Internal Revenue Bulletin 1997-47 (PDF rendition): IRS Revenue Rulings

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

INCOME TAX
Rev. Rul. 97–47, page 4.
LIFO; price indexes; department stores.The September
1997 Bureau of Labor Statistics price indexes are accepted
for use by department stores employing the retail inventory
and last-in, first-out inventory methods for valuing inventories
for tax years ended on, or with reference to, September 30,
1997.
REG–114000–97, page 13.
Proposed regulations under section 1441 of the Code pro-
vide guidance regarding the obligation to withhold on inter-
est paid with respect to obligations in the case of the sale of
obligations between interest payment dates. A public hear-
ing will be held on January 26, 1998.
Notice 97–64, page 7.
Designation of classes of capital gain dividends by
RICs or REITs.This notice describes temporary regulations
that will be published permitting RICs and REITs to designate
different classes of capital gain dividends in accordance with
section 1(h) of the Code as amended by the Taxpayer Relief
Act of 1997.
EXEMPT ORGANIZATIONS
Announcement 97–115, page 17.
Comments are requested from the public on proposals to
modify the filing requirements for Form 990, Return of Orga-
nization Exempt From Income Tax, and Form 990–EZ, Short
Form Return of Organization Exempt From Income Tax.
ESTATE TAX
Notice 97–63, page 6.
This notice asks for public comment on the alternatives for
proposed regulations under section 2056 of the Code in
light of the opinion of the Supreme Court of the United
States in Commissioner v. Estate of Hubert.The proposed
regulations would provide guidance on when there is a “ma-
terial limitation” on the right to income when income is used
to pay estate administration expenses.
EMPLOYMENT TAX
REG–107872–97, page 11.
Proposed regulations under section 1441 of the Code relate
to the submission of Form W–8, Certificate of Foreign Status.
ADMINISTRATIVE
Rev. Proc. 97–53, page 10.
Delete section 355 No Rule.This procedure modifies the
“No Rule” revenue procedure, Rev. Proc. 97–3, 1997–1
I.R.B. 85, by deleting section 5.17. The provision concerns
certain transactions under section 355(a)(1) of the Code.
Announcement 97–111, page 15.
This announcement describes the method by which taxpay-
ers can enter a new IRS process designed to settle IRS-re-
lated disputes that are connected with Bankruptcy Court
proceedings in order to reduce Bankruptcy Court litigation.
Internal Revenue
bbuulllleettiinn
Bulletin No. 1997–47
November 24, 1997
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 20.

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

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

November 24, 199741997–47 I.R.B.
Section 355.—Distribution of
Stock and Securities of a
Controlled Corporation
26 CFR 1.355–2: Limitations.
The revenue procedure modifies the “No Rule”
revenue procedure, Rev. Proc. 97–3, 1997–1 I.R.B.
85, to delete certain transactions under § 355 of the
Code. SeeRev. Proc. 97–53, page 10.
Section 472.—Last-in, First-out
Inventories
26 CFR 1.472–1: Last-in, first-out inventories.
LIFO; price indexes; department
stores. The September 1997 Bureau of
Labor Statistics price indexes are ac-
cepted for use by department stores em-
ploying the retail inventory and last-in,
first-out inventory methods for valuing
inventories for tax years ended on, or with
reference to, September 30, 1997.
Rev. Rul. 97–47
The following Department Store Inven-
tory Price Indexes for September 1997
were issued by the Bureau of Labor Sta-
tistics on October 16, 1997. The indexes
are accepted by the Internal Revenue Ser-
vice, under § 1.472–1(k) of the Income
Tax Regulations and Rev. Proc. 86–46,
1986–2 C.B. 739, for appropriate applica-
tion to inventories of department stores
employing the retail inventory and last-in,
first-out inventory methods for tax years
ended on, or with reference to, September
30, 1997.
The Department Store Inventory Price
Indexes are prepared on a national basis
and include (a) 23 major groups of depart-
ments, (b) three special combinations of
the major groups - soft goods, durable
goods, and miscellaneous goods, and (c) a
store total, which covers all departments,
including some not listed separately, ex-
cept for the following: candy, foods,
liquor, tobacco, and contract departments.
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
BUREAU OF LABOR STATISTICS, DEPARTMENTSTORE
INVENTORYPRICE INDEXES BYDEPARTMENTGROUPS
(January 1941 = 100, unless otherwise noted)
Percent Change
GroupsSept.Sept.from Sept. 1996
19961997to Sept. 1997
1
1. Piece Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .534.8521.1–2.6
2. Domestics and Draperie . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .644.1646.60.4
3. Women’s and Children’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .647.9652.00.6
4. Men’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .916.1902.9–1.4
5. Infants’Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .631.9623.3–1.4
6. Women’s Underwear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .536.0557.84.1
7. Women’s Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .289.0304.35.3
8. Women’s and Girls’Accessories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .557.1544.1–2.3
9. Women’s Outerwear and Girls’Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . .407.2422.23.7
10. Men’s Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .612.0620.21.3
11. Men’s Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .573.6603.15.1
12. Boys’Clothing and Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .489.8498.71.8
13. Jewelry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1040.31009.5–3.0
14. Notions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .795.2842.05.9
15. Toilet Articles and Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .895.9904.61.0
16. Furniture and Bedding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .675.6662.7–1.9
17. Floor Coverings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .589.9583.2–1.1
18. Housewares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .810.0816.80.8
19. Major Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .247.1243.4–1.5
20. Radio and Television . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77.274.9–3.0
21. Recreation and Education
2
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111.4108.9–2.2
22. Home Improvements
2
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .125.9131.74.6
23. Auto Accessories
2
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .107.0108.31.2
Groups 1 – 15: Soft Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .596.8606.41.6
Groups 16 – 20: Durable Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .469.0465.3–0.8
Groups 21 – 23: Misc. Goods
2
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .112.6111.8–0.7
Store Total
3
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .552.2556.70.8
1
Absence of a minus sign before percentage change in this column signifies price increase.
2
Indexes on a January 1986=100 base.
3
The store total index covers all departments, including some not listed separately, except for the following: candy, foods, liquor, to-
bacco, and contract departments.

DRAFTING INFORMATION
The principal author of this revenue
ruling is Stan Michaels of the Office of
Assistant Chief Counsel (Income Tax and
Accounting). For further information re-
garding this revenue ruling, contact Mr.
Michaels on (202) 622-4970 (not a toll-
free call).
Section 7121.—Closing
Agreements
26 CFR 301.7121–1: Closing agreements.
What is the method by which taxpayers can enter
a new IRS process designed to settle IRS-related
disputes that are connected with Bankruptcy Court
proceedings in order to reduce Bankruptcy Court lit-
igation? SeeAnnouncement 97–111, page 15.
1997–47 I.R.B.5November 24, 1997

November 24, 199761997–47 I.R.B.
Material Limitation on Surviving
Spouse’s Right to Income
Notice 97–63
PURPOSE
This notice invites public comment con-
cerning alternatives for proposed regula-
tions that are being considered in light of
the opinion of the Supreme Court of the
United States in Commissioner v. Estate of
Hubert,520 U.S.
—
(1997), 1997–32
I.R.B. 8. The proposed regulations would
amend § 20.2056(b)–4(a) of the Estate Tax
Regulations by providing guidance regard-
ing when there is a “material limitation”
on a surviving spouse’s right to the income
from property when the income is used to
pay estate administration expenses.
BACKGROUND
Under § 2056(a) of the Internal Rev-
enue Code, a marital deduction is allowed
to a decedent’s estate for property passing
from the decedent to the surviving
spouse. Under § 2056(b)(5) and (b)(7), a
marital deduction is allowed for property
passing in trust for the benefit of the
spouse if the trust satisfies certain require-
ments, including the requirement that the
spouse be entitled to all of the income for
life.
Under § 2056(b)(4)(B), where the in-
terest or property passing to the surviving
spouse is encumbered, the encumbrance
is taken into account in determining the
amount of the allowable marital deduc-
tion. Section 20.2056(b)–4(a), which im-
plements § 2056(b)(4)(B), provides that
the marital deduction may be taken only
for the net value of the interest passing to
the surviving spouse. In determining the
value of the interest, account must be
taken of the effect of any material limita-
tions on the spouse’s right to the income
from the property. The regulation indi-
cates that this rule may apply in the case
of a bequest of property in trust for the
benefit of the spouse, when income from
the property is used to pay estate adminis-
tration expenses prior to distribution. The
same rule applies in the case of a charita-
ble bequest. Section 20.2055–2(e)(1)(i).
However, the regulation provides no de-
finitive guidance on when the use of in-
come would rise to the level of a material
limitation.
The facts in Estate of Hubert are similar
to the following common fact pattern.
The decedent’s will provides for a resid-
uary bequest to a trust for the benefit of
the spouse (the marital trust). This be-
quest qualifies for the marital deduction.
The will provides that estate administra-
tion expenses are to be paid from the
residuary estate. Further, the will (or state
law) permits the executor to use income
(otherwise payable to the marital trust) to
pay administration expenses, and the ex-
ecutor does so. The issue before the
Supreme Court in Estate of Hubertwas
whether, for purposes of § 20.2056(b)–
4(a), the executor’s use of income to pay
estate administration expenses was a ma-
terial limitation on the surviving spouse’s
right to the income from the bequest,
which would reduce the marital deduction.
The Commissioner argued that the pay-
ment of administration expenses from in-
come is, per se, a material limitation on
the surviving spouse’s right to income for
purposes of § 20.2056(b)–4(a), and there-
fore, the value of any marital bequest
should be reduced dollar for dollar by the
amount of income used to pay administra-
tion expenses. The Court agreed that the
value of the marital bequest should be re-
duced if the use of income to pay admin-
istration expenses is a material limitation
on the spouse’s right to income. The
Court found, however, that the regulation
does not define material limitation and
that the Commissioner had not argued
that the use of income in this case was a
material limitation. Thus, the Court held
for the taxpayer.
In the absence of a regulatory defini-
tion of material limitation, the plurality
opinion suggested a test for materiality
that applies present value principles to
date of death estimates of income and ex-
penditures. The concurring opinion sug-
gested two additional tests using date of
death estimates of income; one of these
tests also applies present value principles.
The number of alternatives that exist to
define material limitation, as pointed out
by the Court in Estate of Hubert,under-
scores the need to provide guidance re-
garding when the use of income to pay
expenses constitutes a material limitation
on a spouse’s or charity’s right to income.
The Internal Revenue Service and the
Treasury Department intend to promul-
gate regulations that provide guidance in
this area, and this notice solicits com-
ments on the alternative approaches out-
lined below.
ALTERNATIVE APPROACHES
One test for materiality under consider-
ation would attempt to distinguish be-
tween administration expenses that are
properly charged to principal and those
that are properly charged to income.
Under this test, there would be a material
limitation on a surviving spouse’s right to
income from property if income were used
to pay an estate administration expense
that is properly charged to principal. Ex-
penses that are properly charged to princi-
pal would be those expenses described in
§ 20.2053–3 as well as other expenses
commonly incurred in the administration
and settlement of a decedent’s estate.
Such expenses would include, for exam-
ple, attorneys’fees, appraisers’fees, bro-
kers’commissions on the sale of property,
and estate and inheritance taxes.
Expenses that are properly charged to
income (and thus not material limitations
on income) would be expenses incurred in
the production of income during the pe-
riod of administration including expenses
of collecting and disbursing income and
current taxes on income.
The regulation’s designation of ex-
penses as properly charged to principal or
income would be determinative for pur-
poses of § 20.2056(b)–4(a). Therefore, an
expense could be characterized as prop-
erly charged to principal even though ap-
plicable local law or the governing instru-
ment permitted or directed an executor to
charge the expense to income. To the ex-
tent that income is used to pay an expense
that is properly charged to principal, the
payment from income would be treated as
having the same effect for purposes of the
marital deduction as a payment made
from principal. That is, in determining
the marital deduction, the value of the
property interest passing to the spouse
would be reduced by an amount equal to
the amount of that administration expense
paid from income.
Part III. Administrative, Procedural, and Miscellaneous

