Internal Revenue Bulletin 1998-15 (PDF rendition): IRS Revenue Rulings

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

INCOME TAX
Rev. Rul. 98–19, page 5.
Relocation payments; Housing and Community Devel-
opment Act.A relocation payment, authorized by section
105(a)(11) of the Housing and Community Development Act
and funded under the 1997 Emergency Supplemental Appro-
priations Act for Recovery From Natural Disasters, made by
a local jurisdiction to an individual moving from a flood-dam-
aged residence to another residence, is not includible in the
individual’s gross income.
Rev. Rul. 98–20, page 8.
LIFO; price indexes; department stores. The February
1998 Bureau of Labor Statistics price indexes are accepted
for use by department stores employing the retail inventory
and last-in, first-out inventory methods for valuing inventories
for tax years ended on, or with reference to, February 28,
1998.
T.D. 8763, page 5.
Final regulations under section 166 of the Code deem a
charge-off and allow a deduction for a partially worthless
debt when the terms of a debt instrument have been modi-
fied.
T.D. 8764, page 9.
REG–102144–98, page 25.
Temporary and proposed regulations under sections 925
and 927 of the Code provide guidance to taxpayers who
have made an election to be treated as a foreign sales cor-
poration (FSC). A public hearing on the proposed regula-
tions will be held on June 24, 1998.
EXEMPT ORGANIZATIONS
Announcement 98–28, page 30.
A list is given of organizations now classified as private foun-
dations.
ADMINISTRATIVE
REG–209322–82, page 26.
Proposed regulations under sections 6031 and 6063 of the
Code revise the partnership filing requirement to reflect
changes to the law made by the Taxpayer Relief Act of 1997
(TRA). LR–198–82, 1986–1 C.B. 778 is withdrawn. A public
hearing will be held on May 19, 1998.
Rev. Proc. 98–27, page 15.
This procedure provides guidance to foreign financial insti-
tutions that desire to enter into a withholding agreement
with the Service in order to be treated as qualified interme-
diaries under new section 1.1441–1(e)(5) of the Income Tax
Regulations. It describes the application procedures for be-
coming a qualified intermediary and the terms that the Ser-
vice will ordinarily require in a withholding agreement.
Rev. Proc. 98–28, page 14.
Qualified mortgage bonds; mortgage credit certifi-
cates; national median gross income. Guidance is pro-
vided concerning the use of the national and area median
gross income figures by issuers of qualified mortgage
bonds and mortgage credit certificates in determining the
housing cost/income ratio described in section 143(f)(5) of
the Code. Rev. Proc. 97–26 is obsolete except as provided
in section 5.02 of this revenue procedure.
Internal Revenue
bbuulllleettiinn
Bulletin No. 1998–15
April 13, 1998
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
Department of the Treasury
Internal Revenue Service
Finding Lists begin on page 35.
Continued on page 4

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

The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi-
cial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly and may be obtained
from the Superintendent of Documents on a subscription
basis. Bulletin contents of a permanent nature are consoli-
dated semiannually into Cumulative Bulletins, which are sold
on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of in-
ternal management are not published; however, statements
of internal practices and procedures that affect the rights
and duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings
to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature
are deleted to prevent unwarranted invasions of privacy and
to comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have
the force and effect of Treasury Department Regulations,
but they may be used as precedents. Unpublished rulings
will not be relied on, used, or cited as precedents by Service
personnel in the disposition of other cases. In applying pub-
lished rulings and procedures, the effect of subsequent leg-
islation, regulations, court decisions, rulings, and proce-
dures must be considered, and Service personnel and oth-
ers concerned are cautioned against reaching the same con-
clusions in other cases unless the facts and circumstances
are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions, and Subpart B, Legislation and Related
Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and Sub-
parts. Also included in this part are Bank Secrecy Act Admin-
istrative Rulings. Bank Secrecy Act Administrative Rulings
are issued by the Department of the Treasury’s Office of the
Assistant Secretary (Enforcement).
Part IV.—Items of General Interest.
With the exception of the Notice of Proposed Rulemaking
and the disbarment and suspension list included in this part,
none of these announcements are consolidated in the Cumu-
lative Bulletins.
The first Bulletin for each month includes a cumulative index
for the matters published during the preceding months.
These monthly indexes are cumulated on a semiannual basis
and are published in the first Bulletin of the succeeding semi-
annual period, respectively.
3
Introduction
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

Rev. Proc. 98–29, page 22.
Inventory shrinkage estimates.Guidance, including a “re-
tail safe harbor method,” is provided for a taxpayer that
wants to change to a method of accounting for estimating
inventory “shrinkage” in computing ending inventory.
Notice 98–16, page 12.
This notice announces that the Service will amend the effec-
tive date of the section 1441 withholding regulations to
apply to payments made after December 31, 1999.
Notice 98–21, page 14.
Extension of the effective date of the Classification
Settlement Program.The Service is extending the Classi-
fication Settlement Program or “CSP” until further notice.
Announcement 98–27, page 30.
The Service announces that Forms W–9 and W–9S can be
filed electronically.
April 13, 199841998–15 I.R.B.
HIGHLIGHTS
OF THIS ISSUE—Continued
ADMINISTRATIVE—Continued

Section 25.—Interest on Certain
Home Mortgages
26 CFR 1.25–4T: Qualified mortgage credit
certificate program (temporary).
Guidance is provided for the use of the national
and area median gross income figures by issuers of
qualified mortgage bonds and mortgage credit cer-
tificates in determining the housing cost/income
ratio described in section 143(f)(5) of the Code. See
Rev. Proc. 98–28, page 14.
Section 61.—Gross Income
Defined
26 CFR 1.61–1: Gross income.
Relocation payments; Housing and
Community Development Act. A reloca-
tion payment, authorized by section
105(a)(11) of the Housing and Commu-
nity Development Act and funded under
the 1997 Emergency Supplemental Ap-
propriations Act for Recovery From Nat-
ural Disasters, made by a local jurisdic-
tion to an individual moving from a
flood-damaged residence to another resi-
dence, is not includible in the individual’s
gross income.
Rev. Rul. 98–19
ISSUE
Is a relocation payment authorized pur-
suant to section 105(a)(11) of Title I of
the Housing and Community Develop-
ment Act of 1974 (Act), 42 U.S.C.
§ 5305(a)(11), funded under the 1997
Emergency Supplemental Appropriations
Act for Recovery From Natural Disasters
(Supplemental Act), Pub. L. No. 105–18,
111 Stat. 158, 198–199, and made by a
local jurisdiction to an individual moving
from a flood-damaged residence to an-
other residence, includible in the individ-
ual’s gross income under § 61 of the Inter-
nal Revenue Code?
FACTS
Pursuant to the Act and the Supplemen-
tal Act, a resident of a local jurisdiction,
within a Presidentially-declared disaster
area in the upper Midwest, received a re-
location payment from the local jurisdic-
tion to help defray the expenses of mov-
ing from the resident’s flood-damaged
residence to another residence.
According to section 101(c) of the Act,
the primary objective of Title I “is the de-
velopment of viable urban communities,
by providing decent housing and a suitable
living environment and expanding eco-
nomic opportunities, principally for per-
sons of low and moderate income.” 42
U.S.C. § 5301(c). Section 105(a)(11) of
the Act provides, in part, that a community
development program may provide reloca-
tion payments and assistance for displaced
individuals and families as authorized
under the Act. 42 U.S.C. § 5305(a)(11).
The Supplemental Act provides fund-
ing, for displaced individuals and families
as authorized under the Act, to certain
communities affected by the flooding in
the upper Midwest and other Presiden-
tially-declared disasters occurring during
the federal government’s fiscal year end-
ing September 30, 1997.
LAW AND ANALYSIS
Section 61 and the Income Tax Regula-
tions thereunder provide that, except as
otherwise provided by law, gross income
means all income from whatever source
derived.
The Service has held that payments
made under legislatively provided social
benefit programs for the promotion of gen-
eral welfare are not includible in a recipi-
ent’s gross income. See Rev. Rul. 76–373,
1976–2 C.B. 16, which holds that reloca-
tion payments received by individuals pur-
suant to section 105(a)(11) of the Act are in
the nature of general welfare and are not in-
cludible in the gross incomes of recipients.
HOLDING
A relocation payment authorized pur-
suant to section 105(a)(11) of the Act,
funded under the Supplemental Act, and
made by a local jurisdiction to an individ-
ual moving from a flood-damaged resi-
dence to another residence, is in the na-
ture of general welfare and is not
includible in the individual’s gross in-
come under § 61.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Sheldon A. Iskow of the Office
of Assistant Chief Counsel (Income Tax
and Accounting). For further information
regarding this revenue ruling, contact Mr.
Iskow on (202) 622-4920 (not a toll-free
call).
Section 103.—State and Local
Bonds
26 CFR 1.103–1: Interest upon obligations of a
State, Territory, etc.
Guidance is provided for the use of the national
and area median gross income figures by issuers of
qualified mortgage bonds and mortgage credit cer-
tificates in determining the housing cost/income
ratio described in section 143(f)(5) of the Code. See
Rev. Proc. 98–28, page 14.
Section 143.—Mortgage
Revenue Bonds: Qualified
Mortgage Bond and Qualified
Veterans’ Mortgage Bond
26 CFR 6a.103A–2: Qualified mortgage bond.
Guidance is provided for the use of the national
and area median gross income figures by issuers of
qualified mortgage bonds and mortgage credit cer-
tificates in determining the housing cost/income
ratio described in section 143(f)(5) of the Code. See
Rev. Proc. 98–28, page 14.
Section 166.—Bad Debts
26 CFR 1.166–3: Partial or total worthlessness.
T.D. 8763
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
Modifications of Bad Debts and
Dealer Assignments of Notional
Principal Contracts
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regula-
tions.
SUMMARY: This document contains
regulations that deem a charge-off and
allow a deduction for a partially worthless
debt when the terms of a debt instrument
1998–15 I.R.B.5April 13, 1998
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

have been modified. The regulations pro-
vide guidance to certain taxpayers that
have claimed a deduction for a partially
worthless debt and then modified the
terms of the debt instrument. This docu-
ment also contains regulations relating to
certain assignments of notional principal
contracts by dealers in those contracts.
The regulations provide guidance to tax-
payers relating to the consequences of
these assignments.
DATES: Effective date:These regula-
tions are effective January 29, 1998.
Applicability date:These regulations
apply to significant modifications of debt
instruments and assignments of interest
rate swaps, commodity swaps, and other
notional principal contracts occurring on
or after September 23, 1996.
FOR FURTHER INFORMATION CON-
TACT: Concerning the modifications of
bad debts, Craig Wojay, (202) 622-3920,
and concerning dealer assignments of no-
tional principal contracts, Thomas M.
Preston, (202) 622-3940 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
Background
On June 25, 1996, temporary regula-
tions (T.D. 8676 [1996–2 C.B. 9]) relating
to modifications of bad debts and dealer
assignments of notional principal con-
tracts under sections 166 and 1001 of the
Internal Revenue Code (Code) were pub-
lished in the Federal Register(61 F.R.
32653). A notice of proposed rulemaking
(REG–209743–94, formerly FI–59–94
[1996–2 C.B. 442]) cross-referencing the
temporary regulations was published in
the Federal Registerfor the same day
(61 F.R. 32728). No public hearing was
requested or held.
Written comments responding to the
notice were received. After consideration
of the comments, the regulations pro-
posed by REG–209743–94 are adopted
by this Treasury decision, and the corre-
sponding temporary regulations are re-
moved.
Explanation of Provisions
The preamble to the temporary regula-
tions sets forth limited circumstances
under which a taxpayer will be permitted
to deduct an amount on account of a par-
tially worthless debt even though an
amount has not been charged off within
the taxable year.
Section 166(a)(2) and §1.166–3(a) pro-
vide that a deduction for a partially worth-
less debt is allowed only to the extent the
debt is charged off in the taxable year.
The charge-off requirement is satisfied
when a portion of the debt is removed
from the taxpayer’s books and records.
This generally is accomplished by reduc-
ing the debt’s book basis. Thus, when an
amount has been deducted for partial
worthlessness, there is generally a reduc-
tion of both the book basis and the tax
basis of a debt.
When a taxpayer is required to recog-
nize gain under §1.1001–1 because of a
modification of a debt instrument, the tax-
payer’s tax basis in the debt is increased
by the amount of gain recognized. How-
ever, regulatory and general accounting
principles generally would not permit a
corresponding increase in the book basis
of the debt. Because the prior charge-off
is not restored (that is, the book basis of
the debt is not increased), there is no op-
portunity for the taxpayer to take a new
charge-off for pre-existing worthlessness.
The purpose of the temporary regula-
tions is to preserve a portion of a tax-
payer’s bad debt deduction with respect to
a partially worthless debt. The portion
preserved corresponds to the amount the
taxpayer would have been entitled to
deduct for partial worthlessness with re-
spect to the modified debt if the book
basis of the modified debt were increased
to the same extent as the tax basis of that
debt. Thus, if all the conditions of the
temporary regulations are satisfied, then a
modified debt is deemed to have been
charged off in the year in which gain is
recognized. The amount of the deemed
charge-off, however, is limited to the dif-
ference between the tax basis of the debt
and the greater of the book basis or the
fair market value of the debt. The tempo-
rary regulations also address debt that
constitutes transferred basis property
under section 7701(a)(43).
In addition, the temporary regulations
provide a limited rule dealing with a
dealer’s assignment of its position in an
interest rate swap, commodity swap, or
other notional principal contract to an-
other dealer. If the assignment is permit-
ted by the terms of the contract, the as-
signment is not treated as a deemed ex-
change by the nonassigning party of the
original contract for a new contract that
differs materially either in kind or in ex-
tent. Thus, an assignment to which the
rule applies does not trigger gain or loss
to the dealer’s counterparty.
Three comments were received on the
§1.166–3T regulations. The first com-
ment requests a deemed charge-off for a
taxpayer that purchased at a discount debt
for which a previous deduction for partial
worthlessness was claimed, and then sig-
nificantly modified the debt under
§1.1001–3 and recognized gain on the
modification. Whenever debt is pur-
chased for less than the stated redemption
price, recognized gain from a significant
modification is attributable to market dis-
count as defined in section 1278(a)(2)(A)
and not to a previously claimed deduction
for partial worthlessness. In addition, the
temporary regulations refer to §1.166–
3(a)(1) and (2) for guidance relating to
prior charge-offs and deductions for par-
tial worthlessness. Extending the tempo-
rary regulations to cover a discount pur-
chase would significantly expand the
regulations beyond their intended scope
and create a situation that would be ex-
tremely difficult to administer. The regu-
lations do not adopt the request to extend
the regulations to cover such a purchase.
The second comment requests a
deemed charge-off for a member of a con-
solidated group that purchased debt, for
which a previous deduction for partial
worthlessness was claimed, from another
member of the group, then significantly
modified the debt under §1.1001–3 and
recognized gain on the modification.
Whenever debt is purchased for less than
the stated redemption price, subsequently
recognized gain from a significant modi-
fication is attributable to market discount
as defined in section 1278(a)(2)(A) and
not to a previously claimed deduction for
partial worthlessness. Extending the tem-
porary regulations to cover a purchase
from another member of the consolidated
group would significantly expand the reg-
ulations beyond their intended scope. The
regulations do not adopt the request to ex-
tend the regulations to cover an intercom-
pany transaction.
The third comment requests expanding
the temporary regulations to include other
April 13, 199861998–15 I.R.B.

situations in which a taxpayer has tax basis
in a debt but no corresponding book basis.
The first situation involves the accrual of
interest income on loans that have been
placed on non-accrual status for book pur-
poses. The second situation involves the
requirement to accrue interest on original
issue discount obligations even if the loan
has become uncollectible. This comment
deals with situations other than the modifi-
cation of a debt instrument and is beyond
the scope of this regulation project.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in EO 12866.
Therefore, a regulatory assessment is not
required. It also has been determined that
section 553(b) of the Administrative Pro-
cedure Act (5 U.S.C. chapter 5) does not
apply to these regulations, and because the
regulation does not impose a collection of
information on small entities, the Regula-
tory Flexibility Act (5 U.S.C. chapter 6)
does not apply. Pursuant to section
7805(f) of the Internal Revenue Code, the
notice of proposed rulemaking preceding
these regulations was submitted to the
Small Business Administration for com-
ment on its impact on small business.
Drafting Information
The principal author of the regulations
concerning the modifications of bad debts
is Craig Wojay, Office of the Assistant
Chief Counsel (Financial Institutions and
Products), IRS. The principal author of
the regulations concerning the dealer as-
signments of notional principal contracts
is Thomas M. Preston, Office of the Assis-
tant Chief Counsel (Financial Institutions
and Products), IRS. 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 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. In §1.166–3, paragraph (a)(3) is
added to read as follows:
§1.166–3 Partial or total worthlessness.
(a) * * *
(3) Significantly modified debt—(i)
Deemed charge-off.If a significant modi-
fication of a debt instrument (within the
meaning of §1.1001–3) during a taxable
year results in the recognition of gain by a
taxpayer under §1.1001–1(a), and if the
requirements of paragraph (a)(3)(ii) of
this section are met, there is a deemed
charge-off of the debt during that taxable
year in the amount specified in paragraph
(a)(3)(iii) of this section.
(ii) Requirements for deemed charge-
off.A debt is deemed to have been
charged off only if—
(A) The taxpayer (or, in the case of a
debt that constitutes transferred basis
property within the meaning of section
7701(a)(43), a transferor taxpayer) has
claimed a deduction for partial worthless-
ness of the debt in any prior taxable year;
and
(B) Each prior charge-off and deduc-
tion for partial worthlessness satisfied the
requirements of paragraphs (a)(1) and (2)
of this section.
(iii) Amount of deemed charge-off. The
amount of the deemed charge-off, if any,
is the amount by which the tax basis of
the debt exceeds the greater of the fair
market value of the debt or the amount of
the debt recorded on the taxpayer’s books
and records reduced as appropriate for a
specific allowance for loan losses. The
amount of the deemed charge-off, how-
ever, may not exceed the amount of rec-
ognized gain described in paragraph
(a)(3)(i) of this section.
(iv) Effective date.This paragraph
(a)(3) applies to significant modifications
of debt instruments occurring on or after
September 23, 1996.
* * * * *
§1.166–3T [Removed]
Par. 3. Section 1.166–3T is removed.
Par. 4. Section 1.1001–4 is added to
read as follows:
§1.1001–4 Modifications of certain
notional principal contracts.
(a) Dealer assignments.For purposes
of §1.1001–1(a), the substitution of a new
party on an interest rate or commodity
swap, or other notional principal contract
(as defined in §1.446–3(c)(1)), is not
treated as a deemed exchange by the
nonassigning party of the original con-
tract for a modified contract that differs
materially either in kind or in extent if—
(1) The party assigning its rights and
obligations under the contract and the
party to which the rights and obligations
are assigned are both dealers in notional
principal contracts, as defined in
§1.446–3(c)(4)(iii); and
(2) The terms of the contract permit the
substitution.
(b) Effective date.This section applies
to assignments of interest rate swaps,
commodity swaps, and other notional
principal contracts occurring on or after
September 23, 1996.
§1.1001–4T [Removed]
Par. 5. Section 1.1001–4T is removed.
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
Approved January 14, 1998.
Donald C. Lubick,
Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on
January 28, 1998, 8:45 a.m., and published in the
issue of the Federal Register for January 29, 1998,
63 F.R. 4396)
Section 471.—General Rule for
Inventories
26 CFR 1.471–2: Valuation of inventories.
Guidance, including a “retail safe harbor
method,” is provided for a taxpayer that wants to
change to a method of accounting for estimating in-
ventory “shrinkage” in computing ending inventory.
See Rev. Proc. 98–29, page 22.
Section 472.—Last-in, First-out
Inventories
26 CFR 1.472–1: Last-in, first-out inventories.
LIFO; price indexes; department
stores.The February 1998 Bureau of
Labor Statistics price indexes are ac-
cepted for use by department stores em-
1998–15 I.R.B.7April 13, 1998

ploying the retail inventory and last-in,
first-out inventory methods for valuing
inventories for tax years ended on, or with
reference to, February 28, 1998.
Rev. Rul. 98–20
The following Department Store Inven-
tory Price Indexes for February 1998
were issued by the Bureau of Labor Sta-
tistics. 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 application to inventories of
department stores employing the retail in-
ventory and last-in, first-out inventory
methods for tax years ended on, or with
reference to, February 28, 1998.
The Department Store Inventory Price
Indexes are prepared on a national basis
and include (a) 23 major groups of de-
partments, (b) three special combinations
of the major groups - soft goods, durable
goods, and miscellaneous goods, and (c)
a store total, which covers all depart-
ments, including some not listed sepa-
rately, except for the following: candy,
food, liquor, tobacco, and contract de-
partments.
April 13, 199881998–15 I.R.B.
BUREAU OF LABOR STATISTICS, DEPARTMENT STORE
INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS
(January 1941 = 100, unless otherwise noted)
Percent Change
GroupsFeb.Feb.from Feb. 1997
19971998to Feb. 1998
1
1. Piece Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .526.4535.81.8
2. Domestics and Draperies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .650.4639.3–1.7
3. Women’s and Children’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .640.2656.92.6
4. Men’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .897.7886.5–1.2
5. Infants’ Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .617.7612.6–0.8
6. Women’s Underwear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .534.2565.25.8
7. Women’s Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .296.5308.13.9
8. Women’s and Girls’ Accessories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .546.9548.20.2
9. Women’s Outerwear and Girls’ Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . .417.6408.9–2.1
10. Men’s Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .615.4624.01.4
11. Men’s Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .585.1590.40.9
12. Boys’ Clothing and Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .469.9499.36.3
13. Jewelry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1004.91001.0–0.4
14. Notions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .772.0802.03.9
15. Toilet Articles and Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .912.3926.51.6
16. Furniture and Bedding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .662.0668.31.0
17. Floor Coverings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .581.2583.70.4
18. Housewares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .817.0810.3–0.8
19. Major Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .246.1242.0–1.7
20. Radio and Television . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .78.673.6–6.4
21. Recreation and Education
2
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111.1107.7–3.1
22. Home Improvements
2
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133.3134.00.5
23. Auto Accessories
2
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .107.9107.7–0.2
Groups 1 – 15: Soft Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .598.9601.10.4
Groups 16 – 20: Durable Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .470.0462.4–1.6
Groups 21 – 23: Misc. Goods
2
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .113.3111.0–2.0
Store Total
3
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .554.2552.3–0.3
1
Absence of a minus sign before percentage change in this column signifies price increase.
2
Indexes on a January 1986=100 base.
3
The store total index covers all departments, including some not listed separately, except for the following: candy, food, liquor, to-
bacco, and contract departments.

