Internal Revenue Bulletin 1998-42 (PDF rendition): IRS Announcements

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

INCOME TAX
T.D. 8784, page 4.
Final and temporary regulations under section 274 of the
Code relate to the use of mileage allowances to substantiate
automobile business expenses.
T.D. 8785, page 5.
Final regulations under section 861 of the Code relate to the
tax treatment of certain transactions involving the transfer of
computer programs.
EXCISE TAX
Announcement 98–90, page 21.
Public comments are requested on proposed changes to
Form 8849, Claim for Refund of Excise Taxes.
ADMINISTRATIVE
REG–122488–97, page 19.
Proposed regulations under section 274 of the Code relate
to the use of mileage rates to substantiate automobile busi-
ness expenses.
Internal Revenue
bbuulllleettiinn
Bulletin No. 1998–42
October 19, 1998
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
Department of the Treasury
Internal Revenue Service
Finding Lists begin on page 33.
Announcement of Disbarments and Suspensions begins on page 29.
IRB 1998-42 10/14/98 11:03 AM Page 1

Mission of the Service
The purpose of the Internal Revenue Service is to collect
the proper amount of tax revenue at the least cost; serve
the public by continually improving the quality of our prod-
ucts and services; and perform in a manner warranting
the highest degree of public confidence in our integrity, effi-
ciency, and fairness.
2
Statement of Principles
of Internal Revenue
Tax Administration
The function of the Internal Revenue Service is to adminis-
ter the Internal Revenue Code. Tax policy for raising revenue
is determined by Congress.
With this in mind, it is the duty of the Service to carry out that
policy by correctly applying the laws enacted by Congress;
to determine the reasonable meaning of various Code provi-
sions in light of the Congressional purpose in enacting them;
and to perform this work in a fair and impartial manner, with
neither a government nor a taxpayer point of view.
At the heart of administration is interpretation of the Code. It
is the responsibility of each person in the Service, charged
with the duty of interpreting the law, to try to find the true
meaning of the statutory provision and not to adopt a
strained construction in the belief that he or she is “protect-
ing the revenue.” The revenue is properly protected only
when we ascertain and apply the true meaning of the statute.
The Service also has the responsibility of applying and
administering the law in a reasonable, practical manner.
Issues should only be raised by examining officers when
they have merit, never arbitrarily or for trading purposes.
At the same time, the examining officer should never hesi-
tate to raise a meritorious issue. It is also important that
care be exercised not to raise an issue or to ask a court to
adopt a position inconsistent with an established Service
position.
Administration should be both reasonable and vigorous. It
should be conducted with as little delay as possible and
with great courtesy and considerateness. It should never
try to overreach, and should be reasonable within the
bounds of law and sound administration. It should, howev-
er, be vigorous in requiring compliance with law and it
should be relentless in its attack on unreal tax devices and
fraud.
IRB 1998-42 10/14/98 11:03 AM Page 2

The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi-
cial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly and may be obtained
from the Superintendent of Documents on a subscription
basis. Bulletin contents of a permanent nature are consoli-
dated semiannually into Cumulative Bulletins, which are sold
on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of in-
ternal management are not published; however, statements
of internal practices and procedures that affect the rights
and duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings
to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature
are deleted to prevent unwarranted invasions of privacy and
to comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have
the force and effect of Treasury Department Regulations,
but they may be used as precedents. Unpublished rulings
will not be relied on, used, or cited as precedents by Service
personnel in the disposition of other cases. In applying pub-
lished rulings and procedures, the effect of subsequent leg-
islation, regulations, court decisions, rulings, and proce-
dures must be considered, and Service personnel and oth-
ers concerned are cautioned against reaching the same con-
clusions in other cases unless the facts and circumstances
are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions, and Subpart B, Legislation and Related
Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and Sub-
parts. Also included in this part are Bank Secrecy Act Admin-
istrative Rulings. Bank Secrecy Act Administrative Rulings
are issued by the Department of the Treasury’s Office of the
Assistant Secretary (Enforcement).
Part IV.—Items of General Interest.
With the exception of the Notice of Proposed Rulemaking
and the disbarment and suspension list included in this part,
none of these announcements are consolidated in the Cumu-
lative Bulletins.
The first Bulletin for each month includes a cumulative index
for the matters published during the preceding months.
These monthly indexes are cumulated on a semiannual basis
and are published in the first Bulletin of the succeeding semi-
annual period, respectively.
3
Introduction
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.
IRB 1998-42 10/14/98 11:03 AM Page 3

Section 274.—Disallowance of
Certain Entertainment, Etc.,
Expenses
26 CFR 1.274(d)–1: Substantiation requirements.
T.D. 8784
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
Substantiation of Business
Expenses—Use of Mileage
Allowances to Substantiate
Automobile Expenses
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Temporary and final regula-
tions.
SUMMARY: This document contains
temporary and final regulations relating to
the use of mileage allowances to substan-
tiate automobile business expenses. The
regulations affect payors who make pay-
ments and employees who receive pay-
ments under reimbursement or other ex-
pense allowance arrangements for the
business use of an automobile.
DATES: Effective date:These regula-
tions are effective October 1, 1998.
Applicability date:These regulations
apply to transportation expenses paid or
incurred after December 31, 1997.
FOR FURTHER INFORMATION CON-
TACT: Donna M. Crisalli, (202) 622-
4920 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
Section 274(d) provides that a taxpayer
is not allowed a deduction or credit for
certain expenses unless the expense is
substantiated. These substantiation re-
quirements apply to the expenses of use
of any listed property (defined in section
280F(d)(4)), which includes any passen-
ger automobile and any other property
used as a means of transportation. The
Secretary may issue regulations that pro-
vide that some or all of the substantiation
requirements will not apply to expenses
that do not exceed a prescribed amount.
Section 1.274(d)–1 provides, in part,
that the Commissioner may prescribe
rules under which mileage allowances re-
imbursing ordinary and necessary ex-
penses of local travel and transportation
while traveling away from home will sat-
isfy the substantiation requirements of
§1.274–5T(c), and the requirements of an
adequate accounting to the employer for
purposes of §1.274–5T(f)(4). However,
§1.274(d)–1(a)(3) provides that such
mileage allowances are available only to
the owner of a vehicle.
New §1.274(d)–1T applies these sub-
stantiation rules to mileage allowances for
business use of an automobile after De-
cember 31, 1997, without the limitation in
§1.274(d)–1(a)(3) that a mileage al-
lowance is available only to the owner of
a vehicle. See Rev. Proc. 97–59 (1997–
52 I.R.B. 24), for rules that implement
these regulations. The regulations also
adopt new §1.62–2T(e)(2) to incorporate
this new rule.
Special Analyses
It has been determined that these tem-
porary and final regulations are not a sig-
nificant regulatory action as defined in
EO 12866. Therefore, a regulatory as-
sessment is not required. It also has been
determined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regula-
tions, and, because the regulations do not
impose a collection of information on
small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply.
Pursuant to section 7805(f) of the Internal
Revenue Code, these temporary and final
regulations will be submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on their
impact on small business.
Drafting Information
The principal authors of these regula-
tions are Edwin B. Cleverdon and Donna
M. Crisalli of the Office of the Assistant
Chief Counsel (Income Tax and Account-
ing). However, other personnel from the
IRS and Treasury Department partici-
pated in their development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding entries in nu-
merical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.274(d)–1 also issued under
26 U.S.C. 274(d).
Section 1.274(d)–1T also issued under
26 U.S.C. 274(d). * * *
Par. 2. In §1.62–2, paragraph (m) is
amended by adding a sentence at the end
of the paragraph to read as follows:
§1.62–2 Reimbursement and other
expense allowance arrangements.
* * * * *
(m) * * * Paragraph (e)(2) of this sec-
tion applies to payments made under re-
imbursement or other expense allowance
arrangements received by an employee
with respect to expenses paid or incurred
on or before December 31, 1997. For
payments with respect to expenses paid or
incurred after December 31, 1997, see
§1.62–2T(e)(2).
Par. 3. Section 1.62–2T is added to
read as follows:
§1.62–2T Reimbursement and other
expense allowance arrangements
(temporary).
(a) through (e)(1) [Reserved]. For fur-
ther guidance, see §1.62–2(a) through
(e)(1).
(e)(2) Expenses governed by section
274(d). For further guidance, see §1.62–
2(e)(2) except that each reference to
§1.274(d)–1 is deemed to be a reference
to §1.274(d)–1T.
(e)(3) through (l) [Reserved]. For fur-
ther guidance, see §1.62–2(e)(3) through
(l).
(m) Effective dates.Paragraph (e)(2)
of this section applies to payments made
October 19, 199841998–42 I.R.B.
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
IRB 1998-42 10/14/98 11:03 AM Page 4

under reimbursement or other expense al-
lowance arrangements received by an em-
ployee with respect to expenses paid or
incurred after December 31, 1997. For
payments with respect to expenses paid or
incurred on or before December 31, 1997,
see §1.62–2(e)(2).
Par. 4. Section 1.274(d)–1 is amended
by adding paragraph (b) to read as fol-
lows:
§1.274(d)–1 Substantiation
requirements.
* * * * *
(b) Effective date.This section applies
to allowances described in paragraph
(a)(2) of this section for expenses paid or
incurred on or before December 31, 1997.
For allowances for expenses paid or in-
curred after December 31, 1997, see
§1.274(d)–1T.
Par. 5. Section 1.274(d)–1T is added to
read as follows:
§1.274(d)–1T Substantiation
requirements (temporary).
(a)(1) and (2) [Reserved]. For further
guidance, see §1.274(d)–1(a)(1).
(a)(3) [Reserved].
(b) Effective date.This section applies
to allowances described in §1.274(d)–
1(a)(2) for expenses paid or incurred after
December 31, 1997. For allowances for
expenses paid or incurred on or before
December 31, 1997, see §1.274(d)–1(a).
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
Approved September 14, 1998.
Donald C. Lubick,
Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on
September 30, 1998, 8:45 a.m., and published in the
issue of the Federal Register for October 1, 1998, 63
F.R. 52600)
Section 861.—Income From
Sources Within the United States
26 CFR 1.861–18: Classification of transactions
involving computer programs.
T.D. 8785
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Classification of Certain
Transactions Involving Computer
Programs
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains reg-
ulations relating to the tax treatment of cer-
tain transactions involving the transfer of
computer programs. The regulations pro-
vide rules for classifying such transactions
as sales or licenses of copyright rights,
sales or leases of copyrighted articles, or
the provision of services, or of know-how,
under certain provisions of the Internal
Revenue Code and tax treaties. These reg-
ulations are necessary to give taxpayers
guidance on the taxation of computer pro-
gram transactions. These regulations af-
fect taxpayers engaging in certain transac-
tions involving computer programs.
DATES: Effective date.These regulations
are effective October 2, 1998.
Applicability date.These regulations
apply to transactions occurring pursuant to
contracts entered into on or after Decem-
ber 1, 1998. Taxpayers may elect to apply
this section to transactions occurring pur-
suant to contracts entered into in taxable
years ending on or after October 2, 1998.
Taxpayers may also elect to apply this sec-
tion to transactions occurring in taxable
years ending on or after October 2, 1998,
pursuant to contracts entered into before
October 2, 1998, provided the taxpayer
would not be required under this section to
change its method of accounting, or the
taxpayer would be required to change its
method of accounting but the resulting
section 481 adjustment would be zero.
FOR FURTHER INFORMATION CON-
TACT: Anne Shelburne, (202) 622-3880
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information in this
final rule has been reviewed and, pending
receipt and evaluation of public com-
ments, approved by the Office of Man-
agement and Budget (OMB) under the
Paperwork Reduction Act (44 U.S.C.
3507) and assigned control number 1545–
1594. An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless the collection of information dis-
plays a valid control number assigned by
OMB.
The collection of information in this
regulation is in §1.861–18(k) of the regu-
lations. This information is required to
permit taxpayers to obtain an automatic
change in method of accounting. This in-
formation will be used to enable the IRS
to determine if taxpayers were entitled to
an automatic change in method of ac-
counting. The likely respondents are or-
ganizations.
Comments concerning the collection of
information should be directed to OMB,
Attention: Desk Officer for the Depart-
ment of the Treasury, Office of Informa-
tion and Regulatory Affairs, Washington,
DC 20503, with copies to the Internal
Revenue Service,Attn: IRS Reports
Clearance Officer, OP:FS:FP, Washing-
ton, DC 20224. Any such comments
should be submitted not later than De-
cember 1, 1998. Comments are specifi-
cally requested concerning:
Whether the collection of information is
necessary for the proper performance of
the functions of the IRS, including
whether the information will have practi-
cal utility;
The accuracy of the estimated burden as-
sociated with the collection of informa-
tion (see below);
How to enhance the quality, utility, and
clarity of the information collected;
How to minimize the burden of comply-
ing with the collection of information, in-
cluding the application of automated col-
lection techniques or other forms of
information technology; and
Estimates of capital or start-up costs and
costs of operation, maintenance, and pur-
chase of services to provide information.
The burden per respondent is reflected in
the burden of Form 3115.
Books or records relating to this collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
1998–42 I.R.B.5October 19, 1998
IRB 1998-42 10/14/98 11:03 AM Page 5

revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
This document contains final regula-
tions to be added to the Income Tax Regu-
lations (26 CFR part 1) under section 861
of the Internal Revenue Code (Code).
These regulations clarify the treatment
under certain provisions of the Code and
tax treaties of income from transactions
involving computer programs.
On November 13, 1996, proposed reg-
ulations [REG–251520–96 (1996–2 C.B.
511)] were published in the Federal Reg-
ister(61 F.R. 58152). The IRS received
written comments on the proposed regula-
tions and held a public hearing on March
19, 1997. Having considered the com-
ments and the statements made at the
hearing, the IRS and Treasury Depart-
ment adopt the proposed regulations as
modified by this Treasury decision. The
comments and revisions are discussed
below.
I. The Proposed Regulations.
The proposed regulations clarify cer-
tain rules for classifying transactions in-
volving computer programs. The regula-
tions generally require that a transaction
involving a computer program be treated
as being within one of four possible cate-
gories: (1) transfer of copyright rights, (2)
transfer of a copyrighted article, (3) pro-
vision of services relating to development
or modification of a computer program,
or (4) provision of know-how relating to
computer programming techniques.
The regulations distinguish between
transfers of copyright rights and transfers
of copyrighted articles based on the type
of rights transferred to the transferee.
They recognize that computer programs
are subject to copyright protection under
both U.S. and foreign copyright law. See
the Copyright Act of 1976, as amended
(17 U.S.C. 101 et. seq.); see also, EC Di-
rective on Legal Protection of Computer
Programs, Council Directive 91–250,
1991 J.O. (L 122), and the Berne Conven-
tion for the Capital Protection of Literary
and Artistic Works, 25 U.S.T. 1341 (Paris
Text, July 24, 1971). Copyright law
grants certain exclusive rights to a copy-
right owner. The regulations classify a
transaction as the transfer of a copyright
right if the transferee acquires one or
more of the copyright rights identified in
§1.861–18(c)(2) of the proposed regula-
tions. If the transferee acquires a copy of
a computer program but does not acquire
any of the rights identified in §1.861–
18(c)(2), the regulations classify the
transaction as the transfer of a copy-
righted article.
The proposed regulations further clas-
sify transfers of copyright rights as either
a sale or a license of copyright rights.
The proposed regulations require that this
classification be made by examining
whether, taking into account all facts and
circumstances, all substantial rights in
the copyright have passed to the trans-
feree. The proposed regulations also re-
quire that transfers of copyrighted arti-
cles be further classified as either a sale
or a lease of a copyrighted article. This
classification is made by examining
whether the benefits and burdens of own-
ership of the copyrighted article have
passed to the transferee.
The specific rules of the proposed regu-
lations are based on certain key princi-
ples: that the special features of computer
programs should be recognized and that
functionally equivalent transactions
should be treated similarly. The regula-
tions are also based on the principle that
copyright law should be a factor in classi-
fying transactions for tax purposes, but
should not be determinative.
Finally, the proposed regulations con-
tain 18 examples illustrating the rules.
II. Comments and Final Regulations.
1. Scope and Application of the
Regulations.
a. General Scope.
The proposed regulations classify
transactions in computer programs for
certain international provisions of the
Code. A number of comments addressed
two types of issues involving the scope of
the regulations: the treatment of com-
puter programs under other tax provisions
of the Code and the application of the
principles of the proposed regulations to
products other than computer programs.
As to the treatment of computer pro-
grams under other Code sections, com-
ments were mixed. Several commenta-
tors requested that Treasury expand the
scope of the final regulations to apply the
regulations’ principles for all U.S. tax
purposes. Other commentators, however,
urged caution, stating that issues raised
under other Code sections should be re-
solved only by legislation or by revising
the regulations under those other sections.
Most commentators recommended apply-
ing the regulations for tax accounting
purposes.
Some commentators requested that
Treasury specifically address the rele-
vance of the regulations in a specific con-
text. For example, some commentators
requested that the regulations clarify how
the principles apply in determining the
consequences of computer program trans-
actions under tax treaties.
After consideration of these comments,
the final regulations retain the scope of
the proposed regulations. However, Trea-
sury and the IRS are considering whether
the principles of these regulations should
apply to other tax provisions of the Code.
These regulations are intended to apply
for purposes of applying and interpreting
U.S. tax treaties. United States tax
treaties provide that terms not defined in
the treaty are defined by reference to do-
mestic law. See e.g., U.S. Model Income
Tax Convention of September 20, 1996,
Article 3(2).
The second group of comments gener-
ally addressed expanding the scope of the
regulations to apply to transactions in
other types of digitized information. The
proposed regulations are limited to classi-
fying transactions in computer programs.
Section 1.861–18(a)(3) of the proposed
regulations defines a computer program
as “...a set of statements or instructions to
be used directly or indirectly in a com-
puter in order to bring about a certain re-
sult.” The definition includes any data
base or similar item only “. . . if the data
base or similar item is incidental to the
operation of the computer program.”
Commentators expressed differing views
as to how to define computer programs.
Several commentators recommended that
the definition be expanded to include data
bases and content provided as part of the
transaction. They note that advances in
technology now permit significant
amounts of content, that are not merely
incidental, to be included in even inex-
pensive mass-marketed programs. Some
October 19, 199861998–42 I.R.B.
IRB 1998-42 10/14/98 11:03 AM Page 6

