Internal Revenue Bulletin 2000-33 (PDF rendition): IRS Announcements

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EMPLOYEE PLANS
T.D. 8894, page 162.
REG–116495–99, page 179.
Final and proposed regulations under section 72(p) of the
Code relate to loans made from a qualified employer plan to
plan participants or beneficiaries. The proposed regulations
address certain issues that were not addressed in the final
regulations, including situations in which a loan is refinanced
or more than one loan is made.
EMPLOYMENT TAX
Notice 2000–38, page 174.
Cash or deferred arrangements; nonqualified de-
ferred compensation.
This notice describes the with-
holding and reporting requirements applicable to eligible de-
ferred compensation plans described under section 457(b)
of the Code.
EXEMPT ORGANIZATIONS
Notice 2000–36, page 173.
IRS releases new Form 8871,
Political Organiza-
tion Notice of Section 527 Status
. This notice an-
nounces the release of the new form required to be filed by
political organizations under section 527(i) of the Code and
outlines plans for implementing the new law.
Notice 2000–41, page 177.
IRS releases new Form 8872,
Political Organiza-
tion Report of Contributions and Expenditures
. This
notice announces the release of the new form required to be
filed by political organizations under section 527(j) of the Code
requiring the listing of contributions and expenditures.
Announcement 2000–69, page 183.
A list is provided of organizations that no longer qualify as
organizations to which contributions are deductible under
section 170 of the Code.
ADMINISTRATIVE
Rev. Proc. 2000–32, page 172.
This procedure provides the domestic asset/liability percent-
ages and domestic investment yield percentages needed by
foreign companies conducting insurance business in the
United States to compute their minimum effectively con-
nected net investment income.
Notice 2000–34, page 172.
Losses: Blue Cross Blue Shield organizations.This notice
informs Blue Cross Blue Shield insurance organizations that
the Service will challenge deductions for losses that relate to
the termination of individual customer, provider, or employee
contracts or relationships associated with customer lists,
provider networks, and workforce in place with respect to
which the taxpayer claims an adjusted basis derived from sec-
tion 1012(c)(3)(A)(ii) of the Tax Reform Act of 1986.
Internal Revenue
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Bulletin No. 2000–33
August 14, 2000
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
Department of the Treasury
Internal Revenue Service
Finding Lists begin on page ii.

August 14, 20002000–33 I.R.B.
The Internal Revenue Bulletin is the authoritative instrument
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Introduction
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August 14, 20001622000–33 I.R.B.
Section 72.—Annuities; Certain
Proceeds of Endowment and
Life Insurance Contracts
26 CFR 1.72(p)–1: Loans treated as distributions.
T.D. 8894
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
Loans From a Qualified
Employer Plan to Plan
Participants or Beneficiaries
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations relating to loans made
from a qualified employer plan to plan
participants or beneficiaries. These final
regulations provide guidance on the appli-
cation of section 72(p) of the Internal
Revenue Code. These regulations affect
administrators of, participants in, and
beneficiaries of qualified employer plans
that permit participants or beneficiaries to
receive loans from the plan, including
loans from section 403(b) contracts and
other contracts issued under qualified em-
ployer plans.
DATES: Effective Date: These regula-
tions are effective July 31, 2000.
Applicability Date: For dates of applic-
ability, see §1.72(p)–1, Q&A-22 (a)
through (c)(2).
FOR FURTHER INFORMATION CON-
TACT: Vernon S. Carter, (202) 622-6070
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains final regulations
(26 CFR Part 1) under section 72 of the In-
ternal Revenue Code of 1986 (Code).
These regulations provide guidance con-
cerning the tax treatment of loans that are
deemed to be distributed under section
72(p). Section 72(p) was added by section
236 of the Tax Equity and Fiscal Responsi-
bility Act of 1982 (96 Stat. 324), and
amended by the Technical Corrections Act
of 1982 (96 Stat. 2365), the Deficit Reduc-
tion Act of 1984 (98 Stat. 494), the Tax Re-
form Act of 1986 (100 Stat. 2085), and the
Technical and Miscellaneous Revenue Act
of 1988 (102 Stat. 3342).
On December 21, 1995, a notice of pro-
posed rulemaking (EE–106–82, 1996–1
C.B. 732) was published in the Federal
Register(60 F.R. 66233) with respect to
many of the issues arising under section
72(p)(2). The preamble to the 1995 pro-
posed regulations requested comments on
certain issues that were not addressed.
Following publication of the 1995 pro-
posed regulations, comments were re-
ceived and a public hearing was held on
June 28, 1996. One of the issues on which
comments were requested and received
was the effect of a deemed distribution on
the tax treatment of subsequent distribu-
tions from a plan (such as whether a partic-
ipant has tax basis as a result of a deemed
distribution). After reviewing the written
comments and comments made at the pub-
lic hearing, additional proposed regula-
tions addressing this issue were published
January 2, 1998 (REG–209476–82,
1998–1 C.B. 594), in the Federal Register
(63 F.R. 42). Written comments were re-
ceived on the 1998 proposed regulations,
but no public hearing was requested. After
consideration of all comments received on
both the 1995 and the 1998 proposed regu-
lations, the proposed regulations are
adopted as revised by this Treasury deci-
sion.
Explanation of Provisions
Section 72(p)(1)(A) provides that a
loan from a qualified employer plan (in-
cluding a contract purchased under a
qualified employer plan) to a participant
or beneficiary is treated as received as a
distribution from the plan for purposes of
section 72 (a deemed distribution). Sec-
tion 72(p)(1)(B) provides that an assign-
ment or pledge of (or an agreement to as-
sign or pledge) any portion of a
participant’s or beneficiary’s interest in a
qualified employer plan is treated as a
loan from the plan.
Section 72(p)(2) provides that section
72(p)(1) does not apply to the extent cer-
tain conditions are satisfied. Specifically,
under section 72(p)(2), a loan from a
qualified employer plan to a participant or
beneficiary is not treated as a distribution
from the plan if the loan satisfies require-
ments relating to the term of the loan and
the repayment schedule, and to the extent
the loan satisfies certain limitations on the
amount loaned. For example, except in
the case of certain home loans, the excep-
tion in section 72(p)(2) only applies to a
loan that by its terms is to be repaid over
not more than five years in substantially
level installments.
For purposes of section 72, a qualified
employer plan includes a plan that quali-
fies under section 401 (relating to quali-
fied trusts), 403(a) (relating to qualified
annuities) or 403(b) (relating to tax shel-
tered annuities
1
), as well as a plan
(whether or not qualified) maintained by
the United States, a State or a political
subdivision thereof, or an agency or in-
strumentality thereof. A qualified em-
ployer plan also includes a plan which
was (or was determined to be) a qualified
plan or a government plan.
Summary of Comments Received and
Changes Made and Summary of the
Final Regulations
In general, comments received on the
proposed regulations were favorable and,
accordingly, the final regulations retain
the general structure and substance of the
proposed regulations, including a wide
variety of examples illustrating the rules
in the final regulations. However, com-
mentators made a number of specific rec-
ommendations for modifications and clar-
ifications of the regulations. The
comments are summarized below, along
with the IRS’ and Treasury’s considera-
tion of those comments.
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
1
With respect to coverage under Title I of the
Employee Retirement Income Security Act of 1974
(88 Stat. 829) (ERISA), the Department of Labor
(DOL) has advised the IRS that an employer’s tax-
sheltered annuity program would not necessarily fail
to satisfy the Department’s regulation at 29 CFR
2510.3–2(f) merely because the employer permits
employees to make repayments of loans made in
connection with the tax-sheltered annuity program
through payroll deductions as part of the employer’s
payroll deduction system, if the program operates
within the limitations set by that regulation.

2000–33 I.R.B.163August 14, 2000
A. Cure Period for Missed Payments
The 1995 proposed regulations stated
that the section 72(p)(2)(C) requirement
that repayments be made in level install-
ments at least quarterly would not be vio-
lated if payments are not made until the
end of a grace period that the plan admin-
istrator may allow, but only to the extent
the grace period does not continue beyond
the last day of the calendar quarter fol-
lowing the calendar quarter in which the
required installment payment was due.
Commentators suggested that the pro-
posed regulations should specify how the
grace period is to be established, such as
whether the grace period must be con-
tained in the plan document, a separate
loan program that is deemed to be a part
of the plan document pursuant to DOL 29
CFR 2550.408b–1(d)(2), or the summary
plan description, and whether it is permis-
sible for a plan to have grace periods on a
participant by participant basis (so long as
this did not discriminate in favor of the
highly compensated employees).
Some commentators requested that a
plan participant have a reasonable period
of time (such as up to 30 days) to cure a
default after the plan administrator has
sent a notice of default, and that the sec-
tion 72(p) regulations mandate that the
plan administrator send a notice of default
within a reasonable period of time (such
as 30 days) after it has discovered the de-
fault. These commentators suggested that
grace and cure periods might be condi-
tioned upon the plan administrator having
an appropriate procedure in place for
timely identification of defaults and cur-
ing defects. Some commentators re-
quested that final regulations permit a
plan administrator to use his or her discre-
tion, under special circumstances, to pro-
vide a grace period of up to one year from
the date of a missed payment.
Many of these suggested changes relate
to legal requirements other than section
72(p), such as the application of the fidu-
ciary requirements of ERISA
2
and Fed-
eral and state laws that apply to debtors
and creditors. The 1995 proposed regula-
tions allowed a grace period up to the end
of the next following quarter. Thus, a
plan could select a grace period of, for ex-
ample, 30 days or 90 days and could pro-
vide a special notice to the participant
concerning the grace period. Thus, many
of the suggested changes would involve
the imposition of new and complicated
rules for which there is no apparent basis
in section 72(p) and which would in any
case be difficult to enforce and to admin-
ister. Accordingly, the final regulations
retain the same rules as the proposed reg-
ulations. However, the final regulations
use the term cure periodinstead of grace
period.
The final regulations also include a
new cross-reference to section 414(u)(4),
(relating to military service) which was
added to the Code by the Small Business
Job Protection Act of 1996 (110 Stat.
1755).
B. Treatment of Loans after Deemed
Distribution.
The 1998 proposed regulations provide
that once a loan is deemed distributed
under section 72(p) of the Code, interest
that accrues thereafter on that loan is not
included in income and, for purposes of
calculating the maximum permitted
amount of any subsequent loan, a loan
that has been deemed distributed is con-
sidered outstanding until the loan obliga-
tion has been satisfied. The majority of
the comments on this issue urged that the
positions taken in the 1998 proposed reg-
ulations addressing post-default interest
be adopted in the final regulations. Some
commentators asked that the regulations
provide further guidance on or revise the
treatment of interest that accrues on a
loan that is a deemed distribution under
section 72(p), as described in Q&A-19
of the 1998 proposed regulations. Com-
mentators noted that, in the case of a
plan that has chosen to permit additional
loans after a default that has not been
cured, the rule in the proposed regula-
tions requiring interest to be taken into
account in determining the maximum
amount of any subsequent loan would in-
volve costs to make system and proce-
dural changes to calculate the accrued
interest on the defaulted loan for this
limited application. Other commentators
urged that participants be taxed on the
additional interest after a default, either
annually or as an accumulated amount at
the time of a loan offset, as an incentive
for the participant to repay the loan.
One commentator raised the issue of
how a deemed distribution would be
taken into account in a plan with a
graded vesting schedule.
The final regulations generally adopt
the rules in the proposed regulations, but
the regulations have been revised to indi-
cate that a deemed distribution is not
taken into account as a distribution for
purposes of the requirements of
§1.411(a)–7(d)(5) (relating to the deter-
mination of a participant’s account bal-
ance if a distribution is made at a time
when the participant’s vesting percentage
may increase).
C. Enforceable Agreement and New
Technologies
The 1995 proposed regulations re-
quired that a loan be evidenced by a
legally enforceable agreement and that
the legally enforceable agreement be set
forth in writing or in another form ap-
proved by the Commissioner. Commenta-
tors asked whether a participant needs to
sign a loan agreement document and
whether loans made electronically, such
as over phone or voice response units,
would be permitted.
Some comments requested elimination
of the requirement that a loan be evi-
2
The Department of Labor has advised the IRS that,
with respect to plans covered by Title I of ERISA,
the administration of a participant loan program
involves the management of plan assets. Therefore,
fiduciary conduct undertaken in the administration of
such a loan program must conform to the rules that
govern transactions involving plan assets. See, gen-
erally, ERISA sections 403, 404, and 406. Fiduciary
conduct in the administration of a loan program
would include decisions concerning the rules gov-
erning the program, including establishing standards
to govern the appropriateness of making any particu-
lar loan and the appropriate treatment of any default-
ed loan. Further, absent an exemption, any loan
between a plan covered by Title I of ERISA and a
party in interest to the plan (including plan partici-
pants and beneficiaries) would constitute a prohibit-
ed transaction under section 406(a)(1)(B) of ERISA.
DOL has promulgated a regulation at 29 CFR
2550.408b–1 providing guidance regarding the statu-
tory exemption contained in section 408(b)(1) of
ERISA for plan loans to parties in interest who are
participants or beneficiaries. Further, some loans by
plans (whether or not covered under Title I of
ERISA) may constitute prohibited transactions under
section 4975(c)(1)(B) of the Internal Revenue Code.
Under section 102 of Reorganization Plan No. 4 of
1978, (43 FR 47,713) (1978), the Secretary of Labor
has jurisdiction to promulgate regulations under sec-
tion 4975(d)(1) of the Internal Revenue Code, which
provides a limited exemption to the prohibition of
section 4975(c)(1)(B) of the Internal Revenue Code.

