Internal Revenue Bulletin 2000-43 (PDF rendition): IRS Announcements

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

INCOME TAX
Notice 2000–56, page 393.
This notice provides guidance under section 1032 of the Code
on which entity is treated as the grantor and owner of a grantor
trust when a parent corporation contributes its stock to a rabbi
trust for the benefit of the employees of a subsidiary.
Rev. Proc. 2000–42, page 394.
This procedure informs taxpayers of the information they must
submit to request a closing agreement under section
1.1503–2(g)(2)(iv)(B) of the regulations to prevent the recap-
ture of dual consolidated losses (DCLs) upon the occurrence of
certain triggering events.
Rev. Proc. 2000–44, page 409.
Insurance companies; loss reserves; discounting unpaid
losses.The loss payment patterns and discount factors are
set forth for the 2000 accident year. These factors will be used
for computing discounted unpaid losses under section 846 of
the Code.
Rev. Proc. 2000–45, page 417.
Insurance companies; discounted estimated salvage
recoverable.The salvage discount factors are set forth for
the 2000 accident year. These factors will be used for com-
puting estimated salvage recoverable under section 832 of the
Code.
Announcement 2000–78, page 428.
The Service is requesting comments on the proposed regula-
tions regarding the monthly limit for transit passes and trans-
portation, in a commuter highway vehicle, provided by an
employer to employees under section 132(f) of the Code.
EMPLOYEE PLANS
REG–114697–00, page 421.
Nondiscrimination requirements for certain defined
contribution retirement plans. Proposed regulations would
prescribe conditions under which certain defined contribution
retirement plans (sometimes referred to as “new comparabili-
ty” plans) are permitted to demonstrate compliance with
applicable nondiscrimination requirements based on plan ben-
efits rather than plan contributions. A public hearing is sched-
uled for January 25, 2001.
Notice 2000–55, page 393.
Weighted average interest rate update. The weighted
average interest rate for October 2000 and the resulting per-
missible range of interest rates used to calculate current liabil-
ity for purposes of the full funding limitation of section
412(c)(7) of the Code are set forth.
TAX CONVENTIONS
Notice 2000–57, page 389.
The agreement between the United States and Netherlands
identifying U.S. and Dutch pension plans for tax treaty benefits
is set forth.
ADMINISTRATIVE
Rev. Proc. 2000–43, page 404.
Ex partecommunication prohibition. Guidance is provided
to taxpayers and IRS employees about ex parte communica-
tions during the appeals process.
Internal Revenue
bbuulllleettiinn
Bulletin No. 2000–43
October 23, 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.
(Continued on the next page)

October 23, 20002000–43 I.R.B.
ADMINISTRATIVE—continued
Announcement 2000–85, page 429.
This document contains corrections to a notice of proposed rule-
making (REG–108522–00, 2000–34 I.R.B 187) relating to the
recognition of gain on certain transfers to certain foreign trusts
and estates.

2000–43 I.R.B.October 23, 2000
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi-
cial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly and may be obtained
from the Superintendent of Documents on a subscription
basis. Bulletin contents are consolidated semiannually into
Cumulative Bulletins, which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of in-
ternal management are not published; however, statements
of internal practices and procedures that affect the rights
and duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings
to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature
are deleted to prevent unwarranted invasions of privacy and
to comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have
the force and effect of Treasury Department Regulations,
but they may be used as precedents. Unpublished rulings
will not be relied on, used, or cited as precedents by Service
personnel in the disposition of other cases. In applying pub-
lished rulings and procedures, the effect of subsequent leg-
islation, regulations, court decisions, rulings, and proce-
dures must be considered, and Service personnel and oth-
ers concerned are cautioned against reaching the same con-
clusions in other cases unless the facts and circumstances
are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions, and Subpart B, Legislation and Related
Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and Sub-
parts. Also included in this part are Bank Secrecy Act Admin-
istrative Rulings. Bank Secrecy Act Administrative Rulings
are issued by the Department of the Treasury’s Office of the
Assistant Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The first Bulletin for each month includes a cumulative index
for the matters published during the preceding months.
These monthly indexes are cumulated on a semiannual basis,
and are published in the first Bulletin of the succeeding semi-
annual period, respectively.
The IRS Mission
Provide America’s taxpayers top quality service by help-
ing them understand and meet their tax responsibilities
and by applying the tax law with integrity and fairness to
all.
Introduction
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

October 23, 20003882000–43 I.R.B.
Section 832.—Insurance
Company Taxable Income
26 CFR 1.832–4: Gross income.
The salvage discount factors are set forth for the
2000 accident year. These factors will be used for
computing estimated salvage recoverable for pur-
poses of section 832 of the Code. See Rev. Proc.
2000–45, page 417.
Section 846.—Discounted
Unpaid Losses Defined
26 CFR 1.846–1: Application of discount factors.
The loss payment patterns and discount factors
are set forth for the 2000 accident year. These fac-
tors will be used for computing discounted unpaid
losses under section 846 of the Code. See Rev. Proc.
2000–44, page 409.
26 CFR 1.846–1: Application of discount factors.
The salvage discount factors are set forth for the
2000 accident year. These factors will be used for
computing estimated salvage recoverable for pur-
poses of section 832 of the Code. See Rev. Proc.
2000–45, page 417.
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

2000–43 I.R.B.389October 23, 2000
Subpart A.—Tax Conventions
Following is a Copy of the News
Release Issued by International
(U.S. Competent Authority) on
April 20, 2000 (IR–INT–2000–9)
Notice 2000–57
AGREEMENT IDENTIFIES U.S.
AND DUTCH PENSION PLANS
FOR TAX TREATY BENEFITS
Washington – The Competent Authori-
ties of the The Netherlands and the United
States reached a mutual agreement on the
qualification of certain Dutch and U.S.
pensions for treaty benefits under Article
35 of the US-Netherlands Income Tax
Treaty. The agreement specifies the proce-
dures for claiming treaty benefits in each
country and the methods each country will
use to grant treaty benefits.
The agreement constitutes a Mutual
Agreement in accordance with the Con-
vention between the Kingdom of the
Netherlands and the United States of
America for the avoidance of double taxa-
tion and the prevention of fiscal evasion
with respect to taxes on income, signed on
December 18, 1992, and amended by Pro-
tocol signed on October 13, 1993.
The agreement is as follows:
Chapter I
Qualification for treaty benefits under
article 35 of the 1992 Netherlands-US
income tax treaty
Questions have been raised regarding
the types of US and Netherlands resident
tax exempt trusts, companies or other or-
ganisations providing pension or retire-
ment benefits that qualify for treaty bene-
fits under article 35 of the Convention
between the Kingdom of the Netherlands
and the United States of America for the
avoidance of double taxation and the pre-
vention of fiscal evasion with respect to
taxes on income, signed on 18 December
1992, and amended by Protocol signed on
13 October 1993 (in the following: the
Treaty). In practise there are many differ-
ent types of funds or plans established to
provide pension or retirement benefits and
it is not always clear which of these funds
or plans fulfill the requirements of article
35 of the Treaty. This issue is being dis-
cussed between the Netherlands and the
US competent authorities under the mutual
agreement procedure of article 29 of the
Treaty, with the following initial conclu-
sions.
In view of the present uncertainty it has
been decided to identify all the different
types of US and Netherlands resident tax
exempt trusts, companies or other organi-
sations providing pension or retirement
benefits that are considered to fall within
the scope of article 35 of the Treaty and
also to indicate the appropriate procedures
for filing a request for an application of
treaty benefits under said treaty provision.
In the course of the mutual agreement
discussions it became apparent that,
whereas with respect to certain types of US
and Netherlands resident tax exempt trusts,
companies or other organisations providing
pension or retirement benefits it is beyond
doubt that they fall within the scope of arti-
cle 35 of the Treaty, with respect to other
types of US and Netherlands resident tax
exempt trusts, companies or other organi-
sations providing pension or retirement
benefits this is less clear. The Netherlands
and US authorities concluded that all the
different types of Netherlands and US resi-
dent tax exempt trusts, companies or other
organisations providing pension or retire-
ment benefits mentioned in chapter II and
IV of this agreement would be considered
to fall within the scope of article 35 of the
Treaty.
However, in order to ensure that treaty
protection is restricted to qualifying US
resident tax exempt trusts providing pen-
sion or retirement benefits, the Netherlands
competent authority would -at least for the
time being- prefer a closer monitoring of
all requests filed for an application of treaty
benefits under article 35 of the Treaty.
It is understood that for the purpose of
this publication the term “Code section”
refers to sections of the US Internal Rev-
enue Code and that the term “trust” in-
cludes a custodial account treated as a trust
for US federal income tax purposes.
Chapter II
US resident tax exempt trusts providing
pension or retirement benefits
Subject to the conditions of article 26,
article 35, paragraph 2, and article 34,
paragraph 4, of the Treaty:
1. a US resident tax exempt trust pro-
viding pension or retirement benefits
under a Code section 401 (a) qualified
pension plan, profit sharing plan or stock
bonus plan (including Code section 401
(k) arrangements); or
2. a US resident tax exempt trust pro-
viding pension or retirement benefits
under a Code section 457(b) pension plan
or under a Code section 403(b) plan; or
3. a US resident tax exempt trust
which is an Individual retirement account
(Code section 408), a Roth Individual re-
tirement account (Code section 408A), or
a Simple retirement account, or a US resi-
dent tax exempt trust which is providing
pension or retirement benefits under a
Simplified employee pension plan; or
4. a US resident common trust fund or
group trust which is tax exempt under
Code section 501 (a) with respect to funds
that equitably belong to its participating
trusts, all of which are entities mentioned
under point 1) above; or
5. a US resident common trust fund or
group trust which is tax exempt under the
Internal Revenue Code with respect to
funds that equitably belong to its partici-
pating trusts, some of which are trusts
other than those mentioned under point 1)
above, but all of which are trusts men-
tioned under point 1), 2), or 3) above, is
considered to qualify for treaty benefits
under article 35 of the Treaty and may
claim application of treaty benefits with
respect to income derived from the
Netherlands referred to in article 10 (divi-
dends) of the Treaty. The Netherlands
does not apply a withholding tax on out-
going interest payments as meant in arti-
cle 12 of the Treaty
.
However, a US resident tax exempt
trust mentioned under point 2) or 3) above
will not be considered to qualify for treaty
benefits under article 35 of the Treaty in
any taxable year if less than 70% of the
total amount of the withdrawals from
such US trust during that year is used to
provide pension, retirement or other em-
ployee benefits as meant in article 35 of
the Treaty.
Any type of US resident tax exempt
trust not mentioned above, which consid-
Part II. Treaties and Tax Legislation

October 23, 20003902000–43 I.R.B.
ers itself to qualify for treaty benefits
under article 35 of the Treaty, may present
its case to the Netherlands tax unit BPO
buitenland, Heerlen (address: P.O. Box
2865, 6401 DJ HEERLEN, The Nether-
lands), or to the US competent authorities
requesting for a competent authority con-
sideration under article 29 of the Treaty.
Chapter III
Appropriate procedures for filing a
request for an application of treaty
benefits in the Netherlands
The Netherlands has two methods for
granting treaty benefits for income re-
ferred to in article 10 (dividends) of the
Treaty, these methods being: the so-called
exemption method (in which case the
treaty rate is applied at source) and the so-
called refund method.
As a general rule, the Netherlands ap-
plies the exemption method when grant-
ing treaty benefits in the case of Dutch
source dividend income received by a res-
ident of the US, which means that treaty
benefits will be granted by means of an
exemption from Netherlands withholding
tax at source. In view of the Netherlands
competent authority’s preference for a
closer monitoring of all requests filed for
an application of treaty benefits under ar-
ticle 35 of the Treaty, a US resident tax
exempt trust (including a US common
trust fund or group trust) mentioned in
point 1) through 5) of chapter II of this
publication shall - as a general rule - be
required to use the refund method when
filing its request for an application of
treaty benefits under article 35 of the
Treaty. Only if certain conditions are ful-
filled, such US resident tax exempt trust
may use the exemption method when fil-
ing its request for an application of treaty
benefits under article 35 of the Treaty.
The Netherlands regulations for the im-
plementation of the Treaty, published in
the “Staatscourant” 5 January 1994, nr. 3
and lastly amended on December 1996
(“Staatscourant” 30 December 1996, nr.
250), give a detailed description of the
procedures to be applied in the case of re-
spectively the exemption method and the
refund method.
The exemption method may be used if
the US resident tax exempt trust request-
ing treaty benefits under article 35 of the
Treaty:
* has been issued a certification letter
(Form 6166) by the US Internal Revenue
Service for the taxable year(s) in ques-
tion, stating that the trust in question is a
trust forming part of a pension, profit
sharing, or stock bonus plan qualified
under Code section 401 (a) of the Internal
Revenue Code (an example of a certifica-
tion letter (Form 6166) is attached); or
* has been issued a so-called “qualifi-
cation” certification by the competent
Netherlands tax authorities, stating that
the trust in question is a US resident tax
exempt trust as described in article 35,
paragraph 1, of the Treaty.
Requests for a “qualification” certifica-
tion may be filed with the tax unit BPO
buitenland, Heerlen (address: P.O. Box
2865, 6401 DJ HEERLEN, The Nether-
lands).
A “qualification” certification, issued
by the competent Netherlands authorities,
is in principle valid indefinitely. How-
ever, a “qualification” certification will
no longer be valid in the event:
*there is a material change in facts or
circumstances; or
*It is determined that the “qualifica-
tion” certification was issued erroneously;
or
*the US resident tax exempt trust in
question has not claimed an application of
treaty benefits under article 35 of the
Treaty for five consecutive calendar
years. Since a certification letter (Form
6166) issued by the US Internal Revenue
Service is not valid indefinitely, a US res-
ident tax exempt trust which has been is-
sued a certification letter (Form 6166) by
the US Internal Revenue Service may also
file a request for a “qualification” certifi-
cate with the competent Netherlands tax
authorities.
Irrespective of the above, use of the re-
fund method is mandatory in any taxable
year for a US resident tax exempt trust
mentioned under point 2) or 3) of chapter
II, if less than 70% of the total amount of
the withdrawals from such US trust dur-
ing that year is used to provide pension or
retirement benefits.
Where assets of the pension fund(s) or
pension plan(s) are held in custodial ac-
counts, the amended form IB 92 USA will
require a certification that the claim for a
refund of Dutch dividend tax is filed for
the benefit of the custodial accounts in
question.
The status of all US resident tax exempt
trusts providing pension or retirement ben-
efits and claiming treaty benefits under ar-
ticle 35 of the Treaty may at any time be
subject to verification by the competent
Netherlands tax authority. If considered
necessary, use will be made of the ex-
change of information procedure (article
30 of the Treaty).
The Netherlands regulations for the im-
plementation of the Treaty (including the
“special arrangements” issued by the
Netherlands competent authority in the re-
lation to the US) and Form IB 92 USA will
- where necessary - be amended in accor-
dance with the above. A model of the
“special arrangements” is published in the
Infobulletin of 12 January 1999.
The new procedures will become ap-
plicable beginning with dividends made
payable after 30 June 2000. The presently
existing procedures will remain applicable
for dividends made payable before or on
30 June 2000.
Chapter IV
Netherlands resident tax exempt
companies providing pension or
retirement benefits
Subject to the conditions of article 26,
article 35, paragraph 2, and article 34,
paragraph 4, of the Treaty, a Netherlands
resident tax exempt company constituted
and operated exclusively to administer or
provide benefits as meant in article 5, para-
graph b), of the Netherlands corporation
tax act (including a Netherlands resident
tax exempt company constituted and oper-
ated exclusively to administer or provide
benefits under a pension plan as meant in
article 8, paragraph 1, under f), of the
Netherlands income tax act) is considered
to qualify for treaty benefits under article
35 of the Treaty and may claim application
of treaty benefits with respect to income
derived from the United States of America
referred to in article 10 (dividends) and in
article 12 (interest) of the Treaty.
Any type of Netherlands resident tax ex-
empt company not mentioned above,
which considers itself to qualify for treaty
benefits under article 35 of the Treaty, may
present its case to the United States com-
petent authority, or to the Netherlands
competent authority requesting for a com-
petent authority consideration under article
29 of the Treaty.

2000–43 I.R.B.391October 23, 2000
Chapter V
Appropriate procedures for filing a
request for an application of treaty
benefits in the United States of America
Under US tax law a Netherlands resi-
dent taxpayer (including a Netherlands
resident tax exempt company referred to
in article 35 of the Treaty) may file for an
application of treaty benefits at source, or
may claim a refund of US income tax
withheld according to regulations set
forth under the Internal Revenue Code.
The following procedures apply to a
Netherlands resident tax exempt com-
pany.
A Netherlands resident tax exempt
company described in this agreement
should claim exemption from US income
tax withholding under Article 35 of the
1992 Netherlands-US income tax treaty
on dividends or interest income referred
to in articles 10 and 12, respectively, of
that treaty by providing a properly com-
pleted IRS Form W-8BEN to the with-
holding agent or payer of such income be-
fore the income is paid or credited to the
company. A company filing Form W-
8BEN should cite Article 35 of the treaty
on line 10 thereof, and state that it is a
Netherlands resident tax exempt company
described in this agreement.
Notwithstanding the foregoing, until
December 31, 2000, and to the extent pro-
vided in transition rules set forth in regu-
lations under Internal Revenue Code sec-
tion 1441 and Notice 99–25, 1999–20
I.R.B. 75, a Netherlands resident tax ex-
empt company may provide, and a with-
holding agent may rely upon, other appro-
priate documentation of the company’s
exempt status, including, for example, a
Form 1001, supplemented by a statement,
or a valid Netherlands Form IB 93 USA
(certified by the tax inspector competent
in the case of the Netherlands tax exempt
company in question) stating that the
company is a Netherlands resident tax ex-
empt company described in this agree-
ment.
Alternatively, the company may seek a
refund of taxes withheld on such dividend
or interest income by timely filing a
United States income tax return and
claiming a refund of such taxes.
The status of all Netherlands resident
tax exempt companies providing pension
or retirement benefits and claiming treaty
benefits under article 35 of the Treaty
may be subject to verification by the In-
ternal Revenue Service. If considered
necessary, use will be made of the ex-
change of information procedure (article
30 of the Treaty).
A Netherlands resident tax exempt
company as meant in article 5, paragraph
b), of the Netherlands corporation tax act
(including a Netherlands resident tax ex-
empt company providing pension or re-
tirement benefits as meant in article 8,
paragraph 1, under f), of the Netherlands
income tax act) may have the Netherlands
tax authority concur in its claim of tax ex-
empt status by means of a so-called article
26 declaration (Form IB 93 USA), certi-
fied by the tax inspector competent in the
case of the Netherlands tax exempt com-
pany in question. This will not, however,
preclude an audit and determination of the
company’s substantive liability.
As noted in Article 6 of the Protocol,
Article 35(2) of the Treaty provides that
dividends from a Real Estate Investment
Trust are not eligible for Article 35 bene-
fits. Article 35(2) also provides that in-
come of an exempt pension trust is not ex-
empt under Article 35 if it is received
from a related person that is not itself an
exempt pension trust. Paragraph VIII of
the Agreed Minutes to the Protocol pro-
vides the understanding of the negotiators
that for purposes of Article 35(2), a per-
son will be considered to be a “related
person” if more than 80 percent of the
vote or value of any class of shares is
owned by the person deriving the income.
Chapter VI
Tax exempt trusts, companies or other
organisations providing other employee
benefits
In order to determine whether a clarifi-
cation of the qualification under article 35
of the Treaty for the various types of tax
exempt trusts, companies or other organi-
sations providing other employee benefits
is also considered necessary, comments or
questions regarding this issue are invited
and may be sent to to one of the following
addresses:
Ministry of Finance of the Netherlands
Directorate for International Tax Policy
and Legislation
P.O. Box 20201
2500 EE Den Haag
The Netherlands
Assistant Commissioner
(International)
attn. Tax Treaty Division
Internal Revenue Service
P.O. Box 23598
Washington, D.C. 20024
United States of America
Attachment:
Form 6166 (Rev. 6–96)

October 23, 20003922000–43 I.R.B.