commentators recommended that the def-
inition be expanded to include data bases
or similar items even if not incidental,
while some stated that data base products
containing only a de minimis amount of
software programming to facilitate access
to the data should be excluded from the
definition.
Several commentators requested that
Treasury expand the regulations more
generally, by applying the same or analo-
gous principles in determining the tax
consequences of transactions involving
copyright rights and copyrighted articles
to entertainment products, or to other dig-
itized information.
The suggestions to expand the scope of
the regulations, either by expanding the
definition of computer programs or by ap-
plying the regulations to other types of
digitized information, were not adopted.
Instead, the final regulations generally re-
tain the definition of computer programs
found in the proposed regulations. It is
intended that a computer program in-
cludes any media, user manuals or docu-
mentation, or similar items (in addition to
data bases) if incidental to and routinely
transferred along with the computer pro-
gram. Treasury and the IRS are not aware
of specific instances where the failure to
expand the definition of computer pro-
gram would result in inappropriate conse-
quences to taxpayers for the portion of the
transaction not governed by these regula-
tions. Treasury and the IRS invite com-
ments on this point.
The regulations also continue to apply
only to cross-border transactions involving
computer programs because Treasury and
the IRS believe that such transactions raise
the most pressing need for guidance. Trea-
sury and the IRS may consider whether to
apply the principles of these regulations to
all transactions in digitized information as
part of a separate guidance project.
b. Relationship with Section 482.
Numerous commentators requested
clarification regarding the application of
the regulations for purposes of section
482, requesting that transactions in copy-
right rights be treated as transactions in
intangibles and transactions in copy-
righted articles be treated as transactions
in tangible property, even if delivered
electronically.
This suggestion has not been adopted.
Treasury and the IRS intend to further
consider this issue and may provide addi-
tional guidance in the future. See gener-
ally, §1.482–3(f).
c. Source of Income.
Several commentators requested that
Treasury provide explicit guidance in
final regulations on how to source income
arising from transactions in computer pro-
grams. Generally, under the current rules,
the source of income from sales of prop-
erty depends to varying extents upon both
the type of property and, for inventory
property, the place of sale, with the place
of sale generally determined by the place
where title to the property passes. See
§1.861–7(c). Several commentators re-
quested clarification of which source rule
applies to various transactions in com-
puter programs. The commentators also
pointed out that the place of sale can be
problematic when dealing with sales of
computer programs, in part because typi-
cal license agreements do not refer to a
transfer of property, and in part because
an electronic transfer is generally not ac-
companied by the usual indicia of the
transfer of title. Several commentators
suggested that the place of sale should be
deemed to be the location of the customer,
or the place where the customer first ob-
tains the opportunity to install the pro-
gram onto its computer.
In response to comments, the final reg-
ulations provide specific source rules.
The regulations provide that income from
transactions that are classified as sales or
exchanges of copyrighted articles will be
sourced under sections 861(a)(6),
862(a)(6), 863, 865(a), 865(b), 865(c), or
865(e), as appropriate. Income derived
from the sale or exchange of a copyright
right will be sourced under sections
865(a), 865(c), 865(d), 865(e), or 865(h),
as appropriate. Income derived from ei-
ther the leasing of a computer program or
the licensing of copyright rights in a com-
puter program will be sourced under sec-
tion 861(a)(4) or section 862(a)(4), as ap-
propriate. As to the issue of determining
the place of sale under the title passage
rule of §1.861–7(c), the parties in many
cases can agree on where title passes for
sales of inventory property generally.
Consistent with the overall policy of the
regulations, income from electronic trans-
fers of computer programs that constitute
inventory property, classified as sales of
copyrighted articles, will be sourced
under similar principles.
2. Relevance of Foreign Law.
Several commentators requested that
Treasury clarify that classification of a
transaction involving computer programs
for U.S. tax purposes does not depend on
foreign copyright law. In addition, one
commentator requested that the regula-
tions explicitly state that the terms used in
the regulations, although taken from
copyright law, will be interpreted in a
manner consistent with the purposes of
the regulations and Internal Revenue
Code. In certain cases, terms taken from
copyright law are specifically defined in
the regulations so as to properly imple-
ment the regulations’ underlying policy.
Unless specifically defined in the regula-
tions, legal standards taken from copy-
right law are intended to be given the
same interpretation as under U.S. copy-
right law. Factual predicates for applica-
tion of those standards, however, may be
provided by referring to foreign copyright
law. For example, if it were necessary to
determine whether the transferee had ac-
quired the right to create a derivative
work based on a computer program pro-
tected under French copyright law, the
facts of the case, i.e. the rights that the
transferee may exercise, are determined
under French law and the agreement be-
tween the parties. However, whether or
not the transferee’s rights constitute the
right to create a derivative work for pur-
poses of this regulation is determined by
comparing those rights created under
French law and the agreement between
the parties to the U.S. law definition of
the right to create a derivative work.
In addition, commentators requested
clarification that the determination of
whether a foreign tax imposed on transac-
tions in computer programs is a compul-
sory payment, eligible for a foreign tax
credit, is not affected by these regulations.
Treasury believes clarification is unneces-
sary. These regulations do not in any way
modify the requirement of §1.901-2(e)(5)
that substantive and procedural provisions
of foreign law (including applicable tax
treaties) determine the taxpayer’s liability
1998–42 I.R.B.7October 19, 1998
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under foreign law for tax and thus
whether an amount paid is a compulsory
payment. Moreover, the regulations
under section 904 recognize that a cred-
itable foreign tax may be imposed on an
item of income that is taxed at a different
time or in a different manner in a foreign
country than in the United States. See
§1.904–6(a)(1).
3. Copyright Rights.
The proposed regulations, in §1.861–
18(c)(2), describe four copyright rights:
(i) the right to make copies for distribu-
tion to the public, (ii) the right to prepare
derivative programs, (iii) the right to
make a public performance of the pro-
gram, and (iv) the right to publicly dis-
play the program. If a transfer of a com-
puter program results in a transferee
acquiring any one or more of the four
listed rights, the regulations classify the
transaction as a transfer of a copyright
right. Although the commentators agreed
that the right to make copies for distribu-
tion to the public is properly included,
they made a number of comments regard-
ing the three other copyright rights.
a. Derivative Programs.
Commentators stated that final regula-
tions should clarify the right to prepare
derivative programs. They recommended
that the regulations more specifically de-
scribe the circumstances resulting in the
transfer of such a copyright right.
Some commentators recommended that
a transfer of the right to prepare a deriva-
tive program should not be treated as the
transfer of a copyright right unless it is
coupled with the right to distribute the de-
rivative program to the public. That
change, they say, would make the right
more consistent with the right to repro-
duce copies, which results in the transfer
of a copyright right only if it is coupled
with the right to distribute to the public.
The final regulations do not adopt this
recommendation. Although the final reg-
ulations disregard the de minimis right to
make a derivative work, a substantial
right to make a derivative work is appro-
priately treated as the transfer of a copy-
right right, regardless of whether it is cou-
pled with the right to distribute to the
public. The regulations generally follow
copyright law in this respect. Although
the right to make copies constitutes the
transfer of a copyright right only if cou-
pled with the right to distribute to the pub-
lic, the regulations treat the right to make
copies differently from the other copy-
right rights because of the unique charac-
teristics of computer programs, including
the ease by which computer programs can
be copied.
Another set of comments requests clar-
ification of the effect of the transfer of
programs that permit the user to distribute
certain ancillary programs in conjunction
with works created using the underlying
program, or to incorporate certain pro-
gram elements into new programs created
using the underlying program. For exam-
ple, certain programs, such as software
development tools, permit the transferee
to distribute certain ancillary programs or
include certain segments of computer
code in new programs created by the
transferee using the development pro-
gram. Similarly, transferees of computer
programs are sometimes granted access to
the program’s source code in order to per-
mit the transferee to correct minor errors
or incompatibilities in the program.
Under the proposed regulations, the
transfer of a software development tool or
the grant of the right to correct minor er-
rors by modifying the source code might
constitute the right to create a derivative
computer program, resulting in the trans-
fer of a copyright right. Commentators
argued, however, that in both cases, the
overall character of the transaction was
analogous to the transfer of a copyrighted
article. Several commentators recom-
mended that where limited portions of a
development tool are included in an appli-
cation program, the inclusion should be
considered de minimis, and the resulting
application program not treated as a de-
rivative program of the program develop-
ment tool.
In addition, several commentators rec-
ommended that where no independent
value attaches to exploitation of the right
to prepare derivative computer programs,
such right should be treated as de min-
imis, and not considered in classifying the
transaction.
In response to these comments, the
final regulations provide in paragraph
(c)(1)(ii) that the de minimistransfer of a
copyright right will not be taken into ac-
count in determining whether a transac-
tion is considered the transfer solely of a
copyrighted article. Example 17 clarifies
that the right to use software development
tools to create an insubstantial component
of a new program constitutes such a de
minimis copyright right. Example 18
clarifies that the right to modify the
source code to correct minor errors and
make minor adaptations to a computer
program also constitutes a de minimis
copyright right.
However, the final regulations do not
provide that where no independent value
attaches to the exploitation of the right to
prepare derivative computer programs,
such right must be treated as de minimis.
Treasury and the IRS believe that in most
cases where no independent value at-
taches to the grant of the right to prepare
derivative computer programs, the right is
de minimis. However, this may not be
true in all cases and, therefore, this com-
ment has not been adopted.
b. Public Performance and Display.
Several commentators urged Treasury
to reserve in final regulations on two of
the copyright rights, the right to make a
public performance and the right to public
display of the copyrighted work. Several
commentators recommended that, if Trea-
sury elects not to reserve, a transaction in-
volving either right should result in treat-
ment as a transfer of a copyright right
only if the transfer is for commercial ex-
ploitation rather than for internal use.
Commentators also requested clarifica-
tion of these rights in the entertainment
area. They recommended the regulations
state that the right to publicly perform or
display the computer program should not
be considered the transfer of a copyright
right if the performance or display is lim-
ited to the advertisement of a copyrighted
article, and does not permit the public dis-
play of the entire article.
These suggestions have not been
adopted. However, Treasury and the IRS
recognize that the definition of these
rights in the context of computer pro-
grams is still developing, and in the future
it may be necessary to revisit this issue.
At the present time, Treasury and the IRS
believe it is appropriate to continue to fol-
low copyright law as to these rights. In
many cases, however, the transfer of a
right for public display or performance of
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a computer program, such as marketing or
advertising the program, to the extent it
constitutes the transfer of a copyright
right, would be considered a de minimis
grant of a copyright right under §1.861–
18(c)(1)(ii) of the final regulations, so
that the transaction would not result in the
transfer of a copyright right.
c. Definition of to the Public.
The proposed regulations list the right
to make copies for distribution to the
public as one of the four copyright rights.
Commentators recommended that the reg-
ulations clarify the meaning of “to the
public.” They recommended the defini-
tion exclude distribution to a related
party, with related party defined to ensure
that transfers to a non-controlled joint
venture would not be considered distribu-
tion to the public. They also recom-
mended that distribution to identified dis-
tributees not be considered distribution to
the public.
Commentators also recommended the
regulations state that distribution to the
public does not mean distribution to em-
ployees. In addition, they urge Treasury
to make explicit that internal distribution
includes distribution to many employees,
including employees of affiliates, at mul-
tiple locations.
In light of these comments, the final
regulations provide in new paragraph
(g)(3) that distribution to the public does
not include distribution to a related per-
son, which is defined for purposes of the
regulation as a person who bears a rela-
tionship to the transferee specified in sec-
tion 267(b)(3), (10), (11), or (12), or sec-
tion 707(b)(1)(B), with “10 percent”
substituted for “50 percent.” The term
also excludes distribution to certain iden-
tified persons or to those with a legal rela-
tionship to the original transferee. The
number of employees or independent con-
tractors who are permitted to use the pro-
gram in performance of services for the
transferee is not relevant. The examples
have also been amended to clarify that the
number of permitted users, which in-
cludes employees of the transferee, within
the group of related persons is not taken
into account in determining whether the
transferee has the right to distribute
copies of the program to the public. See
e.g., paragraph (h), Example 11.
4. Definition of Copyrighted Article.
The comments on this issue fell into
two categories. One group of comments
recommended that final regulations clar-
ify the consequences of transferring a de
minimis copyright right along with the
transfer of a copyrighted article. The pro-
posed regulations state in §1.861–
18(c)(1)(ii) that if a person acquires a
copy of a computer program but does not
acquire any of the four copyright rights,
the transfer is classified as a transfer of a
copyrighted article. Several commenta-
tors requested that the regulations clarify
the statement to say that if the transfer in-
cludes only a de minimis copyright right,
the transfer is classified as a transfer of a
copyrighted article. As discussed above,
in response, the final regulations provide
that if the transfer includes only a de min-
imis copyright right, the transfer is classi-
fied as a transfer of a copyrighted article.
The second category of comments con-
cerned the definition of a copyrighted arti-
cle. Section 1.861–18(c)(3) defines a
copyrighted article as a copy of a computer
program from which the work can be per-
ceived, reproduced, or otherwise commu-
nicated, either directly or with the aid of a
machine or device. Several commentators
recommended the regulations be modified
to say that the copy of the program need
not be fixed in a tangible medium, and thus
electronically transferred copies also con-
stitute copyrighted articles.
Treasury and the IRS believe that the
regulations clearly indicate that electroni-
cally transferred copies also constitute the
transfer of a copyrighted article. Section
1.861–18(g)(2) of the final regulations
continues to provide that the physical or
electronic medium used to effectuate a
transfer of a computer program shall not
be taken into account. Also, the examples
contained in the regulations, including
paragraph (h), Examples 2, 3,and 4,
specifically conclude that the electronic
transfer of software can constitute the
transfer of copyrighted articles.
One commentator suggested that the
words “carrier medium” should be substi-
tuted for the words “the magnetic medium
of a floppy disk” because computer pro-
grams may be distributed on a non-mag-
netic medium, such as a CD-ROM. This
comment has been adopted in §1.861–
18(c)(3) of the final regulations.
5. Further Classification of a Copyright
Right as a Sale or License.
In classifying a copyright right as a sale
or license, the proposed regulations look
to whether, considering all the facts and
circumstances, all substantial rights in a
copyright right are transferred. Commen-
tators raised a number of issues regarding
the all substantial rights test, commenting
on the effect of exclusivity, term of trans-
fer, geographic area, and time and manner
of payment.
Several commentators stated that ex-
clusivity is the most important factor in
determining whether all substantial rights
have been transferred. They pointed out
that two examples, Examples 5and 6, dis-
cuss other factors, the term of the transfer
and a transfer in a limited geographic
area, in addition to exclusivity, and re-
quested that the regulations explicitly
state that exclusivity is the most important
factor. One commentator suggested that
the term of the transfer may not be rele-
vant since the useful life of the program
may be shorter than originally believed
due to technological advances.
The final regulations do not incorporate
these comments. The regulations were
not intended to change the generally ap-
plicable “all substantial rights” test used
in determining whether a transfer of an in-
tangible, including copyright rights, is a
sale of the intangible or a license of the
intangible.
Another fact mentioned in the exam-
ples is the manner of payment. Several
commentators stated that the term over
which payments are made should be irrel-
evant in characterizing the transaction,
and requested that this be made explicit.
Although the regulations are not intended
to depart from what is the generally ap-
plicable rule on this issue, this comment
has been reflected in paragraph (h), Ex-
ample 5of the final regulations, thus clar-
ifying that the payment term is irrelevant
on the facts of this example.
Several commentators pointed out that,
in determining whether all substantial
rights are transferred, the regulations state
the principles of section 1222 and section
1235 shall apply. They seek clarification
that section 1222, not section 1235, ap-
plies to transfers of copyrights, with sec-
tion 1235 only applying to qualifying
transfers of patents.
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Although section 1235 by its terms
only applies to patent transfers, the pro-
posed regulations state that “the princi-
ples of sections 1222 and 1235” (empha-
sis added) shall apply. Treasury and the
IRS believe that the all substantial rights
test in the regulations under section 1235,
although a safe harbor under that section,
nevertheless reflects the all substantial
rights test arising from case law generally,
and is, therefore, an appropriate standard
that may be applied. However, in apply-
ing the all substantial rights test to trans-
actions in computer programs under these
regulations, relevant case law, other than
that specifically addressing section 1235
or section 1222, may also be applied, and
the final regulations clarify this point.
6. Further Classification of a
Copyrighted Article as a Sale or
Lease.
a. Lease Character for Copyrighted
Articles.
The proposed regulations treat a non-
sale transfer of a copy of a computer pro-
gram as a lease. Some commentators
urged Treasury to reconsider its decision
to adopt lease characterization for trans-
actions that traditionally have been char-
acterized as licenses. They submitted that
the change creates confusion, is inconsis-
tent with established commercial practice,
and implies that all lease transactions in-
volve tangible property. One commenta-
tor asked the IRS to clarify that the regu-
lation is not intended to produce any
differences in income tax consequences
by treating a transfer of a program as a
lease instead of a license.
These comments have not been
adopted. Treasury and the IRS continue
to believe that lease characterization is
correct for non-sale transfers of copies of
computer programs. Any income tax con-
sequences from such characterization
under these regulations will result from
application of generally applicable tax
law to the leasing transaction.
b. Benefits and Burdens Test.
In determining whether the transfer of a
copyrighted article results in a sale, or in-
stead as a lease generating rental income,
the proposed regulations look to whether,
based on the facts and circumstances, the
benefits and burdens of ownership are
transferred. One commentator stated that
this test is not helpful here, and proposed
an economic substance test instead, fo-
cusing on the right to use a computer pro-
gram as the economically valuable right.
Under that standard, a copyrighted article
would be considered sold if transferred
with the right to use it indefinitely.
Other commentators, however, be-
lieved that the existing authorities apply-
ing the benefits and burdens test provide
the correct analytical approach for distin-
guishing a sale from a lease of a copy-
righted article.
The final regulations preserve the bene-
fits and burdens test, and are not intended
to change the generally applicable bene-
fits and burdens test.
7. Related Parties.
The examples to the proposed regula-
tions state that they assume the parties are
unrelated. Several commentators re-
quested that final regulations clarify the
treatment of related parties under the reg-
ulations. They state that the regulations
should apply to related and unrelated par-
ties in the same way, and that Treasury
should specify any particular concerns.
In response to these comments, the ex-
amples to the final regulations do not con-
tain an assumption that the parties are un-
related. The regulations are intended to
apply to related and unrelated parties in
the same manner. The relationship be-
tween the parties does not affect the char-
acter of the transaction, with the excep-
tion of special rules regarding definition
of the term “distribution to the public.”
Of course, if the parties are related for
purposes of section 482, that section may
apply to determine the proper amount of
consideration for the transfer.
8. Services and Know-How.
Some commentators suggested that
final regulations clarify the relevancy of
the distinction between the provision of
services and the provision of know-how.
This suggestion has not been incorporated
in the final regulations. The purpose of
the regulations is only to characterize
transactions involving computer pro-
grams. Once the character of the transac-
tion is determined under the regulations,
the taxation of the income arising from
the transaction is determined under other
Code sections. Thus, the relevance of the
distinction between services and know-
how must be determined under other
Code sections. Compare sections
861(a)(3) and 862(a)(3), looking to place
of performance in sourcing income from
services, with sections 861(a)(4) and
862(a)(4), sourcing income derived from
the transfer of certain know-how based on
where the know-how is used. The dis-
tinction between services and know-how
may also be relevant under income tax
treaties. Compare Convention Between
the United States of America and Japan
for the Avoidance of Double Taxation and
the Prevention of Fiscal Evasion with Re-
spect to Taxes on Income, Article 8 (Busi-
ness Profits) and Article 14 (Royalties).
Some commentators suggested the final
regulations eliminate the requirement in
paragraph (e) of the proposed regulations,
requiring that know-how not be copy-
rightable as a prerequisite to being treated
as know-how for purposes of this section.
This comment has been adopted to elimi-
nate any inference that only orally trans-
mitted information could be classified as
know-how. The final regulations, how-
ever, add two other requirements. Know-
how is of the type covered by these regu-
lations only if the information is
information relating to computer program-
ming techniques, is furnished under condi-
tions preventing unauthorized disclosure,
specifically contracted for between the
parties, and is considered property subject
to trade secret protection. Know-how is
considered a property interest under ap-
plicable law, and only if the know-how is
specifically contracted for between the
parties. These additional requirements
should help clarify the definition of know-
how described in these regulations.
9. Mixed Transactions.
The proposed regulations state that if a
transaction in a computer program con-
sists of transactions in more than one cat-
egory listed in §1.861–18(b)(1), the trans-
actions, unless de minimis, will be treated
as separate transactions, with the rules ap-
plied separately to each. Several com-
mentators requested further guidance on
how to treat transactions that include pay-
ments for updates, support, consulting,
education, and training. They pointed out
that in many cases, the extent to which
such transactions or services will be re-
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quired by the transferee are unknown at
the time of the initial contract. They
asked that regulations clarify the factors
that will sustain an allocation where these
various options are made available, or
that Treasury consider bundling rules.
These comments have not been
adopted. These regulations are limited to
characterizing transactions relating to
computer programs, and are not intended
to provide rules for allocating income
arising from mixed transactions. Mixed
transactions occur in many circumstances
outside of transactions involving com-
puter programs. Whether income arising
from a mixed transaction, involving com-
puter programs or otherwise, must be al-
located to its separate components under
generally applicable principles of taxa-
tion, and the method by which such in-
come is allocated to the transaction’s
components, must be determined under
other Code sections.
10. Shrink Wrap License.
Several commentators stated that the
reference to the term shrink wrap license
in the proposed regulations should be
deleted, because the reference can be mis-
interpreted as ascribing some legal signif-
icance to the term. They suggested a
more general reference to a user agree-
ment or a user license. In response to
these comments, the final regulations now
indicate in Example 1 that the term
shrink-wrap licenseis merely illustrative.
The regulations’ analysis is based on the
terms of the agreement between the par-
ties, and on the nature and extent of the
rights transferred, not the means of pack-
aging or distributing the computer pro-
gram. In particular, the use of the term
shrink-wrap licensein the proposed regu-
lations was not intended to create an in-
ference that the regulations apply only to
mass-marketed software.
11. Pre-Effective Date Transactions.
The proposed regulations draw no in-
ference for transactions prior to the regu-
lations’ effective date. One commentator
recommended that the regulations permit
taxpayers to elect retroactive application
of the regulations. Another commentator
requested a statement that a taxpayer’s
prior treatment of a transaction would be
respected as long as it is reasonably sup-
portable. Another commentator recom-
mended the IRS remedy double tax prob-
lems for transactions prior to the effective
date.
The final regulations apply to transac-
tions occurring pursuant to contracts en-
tered into on or after the effective date of
the regulations. A special transition rule
permits taxpayers to elect to apply the
regulations to transactions occurring pur-
suant to contracts entered into in taxable
years ending on or after the date of publi-
cation of this document in the Federal
Register. Taxpayers may also elect to
apply this section to transactions occur-
ring in taxable years ending on or after the
date of publication of this document in the
Federal Register, for contracts entered
into before the date of publication of this
document in the Federal Register, pro-
vided the taxpayer would not be required
under this section to change its method of
accounting, or the taxpayer would be re-
quired to change its method of accounting
but the resulting section 481 adjustment
would be zero.
With regard to double taxation, taxpay-
ers who believe they are subject to double
taxation may pursue competent authority
relief.
12. Accounting Method Changes.
Commentators suggested that the IRS
issue, simultaneously with the issuance of
the final regulations, a revenue procedure
permitting an automatic change of ac-
counting to allow taxpayers to apply the
principles of these regulations for pur-
poses of accounting for prepaid income
under software maintenance agreements.
Different rules apply depending on
whether the income from such agree-
ments is considered to be derived from
the sale of goods or the performance of
services. Compare, §1.451–5 (sale of
goods) and Rev. Proc. 71–21 (1971–2 CB
549) (performance of services).
In response to comments, the final reg-
ulations grant taxpayers consent to
change their method of accounting if nec-
essary to conform the classification of
transactions with these regulations, where
the taxpayer elects one of the transtion
rules in paragraph (i)(2) of the regula-
tions. To obtain automatic consent to
change a method of accounting, the regu-
lations direct taxpayers to file Form 3115
with their returns and send a copy to the
national office.
13. Reverse Engineering and
Decompilation.
One commentator stated that the right
to reverse engineer (or decompile) a com-
puter program (i.e., the right to recon-
struct the source code from the object
code) should be irrelevant in classifying
transactions in computer programs, and
that references to that right should be
eliminated from the examples.
This comment has not been adopted.
The decompilation of a computer pro-
gram can result in the creation of a deriva-
tive work. Under the regulations, the
right to create a derivative work is a copy-
right right. Therefore, whether the trans-
feree is prohibited from reverse engineer-
ing a computer program could be relevant
in determining if a copyrighted article has
been transferred.
14. Effect of Practices Used to Control
Piracy.
One commentator suggested that cer-
tain practices used to control software
piracy, such as a requirement that the
transferee annually contact the transferor
and pay an annual fee, be disregarded in
determining whether a transaction results
in a sale or lease of a computer program.
This comment has not been adopted.
Such a transaction must be analyzed
under the benefits and burdens test, taking
into account all the facts and circum-
stances. Under that test, the requirement
that the transferee contact the transferor
and pay an annual fee might not result in
lease characterization, if other significant
benefits and burdens of ownership pass to
the transferee.
15. Definition of Computer.
One commentator urged Treasury to
adopt a flexible definition of the term
computer. However, the final regulations
do not define computer. The definition of
software used in the regulations is based
on the definition in the Copyright Act.
The Copyright Act does not define the
term computer.
16. Comments (not otherwise addressed
above) Regarding Specific Examples.
a. Paragraph (h), Examples 6 and 7.
Commentators requested that, given
the ease of reproduction, the distinction
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between paragraph (h), Examples 6and 7
should be removed. This comment has
not been adopted. Although computer
programs can be easily reproduced, a fact
which the regulations recognize, there is
still an important commercial and legal
distinction between persons who are
granted the right to make copies of a pro-
gram for distribution and persons who do
not have that right.
b. Example 6.
In response to comments, the final reg-
ulations make clear that the party exercis-
ing reproduction rights can exercise that
right indirectly by contracting out the re-
production function.
c. Example 8.
In response to a comment, Example 8
has been clarified to indicate that the right
to make back-up copies of the program,
or the fact that a back-up copy of the pro-
gram is transferred on a disk, is irrelevant
to classification.
d. Example 9.
In response to a comment, paragraph
(h), Example 9is clarified to indicate that
the mechanics of copying a computer pro-
gram are irrelevant.
e. Example 10.
Some commentators suggested that in
the case of so-called enterprise licenses,
the fact the transferee can use the program
at multiple locations should not affect the
character of the transaction as the sale of
copyrighted articles. This comment has
been adopted, and paragraph (h), Example
10(ii)(C) of the final regulations has been
amended accordingly.
f. Examples 12 and 13.
Some commentators suggested adding
examples to illustrate so-called software
maintenance or subscription agreements.
Paragraph (h), Examples 12and 13of the
proposed regulations, however, were in-
tended to illustrate such agreements, and,
in response to comments, these examples
have been modified in the final regula-
tions. Generally, the provision of an up-
dated program pursuant to a maintenance
agreement is intended to be treated as the
transfer of a copyrighted article. How-
ever, this may not always be the case, and
maintenance agreements must be ana-
lyzed in the same way as other transac-
tions under the regulations.
g. Example 15.
A commentator suggested that the ex-
ample’s use of a derivative computer pro-
gram adds complexity, and recommends
the example be redrafted to purely illus-
trate services. This comment has been
adopted and the example has been revised
accordingly.
h. Additional Examples.
Commentators suggested additional ex-
amples. The final regulations add addi-
tional examples where clarification was
believed necessary.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in EO 12866.
Therefore, a regulatory assessment is not
required.
It is hereby certified that the collection
of information contained in these regula-
tions will not have a significant economic
impact on a substantial number of small
entities. This certification is based on the
fact that the rules of this section impact
taxpayers who engage in international
transactions in computer programs, and
therefore the rules will impact very few
small entities. Moreover, in those few in-
stances where the rules of this section im-
pact small entities, the economic impact
of the collection of information on such
small entities is not likely to be significant
because it merely requires a copy of the
Form 3115 to be filed with the National
Office. Accordingly, a regulatory flexi-
bility analysis is not required under the
Regulatory Flexibility Act (5 U.S.C.
chapter 6).
Pursuant to section 7805(f) of the Inter-
nal Revenue Code, the notice of proposed
rulemaking preceding these regulations
was submitted to the Chief Counsel for
Advocacy of the Small Business Admin-
istration for comment on its impact on
small business.
Drafting Information
The principal author of these regula-
tions is Anne Shelburne, of the Office of
Associate Chief Counsel (International),
IRS. However, other personnel from the
IRS and Treasury Department partici-
pated in their development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.861–18 is added to
read as follows:
§1.861–18 Classification of transactions
involving computer programs.
(a) General—(1) Scope.This section
provides rules for classifying transactions
relating to computer programs for pur-
poses of subchapter N of chapter 1 of the
Internal Revenue Code, sections 367,
404A, 482, 551, 679, 1059A, chapter 3,
chapter 5, sections 842 and 845 (to the ex-
tent involving a foreign person), and
transfers to foreign trusts not covered by
section 679.
(2) Categories of transactions.This
section generally requires that such trans-
actions be treated as being solely within
one of four categories (described in para-
graph (b)(1) of this section) and provides
certain rules for categorizing such trans-
actions. In the case of a transfer of a
copyright right, this section provides rules
for determining whether the transaction
should be classified as either a sale or ex-
change, or a license generating royalty in-
come. In the case of a transfer of a copy-
righted article, this section provides rules
for determining whether the transaction
should be classified as either a sale or ex-
change, or a lease generating rental in-
come.
(3) Computer program.For purposes
of this section, a computer program is a
set of statements or instructions to be used
directly or indirectly in a computer in
order to bring about a certain result. For
purposes of this paragraph (a)(3), a com-
puter program includes any media, user
manuals, documentation, data base or
similar item if the media, user manuals,
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documentation, data base or similar item
is incidental to the operation of the com-
puter program.
(b) Categories of transactions—(1)
General.Except as provided in para-
graph (b)(2) of this section, a transaction
involving the transfer of a computer pro-
gram, or the provision of services or of
know-how with respect to a computer
program (collectively, a transfer of a com-
puter program) is treated as being solely
one of the following—
(i) A transfer of a copyright right in the
computer program;
(ii) A transfer of a copy of the com-
puter program (a copyrighted article);
(iii) The provision of services for the
development or modification of the com-
puter program; or
(iv) The provision of know-how relat-
ing to computer programming techniques.
(2) Transactions consisting of more
than one category. Any transaction in-
volving computer programs which con-
sists of more than one of the transactions
described in paragraph (b)(1) of this sec-
tion shall be treated as separate transac-
tions, with the appropriate provisions of
this section being applied to each such
transaction. However, any transaction
that is de minimis, taking into account the
overall transaction and the surrounding
facts and circumstances, shall not be
treated as a separate transaction, but as
part of another transaction.
(c) Transfers involving copyright
rights and copyrighted articles—(1)
Classification—(i) Transfers treated as
transfers of copyright rights. A transfer
of a computer program is classified as a
transfer of a copyright right if, as a result
of the transaction, a person acquires any
one or more of the rights described in
paragraphs (c)(2)(i) through (iv) of this
section. Whether the transaction is
treated as being solely the transfer of a
copyright right or is treated as separate
transactions is determined pursuant to
paragraph (b)(1) and (b)(2) of this sec-
tion. For example, if a person receives a
disk containing a copy of a computer pro-
gram which enables it to exercise, in rela-
tion to that program, a non-de minimis
right described in paragraphs (c)(2)(i)
through (iv) of this section (and the trans-
action does not involve, or involves only
a de minimis provision of services as de-
scribed in paragraph (d) of this section or
of know-how as described in paragraph
(e) of this section), then, under paragraph
(b)(2) of this section, the transfer is classi-
fied solely as a transfer of a copyright
right.
(ii) Transfers treated solely as trans-
fers of copyrighted articles. If a person
acquires a copy of a computer program
but does not acquire any of the rights de-
scribed in paragraphs (c)(2)(i) through
(iv) of this section (or only acquires a de
minimis grant of such rights), and the
transaction does not involve, or involves
only a de minimis,provision of services
as described in paragraph (d) of this sec-
tion or of know-how as described in para-
graph (e) of this section, the transfer of
the copy of the computer program is clas-
sified solely as a transfer of a copyrighted
article.
(2) Copyright rights.The copyright
