Internal Revenue Bulletin 1996-34 (PDF rendition): IRS Announcements

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.

SPECIAL ANNOUNCEMENT
Announcement 96–75, page 29.
A public hearing will be held on September 4, 1996, on
issues related to a study of ‘‘global interest netting’’
being conducted by the Internal Revenue Service and
Treasury.
INCOME TAX
Rev. Rul. 96–39, page 4.
LIFO; price indexes; department stores.The June
1996 Bureau of Labor Statistics price indexes are
accepted for use by department stores employing the
retail inventory and last-in, first-out inventory methods
for valuing inventories for tax years ended on, or with
reference to, June 30, 1996.
Ct.D. 2058, page 13.
Refund claims; Tax Court; return not filed.The Tax
Court lacks jurisdiction to award a refund of taxes paid
more than two years before the date the taxpayer was
mailed a notice of deficiency, if, on the date that the
notice was mailed, the taxpayer had not yet filed a
return. In these circumstances, the applicable look-back
period under section 6512 of the Code is two years.
Commissioner of Internal Revenue v. Robert F. Lundy.
Ct.D. 2059, page 10.
Validity of liens; bankruptcy.A bankruptcy court may
not equitably subordinate claims on a categorical basis
in derogation of Congress’ priorities scheme.United
States v. Thomas R. Noland.
FI–32–95, page 21.
Proposed regulations under section 475 of the Code
make mark-to-market accounting inapplicable to most
equity interests in related entities. A public hearing will
be held on October 15, 1996.
CO–9–96, page 20.
Proposed regulations under section 1059 of the Code
relate to certain distributions made by corporations to
certain corporate shareholders. A public hearing will be
held on October 2, 1996.
PS–39–93, page 27.
Proposed regulations under section 280B of the Code
relate to deductions available upon demolition of a
building. A public hearing will be held on October 9,
1996.
Announcement 96–76, page 29.
Rev. Proc. 96–36, 1996–27 I.R.B. 11, which provides
specifications for filing Forms 1098, 1099, 5498, and
W–2G, is corrected.
Pub. L. 104–117, page 19.
An Act to provide that members of the Armed Forces
performing services for the peacekeeping efforts in
Bosnia and Herzegovina, Croatia, and Macedonia shall
be entitled to tax benefits in the same manner as if
such services were performed in a combat zone, and for
other purposes, is reproduced.
EXCISE TAX
Ct.D. 2060, page 5.
Foreign insurance taxes.The Export Clause prohibits
assessment of nondiscriminatory federal taxes on goods
in export transit.United States v. International Busi-
ness Machines Corp.
Finding Lists begin on page 32.
Bulletin No. 1996–34
August 19, 1996
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.

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

Introduction
The Internal Revenue Bulletin is the authoritative instru-
ment of the Commissioner of Internal Revenue for
announcing official rulings and procedures of the Inter-
nal Revenue Service and for publishing Treasury Deci-
sions, Executive Orders, Tax Conventions, legislation,
court decisions, and other items of general interest. It is
published weekly and may be obtained from the Superin-
tendent of Documents on a subscription basis. Bulletin
contents of a permanent nature are consolidated semi-
annually into Cumulative Bulletins, which are sold on a
single-copy basis.
It is the policy of the Service to publish in the Bulletin all
substantive rulings necessary to promote a uniform
application of the tax laws, including all rulings that
supersede, revoke, modify, or amend any of those
previously published in the Bulletin. All published rulings
apply retroactively unless otherwise indicated. Proce-
dures relating solely to matters of internal management
are not published; however, statements of internal
practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Ser-
vice on the application of the law to the pivotal facts
stated in the revenue ruling. In those based on positions
taken in rulings to taxpayers or technical advice to
Service field offices, identifying details and information
of a confidential nature are deleted to prevent unwar-
ranted 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 proce-
dures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be consid-
ered, 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 Subpart B, Legislation
and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and
Subparts. Also included in this part are Bank Secrecy
Act Administrative Rulings. Bank Secrecy Act Administra-
tive Rulings are issued by the Department of the
Treasury’s Office of the Assistant Secretary (Enforce-
ment).
Part IV.—Items of General Interest.
With the exception of the Notice of Proposed Rulemak-
ing and the disbarment and suspension list included in
this part, none of these announcements are consoli-
dated in the Cumulative Bulletins.
The first Bulletin for each month includes an index for
the matters published during the preceding month.
These monthly indexes are cumulated on a quarterly and
semiannual basis, and are published in the first Bulletin
of the succeeding quarterly and semi-annual 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, D.C. 20402.
3

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 472.—Last-in, First-out
Inventories
26 CFR 1.472–1: Last-in, first-out inventories.
LIFO; price indexes; department
stores.The June 1996 Bureau of Labor
Statistics price indexes are accepted for
use by department stores employing the
retail inventory and last-in, first-out in-
ventory methods for valuing inventories
for tax years ended on, or with reference
to, June 30, 1996.
Rev. Rul. 96–39
The following Department Store In-
ventory Price Indexes for June 1996
were issued by the Bureau of Labor
Statistics on July 16, 1996. The indexes
are accepted by the Internal Revenue
Service, under § 1.472–1(k) of the In-
come Tax Regulations and Rev. Proc.
86–46, 1986–2 C.B. 739, for appropriate
application to inventories of department
stores employing the retail inventory and
last-in, first-out inventory methods for
tax years ended on, or with reference to,
June 30, 1996.
The Department Store Inventory Price
Indexes are prepared on a national basis
and include (a) 23 major groups of de-
partments, (b) three special combinations
of the major groups—soft goods, durable
goods, and miscellaneous goods, and (c) a
store total, which covers all departments,
including some not listed separately, ex-
cept for the following: candy, foods, li-
quor, tobacco, and contract departments.
BUREAU OF LABOR STATISTICS, DEPARTMENT STORE
INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS
(January 1941 = 100, unless otherwise noted)
Groups
June
1995
June
1996
Percent Change from
June 1995 to
June 1996
1
1. Piece Goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .522.9551.15.4
2. Domestics and Draperies . . . . . . . . . . . . . . . . . . . . . . . .646.7641.020.9
3. Women’s and Children’s Shoes . . . . . . . . . . . . . . . . . . .624.2649.34.0
4. Men’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .919.3895.422.6
5. Infants’ Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .587.9627.16.7
6. Women’s Underwear . . . . . . . . . . . . . . . . . . . . . . . . . . . .515.1535.43.9
7. Women’s Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .283.3288.01.7
8. Women’s and Girls’ Accessories . . . . . . . . . . . . . . . . . .549.5545.520.7
9. Women’s Outerwear and Girls’ Wear. . . . . . . . . . . . . . .416.3401.123.7
10. Men’s Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .597.5612.22.5
11. Men’s Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .562.4584.53.9
12. Boys’ Clothing and Furnishings . . . . . . . . . . . . . . . . . . .477.8485.71.7
13. Jewelry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1004.91011.50.7
14. Notions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .758.7774.12.0
15. Toilet Articles and Drugs . . . . . . . . . . . . . . . . . . . . . . . .859.9877.82.1
16. Furniture and Bedding . . . . . . . . . . . . . . . . . . . . . . . . . .663.1673.61.6
17. Floor Coverings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .577.0576.420.1
18. Housewares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .771.8808.74.8
19. Major Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .247.2245.520.7
20. Radio and Television. . . . . . . . . . . . . . . . . . . . . . . . . . . .82.179.323.4
21. Recreation and Education
2
. . . . . . . . . . . . . . . . . . . . . . .114.0112.821.1
22. Home Improvements
2
. . . . . . . . . . . . . . . . . . . . . . . . . . .122.6127.43.9
23. Auto Accessories
2
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106.8107.50.7
Groups 1–15: Soft Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .587.8592.40.8
Groups 16–20: Durable Goods . . . . . . . . . . . . . . . . . . . . . . . . . .462.8469.71.5
Groups 21–23: Misc. Goods
2
. . . . . . . . . . . . . . . . . . . . . . . . . . .113.9113.720.2
Store Total
3
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .545.8550.30.8
1
Absence of a minus sign before percentage change in this column signifies price increase.
2
Indexes on a January 1986=100 base.
3
The store total index covers all departments, including some not listed separately, except for the following: candy, foods,
liquor, tobacco, and contract departments.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Stan Michaels of the Office of
Assistant Chief Counsel (Income Tax
and Accounting). For further information
regarding this revenue ruling, contact
Mr. Michaels on (202) 622–4970 (not a
toll-free call).
4

Section 4371.—Imposition of Tax
Ct.D. 2060
SUPREME COURT OF THE UNITED
STATES
No. 95–591
UNITED STATES, PETITIONER v.
INTERNATIONAL BUSINESS
MACHINES CORPORATION
[517 U.S.—]
ON WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF
APPEALS FOR THE FEDERAL
CIRCUIT
June 10, 1996
Syllabus
Pursuant to § 4371 of the Internal Revenue
Code, respondent International Business Machines
Corporation (IBM) paid a tax on insurance premi-
ums remitted to foreign insurers to cover ship-
ments of goods to its foreign subsidiaries. When
its refund claims were denied, IBM filed suit in
the Court of Federal Claims, contending that
§ 4371’s application to policies insuring export
shipments violated the Export Clause, which states
that ‘‘[n]o Tax or Duty shall be laid on Articles
exported from any State.’’ The court agreed,
rejecting the Government’s argument thatThames
& Mersey Marine Ins. Co.v.United States,237
U. S. 19—in which this Court held that a federal
stamp tax on policies insuring marine risks could
not, under the Export Clause, be constitutionally
applied to policies covering export shipments—
had been superseded by subsequent decisions
interpreting the Import-Export Clause, which states
in relevant part, ‘‘No State shall . . . lay any
Imposts or Duties on Imports or Exports.’’ The
Court of Appeals affirmed.
Held:The Export Clause prohibits assessment
of nondiscriminatory federal taxes on goods in
export transit.
(a) While this Court has strictly enforced the
Export Clause’s prohibition against federal taxa-
tion of goods in export transit and certain closely
related services and activities, see,e.g., Thames &
Mersey, supra,it has not exempted pre-export
goods and services from ordinary tax burdens or
exempted from federal taxation various services
and activities only tangentially related to the
export process, see,e.g., Cornellv.Coyne, 192
U.S. 418. Conceding that the tax assessed here
violates the Export Clause underThames &
Mersey, the Government asks that the case be
overruled because its underlying theory has been
rejected in the context of the Commerce and
Import-Export Clauses and those Clauses have
historically been interpreted in harmony with the
Export Clause.
(b) When this Court expressly disavowed its
early view that the dormant Commerce Clause
required a strict ban on state taxation of interstate
commerce,Complete Auto Transit, Inc.v.Brady,
430 U.S. 274, 288–289, it resolved a long struggle
over the meaning of the nontextual negative
command of that Clause. The Export Clause, on
the other hand, expressly prohibits Congress from
laying any tax or duty on exports. These textual
disparities strongly suggest that shifts in the
Court’s view of the dormant Commerce Clause’s
scope cannot govern Export Clause interpretation.
Cf.Richfield Oil Corp.v.State Bd. of Equaliza-
tion, 329 U. S. 69, 75–76.
(c) While one may questionThames & Mersey’s
finding that a tax on policies insuring exports is
functionally the same as a tax on exportation
itself, the Government apparently has chosen not
to do so here. Under the principles that animate
the policy ofstare decisis, the Court declines to
overruleThames & Mersey’s long-standing prece-
dent, which has caused no uncertainty in commer-
cial export transactions, on a theory not argued by
the parties.
(d) This Court’s recent Import-Export Clause
cases do not require thatThames & Merseybe
overruled. Meaningful textual differences that
should not be overlooked exist between the Export
Clause and the Import-Export Clause. In finding
the assessments inMichelin Tire Corp.v.Wages,
423 U.S. 276, andDepartment of Revenue of
Wash.v.Association of Wash. Stevedoring Cos.,
435 U. S. 734, valid, the Court recognized that the
Import-Export Clause’s absolute ban on ‘‘Imposts
or Duties’’ is not a ban on every tax. Because
impost and duty are thus narrower terms than tax,
a particular state assessment might be beyond the
Import-Export Clause’s reach, while an identical
federal assessment might be subject to the Export
Clause. The word ‘‘Tax’’ has a common, and
usually expansive, meaning that should not be
ignored. The Clauses were also intended to serve
different goals. The Government’s policy argu-
ment—that the Framers intended the Export
Clause to narrowly alleviate the fear of northern
repression through taxation of southern exports by
prohibiting only discriminatory taxes—cannot be
squared with the Clause’s broad language. The
better reading is that the Framers sought to
alleviate their concerns by completely denying to
Congress the power to tax exports at all. See
Fairbankv.United States, 181 U. S. 283.
(e) Even assuming thatMichelinandWashing-
ton Stevedoringgovern the Export Clause inquiry
here, those holdings do not interpret the Import-
Export Clause to permit assessment of nondis-
criminatory taxes on imports and exports in tran-
sit.
59 F. 3d 1234, affirmed.
T
HOMAS, J., delivered the opinion of the Court,
in which REHNQUIST, C. J., and O’CONNOR,
S
CALIA, SOUTER, and BREYER, JJ., joined.
K
ENNEDY, J., filed a dissenting opinion, in which
GINSBURG, J., joined. STEVENS, J., took no part in
the consideration or decision of the case.
JUSTICETHOMASdelivered the opin-
ion of the Court.
We resolve in this case whether the
Export Clause of the Constitution per-
mits the imposition of a generally appli-
cable, nondiscriminatory federal tax on
goods in export transit. We hold that it
does not.
I
Section 4371 of the Internal Revenue
Code imposes a tax on insurance premi-
ums paid to foreign insurers that are not
subject to the federal income tax.
1
26 U.
S. C. § 4371 (1982 ed.). International
Business Machines Corporation (IBM)
ships products that it manufactures in
the United States to numerous foreign
subsidiaries and insures those shipments
against loss. When the foreign subsid-
iary makes the shipping arrangements,
the subsidiary often places the insurance
with a foreign carrier. When it does,
both IBM and the subsidiary are listed
as beneficiaries in the policy.
IBM filed federal excise tax returns
for the years 1975 through 1984, but
reported no liability under § 4371. The
IRS audited IBM and determined that
the premiums paid to foreign insurers
were taxable under § 4371 and that
IBM—as a named beneficiary of the
insurance policies—was liable for the
tax. The IRS assessed a tax against IBM
for each of those years.
IBM paid the assessments and filed
refund claims, which the IRS denied.
IBM then commenced suit in the Court
of Federal Claims, contending that ap-
plication of § 4371 to policies insuring
its export shipments violated the Export
Clause. The focus of the suit was this
Court’s decision inThames & Mersey
Marine Ins. Co.v.United States, 237
U.S. 19 (1915), in which we held that a
federal stamp tax on policies insuring
marine risks could not, under the Export
Clause, be constitutionally applied to
policies covering export shipments. The
United States argued that the analysis of
Thames & Merseyis no longer valid,
having been superseded by subsequent
decisions interpreting the Import-Export
Clause—specifically,Michelin Tire
Corp.v.Wages, 423 U. S. 276 (1976),
andDepartment of Revenue of Wash.v.
Association of Wash. Stevedoring Cos.,
435 U. S. 734 (1978). The Court of
Federal Claims noted that this Court has
never overruledThames & Merseyand
ruled that application of § 4371 to poli-
cies insuring goods in export transit
violates the Export Clause. 31 Fed. Cl.
500 (1994). The Court of Appeals for
the Federal Circuit affirmed. 59 F. 3d
1234 (1995). We agreed to hear this
case to decide whether we should over-
ruleThames & Mersey. 516 U.S. __
(1995).
II
The Export Clause states simply and
directly: ‘‘No Tax or Duty shall be laid
on Articles exported from any State.’’
U.S. Const., Art. I, § 9, cl. 5. We have
had few occasions to interpret the lan-
1
The tax does not apply if a policy issued by a
foreign insurer is ‘‘signed or countersigned by an
officer or agent of the insurer in a State, or in the
District of Columbia, within which such insurer is
authorized to do business.’’ 26 U. S. C. § 4373(1)
(1982 ed.).
5

guage of the Export Clause, but our
cases have broadly exempted from fed-
eral taxation not only export goods, but
also services and activities closely re-
lated to the export process. At the same
time, we have attempted to limit the
term ‘‘Articles exported’’ to permit fed-
eral taxation of pre-export goods and
services.
Our early cases upheld federal assess-
ments on the manufacture of particular
products ultimately intended for export
by finding that pre-export products are
not ‘‘Articles exported.’’ SeePacev.
Burgess, 92 U. S. 372 (1876);Turpinv.
Burgess, 117 U. S. 504 (1886);Cornell
v.Coyne, 192 U. S. 418 (1904).Pace
andTurpinboth involved a federal ex-
cise tax on tobacco products. InPace,
though tobacco intended for export was
exempted from the tax, the exemption
itself was subject to a per-package
stamp charge of 25 cents. When a to-
bacco manufacturer challenged the
stamp charge, we upheld the charge on
the basis that the stamps were designed
to prevent fraud in the export exemption
from the excise tax and did not, there-
fore, represent a tax on exports. 92 U.S.,
at 375. When Congress later repealed
the 25-cent charge for the exemption
stamp in a statute that referred to the
stamp as an ‘‘export tax,’’ another
manufacturer sued to recover the money
it had paid for the exemption stamps.
SeeTurpin, supra. Without disturbing
the prior ruling inPacethat the stamp
charge was not a tax on exports, 117
U.S., at 505, we explained that the
prohibition of the Export Clause ‘‘has
reference to the imposition of duties on
goods by reason or because of their
exportation or intended exportation, or
whilst they are being exported,’’id., at
507. We said that the plaintiffs would
have had no Export Clause claim even
if there had been no exemption from the
excise because the goods were not in
the course of exportation and might
never be exported.Ibid. Turpinbroadly
suggested that the Export Clause prohib-
its both taxes levied on goods in the
course of exportation and taxes directed
specifically at exports.
InCornell, the Court addressed
whether the Export Clause prohibited
application of a federal excise tax on
filled cheese manufactured under con-
tract for export. Looking to the analysis
set out inTurpin, we rejected the con-
tention that the Export Clause bars ap-
plication of a nondiscriminatory tax im-
posed before the product entered the
course of exportation. ‘‘The true con-
struction of the constitutional provision
is that no burden by way of tax or duty
can be cast upon the exportation of
articles, and does not mean that articles
exported are relieved from the prior
ordinary burdens of taxation which rest
upon all property similarly situated.’’
Cornell, supra, at 427.Pace, Turpin,
andCornellmade clear that nondis-
criminatory pre-exportation assessments
do not violate the Export Clause, even if
the goods are eventually exported.
At the same time we were defining a
domain within which nondiscriminatory
taxes could permissibly be imposed on
goods intended for export, we were also
making clear that the Export Clause
strictly prohibits any tax or duty, dis-
criminatory or not, that falls on exports
during the course of exportation. See
Fairbankv.United States, 181 U. S.
283 (1901);United Statesv.Hvoslef,
237 U. S. 1 (1915);Thames & Mersey
Marine Ins. Co.v.United States, supra.
InFairbank, for example, we addressed
a federal stamp tax on bills of lading for
export shipments imposed by the War
Revenue Act of 1898. The Court found
that the tax was facially discriminatory,
Fairbank, supra,at 290, and, though not
directly imposed on the goods being
exported, the tax was nevertheless ‘‘in
effect a duty on the article transported,’’
181 U. S., at 294. Consequently, the tax
fell directly into the category of forbid-
den taxes on exports defined inTurpin.
In striking down the tax, we said:
‘‘The requirement of the Consti-
tution is that exports should be
free from any governmental bur-
den. The language is ‘no tax or
duty.’ Whether such provision is
or is not wise is a question of
policy with which the courts have
nothing to do. We know histori-
cally that it was one of the com-
promises which entered into and
made possible the adoption of the
Constitution. It is a restriction on
the power of Congress . . . .’’ 181
U. S., at 290.
HvoslefandThames & Merseydif-
fered fromFairbankin that the taxes
imposed in those cases—on ship char-
ters and marine insurance, respec-
tively—did not facially discriminate
against exports. The Court nonetheless
prohibited the application of those gen-
erally applicable, nondiscriminatory
taxes to the transactions at issue because
each tax was, in effect, a tax on exports.
The type of charter contract at issue in
Hvoslefwas ‘‘in contemplation of law a
mere contract of affreightment,’’ 237
U.S., at 16, and we found that the tax,
as applied to charters for exportation,
‘‘was in substance a tax on the exporta-
tion; and a tax on the exportation is a
tax on the exports,’’id., at 17. Likewise,
inThames & Mersey, we found that
‘‘proper insurance during the voyage is
one of the necessities of exportation’’
and that ‘‘the taxation of policies insur-
ing cargoes during their transit to for-
eign ports is as much a burden on
exporting as if it were laid on the
charter parties, the bills of lading, or the
goods themselves.’’ 237 U. S., at 27.
Shortly afterHvoslefandThames &
Mersey, the Court rejected an attempt to
shield from taxation the net income of a
company engaged in the export busi-
ness.William E. Peck & Co.v.Lowe,
247 U. S. 165 (1918). In accordance
with the analysis set out inTurpin, we
found both that the tax was nondiscrimi-
natory and that ‘‘[i]t is not laid on
articles in course of exportation or on
anything which inherently or by the
usages of commerce is embraced in
exportation or any of its processes.’’ 247
U. S., at 174.
Only a few years later the Court
struck down the application of a tax on
the export sale of certain baseball equip-
ment. SeeA. G. Spalding & Bros.v.
Edwards, 262 U. S. 66 (1923). Although
the tax was clearly nondiscriminatory,
we explained that the goods being taxed
had entered the course of exportation
when they were delivered to the export
carrier.Id., at 70. Because the taxable
event, the transfer of title, occurred at
the same moment the goods entered the
course of exportation, we held that the
tax could not constitutionally be applied
to the export sale.Id., at 69–70.
The Court has strictly enforced the
Export Clause’s prohibition against fed-
eral taxation of goods in export transit,
and we have extended that protection to
certain services and activities closely
related to the export process. We have
not, however, exempted pre-export
goods and services from ordinary tax
burdens; nor have we exempted from
federal taxation various services and
activities only tangentially related to the
export process.
III
The Government concedes, as it did
below, that this case is largely indistin-
guishable fromThames & Merseyand
that, ifThames & Merseyis still good
law, the tax assessed against IBM under
§ 4371 violates the Export Clause. See
6

