Internal Revenue Bulletin 2002-43 (PDF rendition): IRS Revenue Procedures

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

# Internal Revenue bulletin

Bulletin No. 2002-43
October 28, 2002

## HIGHLIGHTS OF THIS ISSUE

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

## SPECIAL ANNOUNCEMENTS

### Announcement 2002-96, page 756.

The Service announces that the Appeals settlement initiative with
respect to broad-based leveraged corporate owned life insur-
ance (COLI) plans purchased after June 20, 1986, will be termi-
nated. The Service will vigorously defend or prosecute all future
COLI litigation. There will be a 45-day window within which tax-
payers will be permitted to enter into the current settlement ar-
rangement by submitting to the Internal Revenue Service a formal
written offer to settle.

### Announcement 2002-97, page 757.

Under the terms of this announcement, taxpayers who have en-
gaged in basis-shifting transactions will be given the opportu-
nity to resolve this issue with minimal further examination or other
administrative proceedings. Participating taxpayers will enter into
a settlement with fixed terms that are specified in the announce-
ment.

## INCOME TAX

Rev. Rul. 2002-65, page 729.

Low-income housing tax credit. This ruling advises taxpay-
ers that rental assistance payments made to a building owner
on behalf or in respect of a tenant under the Rent Supple-
ment Payment program or the Rental Assistance Payments
program are not grants made with respect to a building or its op-
eration under section 42(d)(5) of the Code.

### Notice 2002-69, page 730.

This notice provides interim guidance for determining interest
rates and foreign loss payment patterns for certain foreign in-
surance companies under section 954(i) of the Code. Com-
ments are requested by March 28, 2003.

Rev. Proc. 2002-67, page 733.

This document provides procedures for taxpayers who elect to
participate in a settlement initiative aimed at resolving tax shel-
ter cases involving "contingent liability transactions" that are the

Finding Lists begin on page ii.

Department of the Treasury
Internal Revenue Service

same or similar to those described in Notice 2001-17, 2001-1
C.B. 730. There are two resolution methodologies: a fixed con-
cession procedure and a fast track dispute resolution proce-
dure that includes binding arbitration.

Rev. Proc. 2002-68, page 753.

Optional election to make monthly 706(a) computations.

This procedure allows certain partnerships that invest in as-
sets exempt from taxation under section 103 of the Code to make
an election that enables partners to take into account monthly
the inclusions required under sections 702 and 707(c). Rev. Proc.
2002-16 modified and superseded.

## EMPLOYEE PLANS

Notice 2002-68, page 730.

Weighted average interest rate update. The weighted aver-
age interest rate for October 2002 and the resulting permis-
sible range of interest rates used to calculate current liability for
purposes of the full funding limitation of section 412(c)(7) of the
Code are set forth.

## EXEMPT ORGANIZATIONS

Announcement 2002-99, page 758.

Cedar Rapids Boxing Club, Inc., no longer qualifies as an orga-
nization to which contributions are deductible under section 170
of the Code.

## ADMINISTRATIVE

Announcement 2002-98, page 758.

Publication 1187, Specifications for Filing Form 1042-S, For-
eign Person's U.S. Source Income Subject to Withholding,
Magnetically or Electronically, will not be revised for Tax Year
2002.

## The IRS Mission

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

### Introduction

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

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

Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpay-
ers or technical advice to Service field offices, identifying de-
tails and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.

Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be re-
lied on, used, or cited as precedents by Service personnel in the
disposition of other cases. In applying published rulings and pro-
cedures, the effect of subsequent legislation, regulations, court

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

The Bulletin is divided into four parts as follows:

#### Part I .- 1986 Code.

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

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

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

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

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

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

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

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

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

### Section 42 .- Low-Income Housing Credit

26 CFR 1.42-16: Eligible basis reduced by federal
grants.

### Rev. Rul. 2002-65

Pursuant to § 1.42-16(b)(3) of the In-
come Tax Regulations, the Internal Rev-
enue Service has determined that rental
assistance payments made to a building
owner on behalf or in respect of a tenant
under the Rent Supplement Payment pro-
gram (12 U.S.C. § 1701s) or the Rental As-
sistance Payments program (12 U.S.C.
§ 1715z-1(f)(2)) are not grants made with
respect to a building or its operation un-
der § 42(d)(5) of the Internal Revenue
Code.

Interest reduction payments made un-
der mortgage insurance programs (for ex-
ample, section 236 of the National Housing
Act (12 U.S.C. § 1715z-1)) which the pay-
ments under the Rent Supplement Pay-
ment program and Rental Assistance
Payments program are intended to aug-
ment are not included within the scope of
this revenue ruling. The Treasury Depart-
ment and the Internal Revenue Service are
studying the proper treatment of these pay-
ments under § 42.

### DRAFTING INFORMATION

The principal author of this revenue rul-
ing is Christopher J. Wilson of the Office
of Associate Chief Counsel (Passthroughs
and Special Industries). For further infor-
mation regarding this revenue ruling, con-
tact Susan Reaman at (202) 622-3040, or
Mr. Wilson at (808) 539-2874 (not toll-
free calls).

### Section 103 .- Interest on State and Local Bonds

May a partner in a partnership that invests in bonds
that are exempt from taxation under § 103 make
monthly allocations of partnership items under
§ 706(a)? See Rev. Proc. 2002-68, page 753.

### Section 702 .- Income and Credits of a Partner

May a partner in a partnership that invests in bonds
that are exempt from taxation under § 103 make
monthly allocations of partnership items under
§ 706(a)? See Rev. Proc. 2002-68, page 753.

### Section 704 .- Partner's Dis- tributive Share

May a partner in a partnership that invests in bonds
that are exempt from taxation under § 103 make
monthly allocations of partnership items under
§ 706(a)? See Rev. Proc. 2002-68, page 753.

### Section 706 .- Taxable Years of Partner and Partnership

26 CFR 1.706-1: Taxable years of partner and
partnership.

26 CFR 1.706-1(c): Closing of partnership year.
26 CFR 1.441-2T: Election of year consisting of
52-53 weeks (temporary).

26 CFR 1.761-2: Exclusion of certain unincorpo-
rated organizations from the application of all or
part of subchapter K of chapter 1 of the Internal
Revenue Code.

26 CFR 301.7701-4: Trusts.

May a partner in a partnership that invests in bonds
that are exempt from taxation under § 103 make
monthly allocations of partnership items under
§ 706(a)? See Rev. Proc. 2002-68, page 753.

### Section 761 .- Terms Defined

May a partner in a partnership that invests in bonds
that are exempt from taxation under § 103 make
monthly allocations of partnership items under
§ 706(a)? See Rev. Proc. 2002-68, page 753.

## Part III. Administrative, Procedural, and Miscellaneous

### Weighted Average Interest Rate Update

Notice 2002-68

Sections 412(b)(5)(B) and 412(l)(7)(C)(i)
of the Internal Revenue Code provide that
the interest rates used to calculate current
liability for purposes of determining the full
funding limitation under § 412(c)(7) and the
required contribution under § 412(l) must
be within a permissible range around the
weighted average of the rates of interest on
30-year Treasury securities during the four-
year period ending on the last day before
the beginning of the plan year.

Notice 88-73, 1988-2 C.B. 383, pro-
vides guidelines for determining the
weighted average interest rate and the re-
sulting permissible range of interest rates

used to calculate current liability for the pur-
pose of the full funding limitation of
§ 412(c)(7) of the Code.

Section 417(e)(3)(A)(ii)(II) of the Code
defines the applicable interest rate, which
must be used for purposes of determining
the minimum present value of a partici-
pant's benefit under § 417(e)(1) and (2), as
the annual rate of interest on 30-year Trea-
sury securities for the month before the date
of distribution or such other time as the Sec-
retary may by regulations prescribe. Sec-
tion 1.417(e)-1(d)(3) of the Income Tax
Regulations provides that the applicable in-
terest rate for a month is the annual inter-
est rate on 30-year Treasury securities as
specified by the Commissioner for that
month in revenue rulings, notices or other
guidance published in the Internal Rev-
enue Bulletin.

The rate of interest on 30-year Trea-
sury Securities for September 2002 is 4.76
percent. Pursuant to Notice 2002-26,
2002-15 I.R.B. 743, the Service has de-
termined this rate as the monthly average
of the daily determination of yield on the
30-year Treasury bond maturing in Febru-
ary 2031.

Section 405 of the Job Creation and
Worker Assistance Act of 2002 amended
§ 412(l)(7)(C) of the Code to provide that
for plan years beginning in 2002 and 2003
the permissible range is extended to 120
percent.

The following rates were determined for
the plan years beginning in the month
shown below.

Month

Year

Weighted Average

90% to 110% Permissible Range

90% to 120% Permissible Range

October

2002

5.60

5.04 to 6.16

5.04 to 6.72

#### Drafting Information

The principal author of this notice is
Todd Newman of the Employee Plans, Tax
Exempt and Government Entities Divi-
sion. For further information regarding this
notice, please contact the Employee Plans'
taxpayer assistance telephone service at
1-877-829-5500 (a toll-free number), be-
tween the hours of 8:00 a.m. and 6:30 p.m.
Eastern time, Monday through Friday.
Mr. Newman may be reached at 1-202-
283-9888 (not a toll-free number).

Interest Rates and Appropriate For-
eign Loss Payment Patterns for
Determining the Qualified Insur-
ance Income of Certain Controlled
Corporations Under Section 954(i)

#### Notice 2002-69

##### I. PURPOSE

This notice provides interim guidance for
determining the interest rates and appro-
priate foreign loss payment patterns to be
used by controlled foreign corporations in

calculating their qualified insurance in-
come under section 954(i) of the Internal
Revenue Code. Taxpayers may rely on the
guidance in this notice until regulations or
other guidance are published.

