Internal Revenue Bulletin 2002-52 (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.

# Internal Revenue bulletin

Bulletin No. 2002-52
December 30, 2002

## HIGHLIGHTS OF THIS ISSUE

These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.

## INCOME TAX

Rev. Rul. 2002-85, page 986.

Section 368(a)(1)(D) reorganization. Guidance is provided as
to whether a transaction otherwise qualifying under section
368(a)(1)(D) of the Code will be prevented from so qualifying when
the acquiring corporation transfers the target corporation's as-
sets to a subsidiary controlled by the acquiring corporation. Rev.
Rul. 74-545 obsoleted.

Rev. Rul. 2002-87, page 989.

LIFO; price indexes; department stores. The October 2002
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, October 31, 2002.

Rev. Rul. 2002-89, page 984.

Captive insurance. This ruling considers circumstances un-
der which arrangements between a domestic parent corpora-
tion and its wholly owned insurance subsidiary constitute
insurance for federal income tax purposes. Rev. Rul. 2001-31
amplified.

Rev. Rul. 2002-90, page 985.

Captive insurance. This ruling considers circumstances un-
der which payments for professional liability coverage by a num-
ber of operating subsidiaries to an insurance subsidiary of a
common parent constitute insurance for federal income tax pur-
poses. Rev. Rul. 2001-31 amplified.

Rev. Rul. 2002-91, page 991.

Captive insurance; group captive. This ruling sets forth cir-
cumstances under which amounts paid to a group captive of un-
related insureds are deductible as insurance premiums and in
which the group captive qualifies as an insurance company.

## EMPLOYEE PLANS

Rev. Rul. 2002-88, page 995.

Duration of COBRA continuation coverage and divorce. This
ruling provides guidance on when COBRA continuation cov-
erage must commence if, in anticipation of divorce, an em-
ployee drops the coverage of a spouse under a group health plan
of the employee's employer.

## ESTATE TAX

Rev. Rul. 2002-86, page 993.
Combat zone-related deaths and deaths of victims of cer-
tain terrorist attacks. This ruling provides sample estate tax
calculations, under section 2201 of the Code, for the estates of
victims of specified terrorist attacks and members of the armed
forces who died as a result of active service in a combat zone.
Rev. Rul. 78-361 modified and superseded.

## EXCISE TAX

Rev. Rul. 2002-88, page 995.
Duration of COBRA continuation coverage and divorce. This
ruling provides guidance on when COBRA continuation cover-
age must commence if, in anticipation of divorce, an employee
drops the coverage of a spouse under a group health plan of the
employee's employer.

Announcement 2002-115, page 999.

The Service announces changes to excise tax rates effective af-
ter December 31, 2002.

Finding Lists begin on page ii.

Department of the Treasury
Internal Revenue Service

(Continued on the next page)

## ADMINISTRATIVE

### Notice 2002-77, page 997.

The Service and the Department of Treasury announce their in-
tention to amend section 1.367(a)-3(d) of the regulations to pro-
vide specifically that a U.S. person's exchange of stock or
securities of a corporation (the "acquired corporation") for stock
or securities of a foreign acquiring corporation in a reorganiza-
tion under section 368(a)(1)(D) of the Code in which the for-
eign acquiring corporation transfers part or all of the acquired
corporation's assets to a subsidiary, controlled by the acquir-
ing corporation pursuant to the plan of reorganization, consti-
tutes an indirect transfer of stock or securities by the U.S. person
to the foreign acquiring corporation.

Rev. Proc. 2002-75, page 997.

Qualification as insurance. This procedure modifies Rev. Proc.
2002-3, 2002-1 I.R.B. 117, by removing sections 4.01(11) and
4.01(41) from the list of areas in which the Service ordinarily will
not issue rulings or determination letters. These sections con-
cerned whether there is adequate risk shifting and risk distribu-
tion for a transaction to constitute insurance for federal income
tax purposes. Rev. Proc. 2002-3 modified.

## The IRS Mission

Provide America's taxpayers top quality service by helping them
understand and meet their tax responsibilities and by applying
the tax law with integrity and fairness to all.

## Introduction

The Internal Revenue Bulletin is the authoritative instrument of the
Commissioner of Internal Revenue for announcing official rul-
ings and procedures of the Internal Revenue Service and for pub-
lishing Treasury Decisions, Executive Orders, Tax Conventions,
legislation, court decisions, and other items of general inter-
est. It is published weekly and may be obtained from the Super-
intendent of Documents on a subscription basis. Bulletin contents
are consolidated semiannually into Cumulative Bulletins, which
are sold on a single-copy basis.

It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, modify,
or amend any of those previously published in the Bulletin. All pub-
lished rulings apply retroactively unless otherwise indicated. Pro-
cedures relating solely to matters of internal management are
not published; however, statements of internal practices and pro-
cedures that affect the rights and duties of taxpayers are pub-
lished.

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 taxpay-
ers or technical advice to Service field offices, identifying de-
tails 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 re-
lied on, used, or cited as precedents by Service personnel in the
disposition of other cases. In applying published rulings and pro-
cedures, the effect of subsequent legislation, regulations, court

decisions, rulings, and procedures must be considered, and Ser-
vice personnel and others concerned are cautioned against reach-
ing the same conclusions in other cases unless the facts and
circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

### Part I .- 1986 Code.

This part includes rulings and decisions based on provisions of
the Internal Revenue Code of 1986.

### Part II .- Treaties and Tax Legislation.

This part is divided into two subparts as follows: Subpart A, Tax
Conventions and Other Related Items, and Subpart B, Legisla-
tion and Related Committee Reports.

Part III .- Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these sub-
jects are contained in the other Parts and Subparts. Also in-
cluded in this part are Bank Secrecy Act Administrative Rulings.
Bank Secrecy Act Administrative Rulings are issued by the De-
partment of the Treasury's Office of the Assistant Secretary (En-
forcement).

### Part IV .- Items of General Interest.

This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.

The first Bulletin for each month includes a cumulative index for
the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the first Bulletin of the succeeding semiannual pe-
riod, respectively.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

## Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

### Section 162 .- Trade or Busi- ness Expenses

26 CFR 1.162-1: Business expenses.
(Also §§ 801, 831.)

Captive insurance. This ruling consid-
ers circumstances under which arrange-
ments between a domestic parent
corporation and its wholly owned insur-
ance subsidiary constitute insurance for fed-
eral income tax purposes.

### Rev. Rul. 2002-89

#### ISSUE

Are the amounts paid by a domestic par-
ent corporation to its wholly owned insur-
ance subsidiary deductible as "insurance
premiums" under § 162 of the Internal Rev-
enue Code?

#### FACTS

Situation 1. P, a domestic corporation,
enters into an annual arrangement with its
wholly owned domestic subsidiary S
whereby S "insures" the professional li-
ability risks of P either directly or as a re-
insurer of these risks. S is regulated as an
insurance company in each state where S
does business.

The amounts P pays to S under the ar-
rangement are established according to cus-
tomary industry rating formulas. In all
respects, the parties conduct themselves con-
sistently with the standards applicable to an
insurance arrangement between unrelated
parties.

In implementing the arrangement, S may
perform all necessary administrative tasks,
or it may outsource those tasks at prevail-
ing commercial market rates. P does not
provide any guarantee of S's performance,
and all funds and business records of P and
S are separately maintained. S does not loan
any funds to P.

In addition to the arrangement with P,
S enters into insurance contracts whereby
S serves as a direct insurer or a reinsurer
of the professional liability risks of enti-
ties unrelated to P or S. The risks of un-
related entities and those of P are
homogeneous. The amounts S receives from

these unrelated entities under these insur-
ance contracts likewise are established ac-
cording to customary industry rating
formulas.

The premiums S earns from the arrange-
ment with P constitute 90% of S's total pre-
miums earned during the taxable year on
both a gross and net basis. The liability cov-
erage S provides to P accounts for 90% of
the total risks borne by S.

Situation 2. Situation 2 is the same as
Situation 1 except that the premiums S earns
from the arrangement with P constitute less
than 50% of S's total premiums earned dur-
ing the taxable year on both a gross and net
basis. The liability coverage S provides to
P accounts for less that 50% of the total
risks borne by S.

#### LAW AND ANALYSIS

Section 162(a) of the Code provides, in
part, that there shall be allowed as a de-
duction all the ordinary and necessary ex-
penses paid or incurred during the taxable
year in carrying on any trade or business.

Section 1.162-1(a) of the Income Tax
Regulations provides, in part, that among
the items included in business expenses are
insurance premiums against fire, storms,
theft, accident, or other similar losses in the
case of a business.

Neither the Code nor the regulations de-
fine the terms "insurance" or "insurance
contract." The United States Supreme Court,
however, has explained that in order for an
arrangement to constitute insurance for fed-
eral income tax purposes, both risk shift-
ing and risk distribution must be present.
Helvering v. LeGierse, 312 U.S. 531 (1941).

randomly over time, the insurer smooths out
losses to match more closely its receipt of
premiums. Clougherty Packing Co. v. Com-
missioner, 811 F.2d 1297, 1300 (9th Cir.
1987). Risk distribution necessarily en-
tails a pooling of premiums, so that a po-
tential insured is not in significant part
paying for its own risks. See Humana, Inc.
v. Commissioner, 881 F.2d 247, 257 (6th
Cir. 1989).

No court has held that a transaction be-
tween a parent and its wholly-owned sub-
sidiary satisfies the requirements of risk
shifting and risk distribution if only the risks
of the parent are "insured." See Stearns-
Roger Corp. v. United States, 774 F.2d 414
(10th Cir. 1985); Carnation Co. v. Com-
missioner, 640 F.2d 1010 (9th Cir. 1981),
cert. denied 454 U.S. 965 (1981). How-
ever, courts have held that an arrange-
ment between a parent and its subsidiary
can constitute insurance because the par-
ent's premiums are pooled with those of un-
related parties if (i) insurance risk is present,
(ii) risk is shifted and distributed, and (iii)
the transaction is of the type that is insur-
ance in the commonly accepted sense. See,
e.g., Ocean Drilling & Exploration Co. v.
United States, 988 F.2d 1135 (Fed. Cir.
1993); AMERCO, Inc. v. Commissioner, 979
F.2d 162 (9th Cir. 1992).

S is regulated as an insurance company
in each state in which it transacts busi-
ness, and the arrangements between P and
S and between S and entities unrelated to
P or S are established and conducted con-
sistently with the standards applicable to an
insurance arrangement. P does not guar-
antee S's performance and S does not make
any loans to P; P's and S's funds and
records are separately maintained. The nar-
row question presented in Situation 1 and
Situation 2 is whether S underwrites suf-
ficient risks of unrelated parties that the ar-
rangement between P and S constitutes
insurance for federal income tax purposes.

In Situation 1, the premiums that S earns
from its arrangement with P constitute 90%
of its total premiums earned during the tax-
able year on both a gross and a net basis.
The liability coverage S provides to P ac-
counts for 90% of the total risks borne by
S. No court has treated such an arrange-
ment between a parent and its wholly-
owned subsidiary as insurance. To the

contrary, the arrangement lacks the requi-
site risk shifting and risk distribution to con-
stitute insurance for federal income tax
purposes.

In Situation 2, the premiums that S earns
from its arrangement with P constitute less
than 50% of the total premiums S earned
during the taxable year on both a gross and
a net basis. The liability coverage S pro-
vides to P accounts for less than 50% of
the total risks borne by S. The premiums
and risks of P are thus pooled with those
of the unrelated insureds. The requisite risk
shifting and risk distribution to constitute
insurance for federal income tax purposes
are present. The arrangement is insurance
in the commonly accepted sense.

### HOLDINGS

In Situation 1, the arrangement between
P and S does not constitute insurance for
federal income tax purposes, and amounts
paid by P to S pursuant to that arrange-
ment are not deductible as "insurance pre-
miums" under § 162.

In Situation 2, the arrangement between
P and S constitutes insurance for federal in-
come tax purposes, and the amounts paid
by P to S pursuant to that arrangement are
deductible as "insurance premiums" un-
der § 162.

### EFFECT ON OTHER DOCUMENTS

Rev. Rul. 2001-31, 2001-1 C.B. 1348,
is amplified.

### DRAFTING INFORMATION

The principal author of this revenue rul-
ing is John E. Glover of the Office of the
Associate Chief Counsel (Financial Insti-
tutions & Products). For further informa-
tion regarding this revenue ruling, contact
Mr. Glover at (202) 622-3970 (not a toll-
free call).

Captive insurance. This ruling consid-
ers circumstances under which payments for
professional liability coverage by a num-
ber of operating subsidiaries to an insur-
ance subsidiary of a common parent
constitute insurance for federal income tax
purposes.

Rev. Rul. 2002-90

ISSUE

Are the amounts paid for professional li-
ability coverage by domestic operating sub-
sidiaries to an insurance subsidiary of a
common parent deductible as "insurance
premiums" under § 162 of the Internal Rev-
enue Code?

FACTS

P, a domestic holding company, owns all
of the stock of 12 domestic subsidiaries that
provide professional services. Each sub-
sidiary in the P group has a geographic ter-
ritory comprised of a state in which the
subsidiary provides professional services.
The subsidiaries in the P group operate on
a decentralized basis. The services pro-
vided by the employees of each subsid-
iary are performed under the general
guidance of a supervisory professional for
a particular facility of the subsidiary. The
general categories of the professional ser-
vices rendered by each of the subsidiaries
are the same throughout the P group. To-
gether the 12 subsidiaries have a signifi-
cant volume of independent, homogeneous
risks.