Tr. of Oral Arg. 5; 59 F. 3d, at 1237.
The parties apparently agree that there is
no legally significant distinction be-
tween the insurance policies at issue in
this case and those at issue inThames &
Mersey, and, accordingly, the Govern-
ment asks that we overruleThames &
Mersey.
The Government asserts that the Ex-
port Clause permits the imposition of
generally applicable, nondiscriminatory
taxes, even on goods in export transit.
The Government urges that we have
historically interpreted the Commerce,
Import-Export, and Export Clauses in
harmony and that we have rejected the
theory underlyingThames & Merseyin
the context of the Commerce and
Import-Export Clauses. Accordingly, the
Government contends that our Export
Clause jurisprudence, symbolized by
Thames & Mersey, has become an
anachronism in need of modernization.
The Government asks us to reinterpret
the Export Clause to permit the imposi-
tion of generally applicable, nondis-
criminatory taxes as we have under the
Commerce Clause and, it argues, under
the Import-Export Clause.
A
The Government contends that our
dormant Commerce Clause jurispru-
dence has shifted dramatically and that
our traditional understanding of the Ex-
port Clause, which is based partly on an
outmoded view of the Commerce
Clause, can no longer be justified. It is
true that some of our early Export
Clause cases relied on an interpretation
of the Commerce Clause that we have
since rejected. InFairbank, 181 U. S.,
at 298–300, for example, we analogized
toRobbinsv.Shelby County Taxing
Dist., 120 U. S. 489, 497 (1887), in
which we held that ‘‘[i]nterstate com-
merce cannot be taxed at all [by the
States], even though the same amount of
tax should be laid on domestic com-
merce, or that which is carried on solely
within the state.’’ Referring to the cat-
egorical ban on taxation of interstate
commerce declared inRobbins, we lik-
ened the scope of the Commerce
Clause’s ban on state taxation of inter-
state commerce to the Export Clause’s
ban on federal taxation of exports.
Fairbank, supra, at 300; see also
Hvoslef, 237 U. S., at 15 (‘‘The court
[inFairbank] found an analogy in the
construction which had been given to
the commerce clause in protecting inter-
state commerce from state legislation
imposing direct burdens’’). After
Thames & Mersey, the Commerce
Clause construction espoused inRobbins
fell out of favor, seeWestern Live Stock
v.Bureau of Revenue, 303 U. S. 250,
254 (1938) (‘‘It was not the purpose of
the commerce clause to relieve those
engaged in interstate commerce from
their just share of state tax burden even
though it increases the cost of doing the
business’’), and we expressly disavowed
that view inComplete Auto Transit, Inc.
v.Brady, 430 U. S. 274, 288—289
(1977).
Our rejection inComplete Autoof
much of our early dormant Commerce
Clause jurisprudence did not, however,
signal a similar rejection of our Export
Clause cases. Our decades-long struggle
over the meaning of the nontextual
negative command of the dormant Com-
merce Clause does not lead to the
conclusion that our interpretation of the
textual command of the Export Clause
is equally fluid. At one time, the Court
may have thought that the dormant
Commerce Clause required a strict ban
on state taxation of interstate commerce,
but the text did not require that view.
2
The text of the Export Clause, on the
other hand, expressly prohibits Congress
from laying any tax or duty on exports.
These textual disparities strongly sug-
gest that shifts in the Court’s view of
the scope of the dormant Commerce
Clause should not, and indeed cannot,
govern our interpretation of the Export
Clause. Cf.Richfield Oil Corp.v.State
Bd. of Equalization, 329 U. S. 69,
75–76 (1946) (distinguishing accommo-
dations made under the Commerce
Clause from the express textual prohibi-
tion of the Import-Export Clause).
B
The Government’s primary assertion
is that modifications in our Import-
Export Clause jurisprudence require par-
allel modifications in the Export Clause
context. More specifically, the Govern-
ment argues that our decisions in
Michelin Tire Corp.v.Wages, 423 U. S.
276 (1976), andDepartment of Revenue
of Wash.v.Association of Wash. Steve-
doring Cos., 435 U. S. 734 (1978),
establish that States may impose gener-
ally applicable, nondiscriminatory taxes
even if those taxes fall on imports or
exports. The Export Clause, the Govern-
ment contends, is no more restrictive.
The Import-Export Clause, which is
textually similar to the Export Clause,
says in relevant part, ‘‘No State shall
. . . lay any Imposts or Duties on Im-
ports or Exports.’’ U. S. Const., Art. I,
§ 10, cl. 2. Though minor textual differ-
ences exist and the Clauses are directed
at different sovereigns, historically both
have been treated as broad bans on
taxation of exports, and in several cases
the Court has interpreted the provisions
of the two Clauses in tandem. For
instance, in the Court’s first decision
interpreting the Import-Export Clause,
Chief Justice Marshall said:
‘‘The States are forbidden to lay a
duty on exports, and the United
States are forbidden to lay a tax or
duty on articles exported from any
State. There is some diversity in
language, but none is perceivable
in the act which is prohibited.’’
Brownv.Maryland, 12 Wheat.
419, 445 (1827).
See alsoKosydarv.National Cash
Register Co., 417 U. S. 62, 67, n. 5
(1974);Hvoslef, supra,at 13–14;
Cornell, 192 U. S., at 427–428;Turpin,
117 U. S., at 506–507. The Government
argues that our longstanding parallel
interpretations of the two Clauses re-
quire judgment in its favor. We disagree.
InMichelin, we addressed whether a
State could impose a nondiscriminatory
ad valorem property tax on imported
goods that were no longer in import
transit. Michelin, which imported tires
from Canada and France and stored
them in a warehouse, argued that Geor-
gia could not constitutionally assess ad
valorem property taxes against its im-
ported tires. We explained that ‘‘[t]he
Framers of the Constitution . . . sought
to alleviate three main concerns’’: (i)
ensuring that the Federal Government
speaks with one voice when regulating
foreign commerce; (ii) preserving import
revenues as a major source of federal
revenue; and (iii) preventing disharmony
likely to be caused if seaboard States
taxed goods coming through their ports.
Michelin, supra, at 285–286. The Court
found that nondiscriminatory ad valorem
taxes violate none of these policies. A
century earlier, however, the Court had
ruled that, under the ‘‘original package
doctrine,’’ a State could not impose such
a tax until the goods had lost their
2
The Commerce Clause is an express grant of
power to Congress to ‘‘regulate Commerce . . .
among the several States.’’ U. S. Const., Art. I,
§ 8, cl. 3. It does not expressly prohibit the States
from doing anything, though we have long recog-
nized negative implications of the Clause that
prevent certain state taxation even when Congress
has failed to legislate. SeeFulton Corp.v.
Faulkner, 516 U. S. __, __ (1996) (slip op., at
4–5);Quill Corp.v.North Dakota, 504 U. S. 298,
309 (1992).
7

character as imports and had been incor-
porated into the mass of property in the
State.Lowv.Austin, 13 Wall. 29, 34
(1872). TheMichelinCourt overruled
Lowand held that the nondiscriminatory
property tax levied on Michelin’s inven-
tory of imported tires did not violate the
Import-Export Clause because it was not
an impost or duty on imports. 423 U. S.,
at 301. See alsoLimbachv.Hooven &
Allison Co., 466 U. S. 353 (1984)
(reaffirming thatMichelinexpressly
overruled the original package doctrine
altogether and not merelyLowon its
facts).
Two years later, inWashington Steve-
doring, we upheld against an Import-
Export Clause challenge a nondiscrimi-
natory state tax assessed against the
compensation received by stevedoring
companies for services performed within
the State. The Court found that Wash-
ington’s stevedoring tax did not violate
the policies underlying the Import-
Export Clause. Unlike the property tax
at issue inMichelin, the activity taxed
by Washington occurred while imports
and exports were in transit. That fact
was not dispositive, however, because
the tax did not fall on the goods them-
selves:
‘‘The levy reaches only the busi-
ness of loading and unloading
ships or, in other words, the busi-
ness of transporting cargo within
the State of Washington. Despite
the existence of the first distinc-
tion, the presence of the second
leads to the conclusion that the
Washington tax is not a prohibited
‘Impost or Duty’ when it violates
none of the policies [that animate
the Import-Export Clause].’’Wash-
ington Stevedoring, supra, at 755.
Relying onCanton R. Co.v.Rogan, 340
U. S. 511 (1951), which upheld a tax on
the gross receipts of a railroad that
operated a marine terminal and trans-
ported imports and exports, we ruled in
Washington Stevedoringthat taxation of
transportation services, whether by rail-
road on the docks or by stevedores
loading and unloading ships, did not
relate to the value of the goods and
could not be considered imposts or
duties on the goods themselves. 435
U.S., at 757.
1
A tax on policies insuring exports is
not, precisely speaking, the same as a
tax on exports, butThames & Mersey
held that they were functionally the
same under the Export Clause. We noted
inWashington Stevedoringthat one may
question the finding inThames &
Merseythat the tax was essentially a tax
upon the exportation itself. 435 U. S., at
756, n. 21. We expressed concern that
‘‘[t]he basis for distinguishingThames
& Merseyis less clear’’ than for
FairbankorRichfield Oil, because the
marine insurance policies inThames &
Merseyarguably ‘‘had a value apart
from the value of the goods.’’ 435 U. S.,
at 756, n. 21. Nevertheless, the Govern-
ment apparently has chosen not to chal-
lenge that aspect ofThames & Mersey
in this case. Tr. of Oral Arg. 5, 8–9, 40.
When questioned on that implicit con-
cession at oral argument, the Govern-
ment admitted that it ‘‘chose not to’’
argue that § 4371 does not impose a tax
on the goods themselves.Id., at 9. It
would be inappropriate for us to reex-
amine in this case, without the benefit
of the parties’ briefing, whether the
policies on which § 4371 is assessed
are so closely connected to the goods
that the tax is, in essence, a tax on
exports.
3
See,e.g., id., at 27–28 (‘‘[T]he
record doesn’t reveal the sort of statisti-
cal information Justice Breyer was sug-
gesting might be relevant’’ to determine
‘‘whether this is sufficiently indirect that
it’s not a tax on exports, . . . because the
Government has conceded throughout
that they are not disputing that this tax,
if discriminatory, is in violation of the
Constitution’’).
Stare decisisis a ‘‘principle of
policy,’’Helveringv.Hallock, 309 U. S.
106, 119 (1940), and not ‘‘an inexorable
command,’’Paynev.Tennessee, 501 U.
S. 808, 828 (1991). Applying that
policy, we frequently have declined to
overrule cases in appropriate circum-
stances becausestare decisis‘‘pro-
motes the evenhanded, predictable, and
consistent development of legal prin-
ciples, fosters reliance on judicial deci-
sions, and contributes to the actual and
perceived integrity of the judicial pro-
cess.’’Id., at 827. ‘‘[E]ven in constitu-
tional cases, the doctrine carries such
persuasive force that we have always
required a departure from precedent to
be supported by some ‘special justifica-
tion.’’’Id., at 842 (S
OUTER, J., concur-
ring) (quotingArizonav.Rumsey, 467
U. S. 203, 212 (1984)).
Though from time to time we have
overruled governing decisions that are
‘‘unworkable or are badly reasoned,’’
Payne, supra, at 827; seeSmithv.
Allwright, 321 U. S. 649, 665 (1944),
we have rarely done so on grounds not
advanced by the parties.Thames &
Merseyhas been controlling precedent
for over 80 years, and the Government
does not, indeed could not, argue that
the rule established there is ‘‘unwork-
able.’’ Despite the dissent’s speculative
protestations to the contrary,post, at
9–11, there is simply no evidence that
Thames & Merseyhas caused or will
cause uncertainty in commercial export
transactions. The principles that animate
our policy ofstare decisiscaution
against overruling a long-standing prece-
dent on a theory not argued by the
parties, and we decline to do so in this
case.
4
2
What the Government does argue is
that our Import-Export Clause cases re-
quire us to overruleThames & Mersey
5
.
We have good reason to hesitate before
adopting the analysis of our recent
Import-Export Clause cases into our
Export Clause jurisprudence. Though we
have frequently interpreted the Clauses
together, seesupra, at 9–10, our more
3
The Court has never held that the Export Clause
prohibits only direct taxation of goods in export
transit. InBrownv.Maryland, 12 Wheat. 419
(1827), Chief Justice Marshall expressed in dicta
his skepticism that a federal occupational tax on
exporters could pass scrutiny under the Export
Clause.Id., at 445 (‘‘[W]ould government be
permitted to shield itself from the just censure to
which this attempt to evade the prohibitions of the
constitution would expose it, by saying that this
was a tax on the person, not on the article, and
that the legislature had a right to tax occupa-
tions?’’). InFairbank, Hvoslef, andThames &
Mersey, we struck down taxes that were not
assessed directly on goods in export transit, but
which the Court found to be so closely related as
to be effectively a tax on the goods themselves.
We have never repudiated that principle, but
neither have we ever carefully defined how we
decide whether a particular federal tax is suffi-
ciently related to the goods or their value to
violate the Export Clause. To the extent the issue
was raised in the petition for certiorari, the
Government failed to address the issue in its brief
on the merits and therefore has abandoned it. See
Posters ‘N’ Things, Ltd.v.United States, 511 U.
S. ___, ___ (1994) (slip op., at 15);Russellv.
United States, 369 U. S. 749, 754, n. 7 (1962).
4
The dissent suggests that ‘‘the Court assumes the
statute to be invalid rather than deciding it to be
so.’’Post, at 2. We make no such assumptions.
Rather, we begin with a longstanding decision
that, by all accounts, controls this case. Even the
Government agrees that Congress enacted a law
whose application in this case directly contravenes
our holding inThames & Mersey. We sit not to
condemn § 4371, but rather to determine whether
it is to be saved by overruling binding precedent.
5
The dissent suggests that we make a ‘‘serious
mistake’’ in deciding whether a nondiscriminatory
tax on goods violates the Export Clause,post, at
19. We do not agree that it is a mistake to address
the arguments actually advanced by the parties.
8

recent Import-Export Clause cases, on
which the Government relies, caution
that meaningful textual differences exist
and should not be overlooked. The Ex-
port Clause prohibits Congress from
laying any ‘‘Tax or Duty’’ on exports,
while the Import-Export Clause prevents
the States from laying any ‘‘Imposts or
Duties’’ on imports or exports. In both
MichelinandWashington Stevedoring,
we left open the possibility that a par-
ticular state assessment might not prop-
erly be called an impost or duty, and
thus would be beyond the reach of the
Import-Export Clause, while an identical
federal assessment might properly be
called a tax and would be subject to the
Export Clause. Though we found in
Michelinthat a nondiscriminatory state
property tax does not transgress the
policy dictates of the Import-Export
Clause, we also recognized that the
Import-Export Clause is ‘‘not written in
terms of a broad prohibition of every
‘tax,’ ’’ and that impost and duty are
narrower terms than tax. 423 U. S., at
290–293. InWashington Stevedoring, we
likewise rejected the assertion that the
Import-Export Clause absolutely prohib-
its all taxation of imports and exports.
435 U. S., at 759. We said that ‘‘the
term ‘Impost or Duty’ is not self-
defining and does not necessarily en-
compass all taxes’’ and that the respon-
dents’ argument to the contrary ignored
‘‘the central holding ofMichelinthat the
absolute ban is only of ‘Imposts or
Duties’ and not of all taxes.’’Ibid.
The distinction between imposts or
duties and taxes is especially pertinent
in light of the peculiar definitional
analysis we chose inMichelin. Finding
substantial ambiguity in the phrase ‘‘Im-
posts or Duties,’’ we ‘‘decline[d] to
presume it was intended to embrace
taxation that does not create the evils
the Clause was specifically intended to
eliminate.’’Michelin, supra, at 293–294.
We entirely bypassed the etymological
inquiry into the proper meaning of the
terms ‘‘impost’’ and ‘‘duty,’’ and instead
created a regime in which those terms
are conclusions to be drawn from an
examination into whether a particular
assessment ‘‘was the type of exaction
that was regarded as objectionable by
the Framers of the Constitution.’’ 423 U.
S., at 286. We are not prepared to say
that the word ‘‘Tax’’ is ‘‘sufficiently
ambiguous,’’id., at 293, that we may
ignore its common, and usually expan-
sive,
6
meaning in favor of an Export
Clause decisional rule in which a tax is
not a ‘‘Tax’’ unless it discriminates
against exports. Consequently,Michelin
andWashington Stevedoring, which held
that the assessments in question were
not ‘‘Imposts or Duties’’ at all, do not
logically validate the assessment at issue
in this case, which, by all accounts,
remains a ‘‘Tax.’’
It is not intuitively obvious that
Michelin’s three-pronged analysis of the
Framers’ concerns is really just another
way of stating a nondiscrimination prin-
ciple. But even if it were, the Govern-
ment cannot reasonably rely onMichelin
to govern the Export Clause because
Michelindrew its analysis around the
phrase ‘‘Imposts or Duties’’ and ex-
pressly excluded the broader term
‘‘Tax’’ that appears in the Export
Clause.Michelinmarked a more permis-
sive approach to state taxation under the
Import-Export Clause only by distin-
guishing the presumptively stricter lan-
guage of the Export Clause. We agree
with the Government thatMichelinin-
forms our decision in this case, but not
in a way that supports the Government’s
position. It is simply no longer true that
the Court perceives no substantive dif-
ference between the two Clauses.
We are similarly hesitant to adopt the
Import-Export Clause’s policy-based
analysis without some indication that the
Export Clause was intended to alleviate
the same ‘‘evils’’ to which the Import-
Export Clause was directed. Unlike the
Import-Export Clause, which was in-
tended to protect federal supremacy in
international commerce, to preserve fed-
eral revenue from import duties and
imposts, and to prevent coastal States
with ports from taking unfair advantage
of inland States, seeMichelin, supra, at
285–286, the Export Clause serves none
of those goals. Indeed, textually, the
Export Clause does quite the opposite. It
specifically prohibits Congress from
regulating international commerce
through export taxes, disallows any at-
tempt to raise federal revenue from
exports, and has no direct effect on the
way the States treat imports and exports.
As a purely historical matter, the
Export Clause was originally proposed
by delegates to the Federal Convention
from the Southern States, who feared
that the Northern States would control
Congress and would use taxes and du-
ties on exports to raise a disproportion-
ate share of federal revenues from the
South. See 2 M. Farrand, The Records
of the Federal Convention of 1787, pp.
95, 305–308, 359–363 (rev. ed. 1966).
The Government argues that this ‘‘nar-
row historical purpose’’ justifies a nar-
row interpretation of the text and that
application of § 4371 to policies insur-
ing exports does not conflict with the
policies embodied in the Clause. Brief
for United States 32–34. While the
original impetus may have had a narrow
focus, the remedial provision that ulti-
mately became the Export Clause does
not, and there is substantial evidence
from the Debates that proponents of the
Clause fully intended the breadth of
scope that is evident in the language.
See,e. g., 2 Farrand, Records of the
Federal Convention, at 220 (Mr. King:
‘‘In two great points the hands of the
Legislature were absolutely tied. The
importation of slaves could not be pro-
hibited—exports could not be taxed’’);
id., at 305 (‘‘Mr. Mason urged the
necessity of connecting with the power
of levying taxes . . . that no tax should
be laid on exports’’);id., at 360 (Mr.
Elseworth [sic]: ‘‘There are solid rea-
sons agst. Congs taxing exports’’);ibid.
(‘‘Mr. Butler was strenuously opposed to
a power over exports’’);id., at 361 (Mr.
Sherman: ‘‘It is best to prohibit the
National legislature in all cases’’);id., at
362 (‘‘Mr. Gerry was strenuously op-
posed to the power over exports’’).
The Government argued for a differ-
ent narrow interpretation of the Export
Clause inFairbank. See 181 U. S., at
292–293. Arguing that the Debates ex-
pressed a primary interest in diffusing
sectional conflicts, the Government
urged theFairbankCourt to interpret
the Export Clause to permit taxation of
‘‘the act of exportation or the document
evidencing the receipt of goods for
export, for these exist with substantial
uniformity throughout the country.’’Id.,
at 292. We rejected that argument:
‘‘If mere discrimination between
the States was all that was con-
templated, it would seem to follow
that anad valoremtax upon all
exports would not be obnoxious to
this constitutional prohibition. But
surely under this limitation Con-
gress can impose an export tax
neither on one article of export,
nor on all articles of export.’’Ibid.
6
ThoughMichelindiscusses ‘‘taxes’’ in terms of
‘‘every exaction,’’ 423 U. S., at 290, it also
suggests that at the time of the Founding ‘‘prob-
ably only capitation, land, and general property
exactions were known by the term ‘tax’ rather
than the term ‘duty,’ ’’id., at 291. In any event,
theMichelinCourt understood that the terms used
in the Export Clause were broader than those used
in the Import-Export Clause.
9