## II. BACKGROUND

In general, a United States shareholder
of a controlled foreign corporation ("CFC")
must include in gross income its pro rata
share of the CFC's Subpart F income for
each year. I.R.C. Sec. 951(a). Subpart F in-
come includes, among other types of in-
come, foreign base company income. Sec.
952(a). Section 954(a)(1) defines the term
"foreign base company income" to include,
among other types of income, foreign per-
sonal holding company income. Section
954(c)(1) sets forth the types of income
(e.g., interest and dividends) that are con-
sidered to be foreign personal holding com-
pany income. Sec. 954(c)(1)(A).

Section 954(i)(1) provides that for pur-
poses of section 954(c)(1), foreign per-
sonal holding company income does not
include "qualified insurance income" of a
"qualifying insurance company". Section

954(i)(2) defines the term "qualified insur-
ance income" to mean income of a quali-
fying insurance company falling into either
of two categories. First, income received
from unrelated persons and derived from in-
vestments made by a qualifying insurance
company or qualifying insurance com-
pany branch (collectively referred to as a
"QIC") either of its reserves allocable to ex-
empt contracts or of 80 percent of its un-
earned premiums from exempt contracts (as
both are determined in accordance with sec-
tion 954(i)(4)). Sec. 954(i)(2)(A). Sec-
ond, income received from unrelated
persons and derived from investments made
by a QIC of an amount of its assets allo-
cable to exempt contracts equal to: (1) in
the case of property, casualty, or health in-
surance contracts, one-third of the premi-
ums earned on those contracts during such
year; and (2) in the case of life insurance
or annuity contracts, 10 percent of the re-
serves described in section 954(i)(2)(A) for
such contracts. Sec. 954(i)(2)(B).

For purposes of determining the first cat-
egory of qualified insurance income, sec-
tion 954(i)(4)(A) provides that the unearned
premiums and reserves of a QIC with re-

spect to property, casualty, or health insur-
ance contracts shall be determined using the
same methods and interest rates that would
be used if such QIC were subject to tax un-
der Subchapter L, subject to two modifi-
cations, discussed below. Under the general
rules of Subchapter L, an insurance com-
pany (other than a life insurance company)
determines its "discounted unpaid losses"
(as defined under section 846), which is a
type of insurance reserve, at the end of each
taxable year by taking the sum of dis-
counted unpaid losses separately computed
with respect to unpaid losses in each line
of business attributable to each accident
year. Sec. 846(a)(1). The amount of dis-
counted unpaid losses as of the end of any
taxable year attributable to any accident year
is the present value of such unpaid losses
determined by using: (1) the amount of un-
discounted unpaid losses; (2) the appli-
cable interest rate; and (3) the applicable
loss payment pattern. Sec. 846(a)(2).

For purposes of determining the un-
earned premiums and reserves of a QIC,
section 954(i)(4)(A) makes two modifica-
tions to these general Subchapter L rules,
as stated above. First, the QIC must use the
interest rate determined for the functional
currency of a QIC calculated in the same
manner as the Federal mid-term rate un-
der section 1274(d), except as provided by
the Secretary. Sec. 954(i)(4)(A)(i). Sec-
ond, the QIC must use the "appropriate for-
eign loss payment pattern". Sec.
954(i)(4)(A)(ii).

This notice provides rules for comput-
ing the discounted unpaid losses of a CFC
by applying the general rules of section 846,
as modified by section 954(i)(4), when
determining: (1) the amount of undiscounted
unpaid losses; (2) the applicable interest
rate; and (3) the applicable loss payment
pattern.

## III. UNDISCOUNTED UNPAID LOSSES

### A. General Rule

The term "undiscounted unpaid losses"
means the unpaid losses shown on the an-
nual statement filed by the taxpayer for the
year ending with or within the taxable year
of the taxpayer. Sec. 846(b)(1). The term
"annual statement" means the annual state-
ment approved by the National Associa-
tion of Insurance Commissioners which the

taxpayer is required to file with the insur-
ance regulatory authorities of the State. Sec.
846(f)(3).

#### B. Undiscounted Unpaid Losses for a QIC

A QIC does not file an annual state-
ment as defined under section 843(f)(3). As
a result, a QIC shall use the undiscounted
unpaid losses reflected on the statement or
report filed with a foreign regulatory au-
thority. If no statement or report is filed with
a foreign regulatory authority, or if the state-
ment or report that is filed does not re-
flect undiscounted unpaid losses, a QIC
shall use the undiscounted unpaid losses
used for financial reporting purposes in the
United States.

## IV. APPLICABLE INTEREST RATE

### A. General Rule

The amount of discounted unpaid losses
as of the end of any taxable year is the
present value of the unpaid losses calcu-
lated by using the "applicable interest rate".
Sec. 846(a)(2). The applicable interest rate
for purposes of section 846 is the aver-
age of the applicable Federal mid-term rates
(as defined in section 1274(d), but based on
annual compounding) effective as of the be-
ginning of each of the calendar months in
the test period. Sec. 846(c)(2)(A). The test
period is the most recent 60-calendar-month
period ending before the beginning of the
calendar year for which the determina-
tion is made. Sec. 846(c)(1)(B).

A. Applicable Interest Rate For A
QIC

Section 954(i)(4)(A) provides that the
unearned premiums and reserves of a QIC
shall be determined using the same meth-
ods and interest rates as if such QIC were
subject to Subchapter L, except that the in-
terest rate determined for the functional cur-
rency of a QIC, except as provided by the
Secretary, is substituted for the applicable
Federal interest rate. Accordingly, if the
functional currency of a QIC is the U.S.
dollar, the applicable interest rate is a 60-
month average of the applicable federal
mid-term rates published in accordance with
Treas. Reg. § 1.1274-4(b) (using annual
compounding). If the functional currency
of the QIC is a currency other than the U.S.
dollar, the applicable interest rate is a 60-
month average of the interest rates for the

functional currency of the QIC determined
in accordance with Treas. Reg. § 1.1274-
4(d) (using annual compounding).

## V. APPLICABLE LOSS PAYMENT PATTERN

### A. General Rule

Section 846(d)(1) directs the Secretary
to determine a loss payment pattern for each
line of insurance business for each deter-
mination year. Any loss payment pattern de-
termined by the Secretary shall apply to the
accident year ending with the determina-
tion year and to each of four succeeding ac-
cident years. Sec. 846(d)(1). The term "line
of business" means a category for the re-
porting of loss payment patterns deter-
mined on the basis of the annual statement
for fire and casualty insurance companies
for the calendar year ending with or within
the taxable year, except that multiple peril
lines of business are treated as a single line
of business. Sec. 846(f)(4). The term "de-
termination year" means calendar year 1987
and each fifth calendar year thereafter. Sec.
846(d)(4).

Determinations under section 846(d)(1)
for any determination year are made by the
Secretary: (1) by using the aggregate ex-
perience reported on the annual statements
of insurance companies; (2) on the basis of
the most recently published data from such
annual statements relating to loss pay-
ment patterns available on the first day of
the determination year; (3) as if losses paid
or treated as paid during any year were paid
during the middle of such year; and (4) in
accordance with the computational rules set
forth in section 846(d)(3). Sec. 846(d)(2).

Under section 846(e)(1), a taxpayer may
elect to use a loss payment pattern for lines
of business determined by reference to the
taxpayer's loss payment patterns for the
most recent calendar year for which an an-
nual statement was filed before the begin-
ning of the determination year. Sec.
846(e)(1). Any determination must be made
with the application of the rules of sec-
tion 846(d)(2)(C) and 846(d)(3). Sec.
846(e)(1). A taxpayer may elect to dis-
count unpaid losses using its own histori-
cal loss payment pattern instead of the
industry-wide pattern determined by the
Secretary if it has one or more eligible lines
of business. Treas. Reg. § 1.846-2(a). A tax-
payer's election applies to all eligible lines
of business. Treas. Reg. § 1.846-2(a). A line
of business is an eligible line of business

in a determination year if, on the most re-
cent annual statement filed by the tax-
payer before the beginning of that
determination year, the taxpayer reports
losses and loss expenses for at least the
number of accident years for which those
losses and loss expenses are required to be
reported on an annual statement. Treas. Reg.
§ 1.846-2(b).

An election is made separately for each
determination year. Sec. 846(e)(2)(A). Un-
less revoked with consent of the Secre-
tary, this election applies to accident years
ending with the determination year and to
each of the four succeeding accident years.
Sec. 846(e)(2)(B). An election is made on
the taxpayer's return for the taxable year in
which the determination year ends. Sec.
846(e)(2)(C). No election is allowed for any
international or reinsurance line of busi-
ness. Sec. 846(e)(3).

B. Appropriate Foreign Loss Payment
Pattern for a QIC

Section 954(i)(4)(A)(ii) states that a QIC
shall use the "appropriate foreign loss pay-
ment pattern." A QIC may determine the
appropriate foreign loss payment patterns
for each respective line of insurance busi-
ness under either of the following two op-
tions.

(1) A QIC may elect to use the
most recent loss payment patterns for one
or more lines of business published by the
foreign country provided the Secretary has
approved the use of such patterns in a Rev-
enue Ruling or other published guidance.
(Hereinafter referred to as Option 1.) Trea-
sury and the Internal Revenue Service in-
vite taxpayers to submit information
regarding any existing or subsequently pub-
lished foreign loss payment pattern so that
the Secretary can make a determination and,
if appropriate, issue guidance indicating that
such foreign loss payment pattern may be
used by a QIC under Option 1.

(2) A QIC may elect to use its own
loss payment patterns for any lines of busi-
ness sold by the QIC in a foreign coun-
try. (Hereinafter referred to as Option 2.)
In general, to make this election, a QIC
must have sufficient historical informa-
tion for a line of business to qualify as an
eligible line of business under Treas. Reg.
§ 1.846-2(b). However, for this purpose a

line of business corresponding to one listed
in section 846(d)(3)(A)(ii) may qualify as
an eligible line of business if a QIC has his-
torical data for that line of business for at
least four years after the accident year.