P, for a valid non-tax business purpose,
forms S as a wholly-owned insurance sub-
sidiary under the laws of State C. P pro-
vides S adequate capital and S is fully
licensed in State C and in the 11 other states
where the respective operating subsidiar-
ies conduct their professional service busi-
nesses. S directly insures the professional
liability risks of the 12 operating subsid-
iaries in the P group. S charges the 12 sub-
sidiaries arms-length premiums, which are
established according to customary indus-
try rating formulas. None of the operat-
ing subsidiaries have liability coverage for
less than 5%, nor more than 15%, of the
total risk insured by S. S retains the risks
that it insures from the 12 operating sub-
sidiaries. There are no parental (or other re-
lated party) guarantees of any kind made
in favor of S. S does not loan any funds to
P or to the 12 operating subsidiaries. In all
respects, the parties conduct themselves in
a manner consistent with the standards ap-
plicable to an insurance arrangement be-
tween unrelated parties. S does not provide
coverage to any entity other than the 12 op-
erating subsidiaries.

### LAW AND ANALYSIS

Neither the Code nor the regulations de-
fine the terms "insurance" or "insurance
contract." The United States Supreme Court,
however, has explained that in order for an
arrangement to constitute "insurance" for
federal income tax purposes, both risk shift-
ing and risk distribution must be present.
Helvering v. LeGierse, 312 U.S. 531 (1941).

Risk shifting occurs if a person facing
the possibility of an economic loss trans-
fers some or all of the financial conse-
quences of the potential loss to the insurer,
such that a loss by the insured does not af-
fect the insured because the loss is offset
by the insurance payment. Risk distribu-
tion incorporates the statistical phenom-
enon known as the law of large numbers.
Distributing risk allows the insurer to re-
duce the possibility that a single costly
claim will exceed the amount taken in as
premiums and set aside for the payment of
such a claim. By assuming numerous rela-
tively small, independent risks that occur
randomly over time, the insurer smooths out
losses to match more closely its receipt of
premiums. Clougherty Packing Co. v. Com-
missioner, 811 F.2d 1297, 1300 (9th Cir.
1987). Risk distribution necessarily en-
tails a pooling of premiums, so that a po-
tential insured is not in significant part
paying for its own risks. See Humana Inc.
v. Commissioner, 881 F.2d 247, 257 (6th
Cir. 1989).

In Humana, the United States Court of
Appeals for the Sixth Circuit held that ar-
rangements between a parent corporation
and its insurance company subsidiary did
not constitute insurance for federal in-
come tax purposes. The court also held,
however, that arrangements between the in-
surance company subsidiary and several
dozen other subsidiaries of the parent (op-
erating an even larger number of hospi-
tals) qualified as insurance for federal

income tax purposes because the requi-
site risk shifting and risk distribution were
present. But see Malone & Hyde, Inc. v.
Commissioner, 62 F.3d 835 (6th Cir. 1995)
(concluding the lack of a business pur-
pose, the undercapitalization of the off-
shore captive insurance subsidiary and the
existence of related party guarantees es-
tablished that the substance of the trans-
action did not support the taxpayer's
characterization of the transaction as in-
surance). In Kidde Industries, Inc. v. United
States, 40 Fed. Cl. 42 (1997), the United
States Court of Federal Claims concluded
that an arrangement between the captive in-
surance subsidiary and each of the 100 op-
erating subsidiaries of the same parent
constituted insurance for federal income tax
purposes. As in Humana, the insurer in
Kidde insured only entities within its af-
filiated group during the taxable years at is-
sue.

In the present case, the professional li-
ability risks of 12 operating subsidiaries are
shifted to S. Further, the premiums of the
operating subsidiaries, determined at arms-
length, are pooled such that a loss by one
operating subsidiary is borne, in substan-
tial part, by the premiums paid by others.
The 12 operating subsidiaries and S con-
duct themselves in all respects as would un-
related parties to a traditional insurance
relationship, and S is regulated as an in-
surance company in each state where it does
business. The narrow question presented is
whether P's common ownership of the 12
operating subsidiaries and S affects the con-
clusion that the arrangements at issue are
insurance for federal income tax purposes.
Under the facts presented, we conclude the
arrangements between S and each of the 12
operating subsidiaries of S's parent consti-
tute insurance for federal income tax pur-
poses.

#### HOLDING

The amounts paid for professional li-
ability coverage by the 12 domestic oper-
ating subsidiaries to S are "insurance
premiums" deductible under § 162.

#### EFFECT ON OTHER DOCUMENTS

Rev. Rul. 2001-31, 2001-1 C.B. 1348,
is amplified.

#### DRAFTING INFORMATION

The principal author of this revenue rul-

ing is William Sullivan of the Office of the
Associate Chief Counsel (Financial Insti-
tutions & Products). For further informa-
tion regarding this revenue ruling, contact
Mr. Sullivan at (202) 622-3970 (not a toll-
free call).

A revenue ruling that sets forth circumstances un-
der which amounts paid to a group captive of unre-
lated insureds are deductible as insurance premiums.
See Rev. Rul. 2002-91, page 991.

##### Section 368 .- Definitions Relating to Corporate Reorganizations

26 CFR 1.368-1: Purpose and scope of exception for
reorganization exchanges.

Section 368(a)(1)(D) reorganization.
Guidance is provided as to whether a trans-
action otherwise qualifying under section
368(a)(1)(D) of the Code will be prevented
from so qualifying when the acquiring cor-
poration transfers the target corporation's
assets to a subsidiary controlled by the ac-
quiring corporation. Rev. Rul. 74-545 ob-
soleted.

## Rev. Rul. 2002-85

### ISSUE

Whether an acquiring corporation's trans-
fer of a target corporation's assets to a sub-
sidiary controlled by the acquiring cor-
poration as part of a plan of reorganiza-
tion will prevent a transaction that other-
wise qualifies as a reorganization under
§ 368(a)(1)(D) of the Internal Revenue Code
from so qualifying.

FACTS

A, an individual, owns 100 percent of
T, a state X corporation. A also owns 100
percent of P, a state Y corporation. For valid
business reasons and pursuant to a plan of
reorganization, (i) T transfers all of its as-
sets to P in exchange for consideration con-
sisting of 70 percent P voting stock and 30
percent cash, (ii) T then liquidates, distrib-
uting the P voting stock and cash to A, and
(iii) P subsequently transfers all of the T as-
sets to S, a preexisting, wholly owned state
X subsidiary of P, in exchange for stock of
S. S will continue T's historic business af-
ter the transfer and P will retain the S stock.

Without regard to P's transfer of all the T
assets to S, the transaction qualifies as a re-
organization under § 368(a)(1)(D).

LAW

Section 368(a)(1)(D) provides that the
term reorganization means a transfer by a
corporation of all or a part of its assets to
another corporation if immediately after the
transfer the transferor, or one or more of its
shareholders (including persons who were
shareholders immediately before the trans-
fer), or any combination thereof, is in con-
trol of the corporation to which the assets
are transferred; but only if, in pursuance of
the plan, stock or securities of the corpo-
ration to which the assets are transferred are
distributed in a transaction which quali-
fies under § 354, 355, or 356.

Section 354(a) provides that, in gen-
eral, no gain or loss shall be recognized if
stock or securities in a corporation a party
to a reorganization are, in pursuance of the
plan of reorganization, exchanged solely for
stock or securities in such corporation or
in another corporation a party to the reor-
ganization. Section 354(b)(1) provides that
§ 354(a) shall not apply to an exchange in
pursuance of a plan of reorganization within
the meaning of subparagraph (D) or (G) of
§ 368(a)(1) unless (A) the corporation to
which the assets are transferred acquires
substantially all of the assets of the trans-
feror of such assets; and (B) the stock, se-
curities, and other properties received by
such transferor, as well as the other prop-
erties of such transferor, are distributed in
pursuance of the plan of reorganization.

Section 368(a)(2)(A) provides that if a
transaction is described in both §§ 368
(a)(1)(C) and 368(a)(1)(D), then, for pur-
poses of subchapter C (other than for pur-
poses of § 368(a)(2)(C)), such transaction
shall be treated as described only in
§ 368(a)(1)(D).

Section 368(a)(2)(C) provides that a
transaction otherwise qualifying under
§ 368(a)(1)(A), (B), (C), or (G) shall not be
disqualified by reason of the fact that part
or all of the assets or stock which were ac-
quired in the transaction are transferred to
a corporation controlled (as defined in
§ 368(c)) by the corporation acquiring such
assets or stock.

Section 368(b) provides that the term "a
party to a reorganization" includes a cor-
poration resulting from a reorganization, and
both corporations in the case of a reorga-

nization resulting from the acquisition by
one corporation of the properties of an-
other.

Congress enacted § 368(a)(2)(C) in re-
sponse to the Supreme Court decisions in
Groman v. Commissioner, 302 U.S. 82
(1937), and Helvering v. Bashford, 302 U.S.
454 (1938). In Groman, the shareholders of
one corporation (Target) entered into an
agreement with another corporation (Par-
ent) pursuant to which Target would merge
into Parent's newly formed subsidiary (Sub).
In the transaction, the Target sharehold-
ers transferred their Target shares to Sub in
exchange for shares of Parent, shares of
Sub, and cash, and Target liquidated. The
Court concluded that, even though the statu-
tory definition of "party to a reorganiza-
tion" was not exclusive, Parent was not a
party to the reorganization because it re-
ceived nothing in the exchange. The Court
then stated that an exchange that is pursu-
ant to a plan of reorganization is not tax-
able to the extent the interest of the
stockholders of a corporation continue to
be definitely represented in substantial mea-
sure in a new or different corporation. The
stock of Parent, however, did not repre-
sent a continued substantial interest in the
assets conveyed to Sub. Because Parent was
not a party to the reorganization, the Court
held that the receipt of the stock of Par-
ent was taxable.

In Bashford, a corporation (Parent)
wished to acquire three competitors (Tar-
gets). Pursuant to a plan, Parent formed a
new corporation (Sub) and acquired all the
preferred shares and a majority of the com-
mon shares of Sub. Sub became the owner
of the stock and assets of the Targets. The
former stockholders of the Targets ex-
changed their shares in the Targets for
shares of Sub, shares of Parent, and cash.
Because any direct ownership by Parent of
the Targets was transitory and without real
substance, the Court saw no significant dis-
tinction between this transaction and the
transaction in Groman. Therefore, the Court
concluded that Parent was not a party to the
reorganization. Hence, the Parent stock re-
ceived by the shareholders of the Targets
did not confer the requisite continuity of in-
terest.

In 1954, Congress enacted § 368(a)(2)(C)
in response to Groman and Bashford. See
S. Rep. No. 1622, 83d Cong., 2d Sess. 52,
273, 275 (1954). As originally enacted,
§ 368(a)(2)(C) applied only to reorganiza-

tions under §§ 368(a)(1)(A) and
368(a)(1)(C), but Congress has since
amended the statute to apply to other re-
organizations. Specifically, Congress
amended § 368(a)(2)(C) in 1964 to apply
to reorganizations under § 368(a)(1)(B), and,
in 1980, to reorganizations under
§ 368(a)(1)(G).

Section 1.368-2(k)(1) of the Income Tax
Regulations restates the general rule of
§ 368(a)(2)(C) but permits the assets or
stock acquired in certain types of reorga-
nizations to be successively transferred to
one or more corporations controlled (as de-
fined in § 368(c)) in each transfer by the
transferor corporation without disqualify-
ing the reorganization.

Section 1.368-2(f) provides that, if a
transaction otherwise qualifies as a reor-
ganization, a corporation remains a party to
the reorganization even though the stock or
assets acquired in the reorganization are
transferred in a transaction described in
§ 1.368-2(k).

To qualify as a reorganization under
§ 368, a transaction must satisfy the con-
tinuity of business enterprise (COBE) re-
quirement. The COBE requirement is
intended to ensure that reorganizations are
limited to readjustments of continuing in-
terests in property under modified corpo-
rate form. Section 1.368-1(d)(1). Section
1.368-1(d)(1) provides that COBE requires
the issuing corporation (generally the ac-
quiring corporation) in a potential reorga-
nization to either continue the target
corporation's historic business or use a sig-
nificant portion of the target's historic busi-
ness assets in a business. Pursuant to
§ 1.368-1(d)(4)(i), the issuing corpora-
tion is treated as holding all of the busi-
nesses and assets of all members of its
qualified group. Section 1.368-1(d)(4)(ii)
defines a qualified group as one or more
chains of corporations connected through
stock ownership with the issuing corpora-
tion, but only if the issuing corporation
owns directly stock meeting the require-
ments of § 368(c) in at least one other cor-
poration, and stock meeting the
requirements of § 368(c) in each of the cor-
porations (except the issuing corporation)
is owned directly by one of the other cor-
porations.

In Rev. Rul. 88-48, 1988-1 C.B. 117,
in a taxable transaction, corporation X sold
50 percent of its historic business assets to
unrelated purchasers for cash. Immedi-

ately afterwards, pursuant to an overall plan,
X transferred to corporation Y, a corpora-
tion unrelated to X and the purchasers, all
of its assets, including the cash from the
sale. The ruling holds that X's transfer of
assets to Y satisfied the substantially all re-
quirement of § 368(a)(1)(C).