As inFairbank, we think the text of the
constitutional provision provides a better
decisional guide than that offered by the
Government. The Government’s policy
argument—that the Framers intended the
Export Clause to narrowly alleviate the
fear of northern repression through taxa-
tion of southern exports by prohibiting
only discriminatory taxes—cannot be
squared with the broad language of the
Clause. The better reading, that adopted
by our earlier cases, is that the Framers
sought to alleviate their concerns by
completely denying to Congress the
power to tax exports at all.
3
Even assuming thatMichelinand
Washington Stevedoringgovern our Ex-
port Clause inquiry in this case, the
Government’s argument falls short of its
goal. Our holdings inMichelinand
Washington Stevedoringdo not reach the
facts of this case and, more importantly,
do not interpret the Import-Export
Clause to permit assessment of nondis-
criminatory taxes on imports and ex-
ports in transit.Michelininvolved a tax
on goods, but the goods were no longer
in transit. The tax inWashington Steve-
doringburdened imports and exports
while they were still in transit, but it did
not fall directly on the goods them-
selves. This case, as it comes to us, is a
hybrid in which the tax both burdens
exports during transit and—as the Gov-
ernment concedes and our earlier cases
held—is essentially a tax on the goods
themselves. The Government argues that
MichelinandWashington Stevedoringby
analogy permit Congress to impose gen-
erally applicable, nondiscriminatory
taxes that fall directly on exports in
transit. Brief for United States 32
(MichelinandWashington Stevedoring
‘‘demonstrate that, when a generally
applicable, nondiscriminatory tax is at
issue, the mere fact that the tax applies
also to goods that are in the export or
import process does not provide a con-
stitutional immunity from taxation’’). If
this contention is to succeed, the Gov-
ernment at the very least must show that
our Import-Export Clause jurisprudence
now permits a State to impose a nondis-
criminatory tax directly on goods in
import or export transit. We think the
Government has failed to make that
showing.
The Court has never upheld a state
tax assessed directly on goods in import
or export transit. InMichelin, we sug-
gested that the Import-Export Clause
would invalidate application of a non-
discriminatory property tax to goods still
in import or export transit. 423 U. S., at
290 (compliance with the Import-Export
Clause may be secured ‘‘by prohibiting
the assessment of even nondiscrimina-
tory property taxes on [import or export]
goods which are merely in transit
through the State when the tax is as-
sessed’’). See alsoVirginia Indonesia
Co.v.Harris County Appraisal Dist.,
910 S. W. 2d 905, 915 (Tex. 1995)
(invalidating application of a nondis-
criminatory ad valorem property tax to
goods in export transit).
We also declined to endorse the Gov-
ernment’s theory inWashington Steve-
doring. After reciting that the Court in
Canton R. Co.had distinguishedThames
& Mersey, Fairbank, andRichfield Oil,
we pointed out that in those cases ‘‘the
State [or Federal Government] had taxed
either the goods or activity so connected
with the goods that the levy amounted
to a tax on the goods themselves.’’
Washington Stevedoring, 435 U. S., at
756, n. 21. We expressly declined to
‘‘reach the question of the applicability
of theMichelinapproach when a State
directly taxes imports or exports in
transit,’’id., at 757, n. 23, because,
although the goods in that case were in
transit, the tax fell on ‘‘a service distinct
from the goods and their value,’’id., at
757. Thus, contrary to the Government’s
contention, this Court’s Import-Export
Clause cases have not upheld the valid-
ity of generally applicable, nondiscrimi-
natory taxes that fall on imports or
exports in transit. We think those cases
leave us free to follow the express
textual command of the Export Clause
to prohibit the application of any tax
‘‘laid on Articles exported from any
State.’’
* * * * *
We conclude that the Export Clause
does not permit assessment of nondis-
criminatory federal taxes on goods in
export transit. Reexamination of the
question whether a particular assessment
on an activity or service is so closely
connected to the goods as to amount to
a tax on the goods themselves must
await another day. We decline to over-
ruleThames & Mersey. The judgment of
the Court of Appeals for the Federal
Circuit is affirmed.
It is so ordered.
Section 6323.—Validity and Priority
Against Certain Persons
Ct.D. 2059
SUPREME COURT OF THE
UNITED STATES
No. 95–323
UNITED STATES, PETITIONER v.
THOMAS R. NOLAND, TRUSTEE
FOR DEBTOR FIRST TRUCK
LINES, INC.
517 U.S.—
ON WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF
APPEALS FOR THE SIXTH CIRCUIT
May 13, 1996
Syllabus
The Internal Revenue Service filed claims in the
Bankruptcy Court for taxes, interest, and penalties
that accrued after debtor First Truck Lines, Inc.,
sought relief under Chapter 11 of the Bankruptcy
Code but before the case was converted to a
Chapter 7 bankruptcy. The court found that all of
the IRS’s claims were entitled to first priority as
administrative expenses under 11 U. S. C.
§§ 503(b)(1)(C) and 507(a)(1), but held that the
penalty claim was subject to ‘‘equitable subordina-
tion’’ under § 510(c), which the court interpreted
as giving it authority not only to deal with
inequitable Government conduct, but also to adjust
a statutory priority of a category of claims. The
court’s decision to subordinate the penalty claim to
the claims of the general unsecured creditors was
affirmed by the District Court and the Sixth
Circuit, which concluded that postpetition,
nonpecuniary loss tax penalty claims are suscep-
tible to subordination by their very nature.
Held: A bankruptcy court may not equitably
subordinate claims on a categorical basis in dero-
gation of Congress’s priorities scheme. The lan-
guage of § 510(c), principles of statutory con-
struction, and legislative history clearly indicate
Congress’s intent in its 1978 revision of the Code
to use the existing judge-made doctrine of equi-
table subordination as the starting point for decid-
ing when subordination is appropriate. By adopt-
ing ‘‘principles of equitable subordination,’’
§ 510(c) allows a bankruptcy court to reorder a
tax penalty when justified by particular facts. It is
also clear that Congress meant to give courts some
leeway to develop the doctrine. However, a read-
ing of the statute that would give courts leeway
broad enough to allow subordination at odds with
the congressional ordering of priorities by category
is improbable in the extreme. The statute would
then empower a court to modify the priority
provision’s operation at the same level at which
Congress operated when it made its characteristi-
cally general judgment to establish the hierarchy
of claims in the first place, thus delegating
legislative revision, not authorizing equitable ex-
ception. Nonetheless, just such a legislative type
of decision underlies the reordering of priorities
here. The Sixth Circuit’s decision runs directly
counter to Congress’s policy judgment that a
postpetition tax penalty should receive the priority
of an administrative expense. Since the Sixth
Circuit’s rationale was inappropriately categorical
10

in nature, this Court need not decide whether a
bankruptcy court must always find creditor mis-
conduct before a claim may be equitably subordi-
nated.
48 F. 3d 210, reversed and remanded.
S
OUTER, J., delivered the opinion for a unani-
mous Court.
JUSTICESOUTERdelivered the opinion
of the Court.
The issue in this case is the scope of
a bankruptcy court’s power of equitable
subordination under 11 U.S.C. § 510(c).
Here, in the absence of any finding of
inequitable conduct on the part of the
Government, the Bankruptcy Court sub-
ordinated the Government’s claim for a
postpetition, noncompensatory tax pen-
alty, which would normally receive first
priority in bankruptcy as an ‘‘adminis-
trative expense,’’ §§ 503(b)(1)(C),
507(a)(1). We hold that the bankruptcy
court may not equitably subordinate
claims on a categorical basis in de-
rogation of Congress’s scheme of priori-
ties.
In April 1986, First Truck Lines, Inc.,
voluntarily filed for relief under Chapter
11 of the Bankruptcy Code, and in the
subsequent operation of its business as a
debtor-in-possession incurred, but failed
to discharge, tax liabilities to the Inter-
nal Revenue Service. First Truck moved
to convert the case to a Chapter 7
liquidation in June 1988, and in August
1988 the Bankruptcy Court granted that
motion and appointed respondent Tho-
mas R. Noland as trustee. The liquida-
tion of the estate’s assets raised insuffi-
cient funds to pay all of the creditors.
After the conversion, the IRS filed
claims for taxes, interest, and penalties
that accrued after the Chapter 11 filing
but before the Chapter 7 conversion, and
although the parties agreed that the
claims for taxes and interest were en-
titled to priority as administrative ex-
penses, §§ 503(b), 507(a)(1), and
726(a)(1),
1
they disagreed about the pri-
ority to be given tax penalties. The
Bankruptcy Court determined that the
penalties (like the taxes and interest)
were administrative expenses under
§ 503(b) but held them to be subject to
equitable subordination under § 510(c).
2
In so doing, the Court read that section
to provide authority not only to deal
with inequitable conduct on the Govern-
ment’s part, but also to adjust a statutory
priority of a category of claims. The
Bankruptcy Court accordingly weighed
the relative equities that seemed to flow
from what it described as ‘‘the Code’s
preference for compensating actual loss
claims,’’ and subordinated the tax pen-
alty claim to those of the general unse-
cured creditors.In re First Truck Lines,
Inc., 141 B. R. 621, 629 (SD Ohio
1992). The District Court affirmed.In-
ternal Revenue Servicev.Noland, 190
B. R. 827 (SD Ohio 1993).
After reviewing the legislative history
of the 1978 revision to the Bankruptcy
Code and several recent appeals cases
on equitable subordination of tax penal-
ties, the Sixth Circuit affirmed, as well.
In re First Truck Lines, Inc., 48 F. 3d
210 (1995). The Sixth Circuit stated that
it did
‘‘not see the fairness or the justice
in permitting the Commissioner’s
claim for tax penalties, which are
not being assessed because of pe-
cuniary losses to the Internal Rev-
enue Service, to enjoy an equal or
higher priority with claims based
on the extension of value to the
debtor, whether secured or not.
Further, assessing tax penalties
against the estate of a debtor no
longer in existence serves no puni-
tive purpose. Because of the na-
ture of postpetition, nonpecuniary
loss tax penalty claims in a Chap-
ter 7 case, we believe such claims
are susceptible to subordination.
To hold otherwise would be to
allow creditors who have sup-
ported the business during its at-
tempt to reorganize to be penal-
ized once that effort has failed and
there is not enough to go around.’’
Id., at 218.
See alsoBurdenv.United States, 917 F.
2d 115, 120 (CA3 1990);Schultz Broad-
way Innv.United States, 912 F. 2d 230,
234 (CA8 1990);In re Virtual Network
Services Corp., 902 F. 2d 1246, 1250
(CA7 1990). We granted certiorari to
determine the appropriate scope of the
power under the Bankruptcy Code to
subordinate a tax penalty, 516 U. S. ___
(1995), and we now reverse.
The judge-made doctrine of equitable
subordination predates Congress’s revi-
sion of the Code in 1978. Relying in
part on our earlier cases, see,e.g.,
Comstockv. Group of Institutional In-
vestors, 335 U. S. 211 (1948);Pepperv.
Litton, 308 U. S. 295 (1939);Taylorv.
Standard Gas & Elec. Co., 306 U. S.
307 (1939), the Fifth Circuit, in its
influential opinion inIn re Mobile Steel
Co., 563 F. 2d 692, 700 (CA5 1977),
observed that the application of the
doctrine was generally triggered by a
showing that the creditor had engaged in
‘‘some type of inequitable conduct.’’
Mobile Steeldiscussed two further con-
ditions relating to the application of the
doctrine: that the misconduct have ‘‘re-
sulted in injury to the creditors of the
bankrupt or conferred an unfair advan-
tage on the claimant,’’ and that the
subordination ‘‘not be inconsistent with
the provisions of the Bankruptcy Act.’’
Ibid. This last requirement has been read
as a ‘‘reminder to the bankruptcy court
that although it is a court of equity, it is
not free to adjust the legally valid claim
of an innocent party who asserts the
claim in good faith merely because the
court perceives that the result is inequi-
table.’’ DeNatale & Abram, The Doc-
trine of Equitable Subordination as Ap-
plied to Nonmanagement Creditors, 40
Bus. Law. 417, 428 (1985). The district
courts and courts of appeals have gener-
ally followed theMobile Steelformula-
tion,In re Baker & Getty Financial
Services, Inc., 974 F. 2d 712, 717 (CA6
1992).
Although Congress included no ex-
plicit criteria for equitable subordination
when it enacted § 510(c)(1), the refer-
ence in § 510(c) to ‘‘principles of equi-
table subordination,’’ clearly indicates
congressional intent at least to start with
existing doctrine. This conclusion is
confirmed both by principles of statu-
tory construction, seeMidlantic Nat.
Bankv.New Jersey Dept. of Environ-
mental Protection, 474 U. S. 494, 501
(1986) (‘‘The normal rule of statutory
construction is that if Congress intends
for legislation to change the interpreta-
tion of a judicially created concept, it
makes that intent specific. The Court
has followed this rule with particular
care in construing the scope of bank-
ruptcy codifications’’) (citation omitted),
and by statements in the legislative
history that Congress ‘‘intended that the
term ‘principles of equitable subordina-
tion’ follow existing case law and leave
to the courts development of this prin-
ciple,’’ 124 Cong. Rec. 32398 (1978)
1
Section 507(a)(1) provides, in relevant part: ‘‘(a)
The following expenses and claims have priority
in the following order: (1) First, administrative
expenses allowed under section 503(b) of this title
. . . .’’ Under § 503(b)(1), administrative expenses
include ‘‘any tax . . . incurred by the estate’’ (with
certain exceptions not relevant here), as well as
‘‘any fine [or] penalty . . . relating to [such] a tax
. . . .’’ Section 726(a)(1) adopts the order of
payment specified in § 507 for Chapter 7 proceed-
ings.
2
Section 510(c) provides that ‘‘the court may . . .
under principles of equitable subordination, subor-
dinate for purposes of distribution all or part of an
allowed claim . . . .’’
11

(Rep. Edwards); see alsoid., at 33998
(Sen. DeConcini). In keeping with pre-
1978 doctrine, many Courts of Appeals
have continued to require inequitable
conduct before allowing the equitable
subordination of most claims, see,e.g.,
In re Fabricators, Inc., 926 F. 2d 1458,
1464 (CA5 1991);In re Bellanca Air-
craft Corp., 850 F. 2d 1275, 1282–1283
(CA8 1988), although several have done
away with the requirement when the
claim in question was a tax penalty. See,
e.g., Burden, supra, at 120;Schultz,
supra, at 234;In re Virtual Network,
supra,at 1250.
Section 510(c) may of course be
applied to subordinate a tax penalty,
since the Code’s requirement that a
Chapter 7 trustee must distribute assets
‘‘in the order specified in . . . section
507,’’ (which gives a first priority to
administrative expense tax penalties) is
subject to the qualification, ‘‘[e]xcept as
provided in section 510 of this title
. . . .’’ 11 U.S.C. § 726(a). Thus, ‘‘prin-
ciples of equitable subordination’’ may
allow a bankruptcy court to reorder a
tax penalty in a given case. It is almost
as clear that Congress meant to give
courts some leeway to develop the doc-
trine, 124 Cong. Rec. 33998 (1978),
rather than to freeze the pre-1978 law in
place. The question is whether that
leeway is broad enough to allow subor-
dination at odds with the congressional
ordering of priorities by category.
The answer turns on Congress’s prob-
able intent to preserve the distinction
between the relative levels of generality
at which trial courts and legislatures
respectively function in the normal
course. Hence, the adoption in § 510(c)
of ‘‘principles of equitable subordina-
tion’’ permits a court to make exceptions
to a general rule when justified by
particular facts, cf.Hecht Co.v.Bowles,
321 U. S. 321, 329 (1944) (‘‘The es-
sence of equity jurisdiction has been the
power of the Chancellor to do equity
and to mould each decree to the necessi-
ties of the particular case’’). But if the
provision also authorized a court to
conclude on a general, categorical level
that tax penalties should not be treated
as administrative expenses to be paid
first, it would empower a court to
modify the operation of the priority
statute at the same level at which Con-
gress operated when it made its charac-
teristically general judgment to establish
the hierarchy of claims in the first place.
That is, the distinction between charac-
teristic legislative and trial court func-
tions would simply be swept away, and
the statute would delegate legislative
revision, not authorize equitable excep-
tion. We find such a reading improbable
in the extreme. ‘‘Decisions about the
treatment of categories of claims in
bankruptcy proceedings . . . are not dic-
tated or illuminated by principles of
equity and do not fall within the judicial
power of equitable subordination . . . .’’
Burden, 917 F. 2d, at 122 (Alito, J.,
concurring in part and dissenting in
part).
Just such a legislative type of deci-
sion, however, underlies the Bankruptcy
Court’s reordering of priorities in ques-
tion here, as approved by the District
Court and the Court of Appeals. Despite
language in its opinion about requiring a
balancing of the equities in individual
cases, the Court of Appeals actually
concluded that ‘‘postpetition, nonpecuni-
ary loss tax penalty claims’’ are ‘‘sus-
ceptible to subordination’’ by their very
‘‘nature.’’ 48 F. 3d, at 218. And al-
though the court said that not every tax
penalty would be equitably subordi-
nated,ibid., that would be the inevitable
result of consistent applications of the
rule employed here, which depends not
on individual equities but on the suppos-
edly general unfairness of satisfying
‘‘postpetition, nonpecuniary loss tax
penalty claims’’ before the claims of a
general creditor.
The Court of Appeals’s decision thus
runs directly counter to Congress’s
policy judgment that a postpetition tax
penalty should receive the priority of an
administrative expense, 11 U.S.C.
§§ 503(b)(1)(C), 507(a)(1), and 726(a)-
(1). This is true regardless of Noland’s
argument that the Bankruptcy Court
made a distinction between compensa-
tory and noncompensatory tax penalties,
for this was itself a categorical distinc-
tion at a legislative level of generality.
Indeed, Congress recognized and em-
ployed that distinction elsewhere in the
priority provisions: Congress specifically
assigned 8th priority to certain compen-
satory tax penalties, see § 507(a)(8)(G),
and 12th priority to prepetition, noncom-
pensatory penalties, see § 726(a)(1), and
(4).
3
The Sixth Circuit, to be sure, invoked
a more modest authority than legislative
revision when it relied on statements by
the congressional leaders of the 1978
Code revisions, see 48 F. 3d, at 215,
217–218, and it is true that Representa-
tive Edwards and Senator DeConcini
stated that ‘‘under existing law, a claim
is generally subordinated only if [the]
holder of such claim is guilty of inequi-
table conduct, or the claim itself is of a
status susceptible to subordination, such
as a penalty or a claim for damages
arising from the purchase or sale of a
security of the debtor.’’ 124 Cong. Rec.
32398 (1978) (Rep. Edwards); see also
id., at 33998 (Sen. DeConcini). But their
remarks were not statements of existing
law and the Sixth Circuit’s reliance on
the unexplained reference to subordi-
nated penalties ran counter to this
Court’s previous endorsement of priority
treatment for postpetition tax penalties.
SeeNicholasv.United States, 384 U. S.
678, 692–695 (1966). More fundamen-
tally, statements in legislative history
cannot be read to convert statutory lee-
way for judicial development of a rule
on particularized exceptions into del-
egated authority to revise statutory cat-
egorization, untethered to any obligation
to preserve the coherence of substantive
congressional judgments.
Given our conclusion that the Sixth
Circuit’s rationale was inappropriately
categorical in nature, we need not de-
cide today whether a bankruptcy court
must always find creditor misconduct
before a claim may be equitably subor-
dinated. We do hold that (in the absence
of a need to reconcile conflicting con-
gressional choices) the circumstances
that prompt a court to order equitable
subordination must not occur at the
level of policy choice at which Congress
itself operated in drafting the Bank-
ruptcy Code. Cf.In re Ahlswede, 516 F.
2d 784, 787 (CA9) (‘‘[T]he [equity]
chancellor never did, and does not now,
exercise unrestricted power to contradict
statutory or common law when he feels
3
Noland argues that ‘‘although the penalties at
issue arose postpetition,’’ this claim should be
viewed as a prepetition penalty because a ‘‘reorga-
nized debtor is in many respects similar to a
prepetition debtor . . . [and] the conversion of
[this] case to chapter 7 was tantamount to the
filing of a new petition.’’ Brief for Respondent 16,
n. 7. But we agree with the Sixth Circuit, seeIn re
First Truck Lines, Inc., 48 F. 3d 210, 214 (1995),
that the penalties at issue here are postpetition
administrative expenses pursuant to 11 U. S. C.
§§ 348(d), 503(b)(1). Although § 348(d) provides
that a ‘‘claim against the estate or the debtor that
arises after the order for relief but before conver-
sion in a case that is converted under section 1112,
1208, or 1307 of this title, other than a claim
specified in section 503(b) of this title, shall be
treated for all purposes as if such claim had arisen
immediately before the date of the filing of the
petition,’’ the claim for priority here is ‘‘specified
in section 503(b)’’ and Congress has already
determined that it is not to be treated like
prepetition penalties. Noland may or may not have
a valid policy argument, but it is up to Congress,
not this Court, to revise the determination if it so
chooses.
12