denced by a legally enforceable agree-
ment. However, the final regulations re-
tain this requirement. There is, arguably,
no difference between a loan that is not
legally enforceable and a cash distribution
that the employee is permitted to return to
the plan. The final regulations clarify that,
as long as a signature is not required in
order for the loan to be enforceable under
applicable law, the agreement need not be
signed.
The final regulations also require the
agreement to be set forth in a written
paper document or in another form ap-
proved by the Commissioner. However,
the final regulations also treat this re-
quirement as satisfied if the loan agree-
ment is set forth in any electronic
medium that satisfies certain standards.
The standards in these final regulations
for use of an electronic medium for a
loan are the same as the standards for use
of an electronic medium for a consent to
a distribution under §1.411(a)–11(f)(2).
65 F.R. 6001 (February 8, 2000). Specif-
ically, a loan agreement will not fail to
satisfy section 72(p)(2) of the Code
merely because the loan agreement is in
an electronic medium reasonably accessi-
ble to the participant or the beneficiary
under a system that is reasonably de-
signed to preclude anyone other than the
participant or the beneficiary from re-
questing a loan, that provides the partici-
pant or the beneficiary with a reasonable
opportunity to review the terms of the
loan and to confirm, modify, or rescind
the terms of the loan before the loan is
made, and that provides the participant or
the beneficiary, within a reasonable pe-
riod after the loan is made, with a confir-
mation of the loan terms through a writ-
ten paper document or an electronic
medium.
3
If an electronic medium is
used to provide confirmation of the loan
terms, the electronic medium must be
reasonably accessible to the participant
or the beneficiary and the electronic con-
firmation must be provided under a sys-
tem reasonably designed to give the con-
firmation in a manner no less
understandable to the participant or the
beneficiary than a written paper docu-
ment. Also, the participant or the benefi-
ciary must be advised of the right to re-
quest and to receive a copy of the confir-
mation on a written paper document
without charge.
The Electronic Signatures in Global and
National Commerce Act (114 Stat. 464)
(the Electronic Signatures Act) was signed
on June 30, 2000. Title I of the Electronic
Signatures Act, which is generally effective
October 1, 2000, applies to certain elec-
tronic records and signatures in commerce.
In the Notice of Proposed Rulemaking,
REG–116495–99 on page 179, comments
are requested on the impact of the Elec-
tronic Signatures Act on these regulations
and on any future guidance that may be
needed on the application of the Electronic
Signatures Act to plan loan transactions.
D. Mortgage Investment Program
Some commentators requested that the
special rule in the 1995 proposed regula-
tions under which section 72(p) would not
apply to loans made under a residential
mortgage investment program be revised
to eliminate the requirement that the loans
also be available to nonparticipants. This
special rule is not based on an explicit
statutory provision, but is based on leg-
islative history
4
indicating the under-
standing that section 72(p) was not in-
tended to apply to loans made in the
ordinary course of a bona fide residential
mortgage investment program. The IRS
and Treasury have concluded that there is
a risk that the intent of the section
72(p)(2) limitations might be thwarted if a
category of loans extended solely to par-
ticipants were not subject to section
72(p). However, the extension of this re-
quirement to otherwise bona fide mort-
gage investment programs that were in ef-
fect at the time the 1995 proposed
regulations were issued would be inap-
propriate and, accordingly, the final regu-
lations permit plans with these preexisting
programs to continue to make such loans.
The special rule in the final regulations is
not intended to provide guidance on
whether, or to what extent, a plan that is
covered by Title I of ERISA may make
such residential mortgage loans available
to participants or beneficiaries of the plan
without violating the provisions of Title I
of ERISA.
5
E. Other Changes
The requirement that a loan be repaid
within five years does not apply to a loan
used to acquire a dwelling unit which will
within a reasonable time be used as the
principal residence of the participant. For
this purpose, the 1995 proposed regula-
tions provided that a principal residence
has the same meaning as a principal resi-
dence under section 1034. To reflect the
repeal of section 1034
6
and the use of the
same term in section 121, the final regula-
tions provide that a principal residence
has the same meaning as a principal resi-
dence under section 121.
7
F. Effective Date of Final Regulations
Both the 1995 and the 1998 proposed
regulations were proposed to apply for as-
signments, pledges, and loans made on or
after the first January 1 that is at least six
months after the issuance of final regula-
tions. Under certain limited conditions,
the 1998 proposed regulations permitted
loans made before this proposed general
effective date to apply Q&A-19, relating
to interest accruing after a deemed distrib-
ution, and Q&A-20, relating to basis re-
sulting from repayments after a deemed
distribution. Comments on these transi-
tion conditions were generally favorable,
but one commentator requested that plan
sponsors be permitted to rely on these
rules for loans made before the general ef-
fective date if any reasonable and consis-
tent method had been used to report
deemed distributions before the general
effective date. The rules in the 1998 pro-
posed regulations for pre-effective date
loans included carefully considered, spe-
cific conditions in order for such loans to
be able to rely on Q&A-19 and Q&A-20
(including several detailed examples il-
lustrating the application of these transi-
tion conditions) and these rules have been
retained in the final regulations.
August 14, 20001642000–33 I.R.B.
3
Neither the regulations regarding use of electronic
medium under section 411 nor these regulations
apply for purposes of satisfying the requirements of
section 417, including the requirement of section
417(a)(2)(A) that spousal consent be witnessed by a
notary public or plan representative.
6
Section 1034 was repealed by section 312(b) of the
Taxpayer Relief Act of 1997 (Public Law 105–34)
(111 Stat. 788).
7
Like the 1995 proposed regulations, the final regu-
lations (at Q&A-7) apply the tracing rules of sec-
tion 163(h)(3) of the Code to trace whether a loan is
a principal residence plan loan. Notice 88–74
(1988–2 C.B. 385), sets forth certain standards
applicable under section 163(h)(3).
4
H.R. Conf. Rep. No. 97–760, 97th Cong., 2d Sess.
620 (1982), 1982–2 C.B. 672 and S. Rep. No.
97–494, 97th Cong., 2d Sess. 319, 321 (1982).
5
See, for example, PTCE 88–59.

2000–33 I.R.B.165August 14, 2000
Commentators also requested that the
general effective date be the first January
1 that is at least 6 or 12 months after the
date of the final regulations to allow for
proper redesign and testing of plan loan
administration systems. Consistent with
the proposed effective date and these
comments, the final regulations are ap-
plicable to assignments, pledges, and
loans made on or after January 1, 2002.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assess-
ment is not required. It has also been de-
termined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regula-
tions, and because the regulations does
not impose a collection of information on
small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply.
Pursuant to section 7805(f) of the Internal
Revenue Code, the notice of proposed
rulemaking preceding these regulations
was submitted to the Chief Counsel for
Advocacy of the Small Business Admin-
istration for comment on its impact on
small business.
Drafting Information
The principal author of these regula-
tions is Vernon S. Carter, Office of Divi-
sion Counsel/Associate Chief Counsel
(Tax Exempt and Government Entities).
However, other personnel from the IRS
and Treasury Department participated in
their development.
* * * * *
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read, in part, as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.72–17A is amended as
follows:
1. Paragraphs (d)(1), (d)(2) and (d)(3)
are redesignated as paragraphs (d)(2),
(d)(3) and (d)(4), respectively.
2. New paragraph (d)(1) is added.
The addition reads as follows:
§1.72–17A Special rules applicable to
employee annuities and distributions
under deferred compensation plans to
self-employed individuals and owner-em-
ployees.
* * * * *
(d) * * * (1) The references in this
paragraph (d) to section 72(m)(4) are to
that section as in effect on August 13,
1982. Section 236(b)(1) of the Tax Eq-
uity and Fiscal Responsibility Act of 1982
(96 Stat. 324) repealed section 72(m)(4),
generally effective for assignments,
pledges and loans made after August 13,
1982, and added section 72(p). See sec-
tion 72(p) and §1.72(p)–1 for rules gov-
erning the income tax treatment of certain
assignments, pledges and loans from
qualified employer plans made after Au-
gust 13, 1982.
* * * * *
Par. 3. Section 1.72(p)–1 is added to
read as follows:
§1.72(p)–1 Loans treated as distribu-
tions.
The questions and answers in this sec-
tion provide guidance under section 72(p)
pertaining to loans from qualified em-
ployer plans (including government plans
and tax-sheltered annuities and employer
plans that were formerly qualified). The
examples included in the questions and
answers in this section are based on the
assumption that a bona fide loan is made
to a participant from a qualified defined
contribution plan pursuant to an enforce-
able agreement (in accordance with para-
graph (b) of Q&A-3 of this section), with
adequate security and with an interest rate
and repayment terms that are commer-
cially reasonable. (The particular interest
rate used, which is solely for illustration,
is 8.75 percent compounded annually.) In
addition, unless the contrary is specified,
it is assumed in the examples that the
amount of the loan does not exceed 50
percent of the participant’s nonforfeitable
account balance, the participant has no
other outstanding loan (and had no prior
loan) from the plan or any other plan
maintained by the participant’s employer
or any other person required to be aggre-
gated with the employer under section
414(b), (c) or (m), and the loan is not ex-
cluded from section 72(p) as a loan made
in the ordinary course of an investment
program as described in Q&A-18 of this
section. The regulations and examples in
this section do not provide guidance on
whether a loan from a plan would result in
a prohibited transaction under section
4975 of the Internal Revenue Code or on
whether a loan from a plan covered by
Title I of the Employee Retirement In-
come Security Act of 1974 (88 Stat. 829)
(ERISA) would be consistent with the
fiduciary standards of ERISA or would
result in a prohibited transaction under
section 406 of ERISA. The questions and
answers are as follows:
Q-1: In general, what does section
72(p) provide with respect to loans from a
qualified employer plan?
A-1: (a) Loans. Under section 72(p),
an amount received by a participant or
beneficiary as a loan from a qualified em-
ployer plan is treated as having been re-
ceived as a distribution from the plan (a
deemed distribution), unless the loan sat-
isfies the requirements of Q&A-3 of this
section. For purposes of section 72(p)
and this section, a loan made from a con-
tract that has been purchased under a
qualified employer plan (including a con-
tract that has been distributed to the par-
ticipant or beneficiary) is considered a
loan made under a qualified employer
plan.
(b) Pledges and assignments. Under
section 72(p), if a participant or benefi-
ciary assigns or pledges (or agrees to as-
sign or pledge) any portion of his or her
interest in a qualified employer plan as se-
curity for a loan, the portion of the indi-
vidual’s interest assigned or pledged (or
subject to an agreement to assign or
pledge) is treated as a loan from the plan
to the individual, with the result that such
portion is subject to the deemed distribu-
tion rule described in paragraph (a) of this
Q&A-1. For purposes of section 72(p)
and this section, any assignment or pledge
of (or agreement to assign or to pledge)
any portion of a participant’s or benefi-
ciary’s interest in a contract that has been
purchased under a qualified employer
plan (including a contract that has been
distributed to the participant or benefi-
ciary) is considered an assignment or
pledge of (or agreement to assign or
pledge) an interest in a qualified employer
plan. However, if all or a portion of a par-
ticipant’s or beneficiary’s interest in a
qualified employer plan is pledged or as-

signed as security for a loan from the plan
to the participant or the beneficiary, only
the amount of the loan received by the
participant or the beneficiary, not the
amount pledged or assigned, is treated as
a loan.
Q-2: What is a qualified employer plan
for purposes of section 72(p)?
A-2: For purposes of section 72(p) and
this section, a qualified employer plan
means—
(a) A plan described in section 401(a)
which includes a trust exempt from tax
under section 501(a);
(b) An annuity plan described in sec-
tion 403(a);
(c) A plan under which amounts are
contributed by an individual’s employer
for an annuity contract described in sec-
tion 403(b);
(d) Any plan, whether or not qualified,
established and maintained for its em-
ployees by the United States, by a State or
political subdivision thereof, or by an
agency or instrumentality of the United
States, a State or a political subdivision of
a State; or
(e) Any plan which was (or was deter-
mined to be) described in paragraph (a),
(b), (c), or (d) of this Q&A-2.
Q-3: What requirements must be satis-
fied in order for a loan to a participant or
beneficiary from a qualified employer
plan not to be a deemed distribution?
A-3: (a) In general. A loan to a partic-
ipant or beneficiary from a qualified em-
ployer plan will not be a deemed distribu-
tion to the participant or beneficiary if the
loan satisfies the repayment term require-
ment of section 72(p)(2)(B), the level
amortization requirement of section
72(p)(2)(C), and the enforceable agree-
ment requirement of paragraph (b) of this
Q&A-3, but only to the extent the loan
satisfies the amount limitations of section
72(p)(2)(A).
(b) Enforceable agreement require-
ment. A loan does not satisfy the require-
ments of this paragraph unless the loan is
evidenced by a legally enforceable agree-
ment (which may include more than one
document) and the terms of the agreement
demonstrate compliance with the require-
ments of section 72(p)(2) and this section.
Thus, the agreement must specify the
amount and date of the loan and the re-
payment schedule. The agreement does
not have to be signed if the agreement is
enforceable under applicable law without
being signed. The agreement must be set
forth either—
(1) In a written paper document;
(2) In an electronic medium that is rea-
sonably accessible to the participant or
the beneficiary and that is provided under
a system that satisfies the following re-
quirements:
(i) The system must be reasonably de-
signed to preclude any individual other
than the participant or the beneficiary
from requesting a loan.
(ii) The system must provide the partic-
ipant or the beneficiary with a reasonable
opportunity to review and to confirm,
modify, or rescind the terms of the loan
before the loan is made.
(iii) The system must provide the par-
ticipant or the beneficiary, within a rea-
sonable time after the loan is made, a con-
firmation of the loan terms either through
a written paper document or through an
electronic medium that is reasonably ac-
cessible to the participant or the benefi-
ciary and that is provided under a system
that is reasonably designed to provide the
confirmation in a manner no less under-
standable to the participant or beneficiary
than a written document and, under
which, at the time the confirmation is
provided, the participant or the benefi-
ciary is advised that he or she may request
and receive a written paper document at
no charge, and, upon request, that docu-
ment is provided to the participant or ben-
eficiary at no charge.
or
(3) In such other form as may be ap-
proved by the Commissioner.
Q-4: If a loan from a qualified em-
ployer plan to a participant or beneficiary
fails to satisfy the requirements of Q&A-3
of this section, when does a deemed dis-
tribution occur?
A-4: (a) Deemed distribution.For
purposes of section 72, a deemed distribu-
tion occurs at the first time that the re-
quirements of Q&A-3 of this section are
not satisfied, in form or in operation. This
may occur at the time the loan is made or
at a later date. If the terms of the loan do
not require repayments that satisfy the re-
payment term requirement of section
72(p)(2)(B) or the level amortization re-
quirement of section 72(p)(2)(C), or the
loan is not evidenced by an enforceable
agreement satisfying the requirements of
paragraph (b) of Q&A-3 of this section,
the entire amount of the loan is a deemed
distribution under section 72(p) at the
time the loan is made. If the loan satisfies
the requirements of Q&A-3 of this section
except that the amount loaned exceeds the
limitations of section 72(p)(2)(A), the
amount of the loan in excess of the applic-
able limitation is a deemed distribution
under section 72(p) at the time the loan is
made. If the loan initially satisfies the re-
quirements of section 72(p)(2)(A), (B)
and (C) and the enforceable agreement re-
quirement of paragraph (b) of Q&A-3 of
this section, but payments are not made in
accordance with the terms applicable to
the loan, a deemed distribution occurs as
a result of the failure to make such pay-
ments. See Q&A-10 of this section re-
garding when such a deemed distribution
occurs and the amount thereof and Q&A-
11 of this section regarding the tax treat-
ment of a deemed distribution.
(b) Examples. The following examples
illustrate the rules in paragraph (a) of this
Q&A-4 and are based upon the assump-
tions described in the introductory text of
this section:
Example 1. (i) A participant has a nonforfeitable
account balance of $200,000 and receives $70,000
as a loan repayable in level quarterly installments
over five years.
(ii) Under section 72(p), the participant has a
deemed distribution of $20,000 (the excess of
$70,000 over $50,000) at the time of the loan, be-
cause the loan exceeds the $50,000 limit in section
72(p)(2)(A)(i). The remaining $50,000 is not a
deemed distribution.
Example 2. (i) A participant with a nonfor-
feitable account balance of $30,000 borrows
$20,000 as a loan repayable in level monthly install-
ments over five years.
(ii) Because the amount of the loan is $5,000
more than 50% of the participant’s nonforfeitable
account balance, the participant has a deemed distri-
bution of $5,000 at the time of the loan. The re-
maining $15,000 is not a deemed distribution. (Note
also that, if the loan is secured solely by the partici-
pant’s account balance, the loan may be a prohibited
transaction under section 4975 because the loan may
not satisfy 29 CFR 2550.408b–1(f)(2).)
Example 3. (i) The nonforfeitable account bal-
ance of a participant is $100,000 and a $50,000 loan
is made to the participant repayable in level quar-
terly installments over seven years. The loan is not
eligible for the section 72(p)(2)(B)(ii) exception for
loans used to acquire certain dwelling units.
(ii) Because the repayment period exceeds the
maximum five-year period in section 72(p)(2)(B)(i),
the participant has a deemed distribution of $50,000
at the time the loan is made.
Example 4. (i) On August 1, 2002, a participant
has a nonforfeitable account balance of $45,000 and
borrows $20,000 from a plan to be repaid over five
August 14, 20001662000–33 I.R.B.