DRAFTING INFORMATION
The principal author of this revenue
ruling is Stan Michaels of the Office of
Assistant Chief Counsel (Income Tax and
Accounting). For further information re-
garding this revenue ruling, contact Mr.
Michaels on (202) 622-4970 (not a toll-
free call).
Section 925.—Transfer Pricing
Rules
26 CFR 1.925(a)–1T: Temporary regulations;
transfer pricing rules for FSCs.
T.D. 8764
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
Source and Grouping Rules for
Foreign Sales Corporation
Transfer Pricing
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Temporary regulations.
SUMMARY: This document contains
temporary regulations that provide guid-
ance to taxpayers who have made an elec-
tion to be treated as a foreign sales corpo-
ration (FSC). The regulations provide
rules that clarify the special sourcing rules
under section 927(e)(1) and provide a
deadline for the election to group transac-
tions. The text of the temporary regula-
tions also serves as the text of the proposed
regulations on this subject in REG–
102144–98, page 25 of this Bulletin.
DATES: Effective date:These regula-
tions are effective March 3, 1998.
Applicability:For dates of applicabil-
ity, see §§1.925(a)–1T(c)(8)(i) and
1.927(e)–1T(c).
FOR FURTHER INFORMATION CON-
TACT: Elizabeth Beck (202) 622-3880
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to
the Income Tax Regulations (26 CFR part
1) under sections 925 and 927 which were
added by the Deficit Reduction Act of
1984, applicable for taxable years of for-
eign sales corporations beginning after
December 31, 1984. Temporary regula-
tions were published in theFederal Reg-
ister(52 F.R. 6468) as a Treasury Deci-
sion (T.D. 8126 [1987–1 C.B. 184]) on
March 3, 1987. Treasury and IRS believe
that immediate guidance in the form of
these temporary regulations is necessary
for the reasons stated below.
Explanation of Provisions
These regulations set a deadline for an
election to group transactions for pur-
poses of the foreign sales corporation
(FSC) administrative pricing methods and
clarify that the foreign source limit for a
FSC’s related supplier extends to all
transactions giving rise to foreign trading
gross receipts.
I. Grouping Election Deadline.
A. Current temporary regulations.
Current §1.925(a)–1T(c)(8) and
§1.925(b)–1T(b)(3) permit taxpayers an-
nually to group transactions in applying
the administrative pricing (including the
marginal costing) rules to determine FSC
benefits. Current §1.925(a)–1T(c)(8)(i)
requires an election to group to be evi-
denced on the FSC income tax return for
the taxable year. Current §1.925(a)–
1T(e)(4) authorizes taxpayers to file
amended returns subsequently (within the
statute of limitations period) to redeter-
mine FSC benefits based on a different
grouping of transactions than that origi-
nally elected. Pursuant to this provision,
taxpayers may change their grouping
basis, or change from a grouping to a
transaction-by-transaction basis. The IRS
and the Treasury have become increas-
ingly aware of taxpayers who, through the
use of sophisticated computer programs,
substantially revise their transaction
groupings just prior to the expiration of
the statute of limitations and many years
after the original returns were filed.
These revised groupings typically employ
complex estimating techniques. The re-
cent rise in this practice is placing a sig-
nificant burden on the auditing process
and is creating a potential for abuse.
B. Revised temporary regulations.
Under §1.925(a)–1T(c)(8)(i), the elec-
tion to group must be made on Schedule P
of the FSC’s timely filed U.S. income tax
return (including extensions thereof) for
the taxable year. No untimely or
amended returns will be allowed to elect
to group, to change a grouping basis, or to
change from a grouping basis to a transac-
tion-by-transaction basis for such year.
Conforming changes and cross-refer-
ences are reflected in §1.925(a)–1T(e)(4)
and §1.925(b)–1T(b)(3).
The regulations apply to taxable years
beginning after December 31, 1997.
There is also a transition rule providing
that the regulations also apply to taxable
years beginning before January 1, 1998.
For these taxable years, the transition rule
allows taxpayers to redetermine their
grouping of transactions with respect to
such years provided such redetermination
is made no later than the due date of the
FSC’s timely filed U.S. income tax return
(including extensions thereof) for its first
taxable year beginning after December
31, 1997.
II. Scope of Related Supplier Foreign
Source Limit.
A. Current temporary regulations and
TRA 97.
Section 927(e)(1) provides that
“[u]nder regulations, the income of a per-
son described in section 482 from a trans-
action giving rise to foreign trading gross
receipts of a FSC which is treated as from
sources outside the United States shall not
exceed the amount which would be
treated as foreign source income earned
by such person if the pricing rule under
section 994 which corresponds to the rule
used under section 925 with respect to
such transaction applied to such transac-
tion.” Transactions giving rise to foreign
trading gross receipts include qualifying
sales, leases, licenses and services. Cur-
rent §1.927(e)–1T restates the section
927(e)(1) rule as applicable on “the sale
of export property.” While the statute is
not limited to export sale transactions in
that it applies to any transaction giving
rise to foreign trading gross receipts of a
FSC, the current regulation might be in-
terpreted to apply the special foreign
sourcing limit only to sales of export
property.
Section 1171 of the Taxpayer Relief
Act of 1997 (TRA 97) amended section
927(a)(2)(B) (without any inference in-
tended regarding prior law) to provide
1998–15 I.R.B.9April 13, 1998

that computer software licensed for repro-
duction abroad is included within the def-
inition of export property for purposes of
the FSC provisions. The amendment ap-
plies to gross receipts from computer soft-
ware licenses attributable to periods after
December 31, 1997, in tax years ending
after such date.
In light of TRA 97, it is important to
clarify the scope of the related supplier’s
foreign source limit under the regulations.
This clarification needs to be imple-
mented immediately in order to provide
clear guidance to taxpayers, including
those utilizing the TRA 97 amendment to
section 927(a)(2)(B).
B.Revised temporary regulations.
Under §1.927(e)–1T(a)(1), the related
supplier’s foreign source limit applies to
any transaction, including but not limited
to any sale, lease, license or service, giv-
ing rise to foreign trading gross receipts
of a FSC. No inference is intended re-
garding the scope of application of the
prior regulation.
Conforming changes are reflected in
§1.927(e)–1T(a)(2) and (3). Special rules
are added in §1.927(e)–1T(a)(3)(ii) to
clarify how the corresponding DISC
transfer pricing rules are to be applied for
purposes of the foreign source limit.
Three examples set forth in §1.927(e)–
1T(b) illustrate how the limit is applied
under different transfer pricing methods
and for different types of transactions.
The regulations apply to taxable years
beginning after December 31, 1997.
Special Analyses
It has been determined that this Trea-
sury Decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assess-
ment is not required. It has also been de-
termined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regula-
tions, and because the regulation does not
impose a collection of information on
small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply.
Pursuant to section 7805(f) of the Internal
Revenue Code, these temporary regula-
tions will be submitted to the Chief Coun-
sel for Advocacy of the Small Business
Administration for comment on their im-
pact on small business.
Drafting Information
The principal author of these regula-
tions is Elizabeth Beck of the Office of
the Associate Chief Counsel (Interna-
tional). Other personnel from the IRS and
Treasury Department also participated in
the development of these regulations.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by revising the entries
for sections 1.925(a)–1T and 1.925(b)–1T
to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.925(a)–1T is also issued
under 26 U.S.C. 925(b)(1) and (2) and
927(d)(2)(B).
Section 1.925(b)–1T is also issued
under 26 U.S.C. 925(b)(1) and (2) and
927(d)(2)(B) * * *
Par. 2. Section 1.925(a)–1T is
amended by:
1. Removing the last sentence of para-
graph (c)(8)(i) and adding five sentences
in its place.
2. Paragraph (e)(4) is amended by:
a. Removing the language “or group-
ing of transactions” from the fourth sen-
tence.
b. Adding a sentence to the end of the
paragraph.
The additions read as follows:
§1.925(a)–1T Temporary Regulations;
Transfer pricing rules for FSCs.
* * * * *
(c) * * *
(8) * * * (i) * * * The election to
group transactions shall be evidenced on
Schedule P of the FSC’s timely filed U.S.
income tax return (including extensions
thereof) for the taxable year. No untimely
or amended returns will be allowed to
elect to group, to change a grouping basis,
or to change from a grouping basis to a
transaction-by-transaction basis. The
rules of the previous two sentences of this
paragraph (c)(8)(i) are applicable to tax-
able years beginning after December 31,
1997. For any taxable year beginning be-
fore January 1, 1998, for which a redeter-
mination is otherwise permissible under
paragraph (e)(4) of this section as in ef-
fect for taxable years beginning before
January 1, 1998, a redetermination of
grouping of transactions cannot be made
later than the due date of the FSC’s timely
filed U.S. income tax return (including
extensions thereof) for the FSC’s first tax-
able year beginning after December 31,
1997. The language “or grouping of
transactions” is removed from the fourth
sentence of paragraph (e)(4) of this sec-
tion, applicable to taxable years begin-
ning after December 31, 1997.
* * * * *
(e) * * *
(4) * * * For the election to group
transactions for purposes of applying the
administrative pricing methods, see para-
graph (c)(8)(i) of this section.
* * * * *
Par. 3. In §1.925(b)–1T, paragraph
(b)(3)(i) is amended by adding at the end
of the paragraph the following sentence:
§1.925(b)–1T Temporary regulations;
marginal costing rules.
* * * * *
(b) * * *
(3) * * * (i) * * * For the election to
group transactions for purposes of apply-
ing the administrative pricing methods,
see §1.925(a)–1T(c)(8)(i).
* * * * *
Par. 4. Section 1.927(e)–1T is revised
to read as follows:
§1.927(e)–1T Temporary regulations;
special sourcing rule.
(a) Source rules for related persons—
(1) In general.The income of a person
described in section 482 from a transac-
tion giving rise to foreign trading gross
receipts of a FSC which is treated as from
sources outside the United States shall not
exceed the amount which would be
treated as foreign source income earned
by such person if the pricing rule under
section 994 which corresponds to the rule
used under section 925 with respect to
such transaction applied to such transac-
April 13, 1998101998–15 I.R.B.

tion. This section applies to any transac-
tion, including but not limited to any sale,
lease, license or service, giving rise to for-
eign trading gross receipts of a FSC. This
special sourcing rule also applies if the
FSC is acting as a commission agent for
the related supplier with respect to the
transaction described above which gives
rise to foreign trading gross receipts and
the transfer pricing rules of section 925
are used to determine the commission
payable to the FSC. No limitation results
under this section with respect to a trans-
action to which the section 482 pricing
rule under section 925(a)(3) applies.
(2) Grouping of transactions.If, for
purposes of determining the FSC’s profits
under the administrative pricing rules of
sections 925(a)(1) and (2), grouping of
transactions under §1.925(a)–1T(c)(8)
was elected, the same grouping shall be
used for making the determinations under
this special sourcing rule.
(3) Corresponding DISC pricing
rules—(i) In general.For purposes of
this section—
(A) The DISC gross receipts pricing
rule of section 994(a)(1) corresponds to
the gross receipts pricing rule of section
925(a)(1);
(B) The DISC combined taxable in-
come pricing rule of section 994(a)(2)
corresponds to the combined taxable in-
come pricing rule of section 925(a)(2);
and
(C) The DISC section 482 pricing rule
of section 994(a)(3) corresponds to the
section 482 pricing rule of section
925(a)(3).
(ii) Special rules.For purposes of this
section—
(A) The DISC pricing rules of section
994(a)(1) and (2) shall be determined
without regard to export promotion ex-
penses;
(B) Qualified export receipts under
section 994(a)(1) and (2) shall be deemed
to be an amount equal to the foreign trad-
ing gross receipts arising from the trans-
action; and
(C) Combined taxable income for pur-
poses of section 994(a)(2) shall be deemed
to be an amount equal to the combined
taxable income for purposes of section
925(a)(2) arising from the transaction.
(b) Examples.The provisions of this
section may be illustrated by the follow-
ing examples:
Example 1.(i) R and F are calendar year taxpay-
ers. R, a domestic manufacturing company, owns all
the stock of F, which is a FSC acting as a commis-
sion agent for R. For the taxable year, R and F used
the combined taxable income pricing rule of section
925(a)(2). For the taxable year, the combined tax-
able income of R and F is $100 from the sale of ex-
port property, as defined in section 927(a), manufac-
tured by R using production assets located in the
United States. Title to the export property passed
outside of the United States.
(ii) Under section 925(a)(2), 23 percent of the
$100 combined taxable income of R and F, that is
$23, is allocated to F and the remaining $77 is allo-
cated to R. Absent the special sourcing rule, under
section 863(b) the $77 income allocated to R would
be sourced $38.50 U.S. source and $38.50 foreign
source. Under the special sourcing rule, the amount
of foreign source income earned by a related sup-
plier of a FSC shall not exceed the amount that
would result if the corresponding DISC pricing rule
applied. The DISC combined taxable income pric-
ing rule of section 994(a)(2) corresponds to the com-
bined taxable income pricing rule of section
925(a)(2). Under section 994(a)(2), $50 of the com-
bined taxable income ($100 x .50) would be allo-
cated to the DISC and the remaining $50 would be
allocated to the related supplier. Under section
863(b), the $50 income allocated to the DISC’s re-
lated supplier would be sourced $25 U.S. source and
$25 foreign source. Accordingly, under the special
sourcing rule, the foreign source income of R shall
not exceed $25.
Example 2. (i) Assume the same facts as in Ex-
ample 1except that the combined taxable income
arises from the licensing of the copyright rights in
computer software for use outside of the United
States and that R developed the computer software
in the United States.
(ii) Under section 925(a)(2), 23 percent of the
$100 combined taxable income of R and F, that is
$23, is allocated to F and the remaining $77 is allo-
cated to R. Absent the special sourcing rule, under
section 862(a)(4) the $77 income allocated to R
would be sourced $77 foreign source in its entirety.
Under the special sourcing rule, the amount of for-
eign source income earned by a related supplier of a
FSC shall not exceed the amount that would result if
the corresponding DISC pricing rule applied. The
DISC combined taxable income pricing rule of sec-
tion 994(a)(2) corresponds to the combined taxable
income pricing rule of section 925(a)(2). Under sec-
tion 994(a)(2), $50 of the combined taxable income
($100 x .50) would be allocated to the DISC and the
remaining $50 would be allocated to the related sup-
plier. Under section 862(a)(4), the $50 income allo-
cated to the DISC’s related supplier would be
sourced $50 foreign source in its entirety. Accord-
ingly, under the special sourcing rule, the foreign
source income of R shall not exceed $50.
Example 3.(i) Assume the same facts as in Ex-
ample 1except that R and F used the gross receipts
pricing rule of section 925(a)(1). In addition, for the
taxable year foreign trading gross receipts derived
from the sale of the export property are $2,000.
(ii) Under section 925(a)(1), 1.83 percent of the
$2,000 foreign trading gross receipts, that is $36.60,
is allocated to F and the $63.40 remaining combined
taxable income ($100 - $36.60) is allocated to R.
Absent the special sourcing rule, under section
863(b) the $63.40 income allocated to R would be
sourced $31.70 U.S. source and $31.70 foreign
source. Under the special sourcing rule, the amount
of foreign source income earned by a related sup-
plier of a FSC shall not exceed the amount that
would result if the corresponding DISC pricing rule
applied. The DISC gross receipts pricing rule of
section 994(a)(1) corresponds to the gross receipts
pricing rule of section 925(a)(1). Under section
994(a)(1), $80 ($2,000 x .04) would be allocated to
the DISC and the $20 remaining combined taxable
income would be allocated to the related supplier.
Under section 863(b), the $20 income allocated to
the DISC’s related supplier would be sourced $10
U.S. source and $10 foreign source. Accordingly,
under the special sourcing rule, the foreign source
income of R shall not exceed $10.
(c) Effective Date.The rules of this
section are applicable to taxable years be-
ginning after December 31, 1997.
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
Approved February 20, 1998.
Donald C. Lubick,
Acting Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on
March 2, 1998, 8:45 a.m., and published in the issue
of the Federal Register for March 3, 1998, 63 F.R.
10305)
Section 1441.—Withholding of
Ta x
This notice announces that the Department of the
Treasury and the Internal Revenue Service will
amend the effective date of the section 1441 with-
holding regulations to apply to payments made after
December 31, 1999. The transition rules provided
under those regulations will also be amended to be
consistent with the later effective date of those regu-
lations. This Notice also amends the related transi-
tion rule of Notice 97–66, 1997–48 I.R.B. 8, to be
consistent with the later effective date of the 1441
regulations. Finally, this Notice announces that the
Internal Revenue Service intends to develop model
withholding agreements for qualified intermediaries
on a country by country basis. See Notice 98–16,
page 12.
1998–15 I.R.B.11April 13, 1998