In Rev. Rul. 2001-25, 2001-1 C.B.
1291, pursuant to a plan, corporation S, a
wholly owned subsidiary of corporation P,
merged with and into corporation T in a
state law merger. Immediately after the
merger and as part of a plan that included
the merger, T sold 50 percent of its oper-
ating assets for cash to an unrelated cor-
poration. After the sale of the assets to
corporation X, T retained the sales pro-
ceeds. Without regard to the requirement
that T hold substantially all of the assets of
T and S immediately after the merger, the
merger satisfied all the other requirements
applicable to reorganizations under
§§ 368(a)(1)(A) and 368(a)(2)(E). The Ser-
vice ruled that even though T's post-merger
sale of 50 percent of its operating assets pre-
vented T from holding substantially all of
its historic business assets immediately af-
ter the merger, because the sales proceeds
continued to be held by T, the merger did
not violate the requirement of § 368(a)(2)(E)
that the surviving corporation hold sub-
stantially all of its properties after the trans-
action.

In Rev. Rul. 2001-24, 2001-1 C.B.
1290, corporation X merged with and into
corporation S, a newly organized, wholly
owned subsidiary of corporation P, in a
transaction intended to qualify as a reor-
ganization under §§ 368(a)(1)(A) and
368(a)(2)(D). S continued the historic busi-
ness of X following the merger. Follow-
ing the merger and as part of the plan of
reorganization, P transferred the S stock to
corporation S1, a preexisting, wholly owned
subsidiary of P. The Service ruled that the
transaction satisfied the continuity of busi-
ness enterprise requirement of § 1.368-
1(d). Analyzing whether P's transfer of the
S stock to S1 caused P to fail to control S
for purposes of § 368(a)(2)(D) and caused
P to fail to be a party to the reorganiza-
tion, the Service noted that the legislative
history of § 368(a)(2)(E) suggests that for-
ward and reverse triangular mergers should
be treated similarly. Section 1.368-2(k)(2)
permits the transfer of stock or assets to a
controlled corporation following a reverse
triangular merger under §§ 368(a)(1)(A) and

368(a)(2)(E), which supports permitting P
to transfer the S stock to S1 without caus-
ing the transaction to fail to qualify as a re-
organization under §§ 368(a)(1)(A) and
368(a)(2)(D). Furthermore, although
§§ 368(a)(2)(C) and 1.368-2(k) do not spe-
cifically address P's transfer of S stock to
S1 following a reorganization under
§§ 368(a)(1)(A) and 368(a)(2)(D), § 368
(a)(2)(C) is permissive rather than exclu-
sive or restrictive. Accordingly, the Ser-
vice concluded that the transfer of the S
stock to S1 would not cause P to be treated
as not in control of S for purposes of
§ 368(a)(2)(D) and would not cause P to fail
to be treated as a party to the reorganiza-
tion.

## ANALYSIS

Neither § 368(a)(2)(C) nor § 368(a)(2)(A)
indicates that an acquiring corporation's
transfer of assets to a controlled subsid-
iary necessarily prevents a transaction that
otherwise qualifies as a reorganization un-
der § 368(a)(1)(D) from so qualifying. Be-
cause § 368(a)(2)(C) is permissive and not
exclusive or restrictive, the absence of
§ 368(a)(1)(D) from § 368(a)(2)(C) does not
indicate that such a transfer following a
transaction that otherwise qualifies as a re-
organization under § 368(a)(1)(D) will pre-
vent the transaction from qualifying as such.
Furthermore, although § 368(a)(2)(A) con-
tains the parenthetical exception "other than
for purposes of [§ 368(a)(2)(C)]," that ex-
ception appears to have been provided in
the same spirit as § 368(a)(2)(C), i.e., to re-
solve doubts about the qualification of trans-
actions as reorganizations, and does not
indicate that the transfer of assets to a con-
trolled subsidiary necessarily prevents a
transaction from qualifying as a reorgani-
zation under § 368(a)(1)(D). See S. Rep. No.
313, 99th Cong., 2d Sess. 914 (1986).

Accordingly, an acquiring corporation's
transfer of assets to a controlled subsid-
iary following a transaction that other-
wise qualifies as a reorganization under
§ 368(a)(1)(D) will not cause a transac-
tion to fail to qualify as such, provided that
the original transferee is treated as acquir-
ing substantially all of the assets of the tar-
get corporation, the transaction satisfies the
COBE requirement and does not fail un-
der the remote continuity principle of Gro-
man and Bashford, and the transfer of assets
to a controlled corporation does not pre-

vent the original transferee from being a
"party to the reorganization."

Section 354(b)(1)(A) requires that, in a
reorganization under § 368(a)(1)(D), the cor-
poration to which the assets are transferred
acquire substantially all of the assets of the
transferor of such assets. In this case, the
requirement that P acquire substantially all
of T's assets is satisfied because P retains
the stock of S. See Rev. Rul. 2001-24; Rev.
Rul. 88-48.

To qualify as a reorganization under
§ 368(a)(1)(D), a transaction must satisfy
the COBE requirement of § 1.368-1(d). In
the present transaction, P and S constitute
a qualified group, and S will continue T's
historic business after the transfer. There-
fore, the transaction satisfies the COBE re-
quirement.

As described above, Congress enacted
§ 368(a)(2)(C) in response to the Supreme
Court's holdings in Groman and Bash-
ford. After the enactment of § 368(a)(2)(C),
however, the Service continued to apply the
principles of Groman and Bashford to trans-
actions that otherwise qualified as reorga-
nizations under § 368(a)(1)(B). See Rev.
Rul. 63-234, 1963-2 C.B. 148. In response
to this position, Congress expanded the
scope of § 368(a)(2)(C) to include reorga-
nizations under § 368(a)(1)(B). Congress'
response to the application of the prin-
ciples of Groman and Bashford has been to
limit the application of those principles. Im-
plicit in Congress' enactment and expan-
sion of § 368(a)(2)(C) is a rejection of the
principle that the transfer of acquired stock
or assets to a controlled subsidiary of the
acquiring corporation creates a remote con-
tinuity problem that causes a transaction that
otherwise qualifies as a reorganization to
fail to so qualify. See H.R. Rep. No. 1337,
83d Cong., 2d Sess. A134 (1954) (stat-
ing, after citing Groman and Bashford in
reference to proposed legislation that ulti-
mately became § 368(a)(2)(C), "a corpo-
ration may not acquire assets with the
intention of transferring them to a stranger").

Under the COBE regulations, stock or
assets acquired in transactions that satisfy
certain provisions of § 368(a)(1) may be
transferred without limitation to succes-
sive lower-tier controlled subsidiaries within
a qualified group. The Preamble to the fi-
nal COBE regulations states that "the IRS
and Treasury believe the COBE require-
ments adequately address the issues raised
in Groman and Bashford and their prog-

eny. Thus, [the final COBE regulations] do
not separately articulate rules addressing re-
mote continuity of interest." T.D. 8760,
1998-1 C.B. 803, Supplementary Informa-
tion (Explanation of Provisions). Accord-
ingly, a transfer of acquired stock or assets
will not cause a transaction to fail for re-
mote continuity if it satisfies the COBE re-
quirement.

Under the facts described above, P's
transfer of the T assets to S pursuant to the
plan of reorganization satisfies the COBE
requirement. Therefore, the transaction does
not fail for remote continuity.

Section 368(b) provides that the term "a
party to a reorganization" includes a cor-
poration resulting from a reorganization, and
both corporations in the case of a reorga-
nization resulting from the acquisition by
one corporation of the properties of an-
other. The use of the word "includes" in
§ 368(b) indicates that the definition of
"party to a reorganization" is not exclu-
sive. See § 7701(c); Groman, supra, at 86
(stating that “when an exclusive defini-
tion is intended the word 'means' is em-
ployed ... whereas [in the definition of
"party to a reorganization"] the word used
is 'includes"). Furthermore, § 1.368-2(f),
which interprets § 368(b), provides that, if
a transaction otherwise qualifies as a reor-
ganization, a corporation remains a party to
a reorganization even though the stock or
assets acquired in the reorganization are
transferred in a transaction described in
§ 1.368-2(k). Section 1.368-2(k) does not
reference § 368(a)(1)(D). Nonetheless, be-
cause § 1.368-2(k) restates and interprets
§ 368(a)(2)(C), which is a permissive and
not an exclusive or restrictive provision,
§ 1.368-2(k) also should be viewed as per-
missive and not exclusive or restrictive.
Therefore, because §§ 368(b), 1.368-2(f),
and 1.368-2(k) are not exclusive or restric-
tive provisions, the absence of
§ 368(a)(1)(D) from § 1.368-2(k) does not
prevent a corporation from remaining a
party to a reorganization even if the ac-
quired stock or assets are transferred to a
controlled subsidiary.

Reorganizations under § 368(a)(1)(D),
like reorganizations under §§ 368(a)(1)(A)
and 368(a)(1)(C), are asset reorganiza-
tions. In reorganizations under §§ 368
(a)(1)(A) and 368(a)(1)(C), the original
transferee is treated as a party to a reorga-
nization, even if the acquired assets are
transferred to a controlled subsidiary of the

original transferee. The differences be-
tween reorganizations under § 368(a)(1)(D)
on the one hand and reorganizations un-
der §§ 368(a)(1)(A) and 368(a)(1)(C) on the
other hand do not warrant treating the origi-
nal transferee in a transaction that other-
wise satisfies the requirements of a
reorganization under § 368(a)(1)(D) dif-
ferently from the original transferee in a re-
organization under § 368(a)(1)(A) or
368(a)(1)(C) for purposes of § 368(b).
Therefore, the original transferee in a trans-
action that otherwise satisfies the require-
ments of a reorganization under
§ 368(a)(1)(D) is treated as a party to the
reorganization, notwithstanding the origi-
nal transferee's transfer of acquired as-
sets to a controlled subsidiary of the original
transferee.

For the reasons set forth above, P's trans-
fer of the T assets to S will not prevent P's
acquisition of those assets from T in ex-
change for P voting stock and cash from
qualifying as a reorganization under
§ 368(a)(1)(D).

### HOLDING

An acquiring corporation's transfer of the
target corporation's assets to a subsidiary
controlled by the acquiring corporation as
part of a plan of reorganization will not pre-
vent a transaction that otherwise qualifies
as a reorganization under § 368(a)(1)(D)
from so qualifying.

### EFFECT ON OTHER REVENUE RULINGS

Rev. Rul. 74-545, 1974-2 C.B. 122, is
obsoleted. In Rev. Rul. 74-545, the Ser-
vice ruled that, for purposes of
§ 368(a)(2)(A), a transaction that quali-
fied as a reorganization under § 368(a)(1)(C)
was "described in" § 368(a)(1)(D) even
though it did not qualify as a reorganiza-
tion under § 368(a)(1)(D). In that ruling, the
target corporation did not satisfy the re-
quirement of § 354(b)(1)(B) because it did
not distribute all of its remaining assets
along with the stock of the acquiring cor-
poration. The Service reasoned that the pur-
pose of § 368(a)(2)(A) was to ensure that
divisive transactions would not be able to
avoid the requirements of § 355 by quali-
fying as a reorganization under
§ 368(a)(1)(C). Congress, however, re-
solved this problem in 1984 when it added
§ 368(a)(2)(G), which requires the target

corporation in a reorganization under
§ 368(a)(1)(C) to distribute the stock, se-
curities, and other properties that it re-
ceives, as well as its other properties, in
pursuance of the plan of reorganization. This
distribution requirement prevents divisive
reorganizations that are "described in"
§ 368(a)(1)(D) from qualifying as reorga-
nizations under § 368(a)(1)(C). Therefore,
Rev. Rul. 74-545 is obsolete.

### APPLICATION

Pursuant to § 7805(b)(8), the Service will
not apply the principles of this revenue rul-
ing to challenge a taxpayer's position that
a transaction that occurs on or before De-
cember 9, 2002, or a transaction that is ef-
fected pursuant to a written agreement
(subject to customary conditions) that is
binding on December 9, 2002, and at all
times thereafter until the date of the trans-
action does not qualify as a reorganiza-
tion under § 368(a)(1)(D), provided that, if
the taxpayer is the acquiring corporation (or
a shareholder of the acquiring corpora-
tion whose tax treatment of the transac-
tion reflects the tax treatment by the
acquiring corporation, such as a share-
holder of an acquiring S corporation), the
target corporation (and the shareholders of
the target corporation whose tax treatment
of the transaction reflects the tax treat-
ment by the target corporation) also treats
the transaction as not qualifying as a reor-
ganization under § 368(a)(1)(D) for Fed-
eral income tax purposes, and if the
taxpayer is the target corporation (or a
shareholder of the target corporation whose
tax treatment of the transaction reflects the
tax treatment by the target corporation), the
acquiring corporation (and the sharehold-
ers of the acquiring corporation whose tax
treatment of the transaction reflects the tax
treatment by the acquiring corporation) also
treats the transaction as not qualifying as
a reorganization under § 368(a)(1)(D) for
Federal income tax purposes.

In addition, if a U.S. person that is a
shareholder of a target corporation has taken
a position consistent with the principles of
this revenue ruling for a transfer occur-
ring on or after July 20, 1998, and on or
before December 9, 2002, which transfer
involved the U.S. person's exchange of
stock or securities of the target corpora-
tion for stock or securities of a foreign ac-
quiring corporation in which the foreign
acquiring corporation transferred part or all

of the acquired corporation's assets to a sub-
sidiary controlled by the acquiring corpo-
ration as part of the plan of reorganization,
then such transfer constituted an indirect
transfer of stock or securities by the U.S.
person to the foreign acquiring corpora-
tion. See §§ 1.367(a)-1T(c) and 1.367(a)-
3(d). To the extent such U.S. person has not
entered into a gain recognition agreement
(GRA) satisfying the requirements of
§ 1.367(a)-3(b)(1)(ii) or 1.367(a)-
3(c)(1)(iii)(B) in connection with a trans-
fer for which the U.S. person has taken a
position consistent with the principles of this
revenue ruling, the U.S. person will be
treated as having timely satisfied the re-
quirements for such a GRA if such U.S.
person attaches a GRA that otherwise com-
plies with the requirements of § 1.367(a)-8
to its timely filed (including extensions)
original tax return for the taxable year that
includes December 9, 2002.