rights referred to in paragraph (c)(1) of
this section are as follows—
(i) The right to make copies of the com-
puter program for purposes of distribution
to the public by sale or other transfer of
ownership, or by rental, lease or lending;
(ii) The right to prepare derivative
computer programs based upon the copy-
righted computer program;
(iii) The right to make a public perfor-
mance of the computer program; or
(iv) The right to publicly display the
computer program.
(3) Copyrighted article. A copyrighted
article includes a copy of a computer pro-
gram from which the work can be per-
ceived, reproduced, or otherwise commu-
nicated, either directly or with the aid of a
machine or device. The copy of the pro-
gram may be fixed in the magnetic
medium of a floppy disk, or in the main
memory or hard drive of a computer, or in
any other medium.
(d) Provision of services. The determi-
nation of whether a transaction involving
a newly developed or modified computer
program is treated as either the provision
of services or another transaction de-
scribed in paragraph (b)(1) of this section
is based on all the facts and circumstances
of the transaction, including, as appropri-
ate, the intent of the parties (as evidenced
by their agreement and conduct) as to
which party is to own the copyright rights
in the computer program and how the
risks of loss are allocated between the
parties.
(e) Provision of know-how. The provi-
sion of information with respect to a com-
puter program will be treated as the provi-
sion of know-how for purposes of this
section only if the information is—
(1) Information relating to computer
programming techniques;
(2) Furnished under conditions pre-
venting unauthorized disclosure, specifi-
cally contracted for between the parties;
and
(3) Considered property subject to
trade secret protection.
(f) Further classification of transfers
involving copyright rights and copy-
righted articles—(1) Transfers of copy-
right rights.The determination of
whether a transfer of a copyright right is a
sale or exchange of property is made on
the basis of whether, taking into account
all facts and circumstances, there has
been a transfer of all substantial rights in
the copyright. A transaction that does not
constitute a sale or exchange because not
all substantial rights have been transferred
will be classified as a license generating
royalty income. For this purpose, the
principles of sections 1222 and 1235 may
be applied. Income derived from the sale
or exchange of a copyright right will be
sourced under section 865(a), (c), (d), (e),
or (h), as appropriate. Income derived
from the licensing of a copyright right
will be sourced under section 861(a)(4) or
862(a)(4), as appropriate.
(2) Transfers of copyrighted articles.
The determination of whether a transfer
of a copyrighted article is a sale or ex-
change is made on the basis of whether,
taking into account all facts and circum-
stances, the benefits and burdens of own-
ership have been transferred. A transac-
tion that does not constitute a sale or
exchange because insufficient benefits
and burdens of ownership of the copy-
righted article have been transferred, such
that a person other than the transferee is
properly treated as the owner of the copy-
righted article, will be classified as a
lease generating rental income. Income
from transactions that are classified as
sales or exchanges of copyrighted articles
will be sourced under sections 861(a)(6),
862(a)(6), 863, 865(a), (b), (c), or (e), as
appropriate. Income derived from the
leasing of a copyrighted article will be
sourced under section 861(a)(4) or section
862(a)(4), as appropriate.
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(3) Special circumstances of computer
programs.In connection with determina-
tions under this paragraph (f), considera-
tion must be given as appropriate to the
special characteristics of computer pro-
grams in transactions that take advantage
of these characteristics (such as the ability
to make perfect copies at minimal cost).
For example, a transaction in which a per-
son acquires a copy of a computer pro-
gram on disk subject to a requirement that
the disk be destroyed after a specified pe-
riod is generally the equivalent of a trans-
action subject to a requirement that the
disk be returned after such period. Simi-
larly, a transaction in which the program
deactivates itself after a specified period
is generally the equivalent of returning
the copy.
(g) Rules of operation—(1) Term ap-
plied to transaction by parties. Neither
the form adopted by the parties to a trans-
action, nor the classification of the trans-
action under copyright law, shall be deter-
minative. Therefore, for example, if there
is a transfer of a computer program on a
single disk for a one-time payment with
restrictions on transfer and reverse engi-
neering, which the parties characterize as
a license (including, but not limited to,
agreements commonly referred to as
shrink-wrap licenses), application of the
rules of paragraphs (c) and (f) of this sec-
tion may nevertheless result in the trans-
action being classified as the sale of a
copyrighted article.
(2) Means of transfer not to be taken
into account.The rules of this section shall
be applied irrespective of the physical or
electronic or other medium used to effectu-
ate a transfer of a computer program.
(3) To the public—(i) In general.For
purposes of paragraph (c)(2)(i) of this sec-
tion, a transferee of a computer program
shall not be considered to have the right to
distribute copies of the program to the
public if it is permitted to distribute copies
of the software to only either a related per-
son, or to identified persons who may be
identified by either name or by legal rela-
tionship to the original transferee. For
purposes of this subparagraph, a related
person is a person who bears a relation-
ship to the transferee specified in section
267(b)(3), (10), (11), or (12), or section
707(b)(1)(B). In applying section 267(b),
267(f), 707(b)(1)(B), or 1563(a), “10 per-
cent” shall be substituted for “50 percent.”
(ii) Use by individuals.The number of
employees of a transferee of a computer
program who are permitted to use the pro-
gram in connection with their employ-
ment is not relevant for purposes of this
paragraph (g)(3). In addition, the number
of individuals with a contractual agree-
ment to provide services to the transferee
of a computer program who are permitted
to use the program in connection with the
performance of those services is not rele-
vant for purposes of this paragraph (g)(3).
(h) Examples.The provisions of this
section may be illustrated by the follow-
ing examples:
Example 1. (i) Facts.Corp A, a U.S. corpora-
tion, owns the copyright in a computer program,
Program X. It copies Program X onto disks. The
disks are placed in boxes covered with a wrapper on
which is printed what is generally referred to as a
shrink-wrap license. The license is stated to be per-
petual. Under the license no reverse engineering,
decompilation, or disassembly of the computer pro-
gram is permitted. The transferee receives, first, the
right to use the program on two of its own comput-
ers (for example, a laptop and a desktop) provided
that only one copy is in use at any one time, and,
second, the right to make one copy of the program
on each machine as an essential step in the utiliza-
tion of the program. The transferee is permitted by
the shrink-wrap license to sell the copy so long as it
destroys any other copies it has made and imposes
the same terms and conditions of the license on the
purchaser of its copy. These disks are made avail-
able for sale to the general public in Country Z. In
return for valuable consideration, P, a Country Z res-
ident, receives one such disk.
(ii) Analysis.(A) Under paragraph (g)(1) of this
section, the label license is not determinative. None
of the copyright rights described in paragraph (c)(2)
of this section have been transferred in this transac-
tion. P has received a copy of the program, however,
and, therefore, under paragraph (c)(1)(ii) of this sec-
tion, P has acquired solely a copyrighted article.
(B) Taking into account all of the facts and cir-
cumstances, P is properly treated as the owner of a
copyrighted article. Therefore, under paragraph
(f)(2) of this section, there has been a sale of a copy-
righted article rather than the grant of a lease.
Example 2.(i) Facts. The facts are the same as
those in Example 1, except that instead of selling
disks, Corp A, the U.S. corporation, decides to make
Program X available, for a fee, on a World Wide
Web home page on the Internet. P, the Country Z
resident, in return for payment made to Corp A,
downloads Program X (via modem) onto the hard
drive of his computer. As part of the electronic com-
munication, P signifies his assent to a license agree-
ment with terms identical to those in Example 1,ex-
cept that in this case P may make a back-up copy of
the program on to a disk.
(ii) Analysis.(A) None of the copyright rights
described in paragraph (c)(2) of this section have
passed to P. Although P did not buy a physical copy
of the disk with the program on it, paragraph (g)(2)
of this section provides that the means of transfer-
ring the program is irrelevant. Therefore, P has ac-
quired a copyrighted article.
(B) As in Example 1,P is properly treated as the
owner of a copyrighted article. Therefore, under
paragraph (f)(2) of this section, there has been a sale
of a copyrighted article rather than the grant of a
lease.
Example 3.(i) Facts.The facts are the same as
those in Example 1,except that Corp A only allows
P, the Country Z resident, to use Program X for one
week. At the end of that week, P must return the
disk with Program X on it to Corp A. P must also
destroy any copies made of Program X. If P wishes
to use Program X for a further period he must enter
into a new agreement to use the program for an addi-
tional charge.
(ii) Analysis.(A) Under paragraph (c)(2) of this
section, P has received no copyright rights. Because
P has received a copy of the program under para-
graph (c)(1)(ii) of this section, he has, therefore, re-
ceived a copyrighted article.
(B) Taking into account all of the facts and cir-
cumstances, P is not properly treated as the owner of
a copyrighted article. Therefore, under paragraph
(f)(2) of this section, there has been a lease of a
copyrighted article rather than a sale. Taking into
account the special characteristics of computer pro-
grams as provided in paragraph (f)(3) of this section,
the result would be the same if P were required to
destroy the disk at the end of the one week period in-
stead of returning it since Corp A can make addi-
tional copies of the program at minimal cost.
Example 4.(i) Facts.The facts are the same as
those in Example 2,where P, the Country Z resident,
receives Program X from Corp A’s home page on the
Internet, except that P may only use Program X for a
period of one week at the end of which an electronic
lock is activated and the program can no longer be
accessed. Thereafter, if P wishes to use Program X,
it must return to the home page and pay Corp A to
send an electronic key to reactivate the program for
another week.
(ii) Analysis.(A) As in Example 3, under para-
graph (c)(2) of this section, P has not received any
copyright rights. P has received a copy of the pro-
gram, and under paragraph (g)(2) of this section, the
means of transmission is irrelevant. P has, therefore,
under paragraph (c)(1)(ii) of this section, received a
copyrighted article.
(B) As in Example 3,P is not properly treated as
the owner of a copyrighted article. Therefore, under
paragraph (f)(2) of this section, there has been a
lease of a copyrighted article rather than a sale.
While P does retain Program X on its computer at
the end of the one week period, as a legal matter P
no longer has the right to use the program (without
further payment) and, indeed, cannot use the pro-
gram without the electronic key. Functionally, Pro-
gram X is no longer on the hard drive of P’s com-
puter. Instead, the hard drive contains only a series
of numbers which no longer perform the function of
Program X. Although in Example 3, P was required
to physically return the disk, taking into account the
special characteristics of computer programs as pro-
vided in paragraph (f)(3) of this section, the result in
this Example 4is the same as in Example 3.
Example 5.(i) Facts.Corp A, a U.S. corpora-
tion, transfers a disk containing Program X to Corp
B, a Country Z corporation, and grants Corp B an
exclusive license for the remaining term of the copy-
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right to copy and distribute an unlimited number of
copies of Program X in the geographic area of
Country Z, prepare derivative works based upon
Program X, make public performances of Program
X, and publicly display Program X. Corp B will pay
Corp A a royalty of $y a year for three years, which
is the expected period during which Program X will
have commercially exploitable value.
(ii) Analysis.(A) Although Corp A has trans-
ferred a disk with a copy of Program X on it to Corp
B, under paragraph (c)(1)(i) of this section because
this transfer is accompanied by a copyright right
identified in paragraph (c)(2)(i) of this section, this
transaction is a transfer solely of copyright rights,
not of copyrighted articles. For purposes of para-
graph (b)(2) of this section, the disk containing a
copy of Program X is a de minimis component of
the transaction.
(B) Applying the all substantial rights test under
paragraph (f)(1) of this section, Corp A will be
treated as having sold copyright rights to Corp B.
Corp B has acquired all of the copyright rights in
Program X, has received the right to use them exclu-
sively within Country Z, and has received the rights
for the remaining life of the copyright in Program X.
The fact the payments cease before the copyright
term expires is not controlling. Under paragraph
(g)(1) of this section, the fact that the agreement is
labelled a license is not controlling (nor is the fact
that Corp A receives a sum labelled a royalty). (The
result in this case would be the same if the copy of
Program X to be used for the purposes of reproduc-
tion were transmitted electronically to Corp B, as a
result of the application of the rule of paragraph
(g)(2) of this section.)
Example 6. (i) Facts.Corp A, a U.S. corpora-
tion, transfers a disk containing Program X to Corp
B, a Country Z corporation, and grants Corp B the
non exclusive right to reproduce (either directly or
by contracting with either Corp A or another person
to do so) and distribute for sale to the public an un-
limited number of disks at its factory in Country Z in
return for a payment related to the number of disks
copied and sold. The term of the agreement is two
years, which is less than the remaining life of the
copyright.
(ii) Analysis.(A) As in Example 5, the transfer of
the disk containing the copy of the program does not
constitute the transfer of a copyrighted article under
paragraph (c)(1) of this section because Corp B has
also acquired a copyright right under paragraph
(c)(2)(i) of this section, the right to reproduce and dis-
tribute to the public. For purposes of paragraph (b)(2)
of this section, the disk containing Program X is a de
minimiscomponent of the transaction.
(B) Taking into account all of the facts and cir-
cumstances, there has been a license of Program X
to Corp B, and the payments made by Corp B are
royalties. Under paragraph (f)(1) of this section,
there has not been a transfer of all substantial rights
in the copyright to Program X because Corp A has
the right to enter into other licenses with respect to
the copyright of Program X, including licenses in
Country Z (or even to sell that copyright, subject to
Corp B’s interest). Corp B has acquired no right it-
self to license the copyright rights in Program X. Fi-
nally, the term of the license is for less than the re-
maining life of the copyright in Program X.
Example 7.(i) Facts. Corp C, a distributor in
Country Z, enters into an agreement with Corp A, a
U.S. corporation, to purchase as many copies of Pro-
gram X on disk as it may from time-to-time request.
Corp C will then sell these disks to retailers. The
disks are shipped in boxes covered by shrink-wrap
licenses (identical to the license described in Exam-
ple 1).
(ii) Analysis. (A) Corp C has not acquired any
copyright rights under paragraph (c)(2) of this sec-
tion with respect to Program X. It has acquired indi-
vidual copies of Program X, which it may sell to
others. The use of the term license is not dispositive
under paragraph (g)(1) of this section. Under para-
graph (c)(1)(ii) of this section, Corp C has acquired
copyrighted articles.
(B) Taking into account all of the facts and cir-
cumstances, Corp C is properly treated as the owner
of copyrighted articles. Therefore, under paragraph
(f)(2) of this section, there has been a sale of copy-
righted articles.
Example 8. (i) Facts.Corp A, a U.S. corpora-
tion, transfers a disk containing Program X to Corp
D, a foreign corporation engaged in the manufacture
and sale of personal computers in Country Z. Corp
A grants Corp D the non-exclusive right to copy
Program X onto the hard drive of an unlimited num-
ber of computers, which Corp D manufactures, and
to distribute those copies (on the hard drive) to the
public. The term of the agreement is two years,
which is less than the remaining life of the copyright
in Program X. Corp D pays Corp A an amount
based on the number of copies of Program X it loads
on to computers.
(ii) Analysis. The analysis is the same as in Ex-
ample 6.Under paragraph (c)(2)(i) of this section,
Corp D has acquired a copyright right enabling it to
exploit Program X by copying it on to the hard dri-
ves of the computers that it manufactures and then
sells. For purposes of paragraph (b)(2) of this sec-
tion, the disk containing Program X is a de minimis
component of the transaction. Taking into account
all of the facts and circumstances, Corp D has not,
however, acquired all substantial rights in the copy-
right to Program X (for example, the term of the
agreement is less than the remaining life of the
copyright). Under paragraph (f)(1) of this section,
this transaction is, therefore, a license of Program X
to Corp D rather than a sale and the payments made
by Corp D are royalties. (The result would be the
same if Corp D included with the computers it sells
an archival copy of Program X on a floppy disk.)
Example 9. (i) Facts.The facts are the same as
in Example 8, except that Corp D, the Country Z
corporation, receives physical disks. The disks are
shipped in boxes covered by shrink-wrap licenses
(identical to the licenses described in Example 1).
The terms of these licenses do not permit Corp D to
make additional copies of Program X. Corp D uses
each individual disk only once to load a single copy
of Program X onto each separate computer. Corp D
transfers the disk with the computer when it is sold.
(ii) Analysis.(A) As in Example 7(unlike Ex-
ample 8) no copyright right identified in paragraph
(c)(2) of this section has been transferred. Corp D
acquires the disks without the right to reproduce and
distribute publicly further copies of Program X.
This is therefore the transfer of copyrighted articles
under paragraph (c)(1)(ii) of this section.
(B) Taking into account all of the facts and cir-
cumstances, Corp D is properly treated as the owner
of copyrighted articles. Therefore, under paragraph
(f)(2) of this section, the transaction is classified as
the sale of a copyrighted article. (The result would
be the same if Corp D used a single physical disk to
copy Program X onto each computer, and trans-
ferred an unopened box containing Program X with
each computer, if Corp D were not permitted to copy
Program X onto more computers than the number of
individual copies purchased.)
Example 10.(i) Facts.Corp A, a U.S. corpora-
tion, transfers a disk containing Program X to Corp E,
a Country Z corporation, and grants Corp E the right
to load Program X onto 50 individual workstations
for use only by Corp E employees at one location in
return for a one-time per-user fee (generally referred
to as a site license or enterprise license). If additional
workstations are subsequently introduced, Program X
may be loaded onto those machines for additional
one-time per-user fees. The license which grants the
rights to operate Program X on 50 workstations also
prohibits Corp E from selling the disk (or any of the
50 copies) or reverse engineering the program. The
term of the license is stated to be perpetual.
(ii) Analysis. (A) The grant of a right to copy,
unaccompanied by the right to distribute those
copies to the public, is not the transfer of a copyright
right under paragraph (c)(2) of this section. There-
fore, under paragraph (c)(1)(ii) of this section, this
transaction is a transfer of copyrighted articles (50
copies of Program X).
(B) Taking into account all of the facts and cir-
cumstances, P is properly treated as the owner of
copyrighted articles. Therefore, under paragraph
(f)(2) of this section, there has been a sale of copy-
righted articles rather than the grant of a lease.
Notwithstanding the restriction on sale, other factors
such as, for example, the risk of loss and the right to
use the copies in perpetuity outweigh, in this case,
the restrictions placed on the right of alienation.
(C) The result would be the same if Corp E were
permitted to copy Program X onto an unlimited
number of workstations used by employees of either
Corp E or corporations that had a relationship to
Corp E specified in paragraph (g)(3) of this section.
Example 11. (i) Facts. The facts are the same as
in Example 10,except that Corp E, the Country Z
corporation, acquires the right to make Program X
available to workstation users who are Corp E em-
ployees by way of a local area network (LAN). The
number of users that can use Program X on the LAN
at any one time is limited to 50. Corp E pays a one-
time fee for the right to have up to 50 employees use
the program at the same time.
(ii) Analysis.Under paragraph (g)(2) of this sec-
tion the mode of utilization is irrelevant. Therefore,
as in Example 10, under paragraph (c)(2) of this sec-
tion, no copyright right has been transferred, and,
thus, under paragraph (c)(1)(ii) of this section, this
transaction will be classified as the transfer of a
copyrighted article. Under the benefits and burdens
test of paragraph (f)(2) of this section, this transac-
tion is a sale of copyrighted articles. The result
would be the same if an unlimited number of Corp E
employees were permitted to use Program X on the
LAN or if Corp E were permitted to copy Program
X onto LANs maintained by corporations that had a
relationship to Corp E specified in paragraph (g)(3)
of this section.
Example 12.(i) Facts.The facts are the same as
in Example 11,except that Corp E pays a monthly
fee to Corp A, the U.S. corporation, calculated with
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reference to the permitted maximum number of
users (which can be changed) and the computing
power of Corp E’s server. In return for this monthly
fee, Corp E receives the right to receive upgrades of
Program X when they become available. The agree-
ment may be terminated by either party at the end of
any month. When the disk containing the upgrade is
received, Corp E must return the disk containing the
earlier version of Program X to Corp A. If the con-
tract is terminated, Corp E must delete (or otherwise
destroy) all copies made of the current version of
Program X. The agreement also requires Corp A to
provide technical support to Corp E but the agree-
ment does not allocate the monthly fee between the
right to receive upgrades of Program X and the tech-
nical support services. The amount of technical sup-
port that Corp A will provide to Corp E is not fore-
seeable at the time the contract is entered into but is
expected to be de minimis. The agreement specifi-
cally provides that Corp E has not thereby been
granted an option to purchase Program X.
(ii) Analysis.(A) Corp E has received no copy-
right rights under paragraph (c)(2) of this section.
Corp A has not provided any services described in
paragraph (d) of this section. Based on all the facts
and circumstances of the transaction, Corp A has
provided de minimis technical services to Corp E.
Therefore, under paragraph (c)(1)(ii) of this section,
the transaction is a transfer of a copyrighted article.
(B) Taking into account all facts and circum-
stances, under the benefits and burdens test Corp E is
not properly treated as the owner of the copyrighted
article. Corp E does not receive the right to use Pro-
gram X in perpetuity, but only for so long as it con-
tinues to make payments. Corp E does not have the
right to purchase Program X on advantageous (or, in-
deed, any) terms once a certain amount of money has
been paid to Corp A or a certain period of time has
elapsed (which might indicate a sale). Once the
agreement is terminated, Corp E will no longer pos-
sess any copies of Program X, current or superseded.
Therefore under paragraph (f)(2) of this section there
has been a lease of a copyrighted article.
Example 13.(i) Facts. The facts are the same as
in Example 12, except that, while Corp E must re-
turn copies of Program X as new upgrades are re-
ceived, if the agreement terminates, Corp E may
keep the latest version of Program X (although Corp
E is still prohibited from selling or otherwise trans-
ferring any copy of Program X).
(ii) Analysis.For the reasons stated in Example
10,paragraph (ii)(B), the transfer of the program
will be treated as a sale of a copyrighted article
rather than as a lease.
Example 14.(i) Facts.Corp G, a Country Z
corporation, enters into a contract with Corp A, a
U.S. corporation, for Corp A to modify Program X
so that it can be used at Corp G’s facility in Country
Z. Under the contract, Corp G is to acquire one
copy of the program on a disk and the right to use
the program on 5,000 workstations. The contract re-
quires Corp A to rewrite elements of Program X so
that it will conform to Country Z accounting stan-
dards and states that Corp A retains all copyright
rights in the modified Program X. The agreement
between Corp A and Corp G is otherwise identical as
to rights and payment terms as the agreement de-
scribed in Example 10.
(ii) Analysis.(A) As in Example 10, no copy-
right rights are being transferred under paragraph
(c)(2) of this section. In addition, since no copyright
rights are being transferred to Corp G, this transac-
tion does not involve the provision of services by
Corp A under paragraph (d) of this section. This
transaction will be classified, therefore, as a transfer
of copyrighted articles under paragraph (c)(1)(ii) of
this section.
(B) Taking into account all facts and circum-
stances, Corp G is properly treated as the owner of
copyrighted articles. Therefore, under paragraph
(f)(2) of this section, there has been the sale of a
copyrighted article rather than the grant of a lease.
Example 15.(i) Facts. Corp H, a Country Z cor-
poration, enters into a license agreement for a new
computer program. Program Q is to be written by
Corp A, a U.S. corporation. Corp A and Corp H
agree that Corp A is writing Program Q for Corp H
and that, when Program Q is completed, the copy-
right in Program Q will belong to Corp H. Corp H
gives instructions to Corp A programmers regarding
program specifications. Corp H agrees to pay Corp
A a fixed monthly sum during development of the
program. If Corp H is dissatisfied with the develop-
ment of the program, it may cancel the contract at the
end of any month. In the event of termination, Corp
A will retain all payments, while any procedures,
techniques or copyrightable interests will be the
property of Corp H. All of the payments are labelled
royalties. There is no provision in the agreement for
any continuing relationship between Corp A and
Corp H, such as the furnishing of updates of the pro-
gram, after completion of the modification work.
(ii) Analysis. Taking into account all of the facts
and circumstances, Corp A is treated as providing
services to Corp H. Under paragraph (d) of this sec-
tion, Corp A is treated as providing services to Corp
H because Corp H bears all of the risks of loss asso-
ciated with the development of Program Q and is the
owner of all copyright rights in Program Q. Under
paragraph (g)(1) of this section, the fact that the
agreement is labelled a license is not controlling
(nor is the fact that Corp A receives a sum labelled a
royalty).
Example 16.(i) Facts. Corp A, a U.S. corpora-
tion, and Corp I, a Country Z corporation, agree that
a development engineer employed by Corp A will
travel to Country Z to provide know-how relating to
certain techniques not generally known to computer
programmers, which will enable Corp I to more effi-
ciently create computer programs. These techniques
represent the product of experience gained by Corp
A from working on many computer programming
projects, and are furnished to Corp I under nondis-
closure conditions. Such information is property
subject to trade secret protection.
(ii) Analysis.This transaction contains the ele-
ments of know-how specified in paragraph (e) of
this section. Therefore, this transaction will be
treated as the provision of know-how.
Example 17(i) Facts. Corp A, a U.S. corpora-
tion, transfers a disk containing Program Y to Corp
E, a Country Z corporation, in exchange for a single
fixed payment. Program Y is a computer program
development program, which is used to create other
computer programs, consisting of several compo-
nents, including libraries of reusable software com-
ponents that serve as general building blocks in new
software applications. No element of these libraries
is a significant component of any overall new pro-
gram. Because a computer program created with the
use of Program Y will not operate unless the li-
braries are also present, the license agreement be-
tween Corp A and Corp E grants Corp E the right to
distribute copies of the libraries with any program
developed using Program Y. The license agreement
is otherwise identical to the license agreement in Ex-
ample 1.
(ii) Analysis.(A) No non-de minimiscopyright
rights described in paragraph (c)(2) of this section
have passed to Corp E. For purposes of paragraph
(b)(2) of this section, the right to distribute the li-
braries in conjunction with the programs created
using Program Y is a de minimiscomponent of the
transaction. Because Corp E has received a copy of
the program under paragraph (c)(1)(ii) of this sec-
tion, it has received a copyrighted article.
(B) Taking into account all the facts and circum-
stances, Corp E is properly treated as the owner of a
copyrighted article. Therefore, under paragraph
(f)(2) of this section, there has been the sale of a
copyrighted article rather than the grant of a lease.
Example 18(i) Facts.(A) Corp A, a U.S. cor-
poration, transfers a disk containing Program X to
Corp E, a country Z Corporation. The disk contains
both the object code and the source code to Program
X and the license agreement grants Corp E the right
to—
(1) Modify the source code in order to correct
minor errors and make minor adaptations to Pro-
gram X so it will function on Corp E’s computer;
and
(2) Recompile the modified source code.
(B) The license does not grant Corp E the right
to distribute the modified Program X to the public.
The license is otherwise identical to the license
agreement in Example 1.
(ii) Analysis.(A) No non-de minimiscopyright
rights described in paragraph (c)(2) of this section
have passed to Corp E. For purposes of paragraph
(b)(2) of this section, the right to modify the source
code and recompile the source code in order to cre-
ate new code to correct minor errors and make
minor adaptations is a de minimiscomponent of the
transaction. Because Corp E has received a copy of
the program under paragraph (c)(1)(ii) of this sec-
tion, it has received a copyrighted article.
(B) Taking into account all the facts and circum-
stances, Corp E is properly treated as the owner of a
copyrighted article. Therefore, under paragraph
(f)(2) of this section, there has been the sale of a
copyrighted article rather than the grant of a lease.
(i)Effective date—(1) General.This
section applies to transactions occurring
pursuant to contracts entered into on or
after December 1, 1998.
(2) Elective transition rules—(i) Con-
tracts entered into in taxable years ending
on or after October 2, 1998. A taxpayer
may elect to apply this section to transac-
tions occurring pursuant to contracts en-
tered into in taxable years ending on or
after October 2, 1998. A taxpayer that
makes an election under this paragraph
(i)(2)(i) must apply this section to all con-
tracts entered into in taxable years ending
on or after October 2, 1998.
October 19, 1998161998–42 I.R.B.
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(ii) Contracts entered into before Octo-
ber 2, 1998. A taxpayer may elect to
apply this section to transactions occur-
ring in taxable years ending on or after
October 2, 1998, pursuant to contracts en-
tered into before October 2, 1998, pro-
vided the taxpayer would not be required
under this section to change its method of
accounting as a result of such election, or
the taxpayer would be required to change
its method of accounting but the resulting
section 481(a) adjustment would be zero.
A taxpayer that makes an election under
this paragraph (i)(2)(ii) must apply this
section to all transactions occurring in
taxable years ending on or after October
2, 1998, pursuant to contracts entered into
before October 2, 1998.
(3) Manner of making election.Tax-
payers may elect, under paragraph
(i)(2)(i) or (i)(2)(ii) of this section, to
apply this section, by treating the transac-
tions in accordance with these regulations
on their original tax return.
(4) Examples.The following exam-
ples illustrate application of the transition
rule of paragraph (i)(2)(ii) of this section:
Example 1.Corp A develops computer pro-
grams for sale to third parties. Corp A uses an over-
all accrual method of accounting and files its tax re-
turn on a calendar-year basis. In year 1, Corp A
enters into a contract to deliver a computer program
in that year, and to provide updates for each of the
following four years. Under the contract, the com-
puter program and the updates are priced separately,
and Corp A is entitled to receive payments for the
computer program and each of the updates upon de-
livery. Assume Corp A properly accounts for the
contract as a contract for the provision of services.
Corp A properly includes the payments under the
contract in gross income in the taxable year the pay-
ments are received and the computer program or up-
dates are delivered. Corp A properly deducts the
cost of developing the computer program and up-
dates when the costs are incurred. Year 3 includes
October 2, 1998. Assume under the rules of this sec-
tion, the provision of updates would properly be ac-
counted for as the transfer of copyrighted articles. If
Corp A made an election under paragraph (i)(2)(ii)
of this section, Corp A would not be required to
change its method of accounting for income under
the contract as a result of the election. Corp A would
also not be required to change its method of ac-
counting for the cost of developing the computer
program and the updates under the contract as a re-
sult of the election. Therefore, under paragraph
(i)(2)(ii) of this section, Corp A may elect to apply
the provisions of this section to the updates provided
in years 3, 4, and 5, because Corp A is not required
to change from its accrual method of accounting for
the contract as a result of the election.
Example 2.Corp A develops computer programs
for sale to third parties. Corp A uses an overall ac-
crual method of accounting and files its tax return on
a calendar-year basis. In year 1, Corp A enters into a
contract to deliver a computer program and to pro-
vide one update the following year. Under the con-
tract, the computer program and the update are
priced separately, and Corp A is entitled to receive
payment for the computer program and the update
upon delivery of the computer program. Assume
Corp A properly accounts for the contract as a con-
tract for the provision of services. Corp A properly
includes the portion of the payment relating to the
computer program in gross income in year 1, the
taxable year the payment is received and the pro-
gram delivered. Corp A properly includes the por-
tion of the payment relating to the update in gross
income in year 2, the taxable year the update is pro-
vided, under Rev. Proc. 71–21, 1971–2 CB 549 (see
§601.601 (d)(2) of this chapter). Corp A properly
deducts the cost of developing the computer pro-
gram and update when the costs are incurred. Year 2
includes October 2, 1998. Assume under the rules
of this section, provision of the update would prop-
erly be accounted for as the transfer of a copyrighted
article. If Corp A made an election under paragraph
(i)(2)(ii) of this section, Corp A would be required to
change its method of accounting for deferring in-
come under its contract as a result of the election.
However, the section 481(a) adjustment would be
zero because the portion of the payment relating to
the update would be includible in gross income in
year 2, the taxable year the update is provided, under
both Rev. Proc. 71–21 and §1.451–5. Corp A would
not be required to change its method of accounting
for the cost of developing the computer program and
the update under the contract as a result of the elec-
tion. Therefore, under paragraph (i)(2)(ii) of this
section, Corp A may elect to apply the provisions of
this section to the update in year 2, because the sec-
tion 481(a) adjustment resulting from the change in
method of accounting for deferring advance pay-
ments under the contract is zero, and because Corp
A is not required to change from its accrual method
of accounting for the cost of developing the com-
puter program and updates under the contract as a
result of the election.
Example 3.Assume the same facts as in Example
1except that Corp A is entitled to receive payments
for the computer program and each of the updates 30
days after delivery. Corp A properly includes the
amounts due under the contract in gross income in
the taxable year the computer program or updates
are provided. Assume that Corp A properly uses the
nonaccrual-experience method described in section
448(d)(5) and §1.448–2T to account for income on
its contracts. If Corp A made an election under para-
graph (i)(2)(ii) of this section, Corp A would be re-
quired to change from the nonaccrual-experience
method for income as a result of the election, be-
cause the method is only available with respect to
amounts to be received for the performance of ser-
vices. Therefore, Corp A may not elect to apply the
provisions of this section to the updates provided in
years 3, 4, and 5, under paragraph (i)(2)(ii) of this
section, because Corp A would be required to
change from the nonaccrual-experience method of
accounting for income on the contract as a result of
the election.
(j) Change in method of accounting re-
quired by this section—(1) Consent.A
taxpayer is granted consent to change its
method of accounting for contracts in-
volving computer programs, to conform
with the classification prescribed in this
section. The consent is granted for con-
tracts entered into on or after December 1,
1998, or in the case of a taxpayer making
an election under paragraph (i)(2)(i) of
this section, the consent is granted for
contracts entered into in taxable years
ending on or after October 2, 1998. In ad-
dition, a taxpayer that makes an election
under paragraph (i)(2)(ii) of this section is
granted consent to change its method of
accounting for any contract with transac-
tions subject to the election, if the tax-
payer is required to change its method of
accounting as a result of the election.
(2) Year of change.The year of change
is the taxable year that includes December
1, 1998, or in the case of a taxpayer mak-
ing an election under paragraph (i)(2)(i)
or (i)(2)(ii) of this section, the taxable
year that includes October 2, 1998.
(k) Time and manner of making change
in method of accounting—(1) General.
A taxpayer changing its method of ac-
counting in accordance with this section
must file a Form 3115, Application for
Change in Method of Accounting, in du-
plicate. The taxpayer must type or print
the following statement at the top of page
1 of the Form 3115: “FILED UNDER
TREASURY REGULATION §1.861–
18.” The original Form 3115 must be at-
tached to the taxpayers original return for
the year of change. A copy of the Form
3115 must be filed with the National Of-
fice no later than when the original Form
3115 is filed for the year of change.
(2) Copy of Form 3115.The copy re-
quired by this paragraph (k)(l) to be sent
to the national office should be sent to the
Commissioner of Internal Revenue, At-
tention: CC:DOM:IT&A, P.O. Box 7604,
Benjamin Franklin Station, Washington,
DC 20044 (or in the case of a designated
private delivery service: Commissioner
of Internal Revenue, Attention: CC:
DOM:IT&A, 1111 Constitution Avenue,
NW, Washington, DC 20224).
(3) Effect of consent and Internal Rev-
enue Service review.A change in method
of accounting granted under this section is
subject to review by the district director
and the national office and may be modi-
fied or revoked in accordance with the
provisions of Rev. Proc. 97–37 (1997–33
IRB 18) (or its successors) (see
§601.601(d)(2) of this chapter).
1998–42 I.R.B.17October 19, 1998
IRB 1998-42 10/14/98 11:03 AM Page 17

PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 3. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 4. In §602.101, paragraph (c) is
amended by adding an entry to the table
in numerical order to read as follows:
§602.101 OMB Control numbers.
* * * * *
(c) * * *
CFR part or sectionCurrent OMB
where identified andcontrol No.
described
* * * * *
1.861–18 . . . . . . . . . . . . . . . . 1545–1594
* * * * *
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
Approved April 1, 1998.
Donald C. Lubick,
Deputy Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on
September 30, 1998, 8:45 a.m., and published in the
issue of the Federal Register for October 2, 1998, 63
F.R. 52971)
October 19, 1998181998–42 I.R.B.
IRB 1998-42 10/14/98 11:03 AM Page 18

1998–42 I.R.B.19October 19, 1998
Notice of Proposed Rulemaking
Substantiation of Business
Expenses—Use of Mileage Rates
to Substantiate Automobile
Expenses
REG–122488–97
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing.
SUMMARY: This document contains
proposed regulations relating to the use
of mileage rates to substantiate automo-
bile business expenses. The regulations
affect taxpayers who deduct expenses,
and payors who make payments and em-
ployees who receive payments under re-
imbursement or other expense allowance
arrangements, for the business use of an
automobile.
DATES: Written or electronically gener-
ated comments and requests for a public
hearing must be received by December
30, 1998.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations, con-
tact Edwin B. Cleverdon or Donna M.
Crisalli, (202) 622-4920 (not a toll-free
number).
ADDRESSES: Send submissions to
CC:DOM:CORP:R (REG–122488–97),
room 5228, Internal Revenue Service,
P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. In the alterna-
tive, submissions may be hand delivered
between the hours of 8 a.m. and 5 p.m. to
CC:DOM:CORP:R (REG–122488–97),
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, NW,
Washington, DC.
Additionally, taxpayers may submit
comments electronically via INTERNET
by selecting the “Tax Regs” option on the
IRS INTERNET site at: http://www.irs.
ustreas.gov/prod/tax_regs/comments.html.
SUPPLEMENTARY INFORMATION
Background and Explanation of
Provisions
Section 274(d) provides that a taxpayer
is not allowed a deduction or credit for
certain expenses unless the expense is
substantiated. These substantiation re-
quirements apply to the expenses of use
of any listed property (defined in section
280F(d)(4)), which includes any passen-
ger automobile and any other property
used as a means of transportation. The
Secretary may issue regulations that pro-
vide that some or all of the substantiation
requirements will not apply to expenses
that do not exceed a prescribed amount.
Section 1.274–5T(b)(6) sets forth the
elements of an expenditure or use, i.e., the
amount, time, and business purpose, that
are required to be substantiated with
respect to listed property. Section
1.274(d)–1 provides, in part, that the
Commissioner may prescribe rules under
which mileage allowances reimbursing
ordinary and necessary expenses of local
travel and transportation while traveling
away from home will satisfy the substan-
tiation requirements of §1.274–5T(c), and
the requirements of an adequate account-
ing to the employer for purposes of
§1.274–5T(f)(4). However, §1.274(d)–
1(a)(3) provides that such mileage al-
lowances are available only to the owner
of a vehicle.
Proposed §1.274–5(g) applies these
substantiation rules to mileage allowances
for business use of an automobile without
the limitation in §1.274(d)–1(a)(3) that a
mileage allowance is available only to the
owner of a vehicle. Proposed §1.274–
5(j)(1) continues to authorize the Com-
missioner to establish a method for com-
puting meal expenses while traveling
away from home (see current §1.274–
5T(j)), while §1.274–5(j)(2) authorizes
the Commissioner to establish a method
under which a taxpayer may use mileage
rates to determine the amount of the ordi-
nary and necessary business expenses of
using an automobile for local transporta-
tion and transportation to, from, and at the
destination while traveling away from
home in lieu of substantiating the actual
costs. The mileage rate method may in-
clude appropriate limitations and condi-
tions in order to reflect more accurately
automobile expenses over the entire pe-
riod of usage. The taxpayer would not,
however, be relieved of substantiating the
amount of each business use (i.e., the
business mileage) and the time and busi-
ness purpose of each use. See Rev. Proc.
97–59 (1997–52 I.R.B. 24), for rules for
using the mileage rate method. This pro-
posed §1.274–5(g), (j), and (m) supple-
ment §1.274–5(c) and (f) as proposed on
March 25, 1997, in the Federal Register
(62 F.R. 14051). Conforming changes to
§1.62–2 are also proposed.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in EO
12866. Therefore, a regulatory assess-
ment is not required. It also has been de-
termined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regula-
tions, and, because the regulations do not
impose a collection of information on
small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply.
Pursuant to section 7805(f) of the Internal
Revenue Code, this notice of proposed
rulemaking will be submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on its
impact on small business.
Comments and Requests for a Public
Hearing
Before adopting these proposed regula-
tions as final regulations, consideration
will be given to any comments that are
submitted timely (and in the manner de-
scribed in the ADDRESSES portion of
this preamble) to the IRS. All comments
will be available for public inspection and
copying. A public hearing will be sched-
uled and held upon request by any person
who submits comments on the proposed
rules. Notice of the time and place for the
hearing will be published in the Federal
Register.
Drafting Information
The principal authors of these proposed
regulations are Edwin B. Cleverdon and
Donna M. Crisalli, Office of the Assistant
Chief Counsel (Income Tax and Account-
ing). However, personnel from other of-
fices of the IRS and Treasury Department
participated in their development.
Part IV. Items of General Interest
IRB 1998-42 10/14/98 11:03 AM Page 19