2000–43 I.R.B.393October 23, 2000
Weighted Average Interest Rate
Update
Notice 2000–55
Notice 88–73 provides guidelines for
determining the weighted average inter-
est rate and the resulting permissible
range of interest rates used to calculate
current liability for the purpose of the full
funding limitation of § 412(c)(7) of the
Internal Revenue Code as amended by
the Omnibus Budget Reconciliation Act
of 1987 and as further amended by the
Uruguay Round Agreements Act, Pub. L.
103–465 (GATT).
The average yield on the 30-year
Treasury Constant Maturities for Oc-
tober 2000 is 5.83 percent.
The following rates were deter-
mined for the plan years beginning in
the month shown below.
Part III. Administrative, Procedural, and Miscellanous
90% to 105% 90% to 110%
Weighted Permissible Permissible
Month Year Average Range Range
October 2000 5.95 5.35 to 6.24 5.35 to 6.54
Drafting Information
The principal author of this notice is
Todd Newman of the Employee Plans,
Tax Exempt and Government Entities Di-
vision. For further information regarding
this notice, call the Employee Plans Actu-
arial hotline, (202) 622-6076 between
2:30 and 3:30 p.m. Eastern time (not a
toll-free number). Mr. Newman’s number
is (202) 622-8458 (also not a toll-free
number).
Rabbi Trusts
Notice 2000–56
I. PURPOSE
This notice provides guidance on
which entity is treated as the grantor and
owner of a grantor trust when a parent
corporation contributes its stock to a rabbi
trust for the benefit of the employees of a
subsidiary.
II. BACKGROUND
(i) Rabbi Trust Model
Rev. Proc. 92–64, 1992–2 C.B. 422,
contains a model grantor trust for use in
nonqualified executive compensation
arrangements that are popularly referred
to as “rabbi trust” arrangements. Under
that revenue procedure, the Service will
not rule on unfunded deferred compensa-
tion arrangements that use a trust other
than the model trust, except in rare and
unusual circumstances. Section 1(d) of
the model trust document states that “Any
assets held by the Trust will be subject to
the claims of the Company’s general cred-
itors under federal and state law in the
event of Insolvency, as defined in Section
3(a) herein.” In the case of a trust that
provides benefits to employees of a sub-
sidiary, it is the Service’s position that
Section 1(d) will not be satisfied unless
the assets held by the trust are subject to
the claims of the subsidiary’s creditors
(whether or not those assets are also sub-
ject to the claims of the parent’s credi-
tors). In this case, it has been the Ser-
vice’s position that the subsidiary is
treated as the grantor and owner of the
rabbi trust.
(ii) Final Regulations under Section
1032 of the Internal Revenue Code
Section 1032 states that no gain or loss
is recognized to a corporation on the re-
ceipt of money or other property in ex-
change for stock of the corporation. Regu-
lations were recently issued under section
1032 of the Internal Revenue Code (see65
F.R. 31073 (May 16, 2000)). Section
1.1032–3(b)(1) of these regulations pro-
vides that no gain or loss is recognized on
the disposition of the issuing corporation’s
stock by an acquiring entity if the require-
ments set forth in Reg. § 1.1032–3(c) are
met. Section 1.1032–3(c)(2) requires,
among other things, that the acquiring en-
tity transfer the stock of the issuing corpo-
ration to another person immediately after
acquiring the stock from the issuing corpo-
ration (the “immediacy requirement”).
Under the regulations, if the requirements
of Reg. § 1.1032–3(c), including the im-
mediacy requirement, are met, the transac-
tion is treated as if, immediately before the
acquiring entity transfers the stock of the
issuing corporation, the acquiring entity
purchased the issuing corporation’s stock
from the issuing corporation for fair mar-
ket value with cash contributed to the ac-
quiring entity by the issuing corporation
(or, if necessary, through intermediate cor-
porations or partnerships). This series of
transactions is commonly referred to as the
“cash purchase model.”
Rabbi trust arrangements typically do
not involve an immediate transfer of stock
to employees. In the case of a rabbi trust
arrangement in which Parent Stock is
treated for federal tax purposes as owned
by a subsidiary for a period of time before
the Parent Stock is transferred to the em-
ployees of the subsidiary, the immediacy
requirement of Reg. §1.1032–3(c)(2) will
not be satisfied when the Parent Stock is
transferred from the rabbi trust to employ-
ees of the subsidiary. Because the cash
purchase model of those Regulations will
as a result not apply, the nonrecognition
treatment of section 1032 will be inapplic-
able in such a case, and, thus, the sub-
sidiary typically will recognize gain on the
transfer of the Parent Stock from the rabbi
trust to employees of the subsidiary.
III. TREATMENT OF PARENT
CORPORATION AS GRANTOR OF A
RABBI TRUST
The Service and Treasury have deter-
mined that when a parent corporation
contributes Parent Stock to a rabbi trust to
assist a subsidiary in meeting the sub-
sidiary’s deferred compensation obliga-
tions to its employees or service
providers, and the Parent Stock is both
subject to the claims of the creditors of
the parent corporation and subject to the
requirement that any Parent Stock not

October 23, 20003942000–43 I.R.B.
transferred to the subsidiary’s employees
will revert to the parent on termination of
the trust, then the parent corporation will
be considered the grantor and the owner
of the Parent Stock held in the trust, even
though the Parent Stock is also subject to
the claims of the creditors of the sub-
sidiary. If these conditions are satisfied,
the Parent Stock (or other assets) will not
be considered transferred to the sub-
sidiary until such time as they are used to
satisfy the subsidiary’s deferred compen-
sation obligation to its employees or ser-
vice providers, or when a claim is made
against the trust by a creditor of the sub-
sidiary in the case of the subsidiary’s in-
solvency. Thus, the immediacy require-
ment of Reg. § 1.1032–3(c)(2) would be
satisfied with respect to the Parent Stock.
This concept is illustrated in Example
10 of Reg. § 1.1032–3(e). In the example,
in Year 1, the issuing corporation, X,
forms a trust which it will use to satisfy
deferred compensation obligations owed
by Y, X’s wholly owned subsidiary, to Y’s
employees. X funds the trust with X
stock which would revert to X upon ter-
mination of the trust, subject to the em-
ployees’ rights to be paid the deferred
compensation. The creditors of X can
reach all trust assets upon the insolvency
of X. Similarly, the creditors of Y can
reach all trust assets upon the insolvency
of Y. In Year 5, the trust transfers X stock
to the employees of Y in satisfaction of
the deferred compensation obligation.
The example states that X is considered to
be the grantor of the trust, and, under sec-
tion 677 of the Code, X is also the owner
of the trust. Y is not considered a grantor
or owner of the trust corpus at the time X
transfers X stock to the trust. Any income
earned by the trust would be reflected on
X’s income tax return. In Year 5, when
employees of Y receive X stock in satis-
faction of the deferred compensation
obligation, no gain or loss is recognized
by X or Y on the deemed disposition of
the X stock by Y. Immediately before Y’s
deemed disposition of the X stock, Y is
treated as purchasing the X stock from X
for fair market value using cash con-
tributed to Y by X. Under section 358,
X’s basis in its Y stock increases by the
amount of cash deemed contributed. Ac-
cordingly, when employees or service
providers of Y receive X stock in satisfac-
tion of the deferred compensation obliga-
tion, the requirements of § 1.1032–3(c)
are satisfied, and no gain or loss is recog-
nized by X or Y on the deemed disposi-
tion of the X stock by Y.
Similarly, the parent corporation will
be treated as the grantor and owner of as-
sets other than Parent Stock that are con-
tributed by the parent corporation to a
rabbi trust if the assets are both subject to
the claims of the creditors of the parent
corporation and subject to the require-
ment that any such assets not transferred
to the subsidiary’s employees or service
providers will revert to the parent on ter-
mination of the trust, even though such
assets are also subject to the claims of the
creditors of the subsidiary. The cash pur-
chase model applies only to transfers of
stock by the parent corporation to the
trust. Therefore, when assets other than
Parent Stock are transferred from the trust
to the employees of the subsidiary, the
subsidiary is treated as receiving the other
assets from the parent corporation with
the parent’s carryover basis and the sub-
sidiary will recognize gain or loss (if any)
on the transfer of the assets to the sub-
sidiary’s employees or service providers.
IV. MODIFICATION TO MODEL
TRUST UNDER REV. PROC. 92–64
The Service will rule on a request sub-
mitted under Rev. Proc. 92–64 where the
model language has been modified to pro-
vide that Parent Stock (or other assets)
contributed by a parent corporation to a
rabbi trust for the benefit of employees or
service providers of a subsidiary is sub-
ject to the claims of the creditors of both
the parent corporation and the subsidiary,
and the remaining Parent Stock (or other
assets) contributed by the parent corpora-
tion reverts to the parent corporation upon
termination of the trust.
V. TRANSITION PROVISIONS FOR
EXISTING TRUSTS
The Service will not challenge a tax-
payer’s position that no gain or loss is rec-
ognized by a subsidiary upon the rabbi
trust’s disposition of Parent Stock con-
tributed to the rabbi trust by the parent
corporation on or before May 16, 2001,
with respect to trusts in existence on or
before June 15, 2000.
If the terms of the rabbi trust are
amended to provide that assets (including
Parent Stock) contributed by the parent
corporation to the rabbi trust are subject
to claims of the parent corporation’s cred-
itors (in addition to being subject to the
claims of the subsidiary’s creditors) and
those assets not transferred to the sub-
sidiary’s employees or service providers
will revert to the parent corporation upon
termination of the rabbi trust, the Service
will not treat such amendment as a con-
structive dividend to the parent corpora-
tion, provided the amendment is adopted
by May 16, 2001.
VI. EFFECT ON OTHER GUIDANCE
Rev. Proc. 92–64 will not fail to be sat-
isfied if Parent Stock (or other assets)
contributed by a parent corporation to a
rabbi trust for the benefit of employees or
service providers of a subsidiary is sub-
ject to the claims of the creditors of the
parent corporation and the subsidiary, and
the remaining Parent Stock (or other as-
sets) contributed by the parent corpora-
tion reverts to the parent corporation upon
termination of the trust.
DRAFTING INFORMATION
The principal author of this notice is
Susan Lennon of the Office of the Associ-
ate Chief Counsel (Tax Exempt and Gov-
ernment Entities). However, other per-
sonnel from the Service and the Treasury
Department participated in its develop-
ment. For further information regarding
this notice, contact Ms. Lennon at (202)
622-6030 (not a toll-free telephone num-
ber).
26 CFR 1.1503–2 Dual consolidated loss.
26 CFR 301.7121–1 Closing agreements.
Rev. Proc. 2000–42
SECTION 1. PURPOSE
This revenue procedure informs tax-
payers of the information they must sub-
mit to request a closing agreement under
§1.1503–2(g)(2)(iv)(B)(2)(i) to prevent
the recapture of dual consolidated losses
(DCLs) upon the occurrence of certain
triggering events.
Before this revenue procedure, the In-
ternal Revenue Service and the Depart-
ment of the Treasury had not specified in
detail how taxpayers should request these

2000–43 I.R.B.395October 23, 2000
closing agreements. The Service and
Treasury are issuing this revenue proce-
dure to provide taxpayers with guidance
on the information and representations
they should include in a §1503(d) closing
agreement request and to facilitate the
process and reduce the time necessary for
the Service to process requests.
Appendix A to this revenue procedure
is a model closing agreement. The Ser-
vice intends the model closing agreement
to serve as an example of the format and
contents of a §1.1503–2(g)(2)(iv)(B)(2)(i)
closing agreement and to aid taxpayers in
understanding how the information re-
quired by this revenue procedure will be
used in the closing agreement. Taxpayers
should note, however, that the model
agreement is only an example. A tax-
payer’s actual agreement could differ
from the model. Finally, Appendix B is a
flow chart of the entities included in the
model closing agreement, along with
notes explaining the model agreement.
SECTION 2. BACKGROUND
The United States taxes the worldwide
income of domestic corporations. The
United States allows certain domestic cor-
porations to file consolidated returns with
other affiliated domestic corporations.
When two or more domestic corporations
file a consolidated return, losses that one
corporation incurs generally may reduce
or eliminate tax on income that another
corporation earns.
Because other countries may apply dif-
ferent standards for determining the resi-
dence and taxability of a corporation (e.g.,
based on the management and control of
the corporation), some domestic corpora-
tions are dual resident corporations and, as
such, are also subject to the income tax of
a foreign country on their income on a res-
idence basis (and not on a source basis).
Foreign countries often have provisions
that permit commonly owned entities to
combine their income and losses through
consolidation or some other form of com-
bined reporting for income tax purposes.
Prior to the Tax Reform Act of 1986, if
a dual resident corporation were a resident
of a foreign country with tax laws that per-
mitted the losses of the corporation to be
used to offset the income of another per-
son (e.g., under a consolidated return pro-
vision), then the dual resident corporation
could use any losses it generated twice:
once to offset the income of affiliates resi-
dent in the United States (but not abroad),
and again to offset the income of its affili-
ates resident only in the other country.
Thus, such a dual resident corporation
could use a single economic loss to offset
two separate items of income in two juris-
dictions. Congress expressed concerns
that this dual use of a loss could result in
an undue tax advantage to certain foreign
investors that made investments in domes-
tic corporations, and could create an
undue incentive for certain foreign corpo-
rations to acquire domestic corporations
and for domestic corporations to acquire
foreign rather than domestic assets. Staff
of Joint Committee on Taxation, 99
th
Cong., 2
nd
Sess., General Explanation of
the Tax Reform Act of 1986, at 1064 –
1065 (1987). As part of the Tax Reform
Act of 1986, Congress responded by en-
acting §1503(d) to prevent the use of
DCLs that resulted from consolidation in
multiple jurisdictions.
The Treasury and Service issued tempo-
rary regulations under §1503(d) in 1989
(T.D. 8261, 1989–2 C.B. 220), and final
regulations in 1992 (T.D. 8434, 1992–2
C.B. 240). The final regulations in
§1.1503–2 are generally effective for tax-
able years beginning on or after October 1,
1992; the temporary regulations in
§1.1503–2A are effective for taxable years
beginning after December 31, 1986, and
before October 1, 1992. The temporary
regulations were initially designated as
§1.1503–2T, but were redesignated as
§1.1503–2A by the final regulations.
Section 1503(d) provides that a DCL of
a dual resident corporation shall not be al-
lowed to reduce the taxable income of any
other member of the corporation’s affili-
ated group for any taxable year. The term
dual resident corporation includes a do-
mestic corporation that is subject to the in-
come tax of a foreign country on its
worldwide income or on a residence basis
and a separate unit of a domestic corpora-
tion (e.g., a foreign branch, an interest in a
partnership, an interest in a trust, or a dis-
regarded entity that a foreign country
taxes at the entity level). SeeTreas. Reg.
§1.1503–2(c)(2) – (4). This revenue pro-
cedure will collectively refer to dual resi-
dent corporations and separate units as
“DRCs.”
The final §1503(d) regulations permit a
taxpayer to elect to use a DCL of a DRC
by entering into an agreement under
§1.1503–2(g)(2)(i) in which the taxpayer
certifies that the DCL has not been, and
will not be, used to offset the income of
another person under the laws of a foreign
country. Certain subsequent events,
known as “triggering events” require the
taxpayer to recapture the losses as income,
including an interest charge. Treas. Reg.
§§1.1503–2(g)(2)(iii) and (vii). If a tax-
payer fails to comply with the §1503(d)
recapture provisions upon the occurrence
of a triggering event, then the DRC (or a
successor-in-interest) that incurred the
DCL generally will not be eligible for re-
lief to use any DCLs incurred in the five
(5) taxable years beginning with the year
in which recapture is required. Treas.
Reg. §1.1503–2(g)(2)(vii)(F)(1).
Triggering events occur when: (1) any
portion of the loss taken into account in
computing the DCL is used by any means
to offset the income of any other person
for foreign tax purposes within fifteen
(15) years; (2) a DRC or domestic owner
of a separate unit ceases to be a member
of the consolidated group that filed the
agreement at a time when there is a con-
tinuing ability to use the DCL to offset in-
come of another person for foreign tax
purposes; (3) an unaffiliated DRC or un-
affiliated domestic owner of a separate
unit becomes a member of a consolidated
group, unless there is no continuing abil-
ity to use the DCL to offset income of an-
other person for foreign tax purposes; (4)
a DRC transfers its assets to a transferee
in a transaction that results, under the
laws of a foreign country, in a carryover
of the losses, expenses, or deductions that
make up the DCL; (5) a domestic owner
of a separate unit disposes of fifty (50)
percent or more of the assets of, or its in-
terest in, the separate unit at a time when
there is a continuing ability to use the
DCL to offset income of another person
for foreign tax purposes; (6) an unaffili-
ated DRC or unaffiliated domestic owner
of a separate unit becomes a foreign cor-
poration in a transaction that, for foreign
tax purposes, is not treated as involving a
transfer of assets to a new entity, unless
there is no continuing ability to use the
DCL to offset income of another person
for foreign tax purposes; or (7) the tax-
payer fails to file an annual certification
required under §1.1503–2(g)(2)(vi)(B).
Treas. Reg. §1.1503–2(g)(2)(iii)(A).

October 23, 20003962000–43 I.R.B.
The final regulations provide two ex-
ceptions to events described as triggering
events, making the events not triggering
events requiring recapture of losses and
an interest charge. The first exception,
under §1.1503–2(g)(2)(iv)(A), applies
when a DRC, or its assets, is acquired by
another member of the DRC’s consoli-
dated group. The second exception,
under §1.1503–2(g)(2)(iv)(B), applies,
provided the taxpayer enters into a clos-
ing agreement, when a DRC or a domes-
tic owner of a separate unit becomes dis-
affiliated from its consolidated group, or
when an unaffiliated domestic corpora-
tion or new consolidated group acquires
the DRC or its assets.
The Service is aware that as a result of
taxpayers’ ability to elect entity classifica-
tion under the §7701 elective Federal tax
classification regulations that became ef-
fective as of January 1, 1997 (i.e., the
check-the-box regulations), the number of
DRCs may increase, and taxpayers may
become subject to the §1503(d) DCL pro-
visions, including the recapture provi-
sions. For instance, the conversion of a
foreign branch to a foreign corporation
may be treated as a triggering event under
the final §1503(d) regulations. SeeTreas.
Reg. §§1.1503–2(g)(2)(iii)(A)(4) – (7)
and Treas. Reg. §301.7701–3(g)(1).
Therefore, this procedure is also intended
to publicize the Service’s procedures and
requirements that will prevent certain re-
organization and disposition transactions
involving DRCs from resulting in
§1503(d) recapture consequences.
SECTION 3. SCOPE
.01 General.
This section provides the conditions
that must be satisfied for the Service to
consider requests from taxpayers for a
§1.1503–2(g)(2)(iv)(B)(2)(i) closing
agreement.
.02 Taxpayers Must Be In
Compliance And Must First
Request Any Treas. Reg.
§301.9100 Relief Needed.
Before requesting a closing agreement
under §1.1503–2(g)(2)(iv)(B)(2)(i), the
taxpayer should ensure that it has com-
plied with the regulations issued under
§1503(d), including having filed the req-
uisite agreements, elections, and certifica-
tions under §1.1503–2(g)(2) (or
§1.1503–2A(c)(3) or (d)(3) if the tax-
payer is asking for relief under
§1.1503–2A). See infra, section 3.07
(which provides when the Service will
consider including in a §1.1503–2(g)
(2)(iv)(B)(2)(i) closing agreement, DCLs
covered by the temporary §1503(d) regu-
lations). In practical terms, this means
that the taxpayer should first request and
secure (or at least simultaneously request)
any necessary relief under §301.9100 for
an extension of time to make any required
election or application under the §1503(d)
regulations. For example, a taxpayer that
has not filed the requisite agreements and
elections under §1.1503–2(g)(2)(i) must
first request (or simultaneously request)
§301.9100 relief to file the elections and
agreements.
Under §§1.1503–2(g)(2)(iii)(A) and
(iv)(B), a taxpayer must enter into a clos-
ing agreement with the Service before the
taxpayer files its tax return for the taxable
year of a triggering event to prevent the
recapture of losses and the accompanying
interest charge. Under this revenue pro-
cedure, however, a taxpayer can prevent
the recapture of losses and the interest
charge if the taxpayer submits its request
for a closing agreement by the due date of
its tax return (including extensions) for
the triggering event year and specifies on
its tax return that it is requesting a
§1503(d) closing agreement.
.03 Statutes Of Limitations.
The Service may request a taxpayer to
execute a consent to extend the period of
limitations for assessment of tax for the
taxable periods related to the DCLs for
which the taxpayer has requested a clos-
ing agreement.
.04 When And By Whom A Closing
Agreements May Be Executed.
Treas. Reg. §1.1503–2(g)(2)(iv)(B)(1)
provides that if the requirements of
§1.1503–2(g)(2)(iv)(B)(2) are met, the
following events will not constitute trig-
gering events requiring the recapture of
DCLs: (1) an affiliated DRC or an affili-
ated domestic owner becomes an unaffili-
ated domestic corporation or a member of
a new consolidated group; (2) an unaffili-
ated DRC or an unaffiliated domestic
owner becomes a member of a consoli-
dated group; (3) assets of a DRC are ac-
quired by an unaffiliated domestic corpo-
ration or a member of a new consolidated
group; or (4) a domestic owner of a sepa-
rate unit transfers its interest in the sepa-
rate unit to an unaffiliated domestic cor-
poration or to a member of a new
consolidated group. Treas. Reg.
§1.1503–2(g)(2)(iv)(B)(2) requires
(among other requirements) that the tax-
payers enter into a closing agreement with
the Service which provides that the tax-
payers will be jointly and severally liable
for the total amount of the recapture of the
DCLs and an interest charge upon any
subsequent triggering event.
The Service may execute a closing
agreement under §1.1503–2(g)(2)(iv)
(B)(2)(i) and §7121 with the following
taxpayers: (1) the consolidated group
(i.e., the parent on behalf of the consoli-
dated group), the unaffiliated DRC, or the
unaffiliated domestic owner that filed the
§1.1503–2(g)(2)(i) agreement for the rel-
evant DCLs, and (2) the unaffiliated do-
mestic corporation or the new consoli-
dated group, provided the requirements of
§1.1503–2(g)(2)(iv)(B) are satisfied.
This revenue procedure will refer to these
taxpayers as the “Taxpayer Parties.” Au-
thorized officers of the Taxpayer Parties
must sign the closing agreement (gener-
ally two originals per party to the agree-
ment).
.05 Taxpayers That Cannot Execute A
Closing Agreement.
The Service will not execute a
§1.1503–2(g)(2)(iv)(B)(2)(i) closing
agreement with foreign entities/transfer-
ees, individuals, or partnerships. Section
1.1503–2 does not provide for closing
agreements with such taxpayers.
.06 Losses Must Be DCLs.
The Service will not execute a closing
agreement with taxpayers for net operat-
ing losses (NOLs) that are not DCLs.
Therefore, taxpayers must represent that
the losses at issue are DCLs.
.07 Closing Agreements For Losses
Under The Temporary
Regulations.
The final regulations provide for tax-
payers to enter into a §1.1503–2(g)(2)-