Effective Date of Regulations
Under Section 1441 and
Qualified Intermediary
Procedures
Notice 98–16
Section 1. Scope
This notice announces that the Depart-
ment of the Treasury (“Treasury”) and the
Internal Revenue Service (the “IRS”) will
extend the effective date of the section
1441 withholding regulations. As ex-
tended, those regulations will apply to
certain payments made to foreign persons
after December 31, 1999. This notice
also provides new transition rules for sat-
isfying the withholding certificate or
statement requirements under the with-
holding regulations. Finally, this notice
describes the general procedure the IRS
will follow in entering into qualified in-
termediary withholding agreements in
order to expedite the process of making
such agreements as widely available as
possible.
Section 2. Background
On October 14, 1997, final Income Tax
Regulations (the “final withholding regu-
lations”) substantially revising and re-
placing existing regulations regarding the
withholding of tax under chapter 3 (sec-
tions 1441–1464) of the Internal Revenue
Code (the “Code”) were published in the
Federal Register as T.D. 8734. Those reg-
ulations also significantly revise existing
information reporting and backup with-
holding regulations under chapter 61 and
section 3406 of the Code. As promul-
gated, the final withholding regulations
will apply to all payments made after De-
cember 31, 1998.
Section 3. Extended Effective Date
Treasury and the IRS will amend the
final withholding regulations to extend
the date of applicability of those regula-
tions to payments made after December
31, 1999. Treasury and the IRS recognize
that the final withholding regulations con-
tain substantial changes to existing rules
and will likely require significant changes
to business practices and information sys-
tems for many U.S. and foreign withhold-
ing agents. These changes come at a time
when many of these entities are also at-
tempting to make significant changes to
business practices and information sys-
tems to conform to the Year 2000 date
change and the European Monetary
Union currency conversion.
Treasury and the IRS also must ensure
that qualified intermediary withholding
agreements are available to as many fi-
nancial intermediaries as possible for the
final withholding regulations to be effec-
tively implemented. As described more
fully below, Treasury and the IRS expect
that the process for making qualified in-
termediary withholding agreements
widely available will take several months
from the date the process begins.
Accordingly, Treasury and the IRS be-
lieve it is in the best interest of tax admin-
istration to extend the date of applicability
of the final withholding regulations to en-
sure that both taxpayers and the govern-
ment can complete the changes necessary
to implement the new withholding
regime. As extended by this notice, the
final withholding regulations will apply to
payments made after December 31, 1999.
In addition, the IRS will regard the
1999 calendar year as a transition period
for the administration of the withholding
tax system. Accordingly, in enforcing
compliance with current withholding
rules for calendar year 1999, the IRS will
take into account the extent to which a
withholding agent makes a good faith ef-
fort during that period to transform its
business practices and information sys-
tems to comply with the final withholding
regulations. For example, the IRS will
take into account whether a U.S. with-
holding agent makes reasonable efforts
during 1999 to modify its account open-
ing practices to conform to the new docu-
mentation requirements, obtain new doc-
umentation on existing accounts when
new withholding certificates become
available, and make appropriate systems
changes to comply with the final with-
holding regulations and, if appropriate,
Rev. Proc. 98–27 (relating to qualified in-
termediary withholding agreements). For
foreign withholding agents, the IRS will
also take into account whether or not the
withholding agent makes an effort to seek
qualified intermediary status. The IRS
will also take into account whether or not
a withholding agent (whether U.S. or for-
eign) effectively implements the final
withholding regulations beginning on
January 1, 2000.
Section 4. Modified Transition Rules
The final withholding regulations pro-
vide transition rules for obtaining new
withholding certificates and statements
containing the necessary information and
representations required by those regula-
tions. The IRS released and requested
public comments on draft new withhold-
ing certificates in Announcement 98–15,
published in 1998–10 I.R.B. 36. The new
withholding certificates would replace
current Forms W–8, 1001, 4224, 8709,
and 1078, and statements described in
§1.1441–5 of the regulations in effect be-
fore January 1, 1999 (the “existing certifi-
cates or statements”).
Generally, under the transition rules
contained in the final withholding regula-
tions, a withholding agent holding a valid
existing certificate or statement on De-
cember 31, 1998, may treat that certificate
or statement as valid until the earlier of its
expiration or December 31, 1999. In ad-
dition, the transition rules provide that
any existing withholding certificate or
statement that is valid on January 1, 1998,
and that expires during 1998, remains
valid until December 31, 1998. (These
rules cannot operate together, however, to
extend beyond December 31, 1998, the
validity of a certificate that, without the
transition rule, would expire in 1998.)
The IRS intends to modify the with-
holding certificate and statement transi-
tion rules of the final withholding regula-
tions to provide that a withholding agent
holding a valid existing certificate or
statement on December 31, 1999, may
treat that certificate or statement as valid
until the earlier of its expiration or De-
cember 31, 2000. No existing certificates
or statements will be effective after De-
cember 31, 2000. As under the final regu-
lations, existing certificates and state-
ments that expire in 1999 will not be
effective after expiration. The existing
transition rule providing that any existing
withholding certificate or statement that is
valid on January 1, 1998, and that expires
during 1998 remains valid until Decem-
April 13, 1998121998–15 I.R.B.
Part III. Administrative, Procedural, and Miscellaneous

ber 31, 1998, will be retained. This rule
should ensure that withholding agents
will be able to replace existing withhold-
ing certificates or statements that expire
in 1998 with new certificates that will be
valid under the final withholding regula-
tions when those regulations take effect.
The IRS anticipates that new withholding
certificates will be available before De-
cember 31, 1998.
New withholding certificates that are
valid under the final withholding regula-
tions will be deemed to satisfy the require-
ments under the regulations in effect be-
fore January 1, 2000, to obtain Forms
W–8, 1001, 4224, 8709, or a statement
under section 1.1441–5. Therefore, in sit-
uations where existing certificates and
statements are not outstanding, or new
certificates or statements must be obtained
because of a change in circumstances, a
withholding agent may obtain new with-
holding certificates. New withholding
certificates will be valid for the period
specified in section 1.1441–1(e)(4)(ii) of
the final withholding regulations, regard-
less of when they are obtained.
Notice 97–66 (1997–48 I.R.B. 1) pro-
vides a related transition rule that is af-
fected by the extended effective date of
the final withholding regulations. Notice
97–66 relates to final Income Tax Regu-
lations on the source and character of
substitute interest and dividend payments
published in the Federal Registeron Oc-
tober 14, 1997 as T.D. 8735 (the “final
substitute payment regulations”). The
notice provides guidance on complying
with the statement requirement of section
871(h)(5) for substitute interest payments
made after November 13, 1997, or, if an
election is made under section 6 of the
notice, for substitute interest payments
made after December 31, 1998. Substi-
tute interest payments made by a foreign
person that are U.S. source interest must
satisfy the statement requirement of sec-
tion 871(h)(5) to qualify as portfolio
interest.
The final substitute payment regula-
tions referred taxpayers to §1.871–14(c)
of the final withholding regulations for
guidance on the statement requirement of
section 871(h)(5). Because §1.871–14(c)
of the final withholding regulations was
not to be effective before January 1, 1999,
however, Notice 97–66 provides a transi-
tion rule providing that the statement re-
quirement of section 871(h)(5) will be
satisfied with respect to substitute interest
payments made after November 13, 1997,
and before January 1, 1999, if any writ-
ten, electronic, or oral statement that rea-
sonably establishes that the payee is a for-
eign person is given or made to the payor
before, or within a reasonable period
after, the payment.
Because the IRS intends to make
§1.871–14(c) of the final withholding
regulations effective for payments made
after December 31, 1999, as announced
herein, the transition rule in Notice 97–66
is extended to apply to substitute interest
payments made after November 13, 1997
(or after December 31, 1998, if elected)
and before January 1, 2000. The remain-
der of Notice 97–66 remains unchanged.
On January 26, 1998, a notice of pro-
posed rulemaking (REG–209322–82) was
published in the Federal Registerthat
would amend regulations under sections
6031 and 6063 regarding the filing of re-
turns of partnership income (a “partner-
ship return”). Under §1.6031(a)–1(b)(2)
of the proposed regulations, a partnership
return is not required of a foreign partner-
ship if it meets certain conditions and
Forms 1042 and 1042–S are filed under
§1.1461–1(b) and (c), as amended by the
final withholding regulations, either by
the partnership or by another withholding
agent (or agents). The proposed date of
applicability for the exception is taxable
years of a partnership that begin on or
after January 1, 1999. If §1.6031(a)–
1(b)(2) is finalized, Treasury and IRS in-
tend to amend the date of applicability for
that section to reflect the extended date of
applicability of §1.1461–1(b) and (c) of
the final withholding regulations.
Section 5. Qualified Intermediary
Procedures
As indicated above, for the final with-
holding regulations to be most effectively
implemented, it is desirable for qualified
intermediary withholding agreements to
be available to as many foreign financial
intermediaries as possible. A qualified in-
termediary is a foreign person, or a for-
eign branch of a U.S. person, that agrees
with the IRS in a qualified intermediary
withholding agreement to collect infor-
mation regarding its account holders and
to make that information available as may
be required under the agreement. It is an-
ticipated that the qualified intermediary
regime will reduce the collection of infor-
mation and reporting required of with-
holding agents under the current rules.
Simultaneously with this notice, Trea-
sury and the IRS are releasing Revenue
Procedure 98–27, which provides guid-
ance on entering into a qualified interme-
diary withholding agreement with the
IRS. Although the revenue procedure is
designed to provide specific guidance on
the application process for persons de-
scribed in §1.1441–1(e)(5)(ii)(A) and (B)
(i.e., foreign financial institutions, foreign
clearing organizations, and foreign
branches of U.S. financial institutions and
U.S. clearing organizations), any person
desiring a qualified intermediary with-
holding agreement may submit a draft
agreement in the general manner de-
scribed in the revenue procedure.
This notice announces that, although
any person is permitted to apply for and
negotiate an individual qualified interme-
diary withholding agreement with the
IRS, the IRS intends to issue a series of
model agreements of broad applicability
to make qualified withholding agreements
as widely available as possible. It is con-
templated that, upon release of one of
these model agreements, any person
falling within the class of persons covered
by the model agreement would be able to
accept, sign, and submit the agreement to
the IRS, without the need for individual
negotiations. The IRS currently contem-
plates that each model agreement will be
specific to a particular country, or group
of countries with similar laws and prac-
tices, and will be specific to a class of per-
sons conducting similar intermediary
businesses in a similar manner. Such an
approach enables each model agreement
to cover as broad a class of persons as
possible, while allowing uniform applica-
tion of all material provisions among all
persons in the identified class.
Because of its intent to issue a series of
model agreements of broad applicability,
the IRS invites submissions of proposed
model agreements by groups or associa-
tions of potential qualified intermediaries.
As part of the submission, the IRS re-
quests a description of the class of per-
sons the proposed model agreement is in-
tended to cover and why that class of
persons could operate under a single
model agreement.
1998–15 I.R.B.13April 13, 1998

In the interest of ensuring that as many
financial intermediaries as possible can
become qualified intermediaries well in
advance of the effective date of the final
withholding regulations, the IRS intends
to give submissions of proposed model
agreements of broad applicability first
consideration. Consequently, except in
unusual circumstances, proposed agree-
ments by individual intermediaries, while
also invited, will not likely lead to negoti-
ations with the IRS until sufficient
progress has been made in the process of
issuing model agreements. Moreover,
persons who are clearly within a class of
persons covered by an existing model
agreement will not be permitted to negoti-
ate an individual agreement absent un-
usual circumstances.
The IRS currently contemplates releas-
ing a group of model agreements simulta-
neously, rather than issuing them one-by-
one, and expects that this release will
occur before December 31, 1998. Addi-
tional model agreements and individual
agreements may be issued after that first
release of model agreements. Due to time
constraints, however, groups or associa-
tions of intermediaries desiring to submit
a proposed model agreement on behalf of
a class of persons should make such a
submission on or before July 3, 1998, to
ensure that such model agreement can be
released and individual agreements can be
concluded prior to December 31, 1998.
Persons submitting proposed model
agreements are advised that these submis-
sions will be made available to the public.
Section 6. Contact Information
The principal author of this Notice is
Carl Cooper of the Office of the Associate
Chief Counsel (International) within the
Office of the Chief Counsel, Internal Rev-
enue Service, 1111 Constitution Avenue,
N.W., Washington, D.C. 20224. For fur-
ther information regarding this Notice
contact Mr. Cooper at 202-622-3840 (not
a toll-free call).
Extension of the Effective Date
of the Classification Settlement
Program
Notice 98–21
The Internal Revenue Service is ex-
tending the Classification Settlement Pro-
gram or “CSP” until further notice. The
CSP is an optional settlement program that
allows businesses and tax examiners to re-
solve worker classification cases as early
in the administrative process as possible,
thereby reducing taxpayer burden. In the
CSP, examiners can offer a business under
audit a worker classification settlement
using a standard closing agreement devel-
oped for this purpose. The CSP proce-
dures also ensure that the taxpayer relief
provisions under section 530 of the Rev-
enue Act of 1978 are properly applied.
The Service implemented the CSP in
March 1996 on a two-year trial basis. Re-
view of the program and feedback from
the public have indicated that the program
is successful in facilitating early resolu-
tion of cases.
Taxpayer participation in the CSP is en-
tirely voluntary. A taxpayer declining to
accept a settlement offer retains all rights
to administrative appeal that exist under
the Service’s current IRS procedures and
all existing rights to judicial review.
DRAFTING INFORMATION
The principal author of this notice is
Greg Christensen of the Office of Em-
ployment Tax Administration and Com-
pliance. For further information regard-
ing this notice, please contact Mr.
Christensen at 202-622-3650 (not a toll-
free number).
26 CFR 601.201: Rulings and determination
letters.
(Also Part I, Sections 25, 103, 143; 1.25–4T,
1.103–1, 6a.103A–2.)
Rev. Proc. 98–28
SECTION 1. PURPOSE
This revenue procedure provides guid-
ance concerning the United States and
area median gross income figures that are
to be used by issuers of qualified mort-
gage bonds, as defined in § 143(a) of the
Internal Revenue Code, and issuers of
mortgage credit certificates, as defined in
§ 25(c), in computing the housing cost/in-
come ratio described in § 143(f)(5).
SECTION 2. BACKGROUND
.01 Section 103(a) provides that, except
as provided in § 103(b), gross income
does not include interest on any state or
local bond. Section 103(b)(1) provides
that § 103(a) shall not apply to any private
activity bond that is not a “qualified
bond” within the meaning of § 141. Sec-
tion 141(e) provides that the term “quali-
fied bond” includes any private activity
bond that (1) is a qualified mortgage
bond, (2) meets the volume cap require-
ments under § 146, and (3) meets the ap-
plicable requirements under § 147.
.02 Section 143(a)(1) provides that the
term “qualified mortgage bond” means a
bond that is issued as part of a “qualified
mortgage issue”. Section 143(a)(2)(A)
provides that the term “qualified mort-
gage issue” means an issue of one or more
bonds by a state or political subdivision
thereof, but only if (i) all proceeds of the
issue (exclusive of issuance costs and a
reasonably required reserve) are to be
used to finance owner-occupied resi-
dences; (ii) the issue meets the require-
ments of subsections (c),(d),(e),(f),(g),
(h),(i), and (m)(7) of § 143; (iii) the issue
does not meet the private business tests of
paragraphs (1) and (2) of § 141(b); and
(iv) with respect to amounts received
more than 10 years after the date of is-
suance, repayments of $250,000 or more
of principal on financing provided by the
issue are used not later than the close of
the first semi-annual period beginning
after the date the prepayment (or com-
plete repayment) is received to redeem
bonds that are part of the issue.
.03 Section 143(f) imposes eligibility
requirements concerning the maximum
income of mortgagors for whom financ-
ing may be provided by qualified mort-
gage bonds. Section 25(c)(2)(A)(iii)(IV)
provides that recipients of mortgage
credit certificates must meet the income
requirements of § 143(f). Generally,
under §§ 143(f)(1) and 25(c)(2)(A)(iii)-
(IV), these income requirements are met
only if all owner-financing under a quali-
fied mortgage bond and all certified in-
debtedness amounts under a mortgage
credit certificate program are provided to
mortgagors whose family income is 115
percent or less of the applicable median
family income. Under § 143(f)(6), the in-
come limitation is reduced to 100 percent
of the applicable median family income if
there are fewer than three individuals in
the family of the mortgagor.
.04 Section 143(f)(4) provides that the
term “applicable median family income”
April 13, 1998141998–15 I.R.B.

means the greater of (A) the area median
gross income for the area in which the
residence is located or (B) the statewide
median gross income for the state in
which the residence is located.
.05 Section 143(f)(5) provides for an
upward adjustment of the income limita-
tions in certain high housing cost areas.
Under § 143(f)(5)(C), a high housing cost
area is a statistical area for which the
housing cost/income ratio is greater than
1.2. The housing cost/income ratio is de-
termined under § 143(f)(5)(D) by divid-
ing (a) the applicable housing price ratio
by (b) the ratio that the area median gross
income bears to the median gross income
for the United States. The applicable
housing price ratio is the new housing
price ratio (new housing average purchase
price for the area divided by the new
housing average purchase price for the
United States) or the existing housing
price ratio (existing housing average area
purchase price divided by the existing
housing average purchase price for the
United States), whichever results in the
housing cost/income ratio being closer to
1. This income adjustment applies only
to bonds issued and nonissued bond
amounts elected after December 31, 1988.
.06 The Department of Housing and
Urban Development (HUD) has com-
puted the median gross income for the
United States, the states, and statistical
areas within the states. The income infor-
mation was released to the HUD regional
offices on January 7, 1998, and may be
obtained by calling the HUD reference
service at 1-800-245-2691, or, in the
Washington, D.C., area, at 301-251-5154.
The Internal Revenue Service annually
publishes only the median gross income
for the United States.
.07 The most recent nationwide aver-
age purchase prices and average area pur-
chase price safe harbor limitations were
published on September 6, 1994, in Rev.
Proc. 94–55, 1994–2 C.B. 716.
SECTION 3. APPLICATION
.01 When computing the housing
cost/income ratio under § 143(f)(5), is-
suers of qualified mortgage bonds and
mortgage credit certificates must use
$45,300 as the median gross income for
the United States. See section 2.06 of this
revenue procedure.
.02 When computing the housing
cost/income ratio under § 143(f)(5), is-
suers of qualified mortgage bonds and
mortgage credit certificates must use the
area median gross income figures re-
leased by HUD on January 7, 1998. See
section 2.06 of this revenue procedure.
SECTION 4. EFFECT ON OTHER
REVENUE PROCEDURES
.01 Rev. Proc. 97–26, 1997–17 I.R.B.
17, is obsolete except as provided in sec-
tion 5.02 of this revenue procedure.
.02 This revenue procedure does not af-
fect the effective date provisions of Rev.
Rul. 86–124, 1986–2 C.B. 27. Those ef-
fective date provisions will remain opera-
tive at least until the Service publishes a
new revenue ruling that conforms the ap-
proach to effective dates set forth in Rev.
Rul. 86–124 to the general approach
taken in this revenue procedure.
SECTION 5. EFFECTIVE DATES
.01 Issuers must use the United States
and area median gross income figures
specified in section 3 of this revenue pro-
cedure for commitments to provide fi-
nancing that are made, or (if the purchase
precedes the financing commitment) for
residences that are purchased, in the pe-
riod that begins on January 7, 1998, the
date HUD released the income figures,
and ends on the date when these United
States and area median gross income fig-
ures are rendered obsolete by a new rev-
enue procedure.
.02 Notwithstanding section 5.01 of
this revenue procedure, issuers may con-
tinue to rely on the United States and area
median gross income figures specified in
Rev. Proc. 97–26 with respect to bonds
originally sold and nonissued bond
amounts elected not later than May 13,
1998, if the commitments or purchases
described in section 5.01 are made not
later than July 13, 1998.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Patricia M. Monahan of the
Office of Assistant Chief Counsel (Finan-
cial Institutions and Products). For fur-
ther information regarding this revenue
procedure contact Ms. Monahan at (202)
622-4122 (not a toll-free call).
Rev. Proc. 98–27
CONTENTS
SECTION 1.PURPOSE AND SCOPE
SECTION 2.BACKGROUND
SECTION 3.DEFINITIONS
SECTION 4.APPLICATION PROCE-
DURES FOR QI STA-
TUS AND WITHHOLD-
ING AGREEMENT
SECTION 5.Q I WITHHOLDING
AGREEMENT
SECTION 6.EFFECTIVE DATE
SECTION 7.PAPERWORK REDUC-
TION ACT
SECTION 8.FURTHER INFORMA-
TION
SECTION 1. PURPOSE AND SCOPE
.01 Purpose.This revenue procedure
gives guidance for entering into a with-
holding agreement with the Internal Rev-
enue Service (IRS) to be treated as a
Qualified Intermediary (QI) under
§1.1441–1(e)(5) of the Income Tax Regu-
lations. It describes the application pro-
cedures for becoming a QI and the terms
that the IRS will ordinarily require in a QI
withholding agreement. The objective of
a QI withholding agreement is to simplify
withholding and reporting obligations
with respect to payments of income (in-
cluding interest, dividends, royalties, and
gross proceeds) made to an account
holder through one or more foreign inter-
mediaries.
.02 Scope.This revenue procedure ap-
plies to persons described in §1.1441–
1(e)(5)(ii)(A) and (B)—foreign financial
institutions, foreign clearing organiza-
tions, and foreign branches of U.S. finan-
cial institutions and U.S. clearing organi-
zations. It does not apply to foreign
corporations seeking to become a QI to
present claims of benefits under an in-
come tax treaty on behalf of shareholders.
See §§1.1441–1(e)(5)(ii)(C) and 1.1441–
6(b)(4)(ii)(B). It does not apply to a for-
eign partnership seeking to qualify as a
withholding foreign partnership. See
§1.1441–5(c)(2)(ii). It also does not
apply to other persons that the IRS may
accept to be qualified intermediaries as
authorized under §1.1441–1(e)(5)(ii)(D).
A person that is not within the scope of
this revenue procedure but may seek QI
1998–15 I.R.B.15April 13, 1998