a fairer result may be obtained by
application of a different rule’’), cert.
deniedsub nom. Stebbinsv.Crocker
Citizens Nat. Bank, 423 U.S. 913
(1975);In re Columbia Ribbon Co., 117
F. 2d 999, 1002 (CA3 1941) (court
cannot ‘‘set up a subclassification of
claims . . . and fix an order of priority
for the sub-classes according to its
theory of equity’’).
In this instance, Congress could have,
but did not, deny noncompensatory,
postpetition tax penalties the first prior-
ity given to other administrative ex-
penses, and bankruptcy courts may not
take it upon themselves to make that
categorical determination under the
guise of equitable subordination. The
judgment of the Court of Appeals is
reversed, and the case is remanded for
further proceedings consistent with this
opinion.
It is so ordered.
Section 6512.—Limitations in Case
of Petition to Tax Court
Ct.D. 2058
SUPREME COURT OF THE
UNITED STATES
No. 94–1785
COMMISSIONER OF INTERNAL
REVENUE, PETITIONER v. ROBERT
F. LUNDY
516 U.S.—
ON WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF
APPEALS FOR THE FOURTH
CIRCUIT
January 17, 1996
Syllabus
Respondent Lundy and his wife withheld from
their 1987 wages substantially more in federal
income taxes than they actually owed for that
year, but they did not file their 1987 tax return
when it was due, nor did they file a return or
claim a refund of the overpaid taxes in the
succeeding 2½ years. On September 26, 1990, the
Commissioner of Internal Revenue mailed Lundy
a notice of deficiency for 1987. Some three
months later, the Lundys filed their joint 1987 tax
return, which claimed a refund of their overpaid
taxes, and Lundy filed a timely petition in the Tax
Court seeking a redetermination of the claimed
deficiency and a refund. The Tax Court held that
where, as here, a taxpayer has not filed a tax
return by the time a notice of deficiency is mailed,
and the notice is mailed more than two years after
the date on which the taxes are paid, a 2-year
‘‘look-back’’ period applies under 26 U. S. C.
§ 6512(b)(3)(B), and the court lacks jurisdiction
to award a refund. The Fourth Circuit reversed,
finding that the applicable look-back period in
these circumstances is three years and that the Tax
Court had jurisdiction to award a refund.
Held:The Tax Court lacks jurisdiction to award
a refund of taxes paid more than two years prior
to the date on which the Commissioner mailed the
taxpayer a notice of deficiency, if, on the date that
the notice was mailed, the taxpayer had not yet
filed a return. In these circumstances, the appli-
cable look-back period under § 6512(b)(3)(B) is
two years.
(a) Section 6512(b)(3)(B) forbids the Tax Court
to award a refund unless it first determines that
the taxes were paid ‘‘within the [look-back] period
which would be applicable under section
6511(b)(2) . . . if on the date of the mailing of the
notice of deficiency a claim [for refund] had been
filed.’’ Section § 6511(b)(2)(A) in turn instructs
the court to apply a 3-year look-back period if a
refund claim is filed, as required by § 6511(a),
‘‘within 3 years from the time the return was
filed,’’ while § 6511(b)(2)(B) specifies a 2-year
look-back period if the refund claim is not filed
within that 3-year period. The Tax Court properly
applied the 2-year look-back period to Lundy’s
case because, as of September 26, 1990 (the date
the notice of deficiency was mailed), Lundy had
not filed a tax return, and, consequently, a claim
filed on that date would not be filed within the
3-year period described in § 6511(a). Lundy’s
taxes were withheld from his wages, so they are
deemed paid on the date his 1987 tax return was
due (April 15, 1988), which is more than two
years prior to the date the notice of deficiency was
mailed. Lundy is therefore seeking a refund of
taxes paid outside the applicable look-back period,
and the Tax Court lacks jurisdiction to award a
refund.
(b) Lundy suggests two alternative interpreta-
tions of § 6512(b)(3)(B), neither of which is
persuasive. Lundy first adopts the Fourth Circuit’s
view, which is that the applicable look-back period
is determined by reference to the date that the
taxpayeractually fileda claim for refund, and
argues that he is entitled to a 3-year look-back
period because his late-filed 1987 tax return
contained a refund claim that was filed within
three years from the filing of the return itself. This
interpretation is contrary to the requirements of the
statute and leads to a result that Congress could
not have intended, as it in some circumstances
subjects a timely filer of a return to a shorter
limitations period in Tax Court than a delinquent
filer. Lundy’s second argument, that the ‘‘claim’’
contemplated by § 6512(b)(3)(B) can only be a
claim filed on a tax return, such that a uniform
3-year look-back period applies under that section,
is similarly contrary to the language of the statute.
(c) This Court is bound by § 6512(b)(3)(B)’s
language as it is written, and even if the Court
were persuaded by Lundy’s policy-based argu-
ments for applying a 3-year look-back period, the
Court is not free to rewrite the statute simply
because its effects might be susceptible of im-
provement.
45 F. 3d 856, reversed.
O’C
ONNOR, J., delivered the opinion of the
Court, in which R
EHNQUIST, C. J., and SCALIA,
KENNEDY, SOUTER, GINSBURG, and BREYER, JJ.,
joined. STEVENS, J., filed a dissenting opinion.
T
HOMAS, J., filed a dissenting opinion, in which
S
TEVENS, J., joined.
JUSTICEO’CONNORdelivered the
opinion of the Court.
In this case, we consider the ‘‘look-
back’’ period for obtaining a refund of
overpaid taxes in the United States Tax
Court under 26 U.S.C. § 6512(b)(3)(B),
and decide whether the Tax Court can
award a refund of taxes paid more than
two years prior to the date on which the
Commissioner of Internal Revenue
mailed the taxpayer a notice of defi-
ciency, when, on the date the notice of
deficiency was mailed, the taxpayer had
not yet filed a return. We hold that in
these circumstances the 2-year look-
back period set forth in § 6512(b)(3)(B)
applies, and the Tax Court lacks juris-
diction to award a refund.
I
During 1987, respondent Robert F.
Lundy and his wife had $10,131 in
federal income taxes withheld from their
wages. This amount was substantially
more than the $6,594 the Lundys actu-
ally owed in taxes for that year, but the
Lundys did not file their 1987 tax return
when it was due, nor did they file a
return or claim a refund of the overpaid
taxes in the succeeding two and a half
years. On September 26, 1990, the
Commissioner of Internal Revenue
mailed Lundy a notice of deficiency,
informing him that he owed $7,672 in
additional taxes and interest for 1987
and that he was liable for substantial
penalties for delinquent filing and negli-
gent underpayment of taxes, see 26 U.
S. C. §§ 6651(a)(1) and 6653(1).
Lundy and his wife mailed their joint
tax return for 1987 to the Internal
Revenue Service (IRS) on December 22,
1990. This return indicated that the
Lundys had overpaid their income taxes
for 1987 by $3,537 and claimed a
refund in that amount. Two days after
the return was mailed, Lundy filed a
timely petition in the Tax Court seeking
a redetermination of the claimed defi-
ciency and a refund of the couple’s
overpaid taxes. The Commissioner filed
an answer generally denying the allega-
tions in Lundy’s petition. Thereafter, the
parties negotiated towards a settlement
of the claimed deficiency and refund
claim. On March 17, 1992, the Commis-
sioner filed an amended answer ac-
knowledging that Lundy had filed a tax
return and that Lundy claimed to have
overpaid his 1987 taxes by $3,537.
The Commissioner contended in this
amended pleading that the Tax Court
lacked jurisdiction to award Lundy a
refund. The Commissioner argued that if
a taxpayer does not file a tax return
before the IRS mails the taxpayer a
notice of deficiency, the Tax Court can
only award the taxpayer a refund of
13

taxes paid within two years prior to the
date the notice of deficiency was
mailed. See 26 U.S.C. § 6512(b)(3)(B).
Under the Commissioner’s interpretation
of § 6512(b)(3)(B), the Tax Court
lacked jurisdiction to award Lundy a
refund because Lundy’s withheld taxes
were deemed paid on the date that his
1987 tax return was due (April 15,
1988), see § 6513(b)(1), which is more
than two years before the date the notice
was mailed (September 26, 1990).
The Tax Court agreed with the posi-
tion taken by the Commissioner and
denied Lundy’s refund claim. Citing an
unbroken line of Tax Court cases adopt-
ing a similar interpretation of § 6512-
(b)(3)(B),e.g. Allenv.Commissioner,
99 T. C. 475, 479–480 (1992);Galuska
v.Commissioner, 98 T. C. 661, 665
(1992);Berryv.Commissioner, 97 T. C.
339, 344–345 (1991);Whitev.Commis-
sioner, 72 T. C. 1126, 1131–1133 (1979)
(renumbered statute);Hoskingv.Com-
missioner, 62 T. C. 635, 642–643 (1974)
(renumbered statute), the Tax Court held
that if a taxpayer has not filed a tax
return by the time the notice of defi-
ciency is mailed, and the notice is
mailed more than two years after the
date on which the taxes are paid, the
look-back period under § 6512(b)(3)(B)
is two years and the Tax Court lacks
jurisdiction to award a refund. 65 TCM
3011, 3014–3015, RIA TC memo ¶93,
278 (1993).
The Court of Appeals for the Fourth
Circuit reversed, finding that the appli-
cable look-back period in these cir-
cumstances is three years and that the
Tax Court had jurisdiction to award
Lundy a refund. 45 F. 3d 856, 861
(1995). Every other Court of Appeals to
have addressed the question has af-
firmed the Tax Court’s interpretation of
§ 6512(b)(3)(B), seeDavisonv.Com-
missioner, 9 F. 3d 1538 (CA2 1993)
(unpublished disposition);Allenv.Com-
missioner, 23 F. 3d 406 (CA6 1994)
(unpublished disposition);Galuskav.
Commissioner, 5 F. 3d 195, 196 (CA7
1993);Richardsv.Commissioner, 37 F.
3d 587, 589 (CA10 1994); see also
Rossmanv.Commissioner, 46 F. 3d
1144 (CA9 1995) (unpublished disposi-
tion) (affirming on other grounds). We
granted certiorari to resolve the conflict,
515 U. S.
(1995), and now reverse.
II
A taxpayer seeking a refund of over-
paid taxes ordinarily must file a timely
claim for a refund with the Internal
Revenue Service (IRS) under 26 U. S.
C. § 6511.
1
That section contains two
separate provisions for determining the
timeliness of a refund claim. It first
establishes afiling deadline:The tax-
payer must file a claim for a refund
‘‘within 3 years from the time the return
was filed or 2 years from the time the
tax was paid, whichever of such periods
expires the later, or if no return was
filed by the taxpayer, within 2 years
from the time the tax was paid.’’
§ 6511(b)(1) (incorporating by reference
§ 6511(a)). It also defines two‘‘look-
back’’ periods:If the claim is filed
‘‘within 3 years from the time the return
was filed,’’ibid., then the taxpayer is
entitled to a refund of ‘‘the portion of
the tax paid within the 3 years immedi-
ately preceding the filing of the claim.’’
§ 6511(b)(2)(A) (incorporating by refer-
ence § 6511(a)). If the claim is not filed
within that 3-year period, then the tax-
payer is entitled to a refund of only that
‘‘portion of the tax paid during the 2
years immediately preceding the filing
of the claim.’’ § 6511(b)(2)(B) (incorpo-
rating by reference § 6511(a)).
Unlike the provisions governing re-
fund suits in United States District
Court or the United States Court of
Federal Claims, which make timely fil-
ing of a refund claim a jurisdictional
prerequisite to bringing suit, see 26
U.S.C. § 7422(a);Martinv.United
States, 833 F. 2d 655, 658–659 (CA7
1987), the restrictions governing the Tax
Court’s authority to award a refund of
overpaid taxes incorporate only the
look-back period and not the filing
deadline from § 6511. See 26 U.S.C.
§ 6512(b)(3).
2
Consequently, a taxpayer
who seeks a refund in the Tax Court,
like respondent, does not need to actu-
ally file a claim for refund with the IRS;
the taxpayer need only show that the tax
to be refunded was paid during the
applicable look-back period.
1
In relevant part, 26 U. S. C. § 6511 provides:
‘‘(a) Period of limitation on filing claim
Claim for credit or refund of an overpayment of
any tax imposed by this title in respect of which
tax the taxpayer is required to file a return shall be
filed by the taxpayer within 3 years from the time
the return was filed or 2 years from the time the
tax was paid, whichever of such periods expires
the later, or if no return was filed by the taxpayer,
within 2 years from the time the tax was paid.
Claim for credit or refund of an overpayment of
any tax imposed by this title which is required to
be paid by means of a stamp shall be filed by the
taxpayer within 3 years from the time the tax was
paid.
‘‘(b) Limitation on allowance of credits and
refunds
‘‘(1) Filing of claim within prescribed period
No credit or refund shall be allowed or made
after the expiration of the period of limitation
prescribed in subsection (a) for the filing of a
claim for credit or refund, unless a claim for credit
or refund is filed by the taxpayer within such
period.
‘‘(2) Limit on amount of credit or refund
‘‘(A) Limit where claim filed within 3-year
period
If the claim was filed by the taxpayer during the
3-year period prescribed in subsection (a), the
amount of the credit or refund shall not exceed the
portion of the tax paid within the period, immedi-
ately preceding the filing of the claim, equal to 3
years plus the period of any extension of time for
filing the return. If the tax was required to be paid
by means of a stamp, the amount of the credit or
refund shall not exceed the portion of the tax paid
within the 3 years immediately preceding the
filing of the claim.
‘‘(B) Limit where claim not filed within 3-year
period
If the claim was not filed within such 3-year
period, the amount of the credit or refund shall not
exceed the portion of the tax paid during the 2
years immediately preceding the filing of the
claim.
‘‘(C) Limit if no claim filed
If no claim was filed, the credit or refund shall
not exceed the amount which would be allowable
under subparagraph (A) or (B), as the case may
be, if claim was filed on the date the credit or
refund is allowed.’’
2
In relevant part, 26 U. S. C. § 6512(b) provides:
‘‘(1) Jurisdiction to determine
Except as provided by paragraph (3) and by
section 7463, if the Tax Court finds that there is
no deficiency and further finds that the taxpayer
has made an overpayment of income tax for the
same taxable year . . . in respect of which the
Secretary determined the deficiency, or finds that
there is a deficiency but that the taxpayer has
made an overpayment of such tax, the Tax Court
shall have jurisdiction to determine the amount of
such overpayment, and such amount shall, when
the decision of the Tax Court has become final, be
credited or refunded to the taxpayer.
. . . . .
‘‘(3) Limit on amount of credit or refund
No such credit or refund shall be allowed or
made of any portion of the tax unless the Tax
Court determines as part of its decision that such
portion was paid—
‘‘(A) after the mailing of the notice of defi-
ciency,
‘‘(B) within the period which would be appli-
cable under section 6511(b)(2), (c), or (d), if on
the date of the mailing of the notice of deficiency
a claim had been filed (whether or not filed)
stating the grounds upon which the Tax Court
finds that there is an overpayment, or
‘‘(C) within the period which would be appli-
cable under section 6511(b)(2), (c), or (d), in
respect of any claim for refund filed within the
applicable period specified in section 6511 and
before the date of the mailing of the notice of
deficiency’’
‘‘(i) which had not been disallowed before that
date,
‘‘(ii) which had been disallowed before that
date and in respect of which a timely suit for
refund could have been commenced as of that
date, or
‘‘(iii) in respect of which a suit for refund had
been commenced before that date and within the
period specified in section 6532.’’
14

In this case, the applicable look-back
period is set forth in § 6512(b)(3)(B),
which provides that the Tax Court can-
not award a refund of any overpaid
taxes unless it first determines that the
taxes were paid:
‘‘within the period which would
be applicable under section
6511(b)(2) . . . if on the date of
the mailing of the notice of defi-
ciency a claim had been filed
(whether or not filed) stating the
grounds upon which the Tax Court
finds that there is an overpay-
ment.’’
The analysis dictated by § 6512(b)-
(3)(B) is not elegant, but it is straight-
forward. Though some courts have ad-
verted to the filing of a ‘‘deemed
claim,’’ seeGaluska, 5 F. 3d, at 196;
Richards, 37 F. 3d, at 589, all that
matters for the proper application of
§ 6512(b)(3)(B) is that the ‘‘claim’’
contemplated in that section be treated
as the only mechanism for determining
whether a taxpayer can recover a refund.
Section 6512(b)(3)(B) defines the look-
back period that applies in Tax Court by
incorporating the look-back provisions
from § 6511(b)(2), and directs the Tax
Court to determine the applicable period
by inquiring into the timeliness of a
hypothetical claim for refund filed ‘‘on
the date of the mailing of the notice of
deficiency.’’
To this end, § 6512(b)(3)(B) directs
the Tax Court’s attention to § 6511(b)-
(2), which in turn instructs the court to
apply either a 3-year or a 2-year look-
back period. See §§ 6511(b)(2)(A) and
(B) (incorporating by reference
§ 6511(a)); seesupra, at 5. To decide
which of these look-back periods to
apply, the Tax Court must consult the
filing provisions of § 6511(a) and ask
whether the claim described by
§ 6512(b)(3)(B)—a claim filed ‘‘on the
date of the mailing of the notice of
deficiency’’—would be filed ‘‘within 3
years from the time the return was
filed.’’ See § 6511(b)(2)(A) (incorporat-
ing by reference § 6511(a)). If a claim
filed on the date of the mailing of the
notice of deficiency would be filed
within that 3-year period, then the look-
back period is also three years and the
Tax Court has jurisdiction to award a
refund of any taxes paid within three
years prior to the date of the mailing of
the notice of deficiency. §§ 6511(b)-
(2)(A) and 6512(b)(3)(B). If the claim
would not be filed within that 3-year
period, then the period for awarding a
refund is only two years. §§ 6511(b)-
(2)(B) and 6512(b)(3)(B).
In this case, we must determine which
of these two look-back periods to apply
when the taxpayer fails to file a tax
return when it is due, and the Commis-
sioner mails the taxpayer a notice of
deficiency before the taxpayer gets
around to filing a late return. The Fourth
Circuit held that a taxpayer in this
situation is entitled to a 3-year look-
back period if the taxpayer actually files
a timely claim at some point in the
litigation, seeinfra, at 10–11, and re-
spondent offers additional reasons for
applying a 3-year look-back period, see
infra, at 13–17. We think the proper
application of § 6512(b)(3)(B) instead
requires that a 2-year look-back period
be applied.
We reach this conclusion by follow-
ing the instructions set out in § 6512-
(b)(3)(B). The operative question is
whether a claim filed ‘‘on the date of
the mailing of the notice of deficiency’’
would be filed ‘‘within 3 years from the
time the return was filed.’’ Seesupra,
at 7; § 6512(b)(3)(B) (incorporating
§§ 6511(b)(2) and 6511(a)). In the case
of a taxpayer who does not file a re-
turn before the notice of deficiency
is mailed, the claim described in
§ 6512(b)(3)(B) could not be filed
‘‘within 3 years from the time the return
was filed.’’ No return having been filed,
there is no date from which to measure
the 3-year filing period described in
§ 6511(a). Consequently, the claim con-
templated in § 6512(b)(3)(B) would not
be filed within the 3-year window de-
scribed in § 6511(a), and the 3-year
look-back period set out in § 6511-
(b)(2)(A) would not apply. The appli-
cable look-back period is instead the
default 2-year period described in
§ 6511(b)(2)(B), which is measured
from the date of the mailing of the
notice of deficiency, see § 6512(b)(3)-
(B). The taxpayer is entitled to a refund
of any taxes paid within two years prior
to the date of the mailing of the notice
of deficiency.
Special rules might apply in some
cases, seee.g., § 6511(c) (extension of
time by agreement); § 6511(d) (special
limitations periods for designated items),
but in the case where the taxpayer has
filed a timely tax return and the IRS is
claiming a deficiency in taxes from that
return, the interplay of §§ 6512(b)(3)(B)
and 6511(b)(2) generally ensures that
the taxpayer can obtain a refund of any
taxes against which the IRS is asserting
a deficiency. In most cases, the notice of
deficiency must be mailed within three
years from the date the tax return is
filed. See 26 U. S. C. §§ 6501(a) and
6503(a)(1);Badaraccov.Commissioner,
464 U. S. 386, 389, 392 (1984). There-
fore, if the taxpayer has already filed a
return (albeit perhaps a faulty one), any
claim filed ‘‘on the date of the mailing
of the notice of deficiency’’ would nec-
essarily be filed within three years from
the date the return is filed. In these
circumstances, the applicable look-back
period under § 6512(b)(3)(B) would be
the 3-year period defined in § 6511(b)-
(2)(A), and the Tax Court would have
jurisdiction to award a refund.
Therefore, in the case of a taxpayer
who files a timely tax return, § 6512-
(b)(3)(B) usually operates to toll the
filing period that might otherwise de-
prive the taxpayer of the opportunity to
seek a refund. If a taxpayer contesting
the accuracy of a previously filed tax
return in Tax Court discovers for the
first time during the course of litigation
that he is entitled to a refund, the
taxpayer can obtain a refund from the
Tax Court without first filing a timely
claim for refund with the IRS. It does
not matter, as it would in district court,
see § 7422 (incorporating §§ 6511),
that the taxpayer has discovered the
entitlement to a refund well after the
period for filing a timely refund claim
with the IRS has passed, because
§ 6512(b)(3)(B) applies ‘‘whether or not
[a claim is] filed,’’ and the look-back
period is measured from the date of the
mailing of the notice of deficiency.Ibid.
Nor does it matter, as it might in a
refund suit, see 26 CFR § 301.6402–
2(b)(1) (1995), whether the taxpayer has
previously apprised the IRS of the pre-
cise basis for the refund claim, because
26 U. S. C. § 6512(b)(3)(B) posits the
filing of a hypothetical claim ‘‘stating
the grounds upon which the Tax Court
finds that there is an overpayment,’’
§ 6512(b)(3)(B).
Section 6512(b)(3)(B) treats delin-
quent filers of income tax returns less
charitably. Whereas timely filers are
virtually assured the opportunity to seek
a refund in the event they are drawn
into Tax Court litigation, a delinquent
filer’s entitlement to a refund in Tax
Court depends on the date of the mail-
ing of the notice of deficiency. Section
6512(b)(3)(B) tolls the limitations pe-
riod, in that it directs the Tax Court to
measure the look-back period from the
date on which the notice of deficiency is
mailed and not the date on which the
taxpayer actually files a claim for re-
15