2000–43 I.R.B.397October 23, 2000
(iv)(B)(2)(i) closing agreement with the
Service to prevent certain events from re-
sulting in recapture and an interest
charge; the temporary regulations do not
contain such a provision. In appropriate
circumstances, taxpayers may elect to
apply the final regulations to DCLs which
are otherwise subject to §1.1503–2A.
Treas. Reg. §1.1503–2(h). If a taxpayer
files a request to enter into a closing
agreement for losses covered by the final
regulations, under this revenue procedure,
the Service will consider a request to in-
clude in the closing agreement DCLs oth-
erwise covered by §1.1503–2A for which
the taxpayer has not made a §1.1503–2(h)
election to apply the final regulations.
This revenue procedure’s reference to
“representations and citations as appropri-
ate under §1.1503–2A,” means represen-
tations and citations related to a DCL cov-
ered by §1.1503–2A.
SECTION 4. PROCEDURE TO ENTER
INTO A CLOSING AGREEMENT
.01 General.
The first revenue procedure published
each year (the Annual Revenue Proce-
dure) outlines the general procedures of
the Service for the issuance of letter rul-
ings and determination letters, including
closing agreements entered into under the
authority of §7121, by the National Of-
fice. See, e.g., Rev. Proc. 2000–1,
2000–1 I.R.B. 4. Taxpayers should note
that the Service also publishes an annual
revenue procedure, generally in the first
Internal Revenue Bulletin of the year,
which provides a list of those areas of the
Code under the jurisdiction of the Associ-
ate Chief Counsel (International), for
which the Service will not issue advance
letter rulings, (e.g., certain §1503(d) de-
terminations, such as whether the condi-
tions for excepting losses of a DRC from
the definition of a DCL are satisfied).
See, e.g., Rev. Proc. 2000–7, 2000–1
I.R.B. 227.
The consolidated group (i.e., the parent
on behalf of the consolidated group), the
unaffiliated DRC, or the unaffiliated do-
mestic owner that filed the agreements
under §1.1503–2(g)(2)(i) for the DCLs
for which the closing agreement would
relate may file a request to enter into a
§1.1503–2(g)(2)(iv)(B)(2)(i) closing
agreement by following the procedures
of the most recent Annual Revenue Pro-
cedure and this revenue procedure. Tax-
payers must include the user fee required
by the most recent Annual Revenue Pro-
cedure.
.02 Additional Information.
Because the information, representa-
tions, and documentation necessary to
enter into a closing agreement depend on
all the facts and circumstances, the Ser-
vice may require information, representa-
tions, and documentation in addition to
that set forth in this revenue procedure
and the most recent Annual Revenue Pro-
cedure. Taxpayers should submit such
additional information in accordance with
the Annual Revenue Procedure and within
the time allowed by the Annual Revenue
Procedure. If a taxpayer does not submit
the information requested within the time
provided, the request will be closed and
the taxpayer will be notified in writing.
See, e.g., section 10.06(3), Rev. Proc.
2000–1. If while processing a taxpayer’s
request for a §1503(d) closing agreement,
the Service determines that the taxpayer is
not in compliance with the §1503(d) regu-
lations and needs relief under §301.9100
to obtain an extension of time to make a
required election or application under the
§1503(d) regulations, then the taxpayer
has thirty (30) days from the date the Ser-
vice notifies the taxpayer to file a request
for relief under §301.9100. If a taxpayer
does not submit the §301.9100 request
within the thirty-day period, the
§1.1503–2(g)(2)(iv)(B)(2)(i) closing
agreement request will be closed and the
taxpayer will be notified in writing.
Taxpayers are responsible for keeping
the Service informed of all material
changes to the information, representa-
tions, and documentation submitted as
part of the closing agreement request.
SECTION 5. INFORMATION
TAXPAYERS MUST INCLUDE IN
REQUEST
.01 General.
This section describes the information,
representations, and documentation that
taxpayers are expected to provide with a
§1.1503–2(g)(2)(iv)(B)(2)(i) closing
agreement request. Taxpayers should or-
ganize information and representations
following the format of this procedure
and should use appropriate descriptive
headings. To facilitate the processing of
the closing agreement request, taxpayers
must also provide a full statement of all
relevant facts related to the taxpayers and
the DCLs.
Taxpayers must address each item in
this section, providing all relevant facts.
If an item is not applicable, taxpayers
should so state and briefly explain why.
.02 Information Related To Taxpayer
Parties, Relevant Members Of
The Consolidated Group, And
DRCs.
Taxpayers must provide a full state-
ment of the facts, including the following
general information, as appropriate, about
each Taxpayer Party, relevant member of
the consolidated group, and DRC with
losses that will be covered by the closing
agreement.
1. Name, address, and employer iden-
tification number.
2. Type of entity, and date and place of
incorporation or other formation.
3. Information about the formation and
treatment of disregarded entities di-
rectly or indirectly owned by a Tax-
payer Party (including the date the
entity became or elected to become
a disregarded entity under
§301.7701–3).
4. Classifications of the entity under
§1.1503–2(c)(2) – (4) (e.g., dual
resident corporation, foreign branch
separate unit, hybrid entity separate
unit) before and after any triggering
event. If the taxpayer is requesting
that the closing agreement include
losses covered by the temporary
regulations, the taxpayer should
classify the entity under
§1.1503–2A(b) (e.g., dual resident
corporation, foreign branch separate
unit, partnership interest separate
unit).
5. Detailed explanation of the chain of
ownership between the parent of the
consolidated group (or in the case
where there is no U.S. consolidated
group, the unaffiliated domestic
owner of the DRC) and the DRC be-
fore and after any triggering event
(as described in §1.1503–2(g)(2)(iii)
or §1.1503–2A(c)(3)(iii), as appro-
priate).

October 23, 20003982000–43 I.R.B.
6. The taxable year of a Taxpayer
Party to the closing agreement (both
before and after any triggering
event). If as a result of a triggering
event there is a requirement for fil-
ing a short-period return under
§1.1502–76(b) or other relevant
provision, taxpayer should provide
related information and an explana-
tion.
7. The office that has jurisdiction over
the Federal income tax returns of a
Taxpayer Party to the closing agree-
ment.
.03 Additional Information Related
To DRCs.
Taxpayers must provide the following
additional information for each DRC with
losses that will be covered by the closing
agreement:
1. The country or countries that tax the
DRC on its worldwide income or on
a residence basis. If the DRC is a
separate unit, identify the separate
unit and name under which it con-
ducts business, and the country in
which its principal place of business
is located.
2. Description of the principal busi-
ness activity.
3. Amounts and taxable years of
DRC’s NOLs.
4. Date the period of limitations on as-
sessment of tax expires related to
each DCL.
.04 List And Description Of All
Triggering Events.
For all losses to be included in the
§1.1503–2(g)(2)(iv)(B)(2)(i) closing
agreement, taxpayers must provide a list
and description of all triggering events
described in §1.1503–2(g)(2)(iii) and
§1.1503–2A(c)(3)(iii) as appropriate (in-
cluding specific citations). In particular,
taxpayers should explain how the trigger-
ing events are treated under the Code, in-
cluding information about any taxable
transfers or any nonrecognition provi-
sions that apply, and should provide infor-
mation about all parties, stock, and assets
involved. Taxpayers should indicate
whether any triggering event listed in-
cludes a transaction within the meaning of
§1.1502–75(d)(2) or (3) whereby the
common parent of the consolidated group
that filed the §1.1503–2(g)(2)(i) agree-
ments is no longer in existence or
whereby the common parent was a party
to a reverse acquisition, through which
the consolidated group continues.
Taxpayers should state whether an ex-
ception to a triggering event applies and
should explain the exception in detail and
include a citation to the relevant provision
(e.g., §1.1503–2(g)(2)(iv)(A), §1.1503–2
(g)(2)(iv)(B), or §1.1503–2A(c)(3)(vi)).
If a taxpayer has exercised rebuttal rights
provided in §§1.1503–2(g)(2)(iii)(A)(2) –
(7), taxpayer must provide information
related to those rebuttals.
.05 Specific Representations And
Agreements Required For Closing
Agreement.
Taxpayers must provide the following
representations and agreements, when ap-
plicable, to secure a §1.1503–2(g)(2)(iv)
(B)(2)(i) closing agreement:
1. That a corporation is a DRC as de-
scribed in §1.1503–2(c)(2). Taxpay-
ers must provide a representation for
each relevant entity, and provide a
§1.1503–2A representation as appro-
priate.
2. That a foreign branch, interest in a
partnership, or interest in a trust is a
separate unit as described in the ap-
propriate subsection of §1.1503–2
(c)(3) and a DRC as described in
§1.1503–2(c)(2). Taxpayers must
provide a representation for each rel-
evant entity, and provide a
§1.1503–2A representation as appro-
priate.
3. That a hybrid entity separate unit is a
hybrid entity separate unit as de-
scribed in §1.1503–2(c)(4) and a
DRC as described in §1.1503–2
(c)(2). Taxpayers must provide a
representation for each relevant en-
tity, and provide a §1.1503–2A repre-
sentation as appropriate.
4. That the NOLs described are DCLs
under §1.1503–2(c)(5) (or under
§1.1503–2A(b)(2) as appropriate).
5. That the requisite elections, agree-
ments, and certifications were timely
made under §1.1503–2(g)(2)(i) (or
§1.1503–2A(c)(3) or (d)(3) as appro-
priate).
6. That the DCLs were computed as re-
quired under §1.1503–2(d)(1) (or
§1.1503–2A(f)(1) as appropriate).
7. That the necessary reporting and cer-
tifications were made under
§1.1503–2(g)(2)(vi) (or §1.1503–2
A(c)(3)(v) as appropriate).
8. That the consolidated group, unaffili-
ated DRC, or unaffiliated domestic
owner will or has filed an election
and agreement described in
§1.1503–2(g)(2)(i) with its timely
filed Federal income tax return for
the year(s) of the triggering event(s)
described in §1.1503–2(g)(2)(iii).
Taxpayers should provide a
§1.1503–2A representation as appro-
priate.
9. That apart from the triggering events
listed, no triggering event described
in §1.1503–2(g)(2)(iii) (or
§1.1503–2A(c)(3)(iii) as appropriate)
has occurred applicable to the DCLs.
10. That upon any subsequent trigger-
ing event described in §1.1503–2(g)
(2)(iii), the Taxpayer Parties will be
jointly and severally liable for the
total amount of the recapture of the
DCLs to which the closing agree-
ment relates and the related interest
charge under §1.1503–2 (g)(2)(vii),
to the extent the triggering event
does not fall under one of the excep-
tions provided in §1.1503–2(g)
(2)(iv)(A) or (B).
11. That the new consolidated group or
unaffiliated domestic corporation
will treat any potential recapture of
the DCLs under §1.1503–2(g)
(2)(vii) as unrealized built–in gain
for purposes of §384(a), subject to
any applicable exceptions thereun-
der, and will treat the total recapture
amount of the described DCLs as
recognized built-in gain for pur-
poses of §384(a), subject to any ap-
plicable exceptions thereunder.
12. That the new consolidated group
or unaffiliated domestic corpora-
tion will comply with the reporting
requirements described in
§1.1503–2(g)(2)(vi) for each DCL
for the taxable years covered by
the closing agreement.
13. That an election was made (or was
not made) under §1.1503–2(h)(2)
or (3) for any DCLs incurred in
taxable years beginning before Oc-
tober 1, 1992. Taxpayers should
provide an explanation for the
election provision used.
14. That an event described in

2000–43 I.R.B.399October 23, 2000
§§1.1503–2(g)(2)(iii)(A)(2) – (7) is
not a triggering event under such
provision because the transfer did
not result in a carryover under for-
eign law of such losses, or because
such losses cannot be used to offset
the income of another person under
foreign law. Taxpayers should rep-
resent the specific requirements
under the provision cited. See, e.g.,
section 3.01(4) and section
4.01(22), Rev. Proc. 2000–7 (the
National Office of the Service gen-
erally will not make a determination
related to the rebuttals).
.06 Documents Required.
As part of the initial submission request-
ing a §1.1503–2(g)(2)(iv)(B)(2)(i) closing
agreement, taxpayers must provide the fol-
lowing documents when applicable:
1. Copies of all elections, agreements
and certifications required by
§1.1503–2(g)(2) (or §1.1503–2A
(c)(3) or (d)(3)).
2. Copies of all ruling letters issued by
the Service under §301.9100 provid-
ing for an extension of time to make
a required election or application
under the §1503(d) regulations.
3. Copy of all consents to an extension
of the statute of limitations on assess-
ment and collection.
4. Documents supporting the rebuttal of
a presumption of a triggering event
described in §§1.1503–2(g)(2)(iii)
(A)(2) – (7).
5. Other documents as requested by the
Service.
SECTION 6. PAPERWORK
REDUCTION ACT
The collection of information contained
in this revenue procedure has been re-
viewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act (44
U.S.C. 3507) under control number 1545-
1706.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the col-
lection of information displays a valid
OMB control number.
The collection of information is con-
tained in sections 4 and 5 of this revenue
procedure. This information will enable
the Service to determine whether to exe-
cute a closing agreement under §§1503(d)
and 7121 of the Code. The likely respon-
dents are domestic corporations.
The estimated average annual reporting
and/or recordkeeping burden is two-thou-
sand (2,000) hours.
The estimated average annual burden
per applicant is one-hundred (100) hours.
The estimated number of applicants is
twenty (20). The estimated frequency of
responses is on occasion.
Books and records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and tax
return information are confidential, as re-
quired by 26 U.S.C. 6103.
SECTION 7. DRAFTING
INFORMATION
The principal author of this revenue pro-
cedure is Camille B. Evans of the Office of
the Associate Chief Counsel (Interna-
tional). For further information regarding
this revenue procedure contact Camille B.
Evans or Kenneth D. Allison of the Office
of the Associate Chief Counsel (Interna-
tional) at (202) 622-3860 (not a toll free
call).
Appendix A
DEPARTMENT OF THE TREASURY
INTERNAL REVNUE SERVICE
MODEL CLOSING AGREEMENT ON
FINAL DETERMINATION
COVERING SPECIFIC MATTERS
Under section 7121 of the Internal Rev-
enue Code of 1986, as amended (the
Code), Corporation A, 123 Main Street,
Wilmington, DE 20000, EIN 11-1234567,
a domestic corporation, as common parent
on behalf of all the members of a consoli-
dated group (the Corporation A Group);
Corporation B, 124 Main Street, Wilming-
ton, DE 20000, EIN 22-1234567, a do-
mestic corporation, as common parent on
behalf of all the members of a consolidated
group as of January 1, Year 3 (the Corpora-
tion B Group); and the Commissioner of
Internal Revenue hereby make the follow-
ing closing agreement (Closing Agree-
ment) based on the representations made
by Corporation A and Corporation B, in
paragraphs one (1) through fourteen (14)
below:
WHEREAS:
(1) Corporation A, a Delaware corpora-
tion and party to this Closing Agreement,
owned through December 31, Year 2, all of
the stock of Corporation B, a Delaware
corporation and party to this Closing
Agreement. Until December 31, Year 2,
Corporation A had outstanding Class X
common stock and Class Y common stock.
Corporation A is the common parent of an
affiliated group of corporations that files a
consolidated federal income tax return on a
calendar year basis (the Corporation A
Group). Corporation B was a member of
the Corporation A Group through Decem-
ber 31, Year 2. On January 1, Year 3, Cor-
poration B became the common parent of
an affiliated group of corporations that
files a consolidated federal income tax re-
turn on a calendar year basis (the Corpora-
tion B Group).
(2) Corporation B owns all of the stock
of Corporation D, a Delaware corporation
(EIN 33-1234567) and a member of the
Corporation A Group through December
31, Year 2, and of Corporation E, a
Delaware corporation (EIN 44-1234567)
and a member of the Corporation A Group
through December 31, Year 2. Corpora-
tion D and Corporation E became mem-
bers of the Corporation B Group on Janu-
ary 1, Year 3.
(3) Since 1970, Corporation D has
maintained assets and operated a widgets
business in Country 1 through a branch in
Country 1 (Branch 1). Branch 1 is a sepa-
rate unit as described in Treas. Reg.
§1.1503–2(c)(3)(i)(A) and a dual resident
corporation (DRC) as defined in Treas.
Reg. §1.1503–2(c)(2).
(4) Since 1970, Corporation E has
maintained assets and operated a widgets
business in Country 2 through a branch in
Country 2 (Branch 2). Branch 2 is a sepa-
rate unit as described in Treas. Reg.
§1.1503–2(c)(3)(i)(A) and a DRC as de-
fined in Treas. Reg. §1.1503–2(c)(2).
(5) Since 1975, Corporation E has
maintained assets and operated a widgets
business in Country 3 through a branch in

October 23, 20004002000–43 I.R.B.
The Corporation B Branches’ NOLs for
the Year 1 taxable year and the Year 2
taxable year will hereinafter collectively
be referred to as the Corporation B
Branches NOLs.
(12) The Corporation A Group used
all of the Corporation B Branches NOLs
within the meaning of Treas. Reg.
§1.1503–2(c)(15).
(13) Corporation A, as common par-
ent of the Corporation A Group, filed the
elections and agreements described in
Treas. Reg. §1.1503–2(g)(2)(i) for the
Corporation B Branches NOLs incurred
for the Year 1 taxable year and the Year
2 taxable year.
(14) Excluding the distribution of
Corporation B stock to the Corporation
A Class X common stockholders in a
Code §355 split-off transaction, on De-
cember 31, Year 2, (as described in para-
graph 9 above), causing Corporation B
and its affiliates to cease being members
of the Corporation A Group, no trigger-
ing event described in Treas. Reg.
§1.1503–2 (g)(2)(iii) has occurred that
is applicable to the Corporation B
Branches NOLs.
THEREFORE, based on the above infor-
mation and material submitted by Corpo-
ration A and Corporation B in connection
with this Closing Agreement, and in the
absence of other material factual or legal
circumstances concerning the events de-
scribed above, it is determined for federal
income tax purposes that with respect to
the Corporation B Branches NOLs:
(1) This Closing Agreement is a clos-
ing agreement described in Treas. Reg.
§1.1503–2(g)(2)(iv)(B)(2)(i).
(2) The Corporation B Branches are
separate units as described in Treas. Reg.
Country 3 (Branch 3). Branch 3 is a sepa-
rate unit as described in Treas. Reg.
§1.1503–2(c)(3)(i)(A) and a DRC as de-
fined in Treas. Reg. §1.1503–2(c)(2).
(6) Since 1972, Corporation E has
maintained assets and operated a widgets
business in Country 4 through a branch in
Country 4 (Branch 4). Branch 4 is a sepa-
rate unit as described in Treas. Reg.
§1.1503–2(c)(3)(i)(A) and a DRC as de-
fined in Treas. Reg. §1.1503–2(c)(2).
Branch 1, Branch 2, Branch 3, and
Branch 4 will hereinafter collectively be
referred to as the “Corporation B
Branches.”
(7) The income and losses of Branch 4
were included in the Corporation A Group
through Date A, Year 2. The income and
losses of Branch 1, Branch 2, and Branch
3 were included in the Corporation A
Group through December 31, Year 2.
(8) On Date A, Year 2, Corporation E,
sold all of the assets of Branch 4 to an un-
related Country 4 company, Corporation
4. Corporation E’s sale of Branch 4’s as-
sets is not a triggering event under Treas.
Reg. §1.1503–2(g)(2)(iii)(A)(5) because
the sale did not result in a carryover under
Country 4 law of Branch 4’s losses, ex-
penses, or deductions to Corporation 4.
As a result of this Date A, Year 2 sale,
Branch 4 ceased to be a separate unit as
described in Treas. Reg.
§1.1503–2(c)(3)(i)(A) and a DRC as de-
fined in Treas. Reg. §1.1503–2(c)(2). See
Appendix B, Note 1.
(9) On December 31, Year 2, Corpora-
tion A distributed all of the stock of Cor-
poration B to its Corporation A Class X
common stockholders in exchange for all
of the Corporation A Class X common
stock in a split-off transaction described
in Code §355. As a result of this split-off
transaction: (a) Corporation B, Corpora-
tion D, and Corporation E, and the in-
come and losses of Branch 1, Branch 2,
and Branch 3 ceased to be included in the
Corporation A Group; (b) Corporation B
became the common parent of the Corpo-
ration B Group; and (c) the income and
losses of Branch 1, Branch 2, and Branch
3 became included with the Corporation
B Group. See Appendix B, Note 2.
(10) On Date C, Year 3, Corporation E
sold the Branch 3 assets to an unrelated
Country 3 company, Corporation 3. Cor-
poration E’s sale of Branch 3’s assets is
not a triggering event under Treas. Reg.
§1.1503–2(g)(2)(iii)(A)(5) because the
sale did not result in a carryover under the
laws of Country 3 of Branch 3’s losses,
expenses, or deductions to Corporation 3.
As a result of this Date C, Year 3 sale,
Branch 3 ceased to be a separate unit as
described in Treas. Reg.
§1.1503–2(c)(3)(i)(A) and a DRC as de-
fined in Treas. Reg. §1.1503–2(c)(2). See
Appendix B, Note 3.
(11) The Corporation B Branches in-
curred net operating losses (NOLs) for the
Year 1 taxable year and the Year 2 taxable
year. Such losses were computed in ac-
cordance with Treas. Reg. §1.1503–2
(d)(1) and are as follows:
BRANCHYear 1 Tax YearYear 2 Tax Year
Branch 1$$
Branch 2$$
Branch 3$$
Branch 4$$ N.A. *
TOTAL$$
*See Appendix B, Note 4.