status under §1.1441–1(e)(5)(ii)(C) or
(D), or §1.1441–5(c)(2)(ii) should contact
the Office of the Assistant Commissioner
(International) at the address or telephone
number in section 4.01 of this revenue
procedure.
SECTION 2. BACKGROUND
.01 Withholding and reporting on pay-
ments to foreign persons.Under sections
1441 and 1442 of the Internal Revenue
Code (Code), a person that makes a pay-
ment of U.S. source interest, dividends,
royalties, and certain other types of in-
come to a foreign person must generally
deduct and withhold 30 percent from the
payment. A lower rate of withholding
may apply under the Code (e.g., section
1443), the regulations, or an income tax
treaty. Generally, a payor of these types
of income must also report the payments
on Form 1042–S. See §1.1461–1(c).
Under sections 6042, 6045, 6049, and
6050N of the Code (the Form 1099 re-
porting provisions), payors of dividends,
gross proceeds, interest, and royalties
must report the payments on Form 1099
unless an exception applies. If a payor
must report a payment on Form 1099, it
must obtain a Form W–9 from the payee.
If the payor does not receive the Form
W–9, it must backup withhold at a 31-
percent rate under section 3406 of the
Code. One exception to the Form 1099
reporting provisions applies if the payee
is a foreign person. A payor can treat a
person as foreign if the payor can reliably
associate the payment with documenta-
tion that establishes that the person is a
foreign beneficial owner of the income or
a foreign payee. See §§1.6042–3(b)(1)-
(iii), 1.6045–1(g)(1)(i), 1.6049–5(b)(12),
and 1.6050N–1(c)(1)(i). Moreover, a
payor does not have to backup withhold
on payments to foreign beneficial owners
or foreign payees because backup with-
holding applies only to amounts that the
payor must report on Form 1099.
.02 Proof of foreign status.The regula-
tions under section 1441 and the Form
1099 reporting provisions of the Code
prescribe the manner in which a benefi-
cial owner or payee certifies to a payor
that it is a foreign or U.S. person and, if
foreign, whether a reduced rate of with-
holding applies. For proof of foreign sta-
tus, a payor or a withholding agent may
rely on a Form W–8 or on documentary
evidence for payments made outside the
United States to an offshore account or, in
the case of broker proceeds, a sale ef-
fected outside the United States.
In addition, a payor or withholding
agent may rely on a QI’s certifications (as
described in §1.1441–1(e)(3)(ii) and sec-
tion 5.02 of this revenue procedure) to de-
termine whether a beneficial owner or
payee is foreign, and to determine the ap-
plicable rate of withholding and the ap-
propriate type of reporting. The QI pro-
vides its certifications on a Form W–8.
By furnishing its own Form W–8 to a
payor or withholding agent, a QI may, for
example, act on behalf of its foreign ac-
count holders to claim a reduction of the
30-percent withholding rate without hav-
ing to document or identify to the with-
holding agent each foreign account holder
individually.
SECTION 3. DEFINITIONS
For purposes of this revenue procedure,
the terms listed below are defined as fol-
lows.
.01 A “QI” is an eligible person as de-
scribed in §1.1441–1(e)(5)(ii)(A) or (B)
(and paragraph .10 of this section) that
enters into a withholding agreement (de-
scribed in section 5 of this revenue proce-
dure) with the IRS. A person acting in its
capacity as a QI does not act as an agent
of the IRS, nor does it have the authority
to hold itself out as an agent of the IRS.
.02 A “QI-Form W–8” means a with-
holding certificate described in §1.1441–
1(e)(3)(ii).
.03 An “account holder” means any
person that has an account with a QI. It
includes a person that is the beneficial
owner of the account or a person that
holds the account as an intermediary (e.g.,
custodian, nominee or agent).
.04 An “exempt recipient” means, for
interest, dividends, and royalties, a person
described in §1.6049–4(c)(1)(ii). For bro-
ker proceeds, it is a person described in
§5f.6045–1(c)(3)(i)(B) or in §1.6045–
2(b)(2)(i).
.05 A “non-exempt recipient” or “non-
exempt payee” means a person that is not
an exempt recipient under the definition
in paragraph .04 of this section.
.06 Any reference to “chapter 3 of the
Code” means sections 1441, 1442, and
1443 of the Code, and shall not include
references to sections 1445 and 1446 of
the Code, unless specifically indicated
otherwise.
.07 Any reference to “chapter 61 of the
Code” means sections 6041, 6041A,
6042, 6044, 6045, 6049, and 6050N of the
Code.
.08 A “reportable amount” means an
amount subject to withholding under
chapter 3 of the Code (within the meaning
of §1.1441–2(a)), U.S. source deposit in-
terest (including original issue discount)
described in section 871(i)(2)(A) of the
Code, and U.S. source interest or original
issue discount on short-term obligations
described in section 871(g)(1)(B) of the
Code. The term does not include pay-
ments on deposits with banks and other fi-
nancial institutions that remain on deposit
for two weeks or less. It also does not in-
clude amounts of original issue discount
arising from a sale and repurchase trans-
action completed within a period of two
weeks or less, or amounts described in
§1.6049–5(b)(7), (10), or (11) (relating to
certain obligations issued in bearer form).
See §1.1441–1(e)(3)(vi).
.09 A “withholding agent” has the same
meaning as set forth in §1.1441–7(a) and
includes a payor, as defined in
§1.6049–4(a)(2). As used in this revenue
procedure, the term generally refers to the
person making a payment to a QI.
.10 An “eligible person” means, as de-
scribed in §1.1441–1(e)(5)(ii)(A) or (B),
any foreign financial institution, foreign
clearing organization, or foreign branch
of a U.S. financial institution or U.S.
clearing organization.
.11 A “branch” includes an office.
.12 A “financial institution” means a
person described in §1.165–12(c)(1)(iv)
(not including a person providing pension
or other similar benefits or a regulated in-
vestment company or other mutual fund,
unless otherwise indicated).
.13 A “clearing organization” means a
person described in §1.163–5(c)(2)(i)-
(D)(8).
.14 “Class of assets” and “withholding
pool,” have the meanings given to the
terms in section 5.02(4)(c) of this revenue
procedure.
.15 Any reference to “payments to a QI
or an account holder” includes crediting
an amount to the account of the QI or ac-
count holder.
.16 An “acceptance agent” is a person,
as described in §301.6109–1(d)(3)(iv)(B),
April 13, 1998161998–15 I.R.B.

that is authorized to assist persons in ob-
taining individual taxpayer identification
numbers or employer identification num-
bers from the IRS. See Rev. Proc. 96–52,
1996–2 C.B. 372.
SECTION 4. APPLICATION FOR QI
STATUS AND WITHHOLDING
AGREEMENT
.01 Where to Apply and Pre-submission
Conferences. To apply for QI status and a
withholding agreement, an eligible person
must submit a written request to:
Assistant Commissioner (Interna-
tional), CP:IN:OO:WT 950 L’Enfant
Plaza South, SW
Washington DC 20024
FAX: (202) 874-1797
An eligible person may request one or
more pre-submission conferences by con-
tacting the Office of the Assistant Com-
missioner (International) at (202) 874-
1800 (not a toll-free number).
.02 Content of Application.The appli-
cation must establish to the satisfaction of
the IRS that the applicant has adequate re-
sources and procedures to comply with
the terms of a withholding agreement. An
application must include the information
specified in this section 4.02, and any ad-
ditional information and documentation
requested by the IRS.
(1) A statement that the applicant is an
eligible person and that it requests a QI
withholding agreement with the IRS.
(2) The applicant’s name, address, and
employer identification number (EIN), if
any.
(3) The country in which the applicant
was created or organized and a descrip-
tion of the applicant’s business.
(4) A list of the applicant’s officers and
directors and a list of the employees who
are responsible parties for performance
under the agreement.
(5) A list of the branches that the
agreement will cover and their location.
(6) An explanation and sample of the
account opening agreements and other
documents used to open and maintain the
accounts at each location covered by the
agreement.
(7) The type of account holders (e.g.,
U.S., foreign, treaty benefit claimant, or
intermediary), the approximate number of
account holders within each type, and the
estimated value of U.S. investments that
the QI-Form W–8 will cover.
(8) An explanation of the applicant’s
“know-your-customer” practices and pro-
cedures (under its local money-laundering
laws) for opening accounts, and identify-
ing and communicating with customers at
each location covered by the agreement.
The explanation should include whether
local law mandates the “know-your-cus-
tomer” procedures and the manner in
which local authorities verify compliance.
The applicant should also describe the
governmental or other supervisory author-
ities that regulate the “know-your-cus-
tomer” procedures, and the sanctions that
apply under local law for failing to com-
ply with the procedures. The applicant
must include supporting documentation.
(9) A list of assets in the United States
from which amounts owed to the IRS can
be collected, if necessary.
(10) A completed Form SS–4 (Appli-
cation for Employer Identification Num-
ber) to apply for a QI Employer Identifi-
cation Number (QI-EIN) to be used solely
for QI reporting and filing purposes. An
applicant must apply for a QI-EIN even if
it already has another EIN.
(11) A proposed QI withholding agree-
ment drafted in accordance with section 5
of this revenue procedure.
SECTION 5. QI WITHHOLDING
AGREEMENT
.01 Scope of the agreement. An agree-
ment may not cover U.S. branches of an
eligible person. An eligible person is not
required to include all of its foreign
branches in the agreement. The IRS may
require, however, that an eligible person
agree to include certain of its branches to
insure the disclosure of certain U.S. ac-
count holders. See §1.1441–1(e)(5)(iii)
and section 5.02(3), below. In appropri-
ate cases, an eligible person may request
that the agreement cover its related non-
U.S. affiliates or unrelated account hold-
ers that act as nominees, custodians, or
agents of beneficial owners. If the IRS
grants the request, each related non-U.S.
affiliate or unrelated account holder must
agree to be a signatory to the agreement.
.02 Terms and procedures regarding in-
termediary withholding certificate. (1)
Submission of QI-Form W–8.The agree-
ment must specify that a QI will furnish
its QI-Form W–8, with its QI-EIN, to
withholding agents for reportable
amounts in lieu of furnishing a Form W-8
or Form W–9 from each of its account
holders to such withholding agents.
(2) Designation of primary withholding
responsibility.A QI is a withholding agent
under chapter 3 of the Code and a payor
under chapter 61 and section 3406 of the
Code for reportable amounts that it pays to
its account holders. Generally, a with-
holding agent that makes a payment to the
QI, however, will be responsible for actu-
ally withholding under chapter 3 and sec-
tion 3406 of the Code. Thus, if the with-
holding agent has withheld and reported
on the reportable amounts paid to the QI,
the QI is not required to withhold except
to the extent required to correct any under-
withholding. See §1.1441–1(b)(6). The
QI may, however, agree in its withholding
agreement to assume primary withholding
responsibility for payments to foreign ac-
count holders. See §1.1441–1(e)(5)(iv).
Generally, the IRS will not allow a QI to
assume primary withholding or reporting
responsibility for payments to U.S. per-
sons unless the QI is a foreign branch of a
U.S. financial institution, or the QI has a
branch in the United States and establishes
that its U.S. branch can adequately com-
ply with the provisions under chapter 61
and section 3406 of the Code.
(3) Disclosure of identity of beneficial
owner or payee by QI.Except as other-
wise provided in this subparagraph (3), a
QI is not required to disclose the identity
of its account holders covered by a QI-
Form W–8 to a withholding agent. Fur-
ther, the documentation given by an ac-
count holder to a QI supporting the
account holder’s claim of foreign status
and, if applicable, entitlement to a re-
duced rate of withholding does not need
to be attached to the QI-Form W–8. The
QI must, however, furnish a Form W–9
(or an acceptable substitute form) for each
of its account holders (or those of another
intermediary or of a foreign partnership)
that is a U.S. payee that is not an exempt
recipient. The identity of U.S. payees
who are exempt recipients is not required
to be disclosed to the withholding agent.
If the QI does not hold a Form W–9 for a
non-exempt U.S. payee, it must furnish to
the withholding agent any information the
QI has regarding the payee’s name, ad-
dress, and taxpayer identifying number.
The requirement to disclose the identity
of non-exempt U.S. payees will apply de-
spite local bank secrecy laws.
1998–15 I.R.B.17April 13, 1998

(4) Information to withholding agent.
(a) In general.A QI must agree to iden-
tify the classes of assets covered by the
QI-Form W–8 by following §1.1441–
1(e)(5)(v) and subparagraph (4)(c) of this
section. In addition, the QI must state the
rate of withholding for each class.
(b) Application of presumptions.To
identify the relevant classes of assets, a
QI may determine the status of its, or an-
other intermediary’s, account holders by
following the presumptions in §§1.1441–
1(b)(3), 1.1441–5(d) and (e), and 1.6049–
5(d)(2) through (d)(5).
(c) Class of assets and withholding
pool.(i) Definition.Generally, a class of
assets is a group of assets that produces
the same type of income (e.g., interest or
dividends), is subject to the same rate of
withholding, and is associated with the
same type of payee or beneficial owner
(e.g., foreign, U.S., or undocumented
(i.e., a payee for whom the QI holds no or
unreliable documentation)). Notwith-
standing the general rule that a class of
asset should produce the same type of in-
come, a QI-Form W–8 may state that all
assets held in a particular account are
within a single class of assets if all the in-
come from the assets in such account is
subject to the same rate of withholding
and the same type of information report-
ing. See, for example, subparagraph
(4)(c)(ii)(C) of this section. The QI with-
holding agreement must require the QI to
identify classes of assets on a country-by-
country basis. The income from each
class of assets is a separate “withholding
pool.” See section 5.07(3) for more infor-
mation on withholding pools.
(ii) Application.(A) Foreign payees.
Assets that are associated with foreign
payees, that produce a specific type of in-
come, and are subject to a particular with-
holding rate are a class of assets. Thus,
there may be numerous classes of assets
for the same type of income paid to for-
eign payees because of different with-
holding rates under the Code or an applic-
able treaty.
(B) U.S. payees.Assets associated
with each U.S. payee that is a non-ex-
empt recipient are a separate class. As-
sets associated with all U.S. payees that
are exempt recipients are a single sepa-
rate class.
(C) Undocumented payees.Assets as-
sociated with undocumented payees con-
stitute a separate class. A QI paying re-
portable amounts (other than U.S. source
bank deposit interest or short-term OID)
must presume that undocumented payees
of those amounts are foreign unless the QI
has actual knowledge that the payee is a
U.S. non-exempt recipient. For re-
portable amounts that are bank deposit in-
terest from a U.S. branch of a U.S. bank
or similar financial institution or short-
term original issue discount, the QI must
presume that the undocumented payee is a
U.S. non-exempt recipient.
(D) QI assuming primary withholding
responsibility.Assets for which a QI as-
sumes primary withholding responsibility
are a separate class. The QI does not have
to identify separate classes of assets with-
in that class if the assumption of with-
holding responsibility makes such a dis-
closure unnecessary. The QI withholding
agreement may, however, require a QI to
identify the assets with respect to which it
assumes primary withholding responsibil-
ity on a country-by-country basis.
(iii) Example.(A) Facts. AQI
(“QI1”) has foreign account holders. The
QI1 also has account holders that are U.S.
non-exempt recipients. Another account
holder is a QI (“QI2”) that has assumed
primary withholding responsibility. Fi-
nally, QI1 has some account holders for
whom it does not have the required docu-
mentation. QI1 has not assumed primary
withholding responsibility for any assets.
All account holders earn U.S. source
interest that would qualify as portfolio in-
terest if they gave the documentation re-
quired by §1.871–14(c)(2). They also
earn U.S. source dividends. Some of the
foreign account holders can benefit from
a 15-percent reduced withholding rate
under a tax treaty on dividend income
while others cannot.
(B) Analysis.QI1 has the following
classes of U.S. source assets and with-
holding pools:
(1) assets producing interest earned by
foreign account holders claiming the port-
folio interest exemption at source (a with-
holding pool of interest - zero rate);
(2) assets producing dividend income
earned by foreign account holders claim-
ing the 15-percent reduced rate at source
under an income tax treaty (a withholding
pool of dividends - 15% rate);
(3) assets producing dividend income
earned by foreign account holders resid-
ing in a non-treaty country (a withholding
pool of dividends - 30% rate);
(4) assets producing interest income
earned by each U.S. account holder (a
withholding pool per account holder of
interest reportable on a Form 1099 - zero
rate);
(5) assets producing dividends earned
by each U.S. account holder (a withhold-
ing pool per account holder for dividends
reportable on a Form 1099 - zero rate);
(6) assets producing dividends and in-
terest income earned by account holders
for whom the QI1 does not hold all of the
required documentation as specified
under the agreement (a withholding pool
for undocumented payees - 30% rate (pre-
sumed foreign)—Note: QI1 could divide
this class of assets into one for dividends
and another for interest income); and
(7) assets producing dividends and in-
terest payable to QI2 for its foreign ac-
count holders (a withholding pool for
which QI2 assumes withholding).
.03 Documentation requirements.(1)
In general.The agreement must contain
provisions covering the type of documen-
tation a QI will obtain from its account
holders. Generally, the QI must agree to
the same documentation requirements
that apply to withholding agents under
chapters 3 and 61 of the Code. The QI
may use any substitute form for a Form
W–8 or Form W–9 that is acceptable to
the IRS. The QI may include a substitute
form in an account opening form. If a QI
relies on documentary evidence in place
of a Form W–8, the agreement must spec-
ify the type of documentary evidence
upon which the QI may rely.
(2) Documentary evidence from bene-
ficial owners.Beneficial owner docu-
mentary evidence is acceptable if the QI
complies with the provisions of §1.6049–
5(c)(1). Generally, a QI will be permitted
to rely on the “know-your-customer” pro-
cedures (as submitted for review pur-
suant to section 4.02(8) of this revenue
procedure) if such procedures are accept-
able to the IRS.
(3) Documentation supporting claim of
reduced rate.A QI may not reduce the
rate of withholding, or instruct a with-
holding agent to reduce the rate, unless it
can associate the payment with valid doc-
umentation described in the section 1441
regulations or in the QI withholding
agreement. If an account holder is not an
April 13, 1998181998–15 I.R.B.

individual, the QI must obtain a certifica-
tion that the account holder meets the
Limitations on Benefits article contained
in any treaty the account holder invokes.
See §1.1441–6(c)(5). If an account
holder, other than an individual, is acting
for its own account, the QI must also ob-
tain a representation that the account
holder is not a partnership for U.S. tax
purposes. If the account holder is a part-
nership for U.S. tax purposes, then the QI
must obtain a Form W–9 as described in
§1.1441–1(d)(2) (if the partnership is a
domestic partnership) or a Form W–8 as
described in §1.1441–5(c) (if the partner-
ship is a foreign partnership). In addition,
if an account holder, other than an individ-
ual, claims the benefit of a reduced rate of
withholding under a tax treaty, the QI
must obtain the representations set forth in
§§1.1441–6(b)(4)(i) and 1.894–1T(d).
(4) Documentation from intermedi-
aries. When the QI receives a payment of
a reportable amount for an account holder
that is an intermediary (e.g., nominee,
custodian, or agent), the QI must obtain
beneficial owner documentation in the
following manner:
(a) Intermediary that is not a QI. If the
intermediary is not a QI, then the interme-
diary must give the QI a Form W–8 ac-
cording to §1.1441–1(e)(3)(iii), including
a statement described in §1.1441–
1(e)(3)(iv) regarding the allocation of
payments. A QI that receives a non-QI in-
termediary Form W–8 may either give the
non-QI intermediary Form W–8, with all
the accompanying documentation, to the
withholding agent or may use the non-QI
intermediary Form W–8 as the basis for
the certifications that the QI includes in
its own QI-Form W–8 regarding the sta-
tus of, and entitlement to benefits by, the
non-QI intermediary’s account holders.
(b) Intermediary that is a QI.If the
intermediary is a QI (i.e., a second tier
QI), the second tier QI must give the first
tier QI a QI-Form W–8. The first tier QI
may give the second tier QI’s QI-Form
W–8, and accompanying documentation,
to the withholding agent. Alternatively,
the first tier QI may use the second tier’s
QI-Form W–8 as the basis for the certifi-
cations that the first tier QI includes in its
own QI-Form W–8 regarding the status
of, and entitlement to benefits by, the sec-
ond tier QI’s account holders. If the first
tier QI relies on the second tier QI’s QI-
Form W–8 to certify to the withholding
agent the withholding status of the second
tier QI’s account holders, then the first
tier QI must agree to allocate the assets
associated with the second tier QI’s QI-
Form W–8 to the classes that the first tier
QI has established for its own account
holders as if the account holders of the
second tier QI were the first tier QI’s own
account holders.
(c) Assumption of primary withholding
responsibility. If a QI has assumed pri-
mary withholding responsibility, it must
generally assume that responsibility for
all other intermediaries, whether or not
they are QIs, that are before it in the chain
of payment. If a second tier QI has
agreed to assume primary withholding re-
sponsibility, then a first tier QI that has
also assumed primary withholding re-
sponsibility does not have to withhold on
income paid to the second tier QI. If the
second tier QI has assumed primary with-
holding responsibility but the first tier QI
has not, the first tier QI must agree to
identify for the withholding agent those
assets associated with the second tier QI’s
QI-Form W–8 and on which there should
be no withholding (other than under sec-
tion 3406 of the Code, if applicable). See
example under paragraph .02(4)(c)(iii),
above.
(5) Standards of reliability and due
diligence.A QI must agree to follow the
due diligence obligations of §1.1441–
7(b)(2)(ii). The reliability of any docu-
mentation will be evaluated by the type of
information contained in the documents,
the procedures under which the docu-
ments are issued, and the ease with which
the documents could be falsified.
(6) Renewal of documentation. Unless
specified otherwise in the agreement, a QI
must agree to follow the provisions of
§1.1441–1(e)(4)(ii) regarding the renewal
of the Forms W–8 and documentary evi-
dence provided by its account holders.
.04 Assistance regarding taxpayer
identification numbers.(1) Acceptance
agents.A QI may agree to act as an ac-
ceptance agent, including a certifying ac-
ceptance agent, for purposes of section
6109 of the Code and the regulations
thereunder. See Rev. Proc. 96–52, 1996–
2 C.B. 372, for the duties and obligations
of an acceptance agent.
(2) TIN certifications.A QI may agree
to assist its account holders in complying
with the requirements for a certified TIN
under §1.1441–6(b). Only account hold-
ers claiming a reduced rate under an in-
come tax treaty for certain payments (e.g.,
income from non-publicly traded securi-
ties) are required to obtain a certified TIN.
See §1.1441–6(b)(1) and (2)(i).
.05 Recordkeeping obligations.The
agreement must provide that the QI will
maintain a record of the documentation
obtained and reviewed under the agree-
ment. The QI must maintain the docu-
mentation for any account holder for a pe-
riod of three years after its validity
expires. The documentation must also be
available for inspection by the IRS or, if
applicable, an approved external auditor.
.06 Withholding obligations.(1) QI
assumes primary withholding responsibil-
ity.A QI that assumes primary withhold-
ing responsibility must agree to withhold
any amount due under section 1441,
1442, or 1443 of the Code in accordance
with §1.1441–1(b)(1) and §1.1443–1(b).
If applicable, the QI must also agree to
withhold any amount due under section
3406 of the Code. In addition, the QI
must agree to deposit the withheld
amounts following §1.1461–1(a) and all
other relevant deposit obligations. Under
the agreement, the IRS may agree to spe-
cial deposit procedures to facilitate remit-
tances from a foreign country.
(2) QI that does not assume primary
withholding responsibility.A QI that does
not assume primary withholding responsi-
bility nevertheless must agree to withhold
if it knows that an amount should have
been withheld from the payment and the
full amount was not withheld. The QI
must also agree to comply with withhold-
ing and deposit procedures in the same
manner as described in paragraph .06(1)
of this section for amounts that it with-
holds.
.07 Reporting obligations. (1) In gen-
eral.The regulations under section 1461
of the Code require a QI to make returns
on a Form 1042 and to provide informa-
tion to the IRS and beneficial owners or
payees on a Form 1042–S on a calendar
year basis under the provisions of
§1.1461–1(b), subject to the following
modifications to which the IRS may agree.
(2) Form 1042 reporting.Generally,
every QI shall file an annual Form 1042
and the form must include the following
additional information:
1998–15 I.R.B.19April 13, 1998