Further, the Service and the Treasury are
considering amending the regulations un-
der § 368 to reflect the principles of this
revenue ruling.

## DRAFTING INFORMATION

The principal author of this revenue rul-
ing is Karen Lau of the Office of Chief
Counsel. For further information regard-
ing this revenue ruling, contact Ms. Lau at
(202) 622-3300 (not a toll-free call).

## Section 472 .- Last in, First-out Inventories

26 CFR 1.472-1: Last-in, first-out inventories.

LIFO; price indexes; department
stores. The October 2002 Bureau of La-
bor Statistics price indexes are accepted for
use by department stores employing the re-
tail inventory and last-in, first-out inven-
tory methods for valuing inventories for tax
years ended on, or with reference to,
October 31, 2002.

## Rev. Rul. 2002-87

The following Department Store Inven-
tory Price Indexes for October 2002 were
issued by the Bureau of Labor Statistics.
The indexes are accepted by the Internal
Revenue Service, under § 1.472-1(k) of the

Income Tax Regulations and Rev. Proc. 86-
46, 1986-2 C.B. 739, for appropriate ap-
plication 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, October 31,
2002.

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 to-
tal, which covers all departments, includ-
ing some not listed separately, except for
the following: candy, food, liquor, tobacco,
and contract departments.

# BUREAU OF LABOR STATISTICS, DEPARTMENT STORE INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS (January 1941 = 100, unless otherwise noted)

Groups

Oct. 2001

Oct. 2002

Percent Change from Oct. 2001 to Oct. 20021

1. Piece Goods

500.3

485.7

-2.9

Domestics and Draperies

592.0

581.6

-1.8

Women's and Children's Shoes

675.5

660.4

-2.2

Men's Shoes

872.5

895.6

2.6

Infants' Wear

631.1

628.9

-0.3

Women's Underwear

575.3

544.2

-5.4

Women's Hosiery

358.0

339.8

-5.1

Women's and Girls' Accessories

573.7

551.6

-3.9

Women's Outerwear and Girls' Wear

398.4

388.2

-2.6

10.

Men's Clothing

587.3

573.0

-2.4

11.

Men's Furnishings

628.2

599.3

4.6

12.

Boys' Clothing and Furnishings

490.5

459.4

-6.3

13.

Jewelry

919.6

897.1

-2.4

14.

Notions

797.1

808.9

1.5

15.

Toilet Articles and Drugs

981.6

975.1

-0.7

16.

Furniture and Bedding

628.8

626.4

-0.4

17.

Floor Coverings

616.0

592.6

-3.8

18.

Housewares

767.1

745.8

-2.8

19.

Major Appliances

224.1

223.7

-0.2

20.

Radio and Television

52.6

47.6

-9.5

21.

Recreation and Education2

89.2

85.2

-4.5

22.

Home Improvements2

125.4

124.6

-0.6

23. Auto Accessories2

110.2

111.3

1.0

Groups 1 - 15: Soft Goods

598.6

582.7

-2.7

Groups 16 - 20: Durable Goods

419.1

407.4

-2.8

Groups 21 - 23: Misc. Goods2

98.2

95.7

-2.5

Store Total3

532.4

518.1

-2.7

Absence of a minus sign before the percentage change in this column signifies a 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, food, li-
quor, tobacco, and contract departments.

# DRAFTING INFORMATION

The principal author of this revenue rul-
ing is Michael Burkom of the Office of As-
sociate Chief Counsel (Income Tax and
Accounting). For further information re-
garding this revenue ruling, contact
Mr. Burkom at (202) 622-7718 (not a toll-
free call).

# Section 692 .- Income Taxes of Members of Armed Forces and Victims of Certain Terror- ist Attacks on Death

How does the estate of a "qualified decedent," as
defined in secton 2201(b) of the Internal Revenue
Code, compute the federal estate tax under section
2201, as amended by the Victims of Terrorism Tax Re-
lief Act of 2001, Pub. L. No. 107-134, section 103,
115 Stat. 2427 (2002)? See Rev. Rul. 2002-86, page
993.

## Section 801 .- Tax Imposed

26 CFR 1.801-3: Definitions.

A revenue ruling that sets forth circumstances un-
der which arrangements between a domestic parent cor-
poration and its wholly owned insurance subsidiary
constitute insurance for Federal income tax pur-
poses. See Rev. Rul. 2002-89, page 984.

Whether a transaction where amounts are paid for
professional liability coverage by a number of do-
mestic operating subsidiaries to an insurance subsid-
iary of a common parent constitutes insurance for
Federal income tax purposes? See Rev. Rul. 2002-
90, page 985.

A revenue ruling that sets forth circumstances un-
der which a group captive of unrelated insureds quali-
fies as an insurance company. See Rev. Rul. 2002-
91, on this page.

# Section 831 .- Tax on Insur- ance Companies Other Than Life Insurance Companies

26 CFR 1.831-3: Tax on insurance companies (other
than life or mutual), mutual marine insurance com-
panies, mutual fire insurance companies issuing per-
petual policies, and mutual fire and flood insurance
companies operating on the basis of premium depos-
its; taxable years beginning after December 31, 1962.

(Also §§ 162, 801; 1.162-1, 1.801-3.)

Captive insurance; group captive. This
ruling sets forth circumstances under which
amounts paid to a group captive of unre-
lated insureds are deductible as insurance
premiums and in which the group captive
qualifies as an insurance company.

## Rev. Rul. 2002-91

ISSUE

Whether a "group captive" formed by a
relatively small group of unrelated busi-
nesses involved in a highly concentrated in-
dustry to provide insurance coverage is an
insurance company within the meaning of
§ 831 of the Internal Revenue Code un-
der the circumstances described below.

FACTS

X is one of a small group of unrelated
businesses involved in one highly concen-
trated industry. Businesses involved in this
industry face significant liability hazards.
X and the other businesses involved in this
industry are required by regulators to main-
tain adequate liability insurance coverage
in order to continue to operate. Businesses
that participate in this industry have sus-
tained significant losses due to the occur-
rence of unusually severe loss events. As
a result, affordable insurance coverage for
businesses that participate in this industry
is not available from commercial insur-
ance companies.

X and a significant number of the busi-
nesses involved in this industry (Mem-
bers) form a so-called "group captive" (GC)
to provide insurance coverage for stated li-
ability risks. GC provides insurance only to
X and the other Members. The business op-
erations of GC are separate from the busi-
ness operation of each Member. GC is
adequately capitalized.

No Member owns more than 15% of
GC, and no Member has more than 15%
of the vote on any corporate governance is-
sue. In addition, no Member's individual
risk insured by GC exceeds 15% of the to-
tal risk insured by GC. Thus, no one mem-
ber controls GC.

GC issues insurance contracts and
charges premiums for the insurance cov-
erage provided under the contracts. GC uses
recognized actuarial techniques, based, in
part, on commercial rates for similar cov-
erage, to determine the premiums to be
charged to an individual Member.

GC pools all the premiums it receives
in its general funds and pays claims out of
those funds. GC investigates any claim
made by a Member to determine the va-
lidity of the claim prior to making any pay-
ment on that claim. GC conducts no other
business than the issuing and administer-
ing of insurance contracts.

No Member has any obligation to pay
GC additional premiums if that Member's
actual losses during any period of cover-
age exceed the premiums paid by that
Member. No Member will be entitled to a
refund of premiums paid if that Member's
actual losses are lower than the premi-
ums paid for coverage during any period.
Premiums paid by any Member may be
used to satisfy claims of the other Mem-
bers. No Member that terminates its insur-
ance coverage or sells its ownership interest
in GC is required to make additional pre-
mium or capital payments to GC to cover
losses in excess of its premiums paid. More-
over, no Member that terminates its cov-
erage or disposes of its ownership interest
in GC is entitled to a refund of premiums
paid in excess of insured losses.

### LAW AND ANALYSIS

Section 831(a) of the Code provides that
taxes computed under section 11 are im-

posed for each tax year on the taxable in-
come of every insurance company other
than a life insurance company.

Section 1.801-3(a) provides that an in-
surance company is "a company whose pri-
mary and predominant business activity is
the issuing of insurance or annuity con-
tracts or the reinsuring of risks underwrit-
ten by insurance companies."

Risk shifting occurs if a person facing
the possibility of an economic loss trans-
fers some or all of the financial conse-
quences of the potential loss to the insurer,
such that a loss by the insured does not af-
fect the insured because the loss is offset
by the insurance payment. Risk distribu-
tion incorporates the statistical phenom-
enon known as the law of large numbers.
Distributing risk allows the insurer to re-
duce the possibility that a single costly
claim will exceed the amount taken in as
premiums and set aside for the payment of
such a claim. By assuming numerous rela-
tively small, independent risks that occur
randomly over time, the insurer smooths out
losses to match more closely its receipt of
premiums. Clougherty Packing Co. v. Com-
missioner, 811 F.2d 1297, 1300 (9th Cir.
1987). Risk distribution necessarily en-
tails a pooling of premiums, so that a po-
tential insured is not in significant part
paying for its own risks. See Humana, Inc.
v. Commissioner, 881 F.2d 247, 257 (6th
Cir. 1989).

No court has held that a transaction be-
tween a parent and its wholly-owned sub-
sidiary satisfies the requirements of risk
shifting and risk distribution if only the risks
of the parent are "insured." See Stearns-
Roger Corp. v. United States, 774 F.2d 414
(10th Cir. 1985); Carnation Co. v. Com-
missioner, 640 F.2d 1010 (9th Cir. 1981),
cert. denied, 454 U.S. 965 (1981). How-
ever, courts have held that an arrange-
ment between a parent and its subsidiary
can constitute insurance because the par-
ent's premiums are pooled with those of un-
related parties if (i) insurance risk is present,
(ii) risk is shifted and distributed, and (iii)
the transaction is of the type that is insur-

ance in the commonly accepted sense. See,
e.g., Ocean Drilling & Exploration Co. v.
United States, 988 F.2d 1135 (Fed. Cir.
1993); AMERCO, Inc. v. Commissioner, 979
F.2d 162 (9th Cir. 1992).

Additional factors to be considered in de-
termining whether a captive insurance trans-
action is insurance include: whether the
parties that insured with the captive truly
face hazards; whether premiums charged by
the captive are based on commercial rates;
whether the validity of claims was estab-
lished before payments are made; and
whether the captive's business operations
and assets are kept separate from the busi-
ness operations and assets of its sharehold-
ers. Ocean Drilling & Exploration Co. at
1151.

In Rev. Rul. 2001-31, 2001-1 C.B.1348,
the Service stated that it will not invoke the
economic family theory in Rev. Rul. 77-
316 with respect to captive insurance ar-
rangements. Rev. Rul. 2001-31 provides,
however, that the Service may continue to
challenge certain captive insurance trans-
actions based on the facts and circum-
stances of each case.

Rev. Rul. 78-338, 1978-2 C.B.107, pre-
sented a situation in which 31 unrelated cor-
porations created a group captive insurance
company to provide those corporations with
insurance that was not otherwise avail-
able. In that ruling, none of the unrelated
corporations held a controlling interest in
the group captive. In addition, no indi-
vidual corporation's risk exceeded 5 per-
cent of the total risks insured by the group
captive. The Service concluded that be-
cause the corporations that owned, and were
insured by, the group captive were not eco-
nomically related, the economic risk of loss
could be shifted and distributed among the
shareholders that comprised the insured
group.

X and the other Members face true in-
surable hazards. X and the other Mem-
bers are required to maintain general
liability insurance coverage in order to con-
tinue to operate in their industry. X and the
other Members are unable to obtain afford-
able insurance from unrelated commer-
cial insurers due to the occurrence of
unusually severe loss events. Notwithstand-
ing the fact that the group of Members is
small, there is a real possibility that a Mem-
ber will sustain a loss in excess of the pre-
miums it paid. No individual Member will
be reimbursed for premiums paid in ex-

cess of losses sustained by that Member. Fi-
nally, X and the other Members are
unrelated. Therefore, the contracts issued by
GC to X and the other Members are insur-
ance contracts for federal income tax pur-
poses, and the premiums paid by the
Members are deductible under § 162.

GC is an entity separate from its own-
ers. GC is adequately capitalized. GC is-
sues insurance contracts, charges premiums,
and pays claims after investigating the va-
lidity of the claim. GC will not engage in
any business activities other than issuing and
administering insurance contracts. Premi-
ums charged by GC will be actuarially de-
termined using recognized actuarial
techniques, and will be based, in part, on
commercial rates. As GC's only business ac-
tivity is the business of insurance, it is taxed
as an insurance company.

### HOLDING

The arrangement between X and GC
constitutes insurance for federal income tax
purposes, and the amounts paid as "insur-
ance premiums" by X to GC pursuant to
that arrangement are deductible as ordi-
nary and necessary business expenses. GC
is in the business of issuing insurance and
will be treated as an insurance company tax-
able under § 831.

### DRAFTING INFORMATION

The principal author of this revenue rul-
ing is Melissa Luxner of the Office of the
Associate Chief Counsel (Financial Insti-
tutions & Products). For further informa-
tion regarding this revenue ruling, contact
Ms. Luxner at (202) 622-3142 (not a toll-
free call).