1997–47 I.R.B.7November 24, 1997
This test for materiality is intended to
reflect reasonable estate administration
practices and would generally be simple
to apply.
Another approach under consideration
is a test for materiality that provides for a
de minimis safe harbor amount of income
that may be used to pay administration
expenses without constituting a material
limitation on the surviving spouse’s right
to income. The safe harbor amount could
be a cumulative amount determined by a
percentage of gross income derived from
the property during the period of adminis-
tration, or a specified dollar amount, or
some combination thereof. If more than
the safe harbor amount of income were
used to pay administration expenses, the
marital deduction would be reduced dol-
lar for dollar by the excess over the safe
harbor amount of income so used.
The safe harbor approach provides a
“bright line” material limitation test.
However, if the safe harbor amount were
based on the cumulative amount of in-
come derived from the property during
administration, the safe harbor amount
would have to be recomputed yearly to re-
flect additional income earned during the
year, which might make the test difficult
to apply.
An additional approach would be to
adopt a regulation stating that any use of
income for the payment of administration
expenses constitutes a material limitation
on the spouse’s right to income.
REQUESTFOR COMMENTS
The Service and Treasury invite com-
ments on the tests for materiality de-
scribed above and also welcome any sug-
gestions for alternative approaches to the
issue. In addition, the Service and Trea-
sury are interested in receiving comments
on (1) whether the test for materiality
under § 20.2056(b)–4(a) should be a
quantitative test based on a comparison of
the relative size of the income and the ex-
penses charged to income; (2) whether
materiality should be determined based
on projections as of the date of death
rather than on the facts that develop after-
wards; and (3) whether present value
principles should be applied and, if so,
how the practical difficulties of a present
value computation can be overcome.
The Service and Treasury are also in-
terested in receiving comments on
whether post-death interest accruing on
deferred federal estate tax should be
treated as properly charged to principal.
Rev. Rul. 93–48, 1993–2 C.B. 270, holds
that post-death interest accruing on de-
ferred federal estate tax payable from a
testamentary transfer does not ordinarily
reduce the date of death value of the
transfer.
Comments and suggestions are re-
quested by February 4, 1998. An original
and eight copies of written comments
should be sent to:
Internal Revenue Service
Attn: CC:DOM:CORP:R
Room 5431 (P&SI:Br4)
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044
or hand delivered between the hours of
8:00 a.m. and 5:00 p.m. to:
Courier’s Desk
Internal Revenue Service
Attn: CC:DOM:CORP:R
Room 5431 (P&SI:Br4)
1111 Constitution Ave., NW
Washington, DC
Alternatively, comments may be submit-
ted electronically via the Service’s Inter-
net site at:
http://www.irs.ustreas.gov/prod/tax_re
gs/comments.html
All comments will be available for public
inspection and copying in their entirety.
DRAFTING INFORMATION
The principal author of this notice is
Deborah Ryan of the Office of Assistant
Chief Counsel (Passthroughs and Special
Industries). For further information re-
garding this notice contact Ms. Ryan on
(202) 622-3090 (not a toll-free call).
Temporary Regulations To Be
Issued Under Section 1(h) of the
Internal Revenue Code (Applying
Section 1(h) to Capital Gain
Dividends of RICs and REITs).
Notice 97–64
SECTION 1. PURPOSE
This notice describes temporary regula-
tions that will be issued under § 1(h) of
the Internal Revenue Code, effective for
taxable years ending on or after May 7,
1997, and provides guidance that regu-
lated investment companies (“RICs”),
real estate investment trusts (“REITs”),
and their shareholders must use in apply-
ing § 1(h) until further guidance is issued.
SEC. 2. BACKGROUND
For individuals, estates, and trusts,
§ 1(h), as amended by the Taxpayer Relief
Act of 1997 (the “1997 Act”), Pub. L. No.
105–34, 111 Stat. 788, imposes differing
rates of tax on various transactions giving
rise to long-term capital gains or losses.
For transactions taken into account during
taxable years ending on or after May 7,
1997, a taxpayer’s long-term capital gains
and losses are separated into three tax rate
groups: a 20-percent group, a 25-percent
group, and a 28-percent group. SeeNo-
tice 97–59, 1997–45 I.R.B. 7.
The Secretary has authority to issue
regulations concerning the application of
section 1(h) to long-term gains from sales
or exchanges by (or of interests in) pass-
through entities, including RICs and
REITs.
To the extent that a RIC or a REIThas
net capital gain for a taxable year, divi-
dends that it pays during the year (or that
it is deemed to pay during the year under
§ 855, § 858, or § 860) may be designated
by it as capital gain dividends. In general,
a capital gain dividend is treated by the
shareholders as a gain from the sale or ex-
change of a capital asset held for more
than one year.
SEC. 3. BASIC DESIGNATION RULE
Subject to the limitations in section 5,
if a RIC or REITdesignates a dividend as
a capital gain dividend for a taxable year
ending on or after May 7, 1997, it may
also designate the dividend as a 20% rate
gain distribution, an unrecaptured section
1250 gain distribution, or a 28% rate gain
distribution. If no additional designation
is made regarding a capital gain dividend,
it is a 28% rate gain distribution. If a div-
idend was designated as a capital gain
dividend in a written notice mailed to
shareholders on or before December 31,
1997, the additional designations permit-
ted by this paragraph may be effected by a
written notice, mailed to all shareholders
not later than February 2, 1998.
If any capital gain dividend is received
on or after May 7, 1997, but is treated