(a) A schedule providing information
on reportable amounts of income subject
to withholding under chapter 3 of the
Code that the QI received during the cal-
endar year. The schedule should list the
name, address, and EIN of each withhold-
ing agent from whom the reportable
amounts were received and the income
type and rate of withholding;
(b) Information regarding overpay-
ments or balances due, adjustments under
§1.1461–2 and an explanation for the
over- or underwithholding;
(c) A statement regarding the audit
conducted by the QI’s internal auditors
under the audit guidelines specified in the
agreement (i.e., that the QI is complying
with the agreement in all material respects
or a description of the irregularities un-
covered by the internal auditors and the
actions undertaken to correct such irregu-
larities); and
(d) A statement that an approved exter-
nal auditor conducted an audit, when re-
quired, with a copy of the report of audit
findings (see paragraph .09 of this section
regarding verification procedures).
(3) Form 1042–S reporting. The
agreement may waive the obligation for a
QI to report beneficial owner information
to the IRS on Forms 1042–S in appropri-
ate cases. In place of beneficial owner in-
formation, the IRS may require the QI to
report by country and withholding pools.
An appropriate case may exist if benefi-
cial owner information is otherwise avail-
able to the IRS, for example, pursuant to
treaty exchange of information provi-
sions, or the IRS decides that access to
beneficial owner information is not neces-
sary for compliance. Similarly, reporting
by withholding pools may be sufficient
for compliance purposes if the QI has
agreed to adequate verification proce-
dures as described in paragraph .09 of this
section. The QI may provide the informa-
tion on a Form 1042–S, as modified by
the IRS to adapt to the withholding pool
reporting requirements, on magnetic
media, by electronic means, or on any
form to which the IRS and the QI agree.
The information must include the number
of account holders in each pool. The type
of withholding pool subdivisions the IRS
may require for the payment of reportable
amounts under chapter 3 of the Code
(within the meaning of §1.1441–2(a)) in-
cludes the following:
(a) Type of income;
(b) Withholding rate;
(c) Country of residence of account
holder; and
(d) Type of recipients (e.g., undocu-
mented payees, U.S. payees).
(4) Furnishing a Form 1042–S to the
beneficial owner or payee.The agreement
may modify or waive the obligation under
§1.1461–1(c)(1)(i) that the QI furnish a
statement to a beneficial owner or payee
on a Form 1042–S and provide for alter-
native reporting procedures.
(5) Reports related to claims of a re-
duced rate under a tax treaty.The QI
must agree to give the IRS, on request or
on an annual basis, the names and ad-
dresses of its account holders that re-
ceived a reduced rate of withholding
under a tax treaty and that have certified
that they meet the Limitation on Benefits
provision and that they derive, within the
meaning of §1.894–1T(d), the income re-
ceiving the benefit. The QI must also
agree to disclose the names and addresses
of account holders of any non-QI interme-
diary that has given the QI a Form W–8 or
other documentation if the account hold-
ers have certified that they meet the Limi-
tation on Benefits provision of a treaty
and derive the income receiving the bene-
fit. Generally, the IRS will agree to limit
disclosure to account holders that receive
more than an agreed upon amount (not
less than $100,000) of treaty-benefited in-
come in their QI account.
.08 Adjustments for under- and over-
withholding, refund procedures, and un-
derwithholding determined after the filing
of Form 1042.(1) Adjustments.If a QI
has not assumed primary withholding re-
sponsibility, it must agree that it will pro-
vide sufficient information to a withhold-
ing agent so that the withholding agent
can make the adjustments for over- and
under-withholding described in §1.1461–
2(a) and (b). If a QI has assumed primary
withholding responsibility, it may make
the adjustments itself in the manner de-
scribed under §1.1461–2(a) and (b).
(2) Refunds.A QI withholding agree-
ment may allow any net amount of over-
withholding for a calendar year on a QI’s
account holders which remains outstand-
ing after the due date for filing the QI’s
Form 1042 (not including extensions) to
be refunded to the QI for its account hold-
ers (under procedures as the IRS may pre-
scribe) if an adjustment under §1.1461–
2(a) cannot be made.
(3) Underwithholding determined after
filing a QI’s Form 1042.A QI, including a
QI that does not assume primary withhold-
ing responsibility, must agree to file an
amended Form 1042 to report any under-
withheld tax which is determined after the
filing of the QI’s Form 1042 for the calen-
dar year in which the tax was underwith-
held. In addition, the QI must agree to pay
the tax due (including interest and penal-
ties). This includes, but is not limited to,
instances where the underwithholding is
determined as a result of an audit by the
QI’s internal or external auditors.
.09 Verification procedures.(1) In
general.Unless the QI agreement allows
for verification by an external auditor, a
QI must agree to make records and ac-
count information specified in the QI
withholding agreement available to the
IRS for audit, and must agree to proce-
dures for carrying out an audit of those
records and information. The IRS must
be able to verify that the QI has adequate
systems and control procedures in effect
to comply with the agreement. In addi-
tion, the IRS may require specific proce-
dures to allow it to verify compliance
with the QI withholding agreement for
specific accounts.
(2) Verification of specific account in-
formation.If a QI is not subject to audit
under the approved external auditor pro-
cedure, described in paragraph .10(3) of
this section, then the QI withholding
agreement will contain procedures for
IRS audits of account information. Gen-
erally, a QI that complies with the filing
requirements on Forms 1042 and 1042–S
(or otherwise makes account holder in-
formation available to the IRS) may be
exempted from IRS audits or be subject
to abbreviated IRS audits. If a QI has
agreed to certify tax residence to the IRS
under §1.1441–6(c)(2)(iii) based upon
documentation the QI has obtained and
reviewed, it must also agree to give the
documentation to the IRS upon written
request in the manner agreed. To conduct
periodic compliance checks, the IRS may
rely on sampling techniques to assure re-
liability of the examination without
undue disruption to the QI. The agree-
ment will specify the manner in which
IRS compliance checks will take place.
In appropriate cases, assistance may be
April 13, 1998201998–15 I.R.B.

obtained from the tax authorities of the
countries where the QI activities are
located.
(3) Approved external auditors.If,
given local enforcement of know-your-
customer procedures and local oversight
and controls over the QI and its external
auditors, the IRS determines it is appro-
priate, the following procedures will gen-
erally apply under the agreement.
(a) The QI must establish that it has im-
plemented adequate internal procedures
and accounting systems to comply with
the QI withholding agreement and to ver-
ify its compliance with those procedures.
Internal auditors must review those proce-
dures and accounting systems on an an-
nual basis as a regular part of their audit
program. Their conclusions must be in-
cluded in their annual audit report. A
statement certifying that the annual re-
view has taken place and the results of
that review (including a notation of all ir-
regularities observed and actions taken to
address those irregularities) must be at-
tached to the QI’s annual Form 1042 filed
with the IRS.
(b) Verification must also be per-
formed by external auditors. The QI must
agree to an external auditor’s review after
the first year of operation as a QI. There-
after, the frequency and scope of compli-
ance checks by external auditors will
occur only at the request of the IRS, gen-
erally based upon a review of the QI’s
Form 1042 or indicators that the QI may
have compliance problems (e.g., large re-
fund requests, large pool of undocu-
mented payees). The scope of review by
external auditors may be limited based on
the scope of annual internal audits. In
order for the external auditors to perform
their audit effectively, the QI must agree
to allow external auditors to have access
to all of its relevant records for purposes
of performing the audits.
(c) The external auditor must be ap-
proved by the IRS and designated in the
QI withholding agreement. Subsequent
changes of external auditors must also be
approved by the IRS. To be approved, an
auditor must be subject to regulatory su-
pervision under the laws of the country or
countries in which the QI’s activities
under the agreement are expected to
occur. The external auditor’s procedures
must require it to verify that the QI com-
plies with the terms of the agreement and
to report non-compliance findings under
the agreement.
(d) Upon completion of the audit, the
external auditors must issue a report of
audit findings (or incorporate their audit
findings as a separate part of a larger audit
report) and provide the report to the IRS
in English (and using U.S. dollars). The
report must explain the scope and objec-
tives of the audit, state the methodology
used, and certify that the audit was con-
ducted in accordance with applicable laws
and regulatory requirements. The report
must express the auditor’s opinion on the
QI’s compliance with the terms of the
agreement. The QI and the approved ex-
ternal auditor must agree to allow the IRS
to communicate with the external auditors
and review their workpapers, if necessary.
If the external auditor’s report identifies
compliance issues or if, based on a review
of the external auditor’s report, the IRS
determines that further checks are neces-
sary, then the IRS may request that the ex-
ternal auditor perform additional audit
procedures.
(4) Special rules for foreign branches
of U.S. financial institutions. Generally, a
QI that is a foreign branch of a U.S. finan-
cial institution will be subject to the same
IRS audit procedures that apply to any
U.S. taxpayer.
.10 Guarantee of payment.To insure
collection of payments for underwithheld
amounts, the agreement may require a
guarantee to be furnished by the QI to the
IRS. The guarantee may include a letter
of credit, bond, or other surety in an
amount to which the QI and the IRS
agree. The amount of the bond or letter of
credit must be commensurate with the ap-
proximate risk of underwithholding. Fac-
tors to be considered in this regard in-
clude the amount of U.S. investments
made through the QI, the number of bene-
ficial owners making U.S. investments,
the type of investment and the character-
istics of the beneficial owners, and the de-
gree of reporting by the QI to the IRS.
Generally, a QI that has substantial assets
in the United States will be considered to
have adequately guaranteed its withhold-
ing obligations.
.11 Approval and Execution.An agree-
ment must be signed by the authorized
representative of the QI and by the IRS.
The Assistant Commissioner (Interna-
tional) will sign on behalf of the IRS upon
approval by the Associate Chief Counsel
(International). To the extent an agree-
ment covers a QI’s related non-U.S. affili-
ate or unrelated account holder, that affili-
ate or account holder must be a signatory
to the agreement.
.12 Expiration, Termination and De-
fault. (1) Term and events of termination.
The period of the agreement will be be-
tween three and six years. The agreement
may be renewed for further periods as
specified in paragraph .13 of this section.
Either the IRS or the QI may terminate
the agreement prior to its term by deliver-
ing a 30-day notice of termination to the
other party. The IRS will not give notice
of termination until thirty days after it has
delivered a notice of default to the QI.
The IRS may deliver a notice of default at
any time after an event of default under
the agreement has occurred or after a sig-
nificant change in the circumstances of
the QI has occurred such as a merger,
changes in the business or operations of
the QI, or bankruptcy.
(2) Events of default. Events of default
include the determination upon audit or
otherwise that the QI has failed to comply
with the procedures required by the agree-
ment in a way that (1) causes, or may
cause, significant underwithholding, ex-
cessive refunds, or an excessive number of
undocumented payees, or (2) impedes, or
may impede, the disclosure of the identity
of persons who are required to be dis-
closed under the agreement. An event of
default also includes the lack of coopera-
tion by the QI or an approved external au-
ditor in connection with an audit of the QI
or with inquiries by the IRS related to ver-
ifying compliance by the QI. The agree-
ment will define when underwithholding
or inadequate reporting is deemed to be
significant. A QI will also be in default if
it makes material misrepresentations on its
Form W–8; it has actual knowledge at the
time a payment is made that documenta-
tion regarding a significant number of ac-
count holders is lacking, incorrect, or un-
reliable; or it fails to perform any other
material duty or obligation required of it
under the agreement. The QI may respond
to the notice of default by making an offer
to cure within thirty days. The IRS will
accept or reject the offer to cure, or make a
counter-proposal, within ten days.
.13 Renewal.A QI may renew a QI
withholding agreement by submitting an
1998–15 I.R.B.21April 13, 1998

application for renewal to the IRS no ear-
lier than one year and no later than six
months prior to the expiration of the
agreement. In the application for re-
newal, the QI will update the information
it provided in the original application.
Before approval of any renewal of the
agreement, the IRS will require an audit
of the QI.
.14 Effective date of agreements. The
agreements entered into under §1.1441–
1(e)(5) will be effective for all accounts
opened on or after the date specified in
the agreement. For accounts existing on
the effective date of the agreement, the
requirements to obtain documentation
generally will not apply until the expira-
tion of the one-year period beginning on
the agreement’s effective date. Until the
documentation is obtained for these ac-
counts, the QI generally will be permitted
to rely on any documentation or informa-
tion in an existing account file. In the ab-
sence of any documentation or indica-
tion, or actual knowledge, the QI will be
allowed to presume that an account
holder is a foreign person based on the
indicia of foreign status described in
§1.1441–1(b)(3)(iii)(A). The presump-
tion shall not be effective for purposes of
obtaining the benefit of the portfolio in-
terest exemption under section 871(h) or
881(c) of the Code or the benefit of a tax
treaty.
SECTION 6. EFFECTIVE DATE
This revenue procedure is effective on
the date of its publication in the Internal
Revenue Bulletin. The IRS may conclude
agreements under this revenue procedure
at any time after that date, but such agree-
ments will not have effect before the date
specified in the agreement.
SECTION 7. PAPERWORK
REDUCTION ACT
The collections of information con-
tained in this revenue procedure have
been reviewed and approved by the Of-
fice of Management and Budget in accor-
dance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545–1597.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the col-
lection of information displays a valid
OMB control number.
The collections of information are con-
tained in sections 4 and 5 of this revenue
procedure regarding (1) the application
procedures for QI status and withholding
agreements, and (2) the provisions of the
QI withholding agreement requiring
record retention or maintenance, and any
communication or contact with the IRS or
the account holders. This information
will be used to enable the IRS to deter-
mine whether to enter into a withholding
agreement with the QI applicant and, if
accepted, to verify the QI’s compliance
with the agreement. The collection of in-
formation is required to obtain a QI with-
holding agreement. The likely respon-
dents are business or other for-profit
institutions.
The estimated total annual reporting
and/or recordkeeping burden is 301,393
hours.
The estimated average annual burden is
30 minutes for a QI account holder, and
2,093 hours for a QI, depending on indi-
vidual circumstances. The estimated
number of respondents and/or record-
keepers is 88,504.
The estimated annual frequency of re-
sponses is on occasion.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
SECTION 8. FURTHER
INFORMATION
For further information regarding this
revenue procedure, telephone the Office
of Assistant Commissioner (International)
at (202) 874-1800 (not a toll-free number).
26 CFR 601.204: Changes in accounting periods
and in methods of accounting.
(Also Part I, Sections 471; 1.471–2.)
Rev. Proc. 98–29
SECTION 1. PURPOSE
This revenue procedure provides guid-
ance for a taxpayer that wants to change
to a method of accounting for estimating
inventory “shrinkage” in computing end-
ing inventory. “Shrinkage” refers collec-
tively to such items as undetected theft,
breakage, and bookkeeping errors. In ad-
dition, section 4 of this revenue procedure
provides interim guidance that describes
the “retail safe harbor method” for a tax-
payer that wants to change to the retail
safe harbor method for estimating inven-
tory shrinkage. The procedures for a tax-
payer within the scope of this revenue
procedure to automatically change to a
method of accounting for estimating in-
ventory shrinkage are provided in Rev.
Proc. 97–37, 1997–33 I.R.B. 18, as modi-
fied by section 5.02 of this revenue proce-
dure. This revenue procedure also re-
quests comments on issues that should be
addressed in forthcoming regulations
under § 471 regarding proper methods of
estimating inventory shrinkage for tax-
able years ending after August 5, 1997.
SECTION 2. BACKGROUND
.01 Section 471(a) of the Internal Rev-
enue Code provides that whenever, in the
opinion of the Secretary, the use of inven-
tories is necessary in order to clearly de-
termine the income of any taxpayer, in-
ventories must be taken by such taxpayer
on such basis as the Secretary may pre-
scribe as conforming as nearly as may be
to the best accounting practice in the trade
or business and as most clearly reflecting
income.
.02 Section 1.471–2(d) of the Income
Tax Regulations provides that when a tax-
payer maintains book inventories in ac-
cordance with a sound accounting system,
the net value of the inventory will be
deemed to be the cost basis of the inven-
tory, provided that such book inventories
are verified by physical inventories at rea-
sonable intervals and adjusted to conform
therewith. Physical inventories are used
to determine and adjust book inventories
for shrinkage.
.03 Section 961 of the Taxpayer Relief
Act of 1997 (Act) amended § 471(b) to
permit, under certain circumstances, ad-
justments to ending inventory for esti-
mates of inventory shrinkage. Section
961(b) of the Act provides that, in the
case of any taxpayer permitted by
§ 471(b) to change its method of account-
ing to a permissible method for any tax-
able year, the change is treated as made
with the consent of the Secretary and the
period for taking into account the adjust-
ments under § 481 by reason of such
change is four years.
April 13, 1998221998–15 I.R.B.