# Section 2001 .- Imposition and Rate of Tax

26 CFR 20.2001-1: Valuation of adjusted taxable gifts
and section 2701(d) taxable events.

How does the estate of a "qualified decedent," as
defined in section 2201(b) of the Internal Revenue
Code, compute the federal estate tax under section
2201, as amended by the Victims of Terrorism Tax Re-
lief Act of 2001, Pub. L. No. 107-134, section 103,
115 Stat. 2427 (2002)? See Rev. Rul. 2002-86, page
993.

# Section 2010 .- Unified Credit Against Estate Tax

## Section 2011 .- Credit for State Death Taxes

26 CFR 20.2011-1: Credit for state death taxes.

## Section 2058 .- State Death Taxes

# Section 2201 .- Combat Zone-Related Deaths of Members of the Armed Forces and Deaths of Victims of Certain Terrorist Attacks

26 CFR 20.2201-1: Members of the Armed Forces
dying during an induction period.
(Also §§ 692, 2001, 2010, 2011, 2058, 6018;
20.2001-1, 20.2011-1.)

Combat zone-related deaths and
deaths of victims of certain terrorist at-
tacks. This ruling provides sample estate
tax calculations, under section 2201 of the
Code, for the estates of victims of speci-
fied terrorist attacks and members of the
armed forces who died as a result of ac-
tive service in a combat zone.

ISSUE

How does the estate of a "qualified de-
cedent," as defined in § 2201(b) of the In-
ternal Revenue Code, compute the federal
estate tax under § 2201, as amended by the
Victims of Terrorism Tax Relief Act of
2001, Pub. L. No. 107-134, § 103, 115 Stat.
2427 (2002)?

## FACTS

D, a resident of state X, is a qualified de-
cedent. During D's lifetime, D did not make
any adjusted taxable gifts (defined in
§ 2001(b)). In filing Form 706, the United
States Estate (and Generation-Skipping
Transfer) Tax Return, D's executor does not
elect out of the application of § 2201(a). D's
estate pays the applicable state death tax im-
posed by state X.

Situation 1. D died in 2001, a year in
which state X imposed a state death tax
equal to the state death tax credit allow-
able under § 2011(a). The amount of D's
taxable estate is $2,936,818.

Situation 2. The facts are the same as in
Situation 1, except that the amount of D's
taxable estate is $8,762,500.

Situation 3. D dies in 2005, a year in
which state X imposes a state death tax
equal to the state death tax credit that would
have been allowable under § 2011(a) as it
existed prior to the passage of the Eco-
nomic Growth and Tax Relief Reconcilia-
tion Act of 2001 (EGTRRA), Pub. L. No.
107-16, 115 Stat. 38 (2001). The amount
of D's taxable estate before the deduction
for state death taxes is $5,953,939.

## LAW AND ANALYSIS

Section 2001(a) imposes an estate tax on
the transfer of the taxable estate of every
decedent who is a U.S. citizen or resi-
dent. The estate tax is computed using the
rate schedule contained in § 2001(c).

Section 2201(a) provides that for pur-
poses of computing the federal estate tax
of the estate of a qualified decedent, the rate
schedule set forth in § 2201(c) shall be used
instead of the rate schedule contained in
§ 2001(c), unless the executor of the es-
tate elects not to have § 2201 apply.

Under § 2201(b), a qualified decedent is:
(1) any citizen or resident of the United
States dying while in active service of the

Armed Forces of the United States, if the
decedent (a) was killed in action while serv-
ing in a combat zone, or (b) died as a re-
sult of wounds, disease, or injury suffered,
while serving in a combat zone, and while
in the line of duty, by reason of a hazard
to which the decedent was subjected as an
incident of the service; and (2) any speci-
fied terrorist victim, as defined by
§ 692(d)(4).

Under § 692(d)(4), a "specified terror-
ist victim" is any decedent who dies as a
result of wounds or injury incurred as a re-
sult of the terrorist attacks against the United
States on April 19, 1995, or September 11,
2001, or who dies as a result of illness in-
curred as a result of an attack involving an-
thrax occurring on or after September 11,
2001, and before January 1, 2002. Any in-
dividual identified by the Attorney Gen-
eral to have been a participant or conspirator
in any such attack or a representative of ei-
ther is not a specified terrorist victim.

If § 2201 applies, the estate tax (includ-
ing the aggregate amount of gift tax pay-
able on any adjusted taxable gifts under
§ 2001(b)(2)) is computed in the same man-
ner as provided in § 2001(b), except that the
rate schedule provided in § 2201(c) is used
to compute the tax instead of the rate sched-
ule in § 2001(c). The rate schedule con-
tained in § 2001(c) continues to be used to
determine the applicable credit amount (the
unified credit) available to the estate un-
der § 2010(c).

Section 2011(f), added by EGTRRA
§ 532(a) as § 2011(g) and redesignated as
§ 2011(f) by the Victims of Terrorism Tax
Relief Act of 2001 § 103(b)(1), provides that
the state death tax credit under § 2011 will
not be allowable to the estates of dece-
dents dying after December 31, 2004. In-
stead, the estates of decedents dying after
that date will be allowed a deduction un-
der § 2058(a) for estate and inheritance
taxes actually paid to any state or the Dis-
trict of Columbia in respect of any prop-
erty included in the gross estate. Thus,
beginning in 2005, no state death taxes will
be owed by a decedent's estate to a juris-
diction that imposes a death tax only equal
to the allowable federal credit for state death
taxes.

Many states, however, impose state death
taxes based on the state death tax credit
computed under § 2011 as it existed prior
to the passage of EGTRRA or on some
other basis unrelated to the amount of any

federal credit. Beginning in 2005, state death
taxes paid to these jurisdictions will be de-
ductible in computing a decedent's tax-

able estate, provided all the requirements
of § 2058 are satisfied. These state death
taxes will reduce an estate's federal es-

tate tax liability but will increase the to-
tal death tax liability.

In Situation 1 and Situation 2, D died in 2001, a year in which a state death tax credit was allowable under § 2011 and state X
imposed a state death tax equal to the allowable § 2011 credit. Accordingly, in Situation 1, D's estate will have no federal estate
tax liability and no state death tax liability, as follows:

Taxable Estate

$ 2,936,818

Tentative Estate Tax Computed under Rate Schedule in § 2201(c)

$ 220,550

Less: Allowable Unified Credit under § 2010(a) and (c)

$ (220,550)

Subtotal

$ 0

Less: State Death Tax Credit under § 2011 in Excess of Subtotal

$ (0)

Federal Estate Tax

$ 0

In Situation 2, D's estate will have no federal estate tax liability but will have a state death tax liability of $882,200, as follows:

Taxable Estate

$
8,762,500

Tentative Estate Tax Computed under Rate Schedule in § 2201(c)

$
1,102,750

Less: Allowable Unified Credit under § 2010(a) and (c)

$
(220,550)

Subtotal

882,200

Less: State Death Tax Credit under § 2011

(882,200)

Federal Estate Tax

$
0

In Situation 3, D dies in 2005, a year in which state death taxes qualify for a deduction under § 2058, rather than a credit under
§ 2011. State X imposes a state death tax equal to the credit that would have been allowable under § 2011 prior to amendments by
EGTRRA. Accordingly, D's estate will have no federal estate tax liability but will pay a state death tax of $505,273, as follows:

Taxable Estate Before Application of the § 2058 Deduction

$ 5,953,939

Deduction for State Death Taxes Paid under § 2058

$ (505,273)

Taxable Estate

$ 5,448,666

Tentative Estate Tax Computed under Rate Schedule in § 2201(c)

$ 555,800

Less: Allowable Unified Credit under § 2010(a) and (c)

$ (555,800)

Federal Estate Tax

$ 0

Under § 6018(a)(1), a Form 706 must be
filed for the estate of a decedent who is a
U.S. citizen or resident who dies in 2001
if the gross estate exceeds $675,000 (the ap-
plicable credit amount). This amount in-
creases to $1,000,000 in years 2002-2003,
$1,500,000 in years 2004-2005, $2,000,000
in years 2006-2008, and $3,500,000 in year
2009. (The applicable credit amount for
non-resident non-citizens is lower than these
amounts.) Accordingly, in Situations 1, 2,
and 3, D's estate must file a Form 706 not-
withstanding that no federal estate tax is
due.

## HOLDINGS

In Situations 1 and 2, no federal estate
tax is due for a qualifying decedent who
died in the year 2001 if the taxable estate
is not more than $8,762,500 and the state
imposes a death tax that is at least equal to
the state death tax credit under § 2011. If
the taxable estate exceeds $2,936,818, how-
ever, a state death tax will be due.

In Situation 3, under current law, no fed-
eral estate tax will be due for a qualify-
ing decedent who dies in the year 2005 if
the taxable estate before the deduction for
state death taxes does not exceed
$5,953,939 and the state imposes a state
death tax equal to the state death tax credit
under § 2011 as it existed prior to
EGTRRA. However, the state death tax will
be due.

## EFFECT ON OTHER REVENUE RULINGS

Rev. Rul. 78-361, 1978-2 C.B. 246, is
modified and superseded.

## DRAFTING INFORMATION

The principal author of this revenue rul-
ing is Mayer Samuels of the Office of the
Associate Chief Counsel (Passthroughs and
Special Industries). For further informa-
tion regarding this revenue ruling, con-
tact Mr. Samuels at (202) 622-3090 (not a
toll-free call).

## Section 4980B .- Continuation Coverage Requirements of Group Health Plans

26 CFR 54.4980B-7: Duration of COBRA continu-
ation coverage.

Duration of COBRA continuation cov-
erage and divorce. This ruling provides
guidance on when COBRA continuation
coverage must commence if, in anticipa-
tion of divorce, an employee drops the cov-
erage of a spouse under a group health plan
of the employee's employer.

## Rev. Rul. 2002-88

### ISSUE

If an employee eliminates the cover-
age of the employee's spouse under a group
health plan in anticipation of their divorce,
when must a plan that is required to make
COBRA continuation coverage available to
the spouse begin to make that coverage
available?

### FACTS

A group health plan subject to COBRA
allows eligible employees to elect cover-
age for themselves and their spouses. An
employee who has elected coverage for the
employee's spouse can notify the plan to
eliminate the spouse's coverage, and the
spouse's coverage will be terminated as of
the end of the month in which the notice
is provided. Under the terms of the plan,
a spouse loses eligibility for coverage on
the date of divorce from an eligible em-
ployee.

Employee E is enrolled in the group
health plan and elected coverage for E's
spouse. A decree of divorce is issued dis-
solving the marriage of E and E's spouse.
In anticipation of their divorce, E noti-
fied the plan administrator to eliminate the
coverage for E's spouse, and coverage for
E's spouse was terminated as of the last day
of the month. There are no facts to indi-
cate that E's spouse would have other-
wise lost coverage under the plan before the
divorce. The plan administrator is pro-
vided notice of the divorce within 60 days
after the issuance of the divorce decree.

### LAW AND ANALYSIS

Section 4980B of the Internal Revenue
Code requires certain group health plans to
make continuation coverage available to cer-
tain individuals who would otherwise lose
their coverage under the plan as a result of

certain occurrences (the "COBRA continu-
ation coverage requirements"). Section
4980B imposes an excise tax if a plan sub-
ject to the COBRA continuation coverage
requirements fails to comply with those re-
quirements.

Under section 4980B, the obligation of
a plan to make COBRA continuation cov-
erage available arises in connection with a
qualifying event. The individuals to whom
the COBRA continuation coverage must be
made available are qualified beneficia-
ries.

Under Q&A-1 of § 54.4980B-3 of the
Miscellaneous Excise Tax Regulations, an
individual generally is a qualified benefi-
ciary if the individual is covered under a
group health plan on the day before a quali-
fying event by virtue of being on that day
the spouse of a covered employee.

Under Q&A-1 of § 54.4980B-4, a di-
vorce or legal separation of a covered em-
ployee from the covered employee's spouse
is a qualifying event if, under the terms of
the plan, the divorce or legal separation
causes the spouse (or a dependent child of
the covered employee) to lose coverage un-
der the plan. Paragraph (c) in Q&A-1 of
§ 54.4980B-4 states that if coverage is
eliminated in anticipation of a qualifying
event, such as an employee's eliminating the
coverage of the employee's spouse in an-
ticipation of a divorce or legal separa-
tion, the elimination is disregarded in
determining whether the qualifying event
causes a loss of coverage.

Q&A-1 of § 54.4980B-7 states that
COBRA continuation coverage must be pro-
vided for a period that begins on the date
of the qualifying event. Under Q&A-1 and
Q&A-4 of § 54.4980B-7, a plan gener-
ally has the obligation to make COBRA
continuation coverage available to a quali-
fied beneficiary in the case of a divorce or
legal separation for 36 months after the date
of the divorce or legal separation. This ob-
ligation can end earlier for a variety of rea-
sons, such as failure to make timely
payment to the plan for the qualified ben-
eficiary's coverage.

Q&A-2 of § 54.4980B-6 provides that
a group health plan is not required to of-
fer a qualified beneficiary the opportu-
nity to elect COBRA continuation coverage
in the case of a divorce or legal separa-
tion if notice of the divorce or legal sepa-
ration is not provided to the plan
administrator within 60 days after the later

of the date of the divorce or legal separa-
tion or the date the qualified beneficiary
would lose coverage on account of the di-
vorce or legal separation.