As stated above, a QIC may make dif-
ferent elections for each separate line of
business. Notwithstanding section 846(e)(3),
an election may be made for any line of
business conducted by a QIC, including any
international or nonproportional reinsur-
ance line of business. A QIC that makes an
election to apply Option 1 or 2 for a tax-
able year with respect to a line of busi-
ness must treat as a determination year for
that line of business the accident year with
which or during which the taxable year of
the election ends. The election applies to
the determination year and to each of the
four succeeding accident years, unless the
election is revoked with consent of the Sec-
retary. If a QIC does not make an elec-
tion to apply either Option 1 or 2 for one
or more lines of business, then the appro-
priate foreign loss payment pattern for such
line or lines of business shall be the ap-
plicable loss payment patterns set forth in
the tables published by the Secretary un-
der section 846(d).

Except as otherwise provided in sec-
tion 954(i) and this Notice, section 846 and
the regulations promulgated thereunder ap-
ply in determining the amount of a QIC's
discounted unpaid losses.

Special Rules for Applying Option 2

For purposes of Option 2, the compu-
tational rules in section 846(d)(3) shall be
followed in determining the appropriate for-
eign loss payment pattern for an eligible line
of business, subject to the following modi-
fications for lines of business correspond-
ing to those listed in section
846(d)(3)(A)(ii). First, the period taken into
account under section 846(d)(3)(A)(ii) shall
be extended to at least the tenth year af-
ter the accident year, but not beyond the
15th year after the accident year. Second,
the amount paid in the last year after the
accident year for which data are available
shall be treated as paid in each subsequent
year (or, if lesser, the portion of the un-
paid losses not theretofore taken into ac-
count shall be treated as being paid).
However, if application of the previous sen-

tence results in a payment pattern that ends
before the tenth year after the accident year,
then the amount of unpaid losses remain-
ing after the years for which loss pay-
ment data are available shall be treated as
paid equally in each year thereafter, end-
ing in the tenth year after the accident year.

Example 1. A QIC has data for seven years after
the accident year (AY+0) for its "private passenger auto
liability" line. The percentage of losses paid are 32%
for AY+0, 27% for AY+1 (one year after the acci-
dent year), 14% for AY+2, 8% for AY+3, 5% for
AY+4, 3% for AY+5, 3% for AY+6, and 2% for AY+7.
This is an eligible line. The QIC elects Option 2 for
this line of business, and extends the payment pe-
riod to AY+10. The payment percentages for the years
AY+8, AY+9, and AY+10 are 2% in each year.

Example 2. Assume the same facts as in Example
1, except that the payment percentage for year AY+7
is 3%. In this case, use of 3% for the remaining years
would terminate the payment pattern in AY+9. Ac-
cordingly, the QIC must treat 1.66% as being paid in
years AY+8, AY+9, and AY+10.

Example 3. Assume the same facts as in Example
1, except that the payment percentage for year AY+7
is 1%. In this case, the QIC must extend the pay-
ment period to AY+14 and use 1% for the remain-
ing years from AY+8 through AY+14.

If a taxpayer elects Option 2 for a line
of business for which there are fewer than
nine years of historical data after the ac-
cident year, then the taxpayer shall deter-
mine a new payment pattern using the
computational rules of section 846(d)(3), as
modified by this notice, for each year af-
ter the determination year, until such time
that the taxpayer has historical data for nine
years after the accident year.

Example 4. Assume the same facts as in Example
1\. The taxpayer has elected Option 2 for this line of
business, but has data in the determination year for
only seven years after the accident year. Accord-
ingly, the taxpayer must determine a new payment pat-
tern for the accident year immediately following the
determination year using updated information for the
accident year plus eight years after the accident year.
The taxpayer must also determine a new payment pat-
tern for the second accident year following the de-
termination year using updated information for the
accident year plus nine years after the accident year.
This last payment pattern shall apply to the last three
accident years for which the 5-year election to use Op-
tion 2 is applicable.

## VI. MANNER FOR MAKING ELECTION

Controlling U.S. shareholders shall make
the elections referred to in this notice on be-
half of a QIC by applying the rules of
Treas. Reg. § 1.964-1(c)(3).

## VII. EFFECTIVE DATE RULES

Regulations to be issued under section
954(i) concerning the issues addressed in
this notice will be effective for taxable years
beginning on or after the date such regu-
lations are published as final in the Fed-
eral Register. Until such regulations are
issued, controlling shareholders of a QIC
may rely on this notice to determine the in-
terest rates and appropriate foreign loss pay-
ment patterns of a QIC for purposes of
section 954(i). Controlling U.S. sharehold-
ers also may apply the guidance in this no-
tice to prior taxable years.

## VIII. PAPERWORK REDUCTION ACT

The collections of information contained
in the notice have been reviewed and ap-
proved by the Office of Management and
Budget for review in accordance with the
Paperwork Reduction Act (44 U.S.C. 3507)
under control number 1545-1799.

An agency may not conduct or spon-
sor, and a person is not required to re-
spond to, a collection of information unless
the collection of information displays a valid
OMB control number.

The collections of information in this no-
tice are in section V headed Applicable Loss
Payment Patterns. This information is re-
quired by the IRS to determine whether a
QIC is allowed to determine its income by
using its own payment pattern data for a
particular line of business. The informa-
tion will be used on examination to deter-
mine whether a QIC is calculating its
foreign loss payment patterns correctly. The
likely respondents are U.S. shareholders that
own foreign insurance companies.

The estimated total annual reporting bur-
den is 300 hours.

The estimated average annual burden per
respondent is 1 hour.

The estimated number of respondents is
300.

The estimated annual frequency of re-
sponses is once.

Books or records relating to a collec-
tion of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required by
26 U.S.C. 6103.

## IX. REQUEST FOR COMMENTS AND DRAFTING INFORMATION

The IRS and Treasury request comments
on the rules described in this notice and on
the additional issues, if any, that should be
addressed when regulations under section
954(i) are issued. Written comments may
be submitted to the Associate Chief Coun-
sel (International), Attention: Steven Jensen
(Notice 2002-69), Room 4562, CC:INTL:
Br5, Internal Revenue Service, 1111 Con-
stitution Avenue, NW, Washington DC
20224. Alternatively, taxpayers may sub-
mit comments directly to the IRS Internet
site at http://www.irs.ustreas.gov/prod/
tax_regs/comments.html. Comments will be
available for public inspection and copy-
ing. Treasury and the IRS request com-
ments by March 28, 2003. For further
information regarding this notice, contact
Steven Jensen of the Office of Associate
Chief Counsel (International) at 202-622-
3870 (not a toll-free call).

### Rev. Proc. 2002-67

#### Settlement of Section 351 Contingent Liability Tax Shelter Cases

SECTION 1. PURPOSE

.01 This revenue procedure prescribes
procedures for Taxpayers who elect to par-
ticipate in a settlement initiative aimed at
resolving cases involving Contingent Li-
ability Transactions that are the same as or
substantially similar to those described in
Notice 2001-17, 2001-1 C.B. 730 (“Con-
tingent Liability Transactions").

.02 This revenue procedure provides for
two resolution methodologies. The first op-
tion is a Fixed Concession Procedure set
forth in Section 5. The second option is a
Fast Track Dispute Resolution Procedure -
Contingent Liability Cases set forth in Sec-
tion 6; this second method includes the
Binding Arbitration Procedure set forth in
Section 7. The basic eligibility require-
ments for both options are set forth in Sec-
tion 3. Additional eligibility requirements
for the Fixed Concession Procedure are set
forth in Section 5.01.

.03 Both resolution methodologies are
designed to ensure that any tax benefits as-
sociated with the Contingent Liability Trans-
actions are claimed no more than once, in

the aggregate, by the Taxpayer or an en-
tity that was a member of the Taxpayer's
consolidated group (including any succes-
sor to such group) at any time. Any am-
biguity in this revenue procedure should be
resolved in favor of achieving this pur-
pose.

.04 Both resolution methodologies are
also designed to provide flexibility to ac-
commodate a large variety of views on the
relative merits of the case. The Arbitra-
tion Procedure is intended to require each
party to realistically assess the merits of the
case and achieve a resolution in the event
of irreconcilable differences before a neu-
tral expert who must choose between the
divergent settlement proposals without
modification. Maximum flexibility, within
the stated range of concession, is provided
for the negotiations. This resolution should
provide strong incentives to resolve dis-
putes with quick, competent review and cer-
tainty of repose at a reduced cost for both
parties.

## SECTION 2. BACKGROUND

.01 The transactions in question gener-
ally involve a transfer that purportedly com-
plies with section 351 of the Internal
Revenue Code of high basis, high value as-
sets from a transferor corporation ("Tax-
payer") to a transferee corporation controlled
by the transferor. The assets are transferred
in exchange for stock of the transferee cor-
poration and the transferee's assumption of
a liability of the transferor, which has not
yet been taken into account for tax pur-
poses. The Taxpayer takes the position that
the basis of the stock of the transferee cor-
poration received by the transferor is equal
to the bases in the assets transferred, with-
out a reduction in basis for the liability as-
sumed. The transferor subsequently sells the
stock at a reported capital loss equivalent
to the present value of the assumed liabil-
ity. When the liability ultimately is taken
into account for tax purposes, the trans-
feree claims the tax benefits associated with
the liability.

.02 The Commissioner of the Internal
Revenue Service and Treasury have des-
ignated these transactions as "listed trans-
actions" for purposes of Temp. Treas. Reg.
§ 1.6011-4T(b)(2) in Notice 2001-17.

## SECTION 3. SCOPE

.01 Except as provided in Section 3.02,
this revenue procedure applies to any Tax-
payer that has engaged in a Contingent Li-
ability Transaction and timely elects to
resolve the issues in dispute using this pro-
cedure. In order to participate in the reso-
lution of a Contingent Liability Transaction
under the procedures set forth in this rev-
enue procedure, a Taxpayer must provide
a written statement under penalties of per-
jury that each transferor involved in the
Contingent Liability Transaction complied
with the statutory requirements specified in
the application described in Section 4.01.
In addition, this statement must include a
certification that each transferor involved
in the Contingent Liability Transaction car-
ried out the purported section 351 ex-
changes and subsequent sales in accordance
with the applicable operating documents.
The scope and contents of these statements
are set forth in the application described in
Section 4.01. The Service may request fur-
ther information to verify the certifica-
tions described above.