November 24, 199781997–47 I.R.B.
under § 855, § 858, or § 860 as being paid
during a taxable year that ends on or be-
fore that date, the dividend is a 28% rate
gain distribution.
For purposes of this notice, a designa-
tion of undistributed capital gains under §
852(b)(3)(D) or § 857(b)(3)(D) is consid-
ered to be the designation of a dividend as
a capital gain dividend.
SEC. 4. SHAREHOLDER
TREATMENTOF CAPITAL
GAIN DIVIDENDS
Acapital gain dividend received from a
RIC or REITin a taxable year of the
shareholder ending on or after May 7,
1997, is treated as follows:
.01 A20% rate gain distribution is an
amount of long-term capital gain in the
20-percent group;
.02 An unrecaptured section 1250 gain
distribution is an amount of long-term
capital gain in the 25-percent group; and
.03 A28% rate gain distribution is an
amount of long-term capital gain in the
28-percent group.
SEC. 5. LIMITATIONS ON
DESIGNATIONS OF CAPITAL
GAIN DIVIDENDS
Additional designations of capital gain
dividends for a taxable year are effective
only to the extent that they do not exceed
the limitations stated below and only to
the extent that they comply with the prin-
ciples of Rev. Rul. 89–81, 1989–1 C.B.
226, which requires that distributions
made to different classes of shares not be
composed disproportionately of dividends
of a particular type. Designations of capi-
tal gain dividends must also comply with
§ 852(b)(3)(C) or § 857(b)(3)(C) (as ap-
propriate), which make designations inef-
fective to the extent they exceed the net
capital gain for the year.
Subject to a deferral adjustment or bi-
furcation adjustment discussed in section
6, a RIC or REITdetermines the maxi-
mum amounts which may be designated
in each class of capital gains dividends by
performing the computation required by
§ 1(h) as if the RIC or REITwere an indi-
vidual whose ordinary income is subject
to a marginal tax rate of at least 28 per-
cent. Then, the maximum distributable
20% rate gain is equal to the amount mul-
tiplied by 20% in performing that compu-
tation and the maximum distributable un-
recaptured section 1250 gain is equal to
the amount multiplied by 25% in per-
forming that computation. The maximum
distributable 28% rate gain is the net capi-
tal gain minus the amount of unrecaptured
section 1250 gain distributions and 20%
rate gain distributions that have been
properly designated. For example, if a
RIC has net capital gain in the tax year of
$100, of which $60 would be multiplied
by 20% and $5 would be multiplied by
25% in performing the computations re-
quired by § 1(h), then the maximum dis-
tributable 20% rate gain is $60 and the
maximum unrecaptured section 1250 gain
is $5. If the RIC properly designates the
maximum permissible unrecaptured sec-
tion 1250 gain distribution and 20% rate
gain distribution, then the RIC’s maxi-
mum distributable 28% rate gain is $35;
i.e.,the net capital gain of $100 less the
properly designated unrecaptured section
1250 gain distribution of $5 and 20% rate
gain distribution of $60.
SEC. 6. DEFERRALADJUSTMENT
AND BIFURCATION ADJUSTMENT
The adjustment (a deferral adjustment)
required by § 852(b)(3)(C) and § 1.852–
11(e) for a RIC with post-October capital
losses or by § 857(b)(3)(C) for a fiscal
year REITwith post-December capital
losses must be made before calculating
the limitations on the various classes of
capital gain dividends for the RIC’s or
REIT’s taxable year. The deferral adjust-
ment is disregarded in determining the
group in which any deferred gain or loss
belongs, however, if the group depends on
whether an item of gain or loss is taken
into account before May 7, 1997, after
July 28, 1997, or between those dates. For
example, if a RIC’s sale of a capital asset
held for 19 months occurs before May 7,
1997, but is treated under § 852(b)(3)(C)
and § 1.852–11(e) as arising after that
date, the sale gives rise to capital gain in
the 28-percent group.
ARIC or REITmust make the bifurca-
tion adjustment described in the next
paragraph if: (1) its taxable year is not the
period used to determine capital gain net
income for purposes of the excise tax im-
posed by § 4982 or § 4981 (that is, it is a
RIC with a taxable year that does not end
on October 31 and that has not made an
election under § 4982(e)(4) or it is a REIT
whose taxable year is not the calendar
year); (2) it has a net capital gain during
the pre-November (for a RIC) or pre-Jan-
uary (for a REIT) portion of its taxable
year; and (3) it is not required to make the
deferral adjustment.
If a RIC or REITis required to make a
bifurcation adjustment, it must calculate
the maximum distributable 20% rate gain
and the maximum distributable unrecap-
tured section 1250 gain separately for the
pre-November (pre-January for REITs)
portion of the year and for the post-Octo-
ber (post-December for REITs) portion of
the year, as if the two portions of the year
were separate taxable years. Then, the
maximum distributable 20% rate gain and
the maximum distributable unrecaptured
section 1250 gain for the taxable year
equals the sum of the maximum distrib-
utable amounts for gains in that group de-
termined for each portion of the year.
SEC. 7. EXAMPLES
(1) Example 1. RIC X’s taxable year ends on
July 31. RIC Xhas only the following capital gains
and losses for the periods indicated:
8/1 to 10/31/97gainlossnet
Long-term capital gain or loss
stock held 19 months300(150) 150
stock held 13 months200(100)100
Short-term capital gain or
loss1000100
11/1 to 7/31/98
Long-term capital gain or loss
stock held 19 months200(50) 150
stock held 13 months200(300)(100)
Short-term capital gain or
loss 0(100)(100)
Because Xhas a taxable year ending in July and a
post-October net capital loss of $50, it is required by
§ 852(b)(3)(C) and § 1.852-11(e) to make a deferral
adjustment and so does not make a bifurcation ad-
justment. Xmust disregard the capital gains and
losses for the post-October period in computing its
net capital gains for purposes of designating capital
gain dividends for its taxable year ending July 31,
1998. Xmust also disregard those gains and losses
for purposes of calculating the various maximum
distributable amounts of gain. For this taxable year,
therefore, Xmay designate up to $250 as capital gain
dividends, of which up to $150 may be designated as
20% rate gain distributions. The amount that may be
designated as 28% rate gain distributions (or is a
28% rate gain distribution if designated only as a
capital gain dividend) is $250 minus any amounts
properly designated as 20% rate gain distributions.
Xmust take the post-October capital gains and
losses into account on August 1, 1998 (the first day
of the next taxable year), to determine its net capital
gain and various maximum distributable amounts of
gain for the taxable year beginning on that date.
(2) Example 2. RIC Y’s taxable year ends on July
31. RIC Yhas only the following capital gains and
losses for the periods indicated:

1997–47 I.R.B.9November 24, 1997
8/1 to 10/31/97gainlossnet
Long-term capital gain or loss
stock held 19 months300(150) 150
stock held 13 months200(100)100
Short-term capital gain or
loss1000100
11/1/97 to 7/31/98
Long-term capital gain or loss
stock held 19 months200(50) 150
stock held 13 months200(300)(100)
Short-term capital gain or
loss000
Because Ydoes not have a post-October capital loss
for its taxable year ending July 31, 1998, it does not
make a deferral adjustment. Because Yhas a taxable
year ending in July and a pre-November net capital
gain, it must make a bifurcation adjustment. Ymust
determine the maximum distributable amounts of
20% rate gain and unrecaptured section 1250 gain
separately for the pre-November and the post-Octo-
ber portion of its taxable year ending July 31, 1998.
The sum of these amounts determines the various
maximum distributable amounts of gain for the en-
tire taxable year. For the pre-November period, Y’s
maximum distributable 20% rate gain is $150. For
the post-October portion of the year, Y’s maximum
distributable 20% rate gain is $50. Y’s net capital
gain for the entire year is $300. For this taxable
year, therefore, Ymay designate up to $300 of capi-
tal gain dividends, of which up to $200 may be des-
ignated as 20% rate gain distributions. The amount
that may be designated as 28% rate gain distribu-
tions (or that will be deemed a 28% rate gain distrib-
ution if designated only as a capital gain dividend) is
$300 minus any amounts properly designated as
20% rate gain distributions.
SEC. 8. SECTION 1202 GAIN
In the future, RICs may recognize gain
from the sale or exchange of qualified
small business stock held for more than 5
years that may be distributed to share-
holders subject to certain limitations pro-
vided by § 1202(g). It is expected that the
temporary regulations will provide guid-
ance on how RICs may designate divi-
dends as “section 1202 gain distribu-
tions.” This guidance is expected to
provide that: (1) section 1202 gain distrib-
utions will be designated separately for
different issuers of qualified small busi-
ness stock; (2) the exclusion from income
permitted by § 1202 will be determined at
the shareholder level not the RIC level;
and (3) the maximum distributable sec-
tion 1202 gain for each issuer will be cal-
culated separately from limitations on all
other classes of capital gain dividends but
in the aggregate will not exceed the RIC’s
net capital gain.
SEC. 9. USE OF SUBSTITUTE FORMS
1099–DIVFOR 1997
The rules set forth in this section and in
section 10 previously have been pub-
lished in Announcement 97–109,
1997–45 I.R.B. 12.
RICs, REITs, brokers, and others re-
porting capital gain distributions on the
1997 Form 1099–DIVmust provide addi-
tional information with their statements to
recipients. Payers must continue to report
the total capital gain distributions in box
1c. Payers should also advise recipients
that they cannot report capital gain distri-
butions on Form 1040, line 13, as stated
in the official 1997 Form 1099–DIV.
Rather, they must report the distributions
on Schedule D (Form 1040), line 13, col-
umn (f).
In addition, payers must provide to re-
cipients information sufficient to deter-
mine the following:
.01 The amount of 28% rate gain distri-
butions. Payers should advise recipients
to report this amount on Schedule D
(Form 1040), line 13, column (g).
.02 The amount of unrecaptured section
1250 gain distributions. Payers should
advise recipients to report this amount on
Schedule D (Form 1040), line 25.
Payers may provide this additional in-
formation to recipients on a substitute
statement or on a separate statement.
Payers are not required to report the addi-
tional information to the IRS.
SEC. 10 USE OF SUBSTITUTE
FORMS 2439 FOR 1996–1997
RICs and other filers completing the
1996 Form 2439 for fiscal years ending
after May 6, 1997, must provide addi-
tional information with their notices to
shareholders. Filers must continue to re-
port the total undistributed long-term cap-
ital gains for the year on line 1 of Form
2439. Filers should also advise individual
shareholders that they cannot report the
amount on line 1 on Schedule D (Form
1040), Part II, line 12, as stated in the of-
ficial 1996 Form 2439 instructions.
Rather, they must report the amount on
line 1 on the 1997 Schedule D (Form
1040), line 11, Column (f).
In addition, filers must provide to
shareholders information sufficient to de-
termine the following:
.01 The amount of 28% rate gain in-
cluded on line 1 of Form 2439. Filers
should advise recipients to report this
amount on Schedule D (Form 1040), line
11, column (g).
.02 The amount of unrecaptured section
1250 gain included on line 1 of Form
2439. Filers should advise recipients to
report this amount on Schedule D (Form
1040), line 25.
Filers may provide this additional in-
formation to shareholders on a substitute
statement or on a separate statement. Fil-
ers are not required to report this addi-
tional information on Forms 2439 filed
with the IRS.
SEC. 11. SUBMISSION OF
COMMENTS
Comment are requested on the subject
matter of this notice and, additionally, on
the proper treatment of a loss on the sale
of a RIC or REITshare held for six
months or less that is recharacterized
under § 852(b)(4)(A) or § 857(b)(7) as a
long-term capital loss. Taxpayers may
submit comments to: CC:DOM:CORP:R
(OGI–117972–97), Room 5226, Internal
Revenue Service, POB 7604, Ben
Franklin Station, Washington, DC 20022.
Submissions may be hand delivered be-
tween the hours of 8 a.m. and 5 p.m. to:
CC:DOM:CORP:R (OGI–117972–97),
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.us-
treas.gov/prod/ tax
_
regs/comments.html.
Comments will be available for public in-
spection.
SEC. 12 PAPERWORK REDUCTION
ACT
The collections of information con-
tained in this notice have been reviewed
and approved by the Office of Manage-
ment and Budget in accordance with the
Paperwork Reduction Act (44 U.S.C.
3507) under control number 1545–1565.