2000–43 I.R.B.401October 23, 2000
§1.1503–2(c)(3)(i)(A) and are dual resi-
dent corporations as defined in Treas.
Reg. §1.1503–2(c)(2).
(3) The Corporation B Branch NOLs are
dual consolidated losses under Treas. Reg.
§1.1503–2(c)(5).
(4) But for Treas. Reg. §1.1503–2
(g)(2)(iv)(B)(2), the distribution of Corpo-
ration B stock to the Corporation A Class X
common stockholders in a Code §355 split-
off transaction, causing Corporation B,
Corporation D, and Corporation E to cease
being members of the Corporation A Group
and the income and losses of the Corpora-
tion B Branches to cease being included in
the Corporation A Group, was a triggering
event under Treas. Reg.
§1.1503–2(g)(2)(iii)(A)(2) requiring the re-
capture of Corporation B Branch NOLs as
required by Treas. Reg.
§1.1503–2(g)(2)(vii).
(5) Under Treas. Reg. §1.1503–2
(g)(2)(iv)(B)(2), the distribution of Corpo-
ration B stock to Corporation A Class X
common stockholders in a Code §355 split-
off transaction, whereby Corporation B,
Corporation D, and Corporation E ceased
to be members of the Corporation A Group
and the income and losses of the Corpora-
tion B Branches ceased to be included in
the Corporation A Group, is not considered
to be a triggering event requiring the recap-
ture of the Corporation B Branch NOLs
and an interest charge.
(6) Upon any subsequent triggering
event described in Treas. Reg.
§1.1503–2(g)(2)(iii), the Corporation A
Group and the Corporation B Group will be
jointly and severally liable for the total
amount of recapture of the dual consoli-
dated losses of the Corporation B Branches
and the related interest charge under Treas.
Reg. §1.1503–2(g)(2)(vii), to the extent the
triggering event does not fall under one of
the exceptions provided in Treas. Reg.
§1.1503–2(g)(2)(iv)(A) or (B). The charac-
ter and source of the recapture amount shall
be determined pursuant to Treas. Reg.
§1.1503-2(g)(2)(vii)(D). An event other-
wise constituting a triggering event applica-
ble to the Corporation B Branch NOLs
under Treas. Reg. §1.1503–2(g)(2)(iii)(A)
shall not constitute a triggering event if it
occurs in any taxable year after the fifteenth
(15
th
) taxable year following the year in
which the Corporation B Branch NOLs
were incurred.
(7) The Corporation B Group will treat
any potential recapture amount under
Treas. Reg. §1.1503–2(g)(2)(vii) as unreal-
ized built-in gain for purposes of Code
§384(a), subject to any applicable excep-
tions thereunder, and such total recapture
amount shall constitute recognized built-in
gain of the Corporation B Group for pur-
poses of Code §384(a), subject to any ap-
plicable exceptions thereunder.
(8) The Corporation B Group will com-
ply with the reporting requirements de-
scribed in Treas. Reg. §1.1503–2 (g)(2)(vi)
with respect to each Corporation B Branch
NOL for the Year 1 taxable year and the
Year 2 taxable year.
(9) If the amount of the Corporation B
Branch NOLs is adjusted by the Internal
Revenue Service, judicial authority, or oth-
erwise in a final determination of taxes for
taxable years ending December 31, Year 1,
and December 31, Year 2, the provisions of
this Closing Agreement will apply mutatis
mutandisto such final adjusted loss
amounts.
NOW THIS CLOSING AGREEMENT
WITNESSETH, that Corporation A, Cor-
poration B, and the Commissioner of Inter-
nal Revenue hereby mutually agree to the
determinations set forth above and further
mutually agree that those determinations
shall be final and conclusive, subject, how-
ever, to reopening in the event of fraud,
malfeasance, or misrepresentation of mate-
rial fact, and provided that any change or
modification of applicable statutes or tax
conventions shall render this Closing
Agreement ineffective to the extent that it is
dependent upon such statutes or tax con-
ventions.
IN WITNESS WHEREOF, by signing the foregoing, the above parties signify that they have read and agreed to the terms of this
document.
CORPORATION A
By:Date:
Title:
CORPORATION B
By:Date:
Title:
COMMISSIONER OF INTERNAL REVENUE
By:Date:
Title: Associate Chief Counsel (International)
By:Date:
Title: Director, International

October 23, 20004022000–43 I.R.B.

2000–43 I.R.B.403October 23, 2000

October 23, 20004042000–43 I.R.B.
Prohibition of Ex Parte
Communications Between
Appeals Officers And Other
Internal Revenue Service
Employees
Rev. Proc. 2000–43
TABLE OF CONTENTS
SECTION 1. PURPOSE AND SCOPE
SECTION 2. BACKGROUND
SECTION 3. GUIDANCE
CONCERNING THE EX PARTE
COMMUNICATIONS
PROHIBITION DESCRIBED IN
SECTION 1001(a)(4) OF THE
INTERNAL REVENUE SERVICE
RESTRUCTURING AND REFORM
ACT OF 1998
SECTION 4. EFFECTIVE DATE
SECTION 1. PURPOSE AND SCOPE
Section 1001(a) of the Internal Revenue
Service Restructuring and Reform Act of
1998, Pub. L. 105–206, 112 Stat. 685
(RRA 98), states that “The Commissioner
of Internal Revenue shall develop and im-
plement a plan to reorganize the Internal
Revenue Service. The plan shall ...
(4) ensure an independent appeals
function within the Internal Rev-
enue Service, including the prohibi-
tion in the plan of ex parte commu-
nications between appeals officers
and other Internal Revenue Service
employees to the extent that such
communications appear to compro-
mise the independence of the ap-
peals officers.”
Notice 99–50, 1999–40 I.R.B. 444 (Octo-
ber 4, 1999), set forth a proposed revenue
procedure concerning the ex parte com-
munication prohibition. The proposed
revenue procedure provided guidance in
the form of a series of questions and an-
swers that address situations frequently
encountered by the Service during the
course of an administrative appeal and in-
vited public comment. The Department
of the Treasury and the Internal Revenue
Service have considered all comments re-
ceived, and the proposed revenue proce-
dure has been modified to take into ac-
count the concerns raised. Specifically,
the scope of permissible communications
has been clarified, limitations have been
placed on communications between Ap-
peals and certain employees in the Office
of Chief Counsel, concerns about com-
munications that take place in the context
of multi-functional meetings have been
addressed, and other questions and an-
swers have been modified. In addition,
new questions and answers have been in-
cluded to define key terms and clarify re-
sponsibilities of the parties, permit tax-
payers/representatives to waive the
prohibition, and to address certain man-
agement issues.
SECTION 2. BACKGROUND
In 1927, the Internal Revenue Service
established an administrative appeal
process to resolve tax disputes without lit-
igation. The Appeals mission is to re-
solve tax controversies, without litigation,
on a basis that is fair and impartial to both
the Government and the taxpayer. Local
Appeals Officers have traditionally re-
ported to different managers than the Ser-
vice officials who proposed the adjust-
ment. Appeals has historically been able
to settle the vast majority of the cases that
come within its jurisdiction.
The inventory of cases handled by Ap-
peals falls into two major categories —
nondocketed and docketed B determined
by whether the case is pending in the
United States Tax Court. Nondocketed
cases typically involve an administrative
protest by the taxpayer of the findings and
conclusions of the Examination, Collec-
tion, or other IRS function that initially
considers a taxpayer’s case. The tax-
payer’s protest is typically followed by a
conference, or series of conferences, with
the taxpayer or the taxpayer’s representa-
tive, during which Appeals and the tax-
payer attempt to reach resolution of the is-
sues in dispute. Docketed cases involve
disputes where the taxpayer has filed a
petition in the U.S. Tax Court, contesting
a determination made by the Service in a
statutory notice of deficiency. Following
the filing of the petition, taxpayers who
have not previously availed themselves of
the opportunity for an Appeals conference
generally are afforded an opportunity to
resolve their case with Appeals before the
case proceeds further in the litigation
process. See generallyRev. Proc. 87–24,
1987–1 C.B. 720. In both types of dis-
putes, Appeals has broad authority to ne-
gotiate settlements by applying a “hazards
of litigation” standard.
Proceedings before Appeals have tradi-
tionally followed a much less formal
course than court proceedings. While
proceedings before Appeals are designed
to be fair and impartial, they are not sub-
ject to judicial rules of evidence or proce-
dure. Some early legislative proposals
during 1998 would have required Appeals
to adopt more formal and less flexible
processes. S. Rep. No. 1669, 105
th
Cong.,
2
nd
Sess., § 304(a) (Feb. 24, 1998), would
have established an independent Office of
Appeals in the Internal Revenue Service,
the head of which was to be appointed by
and report directly to the Oversight
Board. Further, this proposal would have
barred Appeals from considering issues
not “raised” by the originating function
and prohibited “any communication” with
the originating function unless the tax-
payer or taxpayer’s representative had an
opportunity to be present.
As ultimately enacted, § 1001(a)(4) of
RRA 98 did not impose a comprehensive
overhaul of Appeals’ processes. Instead,
that section requires the IRS, as part of its
reorganization plan, to establish an inde-
pendent Office of Appeals “within the In-
ternal Revenue Service.” The plan must
prohibit ex parte communications “to the
extent such communications appear to
compromise the independence” of Ap-
peals. When the evolution of § 1001(a)(4)
of RRA 98 during the1998 legislative
process is considered in light of Appeals
longstanding methods of operation, it can
be fairly concluded that Appeals must be
accorded a significant degree of indepen-
dence from other IRS components, and
should be mindful to avoid ex parte com-
munications with other IRS functions that
might appear to compromise that indepen-
dence. The statutory provision cannot,
however, be interpreted as mandating a
major redesign of the fundamental
processes Appeals has traditionally fol-
lowed to carry out its dispute resolution
mission.
The procedures set forth in this Rev-
enue Procedure are designed to accom-
modate the overall interests of tax admin-

2000–43 I.R.B.405October 23, 2000
istration, while preserving operational
features that are vital to Appeals’ case res-
olution processes within the structure of
the IRS and ensuring more open lines of
communication between Appeals and the
taxpayer/representative. Thus, in order to
preserve the informal give-and-take and
flexibilities that have been conducive to
achieving settlements in Appeals, the
guidance provided in this revenue proce-
dure does not adopt the formal ex parte
procedures that would apply in a judicial
proceeding. The guidance is designed to
ensure the independence of the Appeals
organization, while preserving the role of
Appeals as a flexible administrative set-
tlement authority, operating within the In-
ternal Revenue Service’s overall frame-
work of tax administration
responsibilities. For example, as more
fully explained in Section 3 below:
nAppeals will retain procedures for (a)
returning cases that are not ready for
Appeals consideration, (b) raising
certain new issues, and (c) seeking
review and comments from the origi-
nating IRS function with respect to
new information or evidence fur-
nished by the taxpayer or representa-
tive.
nAppeals will continue to be able to
obtain legal advice from the Office of
Chief Counsel, subject to limitations
designed to ensure that the advice to
Appeals is not provided by the same
field attorneys who previously gave
advice on the same issue to the IRS
officials who made the determination
Appeals is reviewing. These limita-
tions adopt some of the suggestions
received in response to Notice 99–50
and reflect a balance between meet-
ing Appeals’ needs for legal assis-
tance and avoiding ex parte commu-
nications that might appear to
compromise Appeals’ independence.
nFinally, the Revenue Procedure
makes clear that the Commissioner
and others responsible for overall
IRS operations (including Appeals)
may continue to communicate ex
parte with Appeals in order to fulfill
their responsibilities.
SECTION 3. GUIDANCE
CONCERNING THE EX PARTE
COMMUNICATIONS
PROHIBITION DESCRIBED IN
SECTION 1001(a)(4) OF THE
INTERNAL REVENUE SERVICE
RESTRUCTURING AND REFORM
ACT OF 1998
Q-1 What is “ex parte communication”
and when is it prohibited?
A-1 For the purposes of this revenue pro-
cedure, ex parte communications are com-
munications that take place between Ap-
peals and another Service function
without the participation of the taxpayer or
the taxpayer’s representative
(taxpayer/representative). While the legis-
lation refers to “appeals officers,” the
overall intent of the ex parte provision is
to ensure the independence of the entire
Appeals organization. Ex parte communi-
cations between any Appeals employee,
e.g., Appeals Officers, Appeals Team Case
Leaders, Appeals Tax Computation Spe-
cialists, and employees of other Internal
Revenue Service offices are prohibited to
the extent that such communications ap-
pear to compromise the independence of
Appeals.
Q-2 Is the prohibition on ex parte
communications limited to oral
communications?
A-2 No. The prohibition is not limited to
oral communications. It applies to any
form of communication, oral or written
(manually or computer generated).
Q-3 Are communications between
Appeals Officers and other Appeals
employees subject to the prohibition on
ex parte communications?
A-3 No. As indicated in A-1 above, the
ex parte communication prohibition was
intended to preserve the independence of
the Appeals organization as a whole.
Intra-Appeals communications during the
deliberation process do not compromise or
appear to compromise that independence.
Appeals employees may communicate
freely with other Appeals employees with-
out inviting the taxpayer/representative to
participate.
Q-4 Is the administrative file transmitted
to Appeals by the office that made the
determination which is subject to the
Appeals process (the originating
function) considered to be an ex parte
communication within the context of this
revenue procedure?
A-4 No. The administrative file is not
considered to be an ex parte communica-
tion within the context of this revenue pro-
cedure. The administrative file, contain-
ing the proposed determination and the
taxpayer’s protest or other approved
means of communicating disagreement
with the proposed determination, sets
forth the boundaries of the dispute be-
tween the taxpayer and the Service and
forms the basis for Appeals to assume ju-
risdiction.
Q-5 Does the prohibition on ex parte
communications extend to discussions
between Appeals employees and the
originating function during the course
of preliminary review of a newly
assigned case?
A-5 It depends on the nature of the com-
munication. During the preliminary re-
view of a newly assigned case, officials in
Appeals may ask questions that involve
ministerial, administrative, or procedural
matters and do not address the substance
of the issues or positions taken in the
case. For example, Appeals employees
may make the following types of inquiries
without involving the taxpayer/represen-
tative:
nQuestions about whether certain in-
formation was requested and
whether it was received.
nQuestions about whether a document
referred to in the workpapers that the
Appeals Officer cannot locate in the
file is available.
nQuestions to clarify the content of il-
legible documents or writings.
nQuestions about case controls on the
IRS’s management information sys-
tems.
nQuestions relating to tax calculations
that are solely mathematical in na-
ture. Communications with the orig-
inating function which extend be-
yond matters of the type described
above and address the substance of
the issues in the case are prohibited
unless the taxpayer is given the op-
portunity to participate. Examples
of prohibited communications in-
clude:
nDiscussions about the accuracy of
the facts presented by the taxpayer
and the relative importance of the
facts to the determination.
nDiscussions of the relative merits or

October 23, 20004062000–43 I.R.B.
alternative legal interpretations of au-
thorities cited in a protest or in a re-
port prepared by the originating func-
tion.
nDiscussions of the originating func-
tion’s perception of the demeanor or
credibility of the taxpayer or tax-
payer’s representative.
Q-6 Does the ex parte communications
prohibition apply to Appeals
consideration of cases which originated
in the Collection function, e.g.,
collection due process (CDP) appeals,
collection appeals program (CAP) cases,
offers in compromise, trust fund
recovery penalty cases, etc.?
A-6 Yes. The principles applicable to dis-
cussions between Appeals employees and
officials in other originating functions also
apply to discussions between Appeals and
Collection employees. Appeals may not
engage in discussions of the strengths and
weaknesses of the issues and positions in
the case, which would appear to compro-
mise Appeals’ independence. The tax-
payer/representative should be given an
opportunity to participate in any discus-
sion that involves matters other than min-
isterial, administrative or procedural mat-
ters.
Section 3401 of RRA 98 (§§ 6320 and
6330 of the Internal Revenue Code), re-
garding due process in IRS collection ac-
tions, states that at a hearing, the Appeals
Officer must obtain verification that the
requirements of any applicable law or ad-
ministrative procedure have been met.
Communications seeking to verify com-
pliance with legal and administrative re-
quirements are similar to the ministerial,
administrative or procedural inquiries dis-
cussed in A-5 above. Therefore, such
communications are not subject to the pro-
hibition on ex parte communications.
Q-7 Does the prohibition on ex parte
communications change the criteria for
premature referrals?
A-7 As a general rule, there is no change
to current criteria or procedures. In
essence, RRA 98 reinforces the instruc-
tions in Section 8.2.1.2 of the Internal
Revenue Manual (IRM) and reaffirms Ap-
peals’ role as the settlement arm of the
Service. If a case is not ready for Appeals
consideration, Appeals may return it for
further development or for other reasons
described in IRM 8.2.1.2. Appeals may
communicate with the originating func-
tion regarding the anticipated return of the
case, but may not engage in a discussion
of matters beyond the types of ministerial,
administrative or procedural matters set
forth in A-5 as part of a discussion of
whether the premature referral guidelines
require further activity by the originating
function.
Q-8 Is there any change to the Appeals
new issue policy?
A-8 No. The prohibition against ex parte
communications does not affect Appeals’
existing policy about raising new issues in
Appeals. However, any new issue must
first satisfy Appeals’ new issue policy.
New issues must continue to meet the
“material” and “substantial” tests of IRM
8.6.1.4 and succeeding sections. If discus-
sions with the originating function are
needed in order to evaluate the strengths
and weaknesses of the possible new issue,
the taxpayer/representative must be given
an opportunity to participate in such dis-
cussions. Appeals will continue to follow
the principles of Policy Statement P-8-49
and the “General Guidelines” outlined in
IRM 8.6.1.4.2 in deciding whether or not
to raise a new issue.
Q-9 May Appeals continue to have
ongoing communication with the
originating function during the course of
an appeal?
A-9 Yes. However, the prohibition on ex
parte communications will affect the man-
ner in which Appeals has traditionally op-
erated during the course of the appeal.
Appeals must give the taxpayer/represen-
tative the opportunity to participate in any
discussions with the originating function
which concern matters beyond the minis-
terial, administrative or procedural matters
described in A-5 above.
Q-10 What should Appeals do if new
information or evidence is submitted?
Can Appeals still return the new material
to the originating function for review
and comment?
A-10 There is no change to existing pro-
cedures. The principles in IRM 8.2.1.2.2
remain in effect. The originating function
should be given the opportunity to timely
review and comment on significant new
information presented by the taxpayer.
“Significant new information” is informa-
tion of a non-routine nature which, in the
judgment of Appeals, may have had an
impact on the originating function’s find-
ings or which may impact on the Appeals’
independent evaluation of the litigating
hazards. Generally, the review can be ac-
complished by sending the material to the
originating function while Appeals retains
jurisdiction of the case and proceeds with
resolution of other issues. However, if it
appears that important new information or
evidence was purposely withheld from the
originating function, the entire case should
be returned to the originating function and
jurisdiction relinquished pursuant to IRM
8.2.1.2.2(3). The taxpayer/representative
must be notified when a case is returned to
the originating function or new material
not available during initial consideration
has been sent to the originating function.
The results of the originating function’s
review of the new information will be
communicated to the taxpayer/representa-
tive.
Q-11 Does the prohibition on ex parte
communications have any impact on the
relationship between Appeals and
Counsel?
A-11 Chief Counsel is the legal adviser
to the Commissioner of Internal Revenue
and his or her officers and employees (in-
cluding employees of Appeals) on all
matters pertaining to the interpretation,
administration and enforcement of the in-
ternal revenue laws and related statutes.
Attorneys in the Office of Chief Counsel
are expected to provide legal advice based
on a determination of “. . . the reasonable
meaning of various Code provisions in
light of the Congressional purpose in en-
acting them,” without bias in favor of ei-
ther the Government or the taxpayer.
Rev. Proc. 64–22, 1964–1 C.B. 689. To
balance Appeals employees’ need to ob-
tain legal advice with the requirement that
they avoid ex parte communications that
would appear to compromise Appeals’ in-
dependence, the following limitations
will apply to communications between
Appeals employees and attorneys in the
Office of Chief Counsel in cases not
docketed in the United States Tax Court:
Appeals employees should not commu-
nicate ex parte regarding an issue in a
case pending before them with Counsel