.02 Taxpayers that have engaged in a
Contingent Liability Transaction and meet
the requirements set forth below (herein-
after referred to as "Eligible Taxpayers")
may elect to participate under this rev-
enue procedure if:

1\) The underpayment of tax attribut-
able to the Contingent Liability Transac-
tion is not due to fraud;

2\) The contingent liability was assumed
on or before October 18, 1999;

3\) The Contingent Liability Transac-
tion is not in litigation, i.e., at any time on
or after October 4, 2002, a case contain-
ing the issue is not docketed in and under
the jurisdiction of any court, including the
Tax Court, a district court, a bankruptcy
court, the Court of Federal Claims, a cir-
cuit court of appeals, or the Supreme Court
for any year; and

4\) The Contingent Liability Transac-
tion issue has not been designated for liti-
gation, or, if not designated for litigation,
the Taxpayer has not been notified that the
Contingent Liability Transaction issue is un-
der consideration for designation for liti-
gation, as of October 4, 2002. For purposes
of this revenue procedure, the Contingent
Liability Transaction issue has been des-
ignated for litigation if it has been desig-

nated under the procedures set forth in
CCDM 35.3.14 or any subsequently is-
sued procedures for designation.

.03 A Taxpayer ineligible to partici-
pate in the resolution methodologies set
forth in the revenue procedure solely be-
cause of the restrictions set forth in Sec-
tion 3.02(4), relating to issues designated
for litigation, becomes an Eligible Tax-
payer upon written receipt of notification
from the Service that it will not designate
the Contingent Liability Transaction is-
sue for litigation (or that the Service will
remove the designation in a previously des-
ignated case). After the Taxpayer becomes
an Eligible Taxpayer, the Taxpayer may ap-
ply to participate as set forth in Section 4
on or before the 90th day after the mail-
ing date of the written notification from the
Service of the decision not to designate (or
to remove the designation of) the Contin-
gent Liability Transaction issue. For pur-
poses of this revenue procedure, a day
means a calendar day.

.04 Further eligibility requirements for
Taxpayers electing the Fixed Concession
Procedure are set forth in Section 5.01.

.05 Eligible Taxpayers who do not elect
to participate in one of the resolution meth-
odologies provided for under this revenue
procedure may not take advantage of the
settlement, mediation or arbitration proce-
dures under Notice 2001-67 (LMSB/
Appeals Fast Track Dispute Resolution
Program), 2001-2 C.B. 544; Announce-
ment 2002-60 (Extension of Test of Arbi-
tration Procedure for Appeals), 2002-26
I.R.B. 28; and Rev. Proc. 2002-44 (Me-
diation Procedure for Appeals), 2002-26
I.R.B. 10.

## SECTION 4. APPLICATION PROCESS

.01 An Eligible Taxpayer who wants to
participate in one of the resolution meth-
odologies provided under this revenue pro-
cedure must mail or deliver to the Service
a written application on or before Janu-
ary 2, 2003. The application must be made
on a completed Agreement to Participate
and Selection of Settlement Option in the
form appended to this revenue procedure
as Exhibit 1. A separate application must
be submitted for each Contingent Liabil-
ity Transaction for which the Taxpayer
elects to participate in one of the resolu-
tion methodologies provided for under this

revenue procedure. Such applications must
be sent to the Office of Tax Shelter Analy-
sis ("OTSA"), LM:PFTG:OTSA, Attn: 351,
1111 Constitution Ave., N.W., Washing-
ton, DC 20024.

.02 With each application, the Taxpayer
must submit the following:

1\) A statement identifying the total capi-
tal loss reported on the Taxpayer's income
tax return(s) for the sale(s) of any stock is-
sued by the transferee corporation in the
Contingent Liability Transaction, includ-
ing the tax years affected and the amount
of the capital loss used in each year (in-
cluding any carryback and carryforward pe-
riods);

2\) A description of each class of stock
issued and outstanding by the transferee cor-
poration at the completion of the purported
section 351 exchanges, including the num-
ber of shares issued in each class in the ex-
changes, to whom the stock was issued, the
issuing prices of the stock, the par values
and any voting rights;

3\) A statement identifying any shares is-
sued in the purported section 351 exchanges
in connection with the assumption of the
contingent liability that have not been sold
or otherwise disposed of by the Taxpayer;

4\) A statement indicating the average
selling price per share of any stock is-
sued by the transferee corporation in the
Contingent Liability Transaction;

5\) A description of the type and bases
of the assets transferred by the Taxpayer in
the Contingent Liability Transaction; and

6\) A description of the type and amount
of the liability assumed by the transferee
corporation in the Contingent Liability
Transaction.

.03 An Eligible Taxpayer that elects the
Fast Track Dispute Resolution Procedure -
Contingent Liability Cases, described in
Section 6, must also submit with its appli-
cation a completed Arbitration Agreement
in the form appended to this revenue pro-
cedure as Exhibit 2. If the Arbitration
Agreement is executed by a person pursu-
ant to a power of attorney executed by the
Taxpayer, that power of attorney must
clearly express the grant of authority by the
Taxpayer to consent to disclose the re-
turns and return information of the Tax-
payer by the Service to third parties, and
a copy of that power of attorney must be
attached to the Arbitration Agreement.

.04 The Taxpayer will be notified in
writing within 15 calendar days of the re-
ceipt of a complete application as to
whether the Taxpayer's election has been
accepted as in compliance with the eligi-
bility and application requirements of this
revenue procedure for the resolution meth-
odology selected in the application. A Tax-
payer becomes an electing taxpayer
("Electing Taxpayer") for purposes of this
revenue procedure, after it has been noti-
fied that its application has been accepted.

.05 If the Service denies a Taxpayer's
application for participation under the Fixed
Concession Procedure because the Tax-
payer does not satisfy either criterion un-
der Section 5.01, the application may be
amended in writing within 10 days of re-
ceipt of the notice issued under Section 4.04
to elect the Fast Track Dispute Resolu-
tion Procedure - Contingent Liability
Cases set forth in Section 6.

.06 Denial of a Taxpayer's request to
participate in either resolution methodol-
ogy is not subject to judicial review.

## SECTION 5. FIXED CONCESSION PROCEDURE

.01 The Fixed Concession Procedure is
available to Eligible Taxpayers who have
engaged in a Contingent Liability Trans-
action and meet the requirements set forth
in Section 3.02 as well as the following ad-
ditional requirements:

1\) The Taxpayer filed a disclosure state-
ment under the provisions set forth in An-
nouncement 2002-2, 2002-2 I.R.B. 304; or

2\) The Contingent Liability Transac-
tion was already raised during an exami-
nation and, as a result, the Taxpayer was
unable to make a disclosure as outlined in
Announcement 2002-2. A Taxpayer quali-
fying under this provision must agree to
provide the information required by An-
nouncement 2002-2 and certify under pen-
alties of perjury that the person signing the
disclosure has examined the disclosure and
that to the best of that person's knowl-
edge and belief, the information provided
contains all relevant facts and is true, cor-
rect and complete.

.02 Under the Fixed Concession Proce-
dure, an Electing Taxpayer is permitted a
capital loss deduction equal to 25% of the
amount of the capital loss reported for the
sale of the transferee stock received in the
Contingent Liability Transaction. In order
to prevent a duplication of the tax ben-

efits associated with the Contingent Liabil-
ity Transaction, the Electing Taxpayer must
include an amount equal to the permitted
capital loss as ordinary income in equal
amounts per year over a period of 15 years
beginning with the 2003 taxable year, un-
less no member of the Electing Taxpay-
er's consolidated group (including any
successor to such group) is at any time en-
titled to any tax benefits associated with the
deduction resulting from the liability as-
sumed in the Contingent Liability Trans-
action. The Electing Taxpayer has the option
of an alternative method to achieve the
same economic result as the 15-year re-
covery based on a discount rate of ten per-
cent. The closing agreement referenced in
Section 5.07 shall ensure that no entity that
was a member of the Electing Taxpayer's
consolidated group (including any succes-
sor to such group) at any time will be en-
titled to both the permitted capital loss
deduction and the tax benefits associated
with the deduction resulting from the li-
ability assumed in the Contingent Liabil-
ity Transaction.

.03 No adjustment will be made to trans-
actional cost deductions taken in connec-
tion with the Contingent Liability
Transaction.

.04 When the assumed liability is ulti-
mately taken into account for tax purposes,
the tax benefits associated with it will be
allowed, as appropriate, under applicable le-
gal principles in accordance with the
method of accounting of the corporation en-
titled to those benefits.

.05 No penalties under section 6662 will
be imposed for any deficiency attribut-
able to the resolution of the Contingent Li-
ability Transaction under this Fixed
Concession Procedure.

.06 The following conditions apply to
any stock or property held on or after Oc-
tober 4, 2002. The tax basis of any un-
sold stock shall be equal to the average
selling price per share of the stock that was
sold that generated the reported capital
losses ("Sold Stock"). Also, if the basis of
any property other than the stock received
in the purported section 351 exchanges was
determined directly or indirectly by refer-
ence to the basis of the stock received in
the purported section 351 exchanges, then
the basis of such property as of the date of
the Contingent Liability Transaction shall
be computed as if the basis of the stock re-
ceived in the purported section 351 ex-

changes was equal to the average selling
price per share of the Sold Stock. For ex-
ample, if the transferor contributed the stock
received to another corporation ("Corpo-
ration 2") in return for stock in Corpora-
tion 2, then the transferor's basis in the
stock of Corporation 2 shall be computed
as if its basis in the stock contributed to
Corporation 2 equaled the average selling
price per share of the Sold Stock. This ba-
sis redetermination requirement applies to
the Electing Taxpayer and to any person
within the effective control of the Elect-
ing Taxpayer. The closing agreement ref-
erenced in Section 5.07 shall ensure that the
basis of any property in the hands of any
member of the Electing Taxpayer's con-
solidated group (including any successor to
such group), having a carryover or substi-
tuted basis determined directly or indi-
rectly by reference to the basis of the stock
received in the purported section 351 ex-
changes, shall be computed as if the ba-
sis of the stock received in the purported
section 351 exchanges was equal to the av-
erage selling price per share of the Sold
Stock. The Electing Taxpayer shall pro-
vide all information needed to effect this
provision. Taxpayers who cannot or will not
provide this information cannot elect to par-
ticipate under this revenue procedure.