fund. But in the case of delinquent
filers, § 6512(b)(3)(B) establishes only
a 2-year look-back period, so the delin-
quent filer is not assured the opportunity
to seek a refund in Tax Court: If the
notice of deficiency is mailed more than
two years after the taxes were paid, the
Tax Court lacks jurisdiction to award
the taxpayer a refund.
The Tax Court properly applied this
2-year look-back period to Lundy’s case.
As of September 26, 1990 (the date the
notice was mailed), Lundy had not filed
a tax return. Consequently, a claim filed
on that date would not be filed within
the 3-year period described in § 6511-
(a), and the 2-year period from § 6511-
(b)(2)(B) applies. Lundy’s taxes were
withheld from his wages, so they are
deemed paid on the date his 1987 tax
return was due (April 15, 1988), see 26
U. S. C. § 6513(b)(1), which is more
than two years prior to the date the
notice of deficiency was mailed (Sep-
tember 26, 1990). Lundy is therefore
seeking a refund of taxes paid outside
the applicable look-back period, and the
Tax Court lacks jurisdiction to award
such a refund.
III
In deciding Lundy’s case, the Fourth
Circuit adopted a different approach to
interpreting § 6512(b)(3)(B) and applied
a 3-year look-back period. Respondent
supports the Fourth Circuit’s rationale,
but also offers an argument for applying
a uniform 3-year look-back period under
§ 6512(b)(3)(B). We find neither posi-
tion persuasive. p1The Fourth Circuit
held that:
‘‘[T]he Tax Court, when applying
the limitation provision of § 6511-
(b)(2) in light of § 6512(b)(3)-
(B), should substitute the date of
the mailing of the notice of defi-
ciency for the date on which the
taxpayer filed the claim for re-
fund, but only for the purpose of
determining the benchmark date
for measuring the limitation period
and not for the purpose of deter-
mining whether the two-year or
three-year limitation period ap-
plies.’’ 45 F. 3d, at 861.
In other words, the Fourth Circuit held
that the look-back period ismeasured
from the date of the mailing of the
notice of deficiency (i.e., the taxpayer is
entitled to a refund of any taxes paid
within either two or three years prior to
that date), but that that date is irrelevant
in calculating thelengthof the look-
back period itself. The look-back period,
the Fourth Circuit held, must be defined
in terms of the date that the taxpayer
actually fileda claim for refund.Ibid.
(‘‘[T]he three-year limitation period ap-
plies because Lundy filed his claim for
refund . . . within three years of filing
his tax return’’). Thus, under the Fourth
Circuit’s view, Lundy was entitled to a
3-year look-back period because
Lundy’s late-filed 1987 tax return con-
tained a claim for refund, and that claim
was filed within three years from the
filing of the return.Ibid.(taxpayer en-
titled to same look-back period that
would apply in district court).
Contrary to the Fourth Circuit’s interpre-
tation, the fact that Lundy actually filed
a claim for a refund after the date on
which the Commissioner mailed the no-
tice of deficiency has no bearing in
determining whether the Tax Court has
jurisdiction to award Lundy a refund.
Seesupra, at 6. Once a taxpayer files a
petition with the Tax Court, the Tax
Court has exclusive jurisdiction to deter-
mine the existence of a deficiency or to
award a refund, see 26 U. S. C.
§ 6512(a), and the Tax Court’s jurisdic-
tion to award a refund is limited to
those circumstances delineated in
§ 6512(b)(3). Section 6512(b)(3)(C) is
the only provision that measures the
look-back period based on a refund
claim that is actually filed by the tax-
payer, and that provision is inapplicable
here because it only applies to refund
claims filed ‘‘before the date of the
mailing of the notice of deficiency.’’
§ 6512(b)(3)(C). Under § 6512(b)(3)-
(B), which is the provision that does
apply, the Tax Court is instructed to
consider only the timeliness of a claim
filed ‘‘on the date of the mailing of the
notice of deficiency,’’ not the timeliness
of any claim that the taxpayer might
actually file.
The Fourth Circuit’s rule also leads to a
result that Congress could not have
intended, in that it subjects the timely,
not the delinquent, filer to a shorter
limitations period in Tax Court. Under
the Fourth Circuit’s rule, the availability
of a refund turns entirely on whether the
taxpayer has in fact filed a claim for
refund with the IRS, because it is the
date ofactual filingthat determines the
applicable look-back period under
§ 6511(b)(2) (and, by incorporation,
§ 6512(b)(3)(B)). See 45 F. 3d, at 861;
seesupra, at 11. This rule might ‘‘elimi-
nate[] the inequities resulting’’ from ad-
hering to the 2-year look-back period,
45 F. 3d, at 863, but it creates an even
greater inequity in the case of a tax-
payer who dutifully files a tax return
when it is due, but does not initially
claim a refund. We think our interpreta-
tion of the statute achieves an appropri-
ate and reasonable result in this case:
The taxpayer who files a timely income
tax return could obtain a refund in the
Tax Court under § 6512(b)(3)(B), with-
out regard to whether the taxpayer has
actually filed a timely claim for refund.
Seesupra, at 8–9.
If it is the actual filing of a refund claim
that determines the length of the look-
back period, as the Fourth Circuit held,
the filer of a timely income tax return
might be out of luck. If the taxpayer
does not file a claim for refund with his
tax return, and the notice of deficiency
arrives shortly before the 3-year period
for filing a timely claim expires, see 26
U. S. C. §§ 6511(a) and (b)(1), the
taxpayer might not discover his entitle-
ment to a refund until well after the
commencement of litigation in the Tax
Court. But having filed a timely return,
the taxpayer would be precluded by the
passage of time from filing an actual
claim for refund ‘‘within 3 years from
the time the return was filed,’’ as
§ 6511(b)(2)(A) requires. § 6511(b)(2)-
(A) (incorporating by reference
§ 6511(a)). The taxpayer would there-
fore be entitled only to a refund of taxes
paid within two years prior to the
mailing of the notice of deficiency. See
§ 6511(b)(2)(B); 45 F. 3d, at 861–862
(taxpayer entitled to same look-back
period as would apply in district court,
and look-back period is determined
based on date of actual filing). It is
unlikely that Congress intended for a
taxpayer in Tax Court to be worse off
for having filed a timely return, but that
result would be compelled under the
Fourth Circuit’s approach.
Lundy offers an alternative reading of
the statute that avoids this unreasonable
result, but Lundy’s approach is similarly
defective. The main thrust of Lundy’s
argument is that the ‘‘claim’’ contem-
plated in § 6512(b)(3)(B) could be filed
‘‘within 3 years from the time the return
was filed,’’ such that the applicable
look-back period under § 6512(b)(3)(B)
would be three years, if the claim were
itself filed on a tax return. Lundy in fact
argues that Congress must have intended
the claim described in § 6512(b)(3)(B)
to be a claim filed on a return, because
there is no other way to file a claim for
refund with the IRS. Brief for Respon-
dent 28, 30 (citing 26 CFR § 301.6402–
3(a)(1) (1995). Lundy therefore argues
that § 6512(b)(3)(B) incorporates a uni-
16

form 3-year look-back period for Tax
Court cases: If the taxpayer files a
timely return, the notice of deficiency
(and the ‘‘claim’’ under § 6512(b)(3)-
(B)) will necessarily be filed within
three years of the return and the look-
back period is three years; if the tax-
payer does not file a return, then the
claim contemplated in § 6512(b)(3)(B)
is deemed to be a claim filed with, and
thus within three years of, a return and
the look-back period is again three
years. Like the Fourth Circuit’s ap-
proach, Lundy’s reading of the statute
has the convenient effect of ensuring
that taxpayers in Lundy’s position can
almost always obtain a refund if they
file in Tax Court, but we are bound by
the terms Congress chose to use when it
drafted the statute, and we do not think
that the term ‘‘claim’’ as it is used in
§ 6512(b)(3)(B) is susceptible of the
interpretation Lundy has given it. The
Internal Revenue Code does not define
the term ‘‘claim for refund’’ as it is used
in § 6512(b)(3)(B), cf. 26 U.S.C.
§ 6696(e)(2) (‘‘For purposes of section
6694 and 6695 . . . [t]he term ‘claim for
refund’ means a claim for refund of, or
credit against, any tax imposed by sub-
title A’’), but it is apparent from the
language of § 6512(b)(3)(B) and the
statute as a whole that a claim for
refund can be filed separately from a
return. Section 6512(b)(3)(B) provides
that the Tax Court has jurisdiction to
award a refund to the extent the tax-
payer would be entitled to a refund ‘‘if
on the date of the mailing of the notice
of deficiencya claimhad been filed.’’
(Emphasis added.) It does not state, as
Lundy would have it, that a taxpayer is
entitled to a refund if on that date ‘‘a
claim and a return had been filed.’’
Perhaps the most compelling evidence
that Congress did not intend the term
‘‘claim’’ in § 6512 to mean a ‘‘claim
filed on a return’’ is the parallel use of
the term ‘‘claim’’ in § 6511(a). Section
6511(a) indicates that a claim for refund
is timely if it is ‘‘filed by the taxpayer
within 3 years from the time the return
was filed,’’ and it plainly contemplates
that a claim can be filed even ‘‘if no
return was filed.’’ 26 U.S.C. § 6511(a).
If a claim couldonlybe filed with a
return, as Lundy contends, these provi-
sions of the statute would be senseless,
cf. 26 U. S. C. § 6696 (separately
defining ‘‘claim for refund’’ and ‘‘re-
turn’’), and we have been given no
reason to believe that Congress meant
the term ‘‘claim’’ to mean one thing in
§ 6511 but to mean something else
altogether in the very next section of the
statute. The interrelationship and close
proximity of these provisions of the
statute ‘‘presents a classic case for ap-
plication of the ‘normal rule of statutory
construction that identical words used in
different parts of the same act are
intended to have the same meaning.’ ’’
Sullivanv.Stroop, 496 U. S. 478, 484
(1990) (quotingSorensonv.Secretary of
Treasury, 475 U. S. 851, 860 (1986)
(internal quotation marks omitted).
The regulation Lundy cites in support of
his interpretation, 26 CFR § 301.6402–
3(a)(1) (1995), is consistent with our
interpretation of the statute. That regula-
tion states only that a claim must ‘‘[i]n
general’’ be filed on a return,ibid.,
inviting the obvious conclusion that
there are some circumstances in which a
claim and a return can be filed sepa-
rately. We have previously recognized
that even a claim that does not comply
with federal regulations might suffice to
toll the limitations periods under the Tax
Code, see,e.g.,United Statesv.Kales,
314 U. S. 186, 194 (1941) (‘‘notice
fairly advising the Commissioner of the
nature of the taxpayer’s claim’’ tolls the
limitations period, even if ‘‘it does not
comply with formal requirements of the
statute and regulations’’), and we must
assume that if Congress had intended to
require that the ‘‘claim’’ described in
§ 6512(b)(3)(B) be a ‘‘claim filed on a
return,’’ it would have said so explicitly.
IV
Lundy offers two policy-based argu-
ments for applying a 3-year look-back
period under § 6512(b)(3)(B). He ar-
gues that the application of a 2-year
period is contrary to Congress’ broad
intent in drafting § 6512(b)(3)(B),
which was to preserve, not defeat, a
taxpayer’s claim to a refund in Tax
Court, and he claims that our interpreta-
tion creates an incongruity between the
limitations period that applies in Tax
Court litigation and the period that
would apply in a refund suit filed in
district court or the Court of Federal
Claims. Even if we were inclined to
depart from the plain language of the
statute, we would find neither of these
arguments persuasive.
Lundy correctly argues that Congress
intended § 6512(b)(3)(B) to permit tax-
payers to seek a refund in Tax Court in
circumstances in which they might oth-
erwise be barred from filing an adminis-
trative claim for refund with the IRS.
This is in fact the way § 6512(b)(3)(B)
operates in a large number of cases. See
supra, at 8–9. But that does not mean
that Congress intended that § 6512(b)-
(3)(B) would always preserve taxpayers’
ability to seek a refund. Indeed, it is
apparent from the face of the statute that
Congress also intended § 6512(b)(3)(B)
to act sometimes as a bar to recovery.
To this end, the section incorporates
boththe 2-year and the 3-year look-back
periods from § 6511(b)(2), and we must
assume (contrary to Lundy’s reading,
which provides a uniform 3-year period,
seesupra, at 13–14) that Congress in-
tended for both those look-back periods
to have some effect. Cf.Badaracco, 464
U. S., at 405 (Stevens, J., dissenting)
(‘‘Whatever the correct standard for
construing a statute of limitations . . .
surely the presumption ought to be that
some limitations period is applicable’’).
(Emphasis deleted.)
Lundy also suggests that our interpre-
tation of the statute creates a disparity
between the limitations period that ap-
plies in Tax Court and the periods that
apply in refund suits filed in district
court or the Court of Federal Claims. In
this regard, Lundy argues that the claim
for refund he filed with his tax return on
December 28 would have been timely
for purposes of district court litigation
because it was filed ‘‘within three years
from the time the return was filed,’’
§ 6511(b)(1) (incorporating by reference
§ 6511(a)); see also Rev. Rul. 76–511,
1976–2 Cum. Bull. 428, and within the
3-year look-back period that would ap-
ply under § 6511(b)(2)(A). Petitioner
disagrees that there is any disparity,
arguing that Lundy’s interpretation of
the statute is wrong and that Lundy’s
claim for refund would not have been
considered timely in district court. See
Brief for Petitioner 12, 29–30 and n. 11
(citingMillerv.United States, 38 F. 3d
473, 475 (1994)).
We assume without deciding that
Lundy is correct, and that a different
limitations period would apply in district
court, but nonetheless find in this dis-
parity no excuse to change the limita-
tions scheme that Congress has crafted.
The rules governing litigation in Tax
Court differ in many ways from the
rules governing litigation in the district
court and the Court of Federal Claims.
Some of these differences might make
the Tax Court a more favorable forum,
while others may not. Compare 26 U. S.
C. § 6213(a) (taxpayer can seek relief
in Tax Court without first paying an
assessment of taxes) withFlorav.
United States, 362 U.S. 145, 177 (1960)
(28 U.S.C. § 1346(a)(1) requires full
17

payment of the tax assessment before
taxpayer can file a refund suit in dis-
trict court); and compare 26 U.S.C.
§ 6512(b)(3)(B) (Tax Court must as-
sume that the taxpayer has filed a claim
‘‘stating the grounds upon which the
Tax Court’’ intends to award a refund)
with 26 CFR § 301.6402–2(b)(1) (1995)
(claim for refund in district court must
state grounds for refund with specific-
ity). To the extent our interpretation of
§ 6512(b)(3)(B) reveals a further dis-
tinction between the rules that apply in
these fora, it is a distinction compelled
by the statutory language, and it is a
distinction Congress could rationally
make. As our discussion of § 6512-
(b)(3)(B) demonstrates, seesupra, at
8–9, all a taxpayer need do to preserve
the ability to seek a refund in the Tax
Court is comply with the law and file a
timely return.
We are bound by the language of the
statute as it is written, and even if the
rule Lundy advocates might ‘‘accor[d]
with good policy,’’ we are not at liberty
‘‘to rewrite [the] statute because [we]
might deem its effects susceptible of
improvement.’’Badaracco, 464 U. S., at
398. Applying § 6512(b)(3)(B) as Con-
gress drafted it, we find that the appli-
cable look-back period in this case is
two years, measured from the date of
the mailing of the notice of deficiency.
Accordingly, we find that the Tax Court
lacked jurisdiction to award Lundy a
refund of his overwithheld taxes. The
judgment is reversed.
It is so ordered.
18

