Internal Revenue Bulletin 2001-51 (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.

HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Rev. Rul. 2001–59, page 585.
Bank bad debts; clarification of the conformity method.
This ruling provides guidance to banks using the conformity
election as to what steps are necessary to assign a loan as a
loss asset. Also, the conclusive presumption of worthlessness
will apply to loans erroneously charged off if the charge-offs are
not substantially in excess of those warranted by reasonable
business judgment.
Rev. Rul. 2001–60, page 587.
Golf course greens land preparation costs.The costs of
land preparation undertaken by a taxpayer in the original con-
struction or reconstruction of push-up or natural soil golf
course greens are not depreciable. However, the costs of land
preparation undertaken by a taxpayer in the original construc-
tion or reconstruction of modern golf course greens that is so
closely associated with depreciable assets, such as a network
of underground drainage tiles or pipes, that the land prepara-
tion will be retired, abandoned, or replaced contemporaneously
with those depreciable assets are depreciable. Rev. Rul.
55–290 modified and superseded. Rev. Proc. 99–49 modified
and amplified.
Rev. Proc. 2001–56, page 590.
This procedure provides optional methods for determining the
value of the use of demonstration automobiles provided to
employees by automobile dealerships. The optional methods
include (1) a simplified method for the full exclusion of qualified
automobile demonstration use, (2) a simplified method for the
partial exclusion of nonqualified demonstration automobile use,
and (3) a simplified method for the full inclusion of nonqualified
demonstration automobile use.
EMPLOYEE PLANS
Announcement 2001–122, page 604.
Extension of time for filing forms described in
Announcement 2001–77.This announcement extends
through March 31, 2002, the cut-off date for the use of the
prior revision of certain forms used to apply for determination
letters on the tax-qualified status of employee benefit plans
described in section I.G. of Announcement 2001–77 (2001–30
I.R.B. 83).
EMPLOYMENT TAX
Rev. Proc. 2001–56, page 590.
This procedure provides optional methods for determining the
value of the use of demonstration automobiles provided to
employees by automobile dealerships. The optional methods
include (1) a simplified method for the full exclusion of qualified
automobile demonstration use, (2) a simplified method for the
partial exclusion of nonqualified demonstration automobile use,
and (3) a simplified method for the full inclusion of nonqualified
demonstration automobile use.
Page 603.
2002 social security contribution and benefit base;
domestic employee coverage threshold.The Commis-
sioner of the Social Security Administration has announced (1)
the OASDI contribution and benefit base for remuneration paid
in 2002 and self-employment income earned in taxable years
beginning in 2002, and (2) the domestic employee coverage
threshold amount for 2002.
(Continued on the next page)
Actions Relating to Court Decisions is on the page following the Introduction.
Announcement of Declaratory Judgment Proceedings Under Section 7428 begins on page 604.
Finding Lists begin on page ii.
Bulletin No. 2001–51
December 17, 2001

ADMINISTRATIVE
Notice 2001–75, page 590.
Equity investment prior to new markets tax credit alloca-
tion.An equity investment in an entity will be eligible to be des-
ignated as a qualified equity investment under section
45D(b)(1) of the Code if (1) the equity investment is made on or
after April 20, 2001, (2) the entity in which the equity invest-
ment is made is certified by Treasury’s Community Develop-
ment Financial Institutions Fund (CDFI Fund) as a qualified com-
munity development entity under section 45D(c)(1) before
January 1, 2003, (3) the entity in which the equity investment
is made receives notification of a credit allocation (with the
actual receipt of such credit allocation contingent upon subse-
quently entering into an allocation agreement) from the CDFI
Fund before January 1, 2003, and (4) the equity investment
otherwise satisfies the requirements of section 45D.
December 17, 20012001–51 I.R.B.

The IRS Mission
Provide America’s taxpayers top quality service by helping
them understand and meet their tax responsibilities and by
applying the tax law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are consolidated semiannually into Cumulative Bulle-
tins, 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 Bul-
letin. All published rulings apply retroactively unless otherwise
indicated. Procedures relating solely to matters of internal
management are not published; however, statements of inter-
nal 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 rev-
enue ruling. In those based on positions taken in rulings to tax-
payers 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 published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions of
the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A, Tax
Conventions and Other Related Items, and Subpart B, Legisla-
tion and Related Committee Reports.
Part III.—Administrative, Procedural, and
Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Secre-
tary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The first Bulletin for each month includes a cumulative index for
the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the first Bulletin of the succeeding semiannual
period, respectively.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.
2001–51 I.R.B.December 17, 2001

Actions Relating to Decisions of the Tax Court
It is the policy of the Internal Revenue
Service to announce at an early date
whether it will follow the holdings in cer-
tain cases. An Action on Decision is the
document making such an announcement.
An Action on Decision will be issued at
the discretion of the Service only on
unappealed issues decided adverse to the
government. Generally, an Action on
Decision is issued where its guidance
would be helpful to Service personnel
working with the same or similar issues.
Unlike a Treasury Regulation or a Rev-
enue Ruling, an Action on Decision is not
an affirmative statement of Service posi-
tion. It is not intended to serve as public
guidance and may not be cited as prece-
dent.
Actions on Decisions shall be relied
upon within the Service only as conclu-
sions applying the law to the facts in the
particular case at the time the Action on
Decision was issued. Caution should be
exercised in extending the recommenda-
tion of the Action on Decision to similar
cases where the facts are different. More-
over, the recommendation in the Action
on Decision may be superseded by new
legislation, regulations, rulings, cases, or
Actions on Decisions.
Prior to 1991, the Service published
acquiescence or nonacquiescence only in
certain regular Tax Court opinions. The
Service has expanded its acquiescence
program to include other civil tax cases
where guidance is determined to be help-
ful. Accordingly, the Service now may
acquiesce or nonacquiesce in the holdings
of memorandum Tax Court opinions, as
well as those of the United States District
Courts, Claims Court, and Circuit Courts
of Appeal. Regardless of the court decid-
ing the case, the recommendation of any
Action on Decision will be published in
the Internal Revenue Bulletin.
The recommendation in every Action
on Decision will be summarized as acqui-
escence, acquiescence in result only, or
nonacquiescence. Both “acquiescence”
and “acquiescence in result only” mean
that the Service accepts the holding of the
court in a case and that the Service will
follow it in disposing of cases with the
same controlling facts. However, “ac-
quiescence” indicates neither approval
nor disapproval of the reasons assigned
by the court for its conclusions; whereas,
“acquiescence in result only” indicates
disagreement or concern with some or all
of those reasons. “Nonacquiescence” sig-
nifies that, although no further review
was sought, the Service does not agree
with the holding of the court and, gener-
ally, will not follow the decision in dis-
posing of cases involving other taxpay-
ers. In reference to an opinion of a circuit
court of appeals, a “nonacquiescence”
indicates that the Service will not follow
the holding on a nationwide basis. How-
ever, the Service will recognize the prece-
dential impact of the opinion on cases
arising within the venue of the deciding
circuit.
The Actions on Decisions published in
the weekly Internal Revenue Bulletin are
consolidated semiannually and appear in
the first Bulletin for July and the Cumu-
lative Bulletin for the first half of the
year. A semiannual consolidation also
appears in the first Bulletin for the fol-
lowing January and in the Cumulative
Bulletin for the last half of the year.
The Commissioner ACQUIESCES in
the following decision:
Robert L. Beck v. Commissioner,
1
T.C. Memo. 2001–198 (filed July 30,
2001)
Dkt. Nos. 14577–98 and 14578–98
1
Acquiescence relating to whether the Tax Court has jurisdiction to review the Service’s determination that a spouse is not entitled to equitable relief under
I.R.C. section 66(c).
December 17, 20012001–51 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 166.—Bad Debts
26 CFR 1.166–2: Evidence of worthlessness.
Bank bad debts; clarification of the
conformity method.A bank has classi-
fied loans as loss assets under the confor-
mity election if the loans are charged off
pursuant to a board of director’s resolu-
tion authorizing the charge-offs only if
required under regulatory standards. Also,
the conclusive presumption of worthless-
ness under the conformity election
applies to loans erroneously charged off
for regulatory purposes, if the bank’s
charge-offs are not substantially in excess
of those warranted by reasonable business
judgment.
Rev. Rul. 2001–59
ISSUES
1. What steps are necessary to record
or memorialize the assignment of a loan
(or loan portion) as a“loss asset”for pur-
poses of the conformity method of
accounting for worthless bad debts?
2. Does the conclusive presumption of
worthlessness under the conformity
method apply to loans erroneously classi-
fied as loss assets?
FACTS
ABCcorporation is a“bank”(as
defined in§1.166–2(d)(4)(i) of the
Income Tax Regulations) and is subject to
supervision by Federal authorities.ABC
has elected under§1.166–2(d)(3) to use
the conformity method of accounting to
determine when debts owed toABC
become worthless bad debts.
Under a resolution adopted byABC’s
board of directors,ABC’sofficers and
employees are authorized to charge off
loans (or portions of loans) only when the
charge-off is required under the loan loss
classification standards issued by the
bank’s supervisory authority. Thus, when
ABC’sofficers and employees charge off
a loan for regulatory purposes, they do
not take any additional steps to record or
memorialize whether, in their judgment,
the charge-off is required by the loan loss
standards that have been issued byABC’s
supervisory authority.
The loan loss standards requireABCto
charge off“loss assets.”Loss assets are
loans (or portions of loans) determined to
be uncollectible and of such little value
that their continuance as bankable assets
is not warranted. In the case of a con-
sumer loan or credit card debt, regardless
whether there is specific adverse informa-
tion about the borrower,ABCis required
to charge off the asset when its delin-
quency exceeds certain established
thresholds. Thus,ABCmust charge off
installment loans that are 120 days, or
five payments, past due and credit card
debts that are 180 days past due after
seven zero billings. In addition, ifABC
receives specific adverse borrower infor-
mation (for example, the borrower’s
death or bankruptcy) confirming a loss
before the applicable 120 day or 180 day
threshold date has passed, then an imme-
diate charge-off is required.SeeComp-
troller of the Currency,“Allowance for
Loan and Lease Losses,”Comptroller’s
Handbook10, 19 (June 1996);“Uniform
Agreement on the Classification of Assets
and Appraisal of Securities Held by
Banks,”Attachment to Comptroller of the
Currency Banking Circular No. 127, Rev.
4–26–91.
ABC’ssupervisory authority, in con-
nection with its most recent examination
of the bank’s loan review process, made
an express determination thatABCmain-
tains and applies loan loss standards that
are consistent with the regulatory stan-
dards issued by the Comptroller of the
Currency.
During the taxable year ending on
December 31, 2000,ABCcharged off for
regulatory purposes certain credit card
debts that were not required to be charged
off under applicable regulatory loan loss
standards. Except for the erroneously
charged off credit card debts,ABC
charged off only loans required to be
charged off under the loan loss standards.
On its Federal income tax return for
2000,ABCdeducted as wholly worthless
debts all assets that it had charged off for
regulatory purposes, including the debts
that had been erroneously charged off
despite the absence of an applicable regu-
latory requirement. Even so, the total
amount of worthless bad debts claimed on
the return was not substantially in excess
of the amount that would be warranted by
the exercise of reasonable business judg-
ment in applying the loan loss standards
ofABC’ssupervisory authority.
LAW AND ANALYSIS
Section 166(a)(1) of the Internal Rev-
enue Code allows a deduction for a debt
that becomes worthless during the taxable
year. In addition,§166(a)(2) permits a
deduction for“partially worthless debts”
if the taxpayer charges off an appropriate
amount on the taxpayer’s books and
records and the Internal Revenue Service
is satisfied that the debt is recoverable
only in part.
No precise test exists for determining
whether a debt is worthless. In many situ-
ations, no single factor or identifiable
event clearly demonstrates whether a debt
has become worthless. Instead, a series of
factors or events in the aggregate estab-
lishes whether the debt is worthless.
Among the factors indicating worthless-
ness are: a debtor’s serious financial
reverses, insolvency, lack of assets, con-
tinued refusal to respond to demands for
payment, ill health, death, disappearance,
abandonment of business, and bank-
ruptcy. Additionally, a debt’s unsecured or
subordinated status and expiration of the
statute of limitations can provide an indi-
cation that the debt is worthless. Con-
versely, availability of collateral or third
party guarantees,a debtor’s earning
capacity, payment of interest, acredi-
tor’s failure to press for payment, and a
creditor’s willingness to make further
advancesare factorssuggestingthat
the debt is not worthless. Accordingly,
§1.166–2 of the regulations requires con-
sideration of all pertinent evidence and
provides that a deduction is warranted if
the surrounding circumstances indicate
that the debt is uncollectible and that
legal action to enforce payment would in
all probability not result in the satisfac-
tion of execution on a judgment.
In the case of a“bank”(as defined in
§1.166–2(d)(4)(i) of the regulations) or
other corporation subject to supervision
by Federal authorities, or by State
authorities maintaining substantially
2001-51 I.R.B585December 17, 2001