October 19, 1998201998–42 I.R.B.
*****
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. In §1.62–2, paragraph (e)(2) is
revised to read as follows:
§1.62–2 Reimbursement and other
expense allowance arrangements.
* * * * *
(e) * * *
(2) Expenses governed by section
274(d). An arrangement that reimburses
travel, entertainment, use of a passenger
automobile or other listed property, or
other business expenses governed by sec-
tion 274(d) meets the requirements of this
paragraph (e)(2) if information sufficient
to satisfy the substantiation requirements
of section 274(d) and the regulations
thereunder is submitted to the payor. See
§1.274–5T. Under section 274(d), infor-
mation sufficient to substantiate the requi-
site elements of each expenditure or use
must be submitted to the payor. For ex-
ample, with respect to travel away from
home, §1.274–5T(b)(2) requires that in-
formation sufficient to substantiate the
amount, time, place, and business purpose
of the expense must be submitted to the
payor. Similarly, with respect to use of a
passenger automobile or other listed prop-
erty, §1.274–5T(b)(6) requires that infor-
mation sufficient to substantiate the
amount, time, use, and business purpose
of the expense must be submitted to the
payor. See §1.274–5(g), however, which
grants the Commissioner authority to pre-
scribe rules permitting the amount of cer-
tain expenses to be deemed substantiated
to the payor (in lieu of substantiating the
actual amount of such expenses) by
means of per diem or mileage rates for
travel away from home or transportation
expenses. See also §1.274–5(j)(1), which
grants the Commissioner the authority to
establish a method under which a tax-
payer may use a specified amount for
meals while traveling away from home in
lieu of substantiating the actual cost of
meals, and §1.274–5(j)(2), which grants
the Commissioner the authority to estab-
lish a method under which a taxpayer may
use mileage rates to determine the amount
of the ordinary and necessary expenses of
using an automobile for local transporta-
tion and transportation to, from, and at the
destination while traveling away from
home in lieu of substantiating the actual
costs. Substantiation of the amount of a
business expense in accordance with rules
prescribed pursuant to the authority
granted by §1.274–5(g) or (j) will be
treated as substantiation of the amount of
such expense for purposes of this section.
* * * * *
§1.62–2T [Removed]
Par. 3. Section 1.62–2T is removed.
Par. 4. Section 1.274–5 is added to
read as follows:
§1.274–5 Substantiation requirements.
(a) through (f) [Reserved]. For further
guidance, see §1.274–5T(a) through (f).
(g) Substantiation by reimbursement
arrangements or per diem, mileage, and
other traveling allowances—(1) In gen-
eral. The Commissioner may, in his or her
discretion, prescribe rules in pronounce-
ments of general applicability under which
allowances for expenses described in para-
graph (g)(2) of this section will, if in accor-
dance with reasonable business practice,
be regarded as equivalent to substantiation
by adequate records or other sufficient evi-
dence for purposes of §1.274–5T(c) of the
amount of such expenses and as satisfying,
with respect to the amount of such ex-
penses, the requirements of an adequate
accounting to the employer for purposes of
§1.274– 5T(f)(4). If the total allowance re-
ceived exceeds the deductible expenses
paid or incurred by the employee, such ex-
cess must be reported as income on the
employee’s return. See paragraph (j)(1) of
this section relating to the substantiation of
meal expenses while traveling away from
home, and paragraph (j)(2) of this section
relating to the substantiation of expenses
for the business use of an automobile.
(2) Allowances for expenses described.
An allowance for expenses is described in
this paragraph (g)(2) if it is a—
(i) Reimbursement arrangement cover-
ing ordinary and necessary expenses of
traveling away from home (exclusive of
transportation expenses to and from desti-
nation);
(ii) Per diem allowance providing for
ordinary and necessary expenses of trav-
eling away from home (exclusive of
transportation costs to and from destina-
tion); or
(iii) Mileage allowance providing for
ordinary and necessary expenses of local
transportation and transportation to, from,
and at the destination while traveling
away from home.
(3) Limitation.For expenses paid or
incurred on or before December 31, 1997,
a mileage allowance described in para-
graph (g)(2)(iii) of this section is avail-
able only to the owner of a vehicle.
(h) and (i) [Reserved]. For further
guidance, see §1.274- 5T(h) and (i).
(j) Authority for optional methods of
computing certain expenses—(1) Meal
expenses while traveling away from
home.The Commissioner may establish a
method under which a taxpayer may use a
specified amount or amounts for meals
while traveling away from home in lieu of
substantiating the actual cost of meals.
The taxpayer would not be relieved of the
requirement to substantiate the actual cost
of other travel expenses as well as the
time, place, and business purpose of the
travel. See §1.274–5T(b)(2) and (c).
(2) Use of mileage rates for automo-
bile expenses.The Commissioner may
establish a method under which a tax-
payer may use mileage rates to determine
the amount of the ordinary and necessary
expenses of using an automobile for local
transportation and transportation to, from,
and at the destination while traveling
away from home in lieu of substantiating
the actual costs. Such method may in-
clude appropriate limitations and condi-
tions in order to reflect more accurately
automobile expenses over the entire pe-
riod of usage. The taxpayer would not be
relieved of the requirement to substantiate
the amount of each business use (i.e., the
business mileage), or the time and busi-
ness purpose of each use. See §1.274–
5T(b)(2) and (c).
(k) and (l) [Reserved]. For further
guidance, see §1.274–5T(k) and (l).
(m) Effective date.Paragraphs (g) and
(j) of this section apply to expenses paid
or incurred after December 31, 1997.
IRB 1998-42 10/14/98 11:03 AM Page 20