.04 The legislative history (Conference
Report and House Report) accompanying
the Act provides that a taxpayer is permit-
ted by § 471(b) to change its method of
accounting if the taxpayer is currently
using a method that does not utilize esti-
mates of inventory shrinkage and wants to
change to a method that includes inven-
tory shrinkage estimates based on physical
inventories taken at other than year-end.
H.R. Rep. No. 220 (Conference Report),
105th Cong., 1st Sess. 466, at 467–68
(1997); H.R. Rep No. 2014 (House Re-
port), 105th Cong., 1st Sess. 408, at 410
(1997). In addition, the Conference Re-
port provides a safe harbor method applic-
able to taxpayers primarily engaged in re-
tail trade (the “retail safe harbor method”).
The Conference Report further provides
that the conferees expect that the Secretary
will provide procedures allowing a tax-
payer to automatically change to the retail
safe harbor method. Pursuant to the Con-
ference Report, use of the retail safe har-
bor method will be deemed to result in a
clear reflection of income, provided such
safe harbor method is consistently applied
and the taxpayer’s inventory methods oth-
erwise satisfy the clear reflection of in-
come standard.
SECTION 3. SCOPE
.01 Applicability.This revenue proce-
dure applies to a taxpayer requesting the
Commissioner’s consent to change to a
method of accounting for estimating in-
ventory shrinkage in computing ending
inventory, using:
(1) the retail safe harbor method, re-
gardless of whether the taxpayer’s present
method of accounting estimates inventory
shrinkage; or
(2) a method other than the retail
safe harbor method, provided (a) the tax-
payer’s present method of accounting does
not estimate inventory shrinkage, and (b)
the taxpayer’s new method of accounting
(that estimates inventory shrinkage)
clearly reflects income under § 446(b).
.02 Inapplicability.This revenue pro-
cedure does not apply to a taxpayer re-
questing to change to a method other than
the retail safe harbor method of account-
ing for estimating inventory shrinkage in
computing ending inventory, if the tax-
payer’s present method of accounting es-
timates inventory shrinkage. A taxpayer
requesting such a change must file a Form
3115, Application for Change in Account-
ing Method, with the Commissioner in
accordance with the requirements of
§1.446–1(e)(3)(i) and Rev. Proc. 97–27,
1997–21 I.R.B. 10.
SECTION 4. RETAIL SAFE HARBOR
METHOD
.01 The retail safe harbor method of
estimating inventory shrinkage, as de-
scribed in sections 4.02 through 4.07 of
this revenue procedure, may be used in
computing ending store inventory by tax-
payers that are primarily engaged in retail
trade (the resale of personal property to
the general public), where physical inven-
tories are normally taken at each location
at least annually.
.02 The retail safe harbor method uses
a historical ratio of shrinkage to sales to
estimate the inventory shrinkage that oc-
curred between the date of the last physi-
cal inventory and the end of the taxable
year. This historical ratio is based on the
actual shrinkage established by all physi-
cal inventories taken during the most re-
cent three taxable years and the sales for
related periods. The most recent three
taxable years include the taxable year for
which the shrinkage estimate is to be
made and the two prior taxable years.
The historical ratio, or estimated shrink-
age determined using the historical ratio,
cannot be adjusted by judgmental or other
factors (for example, floors or caps).
.03 For stores with departments, a tax-
payer must determine the historical ratio
separately for each store or each depart-
ment in a store. This determination must
be done in the same manner for all stores
with departments that are in the same
trade or business of the taxpayer. For
stores without departments, a taxpayer
must determine the historical ratio sepa-
rately for each store. If a taxpayer has a
new store (or a new department in a store)
for which the taxpayer has not verified
shrinkage by a physical inventory in each
of the most recent three taxable years, the
historical ratio is the average of the histor-
ical ratios of the taxpayer’s other stores
(or other departments in the store where
the taxpayer computes the historical ratio
on a department basis) during the most re-
cent three taxable years.
.04 The estimated inventory shrinkage
permitted by the retail safe harbor method
is determined by multiplying the histori-
cal ratio for each store or each department
in a store by its sales for the period be-
tween the date of the last physical inven-
tory and the end of the taxable year.
.05 Taxpayers using the last-in first-out
(LIFO) inventory method must allocate
shrinkage among their various LIFO in-
ventory pools in a reasonable and consis-
tent manner.
.06 Estimated shrinkage determined in
accordance with consistent application of
the retail safe harbor method may not be
recalculated, through a look-back adjust-
ment or otherwise, to reflect the results of
physical inventories taken after year-end.
.07 A taxpayer that changes to the re-
tail safe harbor method must use the retail
safe harbor method consistently to deter-
mine the ending inventory for all stores
that comprise a separate trade or business
of the taxpayer. Use of the retail safe har-
bor method for estimating inventory
shrinkage results in the clear reflection of
income, provided this method is used
consistently and the taxpayer’s inventory
methods otherwise satisfy the clear reflec-
tion of income standard.
SECTION 5. CHANGING TO THE
RETAIL SAFE HARBOR METHOD OR
OTHER METHOD OF ESTIMATING
INVENTORY SHRINKAGE
.01 In general.Any change in a tax-
payer’s computation of ending inventory
to estimate inventory shrinkage, or any
change in the computation of such esti-
mate, is a change in method of accounting
to which the provisions of §§ 446 and 481
and the regulations thereunder apply.
.02 Automatic change.A taxpayer
within the scope of this revenue proce-
dure that wants to change to a method of
accounting for estimating inventory
shrinkage in computing ending inventory
must follow the automatic change in ac-
counting method provisions of Rev. Proc.
97–37, with the following modifications:
(1) The scope limitations in section
4.02 of Rev. Proc. 97–37, as well as the
application procedures in sections 6.03,
6.04, and 6.05 of Rev. Proc. 97–37, do not
apply. However, if the taxpayer is under
examination, before an appeals office, or
before a federal court with respect to any
income tax issue, the taxpayer must pro-
vide a copy of the Form 3115 to the ex-
amining agent(s), appeals officer, or
counsel for the government, as appropri-
1998–15 I.R.B.23April 13, 1998

ate, at the same time that it files the copy
of the Form 3115 with the national office.
The Form 3115 must contain the name(s)
and telephone number(s) of the examin-
ing agent(s), appeals officer, or counsel
for the government, as appropriate.
(2) A taxpayer that, on or before
June 12, 1998, files its original federal in-
come tax return for its first taxable year
ending on or after August 5, 1997, is not
subject to the filing requirement in section
6.02(2)(a) of Rev. Proc. 97–37, provided
the taxpayer complies with the following
filing requirement. The taxpayer must
complete and file a Form 3115 in dupli-
cate. The original must be attached to the
taxpayer’s amended federal income tax
return for the taxpayer’s first taxable year
ending on or after August 5, 1997. This
amended return must be filed no later than
August 11, 1998. A copy of the Form
3115 must be filed with the national office
(see section 6.02(6) of Rev. Proc. 97–37
for the address) no later than when the
taxpayer’s amended return is filed.
(3) A taxpayer, whose present
method of accounting estimates inven-
tory shrinkage, does not receive audit pro-
tection under section 7 of Rev. Proc. 97–
37 in connection with a change to the re-
tail safe harbor method if, on the date the
taxpayer files a copy of the Form 3115
with the national office, the taxpayer’s
present method of estimating inventory
shrinkage is an issue under consideration
within the meaning of section 3.09 of
Rev. Proc. 97–37.
(4) In addition to all the require-
ments and procedures in Rev. Proc. 97-37,
as modified by this revenue procedure, the
following rules apply to a taxpayer within
the scope of this revenue procedure that
changes to a method other than the retail
safe harbor method of accounting for esti-
mating inventory shrinkage. The taxpayer
must provide a detailed description of all
aspects of the new method of estimating
inventory shrinkage (including, for LIFO
taxpayers, the method of determining in-
ventory shrinkage for, or allocating inven-
tory shrinkage to, each LIFO pool) in the
Form 3115 filed by the taxpayer for such a
change. The District Director or national
office subsequently may review whether
the new method clearly reflects the tax-
payer’s income under § 446(b). If the Dis-
trict Director or the national office deter-
mines that the new method of accounting
does not clearly reflect the taxpayer’s in-
come, the taxpayer will be treated as hav-
ing made a change in method of account-
ing without obtaining the consent of the
Commissioner as required by § 446(e).
Seesection 6.06 of Rev. Proc. 97–37.
(5) For a change in method of ac-
counting within the scope of this revenue
procedure, the provisions of Rev. Proc.
97–37 are effective for taxable years end-
ing after August 5, 1997.
(6) The transition rules in section
13.02 of Rev. Proc. 97–37 do not apply to
any change in method of accounting
within the scope of this revenue proce-
dure. The Service will return any Form
3115 if it is filed with the national office
pursuant to the Code, regulations, or ad-
ministrative guidance other than Rev.
Proc. 97–37 and the change in method of
accounting is within the scope of this rev-
enue procedure.
.03 Future change.A taxpayer that
changes to the retail safe harbor method
described in this revenue procedure will
not be precluded, solely by reason of such
change, from changing to another safe
harbor method for estimating inventory
shrinkage in computing ending inventory
in the first year that such other safe harbor
method is available.
SECTION 6. REGULATIONS AND
REQUEST FOR PUBLIC COMMENT
The Service intends to issue regulations
under § 471 regarding proper methods for
estimating inventory shrinkage in com-
puting ending inventory for taxable years
ending after August 5, 1997. Comments
are requested regarding safe harbor meth-
ods for estimating inventory shrinkage
(including the retail safe harbor method),
and any other issues that these regulations
should address. Written comments
should be submitted by August 11, 1998,
to: Internal Revenue Service, P.O. Box
7604, Ben Franklin Station, Washington,
DC 20044, Attn: CC:DOM:CORP:R
(IT&A BRANCH 7, Room 5226). Sub-
missions may be hand-delivered between
the hours of 8 a.m. and 5 p.m. to:
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, NW,
Washington DC, Attn: CC:DOM:CORP:
R (IT&A Branch 7, Room 5226). Alter-
natively, taxpayers may submit comments
electronically at
http://www.irs.ustreas.gov/prod/tax_re
gs/comments.html
(the Service’s internet site). All com-
ments submitted will be available for pub-
lic inspection and copying.
SECTION 7. EFFECTIVE DATE
This revenue procedure is effective for
taxable years ending after August 5, 1997.
SECTION 8. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 97–37 is modified and am-
plified to include this automatic account-
ing method change in the Appendix.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Jan L. Skelton of the Office
of Assistant Chief Counsel (Income Tax
and Accounting). For further information
regarding this revenue procedure, contact
Ms. Skelton at (202) 622-4970 (not a toll-
free call).
April 13, 1998241998–15 I.R.B.

1998–15 I.R.B.25April 13, 1998
Notice of Proposed Rulemaking
and Notice of Public Hearing
Source and Grouping Rules for
Foreign Sales Corporation
Transfer Pricing
REG–102144–98
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing by cross-reference to
temporary regulations and notice of pub-
lic hearing.
SUMMARY: In T.D. 8764, page 9 of this
Bulletin, the IRS is issuing temporary
regulations that provide guidance to tax-
payers who have made an election to be
treated as a foreign sales corporation
(FSC). The regulations provide rules
clarifying the special sourcing rules under
section 927(e)(1) and provide a deadline
for the election to group transactions.
This document also provides notice of a
public hearing on these proposed regula-
tions. The text of the temporary regula-
tions also serves as the text of the pro-
posed regulations.
DATES: Written comments must be re-
ceived by June 1, 1998. Requests to
speak (with outlines of oral comments) to
be discussed at the public hearing sched-
uled for June 24, 1998, at 10 a.m., must
be received by June 3, 1998.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (REG–102144–98),
room 5226, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington, DC 20044. Submissions may be
hand delivered between the hours of 8
a.m. and 5 p.m. to: CC:DOM:CORP:R
(REG-102144-98), Courier’s Desk, Inter-
nal Revenue Service, 1111 Constitution
Avenue, NW, Washington, DC. Alterna-
tively, taxpayers may submit comments
electronically via the Internet by selecting
the “Tax Regs” option on the IRS Home
Page, or by submitting comments directly
to the IRS Internet site at http://www.irs.
ustreas.gov/prod/tax_regs/comments.html.
The public hearing will be held in Room
2615, Internal Revenue Service, 1111
Constitution Avenue, NW., Washington,
DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations,
Elizabeth Beck (202) 622-3880; concern-
ing submissions and the hearing, Michael
Slaughter, (202) 622-7190 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
Background
Temporary regulations in T.D. 8764
amend the Income Tax Regulations (26
CFR part 1) relating to sections 925 and
927. The temporary regulations contain
rules relating to the grouping of transac-
tions under the FSC transfer pricing rules
and the special source rules under section
927(e)(1). The preamble to the temporary
regulations explains the temporary regu-
lations.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in Exec-
utive Order 12866. Therefore, a regula-
tory assessment is not required. It has
also been determined that section 553(b)
of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these
regulations, and because the regulation
does not impose a collection of informa-
tion on small entities, the Regulatory
Flexibility Act (5 U.S.C. chapter 6) does
not apply. Pursuant to section 7805(f) of
the Internal Revenue Code, this notice of
proposed rulemaking will be submitted to
the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on its impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any written com-
ments (preferably a signed original and
eight (8) copies) that are submitted timely
to the IRS. All comments will be avail-
able for public inspection and copying.
A public hearing has been scheduled
for June 24, 1998, at 10 a.m., in room
2615, Internal Revenue Building, 1111
Constitution Avenue, NW, Washington,
DC. Because of access restrictions, visi-
tors will not be admitted beyond the Inter-
nal Revenue lobby more than 15 minutes
before the hearing starts.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing.
Persons that wish to present oral com-
ments at the hearing must submit written
comments by June 1, 1998, and submit an
outline of the topics to be discussed and
the time to be devoted to each topic
(preferably a signed original and eight (8)
copies) by June 3, 1998.
A period of 10 minutes will be allotted
to each person for making comments.
An agenda showing the schedule of
speakers will be prepared after the dead-
line for receiving outlines has passed.
Copies of the agenda will be available
free of charge at the hearing.
Drafting Information
The principal author of the proposed
regulations is Elizabeth Beck, of the Of-
fice of the Associate Chief Counsel (Inter-
national). Other personnel from the IRS
and Treasury Department also partici-
pated in the development of these regula-
tions.
* * * * *
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding the following
entries to the table in numerical order to
read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.925(a)–1 is also issued under
26 U.S.C. 925(b)(1) and (2) and
927(d)(2)(B).
Section 1.925(b)–1 is also issued under
26 U.S.C. 925(b)(1) and (2) and
927(d)(2)(B). * * *
Par. 2. Section 1.925(a)–1 is added as
follows:
[The text of proposed §1.925(a)–1 con-
sisting of paragraphs (c)(8)(i) and (e)(4) is
the same as the text of §1.925(a)– 1T(c)-
(8)(i) and (e)(4) as amended in T.D. 8764.]
Part IV. Items of General Interest

April 13, 1998261998–15 I.R.B.
Par. 3. Section 1.925(b)–1 is added as
follows:
[The text of proposed §1.925(b)–1 con-
sisting of paragraph (b)(3)(i) is the same
as the text of §1.925(b)–1T(b)(3)(i) as
amended in T.D. 8764.]
Par. 4. Section 1.927(e)–1 is amended
as follows:
[The text of proposed §1.927(e)-1 is
the same as the text of §1.927(e)-1T pub-
lished in T.D. 8764.]
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on
March 2, 1998, 8:45 a.m., and published in the issue
of the Federal Register for March 3, 1998, 63 F.R.
10351)
Notice of Proposed Rulemaking
and Notice of Public Hearing
Return of Partnership Income
REG–209322–82
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Withdrawal of notice of pro-
posed rulemaking; notice of proposed
rulemaking and notice of public hearing.
SUMMARY: This document withdraws
the notice of proposed rulemaking relat-
ing to partnership returns. The proposed
regulations were published in the Federal
Registeron January 23, 1986 [LR–
198–82, 1986–1 C.B. 778]. These regula-
tions revise the partnership filing require-
ment to reflect changes to the law made
by the Taxpayer Relief Act of 1997
(TRA). All partnerships required to file
partnership returns, including certain for-
eign partnerships, are affected by these
regulations. This document also contains
a notice of a public hearing on the pro-
posed regulations.
DATES: Written comments must be re-
ceived by April 27, 1998. Requests to
speak and outlines of oral comments to be
discussed at the public hearing scheduled
for May 19, 1998, at 10 a.m., must be re-
ceived by April 28, 1998.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (REG–209322–82),
room 5226, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington, DC 20044. Submissions may be
hand delivered between the hours of 8
a.m. and 5 p.m. to: CC:DOM:CORP:R
(REG–209322–82), Courier’s Desk, In-
ternal Revenue Service, 1111 Constitution
Avenue NW, Washington, DC. Alterna-
tively, taxpayers may submit comments
electronically via the Internet by selecting
the “Tax Regs” option of the IRS Home
Page, or by submitting comments directly
to the IRS Internet site at: http://www.irs.
ustreas.gov/prod/tax_regs/comments.html.
The public hearing will be held in the IRS
Auditorium, 7400 Corridor, Internal Rev-
enue Building, 1111 Constitution Avenue
NW, Washington, DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations, Martin
Schäffer or Christopher Kelley, 202-622-
3080; concerning foreign partnerships,
Ronald Gootzeit, 202-622-3860; concern-
ing submissions and the hearing, Michael
Slaughter, 202-622-7190 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information con-
tained in this notice of proposed rulemak-
ing has been submitted to the Office of
Management and Budget for review in ac-
cordance with the Paperwork Reduction
Act of 1995 (44 U.S.C. 3507(d)). Com-
ments on the collection of information
should be sent to the Office of Manage-
ment and Budget,Attn: Desk Officer for
the Department of the Treasury, Office of
Information and Regulatory Affairs,
Washington, DC 20503, with copies to
the Internal Revenue Service,Attn: IRS
Reports Clearance Officer, T:FP, Wash-
ington, DC 20224. Comments on the col-
lection of information must be received
by March 27, 1998. Comments are
specifically requested on:
Whether the proposed collection of in-
formation is necessary for the proper per-
formance of the functions of the Internal
Revenue Service,including whether the
information will have practical utility;
The accuracy of the estimated burden
associated with the proposed collection of
information (see below);
How the quality, utility, and clarity of
the information to be collected may be en-
hanced;
How the burden of complying with the
proposed collection of information may
be minimized, including through the ap-
plication of automated collection tech-
niques or other forms of information tech-
nology; and
Estimates of the capital or start-up
costs and costs of operation, maintenance,
and purchase of services to provide infor-
mation.
The collection of information in this
proposed regulation is in §1.6031(a)-1.
This information is required to enable the
IRS to verify that a taxpayer is reporting
the correct amount of income or gain or
claiming the correct amount of losses, de-
ductions, or credits from that taxpayer’s
interest in the partnership. The collection
of information is mandatory. The likely
respondents are businesses and other for-
profit institutions.
The burden is reflected in the burden of
Form 1065.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it dis-
plays a valid control number assigned by
the Office of Management and Budget.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
This document contains proposed
amendments to the Income Tax Regula-
tions (26 CFR Part 1) under sections 6031
and 6063 of the Internal Revenue Code of
1986 (Code). These amendments are de-
signed, in part, to reflect changes made to
section 6031 by section 1141 of TRA,
Public Law 105–34, 111 Stat. 788 (1997).
Section 6031 contains rules regarding the
filing of returns of partnership income
(partnership returns).
On January 23, 1986, the IRS pub-
lished in the Federal Register(51 F.R.
3075) proposed regulations under section
6031 of the Internal Revenue Code (exist-
ing proposed regulations). Section
1.6031–1 of the existing proposed regula-
tions provides rules that, if finalized,