2000–33 I.R.B.167August 14, 2000
years in level monthly installments due at the end of
each month. After making monthly payments
through July 2003, the participant fails to make any
of the payments due thereafter.
(ii) As a result of the failure to satisfy the re-
quirement that the loan be repaid in level monthly
installments, the participant has a deemed distribu-
tion. See paragraph (c) of Q&A-10 of this section
regarding when such a deemed distribution occurs
and the amount thereof.
Q-5: What is a principal residence for
purposes of the exception in section
72(p)(2)(B)(ii) from the requirement that
a loan be repaid in five years?
A-5: Section 72(p)(2)(B)(ii) provides
that the requirement in section
72(p)(2)(B)(i) that a plan loan be repaid
within five years does not apply to a loan
used to acquire a dwelling unit which will
within a reasonable time be used as the
principal residence of the participant (a
principal residence plan loan). For this
purpose, a principal residence has the
same meaning as a principal residence
under section 121.
Q-6: In order to satisfy the require-
ments for a principal residence plan loan,
is a loan required to be secured by the
dwelling unit that will within a reasonable
time be used as the principal residence of
the participant?
A-6: A loan is not required to be se-
cured by the dwelling unit that will within
a reasonable time be used as the partici-
pant’s principal residence in order to sat-
isfy the requirements for a principal resi-
dence plan loan.
Q-7: What tracing rules apply in deter-
mining whether a loan qualifies as a prin-
cipal residence plan loan?
A-7: The tracing rules established
under section 163(h)(3)(B) apply in deter-
mining whether a loan is treated as for the
acquisition of a principal residence in
order to qualify as a principal residence
plan loan.
Q-8: Can a refinancing qualify as a
principal residence plan loan?
A-8: (a) Refinancings. In general, no,
a refinancing cannot qualify as a principal
residence plan loan. However, a loan
from a qualified employer plan used to
repay a loan from a third party will qual-
ify as a principal residence plan loan if the
plan loan qualifies as a principal resi-
dence plan loan without regard to the loan
from the third party.
(b) Example. The following example
illustrates the rules in paragraph (a) of this
Q&A-8 and is based upon the assump-
tions described in the introductory text of
this section:
Example. (i) On July 1, 2003, a participant re-
quests a $50,000 plan loan to be repaid in level
monthly installments over 15 years. On August 1,
2003, the participant acquires a principal residence
and pays a portion of the purchase price with a
$50,000 bank loan. On September 1, 2003, the plan
loans $50,000 to the participant, which the partici-
pant uses to pay the bank loan.
(ii) Because the plan loan satisfies the require-
ments to qualify as a principal residence plan loan
(taking into account the tracing rules of section
163(h)(3)(B)), the plan loan qualifies for the excep-
tion in section 72(p)(2)(B)(ii).
Q-9: Does the level amortization re-
quirement of section 72(p)(2)(C) apply
when a participant is on a leave of ab-
sence without pay?
A-9: (a) Leave of absence. The level
amortization requirement of section
72(p)(2)(C) does not apply for a period,
not longer than one year (or such longer
period as may apply under section
414(u)), that a participant is on a bona
fide leave of absence, either without pay
from the employer or at a rate of pay
(after income and employment tax with-
holding) that is less than the amount of
the installment payments required under
the terms of the loan. However, the loan
(including interest that accrues during the
leave of absence) must be repaid by the
latest date permitted under section
72(p)(2)(B) (e.g., the suspension of pay-
ments cannot extend the term of the loan
beyond 5 years, in the case of a loan that
is not a principal residence plan loan) and
the amount of the installments due after
the leave ends (or, if earlier, after the first
year of the leave or such longer period as
may apply under section 414(u)) must not
be less than the amount required under the
terms of the original loan.
(b) Military service. See section
414(u)(4) for special rules relating to mil-
itary service.
(c) Example. The following example
illustrates the rules of paragraph (a) of
this Q&A-9 and is based upon the as-
sumptions described in the introductory
text of this section:
Example. (i) On July 1, 2002, a participant
with a nonforfeitable account balance of $80,000
borrows $40,000 to be repaid in level monthly in-
stallments of $825 each over 5 years. The loan is
not a principal residence plan loan. The partici-
pant makes 9 monthly payments and commences
an unpaid leave of absence that lasts for 12
months. Thereafter, the participant resumes active
employment and resumes making repayments on
the loan until the loan is repaid in full (including
interest that accrued during the leave of absence).
The amount of each monthly installment is in-
creased to $1,130 in order to repay the loan by
June 30, 2007.
(ii) Because the loan satisfies the requirements of
section 72(p)(2), the participant does not have a
deemed distribution. Alternatively, section 72(p)(2)
would be satisfied if the participant continued the
monthly installments of $825 after resuming active
employment and on June 30, 2007 repaid the full
balance remaining due.
Q-10: If a participant fails to make the
installment payments required under the
terms of a loan that satisfied the require-
ments of Q&A-3 of this section when
made, when does a deemed distribution
occur and what is the amount of the
deemed distribution?
A-10: (a) Timing of deemed distribu-
tion. Failure to make any installment
payment when due in accordance with the
terms of the loan violates section
72(p)(2)(C) and, accordingly, results in a
deemed distribution at the time of such
failure. However, the plan administrator
may allow a cure period and section
72(p)(2)(C) will not be considered to have
been violated if the installment payment
is made not later than the end of the cure
period, which period cannot continue be-
yond the last day of the calendar quarter
following the calendar quarter in which
the required installment payment was
due.
(b) Amount of deemed distribution. If
a loan satisfies Q&A-3 of this section
when made, but there is a failure to pay
the installment payments required under
the terms of the loan (taking into account
any cure period allowed under paragraph
(a) of this Q&A-10), then the amount of
the deemed distribution equals the entire
outstanding balance of the loan (including
accrued interest) at the time of such fail-
ure.
(c) Example. The following example
illustrates the rules in paragraphs (a) and
(b) of this Q&A-10 and is based upon the
assumptions described in the introductory
text of this section:
Example. (i) On August 1, 2002, a participant
has a nonforfeitable account balance of $45,000 and
borrows $20,000 from a plan to be repaid over 5
years in level monthly installments due at the end of
each month. After making all monthly payments
due through July 31, 2003, the participant fails to
make the payment due on August 31, 2003 or any
other monthly payments due thereafter. The plan
administrator allows a three-month cure period.
(ii) As a result of the failure to satisfy the re-
quirement that the loan be repaid in level install-
ments pursuant to section 72(p)(2)(C), the partici-

August 14, 20001682000–33 I.R.B.
pant has a deemed distribution on November 30,
2003, which is the last day of the three-month cure
period for the August 31, 2003 installment. The
amount of the deemed distribution is $17,157,
which is the outstanding balance on the loan at No-
vember 30, 2003. Alternatively, if the plan admin-
istrator had allowed a cure period through the end
of the next calendar quarter, there would be a
deemed distribution on December 31, 2003 equal
to $17,282, which is the outstanding balance of the
loan at December 31, 2003.
Q-11: Does section 72 apply to a
deemed distribution as if it were an ac-
tual distribution?
A-11: (a) Tax basis. If the employee’s
account includes after-tax contributions or
other investment in the contract under sec-
tion 72(e), section 72 applies to a deemed
distribution as if it were an actual distribu-
tion, with the result that all or a portion of
the deemed distribution may not be tax-
able.
(b) Section 72(t) and (m). Section 72(t)
(which imposes a 10 percent tax on certain
early distributions) and section 72(m)(5)
(which imposes a separate 10 percent tax
on certain amounts received by a 5-per-
cent owner) apply to a deemed distribu-
tion under section 72(p) in the same man-
ner as if the deemed distribution were an
actual distribution.
Q-12: Is a deemed distribution under
section 72(p) treated as an actual distribu-
tion for purposes of the qualification re-
quirements of section 401, the distribution
provisions of section 402, the distribution
restrictions of section 401(k)(2)(B) or
403(b)(11), or the vesting requirements of
§1.411(a)–7(d)(5) (which affects the ap-
plication of a graded vesting schedule in
cases involving a prior distribution)?
A-12: No; thus, for example, if a par-
ticipant in a money purchase plan who is
an active employee has a deemed distribu-
tion under section 72(p), the plan will not
be considered to have made an in-service
distribution to the participant in violation
of the qualification requirements applica-
ble to money purchase plans. Similarly,
the deemed distribution is not eligible to
be rolled over to an eligible retirement
plan and is not considered an impermissi-
ble distribution of an amount attributable
to elective contributions in a section
401(k) plan. See also §1.402(c)–2, Q&A-
4(d) and §1.401(k)– 1(d)(6)(ii).
Q-13: How does a reduction (offset)
of an account balance in order to repay a
plan loan differ from a deemed distribu-
tion?
A-13: (a) Difference between deemed
distribution and plan loan offset amount.
(1) Loans to a participant from a quali-
fied employer plan can give rise to two
types of taxable distributions—
(i) A deemed distribution pursuant to
section 72(p); and
(ii) A distribution of an offset amount.
(2) As described in Q&A-4 of this
section, a deemed distribution occurs
when the requirements of Q&A-3 of this
section are not satisfied, either when the
loan is made or at a later time. A deemed
distribution is treated as a distribution to
the participant or beneficiary only for
certain tax purposes and is not a distribu-
tion of the accrued benefit. A distribu-
tion of a plan loan offset amount (as de-
fined in §1.402(c)–2, Q&A-9(b)) occurs
when, under the terms governing a plan
loan, the accrued benefit of the partici-
pant or beneficiary is reduced (offset) in
order to repay the loan (including the en-
forcement of the plan’s security interest
in the accrued benefit). A distribution of
a plan loan offset amount could occur in
a variety of circumstances, such as
where the terms governing the plan loan
require that, in the event of the partici-
pant’s request for a distribution, a loan
be repaid immediately or treated as in
default.
(b) Plan loan offset. In the event of a
plan loan offset, the amount of the ac-
count balance that is offset against the
loan is an actual distribution for pur-
poses of the Internal Revenue Code, not
a deemed distribution under section
72(p). Accordingly, a plan may be pro-
hibited from making such an offset under
the provisions of section 401(a),
401(k)(2)(B) or 403(b)(11) prohibiting
or limiting distributions to an active em-
ployee. See §1.402(c)–2, Q&A-9(c), Ex-
ample 6. See also Q&A-19 of this sec-
tion for rules regarding the treatment of a
loan after a deemed distribution.
Q-14: How is the amount includible in
income as a result of a deemed distribu-
tion under section 72(p) required to be re-
ported?
A-14: The amount includible in in-
come as a result of a deemed distribution
under section 72(p) is required to be re-
ported on Form 1099–R (or any other
form prescribed by the Commissioner).
Q-15: What withholding rules apply to
plan loans?
A-15: To the extent that a loan, when
made, is a deemed distribution or an ac-
count balance is reduced (offset) to repay
a loan, the amount includible in income is
subject to withholding. If a deemed dis-
tribution of a loan or a loan repayment by
benefit offset results in income at a date
after the date the loan is made, withhold-
ing is required only if a transfer of cash or
property (excluding employer securities)
is made to the participant or beneficiary
from the plan at the same time. See
§§35.3405–1, f-4, and 31.3405(c)–1,
Q&A-9 and Q&A-11, of this chapter for
further guidance on withholding rules.
Q-16: If a loan fails to satisfy the re-
quirements of Q&A-3 of this section and
is a prohibited transaction under section
4975, is the deemed distribution of the
loan under section 72(p) a correction of
the prohibited transaction?
A-16: No, a deemed distribution is not
a correction of a prohibited transaction
under section 4975. See §§141.4975–13
and 53.4941(e)–1(c)(1) of this chapter for
guidance concerning correction of a pro-
hibited transaction.
Q-17: What are the income tax conse-
quences if an amount is transferred from a
qualified employer plan to a participant or
beneficiary as a loan, but there is an ex-
press or tacit understanding that the loan
will not be repaid?
A-17: If there is an express or tacit un-
derstanding that the loan will not be re-
paid or, for any reason, the transaction
does not create a debtor-creditor relation-
ship or is otherwise not a bona fide loan,
then the amount transferred is treated as
an actual distribution from the plan for
purposes of the Internal Revenue Code,
and is not treated as a loan or as a deemed
distribution under section 72(p).
Q-18: If a qualified employer plan
maintains a program to invest in residen-
tial mortgages, are loans made pursuant to
the investment program subject to section
72(p)?
A-18: (a) Residential mortgage loans
made by a plan in the ordinary course of
an investment program are not subject to
section 72(p) if the property acquired with
the loans is the primary security for such
loans and the amount loaned does not ex-
ceed the fair market value of the property.
An investment program exists only if the
plan has established, in advance of a spe-
cific investment under the program, that a

2000–33 I.R.B.169August 14, 2000
certain percentage or amount of plan as-
sets will be invested in residential mort-
gages available to persons purchasing the
property who satisfy commercially cus-
tomary financial criteria. A loan will not
be considered as made under an invest-
ment program if—
(1) Any of the loans made under the
program matures upon a participant’s ter-
mination from employment;
(2) Any of the loans made under the
program is an earmarked asset of a partic-
ipant’s or beneficiary’s individual account
in the plan; or
(3) The loans made under the program
are made available only to participants or
beneficiaries in the plan.
(b) Paragraph (a)(3) of this Q&A-18
shall not apply to a plan which, on De-
cember 20, 1995, and at all times there-
after, has had in effect a loan program
under which, but for paragraph (a)(3) of
this Q&A-18, the loans comply with the
conditions of paragraph (a) of this Q&A-
18 to constitute residential mortgage
loans in the ordinary course of an invest-
ment program.
(c) No loan that benefits an officer, di-
rector, or owner of the employer main-
taining the plan, or their beneficiaries,
will be treated as made under an invest-
ment program.
(d) This section does not provide guid-
ance on whether a residential mortgage
loan made under a plan’s investment pro-
gram would result in a prohibited transac-
tion under section 4975, or on whether
such a loan made by a plan covered by
Title I of ERISA would be consistent
with the fiduciary standards of ERISA or
would result in a prohibited transaction
under section 406 of ERISA. See 29
CFR 2550.408b–1.
Q-19: If there is a deemed distribution
under section 72(p), is the interest that ac-
crues thereafter on the amount of the
deemed distribution an indirect loan for
income tax purposes?
A-19: (a) General rule. Except as
provided in paragraph (b) of this Q&A-
19, a deemed distribution of a loan is
treated as a distribution for purposes of
section 72. Therefore, a loan that is
deemed to be distributed under section
72(p) ceases to be an outstanding loan for
purposes of section 72, and the interest
that accrues thereafter under the plan on
the amount deemed distributed is disre-
garded in applying section 72 to the partic-
ipant or beneficiary. Even though interest
continues to accrue on the outstanding loan
(and is taken into account for purposes of
determining the tax treatment of any sub-
sequent loan in accordance with paragraph
(b) of this Q&A-19), this additional inter-
est is not treated as an additional loan (and,
thus, does not result in an additional
deemed distribution) for purposes of sec-
tion 72(p). However, a loan that is deemed
distributed under section 72(p) is not con-
sidered distributed for all purposes of the
Internal Revenue Code. See Q&A-11
through Q&A-16 of this section.
(b) Exception for purposes of applying
section 72(p)(2)(A) to a subsequent loan.
In the case of a loan that is deemed distrib-
uted under section 72(p) and that has not
been repaid (such as by a plan loan offset),
the unpaid amount of such loan, including
accrued interest, is considered outstanding
for purposes of applying section
72(p)(2)(A) to determine the maximum
amount of any subsequent loan to the par-
ticipant or beneficiary.
Q-20: May a participant refinance an
outstanding loan or have more than one
loan outstanding from a plan?
A-20: [Reserved]
Q-21: Is a participant’s tax basis under
the plan increased if the participant repays
the loan after a deemed distribution?
A-21: (a) Repayments after deemed
distribution. Yes, if the participant or ben-
eficiary repays the loan after a deemed dis-
tribution of the loan under section 72(p),
then, for purposes of section 72(e), the par-
ticipant’s or beneficiary’s investment in the
contract (tax basis) under the plan in-
creases by the amount of the cash repay-
ments that the participant or beneficiary
makes on the loan after the deemed distrib-
ution. However, loan repayments are not
treated as after-tax contributions for other
purposes, including sections 401(m) and
415(c)(2)(B).
(b) Example. The following example il-
lustrates the rules in paragraph (a) of this
Q&A-21 and is based on the assumptions
described in the introductory text of this
section:
Example. (i) A participant receives a $20,000
loan on January 1, 2003, to be repaid in 20 quarterly
installments of $1,245 each. On December 31, 2003,
the outstanding loan balance ($19,179) is deemed
distributed as a result of a failure to make quarterly
installment payments that were due on September
30, 2003 and December 31, 2003. On June 30,
2004, the participant repays $5,147 (which is the
sum of the three installment payments that were due
on September 30, 2003, December 31, 2003, and
March 31, 2004, with interest thereon to June 30,
2004, plus the installment payment due on June 30,
2004). Thereafter, the participant resumes making
the installment payments of $1,245 from September
30, 2004 through December 31, 2007. The loan re-
payments made after December 31, 2003 through
December 31, 2007 total $22,577.
(ii) Because the participant repaid $22,577 after
the deemed distribution that occurred on December
31, 2003, the participant has investment in the con-
tract (tax basis) equal to $22,577 (14 payments of
$1,245 each plus a single payment of $5,147) as of
December 31, 2007.
Q-22: When is the effective date of
section 72(p) and the regulations in this
section?
A-22: (a) Statutory effective date.
Section 72(p) generally applies to assign-
ments, pledges, and loans made after Au-
gust 13, 1982.
(b) Regulatory effective date. This
section applies to assignments, pledges,
and loans made on or after January 1,
2002.
(c) Loans made before the regulatory
effective date—(1) General rule. A plan
is permitted to apply Q&A-19 and Q&A-
21 of this section to a loan made before
the regulatory effective date in paragraph
(b) of this Q&A-22 (and after the statu-
tory effective date in paragraph (a) of this
Q&A-22) if there has not been any
deemed distribution of the loan before the
transition date or if the conditions of para-
graph (c)(2) of this Q&A-22 are satisfied
with respect to the loan.
(2) Consistency transition rule for cer-
tain loans deemed distributed before the
regulatory effective date. (i) The rules in
this paragraph (c)(2) of this Q&A-22
apply to a loan made before the regulatory
effective date in paragraph (b) of this
Q&A-22 (and after the statutory effective
date in paragraph (a) of this Q&A-22) if
there has been any deemed distribution of
the loan before the transition date.
(ii) The plan is permitted to apply
Q&A-19 and Q&A-21 of this section to
the loan beginning on any January 1, but
only if the plan reported, in Box 1 of
Form 1099–R, for a taxable year no later
than the latest taxable year that would be
permitted under this section (if this sec-
tion had been in effect for all loans made
after the statutory effective date in para-
graph (a) of this Q&A-22), a gross distri-
bution of an amount at least equal to the