Part II. Treaties and Tax Legislation
Subpart B.—Legislation and
Related Committee Reports
Public Law 104–117
104th Congress, H.R. 2778
March 20, 1996
An Act to provide that members of the
Armed Forces performing services for
the peacekeeping efforts in Bosnia and
Herzegovina, Croatia, and Macedonia
shall be entitled to tax benefits in the
same manner as if such services were
performed in a combat zone, and for
other purposes.
Be it enacted by the Senate and House
of Representatives of the United States of
America in Congress assembled,
SECTION 1. TREATMENT OF
CERTAIN INDIVIDUALS
PERFORMING SERVICES IN
CERTAIN HAZARDOUS DUTY AREAS.
(a) GENERALRULE.—For purposes of
the following provisions of the Internal
Revenue Code of 1986, a qualified
hazardous duty area shall be treated in
the same manner as if it were a combat
zone (as determined under section 112
of such Code):
(1) Section 2(a)(3) (relating to spe-
cial rule where deceased spouse was
in missing status).
(2) Section 112 (relating to the
exclusion of certain combat pay of
members of the Armed Forces).
(3) Section 692 (relating to income
taxes of members of Armed Forces on
death).
(4) Section 2201 (relating to mem-
bers of the Armed Forces dying in
combat zone or by reason of combat-
zone-incurred wounds, etc.).
(5) Section 3401(a)(1) (defining
wages relating to combat pay for
members of the Armed Forces).
(6) Section 4253(d) (relating to the
taxation of phone service originating
from a combat zone from members of
the Armed Forces).
(7) Section 6013(f)(1) (relating to
joint return where individual is in
missing status).
(8) Section 7508 (relating to time
for performing certain acts postponed
by reason of service in combat zone).
(b) Q
UALIFIEDHAZARDOUSDUTY
AREA.—For purposes of this section, the
term ‘‘qualified hazardous duty area’’
means Bosnia and Herzegovina, Croatia,
or Macedonia, if as of the date of the
enactment of this section any member of
the Armed Forces of the United States is
entitled to special pay under section 310
of title 37, United States Code (relating
to special pay; duty subject to hostile
fire or imminent danger) for services
performed in such country. Such term
includes any such country only during
the period such entitlement is in effect.
Solely for purposes of applying section
7508 of the Internal Revenue Code of
1986, in the case of an individual who
is performing services as part of Opera-
tion Joint Endeavor outside the United
States while deployed away from such
individual’s permanent duty station, the
term ‘‘qualified hazardous duty area’’
includes, during the period for which
such entitlement is in effect, any area in
which such services are performed.
(c) E
XCLUSION OFCOMBATPAY
FROMWITHHOLDINGLIMITED TO
AMOUNTEXCLUDABLEFROMGROSS
INCOME.—Paragraph (1) of section
3401(a) of the Internal Revenue Code of
1986 (defining wages) is amended by
inserting before the semicolon the fol-
lowing: ‘‘to the extent remuneration for
such service is excludable from gross
income under such section’’.
(d) I
NCREASE INCOMBATPAYEX-
CLUSION FOR
OFFICERS TOHIGHEST
AMOUNTAPPLICABLE TOENLISTEDPER-
SONNEL
.—
(1) I
N GENERAL.—Subsection (b)
of section 112 of such Code (relating
to commissioned officers) is amended
by striking ‘‘$500’’ and inserting ‘‘the
maximum enlisted amount’’.
(2) M
AXIMUM ENLISTED AMOUNT.—
Subsection (c) of section 112 of such
Code (relating to definitions) is
amended by adding at the end the
following new paragraph:
‘‘(5) The term ‘maximum enlisted
amount’ means, for any month, the
sum of—
‘‘(A) the highest rate of basic
pay payable for such month to any
enlisted member of the Armed
Forces of the United States at the
highest pay grade applicable to en-
listed members, and
‘‘(B) in the case of an officer
entitled to special pay under section
310 of title 37, United States Code,
for such month, the amount of such
special pay payable to such officer
for such month.’’.
(e) E
FFECTIVEDATE.—
(1) I
N GENERAL.—Except as pro-
vided in paragraph (2), the provisions
of and amendments made by this
section shall take effect on November
21, 1995.
(2) W
ITHHOLDING.—Subsection
(a)(5) and the amendment made by
subsection (c) shall apply to remu-
neration paid after the date of the
enactment of this Act.
SEC. 2. EXTENSION OF INTERNAL
REVENUE SERVICE USER FEES.
Subsection (c) of section 10511 of the
Revenue Act of 1987 is amended by
striking ‘‘October 1, 2000’’ and by in-
serting ‘‘October 1, 2003’’.
Approved March 20, 1996.
19

Part IV. Items of General Interest
Notice of Proposed Rulemaking
and Notice of Public Hearing
Section 1059 Extraordinary
Dividends
CO–9–96
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing and notice of public hearing.
SUMMARY: This document contains
proposed regulations relating to certain
distributions made by corporations to
certain corporate shareholders. The pro-
posed regulations are necessary to
clarify that certain distributions in re-
demption of stock are treated as extraor-
dinary dividends notwithstanding provi-
sions that otherwise might exempt the
distributions from extraordinary divi-
dend treatment. Corporations that re-
ceive a distribution in redemption of
stock may be affected if the redemption
is either part of a partial liquidation of
the redeeming corporation or is not pro
rata as to all shareholders. This docu-
ment also provides notice of a public
hearing on these proposed regulations.
DATES: Written comments and outlines
of topics to be discussed at the public
hearing scheduled for Wednesday, Octo-
ber 2, 1996, must be received by Sep-
tember 16, 1996.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (CO–9–96), room
5228, Internal Revenue Service, POB
7604, Ben Franklin Station, Washington,
DC 20044. In the alternative, submis-
sions may be hand delivered between
the hours of 8 a.m. and 5 p.m. to:
CC:DOM:CORP:R (CO–9–96), Couri-
er’s Desk, Internal Revenue Service,
1111 Constitution Avenue NW., Wash-
ington, DC. The public hearing will be
held in room 3313, Internal Revenue
Building, 1111 Constitution Avenue
NW., Washington, DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the hearing, Mike
Slaughter, Regulations Unit, Assistant
Chief Counsel (Corporate), at (202)
622–7190 (not a toll-free number). Con-
cerning the proposed regulations, Rich-
ard K. Passales at (202) 622–7530 (not
a toll-free number).
SUPPLEMENTARY
INFORMATION:
Background
This document contains proposed
amendments to the Income Tax Regula-
tions (26 CFR part 1) relating to the
extraordinary dividend provisions under
section 1059 of the Internal Revenue
Code. Section 1059 was added by the
Deficit Reduction Act of 1984, Public
Law 98–369. One of the purposes of
section 1059 is to prevent a corporate
shareholder from creating an artificial
loss on stock. See General Explanation
of the Revenue Provisions of the Deficit
Reduction Act of 1984.
Section 1059(a) generally requires a
corporation that receives an extraordi-
nary dividend on stock it has not held
for at least two years before the divi-
dend announcement date to reduce its
basis (but not below zero) immediately
before any sale or disposition of the
stock by the nontaxed portion of the
dividend (generally, the amount of the
dividends received deduction). If the
nontaxed portion of the dividend ex-
ceeds basis, the excess generally is
treated as additional gain recognized
when the stock is sold. Section 1059(c)
generally defines an extraordinary divi-
dend as a dividend that equals or ex-
ceeds the threshold percentage of the
taxpayer’s adjusted basis in such stock.
Sections 1059(d)(6), (e)(1), and (e)(2)
were enacted as part of the Tax Reform
Act of 1986. Each of those sections
affects the definition of extraordinary
dividends contained in section 1059(c).
Section 1059(d)(6) generally excludes
an extraordinary dividend from section
1059(a) treatment if the distributee is an
original shareholder of the distributing
corporation and the earnings and profits
from which the dividend is paid are
attributable solely to the original share-
holder. Section 1059(e)(2) generally ex-
cludes a dividend from extraordinary
dividend treatment if it is a ‘‘qualifying
dividend.’’ A dividend generally is a
qualifying dividend if the distributee and
distributing corporations are affiliated at
the time of the distribution and the
distribution is out of affiliated year
earnings and profits. Both sections
1059(d)(6) and (e)(2) contemplate that
the distribution that otherwise would be
an extraordinary dividend subject to sec-
tion 1059(a) is derived from earnings
and profits accumulated while the
distributee corporation is a shareholder
of the distributing corporation. Gener-
ally, a corporate shareholder’s ability to
create an artificial loss is reduced if all
of the distributing corporation’s earnings
and profits are accumulated while the
distributee corporation is a shareholder
of the distributing corporation.
Section 1059(e)(1) expands the scope
of the extraordinary dividend definition
in section 1059(c) by disregarding the
holding period and threshold rules for
certain distributions. Generally, section
1059(e)(1) provides that a non pro rata
redemption or a partial liquidation that
is treated as a dividend under section
301 is an extraordinary dividend to
which section 1059(a) applies without
regard to the threshold percentage or the
period the taxpayer held such stock. See
General Explanation of the Tax Reform
Act of 1986, Joint Committee on Taxa-
tion, 100th Cong., 1st Sess. (May 4,
1987).
These regulations address the question
of whether section 1059(d)(6) or (e)(2)
applies to a distribution otherwise
treated as an extraordinary dividend un-
der section 1059(e)(1). The IRS and
Treasury Department believe that apply-
ing those provisions to section
1059(e)(1) is inconsistent with the pur-
pose of section 1059 and may create
inappropriate consequences, such as ba-
sis shifting that eliminates gain or cre-
ates an artificial loss.
Accordingly, these regulations clarify
that neither section 1059(d)(6) nor sec-
tion 1059(e)(2) applies to a distribution
treated as an extraordinary dividend un-
der section 1059(e)(1). In finalizing
these regulations, the IRS and Treasury
Department will consider comments that
illustrate distributions described in sec-
tion 1059(e)(1) to which the application
of section 1059(d)(6) or (e)(2) is appro-
priate or to which section 1059(e)(1)
otherwise should not apply.
These regulations also address the
question of whether an exchange treated
as a dividend under section 356(a)(2) is
subject to section 1059(e)(1). These
regulations clarify that for purposes of
section 1059(e)(1), an exchange under
section 356(a)(1) is treated as a redemp-
tion and, to the extent any amount is
treated as a dividend under section
356(a)(2), it is treated as a dividend
under section 301.
201996–34 I.R.B.

Explanation of Provisions
Proposed § 1.1059(e)–1(a) provides
that neither section 1059(d)(6) nor sec-
tion 1059(e)(2) will prevent any distri-
bution treated as an extraordinary divi-
dend under section 1059(e)(1) from
being treated as an extraordinary divi-
dend. For example, if a redemption of
stock is not pro rata as to all sharehold-
ers, any amount treated as a dividend
under section 301 is treated as an ex-
traordinary dividend regardless of
whether the dividend is a qualifying
dividend.
Proposed § 1.1059(e)–1(b) provides
that for purposes of section 1059(e)(1),
an exchange under section 356(a)(1) is
treated as a redemption and, to the
extent any amount is treated as a divi-
dend under section 356(a)(2), it is
treated as a dividend under section 301.
Proposed Effective Date
These regulations are proposed to
apply to distributions announced on or
after June 17, 1996.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in EO
12866. Therefore, a regulatory assess-
ment is not required. It also has been
determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) and the Regulatory Flexibility
Act (5 U.S.C. chapter 6) do not apply to
these regulations, and, therefore, a
Regulatory Flexibility Analysis is not
required. Pursuant to section 7805(f) of
the Internal Revenue Code, this notice
of proposed rulemaking will be submit-
ted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on its impact on small busi-
ness.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consider-
ation will be given to any written com-
ments (a signed original and eight (8)
copies) that are submitted timely to the
IRS. All comments will be available for
public inspection and copying.
A public hearing has been scheduled
at 10 a.m. on Wednesday, October 2,
1996, room 3313, Internal Revenue Ser-
vice, 1111 Constitution Avenue NW.,
Washington, DC. Because of access re-
strictions, visitors will not be admitted
beyond the Internal Revenue Building
lobby more that 15 minutes before the
hearing starts.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing.
Persons that wish to present oral
comments at the hearing must submit
written comments by September 16,
1996, and submit an outline of the
topics to be discussed and the time to be
devoted to each topic (signed original
and eight (8) copies) by September 16,
1996.
A period of 10 minutes will be allot-
ted to each person for making com-
ments.
An agenda showing the scheduling of
the speakers will be prepared after the
deadline for receiving outlines has
passed. Copies of the agenda will be
available free of charge at the hearing.
Drafting Information
The principal author of these regula-
tions is Richard K. Passales, Office of
Assistant Chief Counsel (Corporate),
IRS. However, other personnel from the
IRS and Treasury Department partici-
pated in their development.
* * * * *
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry in
numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.1059(e)–1 also issued under
26 U.S.C. 1059(e)(1) and (e)(2). * * *
Par. 2. Section 1.1059(e)–1 is added
to read as follows:
§ 1.1059(e)–1 Non pro rata redemp-
tions.
(a)In general.Section 1059(d)(6)
(exception where stock held during en-
tire existence of corporation) and section
1059(e)(2) (qualifying dividends) do not
apply to a distribution treated as an
extraordinary dividend under section
1059(e)(1). For example, if a redemp-
tion of stock is not pro rata as to all
shareholders, any amount treated as a
dividend under section 301 is treated as
an extraordinary dividend regardless of
whether the dividend is a qualifying
dividend.
(b)Reorganizations.For purposes of
section 1059(e)(1), an exchange under
section 356(a)(1) is treated as a redemp-
tion and, to the extent any amount is
treated as a dividend under section
356(a)(2), it is treated as a dividend
under section 301.
(c)Effective date.This section ap-
plies to distributions announced (within
the meaning of section 1059(d)(5)) on
or after June 17, 1996.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
(Filed by the Office of the Federal Register on
June 17, 1996, 8:45 a.m., and published in the
issue of the Federal Register for June 18 1996, 61
F.R. 30845)
Notice of Proposed Rulemaking
and Notice of Public Hearing
Mark-to-Market for Dealers in
Securities; Equity Interests in
Related Parties and the
Dealer-Customer Relationship
FI–32–95
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing and notice of public hearing.
SUMMARY: This document contains
proposed regulations that make mark-to-
market accounting inapplicable to most
equity interests in related entities. The
regulations also relate to the definition
of a dealer in securities for certain
federal income tax purposes. To qualify
as a dealer in securities, a taxpayer must
engage in transactions with customers.
The proposed regulations concern the
existence of dealer-customer relation-
ships. The Revenue Reconciliation Act
of 1993 amended the applicable tax law.
These regulations provide guidance for
taxpayers that engage in securities trans-
actions. This document also provides
notice of a public hearing on these
proposed regulations.
DATES: Written comments and outlines
of oral comments to be presented at a
public hearing scheduled for October 15,
1996, at 10 a.m., must be received by
September 18, 1996.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (FI–32–95), room
5228, Internal Revenue Service, POB
211996–34 I.R.B.

7604, Ben Franklin Station, Washington,
DC 20044. In the alternative, submis-
sions may be hand delivered between
the hours of 8 a.m. and 5 p.m. to:
CC:DOM:CORP:R (FI–32–95), Couri-
er’s Desk, Internal Revenue Service,
1111 Constitution Avenue NW., Wash-
ington, DC 20224. The public hearing
will be held in the Commissioner’s
Conference Room, room 3313, Internal
Revenue Building, 1111 Constitution
Avenue NW., Washington, DC 20224.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations, Jo
Lynn L. Ricks, (202) 622–3920, or
Robert B. Williams, (202) 622–3960;
concerning submissions and the hearing,
Michael Slaughter, (202) 622–7190 (not
toll-free numbers).
SUPPLEMENTARY
INFORMATION:
Paperwork Reduction Act
The collection of information con-
tained in this notice of proposed
rulemaking has been submitted to the
Office of Management and Budget for
review in accordance with the Paper-
work Reduction Act of 1995 (44 U.S.C.
3507).
Comments on the collection of infor-
mation should be sent to the Office of
Management and Budget, Attn: Desk
Officer for the Department of the Trea-
sury, Office of Information and Regula-
tory Affairs, Washington, DC 20503,
with copies to the Internal Revenue
Service, Attn: IRS Reports Clearance
Officer, T:FP, Washington, DC 20224.
Comments on the collection of informa-
tion should be received by August 19,
1996.
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 control number.
The collection of information is de-
scribed in the Explanation of Provisions
section of the Preamble (rather than
being included in the text of the pro-
posed regulations). The Preamble re-
quests comments on whether the final
regulations should permit taxpayers to
elect to disregard certain inter-company
transactions in determining status as a
dealer in securities. The preamble also
indicates that, if the election is allowed
to be made, it is expected that taxpayers
would make it by attaching a statement
to a tax return. If the final regulations
allow taxpayers to make this election in
this manner, the information will be
required by the IRS to determine
whether the election has been made, and
will be used for that purpose. The likely
respondents will be businesses that file
consolidated tax returns. If taxpayers are
allowed to make the election, responses
to this collection of information will be
required to obtain the benefit of having
status as a dealer in securities deter-
mined without regard to certain inter-
company transactions.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become ma-
terial in the administration of any inter-
nal revenue law. Generally, tax returns
and tax return information are confiden-
tial, as required by 26 U.S.C. 6103.
Estimated total annual reporting burden:
6,000 hours.
The estimated annual burden per respon-
dent varies from .25 hour to 1 hour,
depending on individual circumstances,
with an estimated average of .5 hours.
Estimated number of respondents:
12,000.
Estimated annual frequency of re-
sponses: once in the existence of each
respondent.
Background
This document contains proposed
regulations under section 475 of the
Internal Revenue Code, which requires
mark-to-market accounting for certain
dealers in securities. Section 475 was
added by section 13223 of the Revenue
Reconciliation Act of 1993, Pubic Law
103–66, 107 Stat. 481, and is effective
for all taxable years ending on or after
December 31, 1993.
Temporary and proposed regulations
published on December 29, 1993, [58
FR 68798] provide that stock in a
50-percent-controlled subsidiary (and in-
terests in 50-percent-controlled partner-
ships and trusts) are deemed properly
identified as held for investment and
thus are excluded from mark-to-market
accounting. The IRS is reproposing this
rule with two changes. First, the IRS
has concluded that the rationale for the
rule applies equally to equity interests in
most related persons and not just to
persons controlled by the taxpayer. Sec-
ond, after considering various comments
received, the IRS determined that this
rule prohibiting marking a security to
market should not apply if two require-
ments are met: (1) the security is ac-
tively traded on a national securities
exchange or through an interdealer quo-
tation system; and (2) the taxpayer who
marks owns less than 5 percent of all
shares or interests of the same class.
Comments are requested as to whether it
is appropriate to allow any equity inter-
ests in related parties to be marked to
market, and, if so, whether the proposed
limitations are the most appropriate
ones. The provisions in this document
concerning these issues are referred to
below in this preamble as the repro-
posed regulations.
When commenting on the temporary
and proposed regulations, taxpayers
asked the IRS to provide guidance on
whether certain transactions are entered
into with customers for purposes of
section 475. Whether transactions are
entered into with customers can affect
both whether a taxpayer is a dealer in
securities subject to mark-to-market ac-
counting (see section 475(c)(1)) and
whether a dealer may exempt a security
from mark-to-market treatment (see
section 475(b)(1)(A) and (B) and
§ 1.475(b)–1T(a)).
In response to these comments, on
January 4, 1995, the IRS published
proposed regulations [(FI–42–94) (60
FR 397)] stating that whether a taxpayer
is transacting business with customers is
determined based on all of the facts and
circumstances (see proposed § 1.475(c)–
1(c), reproposed as § 1.475(c)–1(a)).
These proposed regulations also provide
that the term dealer in securities in-
cludes a taxpayer that, in the ordinary
course of its trade or business, regularly
holds itself out as being willing and able
to enter into either side of a transaction
enumerated in section 475(c)(1)(B) (see
proposed § 1.475(c)–1(c)(2), reproposed
as § 1.475(c)–1(a)(2)).
On March 4, 1996, the IRS published
Notice 96–12 (1996–10 I.R.B. 29), stat-
ing that the IRS intended to publish
additional proposed regulations concern-
ing when transactions with related par-
ties may be transactions with customers
for purposes of section 475. Notice
96–12 also described the substance of
rules that the proposed regulations were
expected to contain. The rules were
expected to be proposed to be effective
for taxable years beginning on or after
February 20, 1996. The proposed regu-
lations in this document generally reflect
the substance that was described in
Notice 96–12.
221996–34 I.R.B.