E eliminated the coverage of E's spouse
in anticipation of their divorce. Under the
regulations, this elimination is ignored in
determining whether the divorce is a quali-
fying event. There are no facts to indi-
cate that E's spouse would have otherwise
lost coverage under the plan before the di-
vorce. Thus, if the elimination in anticipa-
tion of the divorce is ignored, E's spouse
would have remained covered until the di-
vorce and then lost coverage because of it.
Consequently, the divorce is a qualifying
event and E's former spouse is a quali-
fied beneficiary. Because notice of the di-
vorce was provided to the plan administrator
within 60 days after the issuance of the di-
vorce decree, the plan has an obligation to
make COBRA continuation coverage avail-
able to E's former spouse for a period of
up to 36 months.

The period of COBRA continuation cov-
erage begins on the date of the qualifying
event. There is no authority under the stat-
ute or regulations for requiring a plan to
make COBRA continuation coverage avail-
able before the date of a qualifying event.
Thus, the group health plan in the facts de-
scribed above has the obligation to make
COBRA continuation coverage available to
E's former spouse effective as of the date
of the divorce for a period of up to 36
months.

#### HOLDING

If an employee eliminates the cover-
age of the employee's spouse under a group
health plan in anticipation of their divorce,
a plan that is required to make COBRA
continuation coverage available to the
spouse must begin to make that coverage
available as of the date of the divorce.

### DRAFTING INFORMATION

The principal author of this revenue rul-
ing is Russ Weinheimer of the Office of Di-
vision Counsel/Associate Chief Counsel
(Tax Exempt and Government Entities). For
further information regarding this revenue
ruling, contact Russ Weinheimer or
Yurlinda Mathis at (202) 622-6080 (not a
toll-free number).

# Section 6018 .- Estate Tax Returns

# Part III. Administrative, Procedural, and Miscellaneous

## Announcement of Amendments to Regulations Under Section 367 of the Internal Revenue Code

### Notice 2002-77

The Internal Revenue Service (the “Ser-
vice") is publishing Rev. Rul. 2002-85 con-
temporaneously with the issuance of this
Notice. Rev. Rul. 2002-85 holds that an ac-
quiring corporation's transfer of the tar-
get corporation's assets to a subsidiary
controlled by the acquiring corporation pur-
suant to a plan of reorganization will not
prevent a transaction that otherwise quali-
fies as a reorganization under section
368(a)(1)(D) from so qualifying. This no-
tice announces that the Treasury and the
Service will amend the regulations under
Treas. Reg. § 1.367(a)-3(d) to provide spe-
cifically that a reorganization under sec-
tion 368(a)(1)(D) followed by the transfer
of all or a portion of a target corporation's
assets to a controlled subsidiary pursuant
to a plan of reorganization constitutes an in-
direct transfer of stock or securities for pur-
poses of Treas. Reg. § 1.367(a)-3.

### I. BACKGROUND

Section 367(a)(1) requires a U.S. per-
son who transfers property (including stock
or securities) to a foreign corporation in
connection with an exchange described in
section 332, 351, 354, 356, or 361 to rec-
ognize gain (but not loss) on the transfer,
unless the transfer qualifies for an excep-
tion to this general rule. Transfers cov-
ered by section 367(a)(1) also include
indirect and constructive transfers. Treas.
Reg. § 1.367(a)-1T(c)(1).

Treas. Reg. § 1.367(a)-3 contains rules
that address transfers of stock or securi-
ties by a U.S. person to a foreign corpo-
ration in an exchange described in section
367(a). For these purposes, certain trans-
actions that are in form asset transfers are
treated as stock transfers. For example,
Treas. Reg. § 1.367(a)-3(d)(1)(v) treats as
an indirect stock transfer a U.S. person's
exchange of stock or securities of a cor-
poration for voting stock or securities of a
foreign acquiring corporation in a reorga-
nization described in section 368(a)(1)(C)
in which the acquiring corporation trans-

fers the acquired corporation's assets to a
subsidiary controlled by the acquiring cor-
poration in a transaction described in sec-
tion 368(a)(2)(C). In the case of a
reorganization in which part but not all of
the assets of the acquired corporation are
transferred pursuant to section 368(a)(2)(C),
the transaction is considered to be an in-
direct transfer of stock or securities only to
the extent of the assets so transferred. Treas.
Reg. § 1.367(a)-3(d)(1)(v).

In Rev. Rul. 2002-85, pursuant to a plan
of reorganization, (i) a corporation (the "tar-
get corporation") transfers all of its assets
to another corporation (the "acquiring cor-
poration") in exchange for consideration
consisting of 70 percent acquiring corpo-
ration voting stock and 30 percent cash, (ii)
the target corporation then liquidates, dis-
tributing the acquiring corporation voting
stock and cash to its shareholder, and (iii)
the acquiring corporation subsequently
transfers the target corporation's assets to
a preexisting, wholly owned subsidiary of
the acquiring corporation. Rev. Rul.
2002-85 holds that the acquiring corpora-
tion's transfer of the target corporation's as-
sets to its controlled subsidiary as part of
a plan of reorganization will not prevent a
transaction that otherwise qualifies as a re-
organization under section 368(a)(1)(D)
from so qualifying.

II. TREATMENT OF A REORGAN-
IZATION UNDER SECTION 368(a)
(1)(D) FOLLOWED BY A TRANSFER
OF THE ACQUIRED CORPORA-
TION'S ASSETS TO A CONTROLLED
SUBSIDIARY UNDER THE INDIRECT
STOCK TRANSFER RULES.

Consistent with the current rules for
transactions described in sections
368(a)(1)(C) and (a)(2)(C), the Treasury and
the Service will amend the regulations un-
der section 367 to provide specifically that
a U.S. person's exchange of stock or se-
curities of a corporation (the acquired cor-
poration) for stock or securities of a foreign
acquiring corporation in a reorganization un-
der section 368(a)(1)(D) in which the for-
eign acquiring corporation transfers part or
all of the acquired corporation's assets to
a subsidiary controlled by the acquiring cor-
poration pursuant to the plan of reorgani-
zation constitutes an indirect transfer of
stock or securities by the U.S. person to the

foreign acquiring corporation under Treas.
Reg. § 1.367(a)-3(d). In the case of a re-
organization under section 368(a)(1)(D) in
which part but not all of the assets of the
acquired corporation are transferred to a
subsidiary controlled by the acquiring cor-
poration pursuant to the plan of reorgani-
zation, the regulations will provide that the
transaction is considered to be an indirect
transfer of stock or securities to the ex-
tent of the assets so transferred. The amend-
ment to the regulations under section 367
described in this notice will be effective for
transfers occurring after December 9, 2002.
For additional guidance concerning trans-
fers that occurred on or after July 20, 1998
and on or before December 9, 2002, see
Rev. Rul. 2002-85.

### III. DRAFTING INFORMATION AND REQUEST FOR COMMENTS

The principal author of this notice is
Richard Osborne of the Office of Associ-
ate Chief Counsel (International). How-
ever, other personnel from the Service and
the Treasury participated in its develop-
ment. For further information regarding this
notice, contact Mr. Osborne at (202) 622-
3036 (not a toll-free call).

Written comments concerning this no-
tice may be submitted to the Associate
Chief Counsel (International), Attention:
Richard Osborne (Notice 2002-77), Room
4573, CC:Intl:Br4, Internal Revenue Ser-
vice, 1111 Constitution Avenue, NW, Wash-
ington, DC 20224. Alternatively, taxpayers
may submit comments directly to the IRS
Internet site at http://www.irs.ustreas.gov/
prod/tax_regs/comments.html. Comments
will be available for public inspection and
copying. The Treasury and the Service re-
quest comments by January 15, 2003.

26 CFR 601.201: Rulings and determination let-
ters.

### Rev. Proc. 2002-75

#### SECTION 1. PURPOSE AND NATURE OF CHANGE

The purpose of this revenue procedure
is to modify Rev. Proc. 2002-3, 2002-1
I.R.B. 117, by deleting sections 4.01(11) and

4.01(41). Sections 4.01(11) and 4.01(41)
provide that the Internal Revenue Service
will not ordinarily rule on the application
of §§ 162 and 816 of the Internal Rev-
enue Code to certain insurance arrange-
ments.

### SECTION 2. BACKGROUND

.01 Rev. Proc. 2002-3 sets forth those
provisions of the Internal Revenue Code un-
der the jurisdiction of the Associate Chief
Counsel (Corporate), the Associate Chief
Counsel (Financial Institutions & Prod-
ucts), the Associate Chief Counsel (In-
come Tax & Accounting), the Associate
Chief Counsel (Passthroughs & Special In-
dustries), the Associate Chief Counsel (Pro-
cedure and Administration), and Division
Counsel/Associate Chief Counsel (Tax Ex-
empt and Government Entities) relating to
issues on which the Internal Revenue Ser-
vice will not issue letter rulings or deter-
mination letters.

.02 Section 4 of Rev. Proc. 2002-3 sets
forth those areas in which rulings or de-
termination letters will not ordinarily be is-
sued.

Section 4.01(11) provides as follows:

Section 162 .- Trade or Business
Expenses .- Whether the requisite risk shift-
ing and risk distribution necessary to con-
stitute insurance are present for purposes of
determining the deductibility under § 162
of amounts paid (premiums) by a taxpayer
for insurance.

Section 4.01 (41) provides as follows:

Section 816 .- Life Insurance Company
Defined .- Whether the requisite risk shift-
ing and risk distribution necessary to con-
stitute insurance are present for purposes of
determining if a company is an "insur-
ance company" under § 1.801-3(a) of the
Income Tax Regulations, unless the facts of
the transaction are within the scope of Rev.
Rul. 78-338, 1978-2 C.B. 107, or Rev. Rul.
77-316, 1977-2 C.B. 53.

.03 The Service has provided guidance
regarding whether, for federal income tax
purposes, an arrangement constitutes in-
surance and whether an entity that pro-
vides insurance to an insured that has an
ownership interest in that entity will be
treated as an insurance company. Rev. Rul.
77-316 involved an insurance subsidiary
that assumed only the risks of its owners
and/or affiliates and concluded that to the
extent the assumed risks were not trans-
ferred outside of the economic family, the

transaction would not be treated as insur-
ance. Under the economic family theory, the
amounts paid as premiums to the subsid-
iary would not be insurance premiums de-
ductible under § 162 and the subsidiary
would not be an insurance company. In Rev.
Rul. 78-338, the Service distinguished the
economic family theory advanced in Rev.
Rul. 77-316 and concluded that premi-
ums paid to an insurer owned by its 31
insureds-shareholders were deductible un-
der § 162.

.04 Rev. Rul. 2001-31, 2001-1 C.B.
1348, announced that the economic fam-
ily theory would no longer be followed,
Rev. Rul. 77-316 was obsoleted, and Rev.
Rul. 78-338 was modified. Rev. Rul.
2001-31 also stated that certain captive
transactions may be challenged based upon
the facts and circumstances of each case.

.05 Since publication of Rev. Rul. 2001-
31, the Service has provided additional
guidance on the tax treatment of certain
captive insurance arrangements. Rev. Rul.
2002-89, 2002-52 I.R.B. 984, addressed ar-
rangements between a parent corporation
and its wholly-owned captive insurance sub-
sidiary that conducted varying amounts of
insurance business with unrelated parties.
In Rev. Rul. 2002-90, 2002-52 I.R.B. 985,
the Service concluded that the premiums
paid by 12 operating subsidiaries to a cap-
tive insurance subsidiary owned by a com-
mon parent are deductible under § 162.
Finally, in Rev. Rul. 2002-91, 2002-52
I.R.B. 991, the Service concluded that a
group captive, which was formed by fewer
than 31 unrelated insureds, with each in-
sured having no more that 15% of the to-
tal risk, was an insurance company.

.06 Consistently with the case-by-case
approach announced in Rev. Rul. 2001-
31, and the guidance provided in Rev. Rul.
2002-89, Rev. Rul. 2002-90, and Rev. Rul.
2002-91, this Revenue Procedure deletes
sections 4.01(11) and 4.01(41) of Rev. Proc.
2002-3. The Service will now consider rul-
ing requests regarding the proper tax treat-
ment of a captive insurance company.
However, some questions arising in the con-
text of a captive ruling request are so in-
herently factual (within the meaning of
section 4.02(1) of Rev. Proc. 2002-3) that
contact should be made with the appropri-
ate Service function prior to the prepara-
tion of such request to determine whether
the Service will issue the requested rul-
ing. In addition, for information concern-

ing the Large and Mid-Size Business
Division Pre-Filing Agreement Program, see
Rev. Proc. 2001-22, 2001-1 C.B. 745.

### SECTION 3. PROCEDURE

Rev. Proc. 2002-3 is modified by de-
leting section 4.01(11) and section 4.01(41).

### SECTION 4. INQUIRIES

Inquiries regarding whether the Ser-
vice considers a proposed captive transac-
tion so inherently factual that it cannot rule,
should be directed to Chief, Branch 4, Of-
fice of the Associate Chief Counsel (Fi-
nancial Institutions & Products) at (202)
622-3970 (not a toll-free call).

### SECTION 5. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 2002-3 is modified.
SECTION 6. EFFECTIVE DATE

This revenue procedure is effective De-
cember 10, 2002.

### DRAFTING INFORMATION

The principal author of this revenue pro-
cedure is William Sullivan of the Office of
the Associate Chief Counsel (Financial In-
stitutions & Products). For further infor-
mation regarding this revenue procedure,
contact Mr. Sullivan at (202) 622-3970 (not
a toll-free call).

### Part IV. Items of General Interest

Changes to Excise Taxes,
Effective After December 31,
2002

Announcement 2002-115

The following changes are effective af-
ter December 31, 2002, and will be on
Form 720 or in the Instructions for Form

720 for the 1st quarter of 2003, and on
Form 8849 (Schedules 1, 3, and 4), re-
vised January 2003.