November 24, 1997101997–47 I.R.B.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the col-
lection of information displays a valid
OMB control number.
The collections of information in this
notice are in sections 3, 9 and 10. This in-
formation is required to permit RIC and
REITshareholders to properly report in-
come following the amendment of § 1(h)
by the 1997 Act. The information col-
lected will be used by RIC and REIT
shareholders reporting income. The col-
lection of information is mandatory. The
likely respondents are businesses and
other for-profit institutions.
The burden for the collections of infor-
mation in section 3 is as follows:
The estimated total annual reporting
and/or recordkeeping burden is 1500
hours.
The estimated annual burden per re-
spondent varies from 1/4 hour to 10
hours, depending on individual circum-
stances, with an estimated average of 1/2
hour. The estimated number of respon-
dents is 3,000.
The estimated annual frequency of re-
sponses is annually.
The burden for the collection of infor-
mation in sections 9 and 10 is reflected in
the burden for Form 1099–DIVand Form
2439.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
DRAFTING INFORMATION
The principal author of this notice is
Kenneth Christman of the Office of Assis-
tant Chief Counsel (Financial Institutions
and Products). For further information
regarding this notice contact Kenneth
Christman on (202) 622-3950 (not a toll-
free call).
26 CFR 601.201: Rulings and determination
letters.
(Also Part I, §§ 355; 1.355–2.)
Rev. Proc. 97–53
SECTION 1. PURPOSE
This revenue procedure modifies Rev.
Proc. 97–3, 1997–1 I.R.B. 85, (January 6,
1997), which sets forth provisions of the
Internal Revenue Code under the jurisdic-
tion of the Associate Chief Counsel (Do-
mestic) and the Associate Chief Counsel
(Employee Benefits and Exempt Organi-
zations) relating to matters where the Ser-
vice will not issue advance rulings or de-
termination letters.
SECTION 2. BACKGROUND
Section 5 of Rev. Proc. 97–3 lists areas
under extensive study in which rulings or
determination letters will not be issued
until the Service resolves the issue through
publication of a revenue ruling, revenue
procedure, regulations, or otherwise. Sec-
tion 5.17 of Rev. Proc. 97–3 provides that
rulings or determination letters will not be
issued under § 355(a)(1) of the Code with
respect to certain distributions until the
Service resolves issues related to these
distributions. The no rule position of sec-
tion 5.17 was originally set forth in Rev.
Proc. 96–39, 1996–2 C.B. 300, which was
superseded by Rev. Proc. 97–3.
SECTION 3. PROCEDURE
Rev. Proc. 97–3 is modified by deleting
section 5.17.
SECTION 4. EFFECTIVE DATE
This revenue procedure is effective on
November 10, 1997, the date it is made
available to the public.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Dean P. Lekos of the Office
of Assistant Chief Counsel (Corporate).
For further information regarding this
revenue procedure, contact Mr. Lekos on
(202) 622-7550 (not a toll-free call).

1997–47 I.R.B.11November 24, 1997
Notice of Proposed Rulemaking
Electronic Transmission of Form
W–8
REG–107872–97
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing.
SUMMARY: This document contains
proposed regulations relating to the sub-
mission of Form W–8, a withholding cer-
tificate, needed for purposes of chapters 3
and 61 of the Internal Revenue Code
(Code) and other withholding or reporting
provisions of the Code, such as section
3402, 3405, or 3406. The proposed regu-
lations provide guidance to withholding
agents and payors who wish to establish
an electronic system for use by beneficial
owners or payees in furnishing Form
W–8. The proposed regulations state the
general requirements that such an elec-
tronic system must satisfy so that a with-
holding agent or payor may rely on a
Form W–8 transmitted through such a
system. These regulations affect with-
holding agents and payors that establish
electronic systems and beneficial owners
and payees who use these systems.
DATES: Written comments and requests
for a public hearing must be received by
January 12, 1998.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (REG–107872–97),
room 5228, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington, DC 20044. Submissions may be
hand delivered between the hours of 8
a.m. and 5 p.m. to: CC:DOM:CORP:R
(REG–107872–97), Courier’s Desk, In-
ternal Revenue Service, 1111 Constitution
Avenue, NW, Washington, DC. Alterna-
tively, taxpayers may submit comments
electronically via the Internet by selecting
the “Tax Regs” option on the IRS Home
Page, or by submitting comments directly
to the IRS Internet site at www.irs.us-
treas.gov/prod/tax_regs/comments.html.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations, Lilo
Hester, 202-622-3840; concerning sub-
missions, Evangelista Lee, 202-622-8452
(not toll-free numbers).
SUPPLEMENTARYINFORMATION:
Background
This document contains proposed
amendments to the Income Tax Regula-
tions (26 CFR part 1) under section 1441
of the Internal Revenue Code (Code).
These amendments are proposed to pro-
vide general procedures for withholding
agents and payors to establish acceptable
electronic systems.
T.D. 8734, 1997–44 I.R.B. 5 adds
§1.1441–1(e)(4)(iv) which authorizes the
electronic transmission of a Form W–8
described in §1.1441–1(e)(1)(i). In addi-
tion, by cross-reference contained in
§1.6049–5(c)(2) (published as a final rule
in T.D. 8734), the regulation authorizes
electronic transmission of a Form W–8
furnished for purposes of chapter 61 of
the Code (i.e., information reporting) or
for purposes of another income tax with-
holding provision of the Code, such as
section 3406.
Pursuant to chapter 3 (or, in certain
cases, chapter 61) of the Code, a benefi-
cial owner or a payee (i.e., a person who
receives a payment) must furnish a with-
holding certificate to a withholding agent
or payor in order to establish its status as a
foreign person and entitlement to a re-
duced rate of withholding. By establish-
ing foreign status, and other relevant
characteristics, a beneficial owner or
payee may be entitled to a reduction or
exemption in the amount of withholding
under chapter 3 of the Code or an exemp-
tion from information reporting under
chapter 61 of the Code or from backup
withholding under section 3406. The re-
ceipt of a withholding certificate affects
the amount of tax that the withholding
agent or payor may be required to with-
hold from the payment, and the type and
form of information that it must provide
to the IRS. The regulations under sec-
tions 1441 and 1443 specifically identify
Form W–8 (or an acceptable substitute
form) as the required form of the with-
holding certificate.
These proposed regulations apply to
electronic transmission of Forms W–8.
The regulations do not apply to Form
8233 for use by individuals who claim a
reduced rate of withholding under an in-
come tax convention for services per-
formed in the United States. See
§1.1441–4(b)(2). In addition, the regula-
tions do not apply to documentary evi-
dence (described in §1.6049–5(c)(1)) that
may be substituted for the Form W–8
with respect to certain payments made to
accounts maintained outside of the United
States. However, the IRS and Treasury
invite comments on any computer tech-
nology (e.g., imaging) that could make
electronic transmission of documentary
evidence possible.
Explanation of Provisions
1. Type and Design of System
Determined by Withholding Agent or
Payor Subject to Specific Requirements.
Under the proposed regulations, a with-
holding agent or payor may choose to es-
tablish an electronic system to receive or
transmit Forms W–8 (or such other form
as the IRS may prescribe), including a
payor or withholding agent that is an in-
termediary. The withholding agent or
payor may determine the type of system
(such as telephone or computer) available
for that purpose. The system must, how-
ever, (1) reliably identify the user, (2) en-
sure that the information received is the
information sent, and (3) document occa-
sions of user access that result in a sub-
mission, renewal, or modification of the
withholding certificate. The proposed
regulations envision that implementation
of these specific requirements necessi-
tates a direct relationship between the
withholding agent or payor and the bene-
ficial owner or payee. The proposed reg-
ulations reserve on applicable standards
for systems used by intermediaries to
transmit forms received from another
payor or withholding agent. The IRS and
Treasury recognize the importance of al-
lowing the electronic transmission of
Forms W–8 through one or more interme-
diaries (i.e., persons not acting for their
own account). Therefore, comments are
solicited regarding the logistical operation
of an electronic transmission system for
use by an intermediary satisfying the IRS
requirements that the integrity, accuracy,
Part IV. Items of General Interest