2000–43 I.R.B.407October 23, 2000
field attorneys who have previously pro-
vided advice on that issue in the case to
the IRS employees who made the deter-
mination Appeals is reviewing. Counsel
will assign a different attorney to provide
assistance to Appeals. If an Appeals em-
ployee believes it is necessary to seek ad-
vice from any Counsel field attorney who
previously provided advice to the origi-
nating function regarding that issue in the
case, the taxpayer/representative will be
provided an opportunity to participate in
any such communications.
Appeals’ requests for legal advice that
raise questions that cannot be answered
with a high degree of certainty by appli-
cation of established principles of law to
particular facts will be referred to the
Chief Counsel National Office and will
be handled as requests for field service
advice or technical advice, as appropri-
ate, in accordance with applicable proce-
dures. The response of the National Of-
fice to Appeals will be disclosed to the
taxpayer in accordance with § 6110.
Appeals employees are cautioned that,
while they may obtain legal advice from
the Office of Chief Counsel, they remain
responsible for independently evaluating
the strengths and weaknesses of the spe-
cific issues presented by the cases as-
signed to them, and for making indepen-
dent judgments concerning the overall
strengths and weaknesses of the cases
and the hazards of litigation. Consistent
with this assignment of responsibility,
Counsel attorneys will not provide advice
that includes recommendations of settle-
ment ranges for an issue in a case pend-
ing before Appeals or for the case as a
whole.
The foregoing limitations on ex parte
communications do not apply to cases
docketed in the United States Tax Court.
Docketed cases will be handled in accor-
dance with Rev. Proc. 87–24, 1987–1
C.B. 720, and the Tax Court Rules of
Practice and Procedure.
Q-12 Appeals is required to submit
certain cases to the Joint Committee on
Taxation for review. On occasion, the
Joint Committee (or its staff) will
question a settlement or raise a new
issue. Are communications with the
Joint Committee (or its staff) covered by
the ex parte communications
prohibition?
A-12 No. The prohibition applies only
to communications between Appeals and
other Internal Revenue Service employ-
ees.
Q-13 Does the prohibition on ex parte
communications have any impact on the
requirement that Industry
Specialization Program (ISP) issues in
cases in Appeals jurisdiction be reviewed
and approved by the Appeals ISP
Coordinator?
A-13 No. Existing procedures for review
and approval remain in place. The Ap-
peals ISP Coordinator serves as a re-
source person for the Appeals organiza-
tion. The purpose of the review is to
ensure consistency of settlements and ad-
herence to approved settlement guide-
lines. Communications between Appeals
employees and the Appeals ISP Coordina-
tor are entirely internal within Appeals,
and consequently, the ex parte communi-
cations prohibition does not apply.
Q-14 Delegation Order 247, 1996-1
C.B. 356, gives Examination case
managers limited settlement authority to
resolve ISP coordinated issues which
have Appeals Settlement Guidelines,
provided that they secure the review and
approval of both the Examination and
Appeals ISP Coordinators. Would such
communications constitute a violation of
the ex-parte communications
prohibition?
A-14 No. The purpose of the review is to
ensure that the resolution by Examination
fits within the guidelines developed by
Appeals and that the application of the
guidelines is consistent. The role of the
Appeals ISP coordinator is directive in
nature and has no impact on the indepen-
dence of Appeals.
Q-15 Does the prohibition on ex parte
communications apply in the context of
meetings which include representatives
from Appeals, Counsel, Collection and
Examination (ACCE meetings), industry
wide ISP coordination meetings, or
meetings of Compliance Councils or the
Large Case Policy Board?
A-15 Generally, no. Meetings of this
type usually involve general discussions
of how to handle technical issues or pro-
cedural matters. As long as the discus-
sions do not identify specific taxpayers,
the prohibition on ex parte communica-
tions would not apply. Participants in
cross-functional meetings need to remain
cognizant of the prohibition on ex parte
communications and ensure that discus-
sions do not appear to compromise the in-
dependence of Appeals.
Q-16 Does the prohibition on ex parte
communications apply to
communications between Appeals and
the Commissioner or other Service
officials who have overall supervisory
responsibility for IRS operations?
A-16 No. In accordance with § 7803, the
Commissioner is responsible for manag-
ing and directing the administration of the
internal revenue laws and tax conventions
to which the United States is a party. In
the course of exercising that statutory re-
sponsibility, the Commissioner and those
officials, such as the Deputy Commis-
sioner Operations, who have overall su-
pervisory responsibility for IRS opera-
tions may communicate with Appeals
about specific cases or issues and may di-
rect that other IRS officials participate in
meetings or discussions about such cases
or issues without providing the taxpayer
or representative an opportunity to partic-
ipate.
Q-17 Does the prohibition on ex parte
communications apply to discussions
Appeals employees have with personnel
in the IRS competent authority office
regarding a taxpayer’s request for relief
under a tax treaty?
A-17 No. Communications between Ap-
peals employees and IRS officials consid-
ering relief under competent authority
procedures are not subject to the ex parte
prohibitions because the Appeals Officer
may assume that the competent authority
is acting at the request, and with the con-
sent, of the taxpayer.
Q-18 Does the prohibition on ex parte
communications have any impact on
Appeals communications with the
Taxpayer Advocate Service (TAS) on an
open case?
A-18 No. Communications by Appeals
with the TAS that are initiated by the TAS
are not subject to the prohibition because
the Appeals Officer may assume that the

October 23, 20004082000–43 I.R.B.
TAS is acting at the request, and with the
consent, of the taxpayer.
Q-19 Are communications between
Appeals and outside consultants or
experts under contract to the IRS
subject to the ex parte communication
prohibition?
A-19 Yes. Under the ex parte rules
adopted here, outside consultants or ex-
perts under contract to the IRS (other than
those employed directly by Appeals) will
be treated as “other IRS employees.”
Therefore, the principles set forth in A-5
will apply. Appeals must give the tax-
payer/representative the opportunity to
participate in case-specific discussions
that concern matters beyond the non-sub-
stantive ministerial, administrative or pro-
cedural matters described in A-5 above.
Q-20 A number of questions and
answers have referred to
communications with the “originating
function.” How is that term defined?
A-20 An “originating function” is an or-
ganization within the IRS that makes de-
terminations which are subject to the Ap-
peals process. For purposes of this
revenue procedure, the term includes the
Examination, Collection, Service Center,
International, and Tax Exempt/Govern-
ment Entities functions, or their successor
organizations.
Q-21 Several responses in this
document refer to the
taxpayer/representative being given an
“opportunity to participate.” What does
this phrase mean?
A-21 It means that the taxpayer/represen-
tative will be given a reasonable opportu-
nity to attend a meeting or be a participant
in a conference call between Appeals and
the originating function when the
strengths and weaknesses of issues or po-
sitions in the taxpayer’s case are dis-
cussed. The taxpayer/representative will
be notified of a scheduled meeting or con-
ference call and invited to participate. If
the taxpayer/representative is unable to
participate at the scheduled time, reason-
able accommodations will be made to
reschedule. This does not mean that the
Service will delay scheduling a meeting
for a protracted period of time to accom-
modate the taxpayer/representative. Facts
and circumstances will govern what con-
stitutes a reasonable delay.
Q-22 May the taxpayer/representative
waive the prohibition on ex parte
communications?
A-22 Yes. If the taxpayer/representative
is given an opportunity to participate in a
discussion, but decides that such partici-
pation is unnecessary, the prohibition can
be waived. Generally, a waiver will be
granted on a communication-by-commu-
nication basis. However, if the
taxpayer/representative so desires, the
waiver could encompass all communica-
tions that might occur during the course
of Appeals’ consideration of a specified
case. The Appeals Officer should docu-
ment the waiver in the Case Activity
Record.
Q-23 What if the
taxpayer/representative declines to
participate or seeks to delay the
meeting/conference call beyond a
reasonable time?
A-23 Appeals should proceed with the
meeting or discussion and document the
taxpayer/representative’s declination or
the reason for proceeding in the absence
of the taxpayer/representative. This could
be accomplished by an entry in the Case
Activity Record and a letter to the tax-
payer/representative documenting the rea-
son for proceeding.
Q-24 The IRM provides for
computational review within 120 days of
a team case being assigned. If this
review reveals computational errors
affecting the proposed tax liability, can
Appeals discuss these errors with the
originating function without violating
the prohibition on ex parte
communications?
A-24 It depends on the nature of the
error. If the discrepancy is purely mathe-
matical, any discussion would likely be
informational only, and no violation of
the prohibition is likely. Both the tax-
payer/representative and the originating
function would be advised before a math-
ematical correction is made.
However, if the error involves the inter-
pretation of a legal principle or applica-
tion of the law to a particular set of facts,
the taxpayer/representative should be af-
forded the opportunity to participate in
any scheduled meetings with the originat-
ing function to discuss the discrepancy.
In such cases, there may be instances
where the best approach is for Appeals to
return the case for further development
and correction.
Q-25 Does the prohibition on ex parte
communications apply to pre-
conference meetings between Appeals
and Examination?
A-25 Yes. This is clearly a situation
where the intended communications
could appear to compromise the indepen-
dence of Appeals. Pre-conference meet-
ings should not be held unless the tax-
payer/representative is given the
opportunity to participate.
Q-26 Does the prohibition on ex parte
communications apply to post-settlement
conferences between Appeals and
Examination?
A-26 No. The post-settlement confer-
ence with Examination is intended to in-
form Examination about the settlement of
issues and to supply information that may
be helpful in the examination of subse-
quent cycles. Appeals’ objective is to en-
sure that Examination fully understands
the settlement and the rationale for the
resolution. In addition, the conference
provides an opportunity for Appeals to
discuss with Examination the application
of Delegation Orders 236 and 247 (i.e.,
settlement by Examination consistent
with prior Appeals settlement or ISP set-
tlement guidelines) to issues settled by
Appeals.
The tax periods that are the subject of
the post-settlement conference have been
finalized, and the participants are cau-
tioned to limit discussion to the results in
the closed cycle. Discussion of the reso-
lution of issues present in the closed peri-
ods does not jeopardize the independence
of Appeals. Any discussion that ad-
dresses open cycles of the same taxpayer
should be postponed, and the guidance
provided in this revenue procedure relat-
ing to ongoing disputes should be fol-
lowed.
Q-27 Does the prohibition on ex parte
communications alter existing
procedures for handling claims filed late
in the Appeals process?

2000–43 I.R.B.409October 23, 2000
A-27 No. There is no change to existing
procedure. The claim should be referred
to the originating function with a request
for expedited examination. Because such
a referral is in the nature of a ministerial
act and involves no discussion about the
strengths and weaknesses of the issue, the
referral is not subject to the prohibition.
Q-28 How will the Service monitor
compliance with the prohibition on ex
parte communications?
A-28 Employees will receive training on
the contents of this revenue procedure
and will be encouraged to seek manager-
ial guidance whenever they have ques-
tions about the propriety of an ex parte
communication. Managers will consider
feedback from other functions and will
be responsible for monitoring compli-
ance during their day-to-day interaction
with employees, as well as during work-
load reviews and closed case reviews.
Violations will be addressed in accor-
dance with existing administrative and
personnel processes.
Q-29 Are IRS employees assigned to
functions other than Appeals
responsible for complying with the
prohibition on ex parte
communication?
A-29 Yes. It is recognized that Appeals
cannot always fully control communica-
tions from other IRS personnel. Appeals
will make every effort to promptly termi-
nate any discussion that verges into mat-
ters not permitted by these rules. How-
ever, all IRS and Counsel employees
share the responsibility to ensure that
communications do not appear to com-
promise the independence of Appeals.
Violations will be addressed in accor-
dance with existing administrative and
personnel processes.
SECTION 4. EFFECTIVE DATE
This revenue procedure is effective for
communications between Appeals Offi-
cers and other Internal Revenue Service
employees which take place after Octo-
ber 23, 2000, the date this revenue proce-
dure is published in the Internal Revenue
Bulletin.
DRAFTING INFORMATION
The principal author of this revenue proce-
dure is David M. Geber, Appeals LMSB
Operations, Headquarters Appeals. For
further information regarding this revenue
procedure, contact Mr. Geber at (202)
694-1827 (not a toll-free number).
26 CFR 601.201: Rulings and determination letters
(Also Part I, Sections 846; 1.846–1.)
Rev. Proc. 2000–44
SECTION 1. PURPOSE
This revenue procedure prescribes the
loss payment patterns and discount factors
for the 2000 accident year. These factors
will be used for computing discounted un-
paid losses under § 846 of the Internal
Revenue Code. SeeRev. Proc. 98–11,
1998–1 C.B. 358, for background con-
cerning the loss payment patterns and ap-
plication of the discount factors.
SEC. 2. SCOPE
This revenue procedure applies to any
taxpayer that is required to discount its un-
paid losses under § 846 for a line of busi-
ness using discount factors published by
the Secretary.
SEC. 3. TABLES OF DISCOUNT
FACTORS
.01 The following tables present sepa-
rately for each line of business the dis-
count factors under § 846 for accident
year 2000. All the discount factors pre-
sented in this section were determined
using the applicable interest rate under
§ 846(c) for 2000, which is 6.09 percent,
and by assuming all loss payments occur
in the middle of the calendar year.
.02 If the groupings of individual lines
of business on the annual statement
change, taxpayers must discount the un-
paid losses on the affected lines of busi-
ness in accordance with the discounting
patterns that would have applied to those
unpaid losses based on their classification
on the 1995 annual statement. SeeRev.
Proc. 98–11, 1998–1 C. B. 358, section 2,
for additional background on discounting
under section 846 and the use of the Sec-
retary’s tables.
.03 Section V of Notice 88–100,
1988–2 C.B. 439, provides a composite
discount factor to be used in determining
the discounted unpaid losses for accident
years that are not separately reported on
the annual statement. Taxpayers that do
not use the methodology set forth in sec-
tion V of Notice 88–100 should instead
use the discount factor for the appropriate
year in the Secretary’s table for that line of
business. If such taxpayers have unpaid
losses relating to an accident year that is
older than the last accident year for which
a discount factor is presented in the Secre-
tary’s table, those unpaid losses should be
discounted using the discount factor for
the last accident year in the Secretary’s
table. Seesection 2.03(3) of Rev. Proc.
98–11.
.04 Tables
Accident and Health
(Other Than Disability Income or
Credit Disability Insurance)
Discount factor for all years equals
97.0874 percent.
Auto Physical Damage
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 089.943089.943010.05709.713496.5830
AY+ 199.38149.43840.61860.583494.3008
AY+ 2N/A0.30930.30930.300397.0874

October 23, 20004102000–43 I.R.B.
Commercial Auto/Truck Liability/Medical
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 025.807525.807574.192565.199587.8788
AY+ 149.879324.071850.120744.376288.5386
AY+ 267.659217.779932.340828.765488.9446
AY+ 379.771112.111920.228918.041989.1890
AY+ 488.21328.442111.786810.445388.6190
AY+ 593.17784.96466.82225.967987.4779
AY+ 695.96232.78454.03773.463385.7748
AY+ 797.00911.04682.99092.596086.7980
AY+ 897.57190.56282.42812.174489.5538
AY+ 998.21910.64711.78091.640392.1035
AY+10N/A0.64711.13381.073794.6950
AY+11N/A0.64710.48670.472597.0874
.Composite Discount Factors
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 035.461135.461164.538955.454685.9243
AY+ 159.144923.683840.855134.437484.2916
AY+ 270.822011.677129.178024.507383.9923
AY+ 381.901911.079918.098114.587580.6022
AY+ 486.36884.466913.631210.874979.7797
AY+ 590.04973.68099.95037.745977.8458
AY+ 692.74882.69917.25125.437574.9880
AY+ 793.82591.07716.17414.659375.4648
AY+ 894.24150.41565.75854.515078.4051
AY+ 994.85680.61535.14324.156180.8087
AY+10N/A0.61534.52793.775583.3830
AY+11N/A0.61533.91253.371686.1744
AY+12N/A0.61533.29722.943189.2617
AY+13N/A0.61532.68192.488692.7929
AY+14N/A0.61532.06652.006397.0874
Fidelity/Surety
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 024.154024.154075.846070.282892.6652
AY+ 159.096134.942140.903938.572794.3008
AY+ 2N/A20.452020.452019.856397.0874

2000–43 I.R.B.411October 23, 2000
Financial Guaranty/Mortgage Guaranty
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 09.25139.251390.748784.052092.6206
AY+ 150.565941.314649.434146.616894.3008
AY+ 2N/A24.717124.717123.997197.0874
International
(Composite)
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 035.461135.461164.538955.454685.9243
AY+ 159.144923.683840.855134.437484.2916
AY+ 270.822011.677129.178024.507383.9923
AY+ 381.901911.079918.098114.587580.6022
AY+ 486.36884.466913.631210.874979.7797
AY+ 590.04973.68099.95037.745977.8458
AY+ 692.74882.69917.25125.437574.9880
AY+ 793.82591.07716.17414.659375.4648
AY+ 894.24150.41565.75854.515078.4051
AY+ 994.85680.61535.14324.156180.8087
AY+10N/A0.61534.52793.775583.3830
AY+11N/A0.61533.91253.371686.1744
AY+12N/A0.61533.29722.943189.2617
AY+13N/A0.61532.68192.488692.7929
AY+14N/A0.61532.06652.006397.0874
Medical Malpractice — Claims-Made
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 06.38996.389993.610177.231682.5035
AY+ 124.001117.611275.998963.795483.9426
AY+ 242.697018.695957.303048.423884.5048
AY+ 358.061015.364041.939035.547984.7609
AY+ 469.665311.604330.334725.760384.9203
AY+ 575.60335.938024.396721.213086.9502
AY+ 681.87866.275318.121416.041388.5212
AY+ 787.85395.975312.146110.863789.4415
AY+ 889.52071.666810.47939.808493.5982
AY+ 994.30254.78185.69755.480596.1916
AY+10N/A4.78180.91570.889097.0874

October 23, 20004122000–43 I.R.B.
Medical Malpractice — Occurrence
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 02.12392.123997.876172.134473.6997
AY+ 16.48314.359293.516972.037477.0314
AY+ 215.59879.115684.401367.035479.4246
AY+ 331.906216.307568.093854.321179.7739
AY+ 445.093113.186854.906944.046880.2208
AY+ 550.07514.982149.924941.597783.3206
AY+ 660.972810.897639.027232.906484.3166
AY+ 769.21388.241130.786226.422185.8247
AY+ 872.86583.651927.134224.269889.4433
AY+ 980.00057.134719.999518.399091.9973
AY+10N/A7.134712.864812.170794.6050
AY+11N/A7.13475.73005.563197.0874
Miscellaneous Casualty
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 077.666977.666922.333121.196294.9091
AY+ 194.067316.40045.93275.594694.3008
AY+ 2N/A2.96642.96642.880097.0874
Other Liability — Claims-Made
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 010.244010.244089.756074.214282.6844
AY+ 129.376319.132370.623759.027783.5805
AY+ 244.411115.034955.588947.136584.7949
AY+ 367.819723.408632.180325.896380.4726
AY+ 473.47535.655526.524721.648281.6150
AY+ 578.86045.385221.139617.419882.4039
AY+ 683.50274.642216.497313.699283.0388
AY+ 784.06760.564915.932413.951687.5674
AY+ 885.21291.145314.787113.621692.1180
AY+ 990.59925.38639.40088.903394.7074
AY+10N/A5.38634.01453.897697.0874

2000–43 I.R.B.413October 23, 2000
Other Liability — Occurrence
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 013.575113.575186.424968.225478.9418
AY+ 126.396412.821373.603659.174480.3960
AY+ 240.272513.876159.727548.485781.1782
AY+ 355.456615.184144.543435.798880.3685
AY+ 465.33099.874234.669127.808580.2112
AY+ 574.06478.733925.935320.506279.0668
AY+ 680.90906.844219.091014.705577.0281
AY+ 784.36223.453215.637812.044277.0197
AY+ 884.61630.254215.383712.515981.3585
AY+ 986.73112.114713.268911.100083.6538
AY+10N/A2.114711.15429.597886.0463
AY+11N/A2.11479.03958.004188.5462
AY+12N/A2.11476.92476.313491.1715
AY+13N/A2.11474.81004.519793.9645
AY+14N/A2.11472.69532.616897.0874
Multiple Peril Lines
(Homeowners/Farmowners Multiple Peril, Commercial Multiple Peril, and Special Liability
(Ocean Marine, Aircraft (All Perils), Boiler and Machinery))
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 055.958755.958744.041339.192188.9894
AY+ 177.893921.935222.106118.985685.8842
AY+ 284.00836.114415.991713.844086.5701
AY+ 391.31887.31058.68127.157382.4462
AY+ 492.16700.84827.83306.719585.7851
AY+ 594.38382.21685.61624.845586.2767
AY+ 696.49592.11213.50412.965184.6181
AY+ 797.36700.87122.63302.248485.3944
AY+ 898.00340.63641.99661.729986.6410
AY+ 998.40590.40251.59411.420789.1194
AY+10N/A0.40251.19161.092691.6918
AY+11N/A0.40250.78920.744694.3565
AY+12N/A0.40250.38670.375497.0874
Other
(Including Credit)
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 066.741866.741833.258231.410194.4432
AY+ 189.275522.533710.724510.113394.3008
AY+ 2N/A5.36225.36225.206197.0874

October 23, 20004142000–43 I.R.B.
Private Passenger Auto Liability/Medical
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 037.933937.933962.066156.435690.9282
AY+ 167.704429.770532.295629.208990.4424
AY+ 281.531613.827218.468416.745790.6722
AY+ 389.88988.358310.11029.156590.5677
AY+ 494.65314.76335.34694.808089.9215
AY+ 597.12652.47342.87352.553288.8539
AY+ 698.45871.33221.54131.336686.7155
AY+ 798.98110.52241.01890.879986.3544
AY+ 899.23300.25190.76700.674087.8739
AY+ 999.40670.17370.59330.536290.3643
AY+10N/A0.17370.41960.389992.9156
AY+11N/A0.17370.24600.234895.4492
AY+12N/A0.17370.07230.070297.0874
Products Liability — Claims-Made
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 04.97504.975095.025075.902679.8765
AY+ 115.107210.132284.892870.088982.5617
AY+ 230.956015.848869.044058.033184.0523
AY+ 338.24207.286061.758054.062787.5396
AY+ 468.610130.368131.389926.076083.0712
AY+ 578.59669.986521.403417.377981.1923
AY+ 688.39719.800511.60298.341771.8934
AY+ 793.29574.89866.70433.804256.7423
AY+ 888.3815-4.914211.61859.097578.3015
AY+ 989.61051.229010.38958.385680.7125
AY+10N/A1.22909.16047.630483.2971
AY+11N/A1.22907.93146.829186.1028
AY+12N/A1.22906.70245.979189.2095
AY+13N/A1.22905.47335.077492.7656
AY+14N/A1.22904.24434.120797.0874

2000–43 I.R.B.415October 23, 2000
Products Liability – Occurrence
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 09.06539.065390.934769.152576.0464
AY+ 114.90355.838285.096567.350679.1462
AY+ 229.259114.355570.740956.666080.1036
AY+ 345.646216.387154.353843.238379.5496
AY+ 457.594511.948342.405533.564779.1518
AY+ 563.86346.268936.136629.151880.6712
AY+ 675.226611.363224.773419.223177.5957
AY+ 778.26793.041321.732117.261379.4274
AY+ 878.1898-0.078121.810218.392984.3316
AY+ 981.87223.682518.127815.720186.7184
AY+10N/A3.682514.445312.884589.1953
AY+11N/A3.682510.76289.876291.7625
AY+12N/A3.68257.08036.684794.4128
AY+13N/A3.68253.39793.298997.0874
Reinsurance A
(Nonproportional Property)
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 027.166827.166872.833264.842289.0284
AY+ 168.700841.534031.299226.011183.1046
AY+ 270.03621.335429.963826.219787.5046
AY+ 387.533817.497612.46629.794078.5641
AY+ 490.21322.67949.78687.630777.9687
AY+ 591.37511.16198.62496.898679.9846
AY+ 694.38453.00955.61554.219075.1316
AY+ 793.3293-1.05526.67075.562883.3917
AY+ 8N/A1.03875.63204.831785.7905
AY+ 9N/A1.03874.59324.056088.3049
AY+10N/A1.03873.55453.233290.9598
AY+11N/A1.03872.51582.360293.8153
AY+12N/A1.03871.47711.434097.0874

