC CHARITY EXCISE
TAXES

Par. 13. The authority citation for part
56 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 14. Section 56.6011-4 is added to
read as follows:

§ 56.6011-4 Requirement of statement
disclosing participation in certain
transactions by taxpayers.

[The text of this proposed section is the
same as the text of § 56.6011-4T pub-
lished elsewhere in this issue of the Fed-
eral Register.]

PART 301-PROCEDURE AND
ADMINISTRATION

Par. 15. The authority citation for part
301 is amended by adding an entry in nu-
merical order to read in part as follows:
Authority: 26 U.S.C. 7805
Section 301.6111-2 also issued under 26
U.S.C. 6111. * * *

Par. 16. Section 301.6111-2, as pro-
posed to be added at 66 FR 41169 (Au-
gust 7, 2001) and amended at 67 FR 41363
(June 18, 2002), is amended as follows:

1\. Paragraphs (a)(3) and (b)(3)(i) are re-
vised.

2\. Paragraph (c)(3) is amended by add-
ing a sentence at the end of the paragraph.

3\. Paragraph (h) is amended by revis-
ing the paragraph heading and removing the
third sentence through the last sentence and
adding two new sentences in their place.

The revisions and additions read as
follows:

§ 301.6111-2 Confidential corporate tax
shelters.

[The text of the amendments to this pro-
posed section is the same as the text of the
amendments to § 301.6111-2T published
elsewhere in this issue of the Federal Reg-
ister.]

Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.

(Filed by the Office of the Federal Register on October 17,
2002, 3:10 p.m., and published in the issue of the Federal Reg-
ister for October 22, 2002, 67 F.R. 64840)

## Notice of Proposed Rulemaking by Cross-Reference to Temporary Regulations; Notice of Public Hearing

## Requirement to Maintain a List of Investors in Potentially Abusive Tax Shelters

REG-103736-00

AGENCY: Internal Revenue Service
(IRS), Treasury.

ACTION: Notice of proposed rulemak-
ing by cross-reference to temporary regu-
lations; notice of public hearing.

SUMMARY: These proposed rules relate
to the preparation, maintenance, and fur-
nishing of lists of persons in potentially abu-
sive tax shelters under section 6112. These
regulations apply to sellers and organiz-
ers, collectively known as material advi-
sors, of potentially abusive tax shelters. In

this issue of the Bulletin, the IRS is issu-
ing temporary regulations (T.D. 9018) modi-
fying the rules relating to the list
maintenance requirements under section
6112. The text of those temporary regula-
tions also serves as the text of these pro-
posed regulations.

ADDRESSES: Send submissions to:
CC:ITA:RU (REG-103736-00), room 5226,
Internal Revenue Service, POB 7604, Ben
Franklin Station, Washington, DC 20044.
Submissions may be hand delivered Mon-
day through Friday between the hours of
8 a.m. and 5 p.m. to: CC:ITA:RU (REG-
103736-00), Courier's Desk, Internal Rev-
enue Service, 1111 Constitution Avenue,
NW, Washington, DC. Alternatively, tax-
payers may submit electronic comments di-
rectly to the IRS Internet site at
www.irs.gov/regs. The public hearing will
be held in room 6718, Internal Revenue
Building, 1111 Constitution Ave., NW,
Washington, DC.

FOR FURTHER INFORMATION
CONTACT: Charlotte Chyr, Tara P.
Volungis, or Danielle M. Grimm, 202-
622-3080 (not a toll-free number); con-
cerning submissions, Sonya Cruse, 202-
622-7180 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

### Paperwork Reduction Act

The collections of information contained
in this notice of proposed rulemaking have
been submitted to the Office of Manage-
ment and Budget for review in accordance
with the Paperwork Reduction Act of 1995
(44 U.S.C. 3507(d)). Comments on the col-
lections of information should be sent to the
Office of Management and Budget, Attn:
Desk Officer for the Department of the
Treasury, Office of Information and Regu-
latory Affairs, Washington, DC 20503, with
copies to the Internal Revenue Service, Attn:
IRS Reports Clearance Officer, W:CAR:
MP:FP:S, Washington, DC 20224. Com-
ments on the collection of information

should be received by December 23, 2002.
Comments are specifically requested
concerning:

The accuracy of the estimated burden as-
sociated with the proposed collections of in-
formation (see below);

How the quality, utility, and clarity of the
information to be collected may be en-
hanced;

Estimates of capital or start-up costs and
costs of operation, maintenance, and pur-
chase of service to provide information.

The collections of information in this
proposed regulation are in § 301.6112-
1T(a), (e), (f) and (i). This information is
required to comply with the list mainte-
nance requirement of section 6112. Sec-
tion 6708 provides penalties for failing to
maintain a list under section 6112. This in-
formation will be used to ensure compli-
ance with the Federal tax laws. The
collections of information are mandatory.
The likely respondents and recordkeepers
are individuals, business or other for-profit
and not for-profit institutions, and small
businesses or organizations.