initial default amount. For purposes of
this section, the initial default amount is
the amount that would be reported as a
gross distribution under Q&A-4 and
Q&A-10 of this section and the transi-
tion date is the January 1 on which a plan
begins applying Q&A-19 and Q&A-21
of this section to a loan.
(iii) If a plan applies Q&A-19 and
Q&A-21 of this section to such a loan,
then the plan, in its reporting and with-
holding on or after the transition date,
must not attribute investment in the con-
tract (tax basis) to the participant or ben-
eficiary based upon the initial default
amount.
(iv) This paragraph (c)(2)(iv) of this
Q&A-22 applies if—
(A) The plan attributed investment in
the contract (tax basis) to the participant
or beneficiary based on the deemed dis-
tribution of the loan;
(B) The plan subsequently made an
actual distribution to the participant or
beneficiary before the transition date;
and
(C) Immediately before the transition
date, the initial default amount (or, if
less, the amount of the investment in the
contract so attributed) exceeds the par-
ticipant’s or beneficiary’s investment in
the contract (tax basis). If this paragraph
(c)(2)(iv) of this Q&A-22 applies, the
plan must treat the excess (the loan tran-
sition amount) as a loan amount that re-
mains outstanding and must include the
excess in the participant’s or benefi-
ciary’s income at the time of the first ac-
tual distribution made on or after the
transition date.
(3) Examples. The rules in paragraph
(c)(2) of this Q&A-22 are illustrated by
the following examples, which are based
on the assumptions described in the in-
troductory text of this section (and, ex-
cept as specifically provided in the ex-
amples, also assume that no distributions
are made to the participant and that the
participant has no investment in the con-
tract with respect to the plan). Example
1, Example 2, and Example 4of this
paragraph (c)(3) of this Q&A-22 illus-
trate the application of the rules in para-
graph (c)(2) of this Q&A-22 to a plan
that, before the transition date, did not
treat interest accruing after the initial
deemed distribution as resulting in addi-
tional deemed distributions under section
72(p). Example 3of this paragraph (c)(3)
of this Q&A-22 illustrates the application
of the rules in paragraph (c)(2) of this
Q&A-22 to a plan that, before the transi-
tion date, treated interest accruing after the
initial deemed distribution as resulting in
additional deemed distributions under sec-
tion 72(p). The examples are as follows:
Example 1. (i) In 1998, when a participant’s ac-
count balance under a plan is $50,000, the participant
receives a loan from the plan. The participant makes
the required repayments until 1999 when there is a
deemed distribution of $20,000 as a result of a failure
to repay the loan. For 1999, as a result of the deemed
distribution, the plan reports, in Box 1 of Form
1099–R, a gross distribution of $20,000 (which is the
initial default amount in accordance with paragraph
(c)(2)(ii) of this Q&A-22) and, in Box 2 of Form
1099–R, a taxable amount of $20,000. The plan then
records an increase in the participant’s tax basis for the
same amount ($20,000). Thereafter, the plan disre-
gards, for purposes of section 72, the interest that ac-
crues on the loan after the 1999 deemed distribution.
Thus, as of December 31, 2001, the total taxable
amount reported by the plan as a result of the deemed
distribution is $20,000 and the plan’s records show
that the participant’s tax basis is the same amount
($20,000). As of January 1, 2002, the plan decides to
apply Q&A-19 of this section to the loan. Accord-
ingly, it reduces the participant’s tax basis by the initial
default amount of $20,000, so that the participant’s re-
maining tax basis in the plan is zero. Thereafter, the
amount of the outstanding loan is not treated as part of
the account balance for purposes of section 72. The
participant attains age 59-1/2 in the year 2003 and re-
ceives a distribution of the full account balance under
the plan consisting of $60,000 in cash and the loan re-
ceivable. At that time, the plan’s records reflect an off-
set of the loan amount against the loan receivable in
the participant’s account and a distribution of $60,000
in cash.
(ii) For the year 2003, the plan must report a gross
distribution of $60,000 in Box 1 of Form 1099–R and
a taxable amount of $60,000 in Box 2 of Form
1099–R.
Example 2. (i) The facts are the same as in Example
1, except that in 1999, immediately prior to the
deemed distribution, the participant’s account balance
under the plan totals $50,000 and the participant’s tax
basis is $10,000. For 1999, the plan reports, in Box 1
of Form 1099–R, a gross distribution of $20,000
(which is the initial default amount in accordance with
paragraph (c)(2)(ii) of this Q&A-22) and reports, in
Box 2 of Form 1099–R, a taxable amount of $16,000
(the $20,000 deemed distribution minus $4,000 of tax
basis ($10,000 times ($20,000/$50,000)) allocated to
the deemed distribution). The plan then records an in-
crease in tax basis equal to the $20,000 deemed distri-
bution, so that the participant’s remaining tax basis as
of December 31, 1999, totals $26,000 ($10,000 minus
$4,000 plus $20,000). Thereafter, the plan disregards,
for purposes of section 72, the interest that accrues on
the loan after the 1999 deemed distribution. Thus, as
of December 31, 2001, the total taxable amount re-
ported by the plan as a result of the deemed distribu-
tion is $16,000 and the plan’s records show that the
participant’s tax basis is $26,000. As of January 1,
2002, the plan decides to apply Q&A-19 of this sec-
tion to the loan. Accordingly, it reduces the partici-
pant’s tax basis by the initial default amount of
$20,000, so that the participant’s remaining tax basis
in the plan is $6,000. Thereafter, the amount of the
outstanding loan is not treated as part of the account
balance for purposes of section 72. The participant at-
tains age 59-1/2 in the year 2003 and receives a distri-
bution of the full account balance under the plan con-
sisting of $60,000 in cash and the loan receivable. At
that time, the plan’s records reflect an offset of the loan
amount against the loan receivable in the participant’s
account and a distribution of $60,000 in cash.
(ii) For the year 2003, the plan must report a gross
distribution of $60,000 in Box 1 of Form 1099–R and
a taxable amount of $54,000 in Box 2 of Form
1099–R.
Example 3. (i) In 1993, when a participant’s ac-
count balance in a plan is $100,000, the participant re-
ceives a loan of $50,000 from the plan. The partici-
pant makes the required loan repayments until 1995
when there is a deemed distribution of $28,919 as a re-
sult of a failure to repay the loan. For 1995, as a result
of the deemed distribution, the plan reports, in Box 1
of Form 1099–R, a gross distribution of $28,919
(which is the initial default amount in accordance with
paragraph (c)(2)(ii) of this Q&A-22) and, in Box 2 of
Form 1099–R, a taxable amount of $28,919. For
1995, the plan also records an increase in the partici-
pant’s tax basis for the same amount ($28,919). Each
year thereafter through 2001, the plan reports a gross
distribution equal to the interest accruing that year on
the loan balance, reports a taxable amount equal to the
interest accruing that year on the loan balance reduced
by the participant’s tax basis allocated to the gross dis-
tribution, and records a net increase in the participant’s
tax basis equal to that taxable amount. As of Decem-
ber 31, 2001, the taxable amount reported by the plan
as a result of the loan totals $44,329 and the plan’s
records for purposes of section 72 show that the partic-
ipant’s tax basis totals the same amount ($44,329). As
of January 1, 2002, the plan decides to apply Q&A-19
of this section. Accordingly, it reduces the partici-
pant’s tax basis by the initial default amount of
$28,919, so that the participant’s remaining tax basis
in the plan is $15,410 ($44,329 minus $28,919).
Thereafter, the amount of the outstanding loan is not
treated as part of the account balance for purposes of
section 72. The participant attains age 59-1/2 in the
year 2003 and receives a distribution of the full ac-
count balance under the plan consisting of $180,000 in
cash and the loan receivable equal to the $28,919 out-
standing loan amount in 1995 plus interest accrued
thereafter to the payment date in 2003. At that time,
the plan’s records reflect an offset of the loan amount
against the loan receivable in the participant’s account
and a distribution of $180,000 in cash.
(ii) For the year 2003, the plan must report a gross
distribution of $180,000 in Box 1 of Form 1099–R
and a taxable amount of $164,590 in Box 2 of Form
1099–R ($180,000 minus the remaining tax basis of
$15,410).
Example 4. (i) The facts are the same as in Exam-
ple 1, except that in 2000, after the deemed distribu-
tion, the participant receives a $10,000 hardship dis-
tribution. At the time of the hardship distribution,
the participant’s account balance under the plan to-
tals $50,000. For 2000, the plan reports, in Box 1 of
Form 1099–R, a gross distribution of $10,000 and,
in Box 2 of Form 1099–R, a taxable amount of
$6,000 (the $10,000 actual distribution minus
August 14, 20001702000–33 I.R.B.

2000–33 I.R.B.171August 14, 2000
$4,000 of tax basis ($10,000 times
($20,000/$50,000)) allocated to this actual distribu-
tion). The plan then records a decrease in tax basis
equal to $4,000, so that the participant’s remaining
tax basis as of December 31, 2000, totals $16,000
($20,000 minus $4,000). After 1999, the plan disre-
gards, for purposes of section 72, the interest that ac-
crues on the loan after the 1999 deemed distribution.
Thus, as of December 31, 2001, the total taxable
amount reported by the plan as a result of the
deemed distribution plus the 2000 actual distribution
is $26,000 and the plan’s records show that the par-
ticipant’s tax basis is $16,000. As of January 1,
2002, the plan decides to apply Q&A-19 of this sec-
tion to the loan. Accordingly, it reduces the partici-
pant’s tax basis by the initial default amount of
$20,000, so that the participant’s remaining tax basis
in the plan is reduced from $16,000 to zero. How-
ever, because the $20,000 initial default amount ex-
ceeds $16,000, the plan records a loan transition
amount of $4,000 ($20,000 minus $16,000). There-
after, the amount of the outstanding loan, other than
the $4,000 loan transition amount, is not treated as
part of the account balance for purposes of section
72. The participant attains age 59-1/2 in the year
2003 and receives a distribution of the full account
balance under the plan consisting of $60,000 in cash
and the loan receivable. At that time, the plan’s
records reflect an offset of the loan amount against
the loan receivable in the participant’s account and a
distribution of $60,000 in cash.
(ii) In accordance with paragraph (c)(2)(iv) of
this Q&A-22, the plan must report in Box 1 of
Form 1099–R a gross distribution of $64,000 and
in Box 2 of Form 1099–R a taxable amount for the
participant for the year 2003 equal to $64,000 (the
sum of the $60,000 paid in the year 2003 plus
$4,000 as the loan transition amount).
Robert E. Wenzel,
Deputy Commissioner
of Internal Revenue.
Approved July 13, 2000.
Jonathan Talisman,
Deputy Assistant Secretary
of the Treasury.
(Filed by the Office of the Federal Register on July
28, 2000, 8:45 a.m., and published in the issue of
the Federal Register for July 31, 2000, 65 F.R.
46588)
Section 457.—Deferred
Compensation Plans of State
and Local Governments and
Tax-Exempt Organizations
26 CFR 1.457–1: Compensation deferred under
eligible deferred compensation plans.
This notice describes the withholding and report-
ing requirements applicable to eligible deferred
compensation plans described in section 457(b) of
the Internal Revenue Code of 1986. See Notice
2000–38, page 174.

August 14, 20001722000–33 I.R.B.
Part III. Administrative, Procedural, and Miscellaneous
26 CFR 601.105: Examination of returns and
claims for refund, credit, or abatement;
determination of correct tax liability.
Rev. Proc. 2000–32
SECTION 1. PURPOSE
This revenue procedure provides the
domestic asset/liability percentages and
domestic investment yields needed by
foreign life insurance companies and for-
eign property and liability insurance com-
panies to compute their minimum effec-
tively connected net investment income
under section 842(b) of the Internal Rev-
enue Code for taxable years beginning
after December 31, 1998. Instructions are
provided for computing foreign insurance
companies’ liabilities for the estimated
tax and installment payments of estimated
tax for taxable years beginning after De-
cember 31, 1998. For more specific guid-
ance regarding the computation of the
amount of net investment income to be in-
cluded by a foreign insurance company
on its U.S. income tax return, see Notice
89–96, 1989–2 C.B. 417. For the domes-
tic asset/liability percentage and domestic
investment yield, as well as instructions
for computing foreign insurance compa-
nies’ liabilities for estimated tax and in-
stallment payments of estimated tax for
taxable years beginning after December
31, 1997, see Rev. Proc. 99–30, 1999–31
I.R.B. 221.
SECTION 2. CHANGES
.01 DOMESTIC ASSET/LIABILITY
PERCENTAGES FOR 1999. The Secre-
tary determines the domestic asset/liabil-
ity percentage separately for life insur-
ance companies and property and liability
insurance companies. For the first tax-
able year beginning after December 31,
1998, the relevant domestic asset/liability
percentages are:
113.8 percent for foreign life insurance
companies, and
169.4 percent for foreign property and
liability insurance companies.
.02 DOMESTIC INVESTMENT
YIELDS FOR 1999. The Secretary is re-
quired to prescribe separate domestic in-
vestment yields for foreign life insurance
companies and for foreign property and
liability insurance companies. For the
first taxable year beginning after Decem-
ber 31, 1998, the relevant domestic in-
vestment yields are:
7.6 percent for foreign life insurance
companies, and
6.1 percent for foreign property and lia-
bility insurance companies.
.03 SOURCE OF DATA FOR 1999.
The section 842(b) percentages to be used
for the 1999 tax year are based on tax re-
turn data following the same methodol-
ogy used for the 1998 year.
SECTION 3. APPLICATION —
ESTIMATED TAXES
To compute estimated tax and the in-
stallment payments of estimated tax due
for taxable years beginning after Decem-
ber 31, 1998, a foreign insurance com-
pany must compute its estimated tax pay-
ments by adding to its income other than
net investment income the greater of (i)
its net investment income as determined
under section 842(b)(5), that is actually
effectively connected with the conduct of
a trade or business within the United
States for the relevant period, or (ii) the
minimum effectively connected net in-
vestment income under section 842(b)
that would result from using the most re-
cently available domestic asset/liability
percentage and domestic investment
yield. Thus, for installment payments due
after the publication of this revenue pro-
cedure, the domestic asset/liability per-
centages and the domestic investment
yields provided in this revenue procedure
must be used to compute the minimum ef-
fectively connected net investment in-
come. However, if the due date of an in-
stallment is less than 20 days after the
date this revenue procedure is published
in the Internal Revenue Bulletin, the
asset/liability percentages and domestic
investment yields provided in Rev. Proc.
99–30 may be used to compute the mini-
mum effectively connected net invest-
ment income for such installment. For
further guidance in computing estimated
tax, see Notice 89–96.
SECTION 4. EFFECTIVE DATE
This revenue procedure is effective for
taxable years beginning after December
31, 1998.
DRAFTING INFORMATION
The principal author of this revenue
procedure is John W. Rogers III of the
Office of the Associate Chief Counsel (In-
ternational). For further information re-
garding this revenue procedure, please
contact Mr. Rogers at (202) 622-3870
(not a toll-free call), or write to the Inter-
nal Revenue Service, Office of the Asso-
ciate Chief Counsel (International), 1111
Constitution Avenue, NW, Washington,
DC 20224, Attention: CC:INTL:Br5,
Room 4554.
Losses Claimed on Certain
Intangible Assets
Notice 2000–34
This notice informs Blue Cross Blue
Shield insurance organizations (“BCBS
organizations”) that the Internal Revenue
Service will challenge deductions for
losses for the termination of individual
customer, provider, or employee contracts
or relationships associated with customer
lists, provider networks, and workforce in
place with respect to which the taxpayer
claims an adjusted basis derived from
§ 1012(c)(3)(A)(ii) of the Tax Reform Act
of 1986 (the Act).
Section 1012 of the Act revoked the
tax-exempt status of BCBS organizations
and added § 833 of the Internal Revenue
Code (the “Code”), which treats those or-
ganizations as taxable stock insurance
companies. Under § 1012(c)(3)(A)(ii) of
the Act, each organization’s adjusted
bases in its assets, for purposes of deter-
mining gain or loss, is deemed equal to
the assets’ fair market values as of the
first day of its first taxable year beginning
after December 31, 1986.
The Conference Committee Report ac-
companying the Act states that this fair
market value basis adjustment was pro-
vided “solely for purposes of determining
gain or loss upon the sale or exchange of
the assets, not for purposes of determin-
ing amounts of depreciation or for other
purposes.” H.R. Conf. Rept. 841, 99
th
Cong., 2d Sess. II- 350 (1986). The Con-
ference Report further clarifies that the
basis adjustment was provided because