October 23, 20004162000–43 I.R.B.
Reinsurance B
(Nonproportional Liability)
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 06.69626.696293.303869.133574.0951
AY+ 122.394415.698277.605657.174673.6733
AY+ 232.648610.254267.351450.094774.3781
AY+ 350.223417.574849.776635.043470.4014
AY+ 453.58393.360546.416133.716272.6391
AY+ 555.68382.099944.316233.606675.8338
AY+ 663.61447.930636.385627.484875.5376
AY+ 766.42112.806633.578926.267878.2269
AY+ 8N/A2.806630.772324.976681.1660
AY+ 9N/A2.806627.965623.606984.4138
AY+10N/A2.806625.159022.153788.0547
AY+11N/A2.806622.352420.612092.2140
AY+12N/A2.806619.545718.976497.0874
Reinsurance C
(Financial Lines)
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 011.462211.462288.537877.219087.2158
AY+ 144.579133.116955.420947.811286.2692
AY+ 263.913419.334336.086630.808585.3739
AY+ 365.61851.705134.381530.928589.9569
AY+ 479.977814.359320.022218.022090.0101
AY+ 588.91528.937411.08489.914089.4380
AY+ 691.24902.33388.75108.114092.7206
AY+ 794.76453.51555.23554.987295.2564
AY+ 8N/A3.51551.72001.669997.0874
Special Property
(Fire, Allied Lines, Inland Marine, Earthquake, Glass, Burglary and Theft)
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 057.489557.489542.510540.494995.2586
AY+ 190.519333.02979.48078.940494.3008
AY+ 2N/A4.74044.74044.602397.0874

2000–43 I.R.B.417October 23, 2000
Workers’ Compensation
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 023.646123.646176.353962.564281.9398
AY+ 144.816621.170555.183444.568880.7648
AY+ 257.965213.148642.034833.739980.2667
AY+ 372.054214.088927.945821.283176.1583
AY+ 480.55428.500019.445813.824271.0909
AY+ 584.88764.333415.112410.202667.5118
AY+ 687.11732.229712.88278.527466.1927
AY+ 788.26471.147311.73537.864967.0194
AY+ 888.54040.275711.45968.059970.3333
AY+ 988.80620.265811.19388.277073.9426
AY+10N/A0.265810.92798.507277.8484
AY+11N/A0.265810.66218.751582.0804
AY+12N/A0.265810.39639.010786.6720
AY+13N/A0.265810.13049.285691.6604
AY+14N/A0.26589.86469.577397.0874
DRAFTING INFORMATION
The principal author of this revenue
procedure is Katherine A. Hossofsky of
the Office of the Associate Chief Counsel
(Financial Institutions and Products). For
further information regarding this revenue
procedure, contact Ms. Hossofsky at
(202) 622-3477 (not a toll-free number).
26 CFR 601.201: Rulings and determination letters
(Also Part I, Sections 832, 846; 1.832–4, 1.846–1.)
Rev. Proc. 2000–45
SECTION 1. PURPOSE
This revenue procedure prescribes the
salvage discount factors for the 2000 acci-
dent year. These factors will be used for
computing discounted estimated salvage
recoverable under § 832 of the Internal
Revenue Code.
SEC. 2. BACKGROUND
Section 832(b)(5)(A) requires that all
estimated salvage recoverable (including
that which cannot be treated as an asset
for state accounting purposes) be taken
into account in computing the deduction
for losses incurred. Under § 832
(b)(5)(A), paid losses are to be reduced by
salvage and reinsurance recovered during
the taxable year. This amount is adjusted
to reflect changes in discounted unpaid
losses on nonlife insurance contracts and
in unpaid losses on life insurance con-
tracts. An adjustment is then made to re-
flect any changes in discounted estimated
salvage recoverable and in reinsurance re-
coverable.
Pursuant to § 832(b), the amount of es-
timated salvage is determined on a dis-
counted basis in accordance with proce-
dures established by the Secretary.
SEC. 3. SCOPE
This revenue procedure applies to any
taxpayer that is required to discount esti-
mated salvage recoverable under § 832.
SEC. 4. APPLICATION
.01 The following tables present sepa-
rately for each line of business the dis-
count factors under § 832 for the 2000 ac-
cident year. All the discount factors
presented in this section were determined
using the applicable interest rate under
§ 846(c) for 2000, which is 6.09 percent,
and by assuming all estimated salvage is
recovered in the middle of each calendar
year. SeeRev. Proc. 98–12, 1998–1 C.B.
367, for background regarding the tables.
.02 These tables must be used by tax-
payers irrespective of whether they
elected to discount unpaid losses using
their own historical experience under
§ 846.
.03 Section V of Notice 88–100,
1988–2 C. B. 439, provides guidance con-
cerning the determination of discount fac-
tors for unpaid losses for accident years
not separately reported on the annual
statement. Taxpayers that do not use the
methodology set forth in section V of No-
tice 88–100 should instead use the dis-
count factors for the appropriate year in
the Secretary’s table for that line of busi-
ness. If such taxpayers have unpaid
losses relating to an accident year that is
older than the last accident year for which
a discount factor is presented in the Secre-
tary’s table, those unpaid losses should be
discounted using the discount factor for
the last accident year in the Secretary’s
table. Seesection 2.03(3) of Rev. Proc.
98–11, 1998–1 C.B. 358.
.04 Tables.

October 23, 20004182000–43 I.R.B.
Accident and Health
(Other Than Disability Income or
Credit Disability Insurance)
Discount factor for all years equals
97.0874 percent.
Auto Physical Damage
Discount
Tax YearFactors
(%)
AY+ 095.7079
AY+ 194.3008
AY+ 297.0874
Commercial Auto/Truck
Liability/Medical
Discount
Tax YearFactors
(%)
AY+ 088.4462
AY+ 187.6196
AY+ 289.3091
AY+ 388.6027
AY+ 488.4348
AY+ 590.7689
AY+ 686.1529
AY+ 791.6750
AY+ 890.1421
AY+ 992.6871
AY+1095.2242
AY+1197.0874
Composite Discount Factors
Discount
Tax YearFactors
(%)
AY+ 086.0068
AY+ 184.4299
AY+ 284.0175
AY+ 383.9135
AY+ 484.6433
AY+ 585.2133
AY+ 685.2701
AY+ 785.3660
AY+ 888.1610
AY+ 990.6657
AY+1093.2331
AY+1195.7807
AY+1297.0874
Fidelity/Surety
Discount
Tax YearFactors
(%)
AY+ 093.0043
AY+ 194.3008
AY+ 297.0874
Financial Guaranty/Mortgage
Guaranty
Discount
Tax YearFactors
(%)
AY+ 094.8017
AY+ 194.3008
AY+ 297.0874
International
(Composite)
Discount
Tax YearFactors
(%)
AY+ 086.0068
AY+ 184.4299
AY+ 284.0175
AY+ 383.9135
AY+ 484.6433
AY+ 585.2133
AY+ 685.2701
AY+ 785.3660
AY+ 888.1610
AY+ 990.6657
AY+1093.2331
AY+1195.7807
AY+1297.0874
Medical Malpractice — Claims-Made
Discount
Tax YearFactors
(%)
AY+ 070.6135
AY+ 173.2471
AY+ 271.8267
AY+ 371.2085
AY+ 474.7120
AY+ 573.1233
AY+ 682.6622
AY+ 791.6505
AY+ 896.4072
AY+ 997.0874
Medical Malpractice — Occurrence
Discount
Tax YearFactors
(%)
AY+ 064.5191
AY+ 167.8389
AY+ 272.3139
AY+ 376.0455
AY+ 472.9166
AY+ 578.8620
AY+ 683.7311
AY+ 786.8009
AY+ 891.1931
AY+ 993.8108
AY+1096.4471
AY+1197.0874
Miscellaneous Casualty
Discount
Tax YearFactors
(%)
AY+ 095.1290
AY+ 194.3008
AY+ 297.0874
Multiple Peril Lines
(Homeowners/Farmowners Multiple
Peril, Commercial Multiple Peril, and
Special Liability (Ocean Marine,
Aircraft (All Perils), Boiler and
Machinery))
Discount
Tax YearFactors
(%)
AY+ 088.5313
AY+ 187.5052
AY+ 288.2611
AY+ 387.9246
AY+ 489.0327
AY+ 590.4578
AY+ 690.4533
AY+ 789.4276
AY+ 891.7961
AY+ 994.4397
AY+1097.0874
Other
(Including Credit)
Discount
Tax YearFactors
(%)
AY+ 096.1583
AY+ 194.3008
AY+ 297.0874

2000–43 I.R.B.419October 23, 2000
Other Liability — Claims-Made
Discount
Tax YearFactors
(%)
AY+ 077.8928
AY+ 183.2885
AY+ 282.3182
AY+ 380.0331
AY+ 482.9792
AY+ 587.5716
AY+ 686.1171
AY+ 791.6842
AY+ 893.7737
AY+ 996.4015
AY+1097.0874
Other Liability — Occurrence
Discount
Tax YearFactors
(%)
AY+ 078.8476
AY+ 179.5688
AY+ 281.9224
AY+ 383.8683
AY+ 485.1067
AY+ 582.7221
AY+ 686.7561
AY+ 788.6932
AY+ 892.7419
AY+ 995.2771
AY+1097.0874
Private Passenger Auto
Liability/Medical
Discount
Tax YearFactors
(%)
AY+ 091.7145
AY+ 191.1741
AY+ 290.2569
AY+ 389.8777
AY+ 489.4206
AY+ 589.8689
AY+ 688.6823
AY+ 789.3993
AY+ 890.0819
AY+ 992.6259
AY+1095.1657
AY+1197.0874
Products Liability — Claims-Made
Discount
Tax YearFactors
(%)
AY+ 079.2866
AY+ 181.3032
AY+ 285.7298
AY+ 385.6427
AY+ 481.3092
AY+ 588.2121
AY+ 681.0185
AY+ 788.3819
AY+ 896.8185
AY+ 997.0874
Products Liability — Occurrence
Discount
Tax YearFactors
(%)
AY+ 075.8372
AY+ 178.4119
AY+ 276.8096
AY+ 378.0983
AY+ 479.8362
AY+ 579.1928
AY+ 680.5510
AY+ 772.7819
AY+ 878.1849
AY+ 980.6043
AY+1083.2009
AY+1186.0229
AY+1289.1515
AY+1392.7357
AY+1497.0874
Reinsurance A
(Nonproportional Property)
Discount
Tax YearFactors
(%)
AY+ 086.7196
AY+ 189.8651
AY+ 292.5548
AY+ 391.9205
AY+ 479.2342
AY+ 594.8666
AY+ 693.5010
AY+ 796.0788
AY+ 897.0874
Reinsurance B
(Nonproportional Liability)
Discount
Tax YearFactors
(%)
AY+ 074.9392
AY+ 177.1865
AY+ 277.9061
AY+ 377.3172
AY+ 479.7911
AY+ 574.9223
AY+ 676.6707
AY+ 784.0847
AY+ 886.4718
AY+ 988.9546
AY+1091.5395
AY+1194.2379
AY+1297.0874
Reinsurance C
(Financial Lines)
Discount
Tax YearFactors
(%)
AY+ 081.2986
AY+ 183.6608
AY+ 286.8994
AY+ 392.7099
AY+ 491.3004
AY+ 593.1619
AY+ 689.7226
AY+ 796.9751
AY+ 897.0874
Special Property
(Fire, Allied Lines, Inland Marine,
Earthquake, Glass, Burglary and
Theft)
Discount
Tax YearFactors
(%)
AY+ 092.3377
AY+ 194.3008
AY+ 297.0874

Workers’ Compensation
Discount
Tax YearFactors
(%)
AY+ 078.6954
AY+ 181.0988
AY+ 282.9848
AY+ 384.5349
AY+ 484.6485
AY+ 584.8143
AY+ 685.9824
AY+ 786.7267
AY+ 889.1111
AY+ 991.6840
AY+1094.3504
AY+1197.0874
DRAFTING INFORMATION
The principal author of this revenue
procedure is Katherine A. Hossofsky of
the Office of the Associate Chief Counsel
(Financial Institutions and Products). For
further information regarding this revenue
procedure, contact Ms. Hossofsky at
(202) 622-3477 (not a toll-free number).
October 23, 20004202000–43 I.R.B.

2000–43 I.R.B.421October 23, 2000
Notice of Proposed Rulemaking
and Notice of Public Hearing
Nondiscrimination Requirements
for Certain Defined Contribution
Retirement Plans
REG–114697–00
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing and notice of public hearing.
SUMMARY: This document contains
proposed regulations that would prescribe
conditions under which certain defined
contribution retirement plans (sometimes
referred to as “new comparability” plans)
are permitted to demonstrate compliance
with applicable nondiscrimination re-
quirements based on plan benefits rather
than plan contributions. This document
also provides notice of a public hearing
on these proposed regulations.
DATES: Written comments, requests to
speak and outlines of oral comments to be
discussed at the public hearing scheduled
for January 25, 2001, at 10 a.m., must be
received by January 5, 2001.
ADDRESSES: Send submissions to:
CC:M&SP:RU (REG–114697–00) room
5226, Internal Revenue Service, POB
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may be hand
delivered Monday through Friday be-
tween the hours of 8 a.m. and 5 p.m. to:
CC:M&SP:RU (REG–114697–00),
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue NW.,
Washington, DC. Alternatively, taxpay-
ers may submit comments electronically
via the Internet by selecting the “Tax
Regs” option of the IRS Home Page, or
by submitting comments directly to the
IRS Internet site at:
http://www.irs.gov/tax_regs/reglist.html.
The public hearing will be held in the IRS
Auditorium (7th Floor), Internal Revenue
Building, 1111 Constitution Avenue NW.,
Washington, DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations, John
T. Ricotta, 202-622-6060 or Linda S. F.
Marshall, 202-622-6090; concerning sub-
missions and the hearing, and/or to be
placed on the building access list to attend
the hearing, LaNita VanDyke, 202-622-
7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed
amendments to 26 CFR part 1 under sec-
tion 401(a)(4) of the Internal Revenue
Code of 1986 (Code).
Section 401(a)(4) provides that a plan
or trust forming part of a stock bonus,
pension or profit-sharing plan of an em-
ployer shall not constitute a qualified plan
under section 401(a) of the Code unless
the contributions or benefits provided
under the plan do not discriminate in
favor of highly compensated employees
(HCEs) (within the meaning of section
414(q)). Whether a plan satisfies this re-
quirement depends on the form of the
plan and its effect in operation.
Section 415(b)(6)(A) provides that the
computation of benefits under a defined
contribution plan, for purposes of section
401(a)(4), shall not be made on a basis in-
consistent with regulations prescribed by
the Secretary. The legislative history of
this provision explains that, in the case of
target benefit and other defined contribu-
tion plans, “regulations may establish rea-
sonable earnings assumptions and other
factors for these plans to prevent discrim-
ination.” Conf. Rep. No. 1280, 93d
Cong., 2d Sess. 277 (1974).
Under the section 401(a)(4) regula-
tions, a plan can demonstrate that either
the contributions or the benefits provided
under the plan are nondiscriminatory in
amount. Defined contribution plans gen-
erally satisfy the regulations by demon-
strating that contributions are nondiscrim-
inatory in amount, through certain safe
harbors provided for under the regula-
tions or through general testing.
A defined contribution plan (other than
an ESOP) may, however, satisfy the regu-
lations on the basis of benefits by using
“cross-testing” pursuant to rules provided
in §1.401(a)(4)–8 of the regulations.
Under this cross-testing method, contri-
butions are converted to equivalent bene-
fits payable at normal retirement age and
tested on the basis of these equivalent
benefits. The conversion is done by mak-
ing an actuarial projection of the benefits
payable at normal retirement age that are
attributable to the contributions. Thus,
this cross-testing method effectively per-
mits nonelective employer contributions
under a defined contribution plan to be
tested on the basis of the benefits attribut-
able to those contributions, in a manner
similar to the testing of employer-pro-
vided benefits under a defined benefit
plan.
In Notice 2000–14 (2000–10 I.R.B.
737), released February 24, 2000, the IRS
and the Treasury Department initiated a
review of issues related to use of the
cross-testing method by so-called “new
comparability plans” and requested pub-
lic comments on this plan design from
plan sponsors, plan participants and other
interested parties. In general, new com-
parability plans are defined contribution
plans that have built-in disparities be-
tween the allocation rates for classifica-
tions of participants consisting entirely or
predominately of HCEs and the allocation
rates for other employees.
In a typical new comparability plan,
HCEs receive high allocation rates, while
nonhighly compensated employees
(NHCEs), regardless of their age or years
of service, receive comparatively low al-
location rates. For example, HCEs in
such a plan might receive allocations of
18 or 20% of compensation, while
NHCEs might receive allocations of 3%
of compensation. A similar plan design,
sometimes known as a “super-integrated”
plan, provides for an additional alloca-
tion rate that applies only to compensa-
tion in excess of a specified threshold, but
the specified threshold (e.g., $100,000) or
the additional allocation rate (e.g., 10%)
is higher than the maximum threshold and
rate allowed under the permitted disparity
rules of section 401(l).
These new comparability and similar
plans rely on the cross-testing method to
demonstrate compliance with the nondis-
crimination rules by comparing the actu-
arially projected value of the employer
contributions for the younger NHCEs
with the actuarial projections of the larger
contributions (as a percentage of compen-
sation) for the older HCEs. As a result,
these plans are able generally to provide
Part IV. Items of General Interest

October 23, 20004222000–43 I.R.B.
higher rates of employer contributions to
HCEs, while NHCEs are not allowed to
earn the higher allocation rates as they
work additional years for the employer or
grow older. Notwithstanding the analyti-
cal underpinnings of cross-testing, the
IRS and the Treasury Department are con-
cerned whether new comparability and
similar plans are consistent with the basic
purpose of the nondiscrimination rules
under section 401(a)(4).
A variety of public comments were
submitted in response to Notice
2000–14. Some comments expressed
the view that changes in the application
of the nondiscrimination rules to new
comparability plans are unnecessary.
These comments noted that in some
cases such plans are adopted by employ-
ers that previously had no retirement
plan for their employees. At the same
time, many of these comments advanced
suggestions as to the types of conditions
that might be imposed on new compara-
bility plans if changes in the rules are in
fact proposed.
Other comments expressed the view
that the rules need to be changed to in-
crease the contributions made for
NHCEs in new comparability plans and
similar tax-qualified plan designs. These
comments suggested various methods
for ensuring that NHCEs receive larger
allocations of employer contributions
under new comparability plans, includ-
ing imposing a maximum ratio of the al-
location rates for HCEs to those for
NHCEs or requiring a minimum alloca-
tion rate for the NHCEs.
Still other comments questioned the
policy justification for permitting new
comparability plans under the nondis-
crimination rules governing tax-quali-
fied plans because new comparability
plan designs often provide such an over-
whelming percentage of total plan allo-
cations to HCEs, with only a modest
percentage of the plan allocations going
to the NHCEs. Some of these comments
expressed concern that new comparabil-
ity plans in some instances have been
marketed as a technique for limiting
most employees to lower allocation
rates than they would receive under
other defined contribution plan designs
(such as salary ratio or age-weighted)
and allocating the difference to one or
more HCEs. They noted that, in some
cases, the percentage of total plan allo-
cations provided to the HCEs can ex-
ceed 90%.
After consideration of the comments
received, the IRS and Treasury are issu-
ing these proposed regulations, which
would prescribe conditions that new
comparability and similar plans must
satisfy if they are to use the cross-testing
method. The proposed regulations pre-
serve the existing cross-testing rules of
the section 401(a)(4) regulations, and
would not affect cross-tested defined
contribution plans that provide broadly
available allocation rates, as defined in
the proposed regulations. The definition
of broadly available allocation rates in-
cludes plans that base allocations or al-
location rates on age or service. In con-
trast to new comparability plans, these
plans provide an opportunity for partici-
pants to “grow into” higher allocation
rates as they age or accumulate addi-
tional service.
These proposed regulations would con-
tinue to permit new comparability plans.
As suggested in various comments, the
proposed regulations would set forth a
minimum allocation “gateway” that
would constrain the plan designs with the
greatest disparity in favor of HCEs, while
leaving many new comparability plan de-
signs unchanged. A new comparability
plan that satisfies the minimum allocation
gateway could continue to use the exist-
ing cross-testing rules of the section
401(a)(4) regulations.
The proposed regulations also would
prevent circumvention of the minimum
allocation gateway by aggregating (for
purposes of satisfying the nondiscrimina-
tion rules) a new comparability defined
contribution plan with a defined benefit
plan that provides only minimal benefits
or covers only a relatively small number
of the employees, or by aggregating a de-
fined contribution plan with a defined
benefit plan that benefits primarily HCEs.
However, an aggregated defined contribu-
tion and defined benefit plan that is pri-
marily defined benefit in character (as de-
fined in the proposed regulations) could
test for nondiscrimination on the basis of
benefits in the same manner as under cur-
rent law. Similarly, the ability to test for
nondiscrimination on a benefits basis as
under current law would be unrestricted if
each of the defined contribution and de-
fined benefit portions of the aggregated
plan is a broadly available separate plan
(as defined in the proposed regulations).
The proposed regulations would not af-
fect defined benefit plans except where a
defined contribution plan is aggregated
with a defined benefit plan for nondis-
crimination purposes and thus is a part of
a DB/DC plan (as defined in
§1.401(a)(4)–9). The proposed regula-
tions would not apply merely because a
plan sponsor maintains both a defined
contribution plan and a defined benefit
plan. The proposed regulations would not
require aggregation of a defined contribu-
tion plan with a defined benefit plan or
otherwise modify the existing rules re-
garding when plans are required or per-
mitted to be aggregated.
Explanation of Provisions
A.Overview
The basic structure of the proposed reg-
ulations permits defined contribution
plans with broadly available allocation
rates to test on a benefits basis (“cross-
test”) in the same manner as under current
law, and permits other defined contribu-
tion plans to cross-test once they pass a
gateway that prescribes minimum alloca-
tion rates for NHCEs. Similarly, the pro-
posed regulations permit a DB/DC plan to
test on a benefits basis in the same man-
ner as under current law if the DB/DC
plan either is primarily defined benefit in
character or consists of broadly available
separate plans. Other DB/DC plans are
permitted to test on a benefits basis once
they pass a corresponding gateway pre-
scribing minimum aggregate normal allo-
cation rates for NHCEs.
B.Gateway for Cross-Testing of New
Comparability and Similar Plans
The proposed regulations would re-
quire that a defined contribution plan that
does not provide broadly available alloca-
tion rates (as defined in these proposed
regulations) satisfy a gateway in order to
be eligible to use the cross-testing rules to
meet the nondiscrimination requirements
of section 401(a)(4). A plan would satisfy
this minimum allocation gateway if each
NHCE in the plan has an allocation rate
that is at least one third of the allocation
rate of the HCE with the highest alloca-