Estimated total annual reporting and/or
recordkeeping burden: 15,000 hours.

Estimated average annual burden hours
per respondent and/or recordkeeper: 100
hours.

Estimated number of respondents and/or
recordkeepers: 150.

Estimated annual frequency of responses:
On occasion.

Books or records relating to a collec-
tion of information must be retained as long
as their contents may become material in
the administration of any internal revenue

law. Generally, tax returns and tax return
information are confidential, as required by
26 U.S.C. 6103.

### Background

The temporary regulations amend 26
CFR part 301 regarding rules relating to the
list maintenance requirements under sec-
tion 6112. The text of the temporary regu-
lations also serves as the text of these
proposed regulations. The preamble to the
temporary regulations explains the regula-
tions.

### Special Analyses

It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in Ex-
ecutive Order 12866. Therefore, a regulatory
assessment is not required. It also has been
determined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C. chap-
ter 5) does not apply to these regulations.
It is hereby certified that the collection of
information in these regulations will not
have a significant economic impact on a
substantial number of small entities. This
certification is based upon the fact that the
number of respondents is small, those per-
sons responsible for maintaining the list de-
scribed in the regulations are principally
sophisticated businesses, including account-
ing firms and law firms and very few re-
spondents, if any, are likely to be small
businesses. Therefore, a Regulatory Flex-
ibility Analysis under the Regulatory Flex-
ibility Act (5 U.S.C. chapter 6) is not
required. Pursuant to section 7805(f) of the
Internal Revenue Code, this notice of pro-
posed rulemaking will be submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on its
impact on small business.

#### Comments and Public Hearing

A public hearing has been scheduled for
December 11, 2002, beginning at 10 a.m.,

in room 6718 of the Internal Revenue
Building, 1111 Constitution Avenue, NW,
Washington, DC. Due to building secu-
rity procedures, visitors must enter at the
Constitution Avenue entrance. In addi-
tion, all visitors must present photo iden-
tification to enter the building. Because of
access restrictions, visitors will not be ad-
mitted beyond the immediate entrance area
more than 30 minutes before the hearing
starts. For information about having your
name placed on the building access list to
attend the hearing, see the "FOR FUR-
THER INFORMATION CONTACT" sec-
tion of this preamble.

### Drafting Information

* * * * *

### Proposed Amendments to the Regulations

Accordingly, 26 CFR part 301, which
was proposed to be amended at 65 FR
49955 (August 16, 2000), is proposed to be
further amended as follows:

#### PART 301-PROCEDURE AND ADMINISTRATION

Paragraph 1. The authority citation for
part 301 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *

Section 301.6112-1 also issued under 26
U.S.C. 6112.

Par. 2. Section 301.6112-1, as proposed
to be amended at 65 FR 49957 (August 16,
2000), is revised to read as follows:

§ 301.6112-1 Requirement to prepare,
maintain, and furnish lists with respect
to potentially abusive tax shelters.

[The text of the revision of this pro-
posed section is the same as the text of the
amendments to § 301.6112-1T published
elsewhere in this issue of the Federal Reg-
ister.]

Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.

(Filed by the Office of the Federal Register on October 17,
2002, 3:10 p.m., and published in the issue of the Federal Reg-
ister for October 22, 2002, 67 F.R. 64842)

Request for Comments
Regarding Application for
Recognition of Exemption
Under Section 501(c)(3) of
the Code

## Announcement 2002-103

The Internal Revenue Service (IRS) is
revising Form 1023, Application for Rec-
ognition of Exemption Under Section
501(c)(3) of the Internal Revenue Code, and
Instructions for Form 1023. To ensure that
this process considers the needs of all who
have an interest in the application filed by
organizations to obtain recognition of ex-
emption from federal income tax under
§ 501(c)(3) of the Internal Revenue Code,
we are seeking comments from exempt or-
ganizations, practitioners, state regula-
tors, vendors, and others.

This Announcement corrects Announce-
ment 2002-92, 2002-41 I.R.B. 709, by
amending the electronic email address to
which comments may be sent.

## BACKGROUND

In order to be recognized as exempt
from federal income tax under § 501(a) as
an organization described in § 501(c)(3), the
law requires that most organizations sub-
mit an application with a detailed state-
ment of their proposed activities sufficient
to establish that they qualify for exemp-
tion. This draft application and accompa-
nying instructions takes into consideration

this requirement and comments we previ-
ously received from those involved in the
application process with suggestions for im-
provements.

# REQUEST FOR PUBLIC COMMENT

The IRS requests comments from ex-
empt organizations, practitioners, and all in-
terested stakeholders on proposed revisions
to the current Form 1023 and Instructions.
The proposed revisions have been posted
on the IRS website, at www.irs.gov/eo.