2000–33 I.R.B.173August 14, 2000
the conferees believed that the formerly
tax-exempt organizations should not be
taxed on unrealized appreciation or depre-
ciation that accrued during the period the
organization was not generally subject to
income taxation. Id.
The Service has learned that some BCBS
organizations are claiming annual or peri-
odic loss deductions under § 165 of the
Code with respect to certain intangible as-
sets, including customer lists, provider net-
works, and workforce in place using the
fair market value basis provided under
§ 1012(c)(3)(A)(ii) of the Act for purposes
of determining gain or loss. For example,
some BCBS organizations are claiming
loss deductions in the year in which a cus-
tomer terminates its relationship with the
BCBS plan, on the theory that each cus-
tomer relationship is a separate asset for
federal income tax purposes.
The Service believes that BCBS organi-
zations are not entitled to these loss deduc-
tions. In addition to carefully scrutinizing
the valuations obtained for the assets at
issue, the Service will challenge the loss
deductions under various theories, as ap-
propriate, including the following:
• These individual customer, provider,
or employee contracts or relation-
ships are not separate assets. The
Supreme Court’s decision in Newark
Morning Ledger Co. v. United States,
507 U.S. 546 (1993), did not disturb
earlier authority denying current loss
deductions upon the termination of an
individual customer, provider, or em-
ployee contract or relationship or
similar component of a single asset.
See, e.g., Golden State Towel and
Linen Service v. United States, 373
F.2d 938 (Ct. Cl. 1967). In Newark
Morning Ledger, the Supreme Court
cited Golden State Towel with ap-
proval.
• Under the facts set forth above, an-
nual or periodic loss deductions are
the functional equivalent of amortiz-
ing the single assets composed of in-
dividual customer, provider, or em-
ployee contracts or relationships, and
as such are contrary to Congress’s
express prohibition against using the
§ 1012(c)(3)(A)(ii) basis for amorti-
zation purposes. That is, some
BCBS organizations are using these
annual loss deductions as a mecha-
nism for regularly converting a por-
tion of a single intangible asset’s
§ 1012(c)(3)(A)(ii) basis into an off-
set against current income, produc-
ing the same tax effect as amortizing
that asset’s § 1012(c)(3)(A)(ii) basis.
• By enacting § 1012 of the Act, Con-
gress intended to take away the ad-
vantage the BCBS organizations
enjoyed as tax-exempt entities in
competing with commercial insur-
ance companies by subjecting the
BCBS organizations to the payment
of federal income taxes to the same
extent as commercial insurance
providers. H.R. Rep. No. 426, 99th
Cong., 1st Sess. 664 (1985). The
legislative history to the Act indi-
cates that Congress expected to
remedy this inequity immediately,
with the BCBS organizations be-
ginning to pay tax in their initial
years as taxable entities. The an-
nual use of a portion of the
§ 1012(c)(3)(A)(ii) basis to offset a
substantial amount of taxable in-
come immediately upon becoming
taxable would permit BCBS organi-
zations to maintain the competitive
advantage they enjoyed prior to the
Act by effectively delaying for
many years their obligation to pay
federal income taxes to the same
extent as other commercial insur-
ance providers.
• By not having claimed loss deduc-
tions upon the termination of individ-
ual customer, provider, or employee
contracts or relationships in prior
years, BCBS organizations effec-
tively adopted a method of account-
ing that treats customer lists,
provider networks, and workforce in
place as single assets composed of
individual customer, provider, or em-
ployee contracts or relationships. A
method of accounting cannot be
changed without permission from the
Secretary. Section 446(e); Rev. Rul.
90–38, 1990–1 C.B. 57. BCBS in-
surance organizations that file claims
for refund to begin recovering the
basis in individual customer,
provider, or employee contracts or
relationships that terminated in prior
years are attempting to make an
unauthorized change in method of
accounting. SeeTreas. Reg.
§ 1.446–1(e)(2)(ii)(a).
DRAFTING INFORMATION
The principal author of this notice is
Grace Matuszeski of the Office of the As-
sociate Chief Counsel (Income Tax & Ac-
counting). For further information re-
garding this notice contact Kay
Hossofsky of the Office of the Associate
Chief Counsel (Financial Institutions &
Products) at (202) 622-3970 (not a toll-
free call).
IRS Releases New Form 8871,
Political Organization Notice of
Section 527 Status
Notice 2000–36
The Internal Revenue Service on July
12, 2000, announced the release of the
new form that section 527 political orga-
nizations must file and detailed plans for
implementing other aspects of the new
law governing these groups.
Starting immediately, section 527 polit-
ical organizations must file Form 8871
with the IRS. This notice of organization
must be filed by July 31, 2000.
The IRS action follows a new law ap-
proved last month by Congress and
signed July 1, 2000, by President Clinton.
The legislation creates a new set of rules
for political organizations established
under section 527 of the Internal Revenue
Code. Under the new law, these 527
groups will be required to publicly dis-
close details about their organization,
contributors, expenditures, annual returns
and other information.
“The IRS is moving quickly to put
these new rules in place. We want to
make information from these organiza-
tions available to the public as soon as
possible,” IRS Commissioner Charles O.
Rossotti said.
The IRS has also released new forms
and other details involving reporting and
disclosure requirements for 527 organiza-
tions.
The first step is the release of Form
8871, Political Organization Notice of
Section 527 Status. The form is now avail-
able at the IRS web site, www.irs.gov, in
the “Forms and Pubs” section.
Organizations must file Form 8871
both electronically and in writing. The
form can be filed electronically at
www.irs.gov/bus_info/eo/pol-file.html.

Every political organization under sec-
tion 527 must file Form 8871 unless it
reasonably expects annual gross receipts
to always be less than $25,000 in each
taxable year. Political committees also do
not have to submit this form if they are re-
quired to file reports with the Federal
Election Commission. Section 501(c) or-
ganizations such as social welfare groups,
labor unions and trade associations that
file Form 1120-POL and pay taxes under
section 527(f)(1) also will not have to
submit Form 8871.
The law requires newly established or-
ganizations to file Form 8871 within 24
hours of their creation. However, the IRS
realizes some of these section 527 organi-
zations may not yet be aware of this re-
quirement. Consequently, the IRS has ex-
tended the due date for filing Form 8871
until July 31, 2000, for any organizations
established after June 30, 2000. Organi-
zations already in existence on June 30,
2000, already have until July 31, 2000, to
file Form 8871.
Form 8871 contains a variety of infor-
mation about 527 organizations, including
the organization’s purpose, a list of re-
lated entities, contact persons, record cus-
todians, e-mail addresses and lists of offi-
cers, directors and highly compensated
employees.
By August 15, 2000, the IRS will make
available on its Internet site a list of orga-
nizations filing Form 8871. Copies of the
Form 8871 will be available through the
527 organizations. The IRS is working on
procedures to make copies of the forms
available for public inspection as soon as
possible.
The IRS has also released another form
that 527 organizations will use to periodi-
cally disclose contributions and expendi-
tures made after July 1, 2000. Form
8872, Political Organization Report of
Contributions and Expenditures, will in-
clude names, addresses, employers and
occupations for contributors of $200 or
more annually. Organizations or individ-
uals receiving $500 or more annually
from 527 organizations also will be listed
on these forms.
For more information about Form 8872,
see Notice 2000–41, page 177.
Information from filed Forms 8872 will
be available for public inspection.
The IRS also is in the process of deter-
mining which forms will be used as an-
nual returns by 527 organizations with
gross receipts of $25,000 or more. These
returns also will be available for public
review.
“Putting these new rules in place poses
a major challenge for the IRS given the
short time frame available,” Rossotti said.
“However, we are committed to serving
taxpayers by implementing this important
new law in a timely and convenient man-
ner.”
DRAFTING INFORMATION
The principal author of this notice is
Judith E. Kindell of the Exempt Organiza-
tions Division. For further information
regarding this announcement contact
Judith E. Kindell on (202) 622-6494 (not
a toll-free call).
Eligible Deferred Compensation
Plans under Section 457
Notice 2000–38
I. PURPOSE AND SCOPE
This notice describes the withholding
and reporting requirements “applicable to
eligible deferred compensation plans de-
scribed in § 457(b) of the Internal Rev-
enue Code of 1986 (“§ 457(b) plans”).
Specifically, this notice addresses —
• income tax withholding and reporting
with respect to annual deferrals made
to a § 457(b) plan;
• income tax withholding and reporting
with respect to distributions from a
§ 457(b) plan;
• Federal Insurance Contributions Act
(FICA) payment and reporting with
respect to annual deferrals under a
§ 457(b) plan;
• employer identification numbers
(EINs) used in connection with trusts
established under § 457(g); and
• the application of annual reporting re-
quirements to § 457(b) plan adminis-
trators and trustees holding assets of a
§ 457(b) plan in accordance with
§ 457(g).
This notice addresses only reporting
and withholding rules that apply to
§ 457(b) plan participants who are or
were employees of state and local gov-
ernments or tax-exempt organizations
and does not cover special reporting
rules that may apply to § 457(b) plan
participants who are or were independent
contractors.
II. BACKGROUND
Section 457 provides rules for nonqual-
ified deferred compensation plans estab-
lished by eligible employers. State and
local governments and tax-exempt orga-
nizations are eligible employers. They
can establish either eligible plans that
meet the requirements of § 457(b) or
plans that do not meet the requirements of
§ 457(b) and that are therefore subject to
tax treatment under § 457(f).
Section 1448 of the Small Business
Job Protection Act of 1996, (“SBJPA”),
1996–3 C.B. 155, 212, amended § 457
by adding § 457(g), which requires that
§ 457(b) plans maintained by state or
local government employers hold all
plan assets and income in trust, or in
custodial accounts or annuity contracts
described in § 401(f), for the exclusive
benefit of participants and their benefi-
ciaries. Section 457(g) applies gener-
ally to assets and income held by a gov-
ernmental § 457(b) plan on and after
August 20, 1996. However, with re-
spect to a governmental § 457(b) plan in
existence on August 20, 1996, a trust (or
a custodial account or annuity contract)
was not required to have been estab-
lished before January 1, 1999. Section
457(g) does not apply to a § 457(b) plan
established by a tax-exempt organiza-
tion that is not a state or local govern-
mental entity.
Notice 98–8, 1998–1 C.B. 355, pro-
vides guidance regarding the amend-
ments made to § 457(b) by the SBJPA.
Following publication of the 1998 no-
tice, the Service received additional in-
quiries regarding the statutory changes
made in § 457(b) by the SBJPA and the
Taxpayer Relief Act of 1997, Pub. L. No.
105–34. Specifically, taxpayers, em-
ployers, and plan administrators asked
what employment and income tax report-
ing requirements apply with respect to
§ 457(b) plans and whether a trustee or
administrator of a trust established under
§ 457(g) must file annual information re-
turns relating to the trust, such as Form
990, Return of Organization Exempt
From Income Tax, or an appropriate ver-
sion of Form 5500, Annual Return/Re-
port of Employee Benefit Plan.
August 14, 20001742000–33 I.R.B.

III. INCOME TAX WITHHOLDING
AND REPORTING ON ANNUAL
DEFERRALS
Section 457(a) provides that annual de-
ferrals under a § 457(b) plan and any in-
come attributable to the amounts so de-
ferred will not be includible in a
participant’s gross income until that
amount is paid or made available to the
participant or beneficiary. Therefore, an-
nual deferrals under a § 457(b) plan are
not subject to income tax withholding at
the time of the deferral. However, a par-
ticipant’s annual deferrals during the tax-
able year under a § 457(b) plan are re-
ported on Form W-2, Wage and Tax
Statement, in the manner described in the
instructions to that form. “Annual defer-
rals”, as used in this notice, means the
amount of compensation deferred under
the plan in accordance with section
457(b) whether by salary reduction or
nonelective employer contribution, dur-
ing a taxable year.
IV. INCOME TAX WITHHOLDING
AND REPORTING ON § 457(b)
PLAN DISTRIBUTIONS
A. Income Tax Withholding on
§ 457(b) Plan Distributions
“Distributions” from a § 457(b) plan to
a participant or former participant include
all amounts that are paid or made avail-
able under a § 457(b) plan. Distributions
to a participant or former participant from
a § 457(b) plan are wages under § 3401(a)
that are subject to income tax withholding
in accordance with the income tax with-
holding requirements of § 3402(a). The
pension withholding rules of § 3405 do
not apply. See § 35.3405–1, a–23, Q&A
of the Temporary Employment Tax and
Collection of Income Tax at Source Regu-
lations.
Income tax withholding on distribu-
tions to a participant or former participant
under a § 457(b) plan is calculated in the
same manner as withholding on other
types of wage payments. For guidance on
the use of the flat rate withholding
method as a supplement to regular wage
withholding in cases where the payor is
paying wages to the participant in addi-
tion to the distribution from the § 457(b)
plan, see § 31.3402(g)–1(a) of the Em-
ployment Tax Regulations and Rev. Rul.
82–46, 1982–1 CB 158. If an eligible
payor uses the flat rate of withholding as
an alternative to regular wage withhold-
ing on a lump sum payment, section
13273 of the Omnibus Budget Reconcili-
ation Act of 1993, 1993–3 C.B. 130 pro-
vides that a 28 percent flat rate must be
used.
B. Person Responsible for Income
Tax Withholding on Distributions
Section 3402(a) requires every em-
ployer making payment of wages to with-
hold income tax on these wages. How-
ever, § 3401(d)(1) provides that if the
person for whom an individual performed
services as an employee does not have
control of the payment of the wages for
those services, the person having control
of the payment of the wages is responsi-
ble for income tax withholding on those
wages. See § 31.3401(d)–1(f). Thus, if
distributions are made by a § 457(g)
trustee of a plan established by a state or
local government, the trustee is responsi-
ble for income tax withholding and re-
porting on the distributions. Similarly, if
distributions are made by a § 457(g) cus-
todian or insurance carrier treated as a
trustee under § 457(g), the custodian or
insurance carrier is responsible for in-
come tax withholding on the distribu-
tions. Subsections C, D, and E of this
Section IV provide additional information
regarding how the trustee (or custodian or
insurance carrier) should withhold, de-
posit, and report distributions.
When distributions are made under a
§ 457(b) plan established by a tax-exempt
organization, the tax-exempt organization
or any other person having control of the
payment of the distributions is responsi-
ble for income tax withholding on the dis-
tributions.
C. Reporting on Form W-2 for
Distributions from a § 457(b) Plan
Distributions to a participant or for-
mer participant during a taxable year
under a § 457(b) plan are reported on
Form W-2, Wage and Tax Statement, in
the manner described in the instructions
to that form. See also Rev. Rul. 82–46,
supra. Income tax withheld from
§ 457(b) plan distributions is reported
quarterly on Form 941, Employer’s Quar-
terly Federal Tax Return.
D. Reporting Death Benefit
Payments
Distributions to a beneficiary of a de-
ceased participant under a § 457(b) plan are
reported on Form 1099–R, Distributions
from Pensions, Annuities, Retirement or
Profit-Sharing Plans, IRAs, Insurance Con-
tracts, etc. See Rev. Rul. 86–109, 1986–2
C.B. 196. No income tax withholding is re-
quired for distributions from § 457(b) plans
to beneficiaries. See Rev. Rul. 59–64,
1959–1 C.B. 31. The instructions for Form
1099–R describe how this form is com-
pleted for distributions made to a benefi-
ciary from a nonqualified deferred compen-
sation plan, such as a § 457(b) plan.
E. EINs and Income Tax Deposits
with respect to § 457(g) Trust
Accounts
Generally, the income tax withheld on
distributions should be reported on the
Form 941 of the person responsible for
withholding, as described in section IV-B
of this notice, and aggregated with other
amounts reported by that person on Form
941 to determine the frequency of federal
tax deposits under § 31.6302–1. This is
the same as the first alternative described
in Announcement 84–40, 1984–17 IRB
31. Alternatively, the IRS will permit
trustees of § 457(g) trusts, or custodians
or insurance carriers treated as trustees
under § 457(g)(3) to use the other two al-
ternatives contained in Announcement
84–40 for the tax administration of such
withholdings:
1. The trustee, custodian, or insur-
ance carrier may request an EIN solely for
the purpose of reporting the aggregated
withholding from the distributions of
every § 457(g) trust, custodial account, or
annuity contract under its control, making
deposits and filing Form 941 accordingly.
2. The trustee, custodian, or insur-
ance carrier may request and use a sepa-
rate EIN for each § 457(g) trust (or custo-
dial account or insurance contract),
making deposits and filing Form 941 ac-
cordingly.
The trustee, custodian, or insurance
carrier exercising any of the above alter-
natives for depositing and reporting the
tax withheld from § 457(g) trust distribu-
tions must also follow the same option in
filing the related information returns,
such as Forms W-2 (in the case of distrib-
2000–33 I.R.B.175August 14, 2000