equivalent standards,§1.166–2(d)(1)
provides administrative simplicity by cre-
ating a conclusive presumption of worth-
lessness for loans charged off in whole or
in part in obedience to specific orders or
in accordance with the established poli-
cies of those authorities.
Additional simplification is provided
by§1.166–2(d)(3) of the regulations for
tax years ending on or after December 31,
1991. Under the regulation, a bank sub-
ject to supervision by Federal authorities,
or by State authorities maintaining sub-
stantially equivalent standards, may elect
to use the conformity method of account-
ing to determine when a debt becomes
worthless. Under the conformity method,
a conclusive presumption of worthless-
ness applies to loans charged off, in
whole or in part, for regulatory purposes
if the charge-offs correspond to the
bank’s classification of the loans, in
whole or in part, as loss assets under
applicable regulatory standards. Section
1.166–2(d)(3)(ii)(A)(2) provides that a
bad debt deduction is allowed for the tax-
able year in which a debt is conclusively
presumed to have become worthless.
For the conclusive presumption of
worthlessness to arise, a bank must sat-
isfy the express determination require-
ment of§1.166–2(d)(3)(iii)(D) of the
regulations and must classify the loan, in
whole or in part, as a loss asset as
described in§1.166–2(d)(3)(ii)(C). The
express determination requirement is sat-
isfied if the bank’s supervisory authority,
in connection with its most recent exami-
nation of the bank’s loan review process,
has made an express determination that
the bank maintains and applies loan loss
classification standards that are consistent
with the authority’s regulatory standards.
SeeRev. Proc. 92–84 (1992–2 C.B. 489)
(providing the form for the determination
letter). Section 1.166–2(d)(3)(ii)(C)
defines the term“loss asset”as a debt that
the bank has assigned to a class that cor-
responds to a loss asset classification
under the standards set forth in the“Uni-
form Agreement on the Classification of
Assets and Appraisal of Securities Held
by Banks”or similar guidance issued by
the bank’s supervisory authority.
Various procedures can be used by a
bank to classify loans (or loan portions)
as loss assets. For example, an officer or
employee may record or memorialize on
a form the determination that a loan (or
loan portion) is a loss asset. Loan or
credit committee reports or internal credit
rating reports also can demonstrate that a
loan has been classified as a loss asset.
Additionally, if officers and employees
are authorized to charge off loans (or loan
portions) only if the loans (or loan por-
tions) are loss assets, then the charge-offs
of the loans (or loan portions) demon-
strate that the loans (or loan portions)
have been classified as loss assets.
ABChas made the conformity election
under§1.166–2(d)(3) of the regulations
and has satisfied the express determina-
tion requirement described in§1.166–
2(d)(3)(iii)(D). Additionally, under the
resolution adopted byABC’sboard of
directors,ABC’sofficers and employees
are authorized to charge off loans (or por-
tions of thereof) only if the charge-offs
are required under applicable loan loss
standards issued byABC’ssupervisory
authority. Under these circumstances,
ABC’scharge-offs of certain loans (or
loan portions) are sufficient to demon-
strate classification of those loans (or loan
portions) as loss assets under standards
issued byABC’ssupervisory authority.
Under§1.166–2(d)(3)(ii) of the regu-
lations, the conclusive presumption of
worthlessness applies to loans charged
off, in whole or in part, for regulatory
purposes if the charge-off corresponds to
the bank’s classification of the loans, in
whole or in part, as loss assets under
applicable regulatory standards. Although
the applicable loan loss regulatory stan-
dards did not requireABCto charge off
certain credit card debts, the conclusive
presumption of worthlessness attached to
those debts whenABCerroneously
charged off the debts for regulatory pur-
poses.
Under§1.166–2(d)(3)(iv)(D) of the
regulations, if an electing bank fails to
follow the conformity method of account-
ing to determine when debts become
worthless, or if the bank’s charge-offs are
substantially in excess of those warranted
by reasonable business judgment in
applying the regulatory standards of the
bank’s supervisory authority, then the
Commissioner may revoke the bank’s
election to use the conformity method.
Under the facts described above, how-
ever, except for the erroneously charged
off credit card debts,ABCproperly used
regulatory loan loss standards to deter-
mine its worthless bad debts and did not
claim a deduction on its return for bad
debts substantially in excess of the
amount warranted by reasonable business
judgment under the applicable regulatory
standards. If the deduction claimed had
been substantially in excess of that
amount, the Commissioner could have
revoked the conformity election.
HOLDINGS
1.ABC’scharge-offs of certain loans
(or portions thereof), pursuant to a board
of directors’resolution authorizing the
charge-off of a loan (or portion thereof)
only if the charge-off is required under
applicable regulatory standards issued by
the bank’s supervisory authority, are suf-
ficient to demonstrate classification of the
loans (or loan portions) as loss assets for
purposes of§1.166–2(d)(3) of the regu-
lations.
2. The conclusive presumption of
worthlessness applies to the credit card
debts thatABCerroneously charged off
for regulatory purposes during the taxable
year ending on December 31, 2000.ABC,
on its 2000 income tax return, properly
deducted the credit card debts as worth-
less bad debts.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Craig Wojay of the Office of the
Associate Chief Counsel (Financial Insti-
tutions and Products). For further infor-
mation regarding this revenue ruling, con-
tact Mr. Wojay at (202) 622–3920 (not a
toll-free call).
December 17, 20015862001-51 I.R.B.

Section 167.—Depreciation
26 CFR 1.167(a)–2: Tangible property.
(Also§168.)
Golf course greens land preparation
costs.The costs of land preparation
undertaken by a taxpayer in the original
construction or reconstruction of push-up
or natural soil golf course greens are not
depreciable, but the costs of land prepara-
tion undertaken by a taxpayer in the origi-
nal construction or reconstruction of
modern golf course greens that is so
closely associated with depreciable assets,
such as a network of underground drain-
age tiles or pipes, that the land prepara-
tion will be retired, abandoned, or
replaced contemporaneously with those
depreciable assets are depreciable.
Rev. Rul. 2001–60
ISSUE
Are land preparation costs incurred by
a taxpayer in the original construction or
reconstruction of golf course greens sub-
ject to an allowance for depreciation
under§167 of the Internal Revenue
Code?
FACTS
Two types of golf course greens that
are currently in use are“push-up”or
natural soil greens and“modern”greens.
Push-up or natural soil greens are essen-
tially landscaping that involves some
reshaping or regrading of the land. The
soil is pushed up or reshaped to form the
green. While push-up or natural soil
greens may have limited irrigation sys-
tems (such as hoses and sprinklers adja-
cent to the greens), a subsurface drainage
system is not utilized.
Modern greens make use of techno-
logical changes in green design and con-
struction and contain sophisticated inte-
grated drainage systems. The construction
of the modern green occurs after the gen-
eral earthmoving, grading, and initial
shaping of the area surrounding and
underneath the green. These greens are
constructed with a network of subsurface
drainage tiles or interconnected pipes, one
or more layers of gravel and/or sand par-
ticles, a rootzone layer, and a variety of
turfgrass. Over time, the modern green
loses its effectiveness as a drainage sys-
tem due to tile or pipe deterioration, or
sediment blockage. Replacement of the
subsurface drainage tiles or pipes requires
excavation and replacement of the gravel
layer, rootzone layer, and turfgrass above
the tiles or pipes. The subsurface drainage
tiles or pipes typically are replaced within
20 years.
LAW AND ANALYSIS
Section 167(a) provides that there shall
be allowed as a depreciation deduction a
reasonable allowance for the exhaustion
and wear and tear of property used in a
trade or business or held for the produc-
tion of income.
Section 1.167(a)–2 of the Income Tax
Regulations provides that in the case of
tangible property, the depreciation allow-
ance applies only to that part of the prop-
erty that is subject to wear and tear, to
decay or decline from natural causes, to
exhaustion, and to obsolescence. The
allowance does not apply to land apart
from the improvements or physical devel-
opment added to it.
The depreciation deduction provided
by§167(a) for tangible property placed
in service after 1986 generally is deter-
mined under§168. This section pre-
scribestwomethodsofaccounting
fordeterminingdepreciation allow-
ances: (1) the general depreciation sys-
tem in§168(a); and (2) the alternative
depreciation system in§168(g). Under
either depreciation system, the deprecia-
tion deduction is computed by using a
prescribed depreciation method, recovery
period, and convention.
The applicable recovery period for
purposes of§168(a) or§168(g) is deter-
mined by reference to class life. Section
168(i)(1) provides that the term“class
life”means the class life (if any) that
would be applicable with respect to any
property as of January 1, 1986, under
former§167(m) as if it were in effect and
the taxpayer had elected under that sec-
tion. Prior to its revocation,§167(m) pro-
vided that in the case of a taxpayer who
elected the asset depreciation range sys-
tem of depreciation, the depreciation
deduction would be computed based on
the class life prescribed by the Secretary
that reasonably reflects the anticipated
useful life of that class of property to the
industry or other group.
Rev. Proc. 87–56 (1987–2 C.B. 674)
sets forth the class lives of property that
are necessary to compute the depreciation
allowance under§168. This revenue pro-
cedure establishes two broad categories
of depreciable assets: (1) asset classes
00.11 through 00.4 that consist of specific
assets used in all business activities; and
(2) asset classes 01.1 through 80.0 that
consist of assets used in specific business
activities.
Asset class 00.3, Land Improvements,
of Rev. Proc. 87–56 includes improve-
ments directly to or added to land,
whether the improvements are§1245 or
§1250 property, provided the improve-
ments are depreciable. Examples of these
assets might include sidewalks, roads,
canals, waterways, drainage facilities,
sewers, wharves anddocks, bridges,
fences,landscaping,shrubbery,or
radio and television transmitting towers.
Assets included in asset class 00.3 have
a recovery period of 15 years for pur-
poses of§168(a) and 20 years for pur-
poses of§168(g).
Rev. Rul. 55–290 (1955–1 C.B. 320)
concludes that expenditures incurred by a
taxpayer in the original construction of
golf course greens are capital expendi-
tures that are added to the original cost of
the land and are not subject to an allow-
ance for depreciation. The revenue ruling
also concludes that subsequent operating
expenses for sod, seed, soil, and other
sundry maintenance are ordinary and nec-
essary business expenses that are deduct-
ible from gross income for federal income
tax purposes.
InEdinboro Company v. United States,
224 F. Supp. 301 (W.D.Pa. 1963), the
court held that golf course improvements,
such as greens, tees, fairways, and traps,
were not depreciable under§167(a)
because they are not distinguishable from
the land, which is molded and reshaped to
form them, and, like the land, they have
an unlimited useful life. The court con-
cluded that“[a] golf course is primarily a
landscaping proposition[, although]
[o]ccasionally a green or a trap or bunker
is altered or rebuilt.”The taxpayer in
Edinborofailed to demonstrate a deter-
minable useful life of the golf course
improvements, or that the improvements
were subject to wear and tear, exhaustion,
2001-51 I.R.B587December 17, 2001

or obsolescence that could not be fully
reversed by annual maintenance.
Although the depreciation allowance
generally does not apply to land because
land has no determinable useful life, land
preparation may be depreciable if it is
closely associated with depreciable assets
so that it is possible to establish a deter-
minable period over which the land
preparation will be useful in a particular
trade or business. A useful life for land
preparation is established if it will be
replaced contemporaneously with a
related depreciable asset. Whether land
preparation will be replaced contempora-
neously with a related depreciable asset is
a question of fact, but if the replacement
of the asset will require the physical
destruction of the land preparation, this
test will be considered satisfied. Rev. Rul.
68–193 (1968–1 C.B. 79) clarifying Rev.
Rul. 65–265 (1965–2 C.B. 52) (costs for
a roadway grading that would be retired
contemporaneously with a building are
depreciable); Rev. Rul. 72–96 (1972–1
C.B. 66) (land preparation costs for a res-
ervoir that would be retired contempora-
neously with an electric generating plant
are depreciable); Rev. Rul. 74–265
(1974–1 C.B. 56) (the cost of shrubbery
immediately adjacent to apartment build-
ings is depreciable because the shrubbery
would be retired contemporaneously with
the buildings); Rev. Rul. 80–93 (1980–1
C.B. 50) (costs for excavation and back-
filling that would be retired contempora-
neously with laundry facilities and a
storm sewer system are depreciable).
While§168 determines the amount
of the depreciation allowance provided
by§167(a) for tangible property placed
in service generally after 1986,§167
determines whether the tangible property
is depreciable property. Under§167 and
the regulations thereunder, land is not
depreciable. Similarly, the costs of gen-
eral grading or shaping of land are not
depreciable because the land preparation
is inextricably associated with the land.
However, if the land preparation is so
closely associated with depreciable assets
that it will be retired, abandoned, or
replaced contemporaneously with those
assets, a useful life for land preparation is
established and, therefore, the cost of the
land preparation is depreciable.
Push-up or natural soil greens are rep-
resentative of the type of green com-
monly in use when Rev. Rul. 55–290 was
issued andEdinborowas decided.
Push-up or natural soil greens are essen-
tially landscaping that involves some
reshaping or regrading of the land.
Accordingly, the Service will continue to
follow the holdings in Rev. Rul. 55–290
andEdinborowith respect to push-up or
natural soil greens.
Unlike push-up or natural soil greens,
the modern green is a sophisticated
improvement to the land carefully
designed to facilitate drainage. Essential
components of the modern green are the
underground drainage tiles or intercon-
nected pipes. Because these tiles or pipes
deteriorate over time, they have a deter-
minable useful life and, therefore, are
depreciable. Asset class 00.3, Land
Improvements, of Rev. Proc. 87–56,
includes drainage facilities. The gravel
layer, rootzone layer, and turfgrass above
the network of underground drainage tiles
or interconnected pipes are so closely
associated with these tiles or pipes that
replacement of the tiles or pipes will
require the contemporaneous physical
destruction of that land preparation. Thus,
it is possible to establish a determinable
useful life for the land preparation above
the underground tiles and pipes.
HOLDINGS
Land preparation undertaken by a tax-
payer in the original construction or
reconstruction of push-up or natural soil
greens is inextricably associated with the
land and, therefore, the costs attributable
to this land preparation are added to the
taxpayer’s cost basis in the land and are
not depreciable.
The costs of land preparation under-
taken by a taxpayer in the original con-
struction or reconstruction of modern
greens that is so closely associated with
depreciable assets, such as a network of
underground drainage tiles or pipes, that
the land preparation will be retired, aban-
doned, or replaced contemporaneously
with those depreciable assets are to be
capitalized and depreciated over the
recovery period of the depreciable assets
with which the land preparation is associ-
ated. For purposes of§168, the modern
green described above is includible in
asset class 00.3, Land Improvements, of
Rev. Proc. 87–56. However, the general
earthmoving, grading, and initial shaping
of the area surrounding and underneath
the modern green that occur before the
construction are inextricably associated
with the land and, therefore, the costs
attributable to this land preparation are
added to the taxpayer’s cost basis in the
land and are not depreciable.
Subsequent operating expenses for
sod, seed, soil, and other sundry mainte-
nance are ordinary and necessary busi-
ness expenses that are deductible from
gross income for federal income tax pur-
poses.
CHANGE IN METHOD OF
ACCOUNTING
Any change in a taxpayer’s treatment
of the cost of modern greens to conform
with this revenue ruling is a change in
method of accounting to which the provi-
sions of§§446 and 481 and the regula-
tions thereunder apply. A taxpayer want-
ing to change the method of accounting
for the cost of modern greens owned by
the taxpayer at the beginning of the year
of change to conform with this revenue
ruling must follow the automatic change
in method of accounting provisions in
Rev. Proc. 99–49 (1999–2 C.B. 725) (or
its successor), unless the scope limitations
in section 4.02 of Rev. Proc. 99–49 apply.
EFFECT ON OTHER DOCUMENTS
Rev. Rul. 55–290 is modified and
superseded. Rev. Proc. 99–49 is modified
and amplified to include this accounting
method change in the APPENDIX.
PROSPECTIVE APPLICATION
A taxpayer may continue to use its
present method of treating the cost of
modern greens placed in service during
any taxable year beginning before
November 29, 2001, as a nondepreciable
capital expenditure.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Mark Pitzer of the Office of
Associate Chief Counsel (Passthroughs
and Special Industries). For further infor-
mation regarding this revenue ruling, con-
tact Mark Pitzer at (202) 622–3110 (not a
toll-free call).
December 17, 20015882001-51 I.R.B.