1\. The tax on sales of luxury passen-
ger vehicles (IRS No. 92) will expire.

2\. The tax on use of international air
travel facilities (IRS No. 27) increases for
amounts paid during 2003 to:

· $13.40 per person for flights that be-
gin or end in the United States and

· $6.70 per person for domestic seg-
ments that begin or end in Alaska
or Hawaii (applies only to depar-
tures).

3\. Fuel tax changes

The following tax rates will increase:

10% gasohol (IRS No. 59)

$.132

7.7% gasohol (IRS No. 75)

.14396

5.7% gasohol (IRS No. 76)

.15436

Gasoline removed or entered for the production of 10% gasohol (IRS No. 58)

.14666

Gasoline removed or entered for the production of 7.7% gasohol (IRS No. 73)

.15596

Gasoline removed or entered for the production of 5.7% gasohol (IRS No. 74)

.16369

The gasohol blending credit rates for gasoline taxed at the full rate will decrease:

10% gasohol (CRN 356)

$.03734

7.7% gasohol (CRN 357)

.02804

5.7% gasohol (CRN 363)

.02031

The following other fuels tax rates (IRS No. 79) will increase:

Qualified ethanol

$.1315

Special motor fuels/alcohol mixture containing ethanol

.132

Diesel fuel/alcohol mixture containing ethanol

.192

Diesel fuel sold for diesel/alcohol mixture containing ethanol

.21333

Aviation fuel/alcohol mixture containing ethanol

.087

Aviation fuel sold for aviation/alcohol mixture containing ethanol

.09666

The tax rates for alcohol (ethanol) sold as but used as fuel (IRS No. 51) will decrease:

At least 190 proof

$.52

At least 190 proof and benefited from the small ethanol producer credit

.62

At least 150 proof but less than 190 proof

.3852

At least 150 proof but less than 190 proof and benefited from the small ethanol producer credit

.4852

# Definition of Terms

Revenue rulings and revenue procedures
(hereinafter referred to as“rulings") that
have an effect on previous rulings use the
following defined terms to describe the
effect:

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.

Distinguished describes a situation
where a ruling mentions a previously
published ruling and points out an essen-
tial difference between them.

Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it

applies to both A and B, the prior ruling
is modified because it corrects a pub-
lished position. (Compare with amplified
and clarified, above).

Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. A ruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.

Revoked describes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.

Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a
period of time in separate rulings. If the

new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
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 published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings 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 formerly used will appear in
material published in the Bulletin.

A-Individual.

Acq .- Acquiescence.

B-Individual.

BE-Beneficiary.

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.

CI-City.

GP-General Partner.

COOP-Cooperative.

GR-Grantor.

Ct.D .- Court Decision.

IC-Insurance Company.

CY-County.

I.R.B .- Internal Revenue Bulletin.

D-Decedent.

LE-Lessee.

DC-Dummy Corporation.

LP-Limited Partner.

LR-Lessor.

TT-Trustee.

U.S.C .- United States Code.

DISC-Domestic International Sales Corporation.

DR-Donor.

E-Estate.

P-Parent Corporation.

PHC-Personal Holding Company.

PO-Possession of the U.S.
PR-Partner.

PRS-Partnership.

PTE-Prohibited Transaction Exemption.

Pub. L .- Public Law.

REIT-Real Estate Investment Trust.

Rev. Proc .- Revenue Procedure.

Rev. Rul .- Revenue Ruling.

S-Subsidiary.

S.P.R .- Statements of Procedural Rules.
Stat .- Statutes at Large.

T-Target Corporation.

T.C .- Tax Court.

T.D .- Treasury Decision.

TFE-Transferee.

TFR-Transferor.

T.I.R .- Technical Information Release.

TP-Taxpayer.

TR-Trust.

DE-Donee.

Del. Order-Delegation Order.

M-Minor.

Nonacq .- Nonacquiescence.

X-Corporation.

O-Organization.

Y-Corporation.

Z-Corporation.

EE-Employee.

E.O .- Executive Order.

ER-Employer.

ERISA-Employee Retirement Income Security Act.

EX-Executor.

F-Fiduciary.

FC-Foreign Country.

FICA-Federal Insurance Contributions Act.

FISC-Foreign International Sales Company.

BK-Bank.

B.T.A .- Board of Tax Appeals.

C-Individual.

C.B .- Cumulative Bulletin.

CFR-Code of Federal Regulations.

Numerical Finding List1

Court Decisions:

Proposed Regulations-Continued:

Bulletin 2002-26 through 2002-51

2075, 2002-38 I.R.B. 548

REG-123345-01, 2002-32 I.R.B. 321 REG-126024-01, 2002-27 I.R.B. 64

2076, 2002-47 I.R.B. 875

Announcements:

REG-136311-01, 2002-36 I.R.B. 485

2002-59, 2002-26 I.R.B. 28

Notices:

REG-150313-01, 2002-44 I.R.B. 777

REG-164754-01, 2002-30 I.R.B. 212

2002-60, 2002-26 I.R.B. 28

2002-42, 2002-27 I.R.B. 36

REG-165868-01, 2002-31 I.R.B. 270

2002-61, 2002-27 I.R.B. 72

2002-43, 2002-27 I.R.B. 38

REG-103777-02, 2002-47 I.R.B. 889

2002-62, 2002-27 I.R.B. 72

2002-44, 2002-27 I.R.B. 39

REG-106359-02, 2002-34 I.R.B. 405

2002-63, 2002-27 I.R.B. 72

2002-45, 2002-28, I.R.B. 93

REG-122564-02, 2002-26 I.R.B. 25

2002-64, 2002-27 I.R.B. 72

2002-46, 2002-28 I.R.B. 96

REG-123305-02, 2002-26 I.R.B. 26

2002-65, 2002-29 I.R.B. 182

2002-47, 2002-28 I.R.B. 97

REG-124256-02, 2002-33 I.R.B. 383

2002-66, 2002-29 I.R.B. 183

2002-48, 2002-29 I.R.B. 130

REG-124667-02, 2002-44 I.R.B. 791

2002-67, 2002-30 I.R.B. 237

2002-49, 2002-29 I.R.B. 130

REG-127380-02, 2002-50 I.R.B. 969

2002-68, 2002-31 I.R.B. 283

2002-50, 2002-28 I.R.B. 98

REG-131478-02, 2002-47 I.R.B. 892

2002-69, 2002-31 I.R.B. 283

2002-51, 2002-29 I.R.B. 131

REG-133254-02, 2002-34 I.R.B. 412

2002-70, 2002-31 I.R.B. 284

2002-52, 2002-30 I.R.B. 187

REG-134026-02, 2002-40 I.R.B. 684

2002-71, 2002-32 I.R.B. 323

2002-53, 2002-30 I.R.B. 187

REG-141832-02, 2002-48 I.R.B. 921

2002-72, 2002-32 I.R.B. 323

2002-54, 2002-30 I.R.B. 189

REG-143321-02, 2002-48 I.R.B. 922

2002-73, 2002-33 I.R.B. 387

2002-55, 2002-36 I.R.B. 481

2002-74, 2000-33 I.R.B. 387

2002-56, 2002-32 I.R.B. 319

Revenue Procedures:

2002-75, 2002-34 I.R.B. 416

2002-57, 2002-33 I.R.B. 379

2002-43, 2002-28 I.R.B. 99

2002-76, 2002-35 I.R.B. 471

2002-58, 2002-35 I.R.B. 432

2002-44, 2002-26 I.R.B. 10

2002-77, 2002-35 I.R.B. 471

2002-59, 2002-36 I.R.B. 481

2002-45, 2002-27 I.R.B. 40

2002-78, 2002-36 I.R.B. 514

2002-60, 2002-36 I.R.B. 482

2002-46, 2002-28 I.R.B. 105

2002-79, 2002-36 I.R.B. 515

2002-61, 2002-38 I.R.B. 563

2002-47, 2002-29 I.R.B. 133

2002-80, 2002-36 I.R.B. 515

2002-62, 2002-39 I.R.B. 574

2002-48, 2002-37 I.R.B. 531

2002-81, 2002-37 I.R.B. 533

2002-63, 2002-40 I.R.B. 644

2002-49, 2002-29 I.R.B. 172

2002-82, 2002-37 I.R.B. 533

2002-64, 2002-41 I.R.B. 690

2002-50, 2002-29 I.R.B. 173

2002-83, 2002-38 I.R.B. 564

2002-65, 2002-41 I.R.B. 690

2002-51, 2002-29 I.R.B. 175

2002-84, 2002-37 I.R.B. 533

2002-66, 2002-42 I.R.B. 716

2002-52, 2002-31 I.R.B. 242

2002-85, 2002-39 I.R.B. 624

2002-67, 2002-42 I.R.B. 716

2002-53, 2002-31 I.R.B. 253

2002-86, 2002-39 I.R.B. 624

2002-68, 2002-43 I.R.B. 730

2002-54, 2002-35 I.R.B. 432

2002-87, 2002-39 I.R.B. 624

2002-69, 2002-43 I.R.B. 730

2002-55, 2002-35 I.R.B. 435

2002-88, 2002-38 I.R.B. 564

2002-70, 2002-44 I.R.B. 765

2002-56, 2002-36 I.R.B. 483

2002-89, 2002-39 I.R.B. 626

2002-71, 2002-45 I.R.B. 830

2002-57, 2002-39 I.R.B. 575

2002-90, 2002-40 I.R.B. 684

2002-72, 2002-46 I.R.B. 843

2002-58, 2002-40 I.R.B. 644

2002-91, 2002-40 I.R.B. 685

2002-73, 2002-46 I.R.B. 844

2002-59, 2002-39 I.R.B. 615

2002-92, 2002-41 I.R.B. 709

2002-74, 2002-47 I.R.B. 884

2002-60, 2002-40 I.R.B. 645

2002-93, 2002-41 I.R.B. 709

2002-75, 2002-47 I.R.B. 884

2002-61, 2002-39 I.R.B. 616

2002-94, 2002-42 I.R.B. 728

2002-76, 2002-48 I.R.B. 917

2002-62, 2002-40 I.R.B. 683

2002-95, 2002-42 I.R.B. 728

2002-78, 2002-48 I.R.B. 919

2002-63, 2002-41 I.R.B. 691

2002-96, 2002-43 I.R.B. 756

2002-79, 2002-50 I.R.B. 964

2002-64, 2002-42 I.R.B. 718

2002-97, 2002-43 I.R.B. 757

2002-80, 2002-51 I.R.B. 980

2002-65, 2002-41 I.R.B. 700

2002-98, 2002-43 I.R.B. 758

2002-66, 2002-42 I.R.B. 725

2002-99, 2002-43 I.R.B. 758

Proposed Regulations:

2002-67, 2002-43 I.R.B. 733

2002-100, 2002-44 I.R.B. 799

2002-68, 2002-43 I.R.B. 753

2002-101, 2002-44 I.R.B. 800

REG-209116-89, 2002-47 I.R.B. 889

2002-69, 2002-45 I.R.B. 831

2002-102, 2002-44 I.R.B. 802

REG-248110-96, 2002-26 I.R.B. 19

2002-70, 2002-46 I.R.B. 845

2002-103, 2002-45 I.R.B. 836

REG-251003-96, 2002-49 I.R.B. 935

I.R.B. 850

2002-104, 2002-45 I.R.B. 836

REG-110311-98, 2002-28 I.R.B. 109

2002-71, 2002-48 2002-72, 2002-49 I.R.B. 931

2002-105, 2002-46 I.R.B. 872

REG-103823-99, 2002-27 I.R.B. 44

2002-106, 2002-46 I.R.B. 872

REG-103829-99, 2002-27 I.R.B. 59

2002-73, 2002-49 I.R.B. 932 2002-74, 2002-51 I.R.B. 980

2002-107, 2002-48 I.R.B. 923

REG-103735-00, 2002-28 I.R.B. 109

2002-108, 2002-49 I.R.B. 952

REG-103735-00, 2002-45 I.R.B. 832

Revenue Rulings:

2002-109, 2002-49 I.R.B. 952

REG-103736-00, 2002-45 I.R.B. 834

2002-110, 2002-50 I.R.B. 970

REG-106457-00, 2002-26 I.R.B. 23

2002-38, 2002-26 I.R.B. 4

2002-111, 2002-50 I.R.B. 971

REG-106871-00, 2002-30 I.R.B. 190

2002-39, 2002-27 I.R.B. 33

2002-112, 2002-50 I.R.B. 971

REG-106876-00, 2002-34 I.R.B. 392

2002-40, 2002-27 I.R.B. 30

2002-113, 2002-51 I.R.B. 983

REG-106879-00, 2002-34 I.R.B. 402

2002-41, 2002-28 I.R.B. 75

2002-114, 2002-51 I.R.B. 983

REG-107524-00, 2002-28 I.R.B. 110

2002-42, 2002-28 I.R.B. 76

REG-112306-00, 2002-44 I.R.B. 767

2002-43, 2002-28 I.R.B. 85

REG-115285-01, 2002-27 I.R.B. 62

2002-44, 2002-28 I.R.B. 84

REG-115781-01, 2002-33 I.R.B. 380

2002-45, 2002-29 I.R.B. 116

REG-116644-01, 2002-31 I.R.B. 268

2002-46, 2002-29 I.R.B. 117

1 A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 2002-1 through 2002-25 is
in Internal Revenue Bulletin 2002-26, dated July 1, 2002.