2000–43 I.R.B.423October 23, 2000
tion rate
1
; however, a plan would be
deemed to satisfy this minimum alloca-
tion gateway if each NHCE received an
allocation of at least 5% of the NHCE’s
compensation (within the meaning of sec-
tion 415(c)(3)).
The proposed regulations would not
change the general rule prohibiting aggre-
gation of a 401(k) plan or 401(m) plan
with a plan providing nonelective contri-
butions. Accordingly, elective contribu-
tions and matching contributions would
not be taken into account for purposes of
the gateway. If an employer also provides
a 401(k) plan, however, then to the extent
the HCEs are electing contributions under
that plan, the highest HCE allocation rate
may be lower than it otherwise would be,
which, in turn would lower the minimum
required allocation for the NHCEs under
the gateway. Further, if the employer
sponsors a safe harbor 401(k) plan that
provides for 3% nonelective contribu-
tions, then, as noted in Notice 98–52
(1998–2 C.B. 632), those nonelective
contributions may be taken into account
in determining the allocation rates for the
NHCEs under section 401(a)(4), includ-
ing the minimum allocation gateway.
C. Plans with Broadly Available
Allocation Rates
As suggested in Notice 2000–14, a plan
that has broadly available allocation rates
would not need to satisfy the minimum al-
location gateway and may continue to be
tested for nondiscrimination on the basis
of benefits as under current law. In order
to be broadly available, each allocation
rate under the plan must be currently
available to a group of employees that sat-
isfies section 410(b) (without regard to
the average benefit percentage test). Thus,
for example, if within one plan an em-
ployer provides different allocation rates
for nondiscriminatory groups of employ-
ees at different locations or different
profit centers, the plan would not need to
satisfy the minimum allocation gateway
in order to use cross testing.
In addition, a plan that provides alloca-
tion rates that increase as an employee
ages or accumulates additional service
would be treated as having broadly avail-
able allocation rates, if the schedule of al-
location rates satisfies certain conditions
that permit participants to “grow into”
higher allocation rates. The conditions
are that the same schedule of allocation
rates is available to all employees in the
plan and that the schedule provides for
smoothly increasing allocation rates at
regular intervals of age or service.
The proposed regulation would provide
that in order for a schedule of allocation
rates to increase smoothly, the allocation
rate for each age or service band cannot
be more than 5 percentage points higher
than the allocation rate for the immedi-
ately preceding band and cannot be more
than twice that allocation rate. For exam-
ple, if the allocation rate for an age or ser-
vice band were 6%, the allocation rate for
the next higher age or service band could
not exceed 11% (i.e., the lesser of 11%
(6% plus 5%) and 12% (2 times 6%)).
Further, in order for a schedule of allo-
cation rates to be considered to be in-
creasing smoothly, the ratio of the alloca-
tion rate for any age or service band to the
allocation rate for the immediately pre-
ceding band cannot exceed the ratio of the
allocation rates between the two immedi-
ately preceding bands. The proposed reg-
ulations would provide that the intervals
for the age or service bands are regular if
they are all of the same length (although
this requirement generally would not
apply to the first and last bands).
The definition of broadly available al-
location rates is designed to be suffi-
ciently flexible to accommodate a wide
variety of age- and service-based plans
(including age-weighted profit-sharing
plans that provide for allocations that re-
sult in the same equivalent accrual rate for
all employees).
The conditions described above relat-
ing to a plan’s schedule of age-based or
service-based allocation rates are in-
tended to exempt from the minimum allo-
cation gateway those plans in which
NHCEs actually receive the benefit of
higher rates as they attain higher ages or
complete additional years of service.
Without conditions such as these, plans
can be designed to backload allocation
rates excessively, providing for lengthy
plateau periods in which rates increase lit-
tle if at all, followed by sharp increases.
Comments are invited on whether there
are plans using schedules of allocation
rates (such as schedules of rates based on
points or otherwise combining age and
service) that would fall outside the defini-
tion of broadly available allocation rates
but that do afford sufficient opportunity
for NHCEs to “grow into” higher alloca-
tion rates.
D. Application to Defined Contribution
Plans That Are Combined with Defined
Benefit Plans
The proposed regulations would pre-
scribe rules for testing defined contribu-
tion plans that are aggregated with de-
fined benefit plans for purposes of
sections 401(a)(4) and 410(b). These
rules would apply in situations in which
the employer aggregates the plans be-
cause one of the plans does not satisfy
sections 401(a)(4) and 410(b) standing
alone.
1. Gateway for benefits testing of
combined plans
Under the proposed regulations, the
combination of a defined contribution
plan and a defined benefit plan may
demonstrate nondiscrimination on the
basis of benefits if the combined plan is
primarily defined benefit in character,
consists of broadly available separate
plans (as these terms are defined in the
proposed regulations), or satisfies a gate-
way requirement. This minimum aggre-
gate allocation gateway is generally simi-
lar to the minimum allocation gateway for
defined contribution plans that are not
combined with a defined benefit plan. To
apply this minimum aggregate allocation
gateway, the employee’s aggregate nor-
mal allocation rate is determined by
adding the employee’s allocation under
the defined contribution plan to the em-
ployee’s equivalent allocation under the
defined benefit plan. The use of aggrega-
tion would allow an employer that pro-
vides both a defined contribution and a
defined benefit plan to the NHCEs to take
both plans into account in determining
whether the minimum aggregate alloca-
tion gateway is met.
Under the gateway, if the aggregate
normal allocation rate of the HCE with
the highest aggregate normal allocation
rate under the plan (HCE rate) is less than
15%, the aggregate normal allocation rate
for all NHCEs must be at least 1/3 of the
1
For example, if any HCE had an allocation of 12%
of compensation, all NHCEs in the plan would be
required to have an allocation of at least 4% of com-
pensation.

October 23, 20004242000–43 I.R.B.
HCE rate. If the HCE rate is between
15% and 25%, the aggregate normal allo-
cation rate for all NHCEs must be at least
5%. If the HCE rate exceeds 25%, then
the aggregate normal allocation rate for
each NHCE must be at least 5% plus one
percentage point for each 5-percentage-
point increment (or portion thereof) by
which the HCE rate exceeds 25% (e.g.,
the NHCE minimum is 6% for an HCE
rate that exceeds 25% but not 30%, and
7% for an HCE rate that exceeds 30% but
not 35%, etc.).
In addition, in determining the equiv-
alent allocation rate for an NHCE under
a defined benefit plan, a plan is permit-
ted to treat each NHCE who benefits
under the defined benefit plan as having
an equivalent allocation rate equal to the
average of the equivalent allocation rates
under the defined benefit plan for all
NHCEs benefitting under that plan. This
averaging rule recognizes the “grow-in”
feature inherent in traditional defined
benefit plans (i.e., the defined benefit
plan provides higher equivalent alloca-
tion rates at higher ages).
Comments are invited on possible spe-
cial situations involving DB/DC plans,
such as situations arising as a result of a
merger or acquisition or a situation in
which some HCEs in a DB/DC plan have
unusually high equivalent normal alloca-
tion rates for reasons other than the de-
sign of the plan. Comments are invited
as to whether the regulations should ad-
dress such special circumstances and, if
so, how (e.g., through a maximum re-
quired rate for NHCEs under a DB/DC
plan or other approaches).
2. Primarily defined benefit in character
A combined plan that is primarily de-
fined benefit in character would not be
subject to the gateway requirement and
may continue to be tested for nondis-
crimination on the basis of benefits as
under current law. A combined plan
would be primarily defined benefit in
character if, for more than 50% of the
NHCEs benefitting under the plan, the
normal accrual rate attributable to bene-
fits provided under defined benefit plans
for the NHCE exceeds the equivalent ac-
crual rate attributable to contributions
under defined contribution plans for the
NHCE. For example, a DB/DC plan
would be primarily defined benefit in
character where the defined contribution
plan covers only salaried employees, the
defined benefit plan covers only hourly
employees, and more than half of the
NHCEs participating in the DB/DC plan
are hourly employees participating only
in the defined benefit plan.
3. Broadly available separate plans
A combined plan that consists of
broadly available separate plans would
not be subject to the gateway require-
ment and may continue to be tested for
nondiscrimination on the basis of bene-
fits as under current law. A DB/DC plan
consists of broadly available separate
plans if the defined contribution plan
and the defined benefit plan each would
satisfy the requirements of section
410(b) and the nondiscrimination in
amount requirement of
§1.401(a)(4)–1(b)(2) if each plan were
tested separately, assuming satisfaction
of the average benefit percentage test of
§1.410(b)–5. Thus, the defined contri-
bution plan must separately satisfy the
nondiscrimination requirements (taking
into account these proposed regulations
as applicable), but for this purpose as-
suming satisfaction of the average bene-
fit percentage test. Similarly, the de-
fined benefit plan must separately satisfy
the nondiscrimination requirements, as-
suming for this purpose satisfaction of
the average benefit percentage test. In
conducting the required separate testing,
all plans of a single type (defined contri-
bution or defined benefit) within the
DB/DC plan are aggregated, but those
plans are tested without regard to plans
of the other type.
This alternative would be useful, for
example, where an employer maintains a
defined contribution plan that provides a
uniform allocation rate for all covered
employees at one business unit and a
safe harbor defined benefit plan for all
covered employees at another unit,
where the group of employees covered
by each plan is a group that satisfies the
nondiscriminatory classification require-
ment of section 410(b). Because the em-
ployer provides broadly available sepa-
rate plans, it may continue to aggregate
the plans and test for nondiscrimination
on the basis of benefits, as an alternative
to using the qualified separate line of
business rules or demonstrating satisfac-
tion of the average benefit percentage
test.
E. Use of Component Plans and
Permitted Disparity
Component plans under the restructur-
ing rules cannot be used for the determi-
nation of whether a defined contribution
plan provides broadly available allocation
rates or satisfies the minimum allocation
gateway, or the determination of whether
a DB/DC plan satisfies the minimum ag-
gregate allocation gateway, is primarily
defined benefit in character, or consists of
broadly available separate plans. For pur-
poses of the two gateways and determin-
ing whether a DB/DC plan is primarily
defined benefit in character, allocation
rates and equivalent allocation rates are
determined without the use of permitted
disparity. For purposes of determining
whether a DB/DC plan consists of
broadly available separate plans, permit-
ted disparity may be used in the defined
contribution plan or the defined benefit
plan but not in both plans with respect to
each employee who participates in both.
Proposed Effective Date
The regulations are proposed to be ap-
plicable for plan years beginning on or
after January 1, 2002.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in Exec-
utive Order 12866. Therefore, a regula-
tory assessment is not required. It also
has been determined that section 553(b)
of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these
regulations, and because the regulation
does not impose a collection of informa-
tion on small entities, the Regulatory
Flexibility Act (5 U.S.C. chapter 6) does
not apply. Pursuant to section 7805(f) of
the Code, these proposed regulations will
be submitted to the Chief Counsel for Ad-
vocacy of the Small Business Administra-
tion for comment on their impact on small
business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any electronic or

2000–43 I.R.B.425October 23, 2000
written comments (preferably a signed
original and eight (8) copies) that are sub-
mitted timely to the IRS. In addition to
the other requests for comments set forth
in this document, the IRS and Treasury
also request comments on the clarity of
the proposed rule and how it may be made
easier to understand. All comments will
be available for public inspection and
copying.
A public hearing has been scheduled
for January 25, 2001, at 10 a.m. in the IRS
Auditorium (7th Floor), Internal Revenue
Building, 1111 Constitution Avenue NW.,
Washington, DC. Due to building secu-
rity procedures, visitors must enter at the
10
th
street entrance, located between Con-
stitution and Pennsylvania Avenues, NW.
In addition, all visitors must present photo
identification to enter the building. Be-
cause of access restrictions, visitors will
not be admitted beyond the immediate en-
trance area more than 15 minutes before
the hearing starts. For information about
having your name placed on the building
access list to attend the hearing, see the
“FOR FURTHER INFORMATION
CONTACT” section of this preamble.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing.
Persons who wish to present oral com-
ments at the hearing must submit written
comments and an outline of the topics to
be discussed and the time to be devoted to
each topic (signed original and eight (8)
copies) by January 5, 2001.
A period of 10 minutes will be allotted
to each person for making comments.
An agenda showing the scheduling of
the speakers will be prepared after the
deadline for receiving outlines has
passed. Copies of the agenda will be
available free of charge at the hearing.
Drafting Information
The principal authors of these regula-
tions are John T. Ricotta and Linda S. F.
Marshall of the Office of the Division
Counsel/Associate Chief Counsel (Tax
Exempt and Government Entities). How-
ever, other personnel from the IRS and
Treasury 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. In §1.401(a)(4)–8, paragraph
(b)(1) is revised to read as follows:
§1.401(a)(4)–8 Cross-testing.
* * * * *
(b) Nondiscrimination in amount of ben-
efits provided under a defined contribution
plan—(1) General rule and gateway—(i)
General rule. Equivalent benefits under a
defined contribution plan (other than an
ESOP) are nondiscriminatory in amount for
a plan year if—
(A) The plan would satisfy §1.401-
(a)(4)–2(c)(1) for the plan year if an equiv-
alent accrual rate, as determined under
paragraph (b)(2) of this section, were sub-
stituted for each employee’s allocation rate
in the determination of rate groups; and
(B) For plan years beginning on or after
January 1, 2002, if the plan does not have
broadly available allocation rates (within
the meaning of paragraph (b)(1)(iii) of this
section) for the plan year, the plan satisfies
the minimum allocation gateway of para-
graph (b)(1)(iv) of this section for the plan
year.
(ii) Allocations after testing age. A plan
does not fail to satisfy paragraph
(b)(1)(i)(A) of this section merely because
allocations are made at the same rate for
employees who are older than their testing
age (determined without regard to the cur-
rent-age rule in paragraph (4) of the defini-
tion of testing agein §1.401(a)(4)–12), as
they are made for employees who are at
that age.
(iii) Broadly available allocation rates—
(A) In general. A plan has broadly avail-
able allocation rates for the plan year if
each allocation rate under the plan is cur-
rently available during the plan year (within
the meaning of §1.401(a)(4)–4(b)(2)), to a
group of employees that satisfies section
410(b) (without regard to the average bene-
fit percentage test of §1.410(b)–5). For this
purpose, the disregard of age and service
conditions described in §1.401(a)(4)
–4(b)(2)(ii)(A) applies only if the plan pro-
vides an allocation formula under which
the allocation rates for all employees bene-
fitting under the plan are determined using
a single schedule of rates that are based
solely on either age or service, and only if
the allocation rates under the schedule in-
crease smoothly at regular intervals, within
the meaning of paragraphs (b)(1)(iii)(B)
and (C) of this section. A plan does not fail
to provide broadly available allocation rates
merely because it provides the minimum
benefit described in section 416(c)(2).
(B) Smoothly increasing schedule of al-
location rates. A plan uses a single sched-
ule of allocation rates that are based solely
on age or service if it uses a single schedule
of allocation rates that consists of a series
of either age or service bands under which
the same allocation rate applies to all em-
ployees whose age is within each age band
or whose years of service are within each
service band. A schedule of allocation rates
increases smoothly if the allocation rate for
each age or service band within the sched-
ule is greater than the allocation rate for the
immediately preceding band (i.e., the age
or service band with the next lower number
of years of age or service) but by no more
than 5 percentage points. However, a
schedule of allocation rates will not be
treated as increasing smoothly if the ratio of
the allocation rate for any age or service
band to the rate for the immediately preced-
ing band is more than 2.0 or if it exceeds
the ratio of allocation rates between the two
immediately preceding bands.
(C) Regular intervals. A schedule of al-
location rates has regular intervals of age or
service if each age or service band, other
than the band associated with the highest
age or years of service, is the same length.
For this purpose, if the schedule is based on
age, the first age band will be deemed to be
of the same length as the other bands if it
ends at or before age 25. If the first age
band ends after age 25, then, in determining
whether the length of the first band is the
same as the length of other bands, the start-
ing age for the first age band is permitted to
be treated as age 25 or any age earlier than
25.
(iv) Minimum allocation gateway. A
plan satisfies the minimum allocation gate-
way of this paragraph (b)(1)(iv) if each
NHCE has an allocation rate that is at least
one third of the allocation rate of the HCE
with the highest allocation rate. How-
ever, a plan is deemed to satisfy this mini-
mum allocation gateway if each NHCE
receives an allocation of at least 5% of the

October 23, 20004262000–43 I.R.B.
NHCE’s compensation within the mean-
ing of section 415(c)(3).
(v) Determination of allocation rates.
For purposes of this paragraph (b)(1), allo-
cations and allocation rates are determined
under §1.401(a)(4)–2(c)(2), but without
taking into account the imputation of per-
mitted disparity under §1.401(a)(4)–7 in
applying the minimum allocation gateway
of paragraph (b)(1)(iv) of this section.
(vi) Examples. The following examples
illustrate the rules in this paragraph (b)(1):
Example 1. (i) Plan M is a defined contribution
plan that provides an allocation formula under which
allocations are provided to all employees according to
the following schedule:
Ratio of Allocation Rate for
Years of Service Allocation RateBand to Allocation Rate for
Immediately Preceding Band
0- 53.0%not applicable
6-104.5%1.50
11-156.5%1.44
16-208.5%1.31
21-2510.0%1.18
26 or more11.5%1.15
(ii) Because Plan M provides that allocation rates
for all employees are determined using a single
schedule based solely on service, the plan is permit-
ted to disregard the service requirement in determin-
ing whether the allocation rates are broadly avail-
able (within the meaning of paragraph (b)(1)(iii) of
this section), if the allocation rates under the sched-
ule increase smoothly at regular intervals.
(iii) The schedule of allocation rates under Plan
M does not increase by more than 5 percentage
points between adjacent bands and the ratio of the
allocation rate for any band to the allocation rate for
the immediately preceding band is never more than
2.0 and does not increase. Therefore, the allocation
rates increase smoothly. In addition, the bands
(other than the highest band) are all 5 years long, so
the increases occur at regular intervals. Accord-
ingly, the service requirement is disregarded and
each allocation rate is broadly available within the
meaning of paragraph (b)(1)(iii) of this section, as
each allocation rate is currently available to all em-
ployees in the Plan.
(iv) Under paragraph (b)(1)(i) of this section,
Plan M satisfies the nondiscrimination in amount re-
quirement of §1.401(a)(4)–1(b)(2) on the basis of
benefits if it satisfies paragraph (b)(1)(i)(A) of this
section, regardless of whether it satisfies the mini-
mum allocation gateway of paragraph (b)(1)(iv) of
this section.
Example 2. (i) Plan N is a defined contribution
plan that provides an allocation formula under
which allocations are provided to all employees ac-
cording to the following schedule:
Ratio of Allocation Rate for
Band to Allocation Rate for
AgeAllocation rateImmediately Preceding
Band
under 253.0 %not applicable
25-346.0 %2.00
35-449.0 %1.50
45-5412.0%1.33
55-6416.0%1.33
65 or older21.0%1.31
(ii) Because Plan N provides that allocation rates
for all employees are determined using a single
schedule based solely on age, the plan is permitted
to disregard the age requirement in determining
whether the allocation rates are broadly available
(within the meaning of paragraph (b)(1)(iii) of this
section), if the allocation rates under the schedule in-
crease smoothly at regular intervals.
(iii) The schedule of allocation rates under Plan
N does not increase by more than 5 percentage
points between adjacent bands and the ratio of the
allocation rate for any band to the allocation rate for
the immediately preceding band is never more than
2.0 and does not increase. Therefore, the allocation
rates increase smoothly. In addition, the bands are
all 10 years long (other than the highest band and the
first band, which is deemed to be the same length as
the other bands because it ends prior to age 25), so
the increases occur at regular intervals. Accord-
ingly, the age requirement is disregarded and each
allocation rate is broadly available within the mean-
ing of paragraph (b)(1)(iii) of this section, as each
allocation rate is currently available to all employees
in the Plan.
(iv) Under paragraph (b)(1)(i) of this section,
Plan N satisfies the nondiscrimination in amount re-
quirement of §1.401(a)(4)–1(b)(2) on the basis of
benefits if it satisfies paragraph (b)(1)(i)(A) of this
section, regardless of whether it satisfies the mini-
mum allocation gateway of paragraph (b)(1)(iv) of
this section.
Example 3. (i) Plan O is a profit-sharing plan
maintained by Employer A that covers all of Em-