Interested parties should provide a state-
ment explaining their interest in the Form
1023 and any information that will be use-
ful in revising it. We are particularly in-
terested in comments that address the
following:

1\. Ease of comprehension,

2\. Customer burden,

3\. Technical accuracy, and

4\. Sufficiency of information requested.

Public comments should be submitted in
writing on or before December 2, 2002, to
the following address:

Internal Revenue Service

1111 Constitution Avenue, NW
Washington, DC 20224

Attn: Amy Henchey - Form 1023
Announcement

T:EO:CEO

Comments may also be sent via elec-
tronic mail to tege.eo2@irs.gov.

DRAFTING INFORMATION

The principal author of this announce-
ment is Amy Henchey of Exempt Organi-
zations. For further information regarding
this announcement, contact Amy Henchey
at (202) 283-8856 or Cindy Westcott at
(513) 263-3519 (not toll-free calls).

# Foundations Status of Certain Organizations

Announcement 2002-104

The following organizations have failed
to establish or have been unable to main-
tain their status as public charities or as op-
erating foundations. Accordingly, grantors
and contributors may not, after this date,
rely on previous rulings or designations in

the Cumulative List of Organizations (Pub-
lication 78), or on the presumption aris-
ing from the filing of notices under section
508(b) of the Code. This listing does not
indicate that the organizations have lost their
status as organizations described in sec-
tion 501(c)(3), eligible to receive deduct-
ible contributions.

Former Public Charities. The follow-
ing organizations (which have been treated
as organizations that are not private foun-
dations described in section 509(a) of the
Code) are now classified as private
foundations:

A Charitable Team "A.C.T.", Austin, TX
ADRA Institute, Inc., Boston, MA

Afryqah, Ltd., Great Falls, VA

Agape Love Family Association ALFA,
Ltd., Rosedale, NY
Agred Foundation, Shreveport, LA
All One Family International, Chico, CA
Aluminum Anonymous, Inc.,
Chesapeake City, MD
American Russian Center for Culture
Preservation, Inc., Brooklyn, NY
Americas Foundation for Education and
Culture, Palo Alto, CA

Anoka Electric Trust, Inc., Anoka, MN
Aquarius International Village Water Project,
Davis, CA
Bear Creek Soccer Association, Inc.,
Wilkes-Barre, PA

Big Air BMX, Inc., Garden City, KS
Booneville Education Foundation, Inc.,
Booneville, AR
Boys & Girls Clubs of Greeneville/Greene
County, Greeneville, TN
Broken Tree One Room Cosmos School
House Research Initiative, Inc.,
Kintnersville, PA

Bus and Motorcoach Research and
Education Institute, Alexandria, VA
Callaway Youth Association in the Arts,
Atlanta, GA
Caloosa Humane Society, Inc., Labelle, FL
Cama Beach Institute, Seattle, WA
Cancer Research Coalition, Inc.,
Bethesda, MD
Catskill Revitalization Corporation, Inc.,
Endowment Fund, Stamford, NY
Central American Library Association,
Clifton, NJ
Central California Consulting
Corporation, Inc., Stockton, CA
Citywide Resources for Children, Inc.,
Brooklyn, NY
College Assistance Foundation,
Kirkland, WA

College of Ophthalmic Somatology, Anaheim, CA

Lawton Community Theater Foundation, Inc., Oklahoma City, OK

Philanthropic Association of Volunteers With Expertise, San Francisco, CA

College Park Idlewild Community Progress, Raleigh, NC

Lewis T. Preston Education Program for Girls, Inc., Newark, DE

Philo Dough, Inc., Los Angeles, CA Platinum Digital Schoolhouse

Comforting Arms Society, Pittsburg, CA

Lindseys Back to Basics Youth

Foundation, Islandia, NY

Commonsense Advocates for Road Safety,

Education Center, Herndon, VA

Port Aransas Boatmen's Endowed Schol- arship Fund, Inc., Port Aransas, TX

Inc., Philadelphia, PA

Little Rascals Preschool, Inc.,

Concerned Organizations and Parents for Education, Canton, MS

Walnut Ridge, AR

Preserving Tolerance, Inc., Washington, DC Quantum Systems Research, Inc., Houston, TX

Louisiana Band of Choctaw Indians, Inc.,

Coreworks, Inc., Raleigh, NC

Baker, LA

Cover the Earth Ministry, Jamestown, NC

Lutheran Youth Soccer Association,

RECDA, Inc., New York, NY

Crisp Foundation, Los Angeles, CA

St. Charles, MO

Red Road Foundation, Inc.,

Dalyn Enterprises, Inc., Aurora, CO

Many Waters Media Ministries,

North Conway, NH

Dover Education Enterprises, Inc.,

Pahrump, NV

Resilience Insights, Saugus, CA Rocket Institute, Kansas City, MO

Dover, PA

Mathias Scholarship Fund, Carlinville, IL

El-Elohim Foundation, Inc., Lilburn, GA ENZI Foundation, Claremont, CA

Maumee Valley-Wabash &amp; Erie Canal Historical Society, Incorporated,

Ronny Spillers Evangelistic Ministries, Inc., Rex, GA

Excellence 2000, Inc., Dallas, TX

Woodburn, IN Merritt Tutorial Services, Castro Valley, CA Metropolitan Foundation for Aging, St. Paul, MN