Section 168.—Accelerated
Cost Recovery System
If the costs of land preparation under-
taken by a taxpayer in the original con-
struction or reconstructionof modern
golf course greens are depreciable, what
is the classification of these costs under
§168(e)(1) of the Internal Revenue
Code? See Rev. Rul. 2001–60, page 587.
2001-51 I.R.B589December 17, 2001

Part III. Administrative, Procedural, and Miscellaneous
Section 45D.—New Markets
Tax Credit
Notice 2001–75
PURPOSE
This notice clarifies that certain equity
investments may be eligible for the new
markets tax credit under§45D of the
Internal Revenue Code, notwithstanding
that they are made before the receipt of a
credit allocation from the Secretary of the
Treasury under§45D(f)(2).
BACKGROUND
Section 45D(a)(1) provides a new mar-
kets tax credit on certain credit allowance
dates described in§45D(a)(3) with
respect to a qualified equity investment in
a qualified community development
entity (CDE).
Section 45D(b)(1) provides that an
investment in a CDE is a qualified equity
investment only if, among other things,
the CDE designates the investment as a
qualified equity investment.
Section 45D(c)(1) provides that an
entity is a CDE only if, among other
things, the entity is certified by the Secre-
tary as a CDE.
Section 45D(b)(2) provides that the
maximum amount of equity investments
issued by a CDE that may be designated
by the CDE as qualified equity invest-
ments may not exceed the portion of the
new markets tax credit limitation set forth
in§45D(f) that is allocated to the CDE
by the Secretary under§45D(f)(2).
The Secretary has delegated certain
administrative functions relating to the
new markets tax credit program to the
Under Secretary (Domestic Finance), who
in turn has delegated those functions to
the Community Development Financial
Institutions Fund (CDFI Fund). In accor-
dance with procedures to be issued by the
CDFI Fund in the future, the CDFI Fund
will request and evaluate applications for
CDE certification and for new markets
tax credit allocations. Under those proce-
dures, if a CDE is selected to receive a
credit allocation, the CDFI Fund will pro-
vide to the CDE a notificationof
credit allocation. However, the CDE’s
actual receipt of a credit allocation
under§45D(f)(2) will be contingent
upon the CDE subsequently entering into
an allocation agreement with the CDFI
Fund.
DISCUSSION
Questions have arisen as to whether an
equity investment in an entity may be eli-
gible to be designated as a qualified
equity investment if it is made before the
entity is certified by the CDFI Fund as a
CDE under§45D(c)(1) and before the
entity enters into an allocation agreement
with the CDFI Fund. In such a situation,
an equity investment in an entity will be
eligible to be designated as a qualified
equity investment under§45D(b)(1) if:
1. The equity investment is made on or
after April 20, 2001;
2. The entity in which the equity
investment is made is certified by the
CDFI Fund as a CDE under§45D(c)(1)
before January 1, 2003;
3. The entity in which the equity
investment is made receives notification
of a credit allocation (with the actual
receipt of such credit allocation contin-
gent upon subsequently entering into an
allocation agreement) from the CDFI
Fund before January 1, 2003; and
4. The equity investment otherwise
satisfies the requirements of§45D.
In the case of an equity investment
that is designated as a qualified equity
investment in accordancewith this
notice, the first credit allowance date
under§45D(a)(3)(A) will be the effective
date of the allocation agreement between
the CDE and the CDFI Fund.
Regulations to be issued in the near
future will incorporate the guidance set
forth in this notice. Taxpayers may rely
on this notice until those regulations are
issued.
DRAFTING INFORMATION
The principal author of this notice is
Paul Handleman of the Office of Associ-
ate Chief Counsel (Passthroughs and Spe-
cial Industries). For further information
regarding this notice, contact Mr. Handle-
man at (202) 622–3040 (not a toll-free
call).
Rev. Proc. 2001–56
TABLE OF CONTENTS
SECTION 1. PURPOSE AND SCOPE
Q–1. What is the purpose of this rev-
enue procedure?
Q–2. Who may use the simplified
methods in this revenue procedure?
Q–3. What vehicles are demonstration
automobiles that qualify for the simplified
methods?
Q–4. For which employees can the
simplified methods be used?
Q–5. Does this revenue procedure
describe all of the methods for determin-
ing and substantiating the value of the
use of demonstration vehicles provided to
employees by automobile dealerships?
SECTION 2. BACKGROUND
Q–6. What provisions of the tax law
may apply to a vehicle provided to an
employee by an employer?
Q–7. When is the use of an employer-
provided automobile a working condition
fringe?
SECTION 3. FULL EXCLUSION FOR
QUALIFIED AUTOMOBILE
DEMONSTRATION USE
Q–8. What is the full exclusion for
qualified automobile demonstration use?
Q–9. What are the requirements for
the full exclusion of automobile demon-
stration use by a full-time salesperson?
Q–10. What is the treatment if the
requirements for the full exclusion are not
met?
December 17, 20015902001-51 I.R.B.

SECTION 4. SIMPLIFIED METHOD
FOR THE FULL EXCLUSION OF
QUALIFIED AUTOMOBILE
DEMONSTRATION USE
Q–11. What are the requirements
under this revenue procedure for the Sim-
plified Method for Full Exclusion of
Qualified Automobile Demonstration
use?
Q–12. What is a qualified written
policy for purposes of the full exclusion?
Q–13. When may the employer reason-
ably believe that the full-time automobile
salesperson complies with the written
policy?
Q–14. What is the sales area of an
automobile dealer?
Q–15. When is the personal use of the
demonstration automobile limited for
purposes of the full exclusion?
Q–16. How does an employer deter-
mine the total mileage that a demonstra-
tion automobile is used outside of normal
working hours?
Q–17. What is a reasonable system for
recording out and in mileage?
Q–18. What is the applicable period
for determining whether the average 10
miles per day is exceeded?
Q–19. What is commuting mileage?
Q–20. How does an employer deter-
mine the commuting mileage for a full-
time salesperson?
Q–21. Is commuting mileage limited to
the most direct route between the employ-
ee’s home and the sales office?
Q–22. How does an employer using
the full exclusion method calculate per-
sonal use?
Q–23. What records must an employer
maintain to satisfy the requirements for
the full exclusion?
Q–24. What records must an employee
maintain to satisfy the requirements for
the full exclusion?
Q–25. What are the tax consequences
if one or more employees fail to satisfy
the limited personal use requirement?
SECTION 5. SIMPLIFIED
METHOD FOR PARTIAL EXCLUSION
OF DEMONSTRATION
AUTOMOBILE USE BY FULL-TIME
SALESPEOPLE
Q–26. What is the partial exclusion of
demonstration automobile use?
Q–27. When can an employer use the
partial exclusion method?
Q–28. What are the requirements for
the partial exclusion of demonstration
automobile use by a full-time salesper-
son?
Q–29. What is the treatment if the
requirements for the partial exclusion are
not met?
Q–30. What is a qualified written
policy for purposes of the partial exclu-
sion?
Q–31. May a qualified written policy
under the full exclusion method be used
for the partial exclusion method?
Q–32. When may the employer reason-
ably believe that the full-time automobile
salesperson complies with the written
policy?
Q–33. What method does an employer
use to determine the value of the demon-
stration automobile used by a full-time
salesperson?
Q–34. How does an employer deter-
mine the annual average sales price if
more than one franchise is operated at or
from a single location?
Q–35. What is the amount included in
the full-time salesperson’s income and
wages for use of the demonstration auto-
mobile under the partial exclusion
method?
Q–36. How does an employer deter-
mine the number of days that a salesper-
son has the use of a demonstration auto-
mobile?
Q–37. May an employer elect under
section 3402(s) of the Code not to with-
hold income taxes from the portion of the
vehicle fringe benefit required to be
included under the partial exclusion
method provided under this revenue pro-
cedure?
Q–38. What records must an employer
maintain to satisfy the requirements for
the partial exclusion?
Q–39. What records must an employee
maintain to satisfy the requirements for
the partial exclusion?
SECTION 6. SIMPLIFIED METHOD
FOR INCLUSION OF THE VALUE OF
DEMONSTRATION AUTOMOBILE IF
NEITHER THE FULL NOR PARTIAL
EXCLUSION APPLIES
Q–40. What method does an employer
use to account for the use of demonstra-
tion automobiles provided to employees
who are not full-time salespeople?
Q–41. What method is used to account
for the use of a demonstration automobile
by a full-time salesperson who does not
qualify for the full exclusion or partial
exclusion?
Q–42. What are the requirements for
using the full inclusion method for dem-
onstration automobiles used by employ-
ees who are not full-time salespeople or
who are full-time salespeople?
Q–43. Under the full inclusion method,
how does the employer determine the
value of the demonstration automobiles
provided to employees?
Q–44. How is the pro rata portion of
the annual lease value amount included
in income calculated?
Q–45. Under the full inclusion method,
how does an employer determine the
number of days that an employee has the
use of a demonstration automobile?
Q–46. What records must an employer
maintain to satisfy the requirements for
the full inclusion method?
Q–47. What records must an employee
maintain to satisfy the requirements for
the full inclusion method?
SECTION 7. APPLICATION OF
GENERAL RULE WHEN METHODS
IN REVENUE PROCEDURE ARE
NOT USED
Q–48. What is the interaction of the
method under Treas. Reg.§1.274–6T for
an employer implementing a policy of no
personal use except commuting through a
written policy with the full exclusion or
partial exclusion methods?
Q–49. What amount of personal use
mileage in addition to commuting would
satisfy the de minimis personal use in
addition to commuting under Treas. Reg.
§1.274–6T ?
2001-51 I.R.B591December 17, 2001

Q–50. What evidence would satisfy
the requirementunder Treas. Reg.
§1.274–6T that the employer must main-
tain evidence that would enable a deter-
mination whether the use of the vehicle
met the requirements?
Q–51. What amount is included in the
income of an employee if the use was not
taken into account and included in
income for the month in which the use of
a demonstration automobile was pro-
vided?
SECTION 8. INTENT TO REVISE
REGULATIONS TO EXTENT
NECESSARY
SECTION 9. EFFECTIVE DATE
SECTION 10. REQUEST FOR
COMMENTS
SECTION 11. DRAFTING
INFORMATION
SECTION 12. PAPERWORK
REDUCTION ACT
APPENDIX A. MODEL QUALIFIED
WRITTEN POLICY FOR FULL
EXCLUSION
APPENDIX B. MODEL QUALIFIED
WRITTEN POLICY FOR PARTIAL
EXCLUSION
SECTION 1. PURPOSE AND SCOPE
Q–1. What is the purpose of this rev-
enue procedure?
A–1. This revenue procedure provides
optional simplified methods for determin-
ing the value of the use of demonstration
automobiles provided to employees by
automobile dealerships. The methods in
this revenue procedure include—
•Simplified Method for the Full Exclu-
sion of Qualified Automobile Demon-
strationUse.(SimplifiedOut/In
Method)This is a simplified method
for keeping records to support the full
exclusion of the use of a demonstration
automobile from the income of a full-
time automobile salesperson. This
method is discussed in section 4, Ques-
tions and Answers 11 through 25.
•Partial Exclusion of Demonstration
Automobile Use by Full-Time Sales-
people.This is a simplified method for
determining the excludible business use
of a demonstration automobile pro-
vided to a full-time salesperson and the
amount included in income if the full
exclusion is not applicable. This
method is discussed in section 5, Ques-
tions and Answers 26 through 39.
•Inclusion of the Value of Demonstra-
tion Automobile Use When No Exclu-
sion Applies.This is a simplified
method for determining the amount to
be included in income of any employee
provided the use of a demonstration
automobile if neither the full nor partial
exclusion for full-time salespeople is
available. This method is discussed in
section 6, Questions and Answers 40
through 47.
•Application of General Rule When
Methods in Revenue Procedure are Not
Used.Question 51 in section 7 pro-
vides that if the requirements of the
simplified methods provided under this
revenue procedure are not satisfied,
generally the amount required to be
included in an employee’s income is
the fair market value of the use of the
demonstration automobile. Question 51
also provides that if errors are identi-
fied and corrected during the calendar
year in which the vehicle is provided,
an employer may continue to use the
simplified methods under this revenue
procedure.
This revenue procedure is designed to
provide a comprehensive framework for
addressing the tax treatment of demon-
stration automobiles provided by automo-
bile dealers to employees. The simplified
methods have been structured sequen-
tially so that if the use by an employee
does not qualify for treatment under one
method, the use can nonetheless be taken
into account under a subsequent method
with no additional recordkeeping or
change in determination period. For
example, if the use of a demonstration
automobile by a full-time salesperson
fails to qualify for full exclusion under
the simplified full exclusion method, the
use may still be accounted for under the
partial exclusion method based on records
otherwise available or already maintained
under the full exclusion method. At the
same time, employers can choose to use
the partial exclusion method immediately
for all full-time salespeople without first
attempting to satisfy the requirements of
the full exclusion method. Moreover, an
employer can choose to apply the differ-
ent optional methods on an employee by
employee basis. Thus, if some employees
are unwilling to maintain the records nec-
essary to satisfy the full exclusion
method, the employer can account for
their use under the partial or full inclusion
methods while still retaining the ability to
use the full exclusion method for the
other employees.
Q–2. Who may use the simplified
methods in this revenue procedure?
A–2. The simplified methods provided
in this revenue procedure are available to
any automobile dealer engaged in the
business of retail sales of new or used
vehicles described in Question and
Answer 3.
Q–3. What vehicles are demonstra-
tion automobiles that qualify for the sim-
plified methods?
A–3. The application of the simplified
methods provided in this revenue proce-
dure for determining the tax-treatment of
employer-provided vehicles is limited to
demonstration automobiles as defined in
Treas. Reg.§1.132–5(o)(3). That regula-
tion requires that the vehicle be currently
in the inventory of the automobile dealer-
ship and be available for test drives by
customers during the normal business
hours of the employee provided its use.
For purposes of this revenue procedure,
demonstration automobiles can include
passenger vans, sport utility vehicles, and
light-duty trucks. Light-duty trucks are
trucks with a gross vehicle weight of
14,000 pounds or less, which are also
referred to as class 1, 2, or 3 trucks.
Q–4. For which employees can the
simplified methods be used?
A–4. The application of the simplified
methods provided in this revenue proce-
dure for the full or partial exclusion of
demonstration automobile use is limited
to use by full-time salespeople as defined
in Treas. Reg.§1.132–5(o)(2). That regu-
lation requires that the individual be
employed by an automobile dealer, cus-
tomarily spend at least half of a normal
business day performing the functions of
a floor salesperson or sales manager,
directly engage in substantial promotion
and negotiation of sales to customers,
customarily work a number of hours con-
sidered full-time in the industry (but at a
rate not less than 1,000 hours per year),
December 17, 20015922001-51 I.R.B.