Revenue Rulings-Continued:

Treasury Decisions-Continued:

2002-47, 2002-29 I.R.B. 119

9019, 2002-47 I.R.B. 874

2002-48, 2002-31 I.R.B. 239

9020, 2002-48 I.R.B. 907

2002-49, 2002-32 I.R.B. 288

9021, 2002-51 I.R.B. 973

2002-50, 2002-32 I.R.B. 292

9022, 2002-48 I.R.B. 909

2002-51, 2002-33 I.R.B. 327

9023, 2002-50 I.R.B. 955

2002-52, 2002-34 I.R.B. 388

2002-53, 2002-35 I.R.B. 427

2002-54, 2002-37 I.R.B. 527

2002-55, 2002-37 I.R.B. 529

2002-56, 2002-37 I.R.B. 526

2002-57, 2002-37 I.R.B. 526

2002-58, 2002-38 I.R.B. 541

2002-59, 2002-38 I.R.B. 557

2002-60, 2002-40 I.R.B. 641

2002-61, 2002-40 I.R.B. 639

2002-62, 2002-42 I.R.B. 710

2002-63, 2002-45 I.R.B. 803

2002-64, 2002-41 I.R.B. 688

2002-65, 2002-43 I.R.B. 729

2002-66, 2002-45 I.R.B. 812

2002-67, 2002-47 I.R.B. 873

2002-68, 2002-45 I.R.B. 808

2002-69, 2002-44 I.R.B. 760

2002-70, 2002-50 I.R.B. 958

2002-71, 2002-44 I.R.B. 763

2002-72, 2002-44 I.R.B. 759

2002-73, 2002-45 I.R.B. 805

2002-74, 2002-45 I.R.B. 814

2002-75, 2002-45 I.R.B. 812

2002-76, 2002-46 I.R.B. 840

2002-77, 2002-45 I.R.B. 806

2002-78, 2002-48 I.R.B. 915

2002-79, 2002-48 I.R.B. 908

2002-80, 2002-49 I.R.B. 925

2002-81, 2002-49 I.R.B. 928

2002-82, 2002-51 I.R.B. 978

2002-83, 2002-49 I.R.B. 927

2002-84, 2002-50 I.R.B. 953

Social Security Contribution and

Benefit Base; Domestic Employee Coverage Threshold:

2002-46, I.R.B. 871

Treasury Decisions:

8997, 2002-26 I.R.B. 6

8998, 2002-26 I.R.B. 1

8999, 2002-28 I.R.B. 78

9000, 2002-28 I.R.B. 87

9001, 2002-29 I.R.B. 128

9002, 2002-29 I.R.B. 120

9003, 2002-32 I.R.B. 294

9004, 2002-33 I.R.B. 331

9005, 2002-32 I.R.B. 290

9006, 2002-32 I.R.B. 315

9007, 2002-33 I.R.B. 349

9008, 2002-33 I.R.B. 335

9009, 2002-33 I.R.B. 328

9010, 2002-33 I.R.B. 341

9011, 2002-33 I.R.B. 356

9012, 2002-34 I.R.B. 389

9013, 2002-38 I.R.B. 542

9014, 2002-35 I.R.B. 429

9015, 2002-40 I.R.B. 642

9016, 2002-40 I.R.B. 628

9017, 2002-45 I.R.B. 815

9018, 2002-45 I.R.B. 823

2002-52 I.R.B.

ili

## Finding List of Current Actions on Previously Published Items1

Bulletin 2002-26 through 2002-51

Announcements:

98-99
Superseded by
Rev. Proc. 2002-44, 2002-26 I.R.B. 10

2000-4
Modified by
Ann. 2002-60, 2002-26 I.R.B. 28

2001-9
Superseded by
Rev. Proc. 2002-44, 2002-26 I.R.B. 10

2002-91
Corrected by
Ann. 2002-114, 2002-51 I.R.B. 983

Notices:

88-100, Section V
Clarified and obsoleted by
Rev. Proc. 2002-74, 2002-51 I.R.B. 980
89-25
Modified by
Rev. Rul. 2002-62, 2002-42 I.R.B. 710
97-26
Modified and superseded by
Notice 2002-62, 2002-39 I.R.B. 574

2001-6
Superseded by
Notice 2002-63, 2002-40 I.R.B. 644

2001-37
Modified by
Rev. Proc. 2002-73, 2002-49 I.R.B. 932
2001-62
Modified and superseded by
Notice 2002-62, 2002-39 I.R.B. 574
2002-92
Corrected by
Ann. 2002-103, 2002-45 I.R.B. 836

Proposed Regulations:

EE-79-89
Withdrawn by
REG-209116-89, 2002-47 I.R.B. 889

REG-208280-86
Withdrawn by
REG-136311-01, 2002-36 I.R.B. 485

REG-209114-90
Corrected by
Ann. 2002-65, 2002-29 I.R.B. 182

REG-209813-96
Withdrawn by
REG-106871-00, 2002-30 I.R.B. 190

REG-103823-99
Corrected by
Ann. 2002-67, 2002-30 I.R.B. 237
Ann. 2002-79, 2002-36 I.R.B. 515

1 A cumulative list of current actions on previously published
items in Internal Revenue Bulletins 2002-1 through 2002-25 is

in Internal Revenue Bulletin 2002-26, dated July 1, 2002.

Proposed Regulations-Continued:

REG-103829-99
Corrected by
Ann. 2002-82, 2002-37 I.R.B. 533
Ann. 2002-95, 2002-42 I.R.B. 728

REG-105885-99
Corrected by
Ann. 2002-67, 2002-30 I.R.B. 237

REG-105369-00
Clarified by
Notice 2002-52, 2002-30 I.R.B. 187
Corrected by
Ann. 2002-67, 2002-30 I.R.B. 237

REG-106879-00
Corrected by
Ann. 2002-100, 2002-44 I.R.B. 799

REG-118861-00
Corrected by
Ann. 2002-67, 2002-30 I.R.B. 237

REG-126100-00
Withdrawn by
REG-133254-02, 2002-34 I.R.B. 412

REG-136193-01
Corrected by
Ann. 2002-67, 2002-30 I.R.B. 237

REG-136311-01

Corrected by
Ann. 2002-94, 2002-42 I.R.B. 728
Ann. 2002-102, 2002-44 I.R.B. 802

REG-161424-01

Corrected by
Ann. 2002-67, 2002-30 I.R.B. 237

REG-165706-01

Corrected by
Ann. 2002-67, 2002-30 I.R.B. 237

REG-165868-01
Corrected by
Ann. 2002-93, 2002-41 I.R.B. 709

REG-102740-02

Corrected by
Ann. 2002-67, 2002-30 I.R.B. 237

REG-106359-02
Corrected by
Ann. 2002-81, 2002-37 I.R.B. 533

REG-108697-02
Corrected by
Ann. 2002-84, 2002-37 I.R.B. 533

REG-123305-02

Corrected by
Ann. 2002-69, 2002-31 I.R.B. 283

REG-124667-02
Corrected by
Ann. 2002-113, 2002-51 I.R.B. 983

REG-143321-02

Corrected by
Ann. 2002-111, 2002-50 I.R.B. 971

Revenue Procedures:

66-50
Modified, amplified, and superseded by
Notice 2002-75, 2002-47 I.R.B. 884
71-21
Modified and superseded by
Notice 2002-79, 2002-50 I.R.B. 964

81-40
Modified and superseded by
Notice 2002-75, 2002-47 I.R.B. 884

88-10
Superseded by
Rev. Proc. 2002-48, 2002-37 I.R.B. 531
91-23
Modified and superseded by
Rev. Proc. 2002-52, 2002-31 I.R.B. 242
91-26
Modified and superseded by
Rev. Proc. 2002-52, 2002-31 I.R.B. 242

95-18
Superseded by
Rev. Proc. 2002-51, 2002-29 I.R.B. 175

96-13
Modified and superseded by
Rev. Proc. 2002-52, 2002-31 I.R.B. 242

96-14
Modified and superseded by
Rev. Proc. 2002-52, 2002-31 I.R.B. 242

96-53
Amplified by
Rev. Proc. 2002-52, 2002-31 I.R.B. 242

2002-20
Modified by
Rev. Proc. 2002-73, 2002-49 I.R.B. 932

2001-12
Obsoleted by
T.D. 9004, 2002-33 I.R.B. 331

2001-15
Superseded by
Rev. Proc. 2002-64, 2002-42 I.R.B. 718

2001-17
Modified and superseded by
Rev. Proc. 2002-47, 2002-29 I.R.B. 133

2001-26
Superseded by
Rev. Proc. 2002-53, 2002-31 I.R.B. 253

2001-45
Superseded by
Rev. Proc. 2002-60, 2002-40 I.R.B. 645

2001-46
Modified and amplified by
Rev. Proc. 2002-65, 2002-41 I.R.B. 700

Revenue Procedures-Continued:

Revenue Rulings:

Revenue Rulings-Continued:

2001-47

54-571

99-14

Superseded by

Obsoleted by

Modified and superseded by

Rev. Proc. 2002-63, 2002-41 I.R.B. 691

T.D. 9010, 2002-33 I.R.B. 341

Rev. Rul. 2002-69 2002-44 I.R.B. 760

2001-50

55-534

2001-62

Superseded by

Distinguished by

Modified by

Rev. Proc. 2002-57, 2002-39 I.R.B. 575

Rev. Rul. 2002-60, 2002-40 I.R.B. 641

Rev. Proc. 2002-73, 2002-49 I.R.B. 932

2001-52

55-606

2001-64

Updated by

Obsoleted by

Supplemented and superseded by

Rev. Proc. 2002-66, 2002-42 I.R.B. 725

T.D. 9010, 2002-33 I.R.B. 341

Rev. Rul. 2002-78, 2002-48 I.R.B. 915

2001-53

59-328

2001-65

Superseded by

Obsoleted by

Supplemented and superseded by

Rev. Proc. 2002-71, 2002-46 I.R.B. 850

T.D. 9010, 2002-33 I.R.B. 341

Rev. Rul. 2002-79, 2002-48 I.R.B. 908

2001-54

64-36

2002-3

Superseded by

Obsoleted by

Amplified by

Rev. Proc. 2002-61, 2002-39 I.R.B. 616

T.D. 9010, 2002-33 I.R.B. 341

Rev. Rul. 2002-80, 2002-49 I.R.B. 925

2002-6

65-129

2002-27

Modified by

Rev. Proc. 2002-73, 2002-49 I.R.B. 932

Obsoleted by T.D. 9010, 2002-33 I.R.B. 341

Rev. Proc. 2002-73, 2002-49 I.R.B. 932

2002-9

2002-46

Modified and amplified by

67-197

Modified by

Rev. Proc. 2002-46, 2002-28 I.R.B. 105

Obsoleted by

Rev. Rul. 2002-73, 2002-45 I.R.B. 805

Rev. Proc. 2002-65, 2002-41 I.R.B. 700

T.D. 9010, 2002-33 I.R.B. 341

Rev. Rul. 2002-73, 2002-45 I.R.B. 805

69-259

Treasury Decisions:

Rev. Proc. 2002-74, 2002-51 I.R.B. 980

Modified and superseded by

8869

Amplified, clarified, and modified by Rev. Proc. 2002-54, 2002-35 I.R.B. 432

Rev. Rul. 2002-50, 2002-32 I.R.B. 292 69-595

Corrected by Ann. 2002-106, 2002-46 I.R.B. 872

2002-13

Obsoleted in part by

8925

Modified by

T.D. 9010, 2002-33 I.R.B. 341

Corrected by

Rev. Proc. 2002-45, 2002-27 I.R.B. 40

70-608

Ann. 2002-89, 2002-39 I.R.B. 626

2002-15

Obsoleted in part by

8997

Modified and superseded by

T.D. 9010, 2002-33 I.R.B. 341

Corrected by

Rev. Proc. 2002-59, 2002-39 I.R.B. 615

73-232

Ann. 2002-68, 2002-31 I.R.B. 283

2002-16

Obsoleted by

8999

Modified and superseded by

T.D. 9010, 2002-33 I.R.B. 341

Corrected by

Rev. Proc. 2002-68, 2002-43 I.R.B. 753

76-225

Ann. 2002-71, 2002-32 I.R.B. 323

2002-19

Revoked by

9013

Amplified and clarified by Rev. Proc. 2002-54, 2002-35 I.R.B. 432

REG-115781-01, 2002-33 I.R.B. 380 77-53

Corrected by Ann. 2002-83, 2002-38 I.R.B. 564

2002-35

Obsoleted by

9016

Modified by Rev. Proc. 2002-73, 2002-49 I.R.B. 932

T.D. 9010, 2002-33 I.R.B. 341

Corrected by Ann. 2002-112, 2002-50 I.R.B. 971

2002-37

85-50

Clarified and modified by

Obsoleted by

Notice 2002-72, 2002-46 I.R.B. 843

T.D. 2002-33 I.R.B. 341

2002-38

92-17

Clarified and modified by

Amplified by

Notice 2002-72, 2002-46 I.R.B. 843

Rev. Rul. 2002-49, 2002-32 I.R.B. 288

2002-39

92-75

Clarified and modified by

Clarified by

Notice 2002-72, 2002-46 I.R.B. 843

Rev. Proc. 2002-52, 2002-31 I.R.B. 242

2002-67

93-70

Modified by

Obsoleted by

Ann. 2002-110, 2002-50 I.R.B. 970

T.D. 9010, 2002-33 I.R.B. 341

94-76

Amplified by Rev. Rul. 2002-42, 2002-28 I.R.B. 76

Internal Revenue Bulletin 2002-52 (PDF rendition): IRS Revenue Rulings

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