utions to participants or former partici-
pants) or 1099–R (in the case of distribu-
tions to beneficiaries). That is, the
trustee, custodian, or insurance carrier
must use the same name and EIN on
Forms W-2 or 1099–R as that under
which the tax was deposited and the quar-
terly return filed. The trustee, custodian,
or insurance carrier must aggregate and
deposit all taxes pursuant to § 31.6302–1
under the EIN chosen. The above-de-
scribed options relate only to trusts, annu-
ity contracts or custodial accounts estab-
lished pursuant to section 457(g) for
amounts deferred under § 457(a). For in-
formation on the remittance of social se-
curity, Medicare, and FUTA taxes by the
employer, see section V-D below.
V. FICA AND FUTA TAXES AND
REPORTING
A. Scope
The rules described in this notice relating
to FICA (social security and Medicare) tax
apply to employees of state and local gov-
ernments only if they are subject to social
security or Medicare tax under section
3121(u) (relating to Medicare), section
3121(b)(7)(E) (relating to agreements en-
tered into pursuant to section 218 of the So-
cial Security Act), or other provisions of the
Code, such as section 3121(b)(7)(F) (relat-
ing to state and local government employ-
ees who are not members of a state or local
retirement system). The FICA rules dis-
cussed in this notice generally apply to em-
ployees of tax-exempt organizations, unless
a specific exclusion is applicable. The
FICA tax discussed in this Section V in-
cludes the employer’s share of the FICA
tax imposed under section 3111 as well as
the employee’s share imposed under sec-
tions 3101 and 3102.
The rules described in this notice relat-
ing to the Federal Unemployment Tax Act
(FUTA) do not apply to service for a state
or local governmental entity because sec-
tion 3306(c)(7) provides a FUTA exemp-
tion for service performed in the employ
of a state or any political subdivision
thereof or any instrumentality of any one
or more of the foregoing. The rules de-
scribed in this notice relating to FUTA
apply to service for a tax-exempt organi-
zation other than a tax-exempt organiza-
tion described in section 501(c)(3). See
section 3306(c)(8).
B. Time Social Security, Medicare,
and FUTA Taxes Imposed
Sections 3121(a) (relating to social se-
curity and Medicare) and 3306(b) (relat-
ing to FUTA) define “wages” as all re-
muneration for employment, unless
specifically excluded (see section V-A,
above). If social security, Medicare, or
FUTA taxes apply, sections 3121(v)(2)
and 3306(r)(2) contain special timing
rules that apply in determining when
amounts deferred under a nonqualified
deferred compensation plan are required
to be taken into account. Under these
sections, an amount deferred under a non-
qualified deferred compensation plan, in-
cluding a § 457(b) plan, is required to be
taken into account for purposes of social
security, Medicare, and FUTA taxes as of
the later of when the services are per-
formed or when there is no substantial
risk of forfeiture of the rights to such
amount.
Thus, if a § 457(b) plan provides that
annual deferrals are fully and immedi-
ately vested, annual deferrals are subject
to social security, Medicare, and FUTA
taxes at the time of deferral. However, if
the annual deferrals are not fully and im-
mediately vested, but are subject to a sub-
stantial risk of forfeiture, the annual de-
ferrals (and earnings thereon) are
generally taken into account for purposes
of social security, Medicare, and FUTA at
the time such amounts are no longer sub-
ject to a substantial risk of forfeiture. For
purposes of social security, Medicare, and
FUTA taxes, the determination of whether
a substantial risk of forfeiture exists is
made in accordance with the principles of
section 83 and the regulations thereunder.
See §§ 31.3121(v)(2)–1(e)(3) and
31.3306(r)(2)–1.
If amounts deferred under a § 457(b)
plan are properly taken into account as so-
cial security, Medicare, and FUTA wages
when deferred (or, if later, when they
cease to be subject to a substantial risk of
forfeiture), the amounts subsequently paid
or made available to a participant or bene-
ficiary under the § 457(b) plan are not sub-
ject to social security, Medicare, or FUTA
taxes. See §§ 3121(v)(2)(B) and
3306(r)(2)(B) and § 31.3121(v)(2)–
1(a)(2)(iii) and 31.3121(v)(2)–1(d)(2). If
an amount deferred for a period is not
properly taken into account, distributions
attributable to that amount, including in-
come on the amounts deferred, may be
wages for FICA purposes when paid or
made available. See § 31.3121(v)(2)–
1(d)(1)(ii). Additional special rules apply
to § 457(b) plans other than plans where
benefits are based on a participant’s ac-
count balance. See § 31.3121(v)(2)–
1(e)(4).
C. Examples
The application of social security and
Medicare tax is illustrated by the follow-
ing examples:
Example 1.(i) State R’s § 457(b) plan provides
for elective deferrals from current salary, as well
as a one percent of salary nonelective contribution
for each employee who participates in the plan and
who is employed with State R during the plan
year. All employees who participate in the plan
are covered by an agreement under section 218 of
the Social Security Act. All deferrals and contri-
butions, including the state’s contribution, are
fully and immediately vested.
(ii) Because these contributions are not subject
to a substantial risk of forfeiture (and the services
to which they relate have already been performed),
the elective deferrals are required to be taken into
account as wages at the time of the deferral and
State R’s nonelective contribution is required to be
taken into account as wages at the time of the con-
tribution for purposes of the social security and
Medicare tax.
Example 2.(i) Assume the same facts as in Ex-
ample 1, except that the plan has three-year vest-
ing for State R’s nonelective contribution. There-
fore, an employee’s rights to the nonelective
contributions (and the associated earnings) are
subject to a substantial risk of forfeiture until the
employee has been employed by State R for three
years.
(ii) State R’s nonelective contributions (and
earnings thereon) are not wages for purposes of
the social security and Medicare tax until the em-
ployee has completed three years of service. At
that time, the aggregate amount of State R’s non-
elective contributions, plus earnings thereon, is re-
quired to be taken into account as wages for pur-
poses of the social security and Medicare tax.
Once an individual has met the vesting require-
ments, future nonelective contributions by State R
are required to be taken into account as wages for
purposes of the social security and Medicare tax at
the time of the contribution.
D. Deposit and Reporting of Social
Security, Medicare and FUTA
Taxes
The employer must aggregate and de-
posit social security and Medicare taxes
associated with a § 457(b) plan (includ-
ing the employer’s share of social secu-
rity and Medicare taxes under section
3111) with all other social security, and
August 14, 20001762000–33 I.R.B.

Medicare taxes and withheld income
taxes paid on behalf of its employees in
accordance with § 31.6302–1 and must
report these taxes on Form 941. Employ-
ers subject to FUTA must aggregate and
deposit FUTA amounts associated with a
§ 457(b) plan with all other FUTA
amounts paid on behalf of its employees
in accordance with § 31.6302(c)–3 and
must report these payments on Form 940.
VI. ANNUAL REPORTING FOR
§ 457 PLANS
A. Section 457(b) Plans of Tax-
Exempt Organizations
Annual deferrals and payments to certain
participants in a § 457(b) plan of a tax-ex-
empt organization are reported on the orga-
nization’s Form 990 in the manner de-
scribed in the instructions to that form.
B. § 457(g) Trusts
A trust described in § 457(g) is not re-
quired to file Form 990, Return of Orga-
nization Exempt From Income Tax,
Form 1041, U.S. Income Tax Return for
Estates and Trusts, Form 1120, U.S. Cor-
poration Income Tax Return, or Form
5500, Annual Return/Report of Em-
ployee Benefits Plans. See, for example,
Rev. Proc. 95–48, 1995–2 C.B. 418,
which provides that governmental units
and affiliates of governmental units that
are exempt from federal income tax
under § 501(a) are not required to file
annual information returns on Form 990,
Return of Organization Exempt From In-
come Tax. A trust described in § 457(g)
may be required to file Form 990–T, Ex-
empt Organization Business Income Tax
Return. See §§ 1.6012–2(e) and
1.6012–3(a)(5) for the requirements for
filing Form 990–T.
VII. OTHER INFORMATION
AVAILABLE
Further information regarding the re-
porting, payment and deposit of employ-
ment taxes such as social security,
Medicare, FUTA, and withheld income
tax can be found in Publication 15, Circu-
lar E, Employer’s Tax Guide; Publication
15-A, Employer’s Supplemental Tax
Guide; and Publication 963, Federal-
State Reference Guide: Social Security
Coverage and FICA Reporting by State
and Local Government Employers. These
publications will be revised, as appropri-
ate, to reflect the proper treatment of
trusts under section 457(g).
VIII. EFFECTIVE DATE
This notice is applicable with respect to
deferrals and distributions made after De-
cember 31, 2001. Plan sponsors, plan ad-
ministrators and taxpayers may rely on
this Notice for distributions and deferrals
before January 1, 2002.
IX. REQUEST FOR COMMENTS
The Internal Revenue Service requests
comments concerning this notice, and wel-
comes comments on any other useful ap-
proaches the Service might consider re-
garding the administration of § 457(b)
plans, including alternatives to Form W-2
reporting. Comments can be addressed to
the Internal Revenue Service, Office of As-
sociate Chief Counsel, CC:TEGE:EB:QP2,
Room 5201, 1111 Constitution Avenue,
Washington, D.C. 20224. In addition, com-
ments may be submitted electronically via
the Internet by sending them in an e-mail
to: joel.s.rutstein@m1.irscounsel.treas.gov
and specifying that the comments concern
Notice 2000–38.
DRAFTING INFORMATION
The principal author of this notice is
John Tolleris of the Office of the Associ-
ate Chief Counsel/Division Counsel (Tax
Exempt/ Government Entities). However,
other personnel from the IRS and Trea-
sury participated in its development. For
further information regarding this notice,
contact John Tolleris at (202) 622-6060
(not a toll-free number).
IRS Releases New Form 8872,
Political Organization Report of
Contributions and Expenditures
Notice 2000–41
The Internal Revenue Service on July
17, 2000, announced the release of the
new form that section 527 political orga-
nizations must use to provide details
about contributions and expenditures.
The agency also extended the filing dead-
line until July 31, 2000, for groups re-
quired to file this month.
Form 8872, Political Organization Re-
port of Contributions and Expenditures,
will require groups to list contributors of
$200 or more annually and expenditures
of $500 or more annually.
This marks the second new IRS form
covering section 527 organizations.
This follows a new law approved in
June 2000 by Congress and signed July
1, 2000, by President Clinton that cre-
ates a new set of rules for political orga-
nizations established under section 527
of the Internal Revenue Code. Under
the new law, these 527 groups will be
required to publicly disclose details
about their organization, contributors,
expenditures, annual returns and other
information.
“The IRS continues moving forward
with this important project as quickly as
possible,” IRS Commissioner Charles O.
Rossotti said. “Putting these new rules in
place is a top priority.”
Form 8872 and related instructions are
now available at the IRS web site,
www.irs.gov, under the “Forms and Pubs”
section. Look under “What’s Hot in Tax
Forms.” Form 8872 can be downloaded
at ftp.fedworld.gov/pub/irs-fill/f8872.pdf.
The Form 8872 instructions are available
at ftp.fedworld.gov/pub/irs-pdf/i8872.pdf.
The new form requires 527 organiza-
tions to list the name, address, employer
and occupation of contributors who give
$200 or more annually to the organiza-
tion. Similar information will be listed
for groups or individuals receiving $500
or more annually from 527 organizations.
The disclosure covers contributions re-
ceived and expenditures made after July
1, 2000.
The due dates for filing Form 8872
vary depending on whether it is an elec-
tion or non-election year. In non-election
years, the forms must be filed semi-annu-
ally or monthly. In election years, the
forms must be filed quarterly or monthly
and in connection to election dates. A
complete listing of these filing periods
can be found in the Form 8872 instruc-
tions.
Some organizations potentially face July
2000 filing deadlines for pre-election re-
ports. However, the IRS realizes many 527
organizations may not yet be aware of this
deadline, so the agency has decided to ex-
tend the deadline for any July 2000 filings
of Form 8872 until July 31, 2000.
2000–33 I.R.B.177August 14, 2000

The IRS made the decision to give
groups additional time to learn about the
new requirements.
This follows a similar IRS decision to
set July 31, 2000, as the deadline for these
organizations to file Form 8871, Political
Organization Notice of Section 527 Sta-
tus. This notice of organization is also
available at the IRS web site in the
“Forms and Pubs” section. See Notice
2000–36, page 173, for more information
about Form 8871.
Generally, section 527 organizations
must file Form 8872 if they accept contri-
butions or make expenditures during a
calendar year. However, organizations do
not file Form 8872 if:
• The organization is not required to
file Form 8871, or
• They are the state or local committee
of a political party or the political
committee of a state or local candi-
date.
However, the IRS wants to alert many
other state and local political organizations
that they may need to file Forms 8871 and
8872. The new law generally covers 527
organizations active in state and local polit-
ical campaigns as well as 527 organizations
active in federal elections.
The IRS will assess penalties if an or-
ganization fails to file Form 8872 by the
due date. Penalties will also be assessed
if the organization fails to report all of the
information required on the form or re-
ports incorrect information. The penalty
is 35 percent of the total amount of contri-
butions and expenditures not properly re-
ported.
Organizations must make copies of
filed Forms 8872 and 8871 available for
public inspection. In addition, the IRS is
working on procedures to make these
available for public inspection.
“We are doing everything we can to
make information from these groups pub-
licly available as soon as possible,”
Rossotti said.
The IRS also is in the process of deter-
mining which forms will be used as an-
nual returns by 527 organizations with
gross receipts of $25,000 or more. These
returns also will be available for public
review.
DRAFTING INFORMATION
The principal author of this notice is
John Francis Reilly of the Exempt Orga-
nizations Division. For further informa-
tion regarding this announcement contact
John Francis Reilly on (202) 622-7352
(not a toll-free call).
August 14, 20001782000–33 I.R.B.