and derive at least 25 percent of gross
income from sales activities.
The simplified method for full inclu-
sion may be applied with respect to the
use of a demonstration automobile by any
employee of an automobile dealer.
Q–5. Does this revenue procedure
describe all of the methods for determin-
ing and substantiating the value of the
use of demonstration vehicles provided
to employees by automobile dealerships?
A–5. No. An automobile dealer is not
required to use the optional simplified
methods described in this revenue proce-
dure. An automobile dealer may use any
other applicable method that complies
with the Internal Revenue Code and Trea-
sury regulations to account for the use of
demonstration automobiles by employees.
SECTION 2. BACKGROUND
Q–6. What provisions of the tax law
may apply to a vehicle provided to an
employee by an employer?
A–6. In general, section 61(a)(1) of the
Internal Revenue Code (the Code) pro-
vides that gross income means all
income, including compensation for ser-
vices. Fringe benefits are specifically
listed as an example of compensation for
services. The examples of fringe benefits
under Treas. Reg.§1.61–2T(a)(1) include
an employer-provided automobile.
However, section 132(a) of the Code
permits certain fringe benefits, including
working condition fringes, to be excluded
from gross income. In certain circum-
stances, all or part of the value of the use
of an employer-provided automobile may
be a working condition fringe.
Q–7. When is the use of an employer-
provided automobile a working condi-
tion fringe?
A–7. Section 132(d) of the Code gen-
erally defines a working condition fringe
as any property or services provided to an
employee by an employer to the extent
that, if the employee paid for such prop-
erty or services, the payment would be
allowable as a business expense deduc-
tion. Thus, generally any business use of
an employer-provided vehicle, including
a demonstration automobile, by any
employee is a working condition fringe.
In addition, section 132(j)(3) of the
Code specifically provides that“qualified
automobile demonstration use”by a full-
time automobile salesperson is treated as
a working condition fringe.
However, regulations related to work-
ing condition fringe benefits at section
1.132–5(c)(1) generally provide that
working condition fringe benefits may
not be excluded unless the substantiation
requirements of either section 274(d) or
section 162 and corresponding regula-
tions are satisfied. Thus, even if business
use of an employer-provided vehicle is a
working condition fringe, it may not be
excluded from the employee’s gross
income unless that business use is prop-
erly substantiated.
SECTION 3. FULL EXCLUSION FOR
QUALIFIED AUTOMOBILE
DEMONSTRATION USE
Q–8. What is the full exclusion for
qualified automobile demonstration use?
A–8. As noted above, section 132(j)(3)
specifically provides that“qualified auto-
mobile demonstration use”is treated as a
working condition fringe. Generally,
“qualified automobile demonstration use”
is the use of a demonstration automobile
by a full-time salesperson if the specific
restrictions described in Question and
Answer 9 are observed. If there is“quali-
fied automobile demonstration use,”the
value of the use of the demonstration
automobile is excluded from the full-time
salesperson’s wages. As a result, the
salesperson will not owe income or FICA
taxes on the value of use and the
employer will not be required to withhold
income taxes or pay FICA taxes with
respect to the value of the use.
Q–9. What are the requirements for
the full exclusion of automobile demon-
stration use by a full-time salesperson?
A–9. The requirements for the full
exclusion of automobile demonstration
use by a full-time salesperson contained
in section 132(j)(3) of the Code are as
follows:
a. The use must be in the sales area in
which the automobile dealer’s sales office
is located.
b. The use must be provided primarily
to facilitate the salesperson’s performance
of services for the employer.
c. There must be substantial restric-
tions on the personal use of the automo-
bile by the salesperson.
Under Treas. Reg.§1.132–5(o)(4),
substantial restrictions on the personal
use of a demonstration automobile exist
when all of the following conditions are
satisfied:
a. Use by individuals other than the
full-time salesperson (e.g.,the salesper-
son’s family) is prohibited;
b. Use for personal vacation trips is
prohibited;
c. The storage of personal possessions
in the automobile is prohibited; and
d. The total use by mileage of the
automobile by the salesperson outside the
salesperson’s normal working hours
(“personal use”) is limited.
To use the simplified full and partial
exclusion methods contained in this rev-
enue procedure, the employer must also
have a written policy limiting the use of
the demonstration automobile. To use the
full exclusion method, the employer must
also determine that the personal use of the
vehicle is limited to establish that the
restrictions provided by the Code and
regulations are satisfied.
Q–10. What is the treatment if the
requirements for the full exclusion are
not met?
A–10. If the use of the demonstration
automobile by one or more employees
does not satisfy the requirements for full
exclusion, the employer must include
some or all of the value of the use of the
vehicle in the gross income of those
employees using the methods for partial
exclusion or full inclusion described in
section 5 and 6, respectively, below.
SECTION 4. SIMPLIFIED METHOD
FOR THE FULL EXCLUSION OF
QUALIFIED AUTOMOBILE
DEMONSTRATION USE
Q–11. What are the requirements
under this revenue procedure for the
Simplified Method for Full Exclusion of
QualifiedAutomobileDemonstration
use?
A–11. The requirements are as fol-
lows:
a. The employer must have a qualified
written policy limiting the use of the
demonstration automobile;
b. The employer must reasonably
believe that the full-time automobile
salesperson complies with the written
policy; and
2001-51 I.R.B593December 17, 2001

c. The employer must determine, no
less often than monthly, that the personal
use of the vehicle by the full-time sales-
person was limited and maintain the
records described in Answer 23 support-
ing the determination. (But see Question
and Answer 51 regarding correcting
errors identified during the calendar year.)
Q–12. What is a qualified written
policy for purposes of the full exclusion?
A–12. A qualified written policy is in
place if the employer establishes and
communicates to each full-time automo-
bile salesperson allowed the use of a
demonstration automobile a written
policy which—
(1) Prohibits use of the vehicle outside
of normal business hours by individuals
other than full-time salespeople.
(2) Prohibits use of the vehicle for per-
sonal vacation trips.
(3) Prohibits use outside of the sales
area in which the employer’s sales office
is located.
(4) Prohibits storage of personal pos-
sessions in the vehicle.
(5) Limits the total use by mileage of
the vehicle by the salesperson outside
normal working hours to commuting
between the salesperson’s home and the
dealer’s sales office and to an additional
average number of miles per day of 10
miles or less.
A model qualified written policy for
purposes of the full exclusion is provided
in Appendix A.
Q–13. When may the employer rea-
sonably believe that the full-time auto-
mobile salesperson complies with the
written policy?
A–13. Under the full exclusion
method, the employer may reasonably
believe that a salesperson complies with
the written policy where the calculations
of total mileage outside of normal work-
ing hours indicate that the limit on per-
sonal use was not exceeded and the
employer has no actual knowledge that
the other requirements of the policy are
not satisfied. For example, if the
employer had actual knowledge that a
salesperson’s family members used the
demonstration automobile in violation of
the policy, the use during the period does
not qualify for the full exclusion even if
the mileage records indicate that the lim-
its on mileage outside of normal working
hours have not been exceeded during the
period.
Q–14. What is the sales area of an
automobile dealer?
A–14. Under Treas. Reg.§1.132–
5(o)(5)(i), sales area is generally defined
as the geographic area surrounding the
automobile dealer’s sales office from
which the office regularly derives cus-
tomers. Paragraph (ii) under that regula-
tion provides a safe harbor rule that, as a
minimum, allows that an automobile
dealer’s sales area may be treated as the
area within a radius of 75 miles of the
sales office.
Q–15. When is the personal use of the
demonstration automobile limited for
purposes of the full exclusion?
A–15. For a full-time salesperson, per-
sonal use is considered limited as
required under section 132(j)(3) if the
total mileage a demonstration automobile
is used outside normal working hours,
less commuting mileage, does not exceed
an average of 10 miles per day. For this
purpose, the mileage on each demonstra-
tion automobile a salesperson uses for
either commuting or personal purposes
must be taken into account.
Q–16. How does an employer deter-
mine the total mileage that a demonstra-
tion automobile is used outside of nor-
mal working hours?
A–16. For purposes of this revenue
procedure, an employer can determine the
total mileage that a demonstration auto-
mobile is used outside of normal working
hours under the Simplified Out/In
Method. Under this method, the total
miles that a demonstration automobile is
used during normal working hours is not
taken into account and only mileage out-
side of normal working hours is consid-
ered. To satisfy this method, the mileage
on the automobile must be recorded under
a reasonable system (1) at the end of the
working hours of the salesperson using
the automobile (out mileage) and (2) at
the beginning of that salesperson’s work-
ing hours on the next working day (in
mileage).
Q–17. What is a reasonable system
for recording out and in mileage?
A–17. Any reasonable system may be
used for recording out and in mileage.
For example, an employee other than the
salesperson could record the mileage on
the demonstration automobiles at the
arrival and departure of the vehicle at the
sales office on each workday. A reason-
able system would also include mileage
entries for the vehicles by the full-time
salespeople using the vehicle if there was
random verification of the accuracy of the
entries by an employee other than the
salespeople at least once in every deter-
mination period, as described in Question
and Answer 18.
Q–18. What is the applicable period
for determining whether the average 10
miles per day is exceeded?
A–18. Under the simplified full exclu-
sion method provided by this revenue
procedure, the employer must determine
whether the average 10 miles per day of
personal use has been exceeded no less
often than once each calendar month. If
an employer chooses to make the deter-
mination every two weeks, the applicable
period is two weeks, and the amount of
personal use in addition to commuting
allowed for the two weeks is 140 miles
(14 days multiplied times 10 miles per
day). If the employer chooses to make the
determination monthly, the amount varies
from month to month, depending on the
number of days in the calendar month.
Q–19. What is commuting mileage?
A–19. Commuting mileage is the total
number of miles a demonstration automo-
bile is driven by a salesperson when com-
muting to and from the dealer’s sales
office during the period at issue. For this
purpose, commuting mileage includes
only one round trip to and from the sales
office per workday. The employer should
assume that the commuting distance is the
same for every day the employee drives
the automobile to work unless the
employer has reason to believe that the
employee has moved.
Q–20. How does an employer deter-
mine the commuting mileage for a full-
time salesperson?
A–20. A full-time salesperson’s com-
muting mileage can be determined by any
reasonable method. Reasonable methods
include employee mileage records of a
single commute, computer research pro-
grams identifying distance between the
December 17, 20015942001-51 I.R.B.