November 24, 1997121997–47 I.R.B.
and reliability of the original electronic
transmission through an intermediary sys-
tem is adequately protected.
2. Relationship Between Paper and
Electronic Withholding Certificate.
The electronic transmission must con-
tain exactly the same information as the
paper Form W–8 (or such other form as
the IRS may prescribe). Any guidance,
such as regulations or instructions, that
applies to the paper Form W–8 also ap-
plies to electronically transmitted forms.
3. Electronic Filing Optional.
Section 1.1441–1(e)(4)(iv) authorizing
the use of electronic systems was promul-
gated to assist in reducing burdens (in
terms of cost and time) on withholding
agents, payors, payees, and beneficial
owners. The use of an electronic system
for the transmission of Form W–8 is
merely an alternative to the use of a paper
form. Electronic transmission of Form
W–8 is not mandatory. Awithholding
agent or payor may not mandate the use
of electronic systems to receive or trans-
mit the forms. Thus, a payee or beneficial
owner may furnish a Form W–8 to the
withholding agent or payor on paper.
4. Signature Under Penalties of Perjury.
Section 6061 generally provides that
any return, statement, or other document
required to be made under any provision
of the internal revenue laws or regulations
shall be signed in accordance with forms
or regulations prescribed by the Secretary.
Section 301.6061–1(b) provides that the
Secretary may prescribe in forms, instruc-
tions, or other appropriate guidance the
method of signing any return, statement,
or other document required to be made
under any provision of the internal rev-
enue laws or regulations. Section 6065
provides that, except as provided by the
Secretary, any return, statement or other
document shall contain or be verified by a
written declaration that it is made under
the penalties of perjury. These require-
ments apply to a Form W–8 (or such other
form as the Internal Revenue Service may
prescribe), including one that is filed elec-
tronically, as provided in §1.1441–1(e)-
(2)(ii), (3)(ii), (3)(iii), and (3)(v), and
§1.1441– 5(c)(2)(iv) and (3)(iii) of the
final regulations. The proposed regula-
tions, therefore, include guidance on the
perjury statement and the signature re-
quirements for Forms W–8 that are filed
electronically.
5. IRS Requests for Electronic Data.
Upon request by the IRS in the course
of an examination, a withholding agent or
payor must supply a hard copy of the in-
formation contained on the electronically
transmitted Form W–8 and a statement
that, to the best of the withholding agent’s
knowledge, the electronic Form W–8 was
furnished by the person whose name is on
the form. The printout of the Form W–8
information must be provided to the IRS
in English.
Proposed Effective Date
These regulations are proposed to be-
come effective January 1, 1999.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in EO 12866.
Therefore, a regulatory assessment is not
required. It also has been determined that
section 553(b) of the Administrative Pro-
cedure Act (5 U.S.C. chapter 5) does not
apply to these regulations, and, because
the proposed regulations do not impose a
collection of information on small entities,
the Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Pursuant to sec-
tion 7805(f) of the Code, this notice of
proposed rulemaking will be submitted to
the Small Business Administration for
comment on its impact on small business.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any written com-
ments (a signed original and eight copies)
that are submitted timely (in the manner
described in the ADDRESSES portion of
this preamble) to the IRS. All comments
will be available for public inspection and
copying.
Apublic hearing may be scheduled if
requested in writing by any person that
submits written comments. If a public
hearing is scheduled, notice of the date,
time, and place for the hearing will be
published in the Federal Register.
Drafting Information
The principal author of these regula-
tions is Lilo A. Hester, Office of the Asso-
ciate Chief Counsel (International), IRS.
However, other personnel from the IRS
and Treasury Department participated in
their development.
* * * * *
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART1—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 §1.1441–1, paragraph
(e)(4)(iv) is revised to read as follows:
§1.1441–1 Requirement for the
deduction and withholding of tax on
payments to foreign persons.
* * * * *
(e) * * *
(4) * * *
(iv) Electronic transmission of informa-
tion—(A) In general.Awithholding
agent may establish a system for beneficial
owners or payees to furnish electronically
Forms W–8 (or such other form as the In-
ternal Revenue Service may prescribe).
The system also may enable the withhold-
ing agent to electronically transmit Forms
W–8 to another person. The system must
meet the requirements described in para-
graph (e)(4)(iv)(B) of this section.
(B) Requirements—(1) In general.
The electronic system must ensure that
the information received is the informa-
tion sent, and must document all occa-
sions of user access that result in the sub-
mission, renewal, or modification of a
Form W–8. In addition, the design and
operation of the electronic system, includ-
ing access procedures, must make it rea-
sonably certain that the person accessing
the system and furnishing Form W–8 is
the person named in the form.
(2) Same information as paper Form
W–8.The electronic transmission must
provide the withholding agent or payor
with exactly the same information as the
paper Form W–8.
(3) Perjury statement and signature re-
quirements.The electronic transmission

must be signed by way of an electronic sig-
nature by the person whose name is on the
Form W–8 and the signature must be under
penalties of perjury in the manner de-
scribed in this paragraph (e)(4)(iv)(B)(3).
(i) Perjury statement.The perjury
statement must contain the language that
appears on the paper Form W–8. The
electronic system must inform the person
whose name is on the Form W–8 that the
person must make the declaration con-
tained in the perjury statement and that
the declaration is made by signing the
Form W–8. The instructions and the lan-
guage of the perjury statement must im-
mediately follow the person’s certifying
statements and immediately precede the
person’s electronic signature.
(ii) Electronic signature. The act of the
electronic signature must be effected by
the person whose name is on the elec-
tronic Form W–8. The signature must
also authenticate and verify the submis-
sion. For this purpose, the terms authenti-
cate and verifyhave the same meanings as
they do when applied to a written signa-
ture on a paper Form W–8. An electronic
signature can be in any form that satisfies
the foregoing requirements. The elec-
tronic signature must be the final entry in
the person’s Form W–8 submission.
(4) Requests for electronic Forms W–8
data.Upon request by the Internal Rev-
enue Service during an examination, the
withholding agent must supply a hard
copy of the electronic Form W–8 and a
statement that, to the best of the withhold-
ing agent’s knowledge, the electronic
Form W–8 was filed by the person whose
name is on the form. The hard copy of the
electronic Form W–8 must provide ex-
actly the same information as, but need
not be a facsimile of, the paper Form W–8.
(C) Special requirements for transmis-
sion of Forms W–8 by an intermediary.
[Reserved].
* * * * *
Michael P. Dolan,
Acting Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on Octo-
ber 6, 1997, 8:45 a.m., and published in the issue of
the Federal Register for October 14, 1997, 62 F.R.
53504)
Notice of Proposed Rulemaking
and Notice of Public Hearing
Withholding on Interest in the
Case of Sales of Obligations
Between Interest Payment Dates
REG–114000–97
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing and notice of public hearing.
SUMMARY: This notice of proposed
rulemaking provides guidance regarding
the obligation to withhold on interest paid
with respect to obligations in the case of
the sale of obligations between interest
payment dates. These regulations would
affect United States and foreign withhold-
ing agents and recipients. This document
also provides notice of a public hearing
on these proposed regulations.
DATES: Comments and outlines of oral
comments to be presented at the public
hearing scheduled for January 26, 1998,
at 10 a.m. must be received by January 5,
1998.
ADDRESSES: Send submission to:
CC:DOM:CORP:R (REG–114000–97),
room 5226, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington, DC 20224. Submissions may be
hand delivered between the hours of 8
a.m. and 5 p.m. to: CC:DOM:CORP:R
(Reg–114000–97), Courier desk, Internal
Revenue Service, 1111 Constitution Av-
enue, NW, Washington, DC. Alternatively,
taxpayers may submit comments electron-
ically via the internet by selecting the “Tax
Regs” option on the IRS Home Page, or
by submitting comments directly to the
IRS internet site at http://www.irs.us-
treas.gov/ prod/tax_regs/comments.html.
The hearing scheduled for January 26,
1998, will be held in the Commissioner’s
Conference Room, room 3313, Internal
Revenue Service, 1111 Constitution Av-
enue, NW, Washington, DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations, Lilo
Hester at (202) 622-3840 (not a toll-free
number); concerning submissions and the
hearing, Evangelista Lee, (202) 622-7180
(not a toll-free number).
SUPPLEMENTARYINFORMATION
Background
In T.D. 8734, 1997–44 I.R.B. 5, the
IRS and Treasury published final with-
holding and reporting regulations under
chapter 3 of the Internal Revenue Code
(Code) and other sections of the Code.
Section 1.1441–3(b)(2) of the final regu-
lations provides that no withholding is re-
quired upon interest accrued on the date
of a sale of debt obligations when the sale
occurs between two interest payment
dates, even though the amount is treated
as interest under §1.61–7(c) or (d) and is
subject to tax under section 871 or 881.
In contrast, §1.1441–2(b)(3) of the final
regulations provides that withholding is
required on amounts of original issue dis-
count in the event of a sale of an original
issue discount obligation or a payment on
such an obligation, subject to certain ex-
ceptions. The IRS and Treasury believe
that, in view of these provisions, the ex-
emption from withholding on non-OID
amounts is no longer justified. Awith-
holding agent that pays amounts to a for-
eign person in connection with the sale of
an obligation between interest payments
dates is in the same position as a with-
holding agent that pays amounts to a for-
eign person in connection with the sale of
an original issue discount obligation. The
withholding exemption for sale of debt
obligations between interest payment
dates provides an easy avenue for the
avoidance of the documentation require-
ments imposed under sections 871(h) and
881(c) for purposes of qualifying interest
on registered debt obligations as portfolio
interest. For this reason, and in order to
create parity with the tax treatment of
original issue discount obligations under
chapter 3 of the Code, it is no longer ap-
propriate to continue this exemption.
Under §1.1441–2(b)(3), a withholding
agent must withhold on an amount of
original issue discount to the extent that it
has actual knowledge of the proportion of
the amount of the payment that is taxable
to the beneficial owner under section
871(a)(1)(C) or 881(a)(3)(A). Awith-
holding agent has actual knowledge if it
knows how long the beneficial owner has
held the obligation, the terms of the oblig-
ation, and the extent to which the benefi-
1997–47 I.R.B.13November 24, 1997