.07 An Electing Taxpayer must enter into
a closing agreement with the Commis-
sioner that reflects the terms described
above. The Compliance function within the
Service will close the case using estab-
lished issue or case closing procedures, in-
cluding the preparation of a Form 906,
Closing Agreement on Final Determina-
tion Covering Specific Matters.

## SECTION 6. FAST TRACK DISPUTE RESOLUTION PROCEDURE - CONTINGENT LIABILITY CASES

.01 A Taxpayer electing the Fast Track
Dispute Resolution Procedure - Contin-
gent Liability Cases must participate in
binding arbitration to resolve any issues that
are not resolved in the accelerated settle-
ment negotiations. See Section 7 below. A
Taxpayer that elects the Fast Track Dis-
pute Resolution Procedure - Contingent
Liability Cases will not be eligible for any
other settlement, mediation or arbitration
procedure.

.02 The following issues will be con-
sidered in the Fast Track Dispute Resolu-
tion Procedure - Contingent Liability
Cases:

1\) The amount of capital loss permit-
ted for the sale of stock received in the
Contingent Liability Transaction;

2\) The identity of the corporation that
is entitled to the tax benefits associated with
the deduction resulting from the assumed
liability and whether that corporation is or
has been a member of the Electing Tax-
payer's consolidated group (including any
successor to that group);

3\) With respect to the Electing Tax-
payer or any member of the Electing Tax-
payer's consolidated group (including any
successor to such group), the manner and
timing of the reduction in the tax benefits
necessary to eliminate any duplication in the
tax benefits associated with the Contin-
gent Liability Transaction in amounts that
in the aggregate equal the capital loss per-
mitted; and

4\) The penalties under section 6662 ap-
plicable to any deficiency attributable to the
resolution of the Contingent Liability Trans-
action under this Fast Track Dispute Reso-
lution Procedure - Contingent Liability
Cases, except that no penalties will be as-
serted if the Electing Taxpayer previously
disclosed the Contingent Liability Trans-
action in accordance with Announcement
2002-2, or if the Electing Taxpayer did not
disclose solely because the Contingent Li-
ability Transaction was already raised dur-
ing an examination and, as a result, the
Electing Taxpayer was unable to make a
disclosure as outlined in Announcement
2002-2. An Electing Taxpayer that quali-
fies for a waiver of penalties under this pro-
vision must agree to provide the information
required by Announcement 2002-2 and cer-
tify under penalties of perjury that the per-
son signing the disclosure has examined the
disclosure and that to the best of that per-
son's knowledge and belief, the informa-
tion provided contains all relevant facts and
is true, correct and complete.

.03 Under the Fast Track Dispute Reso-
lution Procedure - Contingent Liability
Cases, an Electing Taxpayer must con-
cede between 50% and 90% of the amount
of the capital loss reported for the sale of
the stock, depending on the merits of the
case. Electing Taxpayers may negotiate or
arbitrate the identity of the corporation that
is entitled to the tax benefits associated with
the deduction resulting from the assumed
liability, and the manner and timing of the
reduction in the tax benefits associated with
the Contingent Liability Transaction; pro-

vided that no reduction of such tax ben-
efits is required unless the tax benefits
associated with the deduction resulting from
the assumed liability are taken into ac-
count by the Electing Taxpayer or an en-
tity that was a member of its consolidated
group (including any successor to such
group) at any time. No adjustment will be
made to transactional cost deductions taken
in connection with the Contingent Liabil-
ity Transaction. In addition, Electing Tax-
payers may negotiate or arbitrate the
applicability of any penalty proposed by the
Service under section 6662 associated with
the capital loss deduction. The tax basis of
any unsold stock (or property the basis of
which was determined directly or indi-
rectly by reference to the basis in the hands
of the Electing Taxpayer of the stock re-
ceived in the purported section 351 ex-
changes), as of October 4, 2002, will be
adjusted in the same manner as described
in Section 5.06.

.04 When the assumed liability is ulti-
mately taken into account for tax purposes,
the tax benefits associated with it will be
allowed, as appropriate under applicable le-
gal principles in accordance with the
method of accounting of the corporation en-
titled to those benefits.

.05 To the extent that the tax benefits as-
sociated with the deduction resulting from
the liability assumed in the Contingent Li-
ability Transaction are taken into account
by the transferor or an entity that was a
member of the transferor's consolidated
group (including any successor to such
group) at any time, the Electing Taxpayer
must negotiate or arbitrate to eliminate any
duplication in the tax benefits associated
with the Contingent Liability Transaction
using one of the following options: 1) re-
duce the amount of the deduction result-
ing from the liability assumed in connection
with the Contingent Liability Transaction;
or 2) recoup an amount equal to the per-
mitted capital loss by including the amount
of the permitted capital loss as ordinary in-
come. The manner and time period over
which such reduction or recoupment will
occur is also subject to negotiation or ar-
bitration.

.06 Within 90 days from the date of the
notification to the Electing Taxpayer of its
acceptance into the procedure, the Elect-
ing Taxpayer will provide to LMSB all of
the information and documents specified in
Exhibit 3. The Electing Taxpayer's fail-

ure to provide all of the information and
documents specified in Exhibit 3 consti-
tutes grounds for elimination from the Fast
Track Dispute Resolution Procedure -
Contingent Liability Cases and Binding Ar-
bitration Procedure as set forth in Section
6.09. In cases not governed by this settle-
ment initiative, the Service and the De-
partment of Justice will not be limited to
seeking the information set forth, described
or requested in Exhibit 3.

.07 Within 120 days from receipt of the
Electing Taxpayer's information and docu-
ments, LMSB will complete its review of
the submission, issue additional document
requests to the Electing Taxpayer, if nec-
essary, and conduct any necessary inter-
views.

.08 Within 20 days after any supple-
mental requests for information by LMSB,
the Electing Taxpayer will respond to the
outstanding requests for information. Elect-
ing Taxpayers may request an extension of
this period; however, the Service will grant
extensions only in exceptional circum-
stances and subject to its sole discretion.

.09 If the Electing Taxpayer fails to pro-
vide the requested information that is in its
possession or control, LMSB may elect to
eliminate the Electing Taxpayer from the
Fast Track Dispute Resolution Procedure -
Contingent Liability Cases and Binding Ar-
bitration Procedure and the case will be sub-
ject to the full range of Service audit and
deficiency procedures. In addition, the Con-
tingent Liability Transaction issue will not
be considered under the settlement, me-
diation or arbitration procedures under No-
tice 2001-67 (LMSB/Appeals Fast Track
Dispute Resolution Program), 2001-2 C.B.
544; Announcement 2002-60 (Extension of
Test of Arbitration Procedure for Appeals),
2002-26 I.R.B. 28; and Rev. Proc. 2002-44
(Mediation Procedure for Appeals), 2002-26
I.R.B. 10. Elimination from the Fast Track
Dispute Resolution Procedure - Contin-
gent Liability Cases and Binding Arbitra-
tion Procedure will be reviewed and
approved by the applicable LMSB Direc-
tor of Field Operations. Such decision shall
be final and not subject to judicial review.

.10 Within 30 days after the end of the
period for examination (see Sections 6.07
and 6.08 above), the Electing Taxpayer and
LMSB will exchange a written summary of
the facts, law and argument applicable to
the issues being considered under the Fast
Track Dispute Resolution Procedure -

Contingent Liability Cases. After all the
facts and circumstances have been evalu-
ated, LMSB will determine whether pen-
alties should be proposed.

.11 LMSB will promptly submit the ad-
ministrative file related to the Contingent
Liability Transaction and the written sum-
maries to Appeals. Appeals and the Elect-
ing Taxpayer will schedule an initial
meeting for the purpose of starting settle-
ment discussions. Such meeting will be held
on a date agreeable to the parties, but no
later than 30 days from the receipt by Ap-
peals of the administrative file and the sum-
maries. A representative of the Electing
Taxpayer with decision-making authority
must participate in the settlement negotia-
tion session or sessions.

.12 Appeals will attempt to facilitate an
agreement between LMSB and the Elect-
ing Taxpayer regarding the Fast Track Dis-
pute Resolution Procedure - Contingent
Liability Cases issues, including penal-
ties, if applicable. Under the Fast Track Dis-
pute Resolution Procedure - Contingent
Liability Cases, Appeals will evaluate the
penalties based on the merits inherent in the
penalty issue. Appeals may make a recom-
mendation regarding the settlement of any
or all issues. The parties have 60 days from
the date of the first meeting to reach an
agreed settlement on all disputed issues
identified in Section 6.02.

.13 Any proposed settlement is subject
to review and concurrence by an Appeals
Coordinator. If the parties reach a basis of
settlement, Appeals will effectuate the settle-
ment of agreed issues using established is-
sue or case closing procedures, including
the preparation of a Form 906, Closing
Agreement on Final Determination Cov-
ering Specific Matters.

## SECTION 7. BINDING ARBITRATION

01\. After the earlier of the expiration of
the 60-day period for reaching agreement
under Section 6.12, or the time the par-
ties agree they will not reach a settlement
under the Fast Track Dispute Resolution
Procedure - Contingent Liability Cases,
the parties will take part in Binding Arbi-
tration procedures. The Binding Arbitra-
tion will be conducted in accordance with
the provisions in the Arbitration Agree-
ment, set forth in Exhibit 2. The provi-
sions in the Arbitration Agreement are
mandatory and the agreement must be ex-
ecuted by the Electing Taxpayer when the

application to participate in the Fast Track
Dispute Resolution Procedure - Contin-
gent Liability Cases is filed, or, at the lat-
est, when the application for the Fixed
Concession Procedure is amended to elect
the Fast Track Dispute Resolution Proce-
dure - Contingent Liability Cases.