employee’s home address and the deal-
er’s sales office, or employee self-
reporting that reasonably corresponds to
the driving distance between the employ-
ee’s home address and the dealer’s sales
office.
Q–21. Is commuting mileage limited
to the most direct route between the
employee’s home and the sales office?
A–21. No. An employee can use any
commuting route that is reasonable in
time or mileage. However, an employee
may not increase his or her reported com-
muting mileage to allow for additional
personal use; the average 10 miles per
day allowance is intended to provide lim-
ited personal use in addition to commut-
ing.
Example 1.A salesperson employee lives in a
subdivision on the opposite side of a significant
urban area from the sales office. Although a direct
route through the urban area is shorter, using a high-
way around the urban area generally takes less time,
although the actual mileage is greater. In this case,
the employer can use the longer commuting mileage
reflecting the use of the highway for purposes of
determining the employee’s personal use mileage in
excess of commuting.
Example 2.A salesperson belongs to a fitness
club located eight miles outside of any reasonable
commuting route between the sales office and the
salesperson’s home. Even if the salesperson regu-
larly stops at the fitness club on the trip home, the
employer cannot include the additional eight miles
in the commuting mileage for purposes of determin-
ing the employee’s personal use mileage in excess
of commuting.
Q–22. How does an employer using
the full exclusion method calculate per-
sonal use?
A–22. The following examples illus-
trate calculations of personal use and
determinations of whether the require-
ment that personal use outside of working
hours was limited in accordance with the
qualified policy.
Example 1.The employer adopts the simplified
out/in method and implements a written policy that
satisfies the requirements of this revenue procedure.
The employer chooses to determine personal use
monthly. For a 30 day month, the total mileage for
the automobiles used by full-time salesperson Y dur-
ing the month is 1,450 miles. Based on the mileage
recorded at arrival and departure during the month,
800 miles relate to use during normal working hours
and is not taken into account. Salesperson Y’s round
trip commute is 15 miles and Y works 20 days dur-
ing the month, for a total commuting mileage of 300
miles during the month. The total use outside of
normal working hours is calculated by taking the
1,450 total miles and subtracting the use during
working hours, resulting in 650 miles. Total use out-
side of normal working hours for the month, 650
miles, less commuting miles for the month, 300
miles, results in 350 miles. This is greater than 10
miles per day for 30 days (300 miles). Thus, use by
salesperson Y is not considered to be limited during
the month and salesperson Y does not qualify for the
exclusion for the month. Nonetheless, salesperson Y
may qualify for the partial exclusion under this rev-
enue procedure if the requirements for that method
are satisfied.
Example 2.The same facts as in Example 1,
except that for a 31 day month, the total mileage for
the automobiles used by full-time salesperson X for
the month is 1,600 miles. Based on the mileage
recorded at arrival and departure during the month,
720 miles relate to use during working hours. Sales-
person X’s round trip commute is 30 miles and X
works 22 days during the month, for total commut-
ing mileage of 660 miles during the month. The
total use outside of normal working hours is calcu-
lated by taking the 1,600 total miles and subtracting
720 miles, the use during working hours, resulting
in 880 miles. Total use outside of working hours for
the month, 880 miles, less commuting miles for the
month, 660 miles, results in 220 miles. This is less
than 10 miles per day for 31 days (310 miles). Thus,
use by X is considered to be limited during the
month.
Q–23. What records must an
employer maintain to satisfy the require-
ments for the full exclusion?
A–23. An employer must maintain the
following records to satisfy the require-
ments for the full exclusion for any
month—
a. A copy of the written policy on use
and evidence that it was communicated to
employees, such as a copy of a poster
notifying employees of the policy, a copy
of a letter or an electronic communication
notifying the employee of the policy, or
signed statements by the employees
acknowledging receipt of the written
policy.
b. Records establishing that the sales-
person’s personal use by mileage was cal-
culated no less often than once each cal-
endar month. This may include:
(i) Records identifying each demon-
stration automobile assigned to each
salesperson during the period.
(ii) Records identifying the total mile-
age for each demonstration automobile
assigned to a salesperson during the
period.
(iii) Records supporting the total use
outside of normal working hours under
the Simplified Out/In Method described
in Question and Answer 16 and any veri-
fication of those records. In particular, the
employer would maintain records of out
and in mileage of the demonstration auto-
mobiles provided to full-time salespeople
for each day the automobile is used.
(iv) Records identifying the round trip
commuting mileage of each salesperson
assigned a demonstration automobile
from salesperson’s home to the dealer’s
sales office during the period. See Ques-
tions and Answers 19, 20 and 21 regard-
ing the determination of commuting mile-
age.
Q–24. What records must an
employee maintain to satisfy the require-
ments for the full exclusion?
A–24. The employee is required to
maintain no records except to the extent
the employee is required to provide infor-
mation to the employer to allow the
employer to maintain the records as noted
above.
Q–25. What are the tax consequences
if one or more employees fail to satisfy
the limited personal use requirement?
A–25. For each full-time salesperson
whose personal use mileage exceeds the
10 miles per day average for the appli-
cable determination period, the employer
must include all or a portion of the value
of the use of the demonstration automo-
bile for the period in the income of that
full-time salesperson. The employer may
continue to use the full exclusion for all
other full-time salespeople whose per-
sonal use mileage is limited.
The employer may implement the par-
tial exclusion method by including
amounts in income either in the current
period or in the period immediately fol-
lowing the current period. Whichever
method is chosen, the employer must
implement the exclusion in a consistent
manner. Thus, after determining that an
employee does not qualify for the full
exclusion for the month, the employer
can include an amount in the employee’s
income for the current month. Alterna-
tively, the employer can include an
amount in the employee’s income during
the next month. In that case, the amount
included in the next month under the par-
tial or full inclusion method is determined
by the number of days in the next month.
2001-51 I.R.B595December 17, 2001

SECTION 5. SIMPLIFIED METHOD
FOR PARTIAL EXCLUSION OF
DEMONSTRATION AUTOMOBILE
USE BY FULL-TIME SALESPEOPLE
Q–26. What is the partial exclusion of
demonstration automobile use?
A–26. Under the partial exclusion
method, an amount is included in the full-
time automobile salesperson’s income
and wages no less often than monthly.
The amount reflects personal use of the
demonstration automobile and is based on
the value of the use of that vehicle as
determined in Question and Answer 33
below. The remaining portion is deemed
to represent business use that is exclud-
able from income and wages as a working
condition fringe.
Q–27. When can an employer use the
partial exclusion method?
A–27. An employer choosing not to
use the full exclusion method can use the
partial exclusion method to account for
the use of any demonstration automobile
by a full-time salesperson if the require-
ments of this revenue procedure are satis-
fied. Moreover, the partial exclusion
method is also available if a full-time
salesperson employed by a dealer other-
wise satisfying the requirements for the
full exclusion exceeds the average 10
miles per day of personal use or does not
provide records with respect to business
use of a demonstration automobile. In
such cases, the employer will generally
be able to account for the use of the dem-
onstration automobile by using the partial
exclusion method rather than including
the full value of the use of demonstration
automobile in the income of the full-time
salesperson.
Q–28. What are the requirements for
the partial exclusion of demonstration
automobile use by a full-time salesper-
son?
A–28. The requirements are as fol-
lows:
a. The employer must have a qualified
written policy limiting the use of the
demonstration automobile;
b. The employer must reasonably
believe that the full-time automobile
salesperson complies with the written
policy; and
c. The employer must account for the
nondeductible personal use by any full-
time automobile salesperson by including
in gross income and wages the amount
specified in the table in Answer 35 no
less often than monthly and maintain
records specified in Answer 38, which are
necessary to support that accounting.
Q–29. What is the treatment if the
requirements for the partial exclusion
are not met?
A–29. If the use of the demonstration
automobile by a full-time salesperson
does not satisfy the requirements for par-
tial exclusion, the employer must include
all of the value of the use of the vehicle
in gross income of that employee using
the method for full inclusion described in
Answers 40–47 below. But see special
rule regarding self-correction below in
Question and Answer 51.
Q–30. What is a qualified written
policy for purposes of the partial exclu-
sion?
A–30. A qualified written policy is in
place if the employer establishes and
communicates to each full-time automo-
bile salesperson allowed the use of a
demonstration automobile a written
policy which—
(1) Prohibits use of the vehicle outside
of normal business hours by individuals
other than full-time salespeople.
(2) Prohibits use of the vehicle for per-
sonal vacation trips.
(3) Prohibits storage of personal pos-
sessions in the vehicle.
A model written policy for purposes of
the partial exclusion is provided in
Appendix B.
Q–31. May a qualified written policy
under the full exclusion method be used
for the partial exclusion method?
A–31. Yes.
Q–32. When may the employer rea-
sonably believe that the full-time auto-
mobile salesperson complies with the
written policy?
A–32. Under the partial exclusion
method, the employer may reasonably
believe that a salesperson complies with
the written policy if the employer has no
actual knowledge that the other require-
ments of the policy are not satisfied. For
example, if the employer had actual
knowledge that a salesperson’s family
members used the demonstration automo-
bile, the use does not qualify for the par-
tial exclusion.
Q–33. What method does the
employer use to determine the value of
the demonstration automobile used by a
full-time salesperson?
A–33. An employer may use any rea-
sonable method to determine the value of
the demonstration automobile used by a
full-time salesperson. That value is used
in applying the table in Answer 35. The
following method is considered a reason-
able method.
Annual Average Look Back Method.
Under the annual average look back
method, the value of the use of any new
demonstration automobile is based on the
average sales price of all vehicles sold in
the prior year. The average sales price is
calculated by taking the sum of the sales
prices of all new car and truck sales in the
prior calendar year and dividing that sum
by the number of new vehicles sold in the
prior year. The average sales price is used
to determine the value of the demonstra-
tion automobile and the corresponding
daily inclusion amount under the table in
Answer 35. This amount is included in
the employee’s income and wages for
each day the employee used a demonstra-
tion automobile. The amount must be
included in income at least monthly. The
average sales price must be determined in
January of each year and must be applied
no later than February of that year.
For used vehicles, the average sales
price is calculated by taking the sum of
the sales prices of all used vehicles for
the prior year and dividing by the number
of vehicles sold in the prior year. The
value of a demonstration automobile may
only be based on used cars for sales-
people using only used cars as demonstra-
tion automobiles; the average sales price
of used cars cannot be combined with the
average sales price of new cars for pur-
poses of determining the value of demon-
stration automobiles that are new. If a
dealership sells both new and used
vehicles, the employer may use the value
based on new vehicles as the value of the
demonstration automobiles used by all
salespeople. Alternatively, the employer
may calculate the value of the demonstra-
tion automobiles separately for sales-
people using used vehicles and sales-
people using new vehicles.
An employer using the annual average
look back method must maintain evi-
dence supporting the calculation of the
annual average sales price.
Example 1.In 2001, an employer sold 948 new
vehicles for total gross sales of $23, 226,000 (as
December 17, 20015962001-51 I.R.B.

shown on the year-end standard financial statement
that the dealer provided to the manufacturer). In
January 2002, the employer calculates the average
sales price by dividing $23,226,000 by 948 vehicles,
resulting in $24,500. For each month ending on or
after February 1, 2002, to January 31, 2003, of the
next year, for each full-time salesperson provided
the use of a demonstration automobile, the employer
includes in the salesperson’s gross income $6, the
amount from the table in Answer 35 based on that
value, for each day in the month. This treatment is
proper even if one full-time salesperson was pro-
vided only used demonstration automobiles. In addi-
tion, the employer keeps a copy of the factory state-
ment that provided the amount of the 2001 sales and
the number of vehicles sold as a record of his calcu-
lation.
Example 2.The same facts as in Example 1,
except in addition to the new cars, the employer
sold 233 used vehicles in 2001 for a total sales price
of $2,903,248. Thus, the average sales price for the
used vehicles is $12,456. While all the full-time
salespeople sell used vehicles, only two full-time
salespeople are provided used vehicles as demon-
stration automobiles. In this example, the value of
the demonstration automobiles for the salespeople
provided new cars as demonstration automobiles
may not be based on the used cars sold in 2001.
However, the employer may use $12,456 to deter-
mine the amount included in the income of the two
full-time salespeople provided used cars as demon-
stration automobiles.
Q–34. How does an employer deter-
mine the annual average sales price if
more than one franchise is operated at
or from a single location?
A–34. The employer must use a con-
sistent method for calculating the value of
the demonstration automobiles. If more
than one franchise is operated at a single
physical location (“store”), the annual
average sales price for all salespeople
may be based on the combined sales of
all franchises operating at the store. The
value of a demonstration automobile may
only be based on used cars for sales-
people provided used cars as demonstra-
tion automobiles; the average sales price
of used cars cannot be combined with the
average sales price of new cars for pur-
poses of determining the value of the use
of demonstration automobiles that are
new.
However, if a salesperson is only pro-
vided demonstration automobiles from a
single franchise operating out of the store,
the employer may base the annual calcu-
lation of value for that salesperson on the
sales of the specific franchise. In that
case, the value for all salespeople in the
store must also be based on specific fran-
chises.
Similarly, if some salespeople receive
demonstration automobiles exclusively
from the store’s used car inventory and
other salespeople received demonstration
automobiles exclusively from the store’s
new car inventory, the value must gener-
ally be calculated separately for each
group of salespeople. However, as noted
in Question and Answer 33, if the store
sells both new and used vehicles, the
employer may also use the value based on
sales of new vehicles as the value of the
demonstration automobiles for all sales-
people.
A special consistency rule is available
if some salespeople sell automobiles and
provide demonstration automobiles from
more than one franchise operating out of
the store; in that case, the value must be
calculated consistently within groups of
salespeople. For example, all salespeople
assigned demonstration automobiles from
a single franchise may have the value
based on the specific franchise, and all
salespeople assigned demonstration auto-
mobiles from more than one franchise
may have the value based on the com-
bined inventories of the franchises.
However, if two franchises operate out
of a store, the employer could not base
the value for salespeople of the less
expensive franchise on the less expensive
franchise while basing the value for sales-
people of the more expensive franchise
on the combined inventory. In that case,
either the value for all salespeople must
be based on the combined sales or the
value for the two groups of salespeople
must be based on the respective franchise
sales.
Q–35. What is the amount included in
the full-time salesperson’s income and
wages for use of the demonstration auto-
mobile under the partial exclusion
method?
A–35. For each day (including non-
workdays) a full-time salesperson is pro-
vided the use of a demonstration automo-
bile, the appropriate amount from the
table below, based on the value of the
demonstration automobile as determined
under a reasonable method as described
in Question and Answer 33, must be
included in the full-time salesperson’s
income and wages no less often than
monthly.
Value of the Demonstration AutomobileDaily Inclusion Amount
0 — $14,999$3
$15,000 — $29,999$6
$30,000 — $44,999$9
$45,000 — $59,999$13
$60,000 — $74,999$17
$75,000 and above$21
Q–36. How does an employer deter-
mine the number of days that a salesper-
son has the use of a demonstration auto-
mobile?
A–36. Absent evidence to the contrary,
full-time salespeople are assumed to have
the use of a demonstration automobile for
every day of the period under consider-
ation. Salespeople hired during the period
are assumed to have use for every day
from the date of hire to the end of the
period. Salespeople that separate from
service are assumed to have the use of an
automobile from the first day of the
period to the date of separation.
2001-51 I.R.B597December 17, 2001