cial owner purchased the obligation at a
premium. Awithholding agent is treated
as having knowledge if the information is
reasonably available. Special rules are
provided for withholding agents with
which the beneficial owner does not main-
tain a direct account relationship. Further,
the regulations under §1.1441–2(b)(3)
dealing with original issue discount pro-
vide that, in the case of an obligation that
would qualify as portfolio interest if docu-
mentation were provided to the withhold-
ing agent, withholding is required on the
entire amount of stated interest, if any, and
original issue discount, if no such docu-
mentation is provided, irrespective of
whether the withholding agent has knowl-
edge of the portion of the payment repre-
senting taxable original issue discount.
For this purpose, the withholding agent
may rely upon the IRS “List of Original
issue Discount Instruments” contained in
IRS Publication 1212 (available from the
IRS Distribution Centers).
In response to comments, the provisions
in §1.1441–3(b)(1) are proposed to be
modified to reduce the amount upon
which withholding is required. No obliga-
tion to withhold is imposed under current
law on the payment of stated interest on an
obligation that was purchased between in-
terest payment dates. Under §1.61–7(c),
interest received on the interest payment
date is treated as a return of basis to the
extent it represents accrued unpaid interest
as of the date of purchase as reflected in
the new holder’s basis for the obligation.
Therefore, when the new holder receives a
payment of the stated interest, the holder’s
tax liability is limited to the amount of in-
terest accrued after the date of purchase
(subject to additional adjustments reflect-
ing possible acquisition premiums or mar-
ket discounts). Because of the difficulty
for a withholding agent to determine the
amount accrued to the holder and other
adjustments affecting the actual amount
taxable to the holder, withholding on the
entire amount of stated interest is required
under the current withholding regulations
under §1.1441–3(b)(1).
Commentators have asked that the
withholding agent be permitted to with-
hold on the amount that it knows is tax-
able. The final withholding regulations
did not modify the proposed regulations
on this point because the Treasury and
IRS consider that withholding on the en-
tire amount is justified if withholding on `
sales of obligations between in-
terest payment dates is not required.
However, because these proposed regula-
tions require withholding, the regulations
permit a withholding agent to adjust the
amount of withholding at the time of pay-
ment of stated interest to account for ear-
lier withholding.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in EO
12866. Therefore, a regulatory assess-
ment is not required. It also has been de-
termined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regula-
tions, and because the regulation does not
impose a collection of information on
small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply.
Pursuant to section 7805(f) of the Internal
Revenue Code, this notice of proposed
rulemaking will be submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on its
impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any comments that
are submitted timely to the IRS. All com-
ments will be available for public inspec-
tion and copying.
Apublic hearing has been scheduled
for January 26, 1998, at 10 a.m. in the
Commissioner’s Conference Room, room
3313, Internal Revenue Building, 1111
Constitution Ave, NW, Washington, DC.
Because of access restrictions, visitors
will not be admitted beyond the Internal
Revenue Building lobby more than 15
minutes before the hearing starts.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing.
Persons who wish to present oral com-
ments at the hearing must submit com-
ments and an outline of the topics to be
discussed and the time to be devoted to
each topic by January 5, 1998.
Aperiod 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.
* * * * *
Proposed Amendments to the Regulations
Accordingly, CFR part 1 is proposed to
be amended as follows:
PART1—INCOME TAXES
Paragraph 1. The authority for part 1
continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. In §1.1441–3, paragraph (b) is
revised to read as follows:
§1.1441–3 Determination of amount to
be withheld
* * * * *
(b) Withholding on payments on cer-
tain obligations—(1) Withholding at time
of payment of interest.When making a
payment on an interest-bearing obliga-
tion, a withholding agent must withhold
under §1.1441–1 upon the gross amount
of stated interest payable on the interest
payment date, regardless of whether the
payment constitutes a return of capital or
the payment of income within the mean-
ing of section 61, unless the withholding
agent has knowledge of the actual amount
of interest paid. For this purpose, the
withholding agent may rely on informa-
tion provided by the issuer (or its paying
agent), on a representation from the bene-
ficial owner, or on information that the
withholding agent has in its records. To
the extent an amount was withheld on an
amount of capital rather than interest, see
rules for adjustments, refunds, or credits
under §1.1441–1(b)(8).
(2) No withholding between interest
payment dates—(i) General rule.Awith-
holding agent is not required to withhold
under §1.1441–1 upon interest accrued on
the date of a sale of debt obligations when
that sale occurs between two interest pay-
ment dates (even though the amount is
treated as interest under §1.61–7(c) or (d)
and is subject to tax under section 871(a)
or 881(a)), unless the withholding agent
has knowledge of the amount paid as in-
terest. For purposes of this paragraph
(b)(2)(i), a withholding agent is treated as
having knowledge in the same manner as
a withholding agent has knowledge for
November 24, 1997141997–47 I.R.B.

purposes of §1.1441–2(b)(3)(ii), dealing
with withholding on original issue dis-
count. In addition, notwithstanding lack
of knowledge (within the meaning of
§1.1441–2(b)(3)(ii)), withholding is re-
quired on the entire amount of stated in-
terest paid with respect to the obligation
as determined as of the date of original
issue if the withholding agent, pursuant to
the provisions in §1.1441–1(b)(3), treats
the payment as made to a foreign payee
because it cannot associate the payment
with required documentation and the
amount would qualify as portfolio inter-
est. See §1.1441–1(b)(8) for adjustments
to any amount that has been overwithheld
as a result of this provision.
(ii) Applicable rules.Any exemption
from withholding pursuant to paragraph
(b)(2)(i) of this section applies without a
requirement that documentation be fur-
nished to the withholding agent. How-
ever, documentation may have to be fur-
nished for purposes of the information
reporting provisions under section 6049
and backup withholding under section
3406. See §1.6045–1(c) for reporting re-
quirements by brokers with respect to
sale proceeds. Any exemption from with-
holding under paragraph (b)(2)(i) of this
section is not a determination that the ac-
crued interest is not fixed or determinable
annual or periodical income. See §1.61–
7(c) regarding the character of payments
received by the acquirer of an obligation
subsequent to such acquisition (that is, as
a return of capital or interest accrued after
the acquisition).
* * * * *
Michael P. Dolan,
Acting Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on Octo-
ber 6, 1997, 8:45 a.m., and published in the issue of
the Federal Register for October 14, 1997, 62 F.R.
53503)
Test of Bankruptcy Appeals
Process
Announcement 97–111
TABLE OFCONTENTS
SECTION. 1. SUMMARY
SECTION. 2. PURPOSE AND SCOPE
.01 Purpose
.02 Disputes Eligible for Bankruptcy
Appeals Process
.03 How the Bankruptcy Appeals
Process Works
SECTION. 3. ENTRYINTO THE
PROCESS
.01 Requirements to Enter the Bank-
ruptcy Appeals Process
.02 Contacting the IRS for Information
or Entry
.03 Documentation Requirements
SECTION. 4. PROCESSING A
BANKRUPTCYDISPUTE
.01 Special Procedures Function
Process
.02 Appeals Process
SECTION 5. NO USER FEE
SECTION 6. EFFECTIVE DATE
DRAFTING INFORMATION
SECTION 1. SUMMARY
This Announcement describes a process
for quickly resolving certain IRS-related
disputes connected with a taxpayer’s
Bankruptcy Case. This administrative
process does not alter existing Bankruptcy
Court jurisdiction or procedures. With
this process, the IRS offers an administra-
tive method to eliminate litigation by re-
solving IRS-related bankruptcy disputes
that are raised by debtors (or debtors’es-
tates) against the Service in Bankruptcy
Court. Debtors can be individuals, corpo-
rations, trusts, or partnerships. This
process combines two Internal Revenue
Service functions to review these disputes:
the Office of Special Procedures within
the Collection Division, and the Office of
Appeals. The process in this announce-
ment is effective during the six month to
one-year test period beginning on Novem-
ber 6, 1997, the date this announcement is
released to the public. The test will be
conducted in four Internal Revenue Ser-
vice Districts: Houston, Indiana, New
England (Massachusetts Bankruptcy
courts only), and Southwest (Arizona
Bankruptcy Courts only).
SECTION 2. PURPOSE AND SCOPE
.01 Purpose
This process is being tested as a re-
sponse to the growing volume of bank-
ruptcy cases nationwide. It is intended to
alleviate Service-related litigation in U.S.
Bankruptcy Courts (established under
Title 28 U.S.C. § 151) and to provide
debtors with a fast and effective means to
resolve their disputes. These procedures
provide for a thorough review of the
debtor’s dispute with the Service and
offer an expedited appeal of any adverse
determination. Service representatives
will have substantial authority to settle
disputes under these procedures as well as
the authority to make all appropriate
changes to taxpayer accounts. If a bank-
ruptcy dispute is also eligible for the Col-
lection Appeals Program (CAP– see IRS
Publication 1660), taxpayers are re-
quested to use this bankruptcy process in-
stead because it is specifically designed to
resolve bankruptcy disputes.
.02 Disputes Eligible forConsideration
Underthe Bankruptcy Procedures
The following issues may be consid-
ered under the Bankruptcy Appeals
Process:
vDischargeability determinations
–other than when the Service asserts
lack of dischargeability under
B.C. § 523 (a)(1)(C) for willful
evasion of taxes
vProof of Claim and administrative
claim issues
vAutomatic stay violation issues
vSetoff and refund issues
vPreferences
This process is designed to resolve dis-
putes between the Service and a debtor or
a debtor’s estate at the earliest possible
date after the debtor has commenced the
bankruptcy proceeding. Only the debtor
or the debtor’s estate may seek resolution
of the issue with the Service by following
the procedures set forth in this announce-
ment. The Bankruptcy Appeals Process is
not available to third parties, such as com-
peting creditors, creditors’committees,
responsible persons of the debtor, or other
interested parties because of potential dis-
closure of taxpayer information that is
protected by I.R.C. § 6103. These third
parties can address their concerns, includ-
ing those regarding any settlement be-
tween the debtor or the debtor’s estate and
the Service, through existing Bankruptcy
Court procedures.
1997–47 I.R.B.15November 24, 1997