Explanation of Provisions
Prohibition against marking equity
interests in related persons
The reproposed regulations identify
certain assets that are inherently invest-
ments and, thus, may not be marked to
market under section 475. The new rules
retain the provision in the temporary
regulations that prevents marking certain
insurance products to market, but they
differ from the temporary regulations in
the provisions that prevent the marking
of certain equity interests. Under the
temporary regulations, the prohibition
against marking applies only if the
dealer in securities controls the issuer of
an equity interest (whether it is stock in
a corporation or an interest in a widely
held or publicly traded partnership or
trust). The reproposed regulations ex-
pand the scope of this treatment so that
mark-to-market accounting cannot be
used for equity interests in many related
issuers. (For these purposes, the repro-
posed regulations incorporate by refer-
ence the relevant relations described in
sections 267(b) and 707(b)(1).) The re-
proposed regulations also narrow the
scope of this prohibition against mark-
ing so that mark-to-market accounting
can be used for certain actively-traded
securities, regardless of the dealer’s rela-
tion to the issuer of the security, if the
dealer owns less than five percent of the
securities. The IRS is particularly inter-
ested in receiving comments on the
scope of the reproposed rules’ exception
to the general prohibition on marking to
market equity interests in a related per-
son.
These reproposed regulations also
contain rules to cover situations where a
security begins, or ceases, to be subject
to this deemed-identification rule. First,
if a security is being marked to market
and then, as a result of a change in
facts, the regulations prohibit the secu-
rity from continuing to be marked to
market, the regulations require that the
security be marked as of the close of
business on the last day before the day
when the prohibition on marking first
applies.
Second, the reproposed regulations
also cover situations in which the regu-
lations have prohibited a security from
being marked to market and then the
prohibition on marking ceases to apply.
In these cases, the deadline for the
taxpayer to identify the security under
section 475(b)(2) as exempt from mark-
to-market treatment is generally ex-
tended until the date the prohibition on
marking ceases to apply. (If the taxpayer
had identified the security by the origi-
nal deadline, the extension, of course, is
irrelevant.) If the identification is not
made on or before the deadline (as so
extended), new changes in value are
taken into account under the mark-to-
market method, but recognition of ap-
preciation and depreciation that occurred
while the security was not being marked
is suspended. This is the approach
adopted by section 475(b)(3) for securi-
ties that lose their exemption from
mark-to-market treatment. The repro-
posed rule is to apply both when the
prohibition on marking ceases because
of a change in facts and when the
prohibition on marking ceases because
the rule covering certain actively-traded
securities becomes effective.
In sum, under the reproposed regula-
tions, the following assets held by a
dealer in securities are deemed to be
properly identified as held for invest-
ment: (1) stock in a corporation (or a
partnership or beneficial ownership in-
terest in a widely held or publicly traded
partnership or trust) to which the tax-
payer is related (other than certain
actively-traded stock or interests); and
(2) an annuity, endowment, or life insur-
ance contract. The provision concerning
the second category of assets continues
to be proposed to apply to all taxable
years ending on or after December 31,
1993. The rules concerning the first
category of assets, however, are pro-
posed to prohibit only those marks to
market that would have occurred on or
after June 19, 1996. If the prohibition
against marking begins to apply to a
security solely because of this effective
date rule, then (unlike the situation
when the onset of the prohibition is
caused by a change in facts) the security
is not marked to market immediately
before the prohibition begins.
In general, the provision allowing
certain actively-traded securities to be
marked to market even when the issuer
of the security is related is proposed to
be effective for marks to market on or
after June 19, 1996. Thus, this effective
date is the same as the effective date in
the reproposed regulations for the gen-
eral prohibition on marking to market
securities issued by a related person.
Until the reproposed regulations are fi-
nalized, however, all equity interests
issued by controlled entities continue to
be subject to the temporary regulations’
prohibition against being marked to
market, even if the dealer owns less
than 5 percent of interests of that class
and even if the interests are actively
traded.
Some commenters suggested there
should be no per se rule treating certain
securities as held for investment, but
instead there should be a rebuttable
presumption to this effect for these
items. Other commenters proposed to
add, or delete, a variety of items to or
from those deemed to be per se held for
investment. The reproposed regulations
do not adopt these suggestions.
Consolidated Returns
Under both the temporary and the
reproposed regulations, there are situa-
tions in which the mark-to-market
method may apply to a consolidated
group member’s stock held by another
member of the group. This may result in
the recognition of duplicate gain or loss.
For instance, if a common parent marks
to market stock in a subsidiary to reflect
increases in the value of the subsidiary
stock owned by the parent resulting
from appreciation in the value of the
subsidiary’s assets, the parent will rec-
ognize gain on that stock under the
mark-to-market method. The subsid-
iary’s subsequent sale of the assets will
replicate that gain at the subsidiary
level. The gains will generate duplicate
stock basis increases under section 475
and § 1.1502–32(b), creating the poten-
tial for an offsetting loss when the stock
is subsequently marked down to fair
market value under section 475. Section
1.1502–20, however, may disallow any
such offsetting loss. Comments are in-
vited regarding how to address the
anomalies these rules may produce.
The dealer-customer relationship
These proposed regulations clarify
that a taxpayer’s transactions with mem-
bers of its consolidated group or other
related persons may be transactions with
customers for purposes of section 475.
Thus, a taxpayer may be a dealer in
securities for purposes of section 475
even if its only customer transactions
are transactions with members of its
consolidated group. In enacting section
475, Congress adopted a taxpayer-by-
taxpayer approach to determining dealer
status, rather than the single-entity ap-
proach embodied in § 1.1502–13.
An example in the proposed regula-
tions clarifies that, for purposes of sec-
tion 475, transactions do not fail to be
transactions with customers solely be-
cause the parties enter into them with
231996–34 I.R.B.

other than arms-length pricing terms.
Under section 482 and the regulations
thereunder, however, the district director
may make allocations between or among
the members of the group if he or she
determines that a member has not re-
ported its true taxable income.
These proposed regulations generally
reflect the substance of the rules set
forth in Notice 96–12 (1996–10 I.R.B.
29). In response to taxpayer comments,
however, certain language in Notice
96–12 has been clarified. Because of
these changes, although the rules de-
scribed in Notice 96–12 were expected
to be proposed to be effective for tax-
able years beginning on or after Febru-
ary 20, 1996, these proposed regulations
are to be effective for taxable years
beginning on or after June 20, 1996. If
there are any situations in which the
proposed rules lead to a different result
from that which would be reached under
the rules described in the notice, a
taxpayer may reasonably and consis-
tently apply the rules described in the
notice for any taxable year beginning on
or after February 20, 1996, and before
June 20, 1996.
Under these regulations, a taxpayer
may be a dealer in securities based
solely on transactions with other mem-
bers of its consolidated group. The IRS
requests comments on whether certain
consolidated groups should be allowed
to disregard inter-member transactions
in determining a member’s status as a
dealer in securities. For instance, a
group might be allowed to disregard
inter-member transactions if the group,
considered as a single corporation,
would not be a dealer in securities for
purposes of section 475. It is likely that
the election, if permitted by the final
regulations, would be made by attaching
an appropriate statement to the taxpay-
er’s return. (See the Paperwork Reduc-
tion Act section of this preamble, which
requests comments on the burden that
might be imposed by this requirement.)
The IRS hereby requests comments on
the desirability and potential terms and
conditions of any such election. Com-
ments could also address whether such
an election should apply in determining
whether a taxpayer had made more than
negligible sales for purposes of repro-
posed § 1.475(c)–1(c). Further, the IRS
requests comments on whether the elec-
tion should be available only to groups
that have not made a separate-entity
election under § 1.1221–2(d)(2).
Miscellaneous
Some of the 1993 and 1995 proposed
regulations are reordered.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in EO
12866. Therefore, a regulatory assess-
ment is not required. It also has been
determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) and the Regulatory Flexibility
Act (5 U.S.C. chapter 6) do not apply to
these regulations, and, therefore, a
Regulatory Flexibility Analysis is not
required. Pursuant to section 7805(f) of
the Internal Revenue Code, this notice
of proposed rulemaking will be submit-
ted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on its impact on small busi-
ness.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consider-
ation will be given to any written com-
ments (a signed original and eight (8)
copies) that are submitted timely to the
IRS. All comments will be available for
public inspection and copying.
A public hearing has been scheduled
for October 15, 1996, at 10 a.m. in the
Commissioner’s Conference Room,
room 3313, Internal Revenue Building,
1111 Constitution Avenue NW., Wash-
ington, DC 20224. Because of access
restrictions, visitors will not be admitted
beyond the Internal Revenue Building
lobby more than 15 minutes before the
hearing starts.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing.
Persons that wish to present oral
comments at the hearing must submit
written comments and submit an outline
of the topics to be discussed and the
time to be devoted to each topic (signed
original and eight (8) copies) by Sep-
tember 18, 1996.
A period of 10 minutes will be allot-
ted to each person for making com-
ments.
An agenda showing the scheduling of
the speakers will be prepared after the
deadline for receiving outlines has
passed. Copies of the agenda will be
available free of charge at the hearing.
Drafting Information
The principal authors of these regula-
tions are Jo Lynn L. Ricks and Robert
B. Williams, Office of Assistant Chief
Counsel (Financial Institutions & Prod-
ucts). However, other personnel from
the IRS and Treasury Department par-
ticipated in their development.
* * * * *
Proposed Amendments to the Regula-
tions
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1, as proposed on January 4, 1995,
at 60 FR 401, is further amended by
revising the entries for ‘‘Section
1.475(b)–1’’, ‘‘Section 1.475(b)–2’’, and
‘‘Section 1.475(b)–4’’ to read as follows:
Authority: 26 U.S.C. 7805. * * *
Section 1.475(b)–1 also issued under
26 U.S.C. 475(a) and 26 U.S.C. 475(e).
Section 1.475(b)–2 also issued under
26 U.S.C. 475(b)(2) and 26 U.S.C.
475(e). * * *
Section 1.475(b)–4 also issued under
26 U.S.C. 475(b)(2), 26 U.S.C. 475(e),
and 26 U.S.C. 6001. * * *
Par. 2. Section 1.475–0, as proposed
on January 4, 1995 (60 FR 401), is
amended by:
1. Revising the heading and entries
for § § 1.475(b)–1, 1.475(b)–2, and
1.475(b)–4.
2. Revising the entries under
§§ 1.475(c)–1 and 1.475(c)–2.
3. Removing the entries under
§ 1.475(e)–1.
The revisions read as follows:
§ 1.475–0 Table of contents.
* * * * *
§ 1.475(b)–1 Scope of exemptions from
mark-to-market requirement.
(a) Securities held for investment or not
held for sale.
(b) Securities deemed identified as held
for investment.
(1) In general.
(2) Relationships
(i) General rule
(ii) Attribution
(iii) Trusts treated as partnerships
(3) Securities traded on certain estab-
lished financial markets.
(4) Changes in status.
(i) Onset of prohibition against
marking.
(ii) Termination of prohibition
against marking.
(iii) Examples
(c) Securities deemed not held for in-
vestment.
241996–34 I.R.B.

(1) General rule for dealers in no-
tional principal contracts and deriva-
tives.
(2) Exception for securities not ac-
quired in dealer capacity.
(d) Special rules.
(1) Stock, partnership, and beneficial
ownership interests in certain controlled
corporations, partnerships, and trusts.
(i) In general.
(ii) Control defined.
(iii) Applicability.
(2) [Reserved]
§ 1.475(b)–2 Exemptions—Identifica-
tion requirements.
(a) Identification of the basis for ex-
emption.
(b) Time for identifying a security with
a substituted basis.
(c) Securities involved in integrated
transactions under § 1.1275–6.
(1) Definitions.
(2) Synthetic debt held by a taxpayer
as a result of legging in.
(3) Securities held after legging out.
* * * * *
§ 1.475(b)–4 Exemptions—Transitional
issues.
(a) Transitional identification.
(1) Certain securities previously iden-
tified under section 1236.
(2) Consistency requirement for other
securities.
(b) Corrections on or before January 31,
1994.
(1) Purpose.
(2) To conform to § 1.475(b)–1(a).
(i) Added identifications.
(ii) Limitations.
(3) To conform to § 1.475(b)–1(c).
(c) Effect of corrections.
§ 1.475(c)–1 Definitions—Dealer in se-
curities.
(a) Dealer-customer relationship.
(1) [Reserved].
(2) Transactions described in section
475(c)(1)(B).
(i) In general.
(ii) Examples.
(3) Related parties.
(i) In general.
(ii) Example.
(b) Sellers of nonfinancial goods and
services.
(c) Taxpayers that purchase securities
but do not sell more than a negligible
portion of the securities.
(1) Exemption from dealer status.
(2) Negligible portion.
(3) Special rules.
(d) Issuance of life insurance products.
§ 1.475(c)–2 Definitions—Security.
(a) In general.
(b) Synthetic debt held by a taxpayer as
a result of an integrated transaction
under § 1.1275–6.
(c) Negative value REMIC residuals.
(d) Special rules.
* * * * *
§ 1.475(e)–1 Effective dates.
Par. 3. Section 1.475(b)–1 as pro-
posed on December 29, 1993 (58 FR
68798), is amended by revising para-
graph (b) and adding paragraph (d) to
read as follows:
§ 1.475(b)–1 Scope of exemptions from
mark-to-market requirement.
* * * * *
(b)Securities deemed identified as
held for investment—(1)In general.The
following items held by a dealer in
securities are per se held for investment
within the meaning of section 475(b)-
(1)(A) and are deemed to be properly
identified as such for purposes of sec-
tion 475(b)(2)—
(i) Except as provided in paragraph
(b)(3) of this section, stock in a corpora-
tion, or a partnership or beneficial own-
ership interest in a widely held or
publicly traded partnership or trust, to
which the taxpayer has a relationship
specified in paragraph (b)(2) of this
section; or
(ii) A contract that is treated for
federal income tax purposes as an annu-
ity, endowment, or life insurance con-
tract (see sections 817 and 7702).
(2)Relationships—(i)General rule.
The relationships specified in this para-
graph (b)(2) are—
(A) those described in section
267(b)(2), (3), (10), (11), or (12); or
(B) those described in section
707(b)(1)(A) or (B).
(ii)Attribution.The relationships
described in paragraph (b)(2)(i) of this
section are determined taking into ac-
count sections 267(c) and 707(b)(3), as
appropriate.
(iii)Trusts treated as partner-
ships.For purposes of this paragraph
(b)(2), the phrase partnership or trust is
substituted for the word partnership in
sections 707(b)(1) and 707(b)(3), and a
reference to beneficial ownership inter-
est is added to each reference to capital
interest or profits interest in those sec-
tions.
(3)Securities traded on certain
established financial markets.Paragraph
(b)(1)(i) of this section does not apply
to a security if—
(i) The security is actively traded
within the meaning of § 1.1092(d)–1(a)
taking into account only established fi-
nancial markets identified in
§ 1.1092(d)–1(b)(1)(i) or (ii) (describing
national securities exchanges and
interdealer quotation systems), and
(ii) The taxpayer owns less than 5
percent of all of the shares or interests
in the same class.
(4)Changes in status—(i)Onset of
prohibition against marking—(A) Once
a security begins to be described in
paragraph (b)(1) of this section and for
so long as it continues to be so de-
scribed, section 475(a) does not apply to
the security in the hands of the taxpayer.
(B) If a security has not been
timely identified under section 475(b)(2)
and, after the last day on which such an
identification would have been timely,
the security begins to be described in
paragraph (b)(1) of this section, then the
dealer must recognize gain or loss on
the security as if it were sold for its fair
market value as of the close of business
of the last day before the security begins
to be described in paragraph (b)(1) of
this section, and gain or loss is taken
into account at that time.
(ii)Termination of prohibition
against marking.If a taxpayer did not
timely identify a security under section
475(b)(2) and paragraph (b)(1) of this
section applies to the security on the last
day on which such an identification
would have been timely but it thereafter
ceases to apply—
(A) An identification of the se-
curity under section 475(b)(2) is timely
if made on or before the close of the
day paragraph (b)(1) of this section
ceases to apply; and
(B) Unless the taxpayer timely
identifies the security under section
475(b)(2) (taking into account the addi-
tional time for identification that is
provided by paragraph (b)(4)(ii)(A) of
this section), section 475(a) applies to
changes in value of the security after the
cessation in the same manner as under
section 475(b)(3).
(iii)Examples.These examples illus-
trate this paragraph (b)(4):
Example 1. Onset of prohibition against mark-
ing—(A)Facts.Corporation H owns 75 percent of
the stock of corporationD, a dealer in securities
within the meaning of section 475(c)(1). On
December 1, 1995,Dacquired less than half of
the stock in corporationX.Ddid not identify the
stock for purposes of section 475(b)(2). On July
251996–34 I.R.B.

17, 1996,Hacquired from other persons 70
percent of the stock ofX. As a result,DandX
became related within the meaning of paragraph
(b)(2)(i) of this section. The stock ofXis not
described in paragraph (b)(3) of this section
(concerning securities traded on certain established
financial markets).
(B)Holding.Under paragraph (b)(4)(i) of this
section,Drecognizes gain or loss on itsXstock
as if the stock were sold for its fair market value
at the close of business on July 16, 1996, and the
gain or loss is taken into account at that time. As
with any application of section 475(a), proper
adjustment is made in the amount of any gain or
loss subsequently realized. After July 16, 1996,
section 475(a) does not apply toD’sXstock while
DandXcontinue to be related to each other.
Example 2. Termination of prohibition against
marking; retained securities identified as held for
investment—(A)Facts.On July 1, 1996, corpora-
tionHowned 60 percent of the stock of corpora-
tionYand all of the stock of corporationD, a
dealer in securities within the meaning of section
475(c)(1). Thus,DandYare related within the
meaning of paragraph (b)(2)(i) of this section.
Also on July 1, 1996,Dacquired, as an invest-
ment, 10 percent of the stock ofY. The stock ofY
is not described in paragraph (b)(3) of this section
(concerning securities traded on certain established
financial markets). WhenDacquired its shares of
Ystock, it did not identify them for purposes of
section 475(b)(2). On December 27, 1996,D
identified its shares ofYstock as held for
investment under section 475(b)(2). On December
30, 1996,Hsold all of its shares of stock inYto
an unrelated party. As a result,DandYcease to
be related within the meaning of paragraph
(b)(2)(i) of this section.
(B)Holding.Under paragraph (b)(4)(ii)(A) of
this section, identification of theYshares is timely
if done on or before the close of December 30,
1996. BecauseDtimely identified itsYshares
under section 475(b)(2), it continues to refrain
from marking to market itsYstock after Decem-
ber 30, 1996.
Example 3. Termination of prohibition against
marking; retained securities not identified as held
for investment—(A)Facts.The facts are the same
as inExample 2above, except thatDdid not
identify its stock inYfor purposes of section
475(b)(2) on or before December 30, 1996. Thus,
Ddid not timely identify these securities under
section 475(b)(2) (taking into account the addi-
tional time for identification provided in paragraph
(b)(4)(ii)(A) of this section).
(B)Holding.Under paragraph (b)(4)(ii)(B) of
this section, section 475(a) applies to changes in
value ofD’sYstock after December 30, 1996, in
the same manner as under section 475(b)(3). Thus,
any appreciation or depreciation that occurred
while the securities were prohibited from being
marked to market is suspended. Further, section
475(a) applies only to those changes occurring
after December 30, 1996.
* * * * *
(d)Special rules—(1)Stock, partner-
ship, and beneficial ownership interests
in certain controlled corporations, part-
nerships, and trusts—(i)In general.The
following items held by a dealer in
securities are per se held for investment
within the meaning of section
475(b)(1)(A) and are deemed to be
properly identified as such for purposes
of section 475(b)(2)—
(A) Stock in a corporation that the
taxpayer controls (within the meaning of
paragraph (d)(1)(ii) of this section); or
(B) A partnership or beneficial own-
ership interest in a widely held or
publicly traded partnership or trust that
the taxpayer controls (within the mean-
ing of paragraph (d)(1)(ii) of this sec-
tion).
(ii)Control defined.Control means
the ownership, directly or indirectly
through persons described in section
267(b) (taking into account section
267(c)), of—
(A) 50 percent or more of the total
combined voting power of all classes of
stock entitled to vote; or
(B) 50 percent or more of the
capital interest, the profits interest, or
the beneficial ownership interest in the
widely held or publicly traded partner-
ship or trust.
(iii)Applicability.The rules of this
paragraph (d)(1) apply only before the
date 30 days after final regulations on
this subject are published in theFederal
Register.
(2) [Reserved].
Par. 4. Section 1.475(b)–2, as pro-
posed on December 29, 1993 (58 FR
68798), is redesignated as § 1.475(b)–4.
Par. 5. Section 1.475(b)–4, as pro-
posed on January 4, 1995 (60 FR 404),
is redesignated as § 1.475(b)–2.
Par. 6. Section 1.475(c)–1, as pro-
posed on December 29, 1993 (58 FR
68798), and amended on January 4,
1995 (60 FR 405), is amended as fol-
lows:
1. Paragraph (c) is removed.
2. Paragraphs (a) and (b) are redes-
ignated as paragraphs (b)and (c), respec-
tively.
3. New paragraph (a) is added to read
as follows:
§ 1.475(c)–1 Definitions—Dealer in se-
curities.
(a)Dealer-customer relationship.
Whether a taxpayer is transacting busi-
ness with customers is determined on
the basis of all of the facts and circum-
stances.
(1) [Reserved].
(2)Transactions described in section
475(c)(1)(B)—(i)In general.For pur-
poses of section 475(c)(1)(B), the term
dealer in securities includes, but is not
limited to, a taxpayer that, in the ordi-
nary course of the taxpayer’s trade or
business, regularly holds itself out as
being willing and able to enter into
either side of a transaction enumerated
in section 475(c)(1)(B).
(ii)Examples.The following ex-
amples illustrate the rules of this para-
graph (a)(2). In the following examples,
Bis a bank:
Example 1. Bregularly offers to enter into
interest rate swaps with other persons in the
ordinary course of its trade or business.Bis
willing to enter into interest rate swaps under
which it either pays a fixed interest rate and
receives a floating rate or pays a floating rate and
receives a fixed rate.Bis a dealer in securities
under section 475(c)(1)(B), and the counterparties
are its customers.
Example 2. B, in the ordinary course of its
trade or business, regularly holds itself out as
being willing and able to enter into either side of
positions in a foreign currency with other banks in
the interbank market.B’s activities in the foreign
currency make it a dealer in securities under
section 475(c)(1)(B), and the other banks in the
interbank market are its customers.
Example 3. Bengages in frequent transactions
in a foreign currency in the interbank market.
Unlike the facts inExample 2, however,Bdoes
not regularly hold itself out as being willing and
able to enter into either side of positions in the
foreign currency, and all ofB’s transactions are
driven by its internal need to adjust its position in
the currency. No other circumstances are present
to suggest thatBis a dealer in securities for
purposes of section 475(c)(1)(B).B’s activity in
the foreign currency does not qualify it as a dealer
in securities for purposes of section 475(c)(1)(B),
and its transactions in the interbank market are not
transactions with customers.
(3)Related parties—(i)In general.A
taxpayer’s transactions with members of
its consolidated group or with other
related persons may be transactions with
customers for purposes of section 475.
For example, transactions enumerated in
section 475(c)(1)(B) between members
of a consolidated group are transactions
with customers if, in the ordinary course
of its business, the taxpayer holds itself
out as being willing and able to engage
in these transactions on a regular basis.
A taxpayer may be a dealer in securities
within the meaning of section 475(c)(1)
even if its only customer transactions
are transactions with other members of
its consolidated group.
(ii)Example.The following example
illustrates this paragraph (a)(3):
Example. Risk management transactions—(1)
Facts. HC, a hedging center, provides interest rate
hedges to all of the members of its consolidated
group. Because of the efficiencies created by
having a centralized risk manager, group policy
prohibits members other thanHCfrom entering
into derivative interest rate positions with outside
parties.HCregularly holds itself out as being
willing and able to, and in fact does, enter into
either side of interest rate swaps with its fellow
members.HCperiodically computes its aggregate
position and hedges the net risk with an unrelated
party.HCdoes not otherwise enter into interest
rate positions with persons that are not members
of the consolidated group. BecauseHCattempts to
operate at cost and the terms of its swaps do not
261996–34 I.R.B.