Q–37. May an employer elect under
section 3402(s) of the Code not to with-
hold income taxes from the portion of
the vehicle fringe benefit required to be
included under the partial exclusion
method provided under this revenue pro-
cedure?
A–37. No. Under this revenue proce-
dure, the periodic inclusion inherent in
the requirement to include amounts in
income not less often than monthly is
intended to substitute for more specific
recordkeeping requirements for substanti-
ating the use of the demonstration auto-
mobile. Annual inclusion and withholding
of other employment taxes with respect to
noncash fringe benefits allowed under
Announcement 85–113 (1985–31 I.R.B.
31) is unavailable under the methods pro-
vided by this revenue procedure.
Q–38. What records must an
employer maintain to satisfy the require-
ments for the partial exclusion?
A–38. An employer must maintain the
following records to satisfy the require-
ments for the partial exclusion—
a. Records supporting the determina-
tion of the value of the use of demonstra-
tion automobiles. For these purposes,
records identified above in the description
of annual average look back method for
determining value in Question and
Answer 33 will be considered adequate.
b. Evidence that the amount was
timely included in the employee’s income
and wages. For example, copies of wage
statements showing inclusion of the
amounts no less often than monthly.
c. A copy of the written policy on use
and evidence that it was communicated to
employees, such as a copy of a poster
notifying employees of the policy, a copy
of a letter or an electronic communication
notifying the employee of the policy, or
signed statements by the employees
acknowledging receipt of the written
policy.
Q–39. What records must an
employee maintain to satisfy the require-
ments for the partial exclusion?
A–39. The employee is required to
maintain no records.
SECTION 6. SIMPLIFIED METHOD
FOR INCLUSION OF THE VALUE OF
DEMONSTRATION AUTOMOBILE IF
NEITHER FULL NOR PARTIAL
EXCLUSION APPLIES
Q–40. What method does an employer
use to account for the use of demonstra-
tion automobiles provided to employees
who are not full-time salespeople?
A–40. If the employee provided the
use of a demonstration automobile is not
a full-time salesperson, the full exclusion
and the partial exclusion in this revenue
procedure do not apply. To reduce record
keeping with respect to use of a demon-
stration automobile by an employee who
is not a full-time salesperson, the
employer may include in the employee’s
income and wages each month the full
value of the demonstration automobile
determined with no reduction to take into
account business use (the“full inclusion
method”). See Questions and Answers 43
through 45 below which discuss the use
of the annual lease value table to deter-
mine the amount included under this
method.
Of course, other methods for exclud-
ing from an employee’s income a portion
of the value of the use of an employer-
provided automobile remain available for
those employees thatare not full-time
salespeople. Specifically, see Questions
and Answers 48 through 50 below
regarding the application of Treas. Reg.
§1.274–6T. Section 1.274–6T generally
allows an employer implementing certain
written policies restricting personal use to
account for commuting andde minimis
personal use by any employee by includ-
ing the $1.50 per one-way commute pro-
vided under Treas. Reg.§1.61–21(f)(3)
in the employee’s income and providing
other evidence allowing a determination
that use was actually limited.
Q–41. What method is used to
account for the use of a demonstration
automobile by a full-time salesperson
who does not qualify for the full exclu-
sion or partial exclusion?
A–41. If use of a demonstration auto-
mobile by a full-time salesperson does
not qualify for the full exclusion or the
partial exclusion, an amount is included
in the full-time salesperson’s income and
wages no less often than monthly that
reflects the full value of the demonstra-
tion automobile, with no reduction to take
into account business use. See Questions
and Answers 42 through 44 below which
discuss the use of the annual lease value
table to determine the amount included
under this method.
Q–42. What are the requirements for
using the full inclusion method for dem-
onstration automobiles used by employ-
ees who are not full-time salespeople or
who are full-time salespeople?
A–42. The employer must account for
the use by an employee who is not a full-
time salesperson by including in gross
income and wages for each day in each
period (no less often than monthly) the
greater of $3 per day or thepro ratapor-
tion of the amount specified in the annual
lease value table at Treas. Reg.§1.61–
21(d)(2)(iii) using the value of the dem-
onstration automobile.
Q–43. Under the full inclusion
method, how does an employer deter-
mine the value of the demonstration
automobiles provided to employees?
A–43. An employer may use any rea-
sonable method to determine the value of
the demonstration automobile provided to
the employee. For this purpose, a reason-
able method includes the annual average
look back method listed as a reasonable
method for determining the value of a
demonstration automobile under the par-
tial exclusion method in Answer 33
above.
Q–44. How is the pro rata portion of
the annual lease value amount included
in income calculated?
A–44. Thepro rataportion of the
annual lease value amount is the amount
specified in annual lease value table at
Treas. Reg.§1.61–21(d)(2)(iii) using the
full value of the demonstration automo-
bile, divided by 365, rounding to nearest
dollar amounts.
December 17, 20015982001-51 I.R.B.

For ease of reference, the following table provides the daily inclusion amount under the annual lease value table.
Value of Demonstration AutomobileDaily Inclusion Amount
$0–2,999$3
3,000–4,9994
5,000–5,9995
6,000–7,9996
8,000–8,9997
9,000–10,9998
10,000–11,9999
12,000–12,99910
13,000–14,99911
15,000–15,99912
16,000–17,99913
18,000–18,99914
19,000–20,99915
21,000–21,99916
22,000–23,99917
24,000–24,99918
25,000–25,99919
26,000–27,99920
28,000–29,99921
30,000–31,99923
32,000–33,99924
34,000–35,99925
36,000–37,99927
38,000–39,99928
40,000–41,99929
42,000–43,99931
44,000–45,99932
46,000–47,99934
48,000–49,99935
50,000–51,99936
52,000–53,99938
54,000–55,99939
56,000–57,99940
58,000–59,99942
For vehicles with value in excess of $59,999, the dollar inclusion amount is (.25 x value) + $500, divided by 365, rounded
to nearest dollar amount.
Q–45. Under the full inclusion
method, how does an employer deter-
mine the number of days that an
employee has the use of a demonstration
automobile?
A–45. Absent evidence to the contrary,
employees provided the use of a demon-
stration automobile are assumed to have
the use of the automobile for every day
(including non-workdays) of the period
under consideration.
Q–46. What records must an
employer maintain to satisfy the require-
ments for the full inclusion method?
A–46. An employer must maintain the
following records to satisfy the require-
ments for the full inclusion method—
a. Adequate records supporting the
determination of the value of the demon-
stration automobile provided to the
employee. For these purposes, records
identified above in the description of the
deemed reasonable method for determin-
ing value will be considered adequate.
b. Evidence that the amount was
timely included in the employee’s income
and wages. For example, copies of wage
statements showing inclusion of the
amounts no less often than monthly.
Q–47. What records must an
employee maintain to satisfy the require-
ments for the full inclusion method?
A–47. No records must be maintained
by an employee under the full inclusion
method.
2001-51 I.R.B599December 17, 2001

SECTION 7. APPLICATION OF
GENERAL RULE WHEN METHODS
IN REVENUE PROCEDURE ARE
NOT USED
Q–48.Whatistheinteraction
of the method under Treas. Reg.
§1.274–6T for an employer implement-
ing a policy of no personal use except
commuting through a written policy with
the full exclusion or partial exclusion
methods?
A–48. Under Treas. Reg.§1.274–6T,
certain types of written policy statements
can be used to implement a policy of no
personal use, or no personal use except
commuting, of a vehicle provided by an
employer. Under the regulation, the
employee is not required to keep a sepa-
rate set of records for purposes of the
employer’s substantiation requirements
under section 274(d) of the Code with
respect to the use of a vehicle satisfy-
ing thewritten policy statement rules.
Among the requirements underTreas.
Reg.§1.274–6T for a policy of no per-
sonal use except commuting is that the
employer reasonably believe there is no
personal use except forde minimisper-
sonal use in addition to commuting and
that the employee does not use the
vehicle for any personal use except forde
minimispersonal use in addition to com-
muting. Also among the requirements is
that there be evidence that would enable
the Commissioner to determine whether
the use of the vehicle met the require-
ments.
Generally, in the case of a full-time
salesperson, satisfying the requirements
of Treas. Reg.§1.274–6T would satisfy
the requirements for the full exclusion
under this revenue procedure. Moreover,
in the case of a full-time salesperson, the
employer would not be required to
include an amount in the income of the
salesperson representing the value of
commuting.
Q–49. What amount of personal use
mileage in addition to commuting would
satisfy the de minimis personal use in
addition to commuting under Treas.
Reg.§1.274–6T ?
A–49. For purposes of Treas. Reg.
§1.274–6T and this revenue procedure,
de minimispersonal use means personal
use during the employee’s commute and
in conjunction with business use. In con-
trast, the limited personal use permitted
under section 132(j)(3) and the full exclu-
sion in this revenue procedure allow the
employee to use the vehicle for personal
purposes, even if that use involves a
departure from the commuting route.
Thus, if the employee stops on the com-
muting route for a personal purpose, that
use constitutesde minimispersonal use.
However, if the employee travels to a
location that is five miles away from the
commuting route for a personal purpose,
that use exceedsde minimispersonal use
even though it may be permitted under
the full exclusion method described in
this revenue procedure.
Q–50. What evidence would satisfy
the requirement under Treas. Reg.
§1.274–6T that the employer must
maintain evidence that would enable a
determination whether the use of the
vehicle met the requirements?
A–50. Evidence establishing that each
salesperson’s personal use by mileage
was calculated no less often than monthly
would support an employer’s reasonable
belief that the vehicle was not used for
any personal purpose other thande mini-
mispersonal use in addition to commut-
ing. For that purpose, the out and in
records under the simplified full exclu-
sion method described in section 4 would
constitute evidence that would enable a
determination that the use of the vehicle
met the requirements. Of course, as noted
in Question and Answer 49, the additional
average 10 miles per day would not be
permitted asde minimisuse.
Q–51. What amount is included in the
income of an employee if the use was
not taken into account and included in
income for the month in which the use
of a demonstration automobile was pro-
vided?
A–51. If the error is identified and cor-
rected during the calendar year the dem-
onstration automobile was provided, the
amount included may be determined
under this revenue procedure. If the error
is not corrected during the calendar year
in which the demonstration automobile is
provided, the amount included is deter-
mined under general valuation and sub-
stantiation rules.
Example 1.In August, the employer determines
that three employees provided the use of demonstra-
tion automobiles without limitations on personal
mileage (and for whom amounts were included in
income and wages under the partial exclusion
method) did not qualify as full-time salespeople
since June of that year. Beginning in August, the
employer accounts for the use of demonstration
automobiles by these three employees using the full
inclusion method. In addition, no later than Decem-
ber 31, the employer includes an amount in the three
employees’income that is the difference between
the amount that should have been included in their
incomes under the full inclusion method for June
and July and the amount actually included under the
partial exclusion method. With respect to these
employees, the employer satisfies the requirements
of Question and Answer 51 of this revenue proce-
dure.
Example 2.Two years after a demonstration
automobile was provided to an employee, it is deter-
mined that the employee was not a full-time sales-
person qualifying for the full exclusion or the partial
exclusion. The employer did not include any amount
in the employee’s income with respect to the dem-
onstration automobile. The amount required to be
included in income and wages for the year the
vehicle was provided is the full fair market value of
the demonstration automobile. If there are not
records substantiating the business use of the dem-
onstration automobile, the full fair market value is
included without reduction.
SECTION 8. INTENT TO REVISE
REGULATIONS TO EXTENT
NECESSARY
The Service intends to issue regula-
tions modifying existing regulations to
the extent required to authorize the proce-
dures set out in this revenue procedure.
SECTION 9. EFFECTIVE DATE
This revenue procedure is effective for
taxable years beginning on or after Janu-
ary 1, 2002.
SECTION 10. REQUEST FOR
COMMENTS
We welcome comments regarding this
revenue procedure. We specifically
request comments concerning two issues:
Question and Answer 32 of this rev-
enue procedure describes one reasonable
method for determining the value of dem-
onstration automobiles, an annual look
back at the average sales price of all
vehicles sold in the prior calendar year,
for purposes of applying the daily inclu-
sion value table under the partial exclu-
sion method. Comments are specifically
requested regarding the usefulness of
specifying additional reasonable methods,
including:
December 17, 20016002001-51 I.R.B.

•A method basing the daily inclusion
amount on an annual look back at the
average sales price of only those
vehicles used as demonstration auto-
mobiles in the prior year. For example,
an employer has a full-time sales staff
of six employees. During January, the
employer reviews the permanent
records of all vehicles sold during the
prior year. This review identifies 38
vehicles that were sold as new vehicles
with over 1,000 miles on the odometer
at the time of sale. Totaling the price
for which the 38 vehicles sold and
dividing by 38 results in an average
value of $26,980. For each month from
February 1 of the present year to Janu-
ary 31 of the next year, the employer
includes in each of the 38 full-time
salesperson’s gross income the amount
from the table based on that value for
each day in the month.
•A method basing the daily inclusion
amount for each employee on the value
of the specific demonstration automo-
biles provided to the employees for the
month; in particular where records
identifying which salesperson is pro-
vided which vehicle are already main-
tained pursuant to the simplified out/in
method under the full exclusion.
Question and Answer 51 allows
employers to correct errors identified in
the calendar year during the calendar
year. Comments are also specifically
requested regarding the need for more
detailed correction procedures where
errors are identified preventing the
employer from satisfying the require-
ments for the simplified methods under
this revenue procedure.
Comments regarding this revenue pro-
cedure should be sent by March 1, 2002,
in writing, and should reference Rev.
Proc. 2001–56. Comments can be
addressed to:
CC:ITA:RU (Rev. Proc. 2001–56),
room 5226
Internal Revenue Service
POB 7604, Ben Franklin Station
Washington, DC 20044
Comments also may be hand delivered
between the hours of 8 a.m. and 5 p.m.
to:
CC:ITA:RU (Rev. Proc. 2001–56)
Courier’s Desk
Internal Revenue Service
1111Constitution Avenue, NW
Washington, DC.
Alternatively, taxpayers may transmit
comments electronically via the following
email address:
Notice.Comments@m1.irscounsel.
treas.gov
SECTION 11. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Neil D. Shepherd of the
Office of the Division Counsel/Associate
Chief Counsel (Tax Exempt and Govern-
ment Entities), IRS. However, other per-
sonnel from the IRS and Treasury Depart-
ment participated in its development. For
further information regarding this revenue
procedure, call (202) 622–6040 (not a
toll-free number.)
SECTION 12. PAPERWORK
REDUCTION ACT
The collections of information con-
tained in this revenue procedure have
been reviewed and approved by the
Office of Management and Budget in
accordance with the Paperwork Reduc-
tion Act (44 U.S.C. 3507) under control
number 1545–1756.
An agency may not conduct or spon-
sor, and a person is not required to
respond to, a collection of information
unless the collection of information dis-
plays a valid OMB control number.
The collections of information in this
revenue procedure are in sections 4, 5,
and 6. This information is required to
comply with the optional simplified
methods for determining the value of the
use of demonstration automobiles pro-
vided to employees by automobile dealer-
ships. This information will be used to
satisfy the substantiation requirements of
section 274(d) and the regulations there-
under and is required to obtain a benefit
under the optional simplified methods.
The likely respondents are business or
other for-profit institutions.
The estimated total annual recordkeep-
ing burden is 100,000 hours.
The estimated annual burden per
recordkeeper varies from 2.5 hours to 7.5
hours, depending on individual circum-
stances, with an estimated average of 5
hours. The estimated number of record-
keepers is 20,000.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mate-
rial 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.
APPENDIX A
MODEL QUALIFIED WRITTEN
POLICY FOR FULL EXCLUSION
[INSERT NAME OF DEALERSHIP]
DEMONSTRATOR VEHICLE POLICY
This policy statement is designed for
use by dealers that wish to adopt the
out/in or partial exclusion methods of
accounting for use of demonstrator
vehicles provided to full-time automobile
salespeople. It may also be used to
explain the full inclusion method for
vehicles provided to employees other than
full-time automobile salespeople.
Material in italics explains how to use
the policy and should be deleted from the
policy provided to employees and main-
tained by the dealership. Material inbold
is optional and should be included only if
it reflects the choices made by the dealer-
ship. Material IN CAPITALS is informa-
tion that is specific to the dealership—
the dealership should insert the appropri-
ate information.
Because the optional language in this
model provides for specifying the amount
included in employee income, any dealer
adopting that language should review the
model annually to determine if inclusion
amounts have changed; if the inclusion
amounts have changed, the dealer should
modify the policy to reflect the change
and reissue it to employees provided dem-
onstration automobiles.
Full-time automobile salespeople at
[INSERT NAME OF DEALERSHIP]
and certain other employeesmay be
provided with the use of a demonstration
vehicle. We want you to understand the
restrictions on use of demonstration
vehicles and how employees who use
demonstration vehicles will be taxed on
that use.
2001-51 I.R.B601December 17, 2001