1998–42 I.R.B.21October 19, 1998
§1.274–5T [Amended]
Par. 5. Paragraphs (g) and (j) of
§1.274–5T are removed and reserved.
§1.274(d)–1 [Amended]
Par. 6. Section 1.274(d)–1 is amended
by removing paragraph (a)(3).
§1.274(d)–1T [Removed]
Par. 7. Section 1.274(d)–1T is re-
moved.
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on
September 30, 1998, 8:45 a.m., and published in the
issue of the Federal Register for October 1, 1998, 63
F.R. 52660)
Announcement 98-90
Proposed Changes to Form 8849
PurposeThe purpose of this announcement is to request public comments on the proposed changes to Form 8849,
Claim for Refund of Excise Taxes.
Note:The Form 8849 and Schedules shown are subject to change and OMB approval before final release.
Proposed changesThe proposed changes include the following:
to Form 8849
• Six schedules are provided, five for fuel tax claims and one for other claims.
• Fuel tax claims that have similar requirements are made on the same schedule.
• Entry boxes are provided for data on the form and schedules.
Benefits of the The revised Form 8849 will:
changes
• Allow the claimant to use only the applicable schedules;
• Reduce the number of separate statements and attachments required to be prepared by the claimant;
• Reduce the amount of correspondence with IRS because of incomplete claims;
• Provide adequate space to enter the required information; and
• Allow the IRS to use improved data processing techniques for increased efficiency.
Comments The IRS would like to receive comments on the proposed changes to Form 8849 from interested parties by
requestedNovember 15, 1998. Send written comments to:
Chairman, Tax Forms Coordinating Committee
Internal Revenue Service, OP:FS:FP, Room 5577
1111 Constitution Avenue, NW
Washington, D.C. 20224
Alternatively, you may send comments to the Chairman, TFCC, by fax at (202) 622-5025, or e-mail to tfp-
mail@publish.no.irs.gov
After the end of the comment period, the IRS will evaluate the documents received and announce the final
changes to the Form 8849. Although we will not be able to respond to each comment, we will carefully con-
sider all of them.
IRB 1998-42 10/14/98 11:03 AM Page 21

October 19, 1998221998–42 I.R.B.
IRB 1998-42 10/14/98 11:04 AM Page 22

1998–42 I.R.B.23October 19, 1998
IRB 1998-42 10/14/98 11:04 AM Page 23

October 19, 1998241998–42 I.R.B.
IRB 1998-42 10/14/98 11:04 AM Page 24

1998–42 I.R.B.25October 19, 1998
IRB 1998-42 10/14/98 11:04 AM Page 25

October 19, 1998261998–42 I.R.B.
IRB 1998-42 10/14/98 11:04 AM Page 26

1998–42 I.R.B.27October 19, 1998
IRB 1998-42 10/14/98 11:05 AM Page 27

October 19, 1998281998–42 I.R.B.
IRB 1998-42 10/14/98 11:05 AM Page 28

1998–42 I.R.B.29October 19, 1998
NameAddressDesignationEffective Date
Galt, Edward G.Monterey, CACPAOctober 25, 1997
Lopez, Andrew L.Albuquerque, NMCPADecember 11, 1997
Branch, Jimmie L.Jacksonville, FLCPAJanuary 15, 1998
Harrison, Rebecca A.Carmichael, CAEnrolled AgentMarch 4, 1998
Mayer, Robert J.Wexford, PACPAJune 4, 1998
Announcement of the Disbarment and Suspension of Attorneys, Certified
Public Accountants, Enrolled Agents, and Enrolled Actuaries From
Practice Before the Internal Revenue Service
Under 330, Title 31 of the United
States Code, the Secretary of the Trea-
sury, after due notice and opportunity for
hearing, is authorized to suspend or dis-
bar from practice before the Internal Rev-
enue Service any person who has vio-
lated the rules and regulations governing
the recognition of attorneys, certified
public accountants, enrolled agents, or
enrolled actuaries to practice before the
Internal Revenue Service.
Attorneys, certified public accountants,
enrolled agents, and enrolled actuaries are
prohibited in any Internal Revenue Service
matter from directly or indirectly employ-
ing, accepting assistance from, being em-
ployed by, or sharing fees with, any practi-
tioner disbarred or suspended from prac-
tice before the Internal Revenue Service.
To enable attorneys, certified public ac-
countants, enrolled agents, and enrolled
actuaries to identify such disbarred or sus-
pended practitioners, the Director
of Practice will announce in the Internal
Revenue Bulletin the names and ad-
dresses of practitioners who have been
suspended from such practice, their desig-
nation as attorney, certified public ac-
countant, enrolled agent, or enrolled actu-
ary, and date or period of suspension. This
announcement will appear in the weekly
Bulletin at the earliest practicable date
after such action and will continue to ap-
pear in the weekly Bulletins for five suc-
cessive weeks or for as many weeks as is
practicable for each attorney, certified
public accountant, enrolled agent, or en-
rolled actuary so suspended or disbarred
and will be consolidated and published in
the Cumulative Bulletin.
After due notice and opportunity for
hearing before an administrative law
judge, the following individuals have
been disbarred from further practice be-
fore the Internal Revenue Service:
IRB 1998-42 10/14/98 11:05 AM Page 29