.02 The Service will have 30 days for
additional factual development from the date
that the Electing Taxpayer is notified that
the Service has determined that the Fast
Track Dispute Resolution Procedure -
Contingent Liability Cases was unsuccess-
ful.

1\) During this period the Service may
request additional information or docu-
ments to complete a record for submis-
sion to the Arbitrator and the Electing
Taxpayer will provide a written response or
documents within 15 days of receipt of the
written request;

2\) The Service may conduct interviews,
transcribed and under oath, of individuals
involved in any capacity with the transac-
tion. Such identified witnesses, internal or
external to the Electing Taxpayer's orga-
nization, may be interviewed in this man-
ner regardless of whether such individuals
were interviewed by LMSB representa-
tives at an earlier phase of this resolution
process or during audit. The Electing Tax-
payer will make all witnesses who are em-
ployed by Electing Taxpayer's organization
in any capacity available upon request and
will make good faith efforts to make all
other witnesses available during this 30-
day period.

.03 The Arbitration Agreement provides
that the parties agree to be bound by the de-
cision of the Arbitrator in respect of the is-
sue to be resolved.

.04 Appeals will assign an employee to
act as the Administrator ("Administrator")
to manage and supervise the arbitration pro-
ceeding and to act as liaison between the
parties and between the parties and the Ar-
bitrator.

.05 The Electing Taxpayer will select a
neutral arbitrator from a qualified list
("Qualified List") that the Service is in the
process of developing and that will be an-
nounced at a later time. The Qualified List
will consist of persons not employed by the
Department of the Treasury having exper-
tise and experience in federal tax matters.
The Qualified List will be used to pro-
vide a pool of candidates from which one
arbitrator will be selected. Within 15 days

of the date that the Service notifies the
Electing Taxpayer that the Service has de-
termined that the Fast Track Dispute Reso-
lution Procedure - Contingent Liability
Cases was unsuccessful, the Electing Tax-
payer must select three names from the
Qualified List and rank them in order of
preference. The Administrator will arrange
for the hiring of the Arbitrator, subject to
applicable rules and regulations for Gov-
ernment procurement. If the first candi-
date is unavailable, the Administrator will
contact the other candidates in the order in-
dicated by the Electing Taxpayer.

.06 The Arbitrator shall have no offi-
cial, financial, or personal conflict of in-
terest with respect to the parties, unless such
interest is fully disclosed in writing to the
parties and the Administrator, and the par-
ties agree to the continued participation of
the Arbitrator. A selected arbitrator who has
represented or currently represents a pro-
moter or investor in a Contingent Liabil-
ity Transaction, or whose firm has done so,
is not neutral and, therefore, will be ineli-
gible to serve as an arbitrator in a proceed-
ing under this revenue procedure. Each
party will pay one half of the Arbitrator's
compensation, expenses, and related fees
and costs.

.07 The Arbitrator will be disqualified
from representing the Electing Taxpayer in
any pending or future action that involves
the transactions or issues that are the par-
ticular subject matter of the arbitration. This
disqualification extends to representing any
other parties involved in the transactions or
issues that are the particular subject mat-
ter of the arbitration. Members or employ-
ees of the Arbitrator's firm will also be
disqualified from representing the Elect-
ing Taxpayer or any other parties involved
in the transactions or issues that are the par-
ticular subject matter of the arbitration in
an action that involves the transactions or
issues that are the particular subject mat-
ter of the arbitration, unless: (i) the Arbi-
trator disclosed the potential of such
representation prior to the parties' accep-
tance of the Arbitrator; (ii) such action re-
lates to a taxable year that is different from
the taxable year(s) under arbitration; (iii) the
firm's internal controls preclude the Arbi-
trator from any form of participation in the
matter; and (iv) the firm does not allo-
cate to the Arbitrator any part of the fee
therefrom.

The Arbitrator will not be prohibited
from receiving a salary, partnership share,
or corporate distribution established by prior
independent agreement. The Arbitrator and
the firm are not disqualified from repre-
senting the Electing Taxpayer or any other
parties involved in the arbitration in any
matter unrelated to the transactions or is-
sues that are the particular subject matter
of the arbitration.

.08 The arbitration will be conducted us-
ing Final Offer Arbitration, also known as
"baseball" arbitration. Because the par-
ties may continue negotiations during the
arbitration proceeding, the final settle-
ment offers ("Final Offers") proposed by
each party shall be clearly labeled as such.
The Final Offers of both parties shall re-
sult in a concession by the Electing Tax-
payer of between 50% and 90% of the
capital loss reported by the Electing Tax-
payer on the sale of the stock. The Final Of-
fers will identify the corporation that the
party contends is entitled to the tax ben-
efits associated with the deduction result-
ing from the assumed liabilities, indicate
whether that corporation is a member of the
Electing Taxpayer's consolidated group (in-
cluding any successor to such group), and
state the means for eliminating any dupli-
cation in the tax benefits associated with the
Contingent Liability Transaction. In addi-
tion, the Final Offers shall make clear
whether any penalty is proposed and ac-
cepted or rejected. Not more than 10 days
after submission of the memorandums sup-
porting their respective positions (“Memo-
randum in Support"), see Section 7.12
below, the parties shall submit their Final
Offers.

.09 Only the following issue will be sub-
mitted to the Arbitrator:

Which of the two Final Offers presented
by the parties best reflects the hazards of
litigating the Electing Taxpayer's entitle-
ment to a capital loss deduction from the
sale of stock received as part of the Con-
tingent Liability Transaction?

.10 The Arbitrator is not permitted to
make any conclusions of law or provide
reasoning that represents an interpreta-
tion of the law; however, it is necessary for
the Arbitrator to refer to the existing ap-
plicable law in considering the submitted
issue. Legal guidance will be provided by
the parties for purposes of establishing con-
text, limited to guidance on the specific ar-
guments presented in the Fast Track Dispute

Resolution Procedure - Contingent Li-
ability Cases. With respect to factual in-
formation, the Electing Taxpayer may only
submit to the Arbitrator for consideration
material that was previously provided to
LMSB and Appeals in the Fast Track Dis-
pute Resolution Procedure - Contingent
Liability Cases. The Service may also
present facts developed under Section 7.02.
The Arbitrator is not permitted to make any
findings of fact, except for resolving the is-
sue stated in Section 7.09.

.11 The parties to the arbitration will be
the Electing Taxpayer and the Commis-
sioner. The Electing Taxpayer may choose
to have the representation of counsel or an
authorized representative assist in prepar-
ing for and conducting the arbitration pro-
ceeding. The Office of Chief Counsel will
represent the Commissioner in the arbitra-
tion proceeding.

.12 Within 60 days of the date the pro-
posed arbitrator is selected, the parties will
submit to the Administrator for submis-
sion to the Arbitrator, the administrative
record developed prior to and during the
Fast Track Dispute Resolution Procedure -
Contingent Liability Cases and a stipula-
tion of facts based on the record. The Ser-
vice is permitted to include additional
factual information developed pursuant to
Section 7.02 in these submissions. In ad-
dition, each party will submit the legal guid-
ance on which it intends to rely as set forth
in section 6 of the Arbitration Agreement.
The legal guidance will consist of a list of
citations or copies of relevant cases and le-
gal authority. Each party will also submit
a Memorandum in Support, not to exceed
30 pages, stating each party's respective le-
gal and factual contentions. The memoran-
dum shall be typed only on one side of
opaque unglazed paper, 8 1/2 inches wide
by 11 inches long. All pages shall have mar-
gins on both sides of each page that are no
less than 1 inch wide, and margins on the
top and bottom of each page that are no less
than 3/4 inch wide. Text and footnotes shall
appear in consistent typeface no smaller
than 12 characters per inch, with double
spacing between each line of text and single
spacing between each line of indented quo-
tations and footnotes. Quotations in ex-
cess of five lines shall be set off from the
surrounding text and indented.

.13 The Administrator will ensure that
each party receives the materials submit-
ted by the opposing party. Any objections

to statements of fact, not previously pre-
sented, will be submitted to the Adminis-
trator within 10 days. If there are no
objections, the Administrator will forward
the submissions to the Arbitrator no ear-
lier than the date the employment con-
tract with the Arbitrator has been approved.

.14 Within 45 days of the date the Ar-
bitrator receives the information set forth
in Section 7.12 above, the Arbitrator will
contact the parties through the Adminis-
trator and set the time for an arbitration
hearing, if the Arbitrator decides that a hear-
ing is necessary. Any such hearing will not
exceed 8 hours, which shall include any oral
arguments or the presentation of witnesses,
as the Arbitrator may deem necessary. Al-
ternatively, the Arbitrator may elect to ren-
der a decision based on the written record
alone, without a hearing.

.15 If, at any time prior to the date set
for the arbitration hearing, or if no hear-
ing is ordered, prior to the decision of the
Arbitrator, the parties reach an agreement
resolving all issues relating to the Contin-
gent Liability Transaction, the parties may
withdraw from the arbitration process by
notifying the Administrator. Any such settle-
ment negotiated by Appeals will be sub-
ject to the concurrence of Counsel. If a
settlement is reached, Appeals will effec-
tuate the settlement of agreed issues us-
ing established issue or case closing
procedures.

.16 Within 30 days after the hearing, the
Arbitrator will select one of the Final Of-
fers proposed by the parties. After the Ar-
bitrator renders a decision and advises the
Administrator and the parties of the deci-
sion, the case or issues will be closed us-
ing established procedures for case closing,
including preparation of a Form 906, Spe-
cific Matters Closing Agreement.

.17 The tax basis of any unsold stock (or
property the basis of which was deter-
mined directly or indirectly by reference to
the basis in the hands of the Electing Tax-
payer of the stock received in the pur-
ported section 351 exchanges), as of
October 4, 2002, will be adjusted in the
same manner as described in Section 5.06.

## SECTION 8. GENERAL PROVISIONS

These provisions apply to any Taxpayer
who has elected to participate in any of the
resolution methodologies set forth in this
revenue procedure.