Restrictions on Use of Demonstration
Vehicles
•The demonstration vehicle must be
available for test drives by customers
during the normal working hours of the
employee to whom the vehicle is
assigned. Personal possessions may not
be stored in the vehicle. Any personal
possessions must be removed by the
beginning of normal working hours.
•The demonstrator vehicle is provided
so that employees can become familiar
with the features of the vehicles we
sell. Only the employee to whom the
vehicle is assigned may use the vehicle
outside of normal working hours. It
may not be used by family, friends, or
neighbors.
•The demonstrator vehicle is part of our
inventory and must be available for
sale to customers. It may not be used
outside the dealership’s sales area or
for vacation travel.
•Insert any other restrictions the dealer-
ship has concerning use or mainte-
nance of the vehicle.
Insert the following two paragraphs
only if the“out/in”method will be used
for full-time automobile salespeople.
•The demonstration vehicle may be
used only for tests drives by custom-
ers or other dealer business, for a
daily commute between the employ-
ee’s home and the dealership, and
for other limited personal use. Per-
sonal use is limited to [INSERT
NUMBER NO GREATER THAN 10
MULTIPLIED BY THE NUMBER
OF DAYS IN THE DETERMINA-
TION PERIOD] miles during each
[INSERT LENGTH OF A DETER-
MINATION PERIOD WHICH IS
NOT MORE THAN ONE MONTH].
In order to minimize recordkeeping,
all use during the employee’s normal
working hours will be treated as
business use, and all use outside the
employee’s normal working hours
will be treated as commuting or per-
sonal use.
•The employee must ensure that mile-
age on the vehicle at the end of each
working day, and at the beginning of
the next working day, is properly
[recorded] OR [verified] by
[INSERT NAME, TITLE, OR JOB
DESCRIPTION OF THE PERSON
OR PEOPLE RESPONSIBLE FOR
RECORDING OR VERIFYING
MILEAGE].
Tax Treatment of Use of Demonstrator
Vehicles
Insert the next paragraph only if the
“out/in”method is being used.
•Any full-time automobile salesperson
who meets all of the above require-
ments, including limiting personal
use to [INSERT NUMBER NO
GREATER THAN 10 MULTIPLIED
BY THE NUMBER OF DAYS IN
THE DETERMINATION PERIOD]
miles during each [INSERT
LENGTH OF A DETERMINATION
PERIOD WHICH IS NOT MORE
THAN ONE MONTH] will not owe
any federal [INSERT STATE OR
LOCAL, IF APPROPRIATE]
income tax or any Social Security or
Medicare tax on the use of the dem-
onstrator vehicle.
•Any full-time automobile salesperson
who meets all of the above require-
ments [insert this material only if the
“out/in”method is usedexcept for
limiting personal use or ensuring
that mileage is recorded and veri-
fied]will have[INSERT APPROPRI-
ATE NUMBER FROM TABLE IN
ANSWER 35] dollars per day
included in wages for each day on
which the salesperson was assigned a
demonstrator vehicle. Income tax,
Social Security tax, and Medicare tax
on this amount will be withheld from
other wages owed to the salesperson.
•Any full-time salesperson who is pro-
vided with the use of a demonstration
vehicle but does not comply with the
restrictions on storage of personal pos-
sessions, use by people other than the
employee, use outside the sales area,
and vacation travel during a pay period
will have the full value of the use of
the demonstrator automobile included
in wages for the pay period, resulting
in [INSERT APPROPRIATE NUM-
BER FROM ANNUAL LEASE
VALUE TABLE UNDER ANSWER
44] dollars per day included in wages
for each day on which the salesperson
was assigned a demonstrator vehicle.
Income tax, Social Security tax, and
Medicare tax on this amount will be
withheld from other wages owed to the
salesperson.
Insert the following bullet only if dem-
onstration vehicles are provided to
employees other than full-time sales-
people.
•Any other employee who is provided
with use of a demonstration vehicle
and meets all of the above require-
ments [insert this material only if the
“out/in”method is usedexcept for
limiting personal use or ensuring
that mileage is recorded and veri-
fied] will have:
[INSERT APPROPRIATE NUM-
BER FROM ANNUAL LEASE
VALUE TABLE AT QUESTION
AND ANSWER 44] dollars per day
included in wages for each day on
which the salesperson was assigned
a demonstrator vehicle. Income tax,
Social Security tax, and Medicare
tax on this amount will be withheld
from other wages owed to the sales-
person.
APPENDIX B
MODEL QUALIFIED WRITTEN
POLICY FOR PARTIAL EXCLUSION
[INSERT NAME OF DEALERSHIP]
DEMONSTRATOR VEHICLE POLICY
This policy statement is designed for
use by dealers that wish to adopt the par-
tial exclusion methods of accounting for
use of demonstrator vehicles provided to
full-time automobile salespeople.
Material in italics explains how to use
the policy and should be deleted from the
policy provided to employees and main-
tained by the dealership. Material inbold
is optional and should be included only if
it reflects the choices made by the dealer-
ship. Material IN CAPITALS is informa-
tion that is specific to the dealership—
the dealership should insert the appropri-
ate information.
Because the language in this model
provides for specifying the amount
included in employee income, any dealer
adopting that language should review the
model annually to determine if inclusion
amounts have changed; if the inclusion
amounts have changed, the dealer should
modify the policy to reflect the change
December 17, 20016022001-51 I.R.B.

and reissue it to employees provided dem-
onstration automobiles.
Full-time automobile salespeople at
[INSERT NAME OF DEALERSHIP]
may be provided with the use of a dem-
onstration vehicle. We want you to under-
stand the restrictions on use of demon-
stration vehicles and how full-time
salespeople who use demonstration
vehicles will be taxed on that use.
Restrictions on Use of Demonstration
Vehicles
•The demonstration vehicle must be
available for test drives by customers
during the normal working hours of the
employee to whom the vehicle is
assigned. Personal possessions may not
be stored in the vehicle. Any personal
possessions must be removed by the
beginning of normal working hours.
•The demonstrator vehicle is provided
so that employees can become familiar
with the features of the vehicles we
sell. Only the employee to whom the
vehicle is assigned may use the vehicle
outside of normal working hours. It
may not be used by family, friends, or
neighbors.
•The demonstrator vehicle is part of our
inventory and must be available for
sale to customers. It may not be used
for vacation travel.
•Insert any other restrictions the dealer-
ship has concerning use or mainte-
nance of the vehicle.
Tax Treatment of Use of Demonstrator
Vehicles
•Any full-time automobile salesperson
who meets all of the above require-
ments will have [INSERT APPROPRI-
ATE NUMBER FROM TABLE IN
ANSWER 35] dollars per day included
in wages for each day on which the
salesperson was assigned a demonstra-
tor vehicle. Income tax, Social Security
tax, and Medicare tax on this amount
will be withheld from other wages
owed to the salesperson.
•Any full-time salesperson who is pro-
vided with the use of a demonstration
vehicle but does not comply with the
restrictions on storage of personal pos-
sessions, use by people other than the
employee, and vacation travel during a
pay period will have the full value of
the use of the demonstrator automobile
included in wages for the pay period,
resulting in [INSERT APPROPRIATE
NUMBER FROM ANNUAL LEASE
VALUE TABLE UNDER ANSWER
44] dollars per day included in wages
for each day on which the salesperson
was assigned a demonstrator vehicle.
Income tax, Social Security tax, and
Medicare tax on this amount will be
withheld from other wages owed to the
salesperson.
Social Security Contribution
and Benefit Base for 2002
Under authority contained in the
Social Security Act (“the Act”), the Com-
missioner, Social Security Administra-
tion, has determined and announced (66
F.R. 54047, dated October 25, 2001) that
the contribution and benefit base for
remuneration paid in 2002, and self-
employment income earned in taxable
years beginning in 2002 is $84,900.
“Old-Law”Contribution and Benefit
Base
General
The“old-law”contribution and benefit
base for 2002 is $63,000. This is the base
that would have been effective under the
Act without the enactment of the 1977
amendments. The base is computed under
section 230(b) of the Act as it read prior
to the 1977 amendments.
The“old-law”contribution and benefit
base is used by:
(a) The Railroad Retirement program
to determine certain tax liabilities and tier
II benefits payable under that program to
supplement the tier I payments which cor-
respond to basic Social Security benefits,
(b) The Pension Benefit Guaranty Cor-
poration to determine the maximum
amount of pension guaranteed under the
Employee Retirement Income Security
Act (as stated in section 230(d) of the
Social Security Act),
(c) Social Security to determine a year
of coverage in computing the special
minimum benefit, as described earlier,
and
(d) Social Security to determine a year
of coverage (acquired whenever earnings
equal or exceed 25 percent of the“old-
law”base for this purpose only) in com-
puting benefits for persons who are also
eligible to receive pensions based on
employment not covered under section
210 of the Act.
Domestic Employee Coverage
Threshold
General
The minimum amount a domestic
worker must earn so that such earnings
are covered under Social Security or
Medicare is the domestic employee cov-
erage threshold. For 2002, this threshold
is $1,300. Section 3121(x) of the Internal
Revenue Code provides the formula for
increasing the threshold.
Computation
Under the formula, the domestic
employee coverage threshold amount for
2002 shall be equal to the 1995 amount of
$1,000 multiplied by the ratio of the
national average wage index for 2000 to
that for 1993. If the resulting amount is
not a multiple of $100, it shall be rounded
to the next lower multiple of $100.
Domestic Employee Coverage Threshold
Amount
Multiplying the 1995 domestic
employee coverage threshold amount
($1,000) by the ratio of the national aver-
age wage index for 2000 ($32,154.82) to
that for 1993 ($23,132.67) produces the
amount of $1,390.02. We then round this
amount to $1,300. Accordingly, the
domestic employee coverage threshold
amount is $1,300 for 2002.
(Filed by the Office of the Federal Register on Octo-
ber 24, 2001, 8:45 a.m., and published in the issue
of the Federal Register for October 25, 2001, 66
F.R. 54047)
2001-51 I.R.B603December 17, 2001

Part IV. Items of General Interest
Extension of Cut-Off Date for
Use of Prior Revision of
Determination Letter
Application Forms
Announcement 2001–122
The Service is extending the cut-off
date for use of the prior revision of cer-
tain forms used to apply for determination
letters on the tax-qualified status of
employee benefit plans. This extension
will allow determination letter applicants
to use the prior revision of the forms in
accordance with the transition rules
described in section I.G. of Announce-
ment 2001–77 (2001–30 I.R.B. 83)
through March 31, 2002.
Announcement 2001–77 described
changes that the Service has made to sim-
plify its application procedures for deter-
mination letters on the qualification of
pension, profit-sharing, stock bonus and
annuity plans under§§401(a) and 403(a)
of the Internal Revenue Code. Announce-
ment 2001–77 noted that the Service was
revising the determination letter applica-
tion forms. Section I.G. of Announcement
2001–77 required determination letter
applications filed after December 31,
2001, to be submitted on the revised
application forms. For determination let-
ter applications filed on or before Decem-
ber 31, 2001, section I.G. provided transi-
tion rules that allowed the prior revision
of the application forms to be used.
Announcement 2001–109 (2001–45
I.R.B. 485) announced the availability of
several of the revised application forms.
Rev. Proc. 2001–55 (2001–49 I.R.B. 552)
extended the remedial amendment period
for amending plans for GUST
1
until Feb-
ruary 28, 2002.
The availability of the transition rules
in section I.G. of Announcement 2001–77
is extended through March 31, 2002.
Thus, the Service will accept applications
that are filed on the July, 1998 revision of
the following forms in accordance with
the procedures in section I.G. through
March 31, 2002: Form 5300, Schedule Q
(Form 5300), Form 5307, and Form 6406.
Of course, applicants may instead use the
2001 revision of these forms. In addition,
Form 5303 (Rev. 7/98), which is being
discontinued, and the September, 1999
revision of Form 5309 may be used
through March 31, 2002. Applications for
determination letters on plan termination
should be filed on the June, 1997 revision
of Form 5310 and, if applicable, Form
6088 (Rev. 6/97) until further notice.
Also, notices of plan merger, etc., and
qualified separate lines of business,
should be filed on the June, 1997 revision
of Form 5310–A until further notice.
DRAFTING INFORMATION
The principal author of this announce-
ment is James Flannery of the Employee
Plans, Tax Exempt and Government Enti-
ties Division. For further information
regarding this announcement, please con-
tact the Employee Plans’taxpayer assis-
tance telephone service at 1–877–829–
5500 (a toll-free number), between the
hours of 8:00 a.m. and 9:30 p.m. Eastern
Time, Monday through Friday. Mr. Flan-
nery may be reached at (202) 283–9888
(not a toll-free number).
Notice of Disposition of
Declaratory Judgment
Proceedings Under Section
7428
This announcement serves notice to
donors that on July 26, 1999, the Court of
Appeals for the Eleventh Circuit affirmed
the decision of the United States Tax
Court which was entered on August 28,
1998. The Courts agreed with the Service
that the organization listed below is not
an organization recognized as tax exempt
under section 501(a) of the Internal Rev-
enue Code and is not described in section
501(c)(3) effective October 1, 1982.
Anclote Psychiatric Center, Inc.
Tarpon Springs, FL
1
“GUST”refers to the following:
•the Uruguay Round Agreements Act, Pub. L. 103–465;
•the Uniformed Services Employment and Reemployment Rights Act of 1994, Pub. L. 103–353;
•the Small Business Job Protection Act of 1996, Pub. L. 104–188;
•the Taxpayer Relief Act of 1997, Pub. L. 105–34;
•the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105–206; and
•the Community Renewal Tax Relief Act of 2000, Pub. L. 106–554.
December 17, 20016042001-51 I.R.B.