2000–43 I.R.B.427October 23, 2000
ployer A’s employees, consisting of two HCEs, X
and Y, and 7 NHCEs. Employee X’s compensation is
$170,000 and Employee Y’s compensation is
$150,000. The allocation for Employees X and Y is
$30,000 each, resulting in an allocation rate of
17.6% for Employee X and 20% for Employee Y.
Under Plan O, each NHCE receives an allocation of
5% of compensation within the meaning of section
415(c)(3).
(ii) Because the allocation rate for X is not cur-
rently available to any NHCE, Plan O does not have
broadly available allocation rates and must satisfy the
minimum allocation gateway of paragraph (b)(1)(iv)
of this section.
(iii) The highest allocation rate for any HCE
under Plan O is 20%. Accordingly, Plan O would
satisfy the minimum allocation gateway of paragraph
(b)(1)(iv) of this section if all NHCEs have an alloca-
tion rate of at least 6.67%, or if all NHCEs receive an
allocation of at least 5% of compensation within the
meaning of section 415(c)(3).
(iv) Under Plan O, each NHCE receives an alloca-
tion of 5% of compensation within the meaning of
section 415(c)(3). Accordingly, Plan O satisfies the
minimum allocation gateway of paragraph (b)(1)(iv)
of this section.
(v) Under paragraph (b)(1)(i) of this section, Plan
O satisfies the nondiscrimination in amount require-
ment of §1.401(a)(4)–1(b)(2) on the basis of benefits
if it satisfies paragraph (b)(1)(i)(A) of this section.
* * * * *
Par. 3. Section 1.401(a)(4)–9 is
amended by adding paragraph (b)(2)(v)
and revising paragraph (c)(3)(ii) to read as
follows:
§1.401(a)(4)–9 Plan aggregation and
restructuring.
* * * * *
(b) * * *
(2) * * *
(v) Eligibility for testing on a benefits
basis—(A) General rule. For plan years
beginning on or after January 1, 2002, un-
less, for the plan year, a DB/DC plan is
primarily defined benefit in character
(within the meaning of paragraph
(b)(2)(v)(B) of this section) or consists of
broadly available separate plans (within
the meaning of paragraph (b)(2)(v)(C) of
this section), the DB/DC plan must satisfy
the minimum aggregate allocation gate-
way of paragraph (b)(2)(v)(D) of this sec-
tion for the plan year in order to be permit-
ted to demonstrate satisfaction of the
nondiscrimination in amount requirement
of §1.401(a)(4)–1(b)(2) on the basis of
benefits.
(B) Primarily defined benefit in charac-
ter. A DB/DC plan is primarily defined
benefit in character if, for more than 50%
of the NHCEs benefitting under the plan,
the normal accrual rate for the NHCE at-
tributable to benefits provided under de-
fined benefit plans that are part of the
DB/DC plan exceeds the equivalent ac-
crual rate for the NHCE attributable to
contributions under defined contribution
plans that are part of the DB/DC plan.
(C) Broadly available separate plans.
A DB/DC plan consists of broadly avail-
able separate plans if the defined contribu-
tion plan and the defined benefit plan that
are part of the DB/DC plan each would
satisfy the requirements of section 410(b)
and the nondiscrimination in amount re-
quirement of §1.401(a)(4)–1(b)(2) if each
plan were tested separately and assuming
that the average benefit percentage test of
§1.410(b)–5 were satisfied. For this pur-
pose, all defined contribution plans that
are part of the DB/DC plan are treated as a
single defined contribution plan and all
defined benefit plans that are part of the
DB/DC plan are treated as a single defined
benefit plan. In addition, if permitted dis-
parity is used for an employee for pur-
poses of satisfying the separate testing re-
quirement of this paragraph (b)(2)(v)(C)
for plans of one type, it may not be used in
satisfying the separate testing requirement
for plans of the other type for the em-
ployee.
(D) Minimum aggregate allocation
gateway. A DB/DC plan satisfies the min-
imum aggregate allocation gateway of this
paragraph (b)(2)(v)(D) if each NHCE has
an aggregate normal allocation rate that is
at least one third of the aggregate normal
allocation rate of the HCE with the highest
such rate (HCE rate), or, if less, 5% of the
NHCE’s compensation, provided that the
HCE rate does not exceed 25% of com-
pensation. If the HCE rate exceeds 25%
of compensation, then the aggregate nor-
mal allocation rate for each NHCE must
be 5% increased by one percentage point
for each 5-percentage-point increment (or
portion thereof) by which the HCE rate
exceeds 25% (e.g., the NHCE minimum is
6% for an HCE rate that exceeds 25% but
not 30%, and 7% for an HCE rate that ex-
ceeds 30% but not 35%). For purposes of
this paragraph (b)(2)(v)(D), a plan is per-
mitted to treat each NHCE who benefits
under the defined benefit plan as having
an equivalent normal allocation rate equal
to the average of the equivalent normal al-
location rates under the defined benefit
plan for all NHCEs benefitting under that
plan.
(E) Determination of rates. For pur-
poses of this paragraph (b)(2)(v), the nor-
mal accrual rate and the equivalent normal
allocation rate attributable to defined ben-
efit plans, the equivalent accrual rate at-
tributable to defined contribution plans
and the aggregate normal allocation rate
are determined under paragraph (b)(2)(ii)
of this section, but without taking into ac-
count the imputation of permitted dispar-
ity under §1.401(a)(4)–7, except as other-
wise permitted under paragraph
(b)(2)(v)(C) of this section.
(F) Examples. The following examples
illustrate the application of this paragraph
(b)(2)(v):
Example 1. (i) Employer A maintains Plan M, a
defined benefit plan, and Plan N, a defined contribu-
tion plan. All HCEs of Employer A are covered by
Plan M (at a 1% accrual rate), but not covered by
Plan N. All NHCEs of Employer A are covered by
Plan N (at a 3% allocation rate), but not covered by
Plan M. Because Plan M does not satisfy section
410(b) standing alone, Plans M and N are aggregated
for purposes of satisfying sections 410(b) and
401(a)(4).
(ii) Because none of the NHCEs participate in the
defined benefit plan, the aggregated DB/DC plan is
not primarily defined benefit in character within the
meaning of paragraph (b)(2)(v)(B) of this section nor
does it consist of broadly available separate plans
within the meaning of paragraph (b)(2)(v)(C) of this
section. Accordingly, the aggregated Plan M and Plan
N must satisfy the minimum aggregate allocation
gateway of paragraph (b)(2)(v)(D) of this section in
order to satisfy the nondiscrimination in amount re-
quirement of §1.401(a)(4)–1(b)(2) on the basis of
benefits.
Example 2. (i) Employer B maintains Plan O, a
defined benefit plan, and Plan P, a defined contribu-
tion plan. All of the six employees of Employer B
are covered under both Plan O and Plan P. Under
Plan O, all employees have a uniform normal accrual
rate of 1% of compensation. Under Plan P, Employ-
ees A and B, who are HCEs, receive an allocation
rate of 15%, and participants C, D, E and F, who are
NHCEs, receive an allocation rate of 3%. Employer
B aggregates Plans O and P for purposes of satisfying
sections 410(b) and 401(a)(4). The equivalent nor-
mal allocation and normal accrual rates under Plans
O and P are as follows:

October 23, 20004282000–43 I.R.B.
EmployeeEquivalent NormalEquivalent Normal
Allocation Rates for the 1%Accrual Rates for the 15%/3%
Accrual under Plan OAllocations under Plan P
(defined benefit plan)(defined contribution plan)
HCE A (age 55) 3.93%3.82%
HCE B (age 50)2.61%5.74%
C (age 60)5.91%.51%
D (age 45)1.73%1.73%
E (age 35).77%3.90%
F (age 25).34%8.82%
(ii) Although all of the NHCEs benefit under the
Plan O (the defined benefit plan), the aggregated
DB/DC plan is not primarily defined benefit in char-
acter because the normal accrual rate attributable to
defined benefit plans (which is 1% for all the
NHCEs) is greater than the equivalent accrual rate
under defined contribution plans only for Employee
C. In addition, because the 15% allocation rate is
only available to HCEs, the defined contribution
plan cannot satisfy the requirements of
§1.401(a)(4)–2 and does not have broadly available
allocation rates within the meaning of
§1.401(a)(4)–8(b)(1)(iii). Further, the defined con-
tribution plan does not satisfy the minimum alloca-
tion gateway of §1.401(a)(4)–8(b)(1)(iv) (3% is less
than 1/3 of the 15% HCE rate). Therefore, the de-
fined contribution plan within the DB/DC plan can-
not separately satisfy §1.401(a)(4)–1(b)(2) and does
not constitute a broadly available separate plan
within the meaning of paragraph (b)(2)(v)(C) of this
section. Accordingly, the aggregated plans can sat-
isfy the nondiscrimination in amounts requirement
of §1.401(a)(4)–1(b)(2) on the basis of benefits only
if the aggregated plans satisfy the minimum aggre-
gate allocation gateway of paragraph (b)(2)(v)(D) of
this section.
(iii) Employee A has an aggregate normal alloca-
tion rate of 18.93% under the aggregated plans
(3.93% from Plan O plus 15% from Plan P), which
is the highest aggregate normal allocation rate for
any HCE under the plans. Employee F has an aggre-
gate normal allocation rate of 3.34% under the ag-
gregated plans (.34% from Plan O plus 3% from
Plan P) which is less than the 5% aggregate normal
allocation rate that Employee F would be required to
have to satisfy the minimum aggregate allocation
gateway of paragraph (b)(2)(v)(D) of this section.
(iv) However, for purposes of satisfying the min-
imum aggregate allocation gateway of paragraph
(b)(2)(v)(D) of this section, Employer B is permitted
to treat each NHCE who benefits under the Plan O
(the defined benefit plan) as having an equivalent al-
location rate equal to the average of the equivalent
allocation rates under Plan O for all NHCEs benefit-
ting under that plan. The average of the equivalent
allocation rates for all the NHCEs under Plan O is
2.19% (the sum of 5.91%, 1.73%, .77%, and .34%,
divided by 4). Accordingly, Employer B is permit-
ted to treat all the NHCEs as having an equivalent
allocation rate attributable to Plan O equal to 2.19%.
Thus, all NHCEs can be treated as having an aggre-
gate normal allocation rate of 5.19% for this purpose
(3% from the defined contribution plan and 2.19%
from the defined benefit plan) and the aggregated
DB/DC plan satisfies the minimum aggregate allo-
cation gateway of paragraph (b)(2)(v)(D) of this sec-
tion.
* * * * *
(c) * * *
(3) * * *
(ii) Restructuring not available for cer-
tain testing purposes. The safe harbor in
§1.401(a)(4)–2(b)(3) for plans with uni-
form points allocation formulas is not
available in testing (and thus cannot be
satisfied by) contributions under a com-
ponent plan. Similarly, component plans
cannot be used for purposes of determin-
ing whether a plan provides broadly avail-
able allocation rates (as defined in
§1.401(a)(4)–8(b)(1)(iii)), or determining
whether a plan is primarily defined bene-
fit in character or consists of broadly
available separate plans (as defined in
paragraphs (b)(2)(v)(B) and (C) of this
section). In addition, the minimum allo-
cation gateway of
§1.401(a)(4)–8(b)(1)(iv) and the mini-
mum aggregate allocation gateway of
paragraph (b)(2)(v)(D) of this section
cannot be satisfied on the basis of compo-
nent plans. See §§1.401(k)–1(b)(3)(iii)
and 1.401(m)–1(b)(3)(iii) for rules re-
garding the inapplicability of restructur-
ing to section 401(k) plans and section
401(m) plans.
* * * * *
David A. Mader,
Acting Deputy Commissioner
of Internal Revenue.
(Filed by the Office of the Federal Register on Octo-
ber 5, 2000, 8:45 a.m., and published in the issue of
the Federal Register for October 6, 2000, 65 F.R.
59774)
Monthly Limit for Transit Passes
and Transportation in a
Commuter Highway Vehicle
Provided by an Employer to
Employees Under Section 132(f)
of the Internal Revenue Code
Announcement 2000–78
This announcement sets forth a clarifi-
cation to the proposed Treasury Regula-
tions dealing with qualified transporta-
tion fringes (Prop. Treas. Reg. § 1.132–9,
65 F.R. 4388). Specifically, when final-
ized, the regulations will clarify that tran-
sit passes may be distributed in advance
for more than one month (such as for a
calendar quarter). The applicable statu-
tory monthly limit under section
132(f)(2) on the combined amount of
transit passes and transportation in a
commuter highway vehicle may be cal-
culated by taking into account the
monthly limits for all months for which
the transit passes are distributed. Thus,
for example, the employer may distribute
advance transit passes for a subsequent
calendar quarter with a value equal to the
statutory monthly limit times three
months (for 2000, $65 times three equals
$195). However, if transit passes are pro-
vided in advance and the employee’s em-
ployment terminates before the begin-
ning of the last month of the period for
which the transit passes are provided, the
value of transit passes covering the
month(s) that begin after the employee’s
employment terminates is included in the
employee’s wages for income tax pur-
poses and for employment tax purposes
(income tax withholding, FICA and
FUTA) to the extent the employer does
not recover those transit passes or the
value of those passes.

2000–43 I.R.B.429October 23, 2000
Pending issuance of the final regula-
tions, taxpayers may rely on this an-
nouncement. An employer will not be
considered to have failed to satisfy em-
ployment tax requirements under this an-
nouncement for advance transit pass distri-
butions occurring before January 1, 2001.
Prior to issuing final regulations, the
Service is requesting comments concern-
ing this announcement. Written comments
should be sent to the following address:
Internal Revenue Service
CC:DOM:CORP(ANN 2000–78;
CC:TEGE:EOEG:ET2)
P.O. Box 7604, Ben Franklin Station
Washington, DC 20044
In the alternative, comments may be
hand delivered between the hours of 8:00
a.m. and 5:00 p.m. to the courier’s desk
at 1111 Constitution Avenue, NW.,
Washington, DC, or submitted electroni-
cally via the IRS Internet site at
http://www.irs.utreas.gov/tax_regs/regsli
st.html.
Because the Service and Treasury would
like to receive comments with sufficient
time to consider them in developing the
final regulations, comments should be sub-
mitted by November 15, 2000. However,
to the extent possible, consideration will be
given to comments received after that date.
The principal author of this announce-
ment is John Richards of the Office of As-
sociate Chief Counsel (Tax Exempt and
Government Entities). For further infor-
mation regarding this announcement con-
tact John Richards at (202) 622-6040 (not
a toll-free call).
Recognition of Gain on Certain
Transfers to Certain Foreign
Trusts and Estates; Correction
Announcement 2000–85
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Correction to notice of pro-
posed rulemaking.
SUMMARY: This document contains a
correction to a notice of proposed rule-
making that was published in the Fed-
eral Registeron Monday, August 7,
2000 (65 F.R. 48198) relating to the
recognition of gain on certain transfers
to certain foreign trusts and estates.
FOR FURTHER INFORMATION CON-
TACT: Karen A. Rennie Quarrie at
(202) 622-3880 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The notice of proposed rulemaking
that is the subject of this correction is
under section 684 of the Internal Rev-
enue Code.
Need for Correction
As published, the notice of proposed
rulemaking contains errors that may
prove to be misleading and are in need of
clarification.
Correction of Publication
Accordingly, the publication of the no-
tice of proposed rulemaking
(REG–108522–00, 2000–34 I.R.B. 187),
that was the subject of FR Doc.
00–19896, is corrected as follows:
§1.684–3 [Corrected]
On page 48202, column 1, §1.684–3(f),
the first line in Example 1, the language
“Example 1. Transfer to owner trust.In”
is corrected to read “Example 1. Transfer
to grantor trust. In”
Cynthia E. Grigsby,
Chief, Regulations Unit,
Office of Special Counsel
(Modernization and Strategic Planning).
(Filed by the Office of the Federal Register on Octo-
ber 2, 2000, 8:45 a.m., and published in the issue of
the Federal Register for October 3, 2000, 65 F.R.
58973)

October 23, 2000i2000–43 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 Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—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

2000–43 I.R.B.iiOctober 23, 2000
Numerical Finding List
1
Bulletins 2000–27 through 2000–42
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
2000–69, 2000–33 I.R.B. 183
2000–70, 2000–34 I.R.B. 204
2000–72, 2000–35 I.R.B. 226
2000–73, 2000–35 I.R.B. 230
2000–74, 2000–35 I.R.B. 230
2000–75, 2000–37 I.R.B. 268
2000–76, 2000–36 I.R.B. 260
2000–77, 2000–36 I.R.B. 260
2000–79, 2000–39 I.R.B. 303
2000–80, 2000–40 I.R.B. 320
2000–81, 2000–41 I.R.B. 348
2000–82, 2000–42 I.R.B. 385
2000–83, 2000–41 I.R.B. 348
2000–84, 2000–42 I.R.B. 385
Court Decisions:
2068, 2000–28 I.R.B. 109
Notices:
2000–33, 2000–27 I.R.B. 97
2000–34, 2000–33 I.R.B. 172
2000–35, 2000–29 I.R.B. 118
2000–36, 2000–33 I.R.B. 173
2000–37, 2000–29 I.R.B. 118
2000–38, 2000–33 I.R.B. 174
2000–39, 2000–30 I.R.B. 132
2000–40, 2000–30 I.R.B. 134
2000–41, 2000–33 I.R.B. 177
2000–42, 2000–39 I.R.B. 302
2000–43, 2000–35 I.R.B. 209
2000–44, 2000–36 I.R.B. 255
2000–45, 2000–36 I.R.B. 256
2000–46, 2000–37 I.R.B. 265
2000–48, 2000–37 I.R.B. 265
2000–49, 2000–37 I.R.B. 266
2000–50, 2000–38 I.R.B. 291
2000–51, 2000–38 I.R.B. 291
2000–52, 2000–38 I.R.B. 292
2000–53, 2000–38 I.R.B. 293
2000–54, 2000–42 I.R.B. 356
Proposed Regulations:
REG–209038–89, 2000–34 I.R.B. 191
REG–105316–98, 2000–27 I.R.B. 98
REG–110311–98, 2000–36 I.R.B. 258
REG–103805–99, 2000–42 I.R.B. 376
REG–116495–99, 2000–33 I.R.B. 179
REG–103735–00, 2000–36 I.R.B. 258
REG–103736–00, 2000–36 I.R.B. 258
REG–108522–00, 2000–34 I.R.B. 187
REG–112502–00, 2000–40 I.R.B. 316
Railroad Retirement Quarterly Rate:
2000–28, I.R.B. 112
2000–29, I.R.B. 117
2000–42, I.R.B. 354
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
2000–32, 2000–33 I.R.B. 172
2000–33, 2000–36 I.R.B. 257
2000–34, 2000–34 I.R.B. 186
2000–35, 2000–35 I.R.B. 211
2000–36, 2000–37 I.R.B. 267
2000–37, 2000–40 I.R.B. 308
2000–38, 2000–40 I.R.B. 310
2000–39, 2000–41 I.R.B. 340
2000–40, 2000–42 I.R.B. 357
2000–41, 2000–42 I.R.B. 371
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
2000–39, 2000–34 I.R.B. 184
2000–40, 2000–35 I.R.B. 208
2000–41, 2000–36 I.R.B. 248
2000–42, 2000–39 I.R.B. 297
2000–43, 2000–41 I.R.B. 333
2000–44, 2000–41 I.R.B. 336
2000–45, 2000–41 I.R.B. 337
2000–46, 2000–41 I.R.B. 334
2000–47, 2000–37 I.R.B. 264
2000–48, 2000–42 I.R.B. 349
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
8894, 2000–33 I.R.B. 162
8895, 2000–40 I.R.B. 304
8896, 2000–36 I.R.B. 249
8897, 2000–36 I.R.B. 234
8898, 2000–38 I.R.B. 276
8899, 2000–38 I.R.B. 288
8900, 2000–38 I.R.B. 279
8901, 2000–38 I.R.B. 272
8902, 2000–41 I.R.B. 323
8903, 2000–42 I.R.B. 352
8904, 2000–42 I.R.B. 350
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.

October 23, 2000iii2000–43 I.R.B.
Finding List of Current Actions on
Previously Published Items
1
Bulletins 2000–27 through 2000–42
Notices:
87–76
Obsoleted by
T.D. 8897, 2000–36 I.R.B. 234
88–24
Obsoleted by
T.D. 8897, 2000–36 I.R.B. 234
88–86
Obsoleted by
T.D. 8897 (section V), 2000–36 I.R.B. 234
2000–48
Superseded by
Rev. Proc. 2000–39, 2000–41 I.R.B. 340
Proposed Regulations:
LR–97–79
Partial withdrawal by
REG–103805–99, 2000–42 I.R.B. 376
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:
88–23
Superseded by
Rev. Proc. 2000–35, 2000–35 I.R.B. 211
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
99–49
Modified and amplified by
Rev. Proc. 2000–38, 2000–40 I.R.B. 310
2000–9
Superseded by
Rev. Proc. 2000–39, 2000–41 I.R.B. 340
Treasury Decisions:
8873
Corrected by
Announcement 2000–74, 2000–35 I.R.B. 230
8883
Corrected by
Announcement 2000–57, 2000–28 I.R.B. 115
Treasury Decisions—continued:
8884
Corrected by
Announcement 2000–73, 2000–35 I.R.B. 230
8892
Corrected by
Announcement 2000–81, 2000–41 I.R.B. 348
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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