.01 Any issue that is not resolved
through the resolution methodologies set
forth in this revenue procedure will be re-
solved using normal audit and deficiency
procedures.

.02 If applicable, a settlement entered
into as a result of any of the resolution
methodologies set forth in this revenue pro-
cedure will be reported to the Joint Com-
mittee on Taxation in accordance with
section 6405.

.03 Any Taxpayer electing to partici-
pate in any of the resolution methodolo-
gies set forth in this revenue procedure
agrees to waive the prohibition against ex
parte communications between Appeals em-
ployees and other Service employees, pro-
vided by section 1001(a) of the Internal
Revenue Service Restructuring and Re-
form Act of 1998, for purposes of pursu-
ing settlement under this revenue procedure.

.04 The Binding Arbitration Procedure
set forth in this revenue procedure is con-
fidential. Any dispute resolution commu-
nication related to the arbitration proceeding
is confidential and may not be disclosed by
any party, nonparty participant, or arbitra-
tor except as provided under 5 U.S.C. § 574.
A dispute resolution communication in-
cludes all oral or written communications
prepared for purposes of a dispute resolu-
tion proceeding. See 5 U.S.C. § 571(5).

.05 The results of any settlement reached
through the resolution methodologies set
forth in this revenue procedure, including
the decision of the Arbitrator, may not be
used as precedent by any Taxpayer and will
not be binding on, or otherwise control, the
parties for taxable years not covered by a
specific matters closing agreement executed
by the parties.

.06 Service and Treasury employees who
participate in any way in the settlement pro-
cedures described in this revenue proce-
dure and, pursuant to section 6103(n) of the
Internal Revenue Code of 1986, as
amended, any person under contract to the
Service, including the Arbitrator, that the
Service invites to participate will be sub-
ject to the confidentiality and disclosure pro-
visions of the Code, including sections
6103, 7213, and 7431. See also 5 U.S.C.
§ 574.

.07 A Taxpayer that elects to partici-
pate in any of the resolution methodolo-
gies set forth in this revenue procedure
consents to the disclosure by the Service of
the Taxpayer's returns and return informa-

tion incident to the settlement procedures
provided in this revenue procedure to the
Arbitrator and any participant identified in
any list of participants provided for in the
Arbitration Agreement, to any participant
for the Taxpayer identified in writing by the
Taxpayer subsequent to execution of the
Agreement, and to any persons, including
witnesses, who participate in the arbitra-
tion proceeding on behalf of either party.

.08 Any Taxpayer electing to partici-
pate in any of the resolution methodolo-
gies set forth in this revenue procedure
acknowledges that employees of the Ser-
vice and all other Treasury employees in-
volved in these proceedings are bound by
section 7214(a)(8) and must report infor-
mation concerning violations of any rev-
enue law to the Secretary.

.09 The Commissioner is not precluded
or impeded under section 7605(b) or any
administrative provisions adopted by the
Commissioner from conducting a later ex-
amination or inspection of records with re-
spect to any taxable year of a participating
Taxpayer by inspecting information, docu-
ments and materials supplied in connec-
tion with this revenue procedure.

### SECTION 9. EFFECTIVE DATE

This revenue procedure is effective
October 4, 2002.

### SECTION 10. PAPERWORK REDUCTION ACT

The collection of information contained
in this revenue procedure has been reviewed
and approved by the Office of Manage-
ment and Budget in accordance with the Pa-
perwork Reduction Act (44 U.S.C. § 3507)
under control number 1545-1801. An
agency may not conduct or sponsor, and a
person is not required to respond to, a col-
lection of information unless the collec-
tion of information displays a valid OMB
number.

The collection of information in this rev-
enue procedure is in the sections titled AP-
PLICATION PROCESS, FIXED
CONCESSION PROCEDURE and FAST
TRACK DISPUTE RESOLUTION PRO-
CEDURE - CONTINGENT LIABILITY
CASES. This information is required to ap-
ply the terms of the settlements set forth in
this revenue procedure and determine the
appropriate amount of penalties due, if any.
The information will be used to determine

whether the taxpayer has reported the dis-
closed items properly for income tax pur-
poses. The collection of information is
required to obtain the benefits described in
this revenue procedure. The likely respon-
dents are businesses or other for-profit in-
stitutions.

The estimated total annual reporting bur-
den is 7,500 hours.

The estimated annual burden per re-
spondent is an average of 50 hours, de-
pending on individual circumstances. The
estimated number of respondents is 150.

The estimated frequency of responses is
one time per respondent.

Books or records relating to a collec-
tion of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally tax returns and tax return in-
formation are confidential, as required by
26 U.S.C. § 6103.

### CONTACT INFORMATION

For information regarding this revenue
procedure, call Jo Ann Prager, Manager at
(202) 283-8445 (not a toll-free call). Ms.
Prager may also be reached by fax at (202)
283-8406 or electronically at the follow-
ing email address: otsa@irs.gov. Please in-
clude "Revenue Procedure 2002-67" in the
subject line of any electronic communica-
tion.

#### Exhibit 1 Agreement to Participate and Selection of Settlement Option

1\)
Agreement to Participate and Selection of Settlement Option. The undersigned desire(s) to participate in a settle-
ment initiative described in Rev. Proc. 2002-67 for resolving cases involving Notice 2001-17 contingent liability
transactions. This settlement procedure is available to any taxpayer that has engaged in a contingent liability trans-
action, satisfies the requirements of Section 3.02 of Rev. Proc. 2002-67 and elects to resolve the issues in dispute
using this procedure.

By signing this agreement to participate under the settlement initiative described in Rev. Proc. 2002-67, the un-
dersigned acknowledges that the decision to participate is irrevocable and that, if the taxpayer fails to provide all
of the information and documents specified in Rev. Proc. 2002-67, the contingent liability transaction issue will
be subject to the full range of Internal Revenue Service audit and deficiency procedures. The undersigned acknowl-
edges that the contingent liability transaction issue will not be considered under the settlement, mediation or arbi-
tration procedures under Notice 2001-67 (LMSB/Appeals Fast Track Dispute Resolution Program), 2001-2 C.B.
544; Announcement 2002-60 (Extension of Test of Arbitration Procedure for Appeals), 2002-26 I.R.B. 28; and Rev.
Proc. 2002-44 (Mediation Procedure for Appeals), 2002-26 I.R.B. 10.

The following is the option selected for this process:

##### Fixed Concession Procedure

###### Fast Track Dispute Resolution Procedure - Contingent Liability Cases

By choosing the Fast Track Dispute Resolution Procedure - Contingent Liability Cases, the undersigned agree(s)
to participate in Binding Arbitration, as set forth in Section 7 of Rev. Proc. 2002-67, if the Fast Track Dispute Reso-
lution Procedure - Contingent Liability Cases is unsuccessful. Those taxpayers selecting the Fast Track Dispute
Resolution Procedure - Contingent Liability Cases must also submit with this form a completed Arbitration Agree-
ment. See Section 7 and Exhibit 2 of Rev. Proc. 2002-67.

All requirements and provisions set forth in Rev. Proc. 2002-67 are incorporated herein by reference.

2\)
Application Process. The undersigned will be notified in writing within 15 calendar days of the receipt of this com-
pleted form as to whether its election has been accepted.

If a taxpayer is denied participation under the Fixed Concession Procedure, its application may be amended in writ-
ing within 10 calendar days of receipt of the notice described above to elect the Fast Track Dispute Resolution Pro-
cedure - Contingent Liability Cases, as set forth in Section 6 of Rev. Proc. 2002-67. See Section 4.05 of Rev.
Proc. 2002-67.

Denial of a taxpayer's request to participate in either resolution method is not subject to judicial review.

3\)
Waiver of Prohibition on Ex Parte Communications. In accordance with the Internal Revenue Service Restruc-
turing and Reform Act of 1998, Pub. L. No. 105-226, 112 Stat. 685 (RRA '98), and Rev. Proc. 2000-43, 2000-2
C.B. 404, it has been determined that ex parte communications may occur during the course of the settlement pro-
cess. As defined in Rev. Proc. 2000-43, "ex-parte communications" are "communications that take place between
Appeals and another Service function without the participation of the taxpayer or the taxpayer's representative."

The undersigned acknowledge(s) that waiver of this prohibition is voluntary. By signing this agreement, the un-
dersigned further acknowledge(s) that the concerns regarding ex parte communications are understood, but in the
interest of facilitating resolution of this case, the undersigned agree(s) to waive the prohibition between Appeals
and other Service personnel who are involved in pursuing settlement under the initiative described in Rev. Proc.
2002-67. This waiver covers all communications in the entire settlement process. This waiver will expire upon the
date the settlement process with respect to this case is completed or ends.

4\)
Location of Settlement Conference. The undersigned requests that all meetings between the undersigned and the
Service relating to the settlement proceedings take place at [Insert City, State].

5\)
Participants. The persons listed in this paragraph below are the primary participants in this settlement process on
behalf of the taxpayers. Additional persons who will participate will be listed at the end of this agreement.

Taxpayer Name:

Taxpayer EIN:

Address

Corporate Officer: Telephone:

Fax:

Title: Email:

Taxpayer Representative:

Name of Firm:

Address:

Telephone:

Fax:

Email:

If the Taxpayer identifies a representative, the Taxpayer must attach a power of attorney to this agreement that au-
thorizes the representative to participate in the settlement and arbitration process.

6\)
Case status.

a)
Is the case open in Compliance or Appeals?

b)
If so, who is the Service contact?

c)
Was the contingent liability transaction disclosed under Announcement 2002-2, 2002-2 I.R.B. 304?

7\)
Certification of Compliance. Under penalties of perjury, the undersigned certifies:

a)
that each transferor involved in the contingent liability transaction carried out the purported section
351 exchanges and subsequent sales in accordance with the applicable operating documents;

b)
that one or more persons transferred property to the transferee corporation solely in exchange for stock
in such corporation (or such stock and other property or money) and immediately after the ex-
change such person (or persons) was in control (as defined in section 368(c)) of the transferee cor-
poration; and,

c)
that the transferee is not an investment company within the meaning of section 351(e).