1998–15 I.R.B.27April 13, 1998
would implement the partnership filing
requirements of section 404 of the Tax
Equity and Fiscal Responsibility Act of
1982 (TEFRA), Public Law 97–248, 96
Stat. 669 (1982). Because section 1141 of
TRA supersedes the partnership filing re-
quirements of section 404 of TEFRA, the
IRS and Treasury consider it appropriate
to reissue proposed regulations reflecting
recent changes to the law, while giving
taxpayers another opportunity to com-
ment. Accordingly, this document with-
draws §1.6031–1 of the existing proposed
regulations published in the Federal Reg-
isteron January 23, 1986 (51 F.R. 3075).
A partnership that has followed the rules
contained in §1.6031–1 of the existing
final regulations for all taxable years prior
to the taxable year for which these new
regulations will become effective will be
treated as fully complying with the part-
nership filing requirements with respect
to such taxable years.
Section 6063 provides that a partner-
ship return shall be signed by any one of
the partners. The proposed regulations
clarify who must sign a partnership return
filed solely for the purpose of making cer-
tain partnership-level elections.
Explanation of Provisions
Filing Requirement
Section 6031(a) requires every partner-
ship to file a partnership return. New sec-
tion 6031(e), as added by section 1141 of
TRA, exempts certain foreign partner-
ships from the filing requirement of sec-
tion 6031(a). Section 6031(e) provides
that a foreign partnership is not required
to file a return for a tax year unless during
that year it derives gross income from
sources within the United States or has
gross income that is effectively connected
with the conduct of a trade or business
within the United States. Further excep-
tions to the filing requirement for foreign
partnerships may be provided by regula-
tions.
The proposed regulations separately
describe the filing requirements for do-
mestic and foreign partnerships. In accor-
dance with section 6031(a), the proposed
regulations provide that, except in certain
limited circumstances, every domestic
partnership must file a partnership return.
Under section 6031 and the proposed
regulations, a foreign partnership gener-
ally must file a partnership return only if
it has either United States source income
or income effectively connected (or
treated as effectively connected) with the
conduct of a trade or business within the
United States. However, under the pro-
posed regulations, a foreign partnership
that has no gross income that is effec-
tively connected with the conduct of a
trade or business within the United States,
and that would be required to file a part-
nership return only because it has gross
income derived from sources within the
United States, will be exempt from the re-
quirement to file a partnership return if (i)
no United States person has a direct or in-
direct interest in the partnership; (ii) the
gross income derived from sources within
the United States is either fixed or deter-
minable annual or periodical income de-
scribed in §1.1441–2(b) or other amounts
subject to withholding described in
§1.1441–2(c); (iii) Forms 1042 and 1042–
S are filed with respect to all such gross
income in accordance with §1.1461–1(b)
and (c); and (iv) the tax liability of the
partners with respect to such gross income
has been fully satisfied by the withholding
of tax at the source, if applicable, under
chapter 3. The foreign partnership’s
obligation to file Forms 1042 and 1042–S
is generally eliminated by the regulations
under section 1461 published in the Fed-
eral Registeron October 14, 1997 (62
F.R. 53387) if those returns are filed by
the withholding agent (or agents) making
the payments of United States source in-
come to the partnership and the partners’
tax liability with respect to United States
source income has been fully satisfied by
withholding. See §1.1461–1(b)(2) and
(c)(4). The IRS and Treasury invite com-
ments addressing other ways to reduce du-
plicative information filing.
Any domestic or foreign partnership that
elects to be excluded from subchapter K of
Chapter 1 of the Code under section 761(a)
will not be required to file a partnership re-
turn, except that where a partnership
makes an election under §1.761–2(b)(2)(i),
the partnership must timely file a partner-
ship return that contains the information
required by §1.761–2(b)(2)(i) for the tax-
able year for which the election is made.
Failure to Meet Filing Requirement
If a partnership that is not a small part-
nership under section 6231(a)(1)(B) is re-
quired to file a partnership return under
section 6031 but fails to do so, the period
of limitations on assessment of tax attrib-
utable to items of that partnership remains
open indefinitely under section 6229(a).
The failure of a partnership to file a return
required by section 6031 might also result
in disallowance under section 6231(f) of
the deductions, losses, and credits flowing
through to the partners and could subject
the partnership to penalties under section
6698 and/or section 7203.
Information To Be Furnished to Partners
Under section 6031(b), every partner-
ship that is required by section 6031(a) to
file a partnership return must furnish in-
formation to its partners as required by
regulations. The rules governing partner-
ship statements to partners and nominees
are in §1.6031(b)–1T.
Partnership Elections
A foreign partnership otherwise exempt
from the filing requirement that wants to
make a partnership-level election under
section 703(b) must file a partnership re-
turn for the year of the election. The pro-
posed regulations provide rules similar to
those contained in §1.7701–3(c)(2) of the
entity classification regulations with re-
spect to who has the authority to file such
returns. Generally, the return must be
signed by all partners or by an authorized
partner.
Proposed Effective Dates
These regulations are proposed to be
applicable to partnership tax years ending
on or after the 90th day after final regula-
tions on this subject are published in the
Federal Register.However, the excep-
tions for certain foreign partnerships con-
tained in §1.6031(a)–1(b)(2) will not be
applicable to any partnership taxable
years beginning before January 1, 1999.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in EO
12866. Therefore, a regulatory assess-
ment is not required. It also has been de-
termined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these pro-
posed regulations. It is hereby certified

April 13, 1998281998–15 I.R.B.
that the collection of information con-
tained in these proposed regulations will
not have a significant economic impact on
a substantial number of small entities.
This certification is based on the fact that
the regulations would reduce (rather than
increase) the number of small entities that
are required to file a partnership return.
Specifically, the proposed regulations
would eliminate the filing requirements
for certain foreign partnerships that are
fully subject to withholding in order to
prevent duplicative filing requirements.
In addition to eliminating the filing re-
quirements in these circumstances, for
ease of reference the proposed regulations
update and restate the general require-
ments to file a partnership return as set
forth in existing regulations. Because the
proposed regulations would not impose
any new reporting requirements that are
not imposed by the existing regulations,
and the only significant modification of
the existing regulations is to eliminate the
filing requirement for certain foreign part-
nerships, the regulations will not have a
significant economic impact on a substan-
tial number of small entities. Accord-
ingly, a Regulatory Flexibility Analysis
under the Regulatory Flexibility Act (5
U.S.C. chapter 6) is not required. Pur-
suant to section 7805(f) of the Code, these
proposed regulations will be submitted to
the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on their impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any written com-
ments (preferably a signed original and
eight (8) copies) that are submitted timely
to the IRS. All comments will be avail-
able for public inspection and copying.
A public hearing has been scheduled
for Tuesday, May 19, 1998, at 10 a.m., in
the IRS Auditorium, 7400 Corridor, Inter-
nal Revenue Building, 1111 Constitution
Avenue NW, Washington, DC. Because
of access restrictions, visitors will not be
admitted beyond the building lobby more
than 15 minutes before the hearing starts.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing.
Persons that wish to present oral com-
ments at the hearing must submit written
comments by April 27, 1998, and submit
an outline of the topics to be discussed
and the time to be devoted to each topic
(signed original and eight (8) copies) by
April 28, 1998.
A period of 10 minutes will be allotted
to each person for making comments.
An agenda showing the scheduling of
the speakers will be prepared after the
deadline for receiving outlines has
passed. Copies of the agenda will be
available free of charge at the hearing.
Drafting Information
The principal authors of these regula-
tions are Martin Schäffer and Christopher
Kelley, Office of Assistant Chief Counsel
(Passthroughs and Special Industries),
and Ronald Gootzeit, Office of the Asso-
ciate Chief Counsel (International).
However, other personnel from the IRS
and Treasury Department participated in
their development.
* * * * *
Withdrawal of Proposed Amendments to
the Regulations
Accordingly, under the authority of 26
U.S.C. 7805, the notice of proposed rule-
making that was published in the Federal
Registeron January 23, 1986 (51 F.R.
3075) is withdrawn.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry in
numerical order to read as follows:
Authority: 26 U.S.C. 7805. * * *
Section 1.6031(a)–1 also issued under
26 U.S.C. 6031. * * *
§1.6031–1 [Removed]
Par. 1a. Section 1.6031–1 is removed.
Par. 2. Section 1.6031(a)–1 is added to
read as follows:
§1.6031(a)–1 Return of partnership
income.
(a) Domestic partnerships—(1) Return
required.Except as provided in para-
graphs (a)(3) and (c) of this section, every
domestic organization that is a partner-
ship must file a return of partnership in-
come under section 6031 (partnership re-
turn) for each taxable year on the form
prescribed for the partnership return. The
partnership return must be filed for the
taxable year of the partnership regardless
of the taxable years of the partners. For
taxable years of a partnership and of a
partner, see section 706 and §1.706–1.
For the rules governing partnership state-
ments to partners and nominees, see
§1.6031(b)–1T.
(2) Content of return. The partnership
return must contain the information re-
quired by the prescribed form and the ac-
companying instructions.
(3) Special rule.A partnership that has
no income, deductions, or credits for fed-
eral income tax purposes for a taxable
year is not required to file a partnership
return for that year.
(4) Failure to file.For the conse-
quences of a failure to comply with the re-
quirements of section 6031(a) and this
paragraph (a), see sections 6229(a),
6231(f), 6698, and 7203.
(b) Foreign partnerships—(1) Return
required.A foreign partnership must file
a partnership return for a partnership tax-
able year only if it has gross income de-
rived from sources within the United
States or it has gross income that is (or is
treated as) effectively connected with the
conduct of a trade or business within the
United States for the taxable year. Cer-
tain exceptions to this requirement are
provided in paragraphs (b)(2) and (c) of
this section. A foreign partnership that is
required to file a partnership return must
file the partnership return in accordance
with the rules provided for domestic part-
nerships in paragraph (a) of this section.
(2) Exception to partnership return re-
quirement for certain foreign partner-
ships investing in the United States.A
foreign partnership that has no gross in-
come that is effectively connected with
the conduct of a trade or business within
the United States, and that would be re-
quired to file a partnership return only be-
cause it has gross income derived from
sources within the United States, is not re-
quired to file a partnership return under
section 6031 if—
(i) No United States person has a direct
or indirect interest in the partnership;
(ii) The gross income derived from
sources within the United States is either

1998–15 I.R.B.29April 13, 1998
fixed or determinable annual or periodical
income described in §1.1441–2(b) or
other amounts subject to withholding de-
scribed in §1.1441–2(c);
(iii) Forms 1042 and 1042–S are filed
with respect to all such gross income in
accordance with §1.1461–1(b) and (c). In
order to satisfy this requirement, Forms
1042 and 1042–S must be filed by the
partnership unless the partnership is not
required to file such returns under
§1.1461–1(b)(2) and (c)(4), in which
case, Forms 1042 and 1042–S must be
filed by another withholding agent (or
agents); and
(iv) The tax liability of the partners
with respect to such gross income has
been fully satisfied by the withholding of
tax at the source, if applicable, under
chapter 3 of the Internal Revenue Code.
(3) Partnership information or returns
required of partners who are United
States persons—(i) In general.If a
United States person is a partner in a part-
nership that is not required to file a part-
nership return, the district director or di-
rector of the service center may require
that person to render the statements or
provide the information necessary to ver-
ify the accuracy of the reporting by that
person of any items of partnership in-
come, gain, loss, deduction, or credit.
(ii) Certain partnership elections. For
a partnership that is not otherwise re-
quired to file a partnership return, if an
election that can only be made by the
partnership under section 703 (affecting
the computation of taxable income de-
rived from a partnership) is to be made by
or for the partnership, a return on the form
prescribed for the partnership return must
be filed for the partnership. The return
must be signed by—
(A) Each partner that is a partner in the
partnership at the time the election is
made; or
(B) Any partner of the partnership who
is authorized (under local law or the part-
nership’s organizational documents) to
make the election and who represents to
having such authorization under penalties
of perjury.
(iii) Controlled foreign partnerships.
Certain United States persons who are
partners in a foreign partnership con-
trolled (within the meaning of section
6038(e)(1)) by United States persons may
be required to provide information with
respect to the partnership under section
6038.
(4) Exclusion for certain organizations.
The return requirement of section 6031
and this section does not apply to the In-
ternational Telecommunications Satellite
Organization, the International Maritime
Satellite Organization, or any organiza-
tion that is a successor of either.
(c) Partnerships excluded from the ap-
plication of subchapter K—(1) Wholly ex-
cluded—(i) Year of election.An eligible
partnership as described in §1.761–2(a)
that elects to be excluded from all the pro-
visions of subchapter K of chapter 1 of the
Internal Revenue Code in the manner
specified by §1.761–2(b)(2)(i) must
timely file the form prescribed for the
partnership return for the taxable year for
which the election is made. In lieu of the
information otherwise required, the return
must contain or be accompanied by the in-
formation required by §1.761–2(b)(2)(i).
(ii) Subsequent years.Except as other-
wise provided in paragraph (c)(1)(i) of
this section, an eligible partnership that
elects to be wholly excluded from the ap-
plication of subchapter K is not required
to file a partnership return.
(2) Deemed excluded.An eligible part-
nership that is deemed to have elected ex-
clusion from the application of subchapter
K beginning with its first taxable year, as
specified in §1.761–2(b)(2)(ii), is not re-
quired to file a partnership return.
(d) Definitions—(1) Partnership.For
the meaning of the term partnership,see
§1.761–1(a).
(2) United States person.In applying
this section, United States personmeans a
person described in section 7701(a)(30);
the government of the United States, a
State, or the District of Columbia (includ-
ing an agency or instrumentality thereof);
or a corporation created or organized in
Guam, the Commonwealth of Northern
Mariana Islands, the U.S. Virgin Islands,
and American Samoa, if the requirements
of sections 881(b)(1)(A), (B), and (C) are
met for such corporation. The term does
not include an alien individual who is a
resident of Puerto Rico, Guam, the
Commonwealth of Northern Mariana
Islands, the U.S. Virgin Islands, or
American Samoa, as determined under
§301.7701(b)–1(d) of this chapter.
(e) Procedural requirements—(1)
Place for filing—(i) Domestic partner-
ships.The return of a domestic partner-
ship that is required to file under para-
graph (a) of this section must be filed with
the service center for the internal revenue
district in which the partnership has its
principal office or principal place of busi-
ness in the United States.
(ii) Foreign partnerships with United
States business or income.The return of
a foreign partnership that is required to
file under paragraph (b)(1) of this section
must be filed—
(A) With the service center for the inter-
nal revenue district in which the partner-
ship has its principal office or principal
place of business in the United States; or
(B) With the Internal Revenue Service
Center, Philadelphia, PA 19255-0011 if
the partnership has no office or place of
business in the United States.
(iii) Foreign partnerships without
United States business or income.The re-
turn of a foreign partnership filed under
paragraph (b)(3)(ii) of this section (re-
garding partnerships for which an election
under section 703 is made) must be filed
with the Internal Revenue Service Center,
Philadelphia, PA 19255-0011. A state-
ment must be attached to the partnership
return indicating that the return is being
filed pursuant to paragraph (b)(3)(ii) of
this section solely to make one or more
elections under section 703.
(2) Time for filing.The return of a part-
nership must be filed on or before the fif-
teenth day of the fourth month following
the close of the taxable year of the part-
nership.
(3) Magnetic media filing.For mag-
netic media filing requirements with re-
spect to partnerships, see section
6011(e)(2) and the regulations thereunder.
(f) Effective date.This section applies
to taxable years of a partnership ending
on or after the 90th day after the date final
regulations on this subject are published
in the Federal Register.However, in no
event will paragraph (b)(2) of this section
apply to taxable years of a partnership
that begin before January 1, 1999.
Par. 3. Section 1.6063–1 is amended
by adding paragraph (c) to read as fol-
lows:
§1.6063–1 Signing of returns,
statements, and other documents made by
partnerships.
*****

April 13, 1998301998–15 I.R.B.
(c) Certain partnership elections—(1)
In general.For rules regarding the au-
thority of a partner to sign a partnership
return filed solely for the purpose of mak-
ing certain partnership-level elections, see
§1.6031(a)–1(b)(3)(ii).
(2) Effective date.The provisions of
paragraph (c) of this section apply for tax-
able years of a partnership ending on or
after the 90th day after the date final regu-
lations on this subject are published in the
Federal Register.
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on
January 23, 1998, 8:45 a.m., and published in the
issue of the Federal Register for January 26, 1998,
63 F.R. 3677)
The lRS Will Permit Electronic
Submission of Forms W–9
and W–9S
Announcement 98–27
Form W–9
The Internal Revenue Service will
allow payers to establish a system to elec-
tronically receive Forms W–9, Request
for Taxpayer Identification Number and
Certification. In general, the electronic
system must meet the requirements de-
scribed in paragraphs (1) through (5)
below. However, for Forms W–9 that are
not required to be signed, the electronic
system need not meet the requirements
described in paragraph (3). The IRS will
revise the “Instructions for the Requester
of Form W–9” to reflect the provisions of
this announcement.
For purposes of this announcement,
“payer” refers to a person required to file
an information return. “Payee” refers to
the person required to submit Form W–9
to the payer.
Form W–9S
The Internal Revenue Service will also
allow educational and lending institutions
to establish a system for students and bor-
rowers to electronically submit Form
W–9S, Request for Student’s or Bor-
rower’s Social Security Number and Cer-
tification. The IRS will revise the instruc-
tions for Form W–9S to reflect the
provisions of this announcement. In gen-
eral, the electronic system must meet the
requirements described in paragraphs (1),
(2), (4), and (5) below. Further, if an elec-
tronic Form W–9S is used to certify that
the borrower will use the loan proceeds to
pay for qualified higher education ex-
penses, the lending institution’s electronic
system must also meet the requirements
described in paragraph (3)(A) below.
Requirements
(1) In general. The electronic system
must ensure that the information received
by the payer or educational or lending in-
stitution is the information sent by the
payee, student, or borrower. The system
must document all occasions of user ac-
cess that result in the submission. In ad-
dition, the design and operation of the
electronic system, including access proce-
dures, must make it reasonably certain
that the person accessing the system and
submitting the Form W–9 or W–9S is the
person identified in the form.
(2) Same information as paper Form
W–9 or W–9S.The electronic submission
must provide the payer or educational or
lending institution with exactly the same
information as the paper Form W–9 or
W–9S.
(3) Signature requirements and perjury
statement.The electronic submission
must be signed with an electronic signa-
ture by the payee whose name is on the
Form W–9 or by the borrower whose
name is on the Form W–9S.
(A) Electronic signature.The elec-
tronic signature must identify the payee or
borrower submitting the electronic form
and must authenticate and verify the sub-
mission. For this purpose, the terms “au-
thenticate” and “verify” have the same
meanings as they do when applied to a
written signature on a paper Form W–9 or
W–9S. An electronic signature can be in
any form that satisfies the foregoing re-
quirements. The electronic signature
must be the final entry in the submission.
(B) Perjury statement.The elec-
tronic signature on Form W–9 must be
under penalties of perjury. The perjury
statement must contain the language that
appears on the paper Form W–9. The
electronic system must inform the payee
that he or she makes the declaration con-
tained in the perjury statement and that
the declaration is made by signing the
Form W–9. The instructions and the lan-
guage of the perjury statement must im-
mediately follow the payee’s certifying
statements and immediately precede the
electronic signature.
(4) Copies of electronic Forms W–9 or
W–9S.Upon request by the Internal Rev-
enue Service, the payer or educational or
lending institution must supply a hard
copy of the electronic Form W–9 or
W–9S and a statement that, to the best of
the payer’s or educational or lending in-
stitution’s knowledge, the electronic
Form W–9 or W–9S was submitted by
the named payee, student, or borrower.
The hard copy of the electronic Form
W–9 or W–9S must provide exactly the
same information as, but need not be a
facsimile of, the paper Form W–9 or
W–9S.
(5) Effective date.This announcement
applies to Forms W–9 and W–9S submit-
ted electronically by payees, students, or
borrowers on or after April 13, 1998.
For further information regarding this
announcement, contact Donna Welch of
the Office of the Assistant Chief Counsel
(Income Tax and Accounting) at (202)
622-4910 (not a toll-free call).
Foundations Status of Certain
Organizations
Announcement 98–28
The following organizations have
failed to establish or have been unable to
maintain their status as public charities or
as operating foundations. Accordingly,
grantors and contributors may not, after
this date, rely on previous rulings or des-
ignations in the Cumulative List of Orga-
nizations (Publication 78), or on the pre-
sumption arising from the filing of notices
under section 508(b) of the Code. This
listing does notindicate that the organiza-
tions have lost their status as organiza-
tions described in section 501(c)(3), eligi-
ble to receive deductible contributions.
Former Public Charities.The following
organizations (which have been treated as
organizations that are not private founda-
tions described in section 509(a) of the
Code) are now classified as private foun-
dations:
Adams House, San Rafael, CA
Adelaide Hollander Scholarship
Foundation, Inc., Pomona, NJ