.03 The Bankruptcy Appeals Process
Disputes will be reviewed initially by
the Office of Special Procedures within
the Collection Division (SPf). SPf will
evaluate the merits of the debtor’s posi-
tion and make a determination of the
IRS’s position. If this decision is adverse
to the debtor, SPf will review the determi-
nation at the debtor’s request. If the final
decision of SPf is adverse to the debtor,
the debtor may appeal the decision to the
Office of Appeals. The Office of Appeals
will then review the matter and make an
independent decision. Where appropri-
ate, Appeals may offer a settlement in
order to avoid litigation. During process-
ing of the dispute, the debtor will have an
opportunity to confer with IRS represen-
tatives. However, due to the volume of
bankruptcy disputes, it is anticipated that
all conferences will be conducted over the
telephone. The processing for disputes
should be about 15 days if no appeal is
needed, and will generally be 30 days if
an appeal is requested.
SECTION 3. ENTERING THE
PROCESS
.01 Requirements to Enterthe
Bankruptcy Appeals Process
In order to enter the Bankruptcy Ap-
peals Process, a debtor must have filed a
petition in Bankruptcy Court in one of the
test districts and the bankruptcy case must
be open at the time this Process is initi-
ated (except in limited circumstances
where the bankruptcy case has been
closed out but the debtor believes that
Service actions are inconsistent with
Bankruptcy Court orders). Adebtor may
begin the process even though the debtor
has begun contesting the dispute in Bank-
ruptcy Court by filing an adversary pro-
ceeding or objecting to the Service’s
proof of claim. If the issue has already
been litigated before the Bankruptcy
Court, however, the Bankruptcy Appeals
Process is not available. SPf will advise
the debtor whether the debtor may begin
the Bankruptcy Appeals Process or must
wait until other Service functions com-
plete their work.
.02 Contacting the IRS forInforma-
tion orEntry into the Bankruptcy
Appeals Process
Information about the Bankruptcy Ap-
peals Process will be provided by the Of-
fice of Appeals. The Appeals site on the
World Wide Web contains a reprint of this
Announcement and may contain other
useful information. The address is:
http://www.irs.ustreas.gov/prod/ind_info/
appeals/index.html
Appeals can also be contacted directly at
each test site with inquiries about this
Process. The Appeals office phone and
FAX numbers are:
November 24, 1997161997–47 I.R.B.
Boston: (617) 565-7900 Houston: (281) 721-7241
FAX: (617) 565-8775 FAX: (281) 721-7220
Indianapolis: (317) 226-6540Phoenix: (602) 207-8114
FAX: (317) 226-5340FAX: (602) 207-8116
To enter this Process, a debtor must generally contact, either in writing or by telephone, the Office of Special Procedures in the
test district where the debtor filed the bankruptcy petition. These Special Procedures offices will not be able to provide general in-
formation about the Bankruptcy Appeals Process. They will only assist with entering the Process and will only provide information
that directly relates to entering the Process. The offices are:
Houston District:Indiana District:
IRS Insolvency IRS Insolvency
ATTN: ADR ATTN: ADR
1919 Smith P.O. Box 44211, Stop 41
Stop 5020 HOUIndianapolis, IN 46244
Houston, TX 77002 Telephone: (317) 226-6273
Telephone: (713) 209-3883
New England DistrictSouthwest District
(Massachusetts Bankruptcy Courts):(Arizona Bankruptcy Courts):
IRS InsolvencyIRS Insolvency
ATTN: ADRATTN: ADR
PO Box 9112210 E. Earll Drive
Stop 20800Stop 5012
John F. Kennedy BuildingPhoenix, Arizona 85012
Boston, MA02203Telephone: (602) 207-8546
Telephone: (617) 565-1589

.03 Required Documentation
Debtors must provide copies of their
Bankruptcy Court documents to begin the
Bankruptcy Appeals Process. Income tax
returns that have not been filed and are
past due must be filed before the Bank-
ruptcy Appeals Process can consider the
dispute, if evaluation of the dispute re-
quires their review. The returns may be
filed with SPf. The debtor must also pre-
sent any other documents or information
pertinent to the Service’s review of the
dispute upon beginning the Bankruptcy
Appeals Process. Within two workdays of
meeting all documentation requirements,
SPf will begin its review of the dispute.
SECTION 4. PROCESSING A
BANKRUPTCYDISPUTE
.01 SPf Procedures
SPf will complete its initial review
within ten workdays. Additional time
will be provided, when necessary, if SPf
must request documents from within the
Service (such as a return) or ask the
debtor to provide additional documenta-
tion. The IRS may cease processing the
debtor’s dispute if the debtor fails to pro-
vide necessary documentation. If the IRS
ceases case processing because the debtor
failed to provide necessary documenta-
tion, the debtor may begin the Process
again as described under Section 3.02 if
the debtor submits the necessary docu-
mentation.
If SPf agrees with the debtor’s position
on the dispute, SPf will determine what
actions are necessary to correct the matter
and will commence these actions immedi-
ately and complete them within 30 work-
days. If SPf disagrees with the debtor,
SPf will contact the debtor and inform the
debtor of SPf’s determination. At this
time, the debtor will be offered the right
to request that SPf review its decision. If
the debtor requests it, this review will be
completed within five workdays. If, after
reviewing its decision, SPf agrees with
the debtor, any actions to correct the mat-
ter will be commenced immediately and
will be completed within 30 workdays.
If the second review by SPf does not
support the debtor, SPf will immediately
advise the debtor by letter. The letter will
include an appeal request form which the
debtor must complete and mail back to
SPf within 10 workdays in order to obtain
an appeal. If the request is timely mailed,
the case will be forwarded to Appeals.
.02 Appeals Procedures
In order for a dispute to reach Appeals
under the Bankruptcy Appeals Process, the
dispute must have received a second re-
view by SPf under the Bankruptcy Appeals
Process (as described in Section 4.01).
The second review by SPf must have
reached a determination that is adverse to
the debtor’s interest, and the debtor must
have requested Appeals’consideration.
Case processing times by Appeals will
be as follows (except as extended by
agreement):
• For dischargeability determinations,
within 45 workdays of receipt in Appeals
• For all other issues specified in Sec-
tion 2.02, within 10 workdays of receipt
in Appeals.
After reaching a decision, Appeals will
send a letter to the debtor describing the
decision. The letter will state whether or
not Appeals agrees with the debtor’s posi-
tion and will describe any actions that will
be taken to correct the matter. Any cor-
rective actions will be commenced by SPf
within three workdays after Appeals
reaches a decision and will be completed
within 30 workdays. In the event of a de-
cision that is adverse to the debtor, no fur-
ther administrative recourse is available
to the debtor through the IRS.
SECTION 5. NO USER FEE
There is no user fee for this Process.
SECTION 6. EFFECTIVE DATE
These procedures are effective for dis-
putes of which SPf is notified during the
six months to one-year test period begin-
ning on November 6, 1997, the date this
announcement is released to the public.
At the end of the test period, the Service
will evaluate the Process and determine
whether to extend the test or to adopt the
Process on a nationwide basis, and
whether the Process may consider addi-
tional issues.
DRAFTING INFORMATION
The principal author of this announce-
ment is Gary Slayen, analyst for the Of-
fice of Field Services, National Office
Appeals. For further information regard-
ing this announcement, please contact Mr.
Slayen at (202) 401-6155 (not a toll-free
number).
Request for Public Comments
on Proposals to Modify Filing
Requirements for Exempt
Organizations Forms 990 and
990–EZ
Announcement 97–115
The Internal Revenue Service invites
comments from interested members of the
public on proposals it is considering to
modify the requirements for filing Form
990, Return of Organization Exempt
From Income Tax, and Form 990–EZ,
Short Form Return of Organization Ex-
empt From Income Tax.The comments
will be considered before final decisions
on the proposals are made.
Tax-exempt organizations, other than
private foundations, are, with certain ex-
ceptions for churches and other organiza-
tions, required to file Form 990 unless the
organization’s gross receipts do not nor-
mally exceed $25,000. An organization
may file Form 990–EZ instead of Form
990 if its gross receipts during the year
were less than $100,000, and its total as-
sets at the end of the year were less than
$250,000. Among the proposals being
considered by the Service is raising the
threshold for Form 990 (for example, to
$40,000 or $100,000), and a commensu-
rate increase in the gross receipts and total
asset thresholds for filing Form 990–EZ.
The Service invites comments from
tax-exempt organizations, as well as other
interested parties such as entities and indi-
viduals who use information reported on
Form 990 as to how to reduce the burden
on tax-exempt organizations while recog-
nizing the continuing need for informa-
tion as to the existence and operations of
such organizations. In addition, the Ser-
vice invites suggestions for less burden-
some alternative methods of periodic re-
porting by organizations excepted from
filing Form 990 that would provide the
Service with information necessary to
maintain and update computer lists of ex-
empt organizations.
The Service requests that written com-
ments be submitted by February 23, 1998.
Send submissions to CP:E:EO:P:1 (An-
nouncement 97–115), Room 6033, Inter-
1997–47 I.R.B.17November 24, 1997

nal Revenue Service, 1111 Constitution
Ave., NW, Washington, DC 20224. Sub-
missions may be hand-delivered between
the hours of 8 a.m. and 5 p.m. to
CP:E:EO:P:1, (Announcement 97–115),
Room 6033, Courier’s Desk, Internal Rev-
enue Service, 1111 Constitution Ave., NW,
Washington, DC. Alternatively, parties
may submit comments electronically via
the Internet by selecting the “Tax Regs in
English” option of the IRS Home Page or
by submitting comments directly to the
IRS Internet site at http://www.irs.us-
treas.gov/prod/tax_regs/comments.html.
The principal author of this announce-
ment is David Flavin of the Exempt Orga-
nizations Division, Projects Branch 1.
For further information regarding this an-
nouncement contact Mr. Flavin on (202)
622-7922 (not a toll-free call).
November 24, 1997181997–47 I.R.B.