Notice of Proposed Rulemaking
Loans From a Qualified
Employer Plan to Plan
Participants or Beneficiaries
REG–116495–99
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing.
SUMMARY: This document contains
proposed Income Tax Regulations relating
to loans made from a qualified employer
plan to plan participants or beneficiaries.
These regulations affect administrators of,
participants in, and beneficiaries of quali-
fied employer plans that permit participants
or beneficiaries to receive loans from the
plan, including loans from section 403(b)
contracts and other contracts issued under
qualified employer plans.
DATES: Written and electronic comments
and requests for a public hearing must be re-
ceived by October 31, 2000.
ADDRESSES: Send submissions to:
CC:MSP:RU (REG–116495–99), room
5226, Internal Revenue Service, POB
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may be hand de-
livered Monday through Friday between
the hours of 8 a.m. and 5 p.m. to: CC:
MSP:RU (REG–116495–99), Courier’s
Desk, Internal Revenue Service, 1111 Con-
stitution Avenue, NW., Washington, DC.
Alternatively, taxpayers may submit com-
ments electronically via the Internet by se-
lecting the “Tax Regs” option on the IRS
Home Page, or by submitting comments di-
rectly to the IRS Internet site at
http://www.irs.gov/tax_regs/regslist.html.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations, Vernon
S. Carter, (202) 622-6070; concerning sub-
missions Sonya Cruse (202) 622-7180 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed
amendments to the Income Tax Regula-
tions (26 CFR Part 1) under section 72 of
the Internal Revenue Code of 1986 (Code).
Explanation of Provisions
Section 72(p)(1)(A) provides that a
loan from a qualified employer plan (in-
cluding a contract purchased under a
qualified employer plan) by a participant
or beneficiary is treated as received as a
distribution from the plan for purposes of
section 72 (a deemed distribution). Sec-
tion 72(p)(1)(B) provides that an assign-
ment or pledge of (or an agreement to as-
sign or pledge) any portion of a
participant’s or beneficiary’s interest in a
qualified employer plan is treated as a
loan from the plan.
Section 72(p)(2) provides that section
72(p)(1) does not apply to the extent cer-
tain conditions are satisfied. Specifically,
under section 72(p)(2), a loan from a
qualified employer plan to a participant or
beneficiary is not treated as a distribution
from the plan if the loan satisfies require-
ments relating to the term of the loan and
the repayment schedule, and to the extent
the loan satisfies certain limitations on the
amount loaned.
Section 1704(n) of the Small Business
Job Protection Act of 1996, Public Law
104–188 (110 Stat. 1755), added section
414(u) of the Code. Section 414(u)(4) pro-
vides that if a plan suspends the obligation
to repay a loan made to an employee from
the plan for any part of a period during
which the employee is performing service
in the uniformed services, that suspension
is not to be taken into account for purposes
of section 72(p).
1
The proposed regula-
tions provide a rule clarifying that, under
section 414(u)(4), if a plan provides for the
suspension of a participant’s obligation to
repay a loan for any part of any leave of
absence for a period of military service (as
defined in chapter 43 of title 38, United
States Code), the suspension will not cause
the loan to be deemed distributed, even if
the leave exceeds one year, as long as loan
repayments resume upon the completion of
the military service, the amount then re-
maining due on the loan is repaid in sub-
stantially level installments thereafter, and
the loan is fully repaid by the end of the pe-
riod equal to the original term of the loan
plus the period of the military service.
Regulations were proposed in 1995
2
with respect to many of the issues arising
under section 72(p)(2). The preamble to
the 1995 proposed regulations requested
comments on whether further guidance
should be provided on issues that were not
addressed and how the issues should be
resolved, including (1) the effect of a
deemed distribution on the tax treatment
of subsequent distributions from a plan
(such as whether a participant has basis),
(2) the application of the $50,000 limita-
tion to multiple loan arrangements, and (3)
the application of section 72(p)(2) to a re-
financing and to multiple loan arrange-
ments. Following publication of the 1995
proposed regulations, various comments
were received and a public hearing was
held on June 28, 1996. After reviewing
the written comments and comments
made at the public hearing, proposed regu-
lations generally addressing the first issue
were published in the Federal Register
(63 F.R. 42) on January 2, 1998
(REG–209476–82, 1998–1 C.B. 594).
Final regulations for the issues ad-
dressed in the 1995 and 1998 proposed
regulations are being published in T.D.
8894, page 162. These proposed regula-
tions address the remaining issues on
which comments were requested in the
preamble to the 1995 proposed regula-
tions, namely, situations in which a loan is
refinanced or more than one loan is made.
These proposed regulations provide
that if a loan is deemed distributed to a
participant or beneficiary and has not
been repaid, then no payment made there-
after to the participant or beneficiary will
be treated as a loan for purposes of sec-
tion 72(p)(2), unless certain conditions
are satisfied. Specifically, there must be
an arrangement among the plan, the par-
ticipant or beneficiary, and the employer,
enforceable under applicable law, under
which repayments will be made by pay-
roll withholding or the plan must receive
adequate security for the additional loan
2000–33 I.R.B.179August 14, 2000
Part IV. Items of General Interest
1
Rev. Proc. 96–49 (1996–2 C.B. 369), includes a
model amendment that may be used to reflect sec-
tion 414(u)(4).
2
Proposed §1.72(p)–1 was published in the Federal
Register(60 F.R. 66233) on December 21, 1995.

(in addition to the participant’s accrued
benefit under the plan).
3
The proposed regulations also provide
that while a loan can be refinanced and
additional amounts may be borrowed, the
refinancing and multiple loan arrange-
ments must satisfy the requirements in
section 72(p)(2)(B) and (C) that each loan
be repaid in level installments, not less
often than quarterly, over five years (or
longer for certain home loans). Under the
proposed regulations, a refinancing is, in
effect, treated as a new loan that is then
applied to repay a prior loan if the new
loan both replaces a prior loan and has a
later repayment date. Thus, the transac-
tion will result in a deemed distribution if
the amount of the new loan plus the prior
outstanding loan exceeds the amount lim-
itations of section 72(p)(2)(A). This rule
does not apply to a refinancing loan under
which the amount of the prior loan is to be
repaid by the original repayment date of
the prior loan. These standards are illus-
trated in examples.
4
In addition, a participant may borrow
more than once from the plan under sec-
tion 72(p)(2), but, in order to ensure that
additional loans are not used to circum-
vent the requirements of section 72(p), a
deemed distribution of a loan will occur
if two loans have previously been made
from the plan to the participant or bene-
ficiary during the year.
Electronic Signatures Act
The Electronic Signatures in Global
and National Commerce Act (114 Stat.
464) (the Electronic Signatures Act) was
signed on June 30, 2000. Title I of the
Electronic Signatures Act, which is gen-
erally effective October 1, 2000, applies
to certain electronic records and signa-
tures in commerce. Comments are re-
quested on the impact of the Electronic
Signatures Act on the final regulations
under section 72(p) that appear in the
Federal Register and on any future guid-
ance that may be needed on the applica-
tion of the Electronic Signatures Act to
plan loan transactions.
Proposed Effective Date
The regulations are proposed to be ef-
fective with respect to loans made on or
after the first January 1 that is at least
six months after publication as final reg-
ulations. However, Q&A-19(b)(2) of
the proposed regulations would not
apply to loans, whenever made, under
an insurance contract that is in effect be-
fore a date that is 12 months after publi-
cation as final regulations if the insur-
ance carrier is required under the
insurance contract to offer loans to con-
tractholders that are not secured (other
than being secured by the participant’s
or beneficiary’s benefit under the con-
tract).
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in Ex-
ecutive Order 12866. Therefore, a regu-
latory assessment is not required. It has
also been determined that section 553(b)
of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to
these regulations, and, because the regu-
lations do not impose a collection of in-
formation on small entities, the Regula-
tory Flexibility Act (5 U.S.C. chapter 6)
does not apply. Pursuant to section
7805(f) of the Code, this notice of pro-
posed rulemaking will be submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written comments (a
signed original and (8) copies) or elec-
tronic comments that are submitted timely
to the IRS. The IRS and Treasury Depart-
ment specifically request comments on the
clarity of the proposed rule and how it may
be made easier to understand. All com-
ments will be available for public inspec-
tion and copying. A public hearing may be
scheduled if requested in writing by a per-
son that timely submits written comments.
If a public hearing is scheduled, notice of
the date, time and place for the hearing will
be published in the Federal Register.
Drafting Information
The principal author of these regulations
is Vernon S. Carter, Office of Division
Counsel/Associate Chief Counsel (Tax Ex-
empt and Government Entities). However,
other personnel from the IRS and Treasury
Department participated in their develop-
ment.
* * * * *
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.72(p)–1 is amended as
follows:
1. Q&A-9(b) and (c), Q&A-19 and
Q&A-20 are revised.
2. Q&A-22 is amended by adding new
paragraph (d).
The revisions and addition read as fol-
lows:
§1.72(p)–1 Loans treated as distributions.
* * * * *
August 14, 20001802000–33 I.R.B.
3
The Department of Labor (DOL) has advised the IRS
that, with respect to plans covered by Title I of the
Employee Retirement Income Security Act of 1974 (88
Stat. 829) (ERISA), the administration of a participant
loan program involves the management of plan assets.
Therefore, fiduciary conduct undertaken in the admin-
istration of such a loan program must conform to the
rules that govern transactions involving plan assets. In
particular, a loan program must be administered in a
prudent manner, solely in the interest of the participants
and beneficiaries, and for the exclusive purpose of pro-
viding benefits to participants and beneficiaries. See,
generally, ERISA sections 403, 404, and 406. In the
view of DOL, it is questionable whether a participant
loan program of a plan covered by Title I of ERISA that
does not provide for timely repayment of loans
(through payroll withholding or otherwise), regular and
effective collection efforts following a default, and ade-
quate security for the plan in the event of default would
be in compliance with the rules applicable under Title I
of ERISA to transactions involving plan assets. In the
view of DOL, it is also questionable whether such a
program would qualify for the relief provided under
section 408(b)(1) of ERISA. See Preamble to 29 CFR
2550.408b–1, (54 F.R. 30520, 30521) (July 20, 1989).
Further, a plan may make a second loan to a defaulting
participant whose prior loan remains unpaid only if
such a loan would be in accordance with the applicable
standards of Title I. A fiduciary must take steps to
ensure, inter alia, that such a loan is bona fide and not a
mere transfer of plan assets, that the loan is adequately
secured, and that the plan’s assets will be preserved in
the event of default. See Preamble to 29 CFR
2550.408b–1, (54 F.R. at 30521).
4
The examples in the new proposed regulations are
based on the same assumptions described in
§1.72(p)–1 introductory text of the final regulations.

A-9: * * *
(b) Military service. In accordance
with section 414(u)(4), if a plan sus-
pends the obligation to repay a loan
made to an employee from the plan for
any part of a period during which the
employee is performing service in the
uniformed services (as defined in chapter
43 of title 38, United States Code),
whether or not qualified military service,
such suspension shall not be taken into
account for purposes of section 72(p) or
this section. Thus, if a plan suspends
loan repayments for any part of a period
during which the employee is perform-
ing military service described in the pre-
ceding sentence, such suspension shall
not cause the loan to be deemed distrib-
uted even if the suspension exceeds one
year and even if the term of the loan is
extended. However, the loan will not
satisfy the repayment term requirement
of section 72(p)(2)(B) and the level
amortization requirement of section
72(p)(2)(C) unless loan repayments re-
sume upon the completion of such period
of military service, the frequency of the
periodic installments due during the pe-
riod beginning when the military service
ends and ending when the loan is repaid
in full, and the amount of each periodic
installment, is not less than the fre-
quency and amount of the periodic in-
stallments required under the terms of
the original loan, and the loan is repaid
in full (including interest that accrues
during the period of military service) by
the end of the period equal to the original
term of the loan plus the period of such
military service.
(c) Examples. The following exam-
ples illustrate the rules of paragraph (a)
and (b) of this Q&A-9 and are based
upon the assumptions described in the
introductory text of this section:
Example 1. (i) On July 1, 2001, a participant
with a nonforfeitable account balance of $80,000
borrows $40,000 to be repaid in level monthly in-
stallments of $825 each over 5 years. The loan is
not a principal residence plan loan. The participant
makes 9 monthly payments and commences an un-
paid leave of absence that lasts for 12 months. The
participant was not performing military service
during this period. Thereafter, the participant re-
sumes active employment and resumes making re-
payments on the loan until the loan is repaid. The
amount of each monthly installment is increased to
$1,130 in order to repay the loan by June 30, 2006.
(ii) Because the loan satisfies the requirements
of section 72(p)(2), the participant does not have a
deemed distribution. Alternatively, section
72(p)(2) would be satisfied if the participant contin-
ued the monthly installments of $825 after resuming
active employment and on June 30, 2006 repaid the
full balance remaining due.
Example 2. (i) The facts are the same as in Exam-
ple 1, except the participant was on leave of absence
performing service in the uniformed services (as de-
fined in chapter 43 of title 38, United States Code)
for two years. After the military service ends on
April 2, 2004, the participant resumes active em-
ployment on April 19, 2004, continues the
monthly installments of $825 thereafter, and on
June 30, 2008 repays the full balance remaining
due ($10,527).
(ii) Because the loan satisfies the requirements
of section 72(p)(2) and paragraph (b) of this
Q&A-9, the participant does not have a deemed
distribution. Alternatively, section 72(p)(2)
would also be satisfied if the amount of each
monthly installment after April 19, 2004, is in-
creased to $983 in order to repay the loan by June
30, 2008 (without any balance remaining due
then).
* * * * *
Q-19: If there is a deemed distribu-
tion under section 72(p), is the interest
that accrues thereafter on the amount of
the deemed distribution an indirect loan
for income tax purposes and what ef-
fect does the deemed distribution have
on subsequent loans?
A-19: (a) General rule. Except as
provided in paragraph (b) of this Q&A-
19, a deemed distribution of a loan is
treated as a distribution for purposes of
section 72. Therefore, a loan that is
deemed to be distributed under section
72(p) ceases to be an outstanding loan
for purposes of section 72, and the in-
terest that accrues thereafter under the
plan on the amount deemed distributed
is disregarded for purposes of applying
section 72 to the participant or the ben-
eficiary. Even though interest contin-
ues to accrue on the outstanding loan
(and is taken into account for purposes
of determining the tax treatment of any
subsequent loan in accordance with
paragraph (b) of this Q&A-19), this ad-
ditional interest is not treated as an ad-
ditional loan (and, thus, does not result
in an additional deemed distribution)
for purposes of section 72(p). How-
ever, a loan that is deemed distributed
under section 72(p) is not considered
distributed for all purposes of the Inter-
nal Revenue Code. See Q&A-16 of
this section.
(b) Effect on subsequent loans—(1)
Application of section 72(p)(2)(A). A
loan that is deemed distributed under
section 72(p) (including interest accru-
ing thereafter) and that has not been re-
paid (such as by a plan loan offset) is
considered outstanding for purposes of
applying section 72(p)(2)(A) to deter-
mine the maximum amount of any sub-
sequent loan to the participant or bene-
ficiary.
(2) Additional security for subse-
quent loans. If a loan is deemed dis-
tributed to a participant or beneficiary
under section 72(p) and has not been
repaid (such as by a plan loan offset),
then no payment made thereafter to the
participant or beneficiary shall be
treated as a loan for purposes of section
72(p)(2) unless the loan otherwise sat-
isfies section 72(p)(2) and this section
and either of the following conditions
is satisfied:
(i) There is an arrangement among
the plan, the participant or beneficiary,
and the employer, enforceable under
applicable law, under which repay-
ments will be made by payroll with-
holding. For this purpose, an arrange-
ment will not fail to be enforceable
merely because a party has the right to
revoke the arrangement prospectively.
(ii) The plan receives adequate secu-
rity from the participant or beneficiary
that is in addition to the participant’s or
beneficiary’s accrued benefit under the
plan.
(3) Condition no longer satisfied. If,
following a deemed distribution that
has not been repaid, a payment is made
to a participant or beneficiary that sat-
isfies the conditions in paragraph (b)(2)
of this Q&A-19 for treatment as a plan
loan and, subsequently, before repay-
ment of the second loan, the conditions
in paragraph (b)(2) of this Q&A-19 are
no longer satisfied with respect to the
second loan (for example, if the loan
recipient revokes consent to payroll
withholding), the amount then out-
standing on the second loan is treated
as a deemed distribution under section
72(p).
Q-20: May a participant refinance an
outstanding loan or have more than one
loan outstanding from a plan?
A-20: (a) Refinancings and multiple
loans—(1) General rule. A participant
who has an outstanding loan that satis-
fies section 72(p)(2) and this section
may refinance that loan or borrow addi-
tional amounts, if, under the facts and
2000–33 I.R.B.181August 14, 2000