Alliance for a SAFER Greater Detroit,
Detroit, MI
American Homeowners Resource Center,
San Juan Capistrano, CA
Bradley Creek Extension Homemakers
Club, Wilmington, NC
Central Pittsburgh Amateur Hockey
Association, Pittsburgh, PA
Chautauqua Group, Boulder, CO
Chemical People of Charles County Inc.,
LaPlata, MD
Cheniere Hurricane Centennial, Cut Off,
LA
Cherokee Chief Indian Ministry Inc., Hot
Springs, AR
Cherokee Strip Centennial Corporation,
Perry, OK
Chevra Kadisha of Houston Inc.,
Houston, TX
Chicago Black Horse Troop Association
Inc., Rockford, IL
Chicago Breakthrough Foundation,
Chicago, IL
Chicago Printing Ink Production Club,
Inc., Hickory Hills, IL
Chief Frank Fools Crow Memorial
Foundation and Humanitarian Fund,
Pine Ridge, SD
Community Chiropractic Health Clinics
of California, Inc., Oroville, CA
Delray Beach Community Development
Corporation, Delray Beach, FL
Delta Axis Inc., Memphis, TN
Delta Blues Educational Fund,
Clarksdale, MS
Deming Youth Center Incorporated,
Deming, NM
Dendron Volunteer Fire Dept Inc.,
Dendron, VA
Denim & Lace Inc., Lamar, CO
Denton Youth Football Association Inc.,
Denton, TX
District of Columbia Comprehensive
Aids Resources & Education,
Washington, DC
Divorce Center Inc., New Orleans, LA
Dixie Manor Resident Management,
Pinson, AL
DMC-Midwives Inc., Detroit, MI
DMC-OBGYN Inc., Detroit, MI
Economic Services Inc., Madison, FL
Ecorse Resident Council, Ecorse, MI
Ed U Care Child Development Center
Inc., Kansas City, MO
Edu-Quest Education Foundation Inc.,
Virginia Beach, VA
Educaring Inc., Tucson, AZ
Educate America First Foundation,
Littleton, CO
Education and Auditory Resource
Services, Jackson, MS
Education First Foundation Inc., Palm
Beach Gardens, FL
Edwards County Heathcare Foundation,
Kinsley, KS
Egg Harbor Township Community
Playground, Pleasantville, NJ
El Paso Metro Police Activities League
Inc., El Paso, TX
El Paso Music Teachers Association, El
Paso, TX
Emporia Basketball Club Inc., Emporia,
KS
Engine House No. 5 Foundation,
Allendale, MI
Environmental Concerns Inc., Lafayette,
LA
Envision Inc., New Orleans, LA
Extended Health Care Services Inc.,
Montclair, NJ
Fayette County Crisis Pregnancy Chapter
Inc., Fayetteville, GA
Federation for Civic Action Incorporated,
Milwaukee, WI
Feener Family Ministries, Olive Branch,
MS
Fellowship Christian Center, Omaha, NE
Fellowship Foundation, New Orleans,
LA
Financial Responsibility Advocacy
Project, Washington, DC
Fire Instructors Association of North
Texas Inc., Bedford, TX
Fire Museum of Texas Association Inc.,
Beaumont, TX
First Christian Church Early Childhood
Development Center, Beckley, WV
First Coast Chapter of Tuskegee Airmen
Inc., Jacksonville, FL
First Impressions, Cleveland, TN
First Trees for the World Foundation Inc.,
Washington, DC
Fisher Community Foundation for
Educational, Champaign, IL
Foster Children of Johnson County Inc.,
Leawood, KS
Foundation for Abused and Neglected
Children, Dallas, TX
Foundation for Advanced Studies Inc.,
Coralville, IA
Foundation for Allied Conservative
Therapies Research, Lawrence, KS
Foundation for Homecare Inc.,
Wilmington, NC
Foundation for Nager and Miller
Syndromes, Glenview, IL
Foundation for Northern Thailand
Scholarship, Humble, TX
Fund 2000, Gastonia, NC
Gordon Junior Sandhills Wrestling
Association, Gordon, NE
Goshen Community Theatre Inc.,
Goshen, IN
Gospel Light Ministries Inc., Madison,
TN
Gospel Music Workshop of America New
Orleans Chapter, New Orleans, LA
Gospel Singers Inc., Dallas, TX
Governors Commission on Educational
Choice, Akron, OH
Grace Emory Foundation Inc., Doraville,
GA
Grace House Deborah M. Barker,
Marion, IN
Grace Ministries International, Rochester,
MN
Grace Pavilion Foundation, Northbrook,
IL
Grove Outreach Inc., Coconut Grove, FL
Guardian Ad Litem Advisory Board of
Charlotte County Inc., Punta Gorda, FL
Gwinnett County Childrens Association,
Inc., Lawrenceville, GA
Habersham County Council on Child
Abuse Inc., Clarkesville, GA
Habilitation Concepts Inc., Fort Worth,
TX
Haitian Relief VADIGInc., Boynton
Beach, FL
Hamblen Adults Working for Kids Inc.,
Morristown, TN
Hamblen County Recreational Flag
Football Association, Russellville, TN
Hamblen Museum of Glass and Antiques,
Lebanon, TN
Hamilton Housing Development
Corporation, Cincinnati, OH
Hampton Apple Tree Club House Inc.,
Hampton, VA
Hancock County Food Pantry Inc., Bay
St. Louis, MS
Handicapped Transportation Inc.,
Oklahoma City, OK
Handicapped Veterans Society Inc.,
North Miami Beach, FL
Hands for Humanity Inc., Frenchburg,
KY
Hands Healing Hearts, Miami, FL
Hands on Battle Creek Museum, Battle
Creek, MI
Hannahs House Inc., Louisville, KY
1998–15 I.R.B.31April 13, 1998

Hanner Summer Camp Inc.,
Chattanooga, TN
Happy Birthday Jesus Foundation,
Bellbrook, OH
Happy Christian Homes Inc., Tempe,
AZ
Harborside Performers Inc., Punta Gorda,
FL
Harc IV Housing Inc., Birmingham, AL
Hardcore Evangelistic Ministries Inc.,
Dallas, TX
Harrah Senior Housing Corporation II,
Harrah, OK
Harris County Friends of the Library,
Katy, TX
Harrison County Conservation Society
Inc., Marshall,TX
Harvard Club of San Antonio, San
Antonio, TX
Harvest Hands, Grand Blanc, MI
Harvest Homes Inc., Kokomo, IN
Harvey Oilers Booster Club Inc., Harvey,
LA
Help Inc., Baltimore, MD
H I M Incorporated, Raleigh, NC
H O M E, Washington, DC
HOPE Center Inc., Abilene, KS
House of Prayer Ministries, Efland, NC
House of Prayer Ministry Inc., Gonzalez,
LA
House of Ruth Inc., Louisville, KY
Institute for Biodynamic Shelter, Inc.,
Waldoboro, ME
Institute for International Initiatives Inc.,
Austin, TX
J & M Therapeutic Foster Group Home,
Houston, TX
J and M Moore Foundation, Duluth, MN
J C Bubb Rudd Foundation Inc.,
Beaumont, TX
Jacksonville Area Caring for Kids Inc.,
Jacksonville, FL
Jesus Christ Evangelistic Ministries,
Delaware, OH
Kairos Center for Spiritual Renewal Inc.,
Mason, TX
Kakapo Rescue, Salt Lake City, UT
Kalamazoo Alternative Housing Inc.,
Kalamazoo, MI
Korean American Heritage Foundation,
Inc., San Francisco, CA
LA Federation of Families, Covington,
LA
La Maison De Beaux Arts Co., New
Orleans, LA
Laurinburg Homework Center Inc.,
Laurinburg, NC
Lawndale Apartments Inc. Non Profit
Housing Corporation, Mt. Pleasant, MI
Lawrence County Minority Economic
Trade and Development Association,
Ironton, OH
Lawrence-Douglas County Coalition for
the Homeless Inc., Lawrence, KS
Lawton Education Foundation Inc.,
Mattawan, MI
Laynor Foundation, Scottsdale, AZ
Leann J Hauptman Foundation Inc.,
Bethesda, MD
Learning Disabilities Association of
McLennan County, Waco, TX
Learning for Everyone Inc., Americus,
GA
Lebanon Girls Softball League, Lebanon,
MO
Ledbetter Community Development
Corporation, Dallas, TX
L W G Family Ministries Inc., Many, LA
L Y Dean III Foundation Inc., Eufaula, AL
LYOACancer Support Group,
Houston, TX
M A D Dads of Martin County Inc.,
Stuart, FL
Mac House Inc., Houston, TX
MacGregor Area Community
Development Corporation, Houston,
TX
Macon County Role Model Association,
Tuskegee, AL
Madison Brown Scholarship Fund Inc.,
Gibsonville, NC
Madison Community Housing
Incorporated, London, OH
Madison Curling Foundation Inc.,
Madison, WI
Madisonville Hopkins County Labor-
Management Committee, Inc.,
Madisonville, KY
Magalit, Bedford, TX
Magdalena Youth Athletics Association,
Magdalena, NM
Maggie Valley Police Association,
Maggie Valley, NC
Main Street Clarksville Inc., Clarksville,
TN
Main Street Ozark Inc., Ozark, AR
Make It Live Productions, Chicago, IL
Malinis Dances of India, Ann Arbor, MI
Mallard Bryant Smith Inc., Alliance, OH
Man-Environment Relations Research,
Chesapeake Beach, MD
Mancelona Area Resource Conservation
Coalition, Mancelona, MI
Mandalay Community Center Inc.,
Westminster, CO
Mandt Community Center Inc.,
Stoughton, WI
Manhattan Marlins Inc., Manhattan, KS
Marathon County Crime Stoppers,
Weston, WI
Marbled Ball Kids Inc., Houston, TX
Margil House of Studies, Houston, TX
Marin City Childrens Church, San
Francisco, CA
Marion County Alliance of
Neighborhood Associations, Inc.,
Indianapolis, IN
Marion County Community
Development Corporation, Ocala, FL
Marion County Historical Society, Buena
Vista, GA
Mark Wanker Ministries Inc., Jackson,
MS
Marquette Fine Arts Council Inc.,
Marquette, KS
Marriage Impact Ministries Inc., Phoenix,
AZ
Mars Mission International, Houston,
TX
Martha Mary House for Women &
Children, Berryville, AR
Meadows Healthcare Resources, Inc.,
Vidalia, GA
Mid-South Transportation Management,
Memphis, TN
Middle East Medievalists, Northbrooke,
IL
Middletown Athletic Association,
Levittown, PA
Midland Area Aids Support Inc.,
Midland, TX
Midwest Center for Arts, Minneapolis,
MN
Midwest Civic Council, Detroit, MI
Midwest Regional Space Center, Cedar
Rapids, IA
Midwest YMCA of America, Chicago, IL
Militant Church of the Fields, Big Horn,
WY
National Association of Black
Communications Professionals,
Columbia, MD
National Association of Planning
Councils, Oklahoma City, OK
National Association of Resident
Management Corps, Washington, DC
National Association of Sportsman
Legislators, Knoxville, TN
National Black Music Caucus,
Philadelphia, PA
April 13, 1998321998–15 I.R.B.

National Center for Mood Disorders,
Houston, TX
National Childrens Assistance
Association, Searcy, AR
National Church Residences of
Charleston, WV, Columbus, OH
National Coalition of 100 Black
Children, Inc., Jackson, MS
National Computer Society of the Deaf,
Woodridge, IL
The National Dorymens Association,
Mission Viejo, CA
Nazareth Communications, Inc.,
Greenville, SC
Nellys Puppet Theatre Company,
Lexington, KY
North Penn Improvement Association,
Hatfield, PA
North Royalton Playground Fund, North
Royalton, OH
North Woods Fishing Club, Mishawaka,
IN
Northeast Denver Learning and Resource
Center, Inc., Denver, CO
Northeast Neighborhood House Inc.,
Washington, DC
Northern Business Aids Project,
Woodstock, IL
Northern New Jersey Christian Life
Coalition, Inc., Wyckoff, NJ
Office of Croatian Affairs, South San
Francisco, CA
Resident Association Members, Johnson
City, TN
San Diego Family Day Care Association,
Inc., Escondido, CA
Sash Inc., Glendale, MD
Seagoville Area Soccer Association,
Seagoville, TX
Society for Cinephiles-Cinecon, Inc., Los
Angeles, CA
Southern Burn Foundation, Inc., Augusta,
GA
Visual Pen Pals Inc., Atlanta, GA
Voices Past Inc., Tulsa, OK
If an organization listed above submits
information that warrants the renewal of its
classification as a public charity or as a pri-
vate operating foundation, the Internal
Revenue Service will issue a ruling or de-
termination letter with the revised classifi-
cation as to foundation status. Grantors and
contributors may thereafter rely upon such
ruling or determination letter as provided
in section 1.509(a)–7 of the Income Tax
Regulations. It is not the practice of the
Service to announce such revised classifi-
cation of foundation status in the Internal
Revenue Bulletin.
1998–15 I.R.B.33April 13, 1998

April 13, 1998341998–15 I.R.B.
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously
published ruling and points out an essen-
tial difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it ap-
plies to both A and B, the prior ruling is
modified because it corrects a published
position. (Compare with amplified and
clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. A ruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is super-
seded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be pub-
lished that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current use and for-
merly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C.—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedral Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
Definition of Terms

1998–15 I.R.B.35April 13, 1998
1
A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 1997–27 through
1997–52 will be found in Internal Revenue Bulletin
1998–1, dated January 5, 1998.
Numerical Finding List
1
Bulletins 1998–1 through 1998–14
Announcements:
98–1, 1998–2 I.R.B. 38
98–2, 1998–2 I.R.B.38
98–3, 1998–2 I.R.B.38
98–4, 1998–4 I.R.B.31
98–5, 1998–5 I.R.B. 25
98–6, 1998–5 I.R.B. 25
98–7, 1998–5 I.R.B. 26
98–8, 1998–6 I.R.B. 96
98–9, 1998–7 I.R.B. 35
98–10, 1998–7 I.R.B. 35
98–11, 1998–8 I.R.B. 42
98–12, 1998–8 I.R.B. 43
98–13, 1998–8 I.R.B. 43
98–14, 1998–8 I.R.B. 44
98–15, 1998–10 I.R.B.36
98–16, 1998–9 I.R.B. 17
98–17, 1998–9 I.R.B. 16
98–18, 1998–10 I.R.B.44
98–19, 1998–10 I.R.B.44
98–20, 1998–11 I.R.B. 25
98–21, 1998–11 I.R.B. 26
98–22, 1998–12 I.R.B. 33
98–23, 1998–12 I.R.B. 34
98–24, 1998–12 I.R.B. 35
98–25, 1998–13 I.R.B.43
98–26, 1998–14 I.R.B. 28
Notices:
98–1, 1998–3 I.R.B. 42
98–2, 1998–2 I.R.B. 22
98–3, 1998–3 I.R.B. 48
98–4, 1998–2 I.R.B. 25
98–5, 1998–3 I.B.R.49
98–6, 1998–3 I.R.B. 52
98–7, 1998–3 I.R.B. 54
98–8, 1998–4 I.R.B. 6
98–9, 1998–4 I.R.B. 8
98–10, 1998–6 I.R.B.9
98–11, 1998–6 I.R.B. 18
98–12, 1998–5 I.R.B.12
98–13, 1998–6 I.R.B.19
98–14, 1998–8 I.R.B. 27
98–15, 1998–9 I.R.B. 8
98–17, 1998–11 I.R.B. 6
98–18, 1998–12 I.R.B. 11
98–19, 1998–13 I.R.B.24
98–20, 1998–13 I.R.B.25
Proposed Regulations:
PS–158–86, 1998–11 I.R.B. 13
REG–100841–97, 1998–8 I.R.B. 30
REG–102894–97, 1998–3 I.R.B. 59
REG–104062–97, 1998–10 I.R.B. 34
REG–104691–97, 1998–11 I.R.B. 13
REG–105163–97, 1998–8 I.R.B. 31
REG–109333–97, 1998–9 I.R.B. 9
REG–109704–97, 1998–3 I.R.B. 60
REG–110965–97, 1998–13 I.R.B. 42
REG–115795–97, 1998–8 I.R.B.33
REG–119449–97, 1998–10 I.R.B. 35
REG–120200–97, 1998–12 I.R.B. 32
REG–120882–97, 1998–14 I.R.B. 25
REG–121755–97, 1998–9 I.R.B. 13
REG–209276–87, 1998–11 I.R.B. 18
REG–209373–81, 1998–14 I.R.B. 26
Proposed Regulations—Continued
REG–209463–82, 1998–4 I.R.B. 27
REG–209476–82, 1998–8 I.R.B. 36
REG–209484–87, 1998–8 I.R.B.40
REG–209485–86, 1998–11 I.R.B. 21
REG–209807–95, 1998–8 I.R.B. 40
REG–251502–96, 1998–9 I.R.B. 14
Revenue Procedures:
98–1, 1998–1 I.R.B. 7
98–2, 1998–1 I.R.B. 74
98–3, 1998–1 I.R.B. 100
98–4, 1998–1 I.R.B. 113
98–5, 1998–1 I.R.B. 155
98–6, 1998–1 I.R.B. 183
98–7, 1998–1 I.R.B. 222
98–8, 1998–1 I.R.B. 225
98–9, 1998–3 I.R.B. 56
98–10, 1998–2 I.R.B. 35
98–11, 1998–4 I.R.B.9
98–12, 1998–4 I.R.B. 18
98–13, 1998–4 I.R.B. 21
98–14, 1998–4 I.R.B. 22
98–15, 1998–4 I.R.B. 25
98–16, 1998–5 I.R.B. 19
98–17, 1998–5 I.R.B. 21
98–18, 1998–6 I.R.B. 20
98–19, 1998–7 I.R.B. 30
98–20, 1998–7 I.R.B. 32
98–21, 1998–8 I.R.B. 27
98–22, 1998–12 I.R.B. 11
98–23, 1998–10 I.R.B. 30
98–24, 1998–10 I.R.B. 31
98–25, 1998–11 I.R.B. 7
98–26, 1998–13 I.R.B.26
Revenue Rulings:
98–1, 1998–2 I.R.B. 5
98–2, 1998–2 I.R.B. 15
98–3, 1998–2 I.R.B. 4
98–4, 1998–2 I.R.B. 18
98–5, 1998–2 I.R.B. 20
98–6, 1998–4 I.R.B. 4
98–7, 1998–6 I.R.B.6
98–8, 1998–7 I.R.B. 24
98–9, 1998–6 I.R.B. 5
98–10, 1998–10 I.R.B. 11
98–11, 1998–10 I.R.B. 13
98–12, 1998–10 I.R.B. 5
98–13, 1998–11 I.R.B. 4
98–14, 1998–11 I.R.B. 4
98–15, 1998–12 I.R.B. 6
98–16, 1998–13 I.R.B. 18
98–17, 1998–13 I.R.B. 21
98–18, 1998–14 I.R.B. 22
Treasury Decisions:
8740, 1998–3 I.R.B. 4
8741, 1998–3 I.R.B. 6
8742, 1998–5 I.R.B.4
8743, 1998–7 I.R.B. 26
8744, 1998–7 I.R.B. 20
8745, 1998–7 I.R.B. 15
8746, 1998–7 I.R.B. 4
8747, 1998–7 I.R.B. 18
8748, 1998–8 I.R.B. 24
8749, 1998–7 I.R.B. 16
8750, 1998–8 I.R.B. 4
8751, 1998–10 I.R.B. 23
Treasury Decisions—Continued
8752, 1998–9 I.R.B. 4
8753, 1998–9 I.R.B. 6
8754, 1998–10 I.R.B. 15
8755, 1998–10 I.R.B. 21
8756, 1998–12 I.R.B.4
8757, 1998–13 I.R.B.4
8758, 1998–13 I.R.B. 15
8759, 1998–13 I.R.B. 19
8760, 1998–14 I.R.B. 4
8761, 1998–14 I.R.B. 13
8762, 1998–14 I.R.B. 15

April 13, 1998361998–15 I.R.B.
Finding List of Current Action on
Previously Published Items
1
Bulletins 1998–1 through 1998–14
Revenue Procedures:
91–59
Updated and superseded by
98–25, 1998–11 I.R.B. 7
94–16
Modified and superseded by
98–22, 1998–12 I.R.B. 11
93–62
Modified and superseded by
98–22, 1998–12 I.R.B. 11
95–35
95–35A
Superseded by
98–19, 1998–7 I.R.B. 30
96–29
Modified and superseded by
98–22, 1998–12 I.R.B. 11
97–1
Superseded by
98–1, 1998–1 I.R.B. 7
97–2
Superseded by
98–2, 1998–1 I.R.B. 74
97–3
Superseded by
98–3, 1998–1 I.R.B. 100
97–4
Superseded by
98–4, 1998–1 I.R.B. 113
97–5
Superseded by
98–5, 1998–1 I.R.B. 155
97–6
Superseded by
98–6, 1998–1 I.R.B. 183
97–7
Superseded by
98–7, 1998–1 I.R.B. 222
97–8
Superseded by
98–8, 1998–1 I.R.B. 225
97–21
Superseded by
98–2, 1998–1 I.R.B. 74
97–53
Superseded by
98–3, 1998–1 I.R.B. 100
Revenue Rulings:
75–17
Supplemented and superseded by
98–5, 1998–2 I.R.B. 20
92–19
Supplemented in part by
98–2, 1998–2 I.R.B. 15
1
A cumulative finding list for previously published
items mentioned in Internal Revenue Bulletins
1997–27 through 1997–52 will be found in Internal
Revenue Bulletin 1998–1, dated January 5, 1998.

Notes
1998–15 I.R.B.37April 13, 1998

Notes
April 13, 1998381998–15 I.R.B.

INTERNAL REVENUE BULLETIN
The Introduction on page 3 describes the purpose and content of this publication. The weekly Internal Revenue Bulletin is sold
on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superintendent of
Documents when their subscriptions must be renewed.
CUMULATIVE BULLETINS
The contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are
sold on a single copy basis and are not included as part of the subscription to the Internal Revenue Bulletin. Subscribers to the week-
ly Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of print
and are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from the
Superintendent of Documents.
HOW TO ORDER
Check the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance,
detach entire page, and mail to the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402. Please
allow two to six weeks, plus mailing time, for delivery.
WE WELCOME COMMENTS ABOUT THE
INTERNAL REVENUE BULLETIN
If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we
would be pleased to hear from you. You can e-mail us your suggestions or comments through the IRS Internet Home Page
(www.irs.ustreas.gov) or write to the IRS Bulletin Unit, T:FP:F:CD, Room 5560, 1111 Constitution Avenue NW, Washington, DC
20224. You can also leave a recorded message 24 hours a day, 7 days a week at 1–800–829–9043.