Rosalie Osias Foundation for the Advance- ment of Women, Inc., Great Neck, NY Rose Sosin and Martin Sosin Family Foundation, Santa Monica, CA

Eye Research Center, Inc., Palm Harbor, FL Flonzie B. Wright Scholarship Fund, Inc., Germantown, OH

Fourth Ward Community Coalition

Microcredit Loan Fund, Inc., Sausalito, CA Midlands Community Foundation, Papillion, NE

Royslyn Homes, Inc., Sacramento, CA S.L. Jones Community Outreach Center, Inc., Detroit, MI

Community Development Corporation, Houston, TX

Fresh Start House, Moreno, CA Friends of Greenwood Cemetery, Dallas, TX Gateway Exhibits Organization,

Mindship International, Orono, ME Momoko Ito Foundation, San Francisco, CA Mountain Hearthstone, Inc., Atlanta, GA Mountaintop Retreat Center, Ltd.,

S.W. Region EMS and Trauma Care Council, Vancouver, WA

Safe Choice for the Permian Basin, Inc., Midland, TX

St. Louis, MO

Minneapolis, MN

San Juan Oaks Foundation, Hollister, CA

Genesis Project, Chicago, IL George B. Lockwood Center for Family

MSDB Cultural Society, Inc., Brooklyn, NY N His Love Creations, Hawthorne, CA Na Pu Lei O Likolehua, Honolulu, HI Narrow Way, Inc., Forney, TX

Sandbox Open Arts, Incorporated, Brooklyn, NY

Life, Long Island City, NY Globalearn, Los Gatos, CA

Sanger School Foundation, Inc., Waco, TX Showbands Unlimited, Monroe, LA Sierra Club Fund, San Francisco, CA

God's Exploits, Inc., Houston, TX Good Shepherds Animal Assisted Therapy,

National Junior Golf Foundation, Tallahassee, FL

Mena, AR

Native American Education, Ltd., Bixby, OK

Solving, Inc., Portland, OR SP-CE, Inc., New York, NY

Greater Works Community Outreach,

Yeadon, PA

New Beginnings Industries, Inc.,

Stowe Perpetual Gifts Fund, Inc.,

Green Oak Ranch, San Marcos, CA

Lake Elsinore, CA

Stowe, VT

Healthcare Values Foundation, Dallas, TX

Newport Christian Fellowship, Corona del Mar, CA

Support our Schools, Inc., St. Paul, MN Survival MIKVA TIKVA Hope MIKVA Outreach Global Programs, Inc., Brooklyn, NY

Help 100, Inc., Fishers, IN

Hou-Dal Affordable Housing Corporation, Lancaster, TX

Northern Cedar Community Betterment Foundation, Hartington, NE

Houston Citizens Arts &amp; Science Group, Houston, TX

Northlake Tenant Council, Bothell, WA Nuwarlee Relief Service, Inc.,

Systems of Human Resources, Inc., Patchogue, NY

Innovative Job Training &amp; Development Center, Marietta, GA

East Stroudsburg, PA Oakley Community Development Corporation, Columbus, OH

Tabernacle of Faith Community Develop- ment Corporation, Inc., Ft. Lauderdale, FL

Institute of Health Research, Summit, NJ

Interactive Ministry Experience, Inc., Smyrna, GA

Omega Community Development Corporation, Dayton, OH

Tattnall County Family Connection, Inc., Reidville, GA

International City Housing and Develop- ment Corporation, Los Angeles, CA Iowa Public Health Foundation, Des Moines, IA

One Way Out Productions, Inc., Venice, CA Operation Brotherhood Foundation, Inc., Bloomfield, NJ Original King Kids of America, Inc.,

Total Access, Inc., Woodbridge, NJ Trinity Booster Club, Chicago, IL United Music Ministries of God, Inc., Cranbury, NJ

Khan Economic Development, Inc.,

Arlington, TX

Universal Care for the Handicapped, Brooklyn, NY

Pompano Beach, FL

Ornate Fund, Spokane, WA

KIDDO Corp., Clifton, NJ

Other's, Inc., Boston, MA

Urban Community of Economic Growth &amp;

Koroko International, Inc., New York, NY

PDG Consulting Services, Memphis, TN

Development, Inc., Far Rockaway, NY

2002-45 I.R.B.