circumstances, the loans collectively
satisfy the amount limitations of sec-
tion 72(p)(2)(A) and the prior loan and
the additional loan each satisfy the re-
quirements of section 72(p)(2)(B) and
(C) and this section. For this purpose, a
refinancing includes any situation in
which one loan replaces another loan.
(2) Loans that repay a prior loan and
have a later repayment date. For purposes
of section 72(p)(2) and this section (in-
cluding paragraph (a)(3) of this Q&A-20
and the amount limitations of section
72(p)(2)(A)), if a loan that satisfies sec-
tion 72(p)(2) is replaced by a loan (a re-
placement loan) and the term of the re-
placement loan ends after the term of the
loan it replaces (the replaced loan), the re-
placement loan and the replaced loan are
both treated as outstanding on the date of
the transaction. For purposes of the pre-
ceding sentence, the term of the replaced
loan is determined under the terms of that
loan as in effect immediately prior to the
making of the replacement loan. Thus,
for example, the replacement loan results
in a deemed distribution if the sum of the
amount of the replacement loan plus the
outstanding balance of all other loans on
the date of the transaction, including the
replaced loan, fails to satisfy the amount
limitations of section 72(p)(2)(A). This
paragraph (a)(2) of this Q&A-20 does not
apply to a replacement loan if the terms of
the replacement loan would satisfy sec-
tion 72(p)(2) and this section determined
as if the replacement loan consisted of
two separate loans, the replaced loan
(amortized in substantially level pay-
ments over a period ending not later than
the last day of the term of the replaced
loan) and a new loan based on the differ-
ence between the amount of the replace-
ment loan and the amount of the replaced
loan.
(3) Multiple loans. For purposes of
section 72(p)(2) and this section, a loan to
a participant or beneficiary shall be
treated as a deemed distribution if two or
more loans have previously been made
from the plan to the participant or benefi-
ciary during the year. This limitation ap-
plies on the basis of a calendar year unless
the plan applies this limit on the basis of
the plan year or another consistent 12-
month period.
(b) Examples. The following exam-
ples illustrate the rules in paragraph (a) of
this Q&A-20 and are based on the as-
sumptions described in the introductory
text of this section:
Example 1. (i) A participant with a vested ac-
count balance that exceeds $100,000 borrows
$40,000 from a plan on January 1, 2003, to be repaid
in 20 quarterly installments of $2,491 each. Thus, the
term of the loan ends on December 31, 2007. On Jan-
uary 1, 2004, when the outstanding balance on the
loan is $33,322, the loan is refinanced and is replaced
by a new $40,000 loan from the plan to be repaid in
20 quarterly installments. Under the terms of the refi-
nanced loan, the loan is to be repaid in level quarterly
installments (of $2,491 each) over the next 20 quar-
ters. Thus, the term of the new loan ends on Decem-
ber 31, 2008.
(ii) Under section 72(p)(2)(A), the amount of the
new loan, when added to the outstanding balance of
all other loans from the plan, must not exceed
$50,000 reduced by the excess of the highest out-
standing balance of loans from the plan during the 1-
year period ending on December 31, 2003 over the
outstanding balance of loans from the plan on January
1, 2004, with such outstanding balance to be deter-
mined immediately prior to the new $40,000 loan.
Because the term of the new loan ends later than the
term of the loan it replaces, both the new loan and the
loan it replaces must be taken into account for pur-
poses of applying section 72(p)(2), including the
amount limitations in section 72(p)(2)(A). The
amount of the new loan is $40,000, the outstanding
balance on January 1, 2004 of the loan it replaces is
$33,322 and the highest outstanding balance of loans
from the plan during 2003 was $40,000. Accordingly,
under section 72(p)(2)(A), the sum of the new loan
and the outstanding balance on January 1, 2004 of the
loan it replaces must not exceed $50,000 reduced by
$6,678 (the excess of the $40,000 maximum out-
standing loan balance during 2003 over the $33,322
outstanding balance on January 1, 2004, determined
immediately prior to the new loan) and thus, must not
exceed $43,322. The sum of the new loan ($40,000)
and the outstanding balance on January 1, 2004 of the
loan it replaces ($33,322) is $73,322. Since $73,322
exceeds the $43,322 limit under section 72(p)(2)(A)
by $30,000, there is a deemed distribution of $30,000
on January 1, 2004.
(iii) However, no deemed distribution would occur
if, under the terms of the refinanced loan, the amount
of the first 16 installments on the refinanced loan
were equal to $2,907, which is the sum of the $2,491
originally scheduled quarterly installment payment
amount under the first loan, plus $416 (which is the
amount required to repay, in level quarterly install-
ments over five years beginning on January 1, 2004,
the excess of the refinanced loan over the January 1,
2004 balance of the first loan ($40,000 minus $33,322
equals $6,678)), and the amount of the 4 remaining
installments were equal to $416. The refinancing
would not be subject to paragraph (a)(2) of this Q&A-
20 because the terms of the new loan would satisfy
section 72(p)(2) and this section (including the sub-
stantially level amortization requirements of section
72(p)(2)(B) and (C)) determined as if the new loan
consisted of two loans, one of which is in the amount
of the first loan ($33,322) and is amortized in substan-
tially level payments over a period ending December
31, 2007 (the last day of the term of the first loan) and
the other of which is in the additional amount
($6,678) borrowed under the new loan. Similarly, the
transaction also would not result in a deemed distribu-
tion (and would not be subject to paragraph (a)(2) of
this Q&A-20) if the terms of the refinanced loan pro-
vided for repayments to be made in level quarterly in-
stallments (of $2,990 each) over the next 16 quarters.
Example 2. (i) The facts are the same as in Exam-
ple 1, except that the applicable interest rate used by
the plan when the loan is refinanced is significantly
lower due to a reduction in market rates of interest
and, under the terms of the refinanced loan, the
amount of the first 16 installments on the refinanced
loan is equal to $2,848 and the amount of the next 4
installments on the refinanced loan is equal to $406.
The $2,848 amount is the sum of $2,442 to repay the
first loan by December 31, 2007 (the term of the first
loan), plus $406 (which is the amount to repay, in
level quarterly installments over five years beginning
on January 1, 2004, the $6,678 excess of the refi-
nanced loan over the January 1, 2004 balance of the
first loan).
(ii) The transaction does not result in a deemed
distribution (and is not subject to paragraph (a)(2) of
this Q&A-20) because the terms of the new loan
would satisfy section 72(p)(2) and this section (in-
cluding the substantially level amortization require-
ments of section 72(p)(2)(B) and (C)) determined as
if the new loan consisted of two loans, one of which is
in the amount of the first loan ($33,322) and is amor-
tized in substantially level payments over a period
ending December 31, 2007 (the last day of the term of
the first loan) and the other of which is in the addi-
tional amount ($6,678) borrowed under the new loan.
The transaction would also not result in a deemed dis-
tribution (and not be subject to paragraph (a)(2) of
this Q&A-20) if the terms of the new loan provided
for repayments to be made in level quarterly install-
ments (of $2,931 each) over the next 16 quarters.
Example 3.(i) A participant with a vested account
balance that exceeds $100,000 borrows $20,000
from a plan on January 1, 2005 to be repaid in 20
quarterly installments of $1,245 each. On March 31,
2005, when the first installment is due, the partici-
pant receives a second loan equal to $1,245, with that
March loan to be repaid in 20 quarterly installments
of $78 each. On June 30, 2005, when the second in-
stallment is due on the January loan and the first in-
stallment is due on the March loan, the participant re-
ceives a third loan equal to $1,323 (which is the sum
of the $1,245 installment and the $78 installment
then due), with that June loan to be repaid in 20 quar-
terly installments of $82 each. On September 30,
2005, when the third installment is due on the Janu-
ary loan, the second installment is due on the March
loan, and the first installment is due on the June loan,
the participant receives a fourth loan equal to $1,405
(which is the sum of the $1,245 installment, the $78
installment and the $82 installment then due), with
that September loan to be repaid in 20 quarterly in-
stallments of $88 each. On December 31, 2005,
when the fourth installment is due on the January
loan, the third installment is due on the March loan,
the second installment is due on the June loan, and
the first installment is due on the September loan, the
participant receives a fifth loan equal to $1,493
(which is the sum of the $1,245 installment, the $78
installment, the $82 installment, and the $88 install-
ment then due), with that December loan to be repaid
in 20 quarterly installments of $93 each.
August 14, 20001822000–33 I.R.B.

(ii) Under paragraph (a)(3) of this Q&A-20, the
participant has deemed distributions on June 30,
2005 equal to $1,323 (which is the amount of the
June loan), on September 30, 2005 equal to $1,405
(which is the amount of the September loan), and on
December 31, 2005 equal to $1,493 (which is the
amount of the December loan) because on each of
these dates the participant had previously received
two loans from the plan during the year.
* * * * *
A-22: * * *
(d) Effective date for Q&A-19(b)(2)
and Q&A-20. Paragraph (b)(2) of Q&A-
19 and Q&A-20 of this section apply to
loans made on or after the first January 1
that is at least 6 months after publication
of final regulations in the Federal Regis-
ter, except that paragraph (b)(2) of Q&A-
19 of this section does not apply to loans,
whenever made, under an insurance con-
tract that is in effect before the date that is
12 months after publication of final regu-
lations in the Federal Registerunder
which the insurance carrier is required to
offer loans to contractholders that are not
secured (other than being secured by the
participant’s or beneficiary’s benefit
under the contract).
Robert E. Wenzel,
Deputy Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on July
28, 2000, 8:45 a.m., and published in the issue of the
Federal Register for July 31, 2000, 65 F.R. 46677)
Deletions From Cumulative List
of Organizations Contributions
to Which Are Deductible Under
Section 170 of the Code
Announcement 2000–69
The names of organizations that no
longer qualify as organizations described
in section 170(c)(2) of the Internal Rev-
enue Code of 1986 are listed below.
Generally, the Service will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletin that an organization no longer
qualifies. However, the Service is not
precluded from disallowing a deduction
for any contributions made after an orga-
nization ceases to qualify under section
170(c)(2) if the organization has not
timely filed a suit for declaratory judg-
ment under section 7428 and if the con-
tributor (1) had knowledge of the revoca-
tion of the ruling or determination letter,
(2) was aware that such revocation was
imminent, or (3) was in part responsible
for or was aware of the activities or omis-
sions of the organization that brought
about this revocation.
If on the other hand a suit for declara-
tory judgment has been timely filed, con-
tributions from individuals and organiza-
tions described in section 170(c)(2) that
are otherwise allowable will continue to
be deductible. Protection under section
7428(c) would begin on August 14, 2000,
and would end on the date the court first
determines that the organization is not de-
scribed in section 170(c)(2) as more par-
ticularly set forth in section 7428 (c)(1).
For individual contributors, the maximum
deduction protected is $1,000, with a hus-
band and wife treated as one contributor.
This benefit is not extended to any indi-
vidual, in whole or in part, for the acts or
omissions of the organization that were
the basis for revocation.
Dayspring Group Home a/k/a Dayspring
Group, Inc.
San Bernardino, CA
Ecologically Aware, Inc.
National City, CA
2000–33 I.R.B.183August 14, 2000

August 14, 2000i2000–33 I.R.B.
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously
published ruling and points out an essen-
tial difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it ap-
plies to both A and B, the prior ruling is
modified because it corrects a published
position. (Compare with amplified and
clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. A ruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is super-
seded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be pub-
lished that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current use and for-
merly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
Definition of Terms

2000–33 I.R.B.iiAugust 14, 2000
Numerical Finding List
1
Bulletins 2000–27 through 2000–32
Announcements:
2000–57, 2000–28 I.R.B. 115
2000–58, 2000–30 I.R.B. 135
2000–59, 2000–29 I.R.B. 120
2000–60, 2000–31 I.R.B. 149
2000–61, 2000–30 I.R.B. 136
2000–62, 2000–30 I.R.B. 137
2000–63, 2000–31 I.R.B. 149
2000–64, 2000–31 I.R.B. 149
2000–65, 2000–31 I.R.B. 150
2000–66, 2000–32 I.R.B. 160
2000–67, 2000–32 I.R.B. 160
2000–68, 2000–32 I.R.B. 161
Court Decisions:
2068, 2000–28 I.R.B. 109
Notices:
2000–33, 2000–27 I.R.B. 97
2000–35, 2000–29 I.R.B. 118
2000–37, 2000–29 I.R.B. 118
2000–39, 2000–30 I.R.B. 132
2000–40, 2000–30 I.R.B. 134
Proposed Regulations:
REG–105316–98, 2000–27 I.R.B. 98
Railroad Retirement Quarterly Rate:
2000–28, I.R.B. 112
2000–29, I.R.B. 117
Revenue Procedures:
2000–28, 2000–27 I.R.B. 60
2000–29, 2000–28 I.R.B. 113
2000–30, 2000–28 I.R.B. 113
2000–31, 2000–31 I.R.B. 146
Revenue Rulings:
2000–32, 2000–27 I.R.B. 1
2000–33, 2000–31 I.R.B. 142
2000–34, 2000–29 I.R.B. 116
2000–35, 2000–31 I.R.B. 138
2000–36, 2000–31 I.R.B. 140
2000–37, 2000–32 I.R.B. 156
2000–38, 2000–32 I.R.B. 157
Treasury Decisions:
8886, 2000–27 I.R.B. 3
8888, 2000–27 I.R.B. 3
8889, 2000–30 I.R.B. 124
8890, 2000–30 I.R.B. 122
8891, 2000–32 I.R.B. 152
8892, 2000–32 I.R.B. 158
8893, 2000–31 I.R.B. 143
1
A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 2000–1 through 2000–26
is in Internal Revenue Bulletin 2000–27, dated July
3, 2000.

August 14, 2000iii2000–33 I.R.B.
Finding List of Current Actions on
Previously Published Items
1
Bulletins 2000–27 through 2000–32
Proposed Regulations:
FI–42–90
Withdrawn by
Announcement 2000–63, 2000–31 I.R.B. 149
IA–38–93
Withdrawn by
Announcement 2000–68, 2000–32 I.R.B. 161
REG–107644–98
Corrected by
Announcement 2000–66, 2000–32 I.R.B. 160
Revenue Procedures:
98–50
Modified and superseded by
Rev. Proc. 2000–31, 2000–31 I.R.B. 146
98–51
Modified and superseded by
Rev. Proc. 2000–31, 2000–31 I.R.B. 146
99–18
Modified by
Rev. Proc. 2000–29, 2000–28 I.R.B. 113
99–34
Superseded by
Rev. Proc. 2000–28, 2000–27 I.R.B. 60
Treasury Decisions:
8883
Corrected by
Announcement 2000–57, 2000–28 I.R.B. 115
1
A cumulative list of current actions on previously
published items in Internal Revenue Bulletins
2000–1 through 2000–26 is in Internal Revenue
Bulletin 2000–27, dated July 3, 2000.

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