October 19, 1998301998–42 I.R.B.
Under title 31 of the Code of Federal
Regulations, section 10.76, the Director
of Practice is authorized to immediately
suspend from practice before the Internal
Revenue Service any practitioner who,
within five years from the date the expe-
dited proceeding is instituted, (1) has had
a license to practice as an attorney, certi-
fied public accountant, or actuary sus-
pended or revoked for cause; or (2) has
been convicted of any crime under title 26
of the United States Code or, of a felony
under title 18 of the United States Code
involving dishonesty or breach of trust.
Attorneys, certified public accountants,
enrolled agents, and enrolled actuaries are
prohibited in any Internal Revenue Service
matter from directly or indirectly employ-
ing, accepting assistance from, being em-
ployed by, or sharing fees with, any practi-
tioner disbarred or suspended from practice
before the Internal Revenue Service.
To enable attorneys, certified public ac-
countants, enrolled agents, and enrolled ac-
tuaries to identify practitioners under expe-
dited suspension from practice before the
Internal Revenue Service, the Director of
Practice will announce in the Internal Rev-
enue Bulletin the names and addresses of
practitioners who have been suspended
from such practice, their designation as at-
torney, certified public accountant, en-
rolled agent, or enrolled actuary, and date
or period of suspension. This announce-
ment will appear in the weekly Bulletin at
the earliest practicable date after such ac-
tion and will continue to appear in the
weekly Bulletins for five successive weeks
or for as many weeks as is practicable for
each attorney, certified public accountant,
enrolled agent, or enrolled actuary so sus-
pended and will be consolidated and pub-
lished in the Cumulative Bulletin.
The following individuals have been
placed under suspension from practice be-
fore the Internal Revenue Service by virtue
of the expedited proceeding provisions of
the applicable regulations:
Announcement of the Expedited Suspension of Attorneys, Certified Public
Accountants, Enrolled Agents, and Enrolled Actuaries From Practice
Before the Internal Revenue Service
NameAddressDesignationDate of Suspension
Clark, SheilaHouston, TXCPAIndefinite from April 21, 1998
Kimes, Larry W.Austin, TXAttorneyIndefinite from May 5, 1998
Braiteman, SheldonBaltimore, MDAttorneyIndefinite from June 5, 1998
Pollack, MichaelGuttenberg, NJAttorneyIndefinite from June 11, 1998
Eichenbaum, IrvingHuntingdon Valley, PACPAIndefinite from August 4, 1998
Corley, Francis R.Irmo, SCCPAIndefinite from August 4, 1998
Scott, RichardLincoln, NEAttorneyIndefinite from August 4, 1998
Wilson, Douglas D.Roanoke, VAAttorneyIndefinite from August 4, 1998
Watkins, Brian R.Lincoln, NEAttorneyIndefinite
Congdon Jr., Byron E.San Bernadino, CAAttorneyIndefinite from August 4, 1998
Abrams, RobertElmsford, NYCPAIndefinite from August 4, 1998
Robinson, DoaneRapid City, SDCPAIndefinite from August 4, 1998
Szarwark, ErnestNashville, TNAttorneyIndefinite from August 4, 1998
Roberts, MarkNorman, OKCPAIndefinite from August 4, 1998
Wood, Randall K.Springfield, MOAttorneyIndefinite from August 5, 1998
Chappell, Ronald L.Antelope, CACPAIndefinite from August 12, 1998
IRB 1998-42 10/14/98 11:05 AM Page 30

1998–42 I.R.B.31October 19, 1998
NameAddressDesignationDate of Suspension
Makula, John G.Park Ridge, ILCPAApril 1, 1998 to March 31, 2003
Slomski, MichaelGross Pointe Woods, MICPAApril 1, 1998 to March 31, 2001
Bozeman Jr., T. AlvinSylvester, GACPAMay 22, 1998 to November 21, 1999
Parness, Richard A.Westfield, NJCPAJune 1, 1998 to December 31, 1998
Register, BillyHavana, FLCPAIndefinite from July 10, 1998
Cooper, Michael E.Edina, MNCPAAugust 19, 1998 to February 18, 1999
Minello, Michael J.Clarks Summit, PACPAAugust 28, 1998 to April 27, 2001
Holden, William W.Fairfield, CTCPASeptember 1, 1998 to March 31, 1999
Freeman, SamuelBedford, NHCPASeptember 1, 1998 to August 31, 1999
Anders, KevinWilliamport, MDCPASeptember 1, 1998 to August 31, 2001
Breed, Robert M.Concord, MACPASeptember 1, 1998 to February 28, 2001
Sandirk, Paula BrooksChehalis, WACPANovember 1, 1998 to April 30, 2000
Neuhaus Jr., GeorgeBrewster, NYCPANovember 1, 1998 to April 30, 2000
Announcement of the Consent Voluntary Suspension of Attorneys,
Certified Public Accountants, Enrolled Agents, and Enrolled Actuaries
From Practice Before the Internal Revenue Service
Under 31 Code of Federal Regulations,
Part 10, an attorney, certified public ac-
countant, enrolled agent, or enrolled ac-
tuary, in order to avoid the institution or
conclusion of a proceeding for his disbar-
ment or suspension from practice before
the Internal Revenue Service, may offer
his consent to suspension from such prac-
tice. The Director of Practice, in his dis-
cretion, may suspend an attorney, certi-
fied public accountant, enrolled agent, or
enrolled actuary in accordance with the
consent offered.
Attorneys, certified public accountants,
enrolled agents, and enrolled actuaries are
prohibited in any Internal Revenue Ser-
vice matter from directly or indirectly em-
ploying, accepting assistance from, being
employed by, or sharing fees with any
practitioner disbarred or suspended from
practice before the Internal Revenue Ser-
vice.
To enable attorneys, certified public ac-
countants, enrolled agents, and enrolled
actuaries to identify practitioners under
consent suspension from practice before the
Internal Revenue Service, the Director
of Practice will announce in the Internal
Revenue Bulletin the names and ad-
dresses of practitioners who have been
suspended from such practice, their desig-
nation as attorney, certified public ac-
countant, enrolled agent, or enrolled actu-
ary, and date or period of suspension. This
announcement will appear in the weekly
Bulletin at the earliest practicable date
after such action and will continue to ap-
pear in the weekly Bulletins for five suc-
cessive weeks or for as many weeks as is
practicable for each attorney, certified
public accountant, enrolled agent, or en-
rolled actuary so suspended and will be
consolidated and published in the Cumu-
lative Bulletin.
The following individuals have been
placed under consent suspension from
practice before the Internal Revenue Ser-
vice:
IRB 1998-42 10/14/98 11:05 AM Page 31

October 19, 1998321998–42 I.R.B.
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously
published ruling and points out an essen-
tial difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it ap-
plies to both A and B, the prior ruling is
modified because it corrects a published
position. (Compare with amplified and
clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. A ruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is super-
seded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be pub-
lished that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current use and for-
merly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C.—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedral Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
Definition of Terms
IRB 1998-42 10/14/98 11:05 AM Page 32

1998–42 I.R.B.33October 19, 1998
Numerical Finding List
1
Bulletins 1998–29 through 41
Announcements:
98–62, 1998–29 I.R.B. 13
98–68, 1998–29 I.R.B. 14
98–69, 1998–30 I.R.B. 16
98–70, 1998–30 I.R.B. 17
98–71, 1998–30 I.R.B. 17
98–72, 1998–31 I.R.B.14
98–73, 1998–31 I.R.B.14
98–74, 1998–31 I.R.B.15
98–75, 1998–31 I.R.B.15
98–76, 1998–32 I.R.B.64
98–77, 1998–34 I.R.B.30
98–78, 1998–34 I.R.B.30
98–79, 1998–34 I.R.B.31
98–80, 1998–34 I.R.B.32
98–81, 1998–36 I.R.B.35
98–82, 1998–35 I.R.B. 17
98–83, 1998–36 I.R.B. 36
98–84, 1998–38 I.R.B.30
98–85, 1998–38 I.R.B.30
98–86, 1998–38 I.R.B.31
98–87, 1998–40 I.R.B.11
98–88, 1998–41 I.R.B. 14
98–89, 1998–40 I.R.B.11
98–91, 1998–40 I.R.B.12
98–92, 1998–41 I.R.B.15
Court Decisions:
2063, 1998–36 I.R.B. 13
2064, 1998–37 I.R.B. 4
2065, 1998–39 I.R.B.7
Notices:
98–36, 1998–29 I.R.B. 8
98–37, 1998–30 I.R.B.13
98–38, 1998–34 I.R.B.7
98–39, 1998–33 I.R.B.11
98–40, 1998–35 I.R.B. 7
98–41, 1998–33 I.R.B.12
98–42, 1998–33 I.R.B.12
98–43, 1998–33 I.R.B.13
98–44, 1998–34 I.R.B.7
98–45, 1998–35 I.R.B.7
98–46, 1998–36 I.R.B. 21
98–47, 1998–37 I.R.B. 8
98–48, 1998–39 I.R.B.17
98–49, 1998–38 I.R.B.5
Railroad Retirement Quarterly Rate:
1998–31 I.R.B. 7
Proposed Regulations:
REG–209446–82, 1998–36 I.R.B. 24
REG–209060–86, 1998–39 I.R.B. 18
REG–209769–95, 1998–41 I.R.B.8
REG–209813–96, 1998–35 I.R.B. 9
REG–246256–96, 1998–34 I.R.B.9
REG–104641–97, 1998–29 I.R.B. 9
REG–104565–97, 1998–39 I.R.B.21
REG–106177–97, 1998–37 I.R.B.33
REG–115446–97, 1998–36 I.R.B. 23
REG–116608–97, 1998–29 I.R.B. 12
REG–118926–97, 1998–39 I.R.B.23
REG–118966–97, 1998–39 I.R.B.29
REG–119227–97, 1998–30 I.R.B. 13
Proposed Regulations—Continued
REG–101363–98, 1998–40 I.R.B.10
REG–106221–98, 1998–41 I.R.B.10
REG–110332–98, 1998–33 I.R.B.18
REG–110403–98, 1998–29 I.R.B.11
REG–115393–98, 1998–39 I.R.B.34
Revenue Procedures:
98–40, 1998–32 I.R.B. 6
98–41, 1998–32 I.R.B. 7
98–42, 1998–28 I.R.B. 9
98–43, 1998–29 I.R.B. 8
98–44, 1998–32 I.R.B. 11
98–45, 1998–34 I.R.B.8
98–46, 1998–36 I.R.B. 21
98–47, 1998–37 I.R.B. 8
98–48, 1998–38 I.R.B.7
98–49, 1998–37 I.R.B. 9
98–50, 1998–38 I.R.B.8
98–51, 1998–38 I.R.B.20
98–52, 1998–37 I.R.B. 12
98–53, 1998–40 I.R.B.9
Revenue Rulings:
98–34, 1998–31 I.R.B. 12
98–35, 1998–30 I.R.B. 4
98–36, 1998–31 I.R.B.6
98–37, 1998–32 I.R.B.5
98–38, 1998–32 I.R.B.4
98–39, 1998–33 I.R.B.4
98–40, 1998–33 I.R.B.4
98–41, 1998–35 I.R.B.6
98–42, 1998–35 I.R.B. 5
98–43, 1998–36 I.R.B. 9
98–44, 1998–37 I.R.B.4
98–45, 1998–38 I.R.B.4
98–46, 1998–39 I.R.B. 10
98–47, 1998–39 I.R.B. 4
98–48, 1998–39 I.R.B. 6
98–49, 1998–40 I.R.B.4
98–50, 1998–40 I.R.B.7
Treasury Decisions:
8771, 1998–29 I.R.B. 6
8772, 1998–31 I.R.B. 8
8773, 1998–29 I.R.B. 4
8774, 1998–30 I.R.B. 5
8775, 1998–31 I.R.B.4
8776, 1998–33 I.R.B.6
8777, 1998–34 I.R.B.4
8778, 1998–36 I.R.B. 4
8779, 1998–36 I.R.B. 11
8780, 1998–39 I.R.B.14
8781, 1998–40 I.R.B. 4
8782, 1998–41 I.R.B.5
8783, 1998–41 I.R.B.4
1
A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 1998–1 through 1998–28
will be found in Internal Revenue Bulletin 1998–29,
dated July 20, 1998.
IRB 1998-42 10/14/98 11:05 AM Page 33

October 19, 1998341998–42 I.R.B.
Finding List of Current Action on
Previously Published Items
1
Bulletins 1998–29 through 41
*Denotes entry since last publication
Notices:
87–13
Modified by
98–49, 1998–38 I.R.B. 5
87–16
Modified by
98–49, 1998–38 I.R.B. 5
Revenue Procedures:
83–58
Obsoleted by
98–37, 1998–32 I.R.B. 5
97–60
Superseded by
98–50, 1998–38 I.R.B. 8
97–61
Superseded by
98–51, 1998–38 I.R.B. 20
98–14
Modified by
98–53, 1998–40 I.R.B. 9
Revenue Rulings:
57–271
Obsoleted by
98–37, 1998–32 I.R.B. 5
67–301
Modified by
98–41, 1998–35 I.R.B. 6
70–225
Obsoleted by
98–44, 1998–37 I.R.B. 4
71–277
Obsoleted by
98–37, 1998–32 I.R.B. 5
71–434
Obsoleted by
98–37, 1998–32 I.R.B. 5
71–574
Obsoleted by
98–37, 1998–32 I.R.B. 5
72–75
Obsoleted by
98–37, 1998–32 I.R.B. 5
72–120
Obsoleted by
98–37, 1998–32 I.R.B. 5
72–121
Obsoleted by
98–37, 1998–32 I.R.B. 5
72–122
Obsoleted by
98–37, 1998–32 I.R.B. 5
74–77
Obsoleted by
98–37, 1998–32 I.R.B. 5
75–19
Obsoleted by
98–37, 1998–32 I.R.B. 5
Revenue Rulings—Continued
76–562
Obsoleted by
98–37, 1998–32 I.R.B. 5
77–214
Obsoleted by
98–37, 1998–32 I.R.B. 5
79–106
Obsoleted by
98–37, 1998–32 I.R.B. 5
83–113
Obsoleted by
98–37, 1998–32 I.R.B. 5
85–143
Obsoleted by
98–37, 1998–32 I.R.B. 5
88–8
Obsoleted by
98–37, 1998–32 I.R.B. 5
88–76
Obsoleted by
98–37, 1998–32 I.R.B. 5
88–79
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–4
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–5
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–6
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–30
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–38
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–49
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–50
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–53
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–81
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–91
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–92
Obsoleted by
98–37, 1998–32 I.R.B. 5
93–93
Obsoleted by
98–37, 1998–32 I.R.B. 5
Revenue Rulings—Continued
94–5
Obsoleted by
98–37, 1998–32 I.R.B. 5
94–6
Obsoleted by
98–37, 1998–32 I.R.B. 5
94–30
Obsoleted by
98–37, 1998–32 I.R.B. 5
94–51
Obsoleted by
98–37, 1998–32 I.R.B. 5
94–79
Obsoleted by
98–37, 1998–32 I.R.B. 5
95–2
Obsoleted by
98–37, 1998–32 I.R.B. 5
95–9
Obsoleted by
98–37, 1998–32 I.R.B. 5
97–37
Obsoleted by
98–39, 1998–33 I.R.B. 4
1
A cumulative finding list for previously published
items mentioned in Internal Revenue Bulletins
1998–1 through 1998–28 will be found in Internal
Revenue Bulletin 1998–29, dated July 20, 1998.
IRB 1998-42 10/14/98 11:05 AM Page 34

IRB 1998-42 10/14/98 11:05 AM Page 35

INTERNAL REVENUE BULLETIN
The Introduction on page 3 describes the purpose and content of this publication. The weekly Internal Revenue Bulletin is sold
on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superintendent of
Documents when their subscriptions must be renewed.
CUMULATIVE BULLETINS
The contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are
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ly Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of print
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detach entire page, and mail to the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402. Please
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WE WELCOME COMMENTS ABOUT THE
INTERNAL REVENUE BULLETIN
If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we
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IRB 1998-42 10/14/98 11:05 AM Page 36