837

November 12, 2002

Viva Conservation Foundation, Inc., Fort Myers, FL

Word Hunger, Inc., Fayetteville, AR Youth Foundation for World Peace,

sification as to foundation status. Grant- ors and contributors may thereafter rely

Warren W. Buck Scholarship Foundation, Inc., Memphis, TN

Washington, DC Youth, Inc., Newton, NJ

upon such ruling or determination letter as provided in section 1.509(a)-7 of the In- come Tax Regulations. It is not the prac-

Wells Extension Resident Management

Organization, Chicago, IL

If an organization listed above submits information that warrants the renewal of its classification as a public charity or as a pri- vate operating foundation, the Internal Rev- enue Service will issue a ruling or determination letter with the revised clas-

tice of the Service to announce such revised classification of foundation status in the In- ternal Revenue Bulletin.

Wepts, Inc., Houston, TX

Willingboro-Fort Dix-McGuire Foundation, Inc., Willingboro, NJ

Windhollow Foundation, Inc., Frederick, MD

# Definition of Terms

Revenue rulings and revenue procedures
(hereinafter referred to as "rulings") that
have an effect on previous rulings use the
following defined terms to describe the
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.

Distinguished describes 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

applies to both A and B, the prior ruling
is modified because it corrects a pub-
lished 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
period 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 published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings 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 formerly used will appear in
material published in the Bulletin.

A-Individual.

Acq .- Acquiescence.

B-Individual.

BE-Beneficiary.

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.

COOP-Cooperative.

GR-Grantor.

Ct.D .- Court Decision.

IC-Insurance Company.

I.R.B .- Internal Revenue Bulletin.

D-Decedent.

LE-Lessee.

DC-Dummy Corporation.

LP-Limited Partner.

LR-Lessor.

TT-Trustee.

U.S.C .- United States Code.

DISC-Domestic International Sales Corporation.

DR-Donor.

O Organization.

Y-Corporation.

E-Estate.

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.

DE-Donee.

Del. Order-Delegation Order.

M-Minor.

Nonacq .- Nonacquiescence.

X-Corporation.

Z-Corporation.

EE-Employee.

E.O .- Executive Order.

ER-Employer.

ERISA-Employee Retirement Income Security Act.

EX-Executor.

F-Fiduciary.

FC-Foreign Country.

FICA-Federal Insurance Contributions Act.

FISC-Foreign International Sales Company.

BK-Bank.

B.T.A .- Board of Tax Appeals.

C-Individual.

C.B .- Cumulative Bulletin.

CFR-Code of Federal Regulations.

CI- City.

CY-County.

Numerical Finding List1

Notices-Continued:

Revenue Procedures-Continued:

Bulletin 2002-26 through 2002-44

2002-51, 2002-29 I.R.B. 131

2002-55, 2002-35 I.R.B. 435

2002-52, 2002-30 I.R.B. 187

2002-56, 2002-36 I.R.B. 483

Announcements:

2002-53, 2002-30 I.R.B. 187

2002-57, 2002-39 I.R.B. 575

2002-54, 2002-30 I.R.B. 189

2002-58, 2002-40 I.R.B. 644

2002-59, 2002-26 I.R.B. 28

2002-55, 2002-36 I.R.B. 481

2002-59, 2002-39 I.R.B. 615

2002-60, 2002-26 I.R.B. 28

2002-56, 2002-32 I.R.B. 319

2002-60, 2002-40 I.R.B. 645

2002-61, 2002-27 I.R.B. 72

2002-57, 2002-33 I.R.B. 379

2002-61, 2002-39 I.R.B. 616

2002-62, 2002-27 I.R.B. 72

2002-58, 2002-35 I.R.B. 432

2002-62, 2002-40 I.R.B. 683

2002-63, 2002-27 I.R.B. 72

2002-59, 2002-36 I.R.B. 481

2002-63, 2002-41 I.R.B. 691

2002-64, 2002-27 I.R.B. 72

2002-60, 2002-36 I.R.B. 482

2002-64, 2002-42 I.R.B. 718

2002-65, 2002-29 I.R.B. 182

2002-61, 2002-38 I.R.B. 563

2002-65, 2002-41 I.R.B. 700

2002-66, 2002-29 I.R.B. 183

2002-62, 2002-39 I.R.B. 574

2002-66, 2002-42 I.R.B. 725

2002-67, 2002-30 I.R.B. 237

2002-63, 2002-40 I.R.B. 644

2002-67, 2002-43 I.R.B. 733

2002-64, 2002-41 I.R.B. 690

2002-68, 2002-43 I.R.B. 753

2002-68, 2002-31 I.R.B. 283

2002-65, 2002-41 I.R.B. 690

2002-69, 2002-31 I.R.B. 283

2002-66, 2002-42 I.R.B. 716

Revenue Rulings:

2002-70, 2002-31 I.R.B. 284

2002-67, 2002-42 I.R.B. 716

2002-71, 2002-32 I.R.B. 323

2002-68, 2002-43 I.R.B. 730

2002-38, 2002-26 I.R.B. 4

2002-72, 2002-32 I.R.B. 323

2002-69, 2002-43 I.R.B. 730

2002-39, 2002-27 I.R.B. 33

2002-73, 2002-33 I.R.B. 387

2002-70, 2002-44 I.R.B. 765

2002-40, 2002-27 I.R.B. 30

2002-74, 2000-33 I.R.B. 387

2002-41, 2002-28 I.R.B. 75

2002-75, 2002-34 I.R.B. 416

Proposed Regulations:

2002-42, 2002-28 I.R.B. 76

2002-76, 2002-35 I.R.B. 471

2002-43, 2002-28 I.R.B. 85

2002-77, 2002-35 I.R.B. 471

REG-248110-96, 2002-26 I.R.B. 19

2002-44, 2002-28 I.R.B. 84

2002-78, 2002-36 I.R.B. 514

REG-110311-98, 2002-28 I.R.B. 109

2002-45, 2002-29 I.R.B. 116

2002-79, 2002-36 I.R.B. 515

REG-103823-99, 2002-27 I.R.B. 44

2002-46, 2002-29 I.R.B. 117

2002-80, 2002-36 I.R.B. 515

REG-103829-99, 2002-27 I.R.B. 59

2002-47, 2002-29 I.R.B. 119

2002-81, 2002-37 I.R.B. 533

REG-103735-00, 2002-28 I.R.B. 109

2002-48, 2002-31 I.R.B. 239

2002-82, 2002-37 I.R.B. 533

REG-106457-00, 2002-26 I.R.B. 23

2002-49, 2002-32 I.R.B. 288

2002-83, 2002-38 I.R.B. 564

REG-106871-00, 2002-30 I.R.B. 190

2002-50, 2002-32 I.R.B. 292

2002-84, 2002-37 I.R.B. 533

REG-106876-00, 2002-34 I.R.B. 392

2002-51, 2002-33 I.R.B. 327

2002-85, 2002-39 I.R.B. 624

REG-106879-00, 2002-34 I.R.B. 402

2002-52, 2002-34 I.R.B. 388

2002-86, 2002-39 I.R.B. 624

REG-107524-00, 2002-28 I.R.B. 110

2002-53, 2002-35 I.R.B. 427

2002-87, 2002-39 I.R.B. 624

REG-112306-00, 2002-44 I.R.B. 767

2002-54, 2002-37 I.R.B. 527

2002-88, 2002-38 I.R.B. 564

REG-115285-01, 2002-27 I.R.B. 62

2002-55, 2002-37 I.R.B. 529

2002-89, 2002-39 I.R.B. 626

REG-115781-01, 2002-33 I.R.B. 380

2002-56, 2002-37 I.R.B. 526

2002-90, 2002-40 I.R.B. 684

REG-116644-01, 2002-31 I.R.B. 268

2002-57, 2002-37 I.R.B. 526

2002-91, 2002-40 I.R.B. 685

REG-123345-01, 2002-32 I.R.B. 321

2002-58, 2002-38 I.R.B. 541

2002-92, 2002-41 I.R.B. 709

REG-126024-01, 2002-27 I.R.B. 64

2002-59, 2002-38 I.R.B. 557

2002-93, 2002-41 I.R.B. 709

REG-136311-01, 2002-36 I.R.B. 485

2002-60, 2002-40 I.R.B. 641

2002-94, 2002-42 I.R.B. 728

REG-150313-01, 2002-44 I.R.B. 777

2002-61, 2002-40 I.R.B. 639

2002-95, 2002-42 I.R.B. 728

REG-164754-01, 2002-30 I.R.B. 212

2002-62, 2002-42 I.R.B. 710

2002-96, 2002-43 I.R.B. 756

REG-165868-01, 2002-31 I.R.B. 270

2002-64, 2002-41 I.R.B. 688

2002-97, 2002-43 I.R.B. 757

REG-106359-02, 2002-34 I.R.B. 405

2002-65, 2002-43 I.R.B. 729

2002-98, 2002-43 I.R.B. 758

REG-122564-02, 2002-26 I.R.B. 25

2002-69, 2002-44 I.R.B. 760

2002-99, 2002-43 I.R.B. 758

REG-123305-02, 2002-26 I.R.B. 26

2002-71, 2002-44 I.R.B. 763

2002-100, 2002-44 I.R.B. 799

REG-124256-02, 2002-33 I.R.B. 383

2002-72, 2002-44 I.R.B. 759

2002-101, 2002-44 I.R.B. 800

REG-124667-02, 2002-44 I.R.B. 791

2002-102, 2002-44 I.R.B. 802

REG-133254-02, 2002-34 I.R.B. 412

Treasury Decisions:

REG-134026-02, 2002-40 I.R.B. 684

8997, 2002-26 I.R.B. 6

Court Decisions:

Revenue Procedures:

8998, 2002-26 I.R.B. 1

2075, 2002-38 I.R.B. 548

8999, 2002-28 I.R.B. 78

2002-43, 2002-28 I.R.B. 99

9000, 2002-28 I.R.B. 87

Notices:

2002-44, 2002-26 I.R.B. 10

9001, 2002-29 I.R.B. 128

2002-45, 2002-27 I.R.B. 40

9002, 2002-29 I.R.B. 120

2002-42, 2002-27 I.R.B. 36

2002-46, 2002-28 I.R.B. 105

9003, 2002-32 I.R.B. 294

2002-43, 2002-27 I.R.B. 38

2002-47, 2002-29 I.R.B. 133

9004, 2002-33 I.R.B. 331

2002-44, 2002-27 I.R.B. 39

2002-48, 2002-37 I.R.B. 531

9005, 2002-32 I.R.B. 290

2002-45, 2002-28, I.R.B. 93

2002-49, 2002-29 I.R.B. 172

9006, 2002-32 I.R.B. 315

2002-46, 2002-28 I.R.B. 96

2002-50, 2002-29 I.R.B. 173

9007, 2002-33 I.R.B. 349

2002-47, 2002-28 I.R.B. 97

2002-51, 2002-29 I.R.B. 175

9008, 2002-33 I.R.B. 335

2002-48, 2002-29 I.R.B. 130

2002-52, 2002-31 I.R.B. 242

9009, 2002-33 I.R.B. 328

2002-49, 2002-29 I.R.B. 130

2002-53, 2002-31 I.R.B. 253

9010, 2002-33 I.R.B. 341

2002-50, 2002-28 I.R.B. 98

2002-54, 2002-35 I.R.B. 432

1 A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 2002-1 through 2002-25 is
in Internal Revenue Bulletin 2002-26, dated July 1, 2002.

Treasury Decisions-Continued:

9011, 2002-33 I.R.B. 356
9012, 2002-34 I.R.B. 389

9013, 2002-38 I.R.B. 542
9014, 2002-35 I.R.B. 429
9015, 2002-40 I.R.B. 642
9016, 2002-40 I.R.B. 628

Finding List of Current Actions
on Previously Published Items1
Bulletin 2002-26 through 2002-44

## Announcements:

98-99
Superseded by
Rev. Proc. 2002-44, 2002-26 I.R.B. 10

2000-4
Modified by
Ann. 2002-60, 2002-26 I.R.B. 28

2001-9
Superseded by
Rev. Proc. 2002-44, 2002-26 I.R.B. 10

Notices:

89-25
Modified by
Rev. Rul. 2002-62, 2002-42 I.R.B. 710

97-26
Modified and superseded by
Notice 2002-62, 2002-39 I.R.B. 574

2001-6
Superseded by
Notice 2002-63, 2002-40 I.R.B. 644
2001-62
Modified and superseded by
Notice 2002-62, 2002-39 I.R.B. 574

Proposed Regulations:

REG-208280-86
Withdrawn by
REG-136311-01, 2002-36 I.R.B. 485

REG-209114-90
Corrected by
Ann. 2002-65, 2002-29 I.R.B. 182

REG-209813-96
Withdrawn by
REG-106871-00, 2002-30 I.R.B. 190

REG-103823-99

Corrected by

Ann. 2002-67, 2002-30 I.R.B. 237
Ann. 2002-79, 2002-36 I.R.B. 515

REG-103829-99
Corrected by

Ann. 2002-82, 2002-37 I.R.B. 533
Ann. 2002-95, 2002-42 I.R.B. 728

REG-105885-99
Corrected by
Ann. 2002-67, 2002-30 I.R.B. 237

REG-105369-00
Clarified by

Notice 2002-52, 2002-30 I.R.B. 187
Corrected by
Ann. 2002-67, 2002-30 I.R.B. 237

REG-106879-00
Corrected by
Ann. 2002-100, 2002-44 I.R.B. 799

Proposed Regulations-Continued:

REG-118861-00
Corrected by
Ann. 2002-67, 2002-30 I.R.B. 237

REG-126100-00
Withdrawn by
REG-133254-02, 2002-34 I.R.B. 412

REG-136193-01
Corrected by
Ann. 2002-67, 2002-30 I.R.B. 237

REG-136311-01
Corrected by
Ann. 2002-94, 2002-42 I.R.B. 728
Ann. 2002-102, 2002-44 I.R.B. 802

REG-161424-01
Corrected by
Ann. 2002-67, 2002-30 I.R.B. 237

REG-165706-01
Corrected by
Ann. 2002-67, 2002-30 I.R.B. 237

REG-165868-01
Corrected by
Ann. 2002-93, 2002-41 I.R.B. 709

REG-102740-02
Corrected by
Ann. 2002-67, 2002-30 I.R.B. 237

REG-106359-02
Corrected by
Ann. 2002-81, 2002-37 I.R.B. 533

REG-108697-02
Corrected by
Ann. 2002-84, 2002-37 I.R.B. 533

REG-123305-02
Corrected by
Ann. 2002-69, 2002-31 I.R.B. 283

Revenue Procedures:

88-10
Superseded by
Rev. Proc. 2002-48, 2002-37 I.R.B. 531

91-23
Modified and superseded by
Rev. Proc. 2002-52, 2002-31 I.R.B. 242

91-26
Modified and superseded by
Rev. Proc. 2002-52, 2002-31 I.R.B. 242

95-18
Superseded by
Rev. Proc. 2002-51, 2002-29 I.R.B. 175

96-13
Modified and superseded by
Rev. Proc. 2002-52, 2002-31 I.R.B. 242

96-14
Modified and superseded by
Rev. Proc. 2002-52, 2002-31 I.R.B. 242

Revenue Procedures-Continued:

96-53
Amplified by
Rev. Proc. 2002-52, 2002-31 I.R.B. 242

2001-12
Obsoleted by
T.D. 9004, 2002-33 I.R.B. 331

2001-15
Superseded by
Rev. Proc. 2002-64, 2002-42 I.R.B. 718

2001-17
Modified and superseded by
Rev. Proc. 2002-47, 2002-29 I.R.B. 133

2001-26
Superseded by
Rev. Proc. 2002-53, 2002-31 I.R.B. 253

2001-45
Superseded by
Rev. Proc. 2002-60, 2002-40 I.R.B. 645

2001-46
Modified and amplified by
Rev. Proc. 2002-65, 2002-41 I.R.B. 700
2001-47
Superseded by
Rev. Proc. 2002-63, 2002-41 I.R.B. 691
2001-50
Superseded by
Rev. Proc. 2002-57, 2002-39 I.R.B. 575

2001-52
Updated by
Rev. Proc. 2002-66, 2002-42 I.R.B. 725
2001-54
Superseded by
Rev. Proc. 2002-61, 2002-39 I.R.B. 616

2002-9
Modified and amplified by
Rev. Proc. 2002-46, 2002-28 I.R.B. 105
Rev. Proc. 2002-65, 2002-41 I.R.B. 700
Amplified, clarified, and modified by
Rev. Proc. 2002-54, 2002-35 I.R.B. 432

2002-13
Modified by

Rev. Proc. 2002-45, 2002-27 I.R.B. 40

2002-15
Modified and superseded by
Rev. Proc. 2002-59, 2002-39 I.R.B. 615

2002-16
Modified and superseded by
Rev. Proc. 2002-68, 2002-43 I.R.B. 753
2002-19
Amplified and clarified by
Rev. Proc. 2002-54, 2002-35 I.R.B. 432

1 A cumulative list of current actions on previously published
items in Internal Revenue Bulletins 2002-1 through 2002-25 is
in Internal Revenue Bulletin 2002-26, dated July 1, 2002.

### Revenue Rulings:

54-571
Obsoleted by
T.D. 9010, 2002-33 I.R.B. 341

55-534
Distinguished by
Rev. Rul. 2002-60, 2002-40 I.R.B. 641

55-606
Obsoleted by
T.D. 9010, 2002-33 I.R.B. 341

59-328
Obsoleted by
T.D. 9010, 2002-33 I.R.B. 341

64-36
Obsoleted by
T.D. 9010, 2002-33 I.R.B. 341
65-129
Obsoleted by
T.D. 9010, 2002-33 I.R.B. 341
67-197
Obsoleted by
T.D. 9010, 2002-33 I.R.B. 341

69-259
Modified and superseded by
Rev. Rul. 2002-50, 2002-32 I.R.B. 292
69-595
Obsoleted in part by
T.D. 9010, 2002-33 I.R.B. 341

70-608
Obsoleted in part by
T.D. 9010, 2002-33 I.R.B. 341

73-232
Obsoleted by
T.D. 9010, 2002-33 I.R.B. 341
76-225
Revoked by
REG-115781-01, 2002-33 I.R.B. 380
77-53
Obsoleted by
T.D. 9010, 2002-33 I.R.B. 341
85-50
Obsoleted by
T.D. 2002-33 I.R.B. 341
92-17
Amplified by
Rev. Rul. 2002-49, 2002-32 I.R.B. 288

Revenue Rulings-Continued:

92-75
Clarified by
Rev. Proc. 2002-52, 2002-31 I.R.B. 242

93-70
Obsoleted by
T.D. 9010, 2002-33 I.R.B. 341

94-76
Amplified by
Rev. Rul. 2002-42, 2002-28 I.R.B. 76

99-14
Modified and superseded by
Rev. Rul. 2002-69 2002-44 I.R.B. 760

### Treasury Decisions:

8925
Corrected by
Ann. 2002-89, 2002-39 I.R.B. 626

8997
Corrected by
Ann. 2002-68, 2002-31 I.R.B. 283
8999
Corrected by
Ann. 2002-71, 2002-32 I.R.B. 323

9013
Corrected by
Ann. 2002-83, 2002-38 I.R.B. 564

Internal Revenue Bulletin 2002-45 (PDF rendition): IRS Revenue Procedures

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