factor in any risk of default by the affiliate,HC’s
affiliates receive somewhat more favorable terms
then they would receive from an unrelated swaps
dealer.
(2)Holding.BecauseHCregularly holds itself
out as being willing and able to enter into
transactions enumerated in section 475(c)(1)(B),
HCis a dealer in securities for purposes of section
475(c)(1)(B) and the other members are its cus-
tomers.
* * * * *
Par. 7. Section 1.475(c)–2, as pro-
posed on December 29, 1993 (58 FR
68798), and amended on January 4,
1995 (60 FR 405), is amended as fol-
lows:
1. Paragraphs (b), (c), and (d) are
redesignated as paragraphs (c), (d), and
(b), respectively.
2. Paragraph (a) and newly desig-
nated paragraph (c) are revised by re-
moving the phrase ‘‘paragraph (b)’’ each
place it appears and replacing it with
‘‘paragraph (c)’’ each place it appeared.
3. Newly designated paragraph (d) is
revised by removing the phrase ‘‘para-
graphs (a)(3) and (b)’’ and replacing it
with ‘‘paragraphs (a)(3) and (c)’’. Newly
designated paragraph (d) is further re-
vised by removing the phrase ‘‘this
paragraph (c)(1)).’’ and replacing it with
the phrase ‘‘this paragraph (d)(1)).’’.
4. Newly designated paragraph (b) is
revised by removing the words ‘‘See
§ 1.475(b)–4(c)’’ and replacing them
with the words ‘‘See § 1.475(b)–2(c)’’.
Par. 8. Section 1.475(e)–1, as pro-
posed on December 29, 1993 (58 FR
68798), and amended on January 4,
1995 (60 FR 405), is revised to read as
follows:
§ 1.475(e)–1 Effective dates.
(a) Section 1.475(a)–1 (concerning
mark-to-market for debt instruments) ap-
plies to taxable years beginning on or
after January 1, 1995.
(b) Section 1.475(a)–2 (concerning
marking a security to market upon dis-
position) applies to dispositions or ter-
minations of ownership occurring on or
after January 4, 1995.
(c) Section 1.475(a)–3 (concerning
acquisition by a dealer of a security
with a substituted basis) applies to secu-
rities acquired, originated, or entered
into on or after January 4, 1995.
(d) Section 1.475(b)–1 (concerning
the scope of exemptions from the mark-
to-market requirement) applies as fol-
lows:
(1) Section 1.475(b)–1(a) (concerning
securities held for investment or not
held for sale) applies to taxable years
ending on or after December 31, 1993.
(2) Except as provided elsewhere in
this paragraph (d)(2), § 1.475(b)–1(b)(1)
(concerning securities deemed identified
as held for investment) applies to tax-
able years ending on or after December
31, 1993.
(i) Section 1.475(b)–1(b)(1)(i) (con-
cerning equity interests issued by a
related person) applies on or after June
19, 1996. If, on June 18, 1996, a
security is subject to mark-to-market
accounting and, on June 19, 1996,
§ 1.475(b)–1(b)(1) begins to apply to
the security solely because of the effec-
tive dates in this paragraph (d)(2) (rather
than because of a change in facts), then
the rules of § 1.475(b)–1(b)(4)(i)(A)
(concerning the prohibition against
marking) apply, but § 1.475(b)–1(b)-
(4)(i)(B) (imposing a mark to market on
the day before the onset of the prohibi-
tion) does not apply.
(ii) Section 1.475(b)–1(b)(2) (con-
cerning relevant relationships for pur-
poses of determining whether equity
interests in related persons are prohib-
ited from being marked to market) ap-
plies on or after June 19, 1996.
(iii) Section 1.475(b)–1(b)(3) (con-
cerning certain actively-traded securi-
ties) generally applies on or after June
19, 1996, to securities held on or after
that date. In the case, however, of
securities described in § 1.475(b)–
1(d)(1)(i) (concerning equity interests
issued by controlled entities),
§ 1.475(b)–1(b)(3) applies on or after
the date thirty days after final regula-
tions on this subject are published in the
Federal Registerto securities held on
or after that date. If § 1.475(b)–1(b)(1)
ceases to apply to a security by virtue of
the operation of this paragraph (d)(2)(ii),
the rules of § 1.475(b)–1(b)(4)(ii) apply
to the cessation.
(iv) Except to the extent provided in
paragraph (d)(2)(i) of this section,
§ 1.475(b)–1(b)(4) (concerning changes
in status) applies on or after Jun 19,
1996.
(e) Section 1.475(b)–2 (concerning
the identification requirements for ob-
taining an exemption from mark-to-
market treatment) applies to identifica-
tions made on or after January 4, 1995.
(f) Section 1.475(b)–3 (concerning
exemption of securities in certain
securitization transactions) applies to se-
curities acquired, originated, or entered
into on or after January 4, 1995.
(g) Section 1.475(b)–4 (concerning
transitional issues relating to exemp-
tions) applies to taxable years ending on
or after December 31, 1993.
(h) Section 1.475(c)–1(a) (concerning
the dealer-customer relationship), except
for § 1.475(c)–1(a)(1), (a)(2)(ii), and
(a)(3), applies to taxable years beginning
on or after January 1, 1995. Section
1.475(c)–1(a)(2)(ii) and (a)(3) (concern-
ing certain aspects of the dealer-
customer relationship) apply to taxable
years beginning on or after June 20,
1996.
(i) Section 1.475(c)–1(b) (concerning
sellers of nonfinancial goods and ser-
vices) and (c) (concerning taxpayers that
purchase securities but do not sell more
than a negligible portion of the securi-
ties) applies to taxable years ending on
or after December 31, 1993.
(j) Section 1.475(c)–1(d) (concerning
the issuance of life insurance products)
applies to taxable years beginning on or
after January 1, 1995.
(k) Section 1.475(c)–2 (concerning
the definition of security) applies to
taxable years ending on or after Decem-
ber 31, 1993. Note, however, that, by its
terms, § 1.475(c)–2(a)(3) applies only
to interests or arrangements that are
acquired on or after January 4, 1995,
and that the integrated transactions to
which § 1.475(c)–2(b) applies will exist
only after the effective date of
§ 1.1275–6.
(l) Section 1.475(d)–1 (concerning
the character of gain or loss) applies to
taxable years ending on or after Decem-
ber 31, 1993.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
(Filed by the Office of the Federal Register on
June 19, 1996, 8:45 a.m., and published in the
issue of the Federal Register for June 20, 1996, 61
F.R. 31474)
Notice of Proposed Rulemaking
and Notice of Public Hearing
Definition of Structure
PS–39–93
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing and notice of public hearing.
SUMMARY: This document contains
proposed regulations relating to deduc-
tions available upon demolition of a
building. These proposed regulations re-
flect changes to the law made by the
Tax Reform Act of 1984 and affect
owners and lessees of real property who
271996–34 I.R.B.

demolish buildings. This document also
provides notice of a public hearing on
these regulations.
DATES: Written comments, requests to
appear and outlines of topics to be
discussed at the public hearing sched-
uled for October 9, 1996, must be
received by September 19, 1996.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (PS–39–93), room
5228, Internal Revenue Service, POB
7604, Ben Franklin Station, Washington,
DC 20044. In the alternative, submis-
sions may be hand delivered between
the hours of 8 a.m. and 5 p.m. to:
CC:DOM:CORP:R (PS–39–93), Couri-
er’s Desk, Internal Revenue Service,
1111 Constitution Avenue NW., Wash-
ington, DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations,
Bernard P. Harvey, (202) 622–3110;
concerning submissions and the hearing,
Christina Vasquez, (202) 622–6803 (not
toll-free numbers).
SUPPLEMENTARY
INFORMATION:
Background
This document contains proposed
regulations under section 280B of the
Internal Revenue Code. Section 280B
was added by the Tax Reform Act of
1976, Public Law 94–455, 2124(b), 90
Stat. 1520, 1918 (Oct. 4, 1976), and
significant amendments were made to
the provision by the Economic Recovery
Tax Act of 1981, Public Law 97–34,
212(d)(2)(C) and (e)(2), 95 Stat. 172,
239 (Aug. 13, 1981) (1981 Act) and the
Tax Reform Act of 1984, Public Law
98–369, 1063, 98 Stat. 494, 1047 (July
18, 1984) (1984 Act). Transition rules
were provided in the Tax Reform Act of
1986, Public Law 99–514, 1978(h), 100
Stat. 2085, 2904 (Oct. 22, 1986) (1986
Act). As originally enacted, section
280B required any costs or losses in-
curred on account of the demolition of
any certified historic structure (a build-
ing or structure meeting certain require-
ments) to be capitalized into the land
upon which the demolished structure
was located. The 1981 Act modified the
definition of certified historic structure
for purposes of section 280B from a
building or structure meeting certain
requirements to a building (or its struc-
tural components) meeting certain re-
quirements. The 1984 Act substituted
‘‘any structure’’ for ‘‘certified historic
structure.’’ These proposed regulations
define what ‘‘structure’’ means for pur-
poses of section 280B.
Explanation of Provisions
These proposed regulations define the
term ‘‘structure’’ for purposes of section
280B as a building and its structural
components as those terms are defined
in § 1.48–1(e) of the Income Tax Regu-
lations. Thus, under section 280B, a
structure will include only a building
and its structural components and not
other inherently permanent structures
such as oil and gas storage tanks, blast
furnaces, and coke ovens.
The proposed regulations rely on the
legislative history underlying the 1984
and 1986 Acts, which refer repeatedly to
buildings rather than to structures gener-
ally. In addition, the legislative history
of the 1984 Act discusses the difficulty
of applying the intent test of § 1.165–3
of the regulations, which applies to the
demolition of buildings, and indicates
that the newly added language is meant
to eliminate this difficulty.
Proposed effective date
The regulations are proposed to be
effective on and after the date that final
regulations are filed with theFederal
Register.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in EO
12866. Therefore, a regulatory assess-
ment is not required. It also has been
determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) and the Regulatory Flexibility
Act (5 U.S.C. chapter 6) do not apply to
these regulations, and, therefore, a
Regulatory Flexibility Analysis is not
required. Pursuant to section 7805(f) of
the Internal Revenue Code, this notice
of proposed rulemaking will be submit-
ted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on its impact on small busi-
ness.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consider-
ation will be given to any written com-
ments (a signed original and eight (8)
copies) that are submitted timely to the
IRS. All comments will be available for
public inspection and copying.
A public hearing has been scheduled
for October 9, 1996, in the Commission-
er’s Conference Room. Because of ac-
cess restrictions, visitors will not be
admitted beyond the Internal Revenue
Building lobby more than 15 minutes
before the hearing starts.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing.
Persons that wish to present oral
comments at the hearing must submit
written comments and an outline of the
topics to be discussed and the time to be
devoted to each topic (signed original
and eight (8) copies) by September 18,
1996.
A period of 10 minutes will be allot-
ted to each person for making com-
ments.
An agenda showing the scheduling of
the speakers will be prepared after the
deadline for receiving outlines has
passed. Copies of the agenda will be
available free of charge at the hearing.
Drafting Information
The principal author of these regula-
tions is Bernard P. Harvey, Office of
Assistant Chief Counsel (Passthroughs
and Special Industries). However, other
personnel from the IRS and Treasury
Department participated in their devel-
opment.
* * * * *
Proposed Amendments to the Regula-
tions
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.280B–1 is added to
read as follows:
§ 1.280B–1 Demolition of structures.
(a)In general.Section 280B provides
that, in the case of the demolition of any
structure, no deduction otherwise allow-
able under chapter 1 of subtitle A shall
be allowed to the owner or lessee of
such structure for any amount expended
for the demolition or any loss sustained
on account of the demolition, and that
the expenditure or loss shall be treated
as properly chargeable to the capital
account with respect to the land on
which the demolished structure was lo-
cated.
281996–34 I.R.B.

(b)Definition of structure.For pur-
poses of section 280B, the termstruc-
turemeans a building, as defined in
§ 1.48–1(e)(1), and the structural com-
ponents of that building, as defined in
§ 1.48–1(e)(2).
(c)Effective date.This section ap-
plies with respect to demolitions occur-
ring on or after the date that the final
regulations are filed with theFederal
Register.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
(Filed by the Office of the Federal Register on
June 19, 1996, 8:45 a.m., and published in the
issue of the Federal Register for June 20, 1996, 61
F.R. 31473)
Interest Netting Study
Announcement 96–75
SUMMARY: This announcement pro-
vides notice that a public hearing will be
held in connection with a study of
‘‘global interest netting’’ being con-
ducted by the Internal Revenue Service
and Treasury. Notice 96–18, 1996–14
I.R.B. 27 (April 1, 1996), described a
number of legal and policy issues arising
from global interest netting, as well as
administrative concerns relating to the
Service’s computer system capability to
implement global interest netting. Notice
96–18 invited public comment on these
issues and requested that written com-
ments be submitted by June 30, 1996.
DATES: The public hearing will be held
on Wednesday, September 4, 1996, be-
ginning at 10:00 a.m. Requests to speak
and outlines of oral comments must be
received by August 30, 1996.
ADDRESSES: The public hearing will
be held in Room 2615 of the Internal
Revenue Service, 1111 Constitution Av-
enue, N.W., Washington, D.C. 20044.
Requests to speak and outlines of oral
comments should be submitted either by
mail to:
Internal Revenue Service
P.O. Box 7604, Ben Franklin Station
Attn: CC:DOM:CORP:T:R:IT&A
(Branch 1), Room 5228
Washington, D.C. 20044,
or electronically via the Service Internet
site at:
http://www.irs.ustreas.gov/prod/tax_regs/
comments.html.
FOR FURTHER INFORMATION CON-
TACT: Christina Vasquez of the Regula-
tions Unit, Assistant Chief Counsel
(Corporate), (202) 622–6808 (not a toll-
free call).
SUPPLEMENTARY
INFORMATION:
The subject of the public hearing is
the legal, policy, and administrative is-
sues relating to global interest netting.
In addition, the Service and Treasury
request that persons who speak at the
hearing be prepared to discuss examples
of situations in which global interest
netting would be appropriate.
Persons who wish to speak at the
hearing should submit, not later than
August 30, 1996, an outline of the oral
comments/testimony to be presented at
the hearing and the time they wish to
devote to each subject.
Each speaker (or group of speakers
representing a single entity) will be
limited to 10 minutes for an oral presen-
tation exclusive of the time consumed
by the questions from the panel for the
government and the answers thereto.
Because of controlled access restric-
tions, attendees cannot be admitted be-
yond the lobby of the Internal Revenue
Building until 9:45 a.m.
An agenda showing the scheduling of
the speakers will be made after the
outlines are received from the persons
testifying. Copies of the agenda will be
available free of charge at the hearing.
Rev. Proc. 96–36; Correction
Announcement 96–76
This announcement is a correction to
Rev. Proc. 96–36, 1996–27 I.R.B. 11,
which provides specifications for filing
Forms 1098, 1099, 5498, and W–2G.
The final page of the document was
omitted. This label page is referred to in
Part A, Section 9.11 and should have
appeared in Part F, Section 3.
291996–34 I.R.B.

one page of camera copy here
This is the end of Publication 1220 for Tax Year 1996.
301996–34 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 de-
scribe the effect:
Amplifieddescribes a situation where
no change is being made in a prior
published 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 ampli-
fied. (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 es-
sential 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 de-
terminative with respect to future trans-
actions. This term is most commonly
used in a ruling that lists previously
published rulings that are obsoleted be-
cause of changes in law or regulations.
A ruling may also be obsoleted because
the substance has been included in regu-
lations subsequently adopted.
Revokeddescribes situations where
the position in the previously published
ruling 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 previ-
ously 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,modifiedandsuper-
sededdescribes a situation where the
substance of a previously published rul-
ing 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 su-
perseded.
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 rulings 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 Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
31

Numerical Finding List
1
Bulletins 1996–27 through 1996–33
Announcements:
96–61, 1996–27 I.R.B.72
96–62, 1996–28 I.R.B.55
96–63, 1996–29 I.R.B.18
96–64, 1996–29 I.R.B.18
96–65, 1996–29 I.R.B.18
96–66, 1996–29 I.R.B.19
96–67, 1996–30 I.R.B.27
96–68, 1996–31 I.R.B.45
96–69, 1996–32 I.R.B.38
96–70, 1996–32 I.R.B.40
96–71, 1996–33 I.R.B.16
96–72, 1996–33 I.R.B.16
96–73, 1996–33 I.R.B.18
96–74, 1996–33 I.R.B.19
Notices:
96–36, 1996–27 I.R.B.11
96–37, 1996–31 I.R.B.29
96–38, 1996–31 I.R.B.29
96–39, 1996–32 I.R.B.8
96–40, 1996–33 I.R.B.11
Proposed Regulations:
CO–24–96, 1996–30 I.R.B.22
CO–25–96, 1996–31 I.R.B.30
CO–26–96, 1996–31 I.R.B.31
FI–28–96, 1996–31, I.R.B.33
FI–48–95, 1996–31 I.R.B.36
FI–59–94, 1996–30 I.R.B.23
GL–7–96, 1996–33 I.R.B.13
IA–26–94, 1996–30 I.R.B.24
IA–29–96, 1996–33 I.R.B.14
IA-292-84, 1996–28 I.R.B.38
PS–22–96, 1996–33 I.R.B.15
Railroad Retirement Quarterly Rate
1996–29 I.R.B.14
Revenue Procedures:
96–36, 1996–27 I.R.B.11
96–37, 1996–29 I.R.B.16
96–39, 1996–33 I.R.B.11
96–40, 1996–32 I.R.B.8
96–41, 1996–32 I.R.B.9
96–42, 1996–32 I.R.B.14
Revenue Rulings:
96–33, 1996–27 I.R.B.4
96–34, 1996–28 I.R.B.4
96–35, 1996–31 I.R.B.4
96–36, 1996–30 I.R.B.6
96–37, 1996–32 I.R.B.4
96–38, 1996–33 I.R.B.4
Tax Conventions:
1996–28 I.R.B. 36
Treasury Decisions:
8673, 1996–27 I.R.B.4
8674, 1996–28 I.R.B.7
8675, 1996–29 I.R.B.5
8676, 1996–30 I.R.B.4
8677, 1996–30 I.R.B.7
8678, 1996–31 I.R.B.11
8679, 1996–31 I.R.B.4
8680, 1996–33 I.R.B.5
1
A cumulative list of all Revenue Rulings, Rev-
enue Procedures, Treasury Decisions, etc., pub-
lished in Internal Revenue Bulletins 1996–1
through 1996–26 will be found in Internal Rev-
enue Bulletin 1996–27, dated July 1, 1996.
32

Finding List of Current Action on
Previously Published Items
1
Bulletins 1996–27 through 1996–33
*Denotes entry since last publication
Revenue Procedures:
80–27
Modified by
96–40, 1996–32 I.R.B.8
87–32
Modified by
TD 8680, 1996–33 I.R.B.5
92–20
Modified by
TD 8680, 1996–33 I.R.B.5
95–29
Superseded by
96–36, 1996–27 I.R.B.11
95–29A
Superseded by
96–36, 1996–27 I.R.B.11
95–30
Superseded by
96–42, 1996–32 I.R.B.14
1
A cumulative finding list for previously published
items mentioned in Internal Revenue Bulletins
1996–1 through 1996–26 will be found in Internal
Revenue Bulletin 1996–27, dated July 1, 1996.
33