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as“rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplifieddescribes 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
withmodified, below).
Clarifiedis 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.
Modifiedis used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it
applies to both A and B, the prior ruling
is modified because it corrects a pub-
lished position. (Compare withamplified
andclarified, above).
Obsoleteddescribes 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.
Revokeddescribes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Supersededdescribes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a
period of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example,modified
andsupersededdescribes 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.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current
use and formerly used will appear in
material published in the Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
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 Contributions 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.—Intemal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
2001-51 I.R.BiDecember 17, 2001

Numerical Finding List
1
Bulletins 2001–27 through 2001–50
Announcements:
2001–69, 2001–27 I.R.B.23
2001–70, 2001–27 I.R.B.23
2001–71, 2001–27 I.R.B.26
2001–72, 2001–28 I.R.B.39
2001–73, 2001–28 I.R.B.40
2001–74, 2001–28 I.R.B.40
2001–75, 2001–28 I.R.B.42
2001–76, 2001–29 I.R.B.67
2001–77, 2001–30 I.R.B.83
2001–78, 2001–30 I.R.B.87
2001–79, 2001–31 I.R.B.97
2001–80, 2001–31 I.R.B.98
2001–81, 2001–33 I.R.B.175
2001–82, 2001–32 I.R.B.123
2001–83, 2001–35 I.R.B.205
2001–84, 2001–35 I.R.B.206
2001–85, 2001–36 I.R.B.219
2001–86, 2001–35 I.R.B.207
2001–87, 2001–35 I.R.B.208
2001–88, 2001–36 I.R.B.220
2001–89, 2001–38 I.R.B.291
2001–90, 2001–35 I.R.B.208
2001–91, 2001–36 I.R.B.221
2001–92, 2001–39 I.R.B.301
2001–93, 2001–44 I.R.B.416
2001–94, 2001–39 I.R.B.303
2001–95, 2001–39 I.R.B.303
2001–96, 2001–41 I.R.B.317
2001–97, 2001–40 I.R.B.310
2001–98 2001–41 I.R.B.317
2001–99 2001–42 I.R.B.340
2001–100, 2001–41 I.R.B.317
2001–101, 2001–43 I.R.B.374
2001–102, 2001–42 I.R.B.340
2001–103, 2001–43 I.R.B.375
2001–104, 2001–43 I.R.B.376
2001–105, 2001–43 I.R.B.376
2001–106, 2001–44 I.R.B.416
2001–107, 2001–44 I.R.B.419
2001–108, 2001–44 I.R.B.419
2001–109, 2001–45 I.R.B.485
2001–110, 2001–45 I.R.B.486
2001–111, 2001–45 I.R.B.486
2001–112, 2001–46 I.R.B.494
2001–113, 2001–46 I.R.B.494
2001–114, 2001–47 I.R.B.528
2001–115, 2001–48 I.R.B.539
2001–116, 2001–48 I.R.B.539
2001–117, 2001–49 I.R.B.567
2001–118, 2001–48 I.R.B.540
2001–119, 2001–50 I.R.B.575
2001–120, 2001–50 I.R.B. 583
2001–121, 2001–50 I.R.B.584
Court Decisions:
2070, 2001–31 I.R.B.90
Court Decisions—Continued
2071, 2001–44 I.R.B.385
2072, 2001–44 I.R.B.379
Notices:
2001–39, 2001–27 I.R.B.3
2001–41, 2001–27 I.R.B.2
2001–42, 2001–30 I.R.B.70
2001–43, 2001–30 I.R.B.72
2001–44, 2001–30 I.R.B.77
2001–45, 2001–33 I.R.B.129
2001–46, 2001–32 I.R.B.122
2001–47, 2001–36 I.R.B.212
2001–48, 2001–33 I.R.B.130
2001–49, 2001–34 I.R.B.188
2001–50, 2001–34 I.R.B.189
2001–51, 2001–34 I.R.B.190
2001–52, 2001–35 I.R.B.203
2001–53, 2001–37 I.R.B.225
2001–54, 2001–37 I.R.B.225
2001–55, 2001–39 I.R.B.299
2001–56, 2001–38 I.R.B.277
2001–57, 2001–38 I.R.B.279
2001–58, 2001–39 I.R.B.299
2001–59, 2001–41 I.R.B.315
2001–60, 2001–40 I.R.B.304
2001–61, 2001–40 I.R.B.305
2001–62, 2001–40 I.R.B.307
2001–63, 2001–40 I.R.B.308
2001–64, 2001–41 I.R.B.316
2001–65, 2001–43 I.R.B.369
2001–66, 2001–44 I.R.B.396
2001–67, 2001–49 I.R.B.544
2001–68, 2001–47 I.R.B.504
2001–69, 2001–46 I.R.B.491
2001–70, 2001–45 I.R.B.437
2001–71, 2001–48 I.R.B.530
2001–72, 2001–49 I.R.B.548
2001–73, 2001–49 I.R.B.549
2001–74, 2001–49 I.R.B.551
2001–77, 2001–50 I.R.B.576
2001–78, 2001–50 I.R.B.576
2001–79, 2001–50 I.R.B.576
Proposed Regulations:
REG–110311–98, 2001–35 I.R.B.204
REG–106917–99, 2001–27 I.R.B.4
REG–103735–00, 2001–35 I.R.B.204
REG–103736–00, 2001–35 I.R.B.204
REG–107151–00, 2001–43 I.R.B.370
REG–100548–01, 2001–29 I.R.B.67
REG–106431–01, 2001–37 I.R.B.272
REG–125161–01, 2001–48 I.R.B.538
REG–126485–01, 2001–49 I.R.B.555
REG–137519–01, 2001–49 I.R.B.559
REG–142686–01, 2001–49 I.R.B.561
REG–142499–01, 2001–45 I.R.B.476
Railroad Retirement Quarterly Rates:
2001–27, I.R.B.1
2001–41, I.R.B.314
Revenue Procedures:
2001–39, 2001–28 I.R.B.38
2001–40, 2001–33 I.R.B.130
2001–41, 2001–33 I.R.B.173
2001–42, 2001–36 I.R.B.212
2001–43, 2001–34 I.R.B.191
2001–44, 2001–35 I.R.B.203
2001–45, 2001–37 I.R.B.227
2001–46, 2001–37 I.R.B.263
2001–47, 2001–42 I.R.B.332
2001–48, 2001–40 I.R.B.308
2001–49, 2001–39 I.R.B.300
2001–50, 2001–45 I.R.B.437
2001–51, 2001–43 I.R.B.369
2001–52, 2001–46 I.R.B.491
2001–53, 2001–47 I.R.B.506
2001–54, 2001–48 I.R.B.530
2001–55, 2001–49 I.R.B.552
2001–57, 2001–50 I.R.B.577
2001–58, 2001–50 I.R.B.579
Revenue Rulings:
2001–30, 2001–29 I.R.B.46
2001–33, 2001–32 I.R.B.118
2001–34, 2001–28 I.R.B.31
2001–35, 2001–29 I.R.B.59
2001–36, 2001–32 I.R.B.119
2001–37, 2001–32 I.R.B.100
2001–38, 2001–33 I.R.B.124
2001–39, 2001–33 I.R.B.125
2001–40, 2001–38 I.R.B.276
2001–41, 2001–35 I.R.B.193
2001–42, 2001–37 I.R.B.223
2001–43, 2001–36 I.R.B.209
2001–44, 2001–37 I.R.B.223
2001–45, 2001–42 I.R.B.323
2001–46, 2001–42 I.R.B.321
2001–47, 2001–39 I.R.B.293
2001–48, 2001–42 I.R.B.324
2001–49, 2001–41 I.R.B.312
2001–50, 2001–43 I.R.B.343
2001–51, 2001–45 I.R.B.427
2001–52, 2001–45 I.R.B.434
2001–53, 2001–46 I.R.B.489
2001–54, 2001–46 I.R.B.490
2001–55, 2001–47 I.R.B.497
2001–56, 2001–47 I.R.B.500
2001–57, 2001–46 I.R.B.488
2001–58, 2001–50 I.R.B.570
2001–61, 2001–50 I.R.B.573
Treasury Decisions:
8947, 2001–28 I.R.B.36
8948, 2001–28 I.R.B.27
8949, 2001–28 I.R.B.33
8950, 2001–28 I.R.B.34
8951, 2001–29 I.R.B.63
8952, 2001–29 I.R.B.60
8953, 2001–29 I.R.B.44
8954, 2001–29 I.R.B.47
8955, 2001–32 I.R.B.101
8956, 2001–32 I.R.B.112
1
A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 2001–1 through 2001–26 is
in Internal Revenue Bulletin 2001–27, dated July 2, 2001.
December 17, 2001ii2001-51 I.R.B.

Treasury Decisions—Continued
8957, 2001–33 I.R.B.125
8958, 2001–34 I.R.B.183
8959, 2001–34 I.R.B.185
8960, 2001–34 I.R.B.176
8961, 2001–35 I.R.B.194
8962, 2001–35 I.R.B.201
8963, 2001–35 I.R.B.197
8964, 2001–42 I.R.B.320
8965, 2001–43 I.R.B.344
8966, 2001–45 I.R.B.422
8967, 2001–50 I.R.B.568
2001-51 I.R.BiiiDecember 17, 2001

Finding List of Current Actions
on Previously Published Items
1
Bulletins 2001–27 through 2001–50
Announcements:
2000–48
Modified by
Notice 2001–43, 2001–30 I.R.B.72
Notices:
98–52
Modified by
Notice 2001–56, 2001–38 I.R.B.277
99–41
Modified and superseded by
Notice 2001–62, 2001–38 I.R.B.307
2001–4
Modified by
Notice 2001–43, 2001–30 I.R.B.72
2001–9
Modified by
Notice 2001–46, 2001–32 I.R.B.122
2001–15
Supplemented by
Notice 2001–51, 2001–34 I.R.B.190
2001–42
Modified by
Notice 2001–57, 2001–38 I.R.B.279
2001–70
Clarified and supplemented by
Notice 2001–74, 2001–49 I.R.B.551
Proposed Regulations:
LR–97–79
Withdrawn by
REG–100548–01, 2001–29 I.R.B.67
LR–107–84
Withdrawn by
REG–100548–01, 2001–29 I.R.B.67
REG–110311–98
Supplemented by
T.D. 8961, 2001–35 I.R.B.194
REG–106917–99
Corrected by
Ann. 2001–86, 2001–35 I.R.B.207
REG–103735–00
Supplemented by
T.D. 8961, 2001–35 I.R.B.194
REG–103736–00
Supplemented by
T.D. 8961, 2001–35 I.R.B.194
REG–107186–00
Corrected by
Ann. 2001–71, 2001–27 I.R.B.26
Proposed Regulations—Continued
REG–130477–00
Supplemented by
Ann. 2001–82, 2001–32 I.R.B.123
REG–130481–00
Supplemented by
Ann. 2001–82, 2001–32 I.R.B.123
Revenue Procedures:
83–74
Revoked by
Rev. Proc. 2001–49, 2001–39 I.R.B.300
84–84
Revoked by
Rev. Proc. 2001–49, 2001–39 I.R.B.300
93–27
Clarified by
Rev. Proc. 2001–43, 2001–34 I.R.B.191
97–13
Modified by
Rev. Proc. 2001–39, 2001–28 I.R.B.38
97–19
Modified by
Notice 2001–62, 2001–40 I.R.B.307
98–44
Superseded by
Rev. Proc. 2001–40, 2001–33 I.R.B.130
99–27
Superseded by
Rev. Proc. 2001–42, 2001–36 I.R.B.212
99–49
Modified and amplified by
Rev. Proc. 2001–46, 2001–37 I.R.B.263
2000–20
Modified by
Notice 2001–42, 2001–30 I.R.B.70
Rev. Proc. 2001–55, 2001–49 I.R.B.552
2000–27
Modified by
Rev. Proc. 2001–55, 2001–49 I.R.B.552
2000–28
Superseded by
Rev. Proc. 2001–50, 2001–45 I.R.B.437
2000–39
Corrected by
Ann. 2001–73, 2001–28 I.R.B.40
Superseded by
Rev. Proc. 2001–47, 2001–42 I.R.B.332
2000–48
Superseded by
Rev. Proc. 2001–54, 2001-48 I.R.B.530
2001–2
Modified by
Rev. Proc. 2001–41, 2001–33 I.R.B.173
Revenue Procedures—Continued
2001–3
Modified by
Rev. Proc. 2001–51, 2001–43 I.R.B.369
2001–6
Modified by
Notice 2001–42, 2001–30 I.R.B.70
Rev. Proc. 2001–55, 2001–49 I.R.B.552
Revenue Rulings:
57–589
Obsoleted by
REG–106917–99, 2001–27 I.R.B.4
65–316
Obsoleted by
REG–106917–99, 2001–27 I.R.B.4
67–274
Amplified by
Rev. Rul. 2001–46, 2001–42 I.R.B.321
68–125
Obsoleted by
REG–106917–99, 2001–27 I.R.B.4
69–563
Obsoleted by
REG–106917–99, 2001–27 I.R.B.4
70–379
Obsoleted by
Rev. Rul. 2001–39, 2001–33 I.R.B.125
74–326
Obsoleted by
REG–106917–99, 2001–27 I.R.B.4
78–127
Modified by
Rev. Rul. 2001–40, 2001–38 I.R.B.276
78–179
Obsoleted by
REG–106917–99, 2001–27 I.R.B.4
89–42
Modified and superseded by
Rev. Rul. 2001–48, 2001–42 I.R.B.324
90–95
Distinguished by
Rev. Rul. 2001–42, 2001–42 I.R.B.321
92–19
Supplemented by
Rev. Rul. 2001–38, 2001–33 I.R.B.124
97–31
Modified and superseded by
Rev. Rul. 2001–48, 2001–42 I.R.B.324
Treasury Decisions:
8948
Corrected by
Ann. 2001–90, 2001–35 I.R.B.208
1
A cumulative list of current actions on previously published
items in Internal Revenue Bulletins 2001–1 through 2001–26 is
in Internal Revenue Bulletin 2001–27, dated July 2, 2001.
December 17, 2001iv2001-51 I.R.B.