1997–47 I.R.B.19November 24, 1997
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 Abut not
to B, and the new ruling holds that it ap-
plies to both Aand 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. Aruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is super-
seded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be pub-
lished that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current use and for-
merly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C.—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedral Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
Definition of Terms

November 24, 1997201997–47 I.R.B.
Numerical Finding List
1
Bulletins 1997–27 through 1997–46
Announcements:
97–61, 1997–29 I.R.B. 13
97–67, 1997–27 I.R.B. 37
97–68, 1997–28 I.R.B. 13
97–69, 1997–28 I.R.B. 13
97–70, 1997–29 I.R.B. 14
97–71, 1997–29 I.R.B. 15
97–72, 1997–29 I.R.B. 15
97–73, 1997–30 I.R.B. 86
97–74, 1997–31 I.R.B.16
97–75, 1997–32 I.R.B. 28
97–76, 1997–32 I.R.B. 28
97–77, 1997–33 I.R.B. 58
97–78, 1997–34 I.R.B. 11
97–79, 1997–35 I.R.B. 8
97–80, 1997–34 I.R.B. 12
97–81, 1997–34 I.R.B. 12
97–82, 1997–34 I.R.B. 12
97–83, 1997–34 I.R.B. 13
97–84, 1997–34 I.R.B. 13
97–85, 1997–35 I.R.B. 8
97–86, 1997–35 I.R.B. 9
97–87, 1997–35 I.R.B. 9
97–88, 1997–35 I.R.B. 9
97–89, 1997–36 I.R.B. 10
97–90, 1997–36 I.R.B. 10
97–91, 1997–37 I.R.B. 25
97–92, 1997–37 I.R.B. 26
97–93, 1997–36 I.R.B. 11
97–94, 1997–36 I.R.B. 12
97–95, 1997–36 I.R.B. 12
97–96, 1997–39 I.R.B.15
97–97, 1997–38 I.R.B. 22
97–98, 1997–39 I.R.B. 15
97–99, 1997–40 I.R.B. 7
97–100, 1997–40 I.R.B. 8
97–101, 1997–41 I.R.B. 13
97–102, 1997–41 I.R.B. 15
97–103, 1997–41 I.R.B. 16
97–104, 1997–42 I.R.B. 39
97–105, 1997–42 I.R.B. 40
97–106, 1997–45 I.R.B. 11
97–107, 1997–43 I.R.B. 25
97–108, 1997–43 I.R.B. 25
97–109, 1997–45 I.R.B. 12
97–110, 1997–45 I.R.B. 14
97–112, 1997–46 I.R.B. 20
97–113, 1997–46 I.R.B.21
97–114, 1997–46 I.R.B. 21
Court Decisions:
2061, 1997–31 I.R.B. 5
2062, 1997–32 I.R.B. 8
Delegation Orders:
97 (Rev. 34), 1997–41 I.R.B. 14
172 (Rev. 5), 1997–28 I.R.B. 6
Notices:
97–37, 1997–27 I.R.B. 4
97–38, 1997–27 I.R.B. 8
97–39, 1997–27 I.R.B. 8
97–40, 1997–28 I.R.B. 6
97–41, 1997–28 I.R.B. 6
Notices–Continued
97–42, 1997–29 I.R.B. 12
97–43, 1997–30 I.R.B. 9
97–44, 1997–31 I.R.B. 15
97–45, 1997–33 I.R.B. 7
97–46, 1997–34 I.R.B. 10
97–47, 1997–35 I.R.B. 5
97–48, 1997–35 I.R.B. 5
97–49, 1997–36 I.R.B. 8
97–50, 1997–37 I.R.B. 21
97–51, 1997–38 I.R.B. 20
97–52, 1997–38 I.R.B. 20
97–53, 1997–40 I.R.B. 6
97–54, 1997–41 I.R.B. 7
97–55, 1997–40 I.R.B. 6
97–56, 1997–43 I.R.B. 19
97–57, 1997–43 I.R.B. 19
97–58, 1997–45 I.R.B. 7
97–59, 1997–45 I.R.B. 7
97–60, 1997–46 I.R.B.8
Railroad Retirement Quarterly Rate:
1997–28 I.R.B. 5
Public Laws
105–35, 1997–43 I.R.B. 13
Proposed Regulations:
REG–104893–97, 1997–29 I.R.B. 13
REG–105160–97, 1997–37 I.R.B. 22
REG–106043–97, 1997–37 I.R.B. 24
REG–107644–97, 1997–32 I.R.B. 24
REG–208151–91, 1997–38 I.R.B. 21
REG–246250–96, 1997–42 I.R.B. 30
Revenue Procedures:
97–32, 1997–27 I.R.B. 9
97–32A, 1997–34 I.R.B. 10
97–33, 1997–30 I.R.B. 10
97–34, 1997–30 I.R.B.14
97–35, 1997–33 I.R.B. 11
97–36, 1997–33 I.R.B. 14
97–37, 1997–33 I.R.B. 18
97–38, 1997–33 I.R.B. 43
97–39, 1997–33 I.R.B. 48
97–40, 1997–33 I.R.B. 50
97–41, 1997–33 I.R.B. 5
97–42, 1997–33 I.R.B. 57
97–43, 1997–39 I.R.B. 12
97–44, 1997–41 I.R.B. 8
97–45, 1997–41 I.R.B. 10
97–46, 1997–42 I.R.B. 10
97–47, 1997–42 I.R.B. 19
97–48, 1997–43 I.R.B. 19
97–49, 1997–43 I.R.B. 22
97–50, 1997–45 I.R.B. 8
97–51, 1997–45 I.R.B. 9
97–52, 1997–46 I.R.B.17
Revenue Rulings:
97–27, 1997–27 I.R.B. 4
97–28, 1997–28 I.R.B. 4
97–29, 1997–28 I.R.B. 4
97–30, 1997–31 I.R.B.12
97–31, 1997–32 I.R.B.4
97–32, 1997–33 I.R.B. 4
97–33, 1997–34 I.R.B. 4
Revenue Rulings—
Continued
97–34, 1997–34 I.R.B. 14
97–35, 1997–35 I.R.B. 4
97–36, 1997–36 I.R.B. 5
97–37, 1997–37 I.R.B.15
97–38, 1997–38 I.R.B.14
97–39, 1997–39 I.R.B. 4
97–40, 1997–39 I.R.B. 8
97–41, 1997–40 I.R.B. 4
97–42, 1997–41 I.R.B. 4
97–43, 1997–42 I.R.B. 8
97–44, 1997–45 I.R.B. 5
97–45, 1997–46 I.R.B.4
97–46, 1997–46 I.R.B.7
Treasury Decisions:
8722, 1997–29 I.R.B. 4
8723, 1997–30 I.R.B. 4
8724, 1997–36 I.R.B. 4
8725, 1997–37 I.R.B. 16
8726, 1997–34 I.R.B. 7
8727, 1997–34 I.R.B. 5
8728, 1997–37 I.R.B. 4
8729, 1997–38 I.R.B. 4
8730, 1997–38 I.R.B. 16
8731, 1997–42 I.R.B. 6
8732, 1997–42 I.R.B. 4
8733, 1997–43 I.R.B. 8
8734, 1997–44 I.R.B. 5
8735, 1997–43 I.R.B. 4
1
Acumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 1997–1 through 1997–26
will be found in Internal Revenue Bulletin 1997–27,
dated July 7, 1997.

1997–47 I.R.B.21November 24, 1997
Finding List of Current Action on
Previously Published Items
1
Bulletins 1997–27 through 1997–46
*Denotes entry since last publication
Revenue Procedures:
82–36
Modified and superseded by
97–49, 1997–43 I.R.B. 22
96–36
Superseded by
97–34, 1997–30 I.R.B. 14
96–42
Superseded by
97–27, 1997–27 I.R.B. 9
97–32
Modified and amplified by
97–32A, 1997–34 I.R.B. 10
Revenue Rulings:
73–67
Revoked by
97–46, 1997–46 I.R.B. 7
89–42
Supplemented by
97–31, 1997–32 I.R.B. 4
93–76
Clarified, modified, partially
obsoleted, and superceded by
97–39, 1997–39 I.R.B 4
94–7
Clarified, modified, partially
obsoleted, and superceded by
97–39, 1997–39 I.R.B 4
1
Acumulative finding list for previously published
items mentioned in Internal Revenue Bulletins
1997–1 through 1997–26 will be found in Internal
Revenue Bulletin 1997–27, dated July 7, 1997.

November 24, 1997221997–47 I.R.B.
Notes

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