8\)
Attachments. With this form, the undersigned must also submit the following, as specified in Section 4.02 of Rev.
Proc. 2002-67:

a)
A statement identifying the total capital loss reported on the taxpayer's income tax return(s) for the
sale(s) of any stock issued by the transferee corporation in the contingent liability transaction, in-
cluding the tax years affected and the amount of the capital loss used in each year (including any car-
ryback and carryforward periods);

b)
A description of each class of stock issued and outstanding by the transferee corporation at the comple-
tion of the purported section 351 exchanges, including the number of shares issued in each class in
the exchanges, to whom the stock was issued, the issuing prices of the stock, the par values and any
voting rights;

c)
A statement identifying any shares issued in the purported section 351 exchanges in connection with
the assumption of the contingent liability that have not been sold or otherwise disposed of by the tax-
payer;

d)
A statement indicating the average selling price per share of any stock issued by the transferee cor-
poration in the contingent liability transaction;

e)
A description of the type and bases of the assets transferred by the taxpayer in the contingent liabil-
ity transaction; and

f)
A description of the type and amount of the liability assumed by the transferee corporation in the con-
tingent liability transaction.

### 9) Statement of Agreement. By signing this Agreement to Participate and Selection of Settlement Option, the un- dersigned certifies that it has read and agrees to the terms of this document.

s/Taxpayer,

Date

s/Taxpayer Representative,

Date

### Exhibit 2

#### Arbitration Agreement

1\.
THE ARBITRATION PROCESS. Arbitration is mandatory as part of the procedures outlined in Rev. Proc. 2002-67
and will be used to assist
(hereinafter "Taxpayer") and the Commissioner of the In-
ternal Revenue Service (collectively the "Parties") in resolving certain issues relating to the Taxpayer's participa-
tion in a Contingent Liability Transaction, a transaction designated by the Commissioner and Treasury as a "listed
transaction" in Notice 2001-17, 2001-1 C.B. 730. The applicable provisions and requirements of Rev. Proc. 2002-67
are hereby incorporated in this Agreement by reference.

The Parties have agreed to use Final Offer Arbitration, also known as baseball arbitration. The Final Offers of both
Parties shall reflect the following:

a) The amount of capital loss permitted on the sale of stock received in the Contingent Liability Trans-
action, which amount will reflect a concession by the Taxpayer of between 50% and 90% of the capi-
tal loss reported by the Taxpayer on the sale of the stock received in the Contingent Liability Transaction.

b) The identity of the corporation that is entitled to the tax benefits associated with the deduction re-
sulting from the liability assumed in the Contingent Liability Transaction, including whether such cor-
poration is or has been a member of the Taxpayer's consolidated group (including any successor to
such group).

c) With respect to the Electing Taxpayer or an entity that was a member of the Electing Taxpayer's
consolidated group (including any successor to such group) at any time, the manner and timing of
the reduction in the tax benefits necessary to eliminate any duplication in the tax benefits associated
with the Contingent Liability Transaction in amounts that, in the aggregate, equal the capital loss per-
mitted under (a) above.

d) The amount of any penalty under section 6662.

The Arbitrator, after reviewing the Final Offers and the accompanying information, will choose one Final Offer.
Each Party's Final Offer shall state an amount that reflects the above, including the effect of any present value cal-
culation, as appropriate.

The Parties to this Agreement (see section 2 below) agree to be bound by the Arbitrator's determination. There can
be no ex parte communications between the Arbitrator and any Party, third party, witness, agent, or other person
regarding the issues for arbitration. All communications between the Arbitrator and either Party, unless otherwise
stated, including requesting and transferring documentation and information, will be made through an Administra-
tor. The Administrator for this Arbitration Session will be an Appeals employee to be assigned by Appeals. The Ad-
ministrator will inform and discuss with the Parties the rules and procedures pertaining to the Arbitration process.

2\.
PARTICIPANTS. The Parties to the arbitration will be the Taxpayer and the Commissioner. The Taxpayer may
elect to have the representation of counsel or an authorized representative to assist in preparing for and conduct-
ing the arbitration proceeding. The Office of Chief Counsel will represent the Commissioner in the arbitration pro-
ceeding. The specific participants on behalf of the Taxpayer in the Arbitration Session will be:

Taxpayer:

For Taxpayer:

No later than two weeks before commencement of the Arbitration Session, each Party will submit, to the Admin-
istrator and the other Party by facsimile, a complete and final list of participants who will attend the Arbitration
Session. The list must identify, for each participant, their position with the Party or other affiliation (e.g., a mem-
ber of the XYZ law firm, counsel to the Taxpayer), and their address, telephone and fax numbers.

3\.
SELECTION OF ARBITRATOR. The Parties have agreed to select an Arbitrator from a qualified list of eli-
gible persons prepared by the Service, as described in Section 7.05 of Rev. Proc. 2002-67. Within 15 days of the
date that the Service notifies the Electing Taxpayer that the Service has determined that the Fast Track Dispute Reso-
lution Procedure - Contingent Liability Cases was unsuccessful, the Taxpayer must select three names from the
qualified list and rank them in order of preference. If the first candidate is unavailable, the Administrator will con-
tact the other candidates in the order indicated by the Taxpayer. The fees and costs of the Arbitrator will be shared
equally by the Parties. The Administrator will arrange for the hiring of the Arbitrator, subject to applicable rules
and regulations for Government procurement.

A selected Arbitrator who has represented or currently represents a promoter or investor in a Contingent Liability
Transaction, or whose firm has done so, is not neutral and, therefore, will be ineligible to serve as an arbitrator in
a proceeding under this revenue procedure. The selected Arbitrator will be disqualified from representing the Tax-
payer in any pending or future action that involves the transactions or issues that are the particular subject matter
of the arbitration. This disqualification extends to representing any other parties involved in transactions or issues
that are the particular subject matter of the arbitration. Members or employees of the Arbitrator's firm will also be
disqualified from representing the Electing Taxpayer or any other parties involved in the transactions or issues that
are the particular subject matter of the arbitration in an action that involves the transactions or issues that are the
particular subject matter of the arbitration, unless: (i) the Arbitrator disclosed the potential of such representation
prior to the parties' acceptance of the Arbitrator; (ii) such action relates to a taxable year that is different from the
taxable year(s) under arbitration; (iii) the firm's internal controls preclude the Arbitrator from any form of partici-
pation in the matter; and (iv) the firm does not allocate to the Arbitrator any part of the fee therefrom.

The Arbitrator will not be prohibited from receiving a salary, partnership share, or corporate distribution estab-
lished by prior independent agreement. The Arbitrator and the firm are not disqualified from representing the Elect-
ing Taxpayer or any other parties involved in the arbitration in any matter unrelated to the transactions or issues
that are the particular subject matter of the arbitration.

The Arbitrator shall have no official, financial or personal conflict of interest with respect to the Parties, unless such
interest is fully disclosed in writing to the Parties and the Parties agree to the continued participation of the Arbi-
trator. See 5 U.S.C. § 573(a).

4\.
ISSUE TO BE ARBITRATED. The Parties agree that only the following issue will be submitted to the Arbitrator:

Which of the two Final Offers presented by the Parties best reflects the hazards of litigating the Tax-
payer's entitlement to a capital loss deduction from the sale of stock received as part of the Contin-
gent Liability Transaction?

In reaching a determination on the issue submitted, the Arbitrator may only consider the legal and factual argu-
ments made in the Fast Track Dispute Resolution Procedure - Contingent Liability Cases, including the facts de-
veloped under Section 7.02 of Rev. Proc. 2002-67.

5\.
BURDEN OF PROOF. In choosing between the Final Offers, the Arbitrator shall consider that the Taxpayer has
the burden of proving the facts by a preponderance of the evidence. To the extent the Taxpayer, in support of its
Final Offer, argues under section 357(b) that the liabilities assumed by the transferee in the Contingent Liability
Transaction should not be considered as money received by the Taxpayer on the exchange, the Arbitrator must take
into account the burden of proof standard as stated in section 357(b)(2).

6\.
GUIDANCE FOR ARBITRATOR. Legal guidance for the Arbitrator shall be provided by the parties for pur-
poses of establishing context, limited to guidance on the specific arguments presented in the Fast Track Dispute
Resolution Procedure - Contingent Liability Cases. The legal guidance will consist of a list of citations or cop-
ies of relevant cases and legal authority. With respect to factual information, the Taxpayer may only submit to the
Arbitrator for consideration material that was previously provided to LMSB and Appeals in the Fast Track Dis-
pute Resolution Procedure - Contingent Liability Cases. The Service is permitted to include additional factual in-
formation developed pursuant to Section 7.02 of Rev. Proc. 2002-67. All material for the Arbitrator will be provided
through the Administrator.

The Arbitrator is not permitted to make any conclusions of law or provide reasoning that represents an interpreta-
tion of the law; however, it is necessary for the Arbitrator to refer to the existing applicable law in considering the
submitted issue. The Arbitrator shall look solely to the legal guidance provided by the Parties in determining the
issue presented and conducting the Arbitration Session. The Arbitrator is not permitted to make any findings of fact,
except for resolving the issue stated in section 4 of this Agreement.

If any legal guidance for the Arbitrator was overlooked, at the sole request of the Arbitrator, made through the Ad-
ministrator, the Parties may agree upon further legal guidance and the manner in which it is to be communicated
to the Arbitrator.

7\.
SUBMISSION OF MATERIALS. Within 60 days of the date the proposed Arbitrator is selected, the Parties will
submit to the Administrator for submission to the Arbitrator, the administrative record developed prior to and dur-
ing the Fast Track Dispute Resolution Procedure - Contingent Liability Cases, any additional factual informa-
tion developed by the Service pursuant to Section 7.02 of Rev. Proc. 2002-67, a stipulation of facts based on the
record and the legal guidance set forth in Section 6 of this Agreement. In addition, each Party will submit a memo-
randum supporting its respective positions, not to exceed 30 pages. The memorandum shall be typed only on one
side of opaque unglazed paper, 8 1/2 inches wide by 11 inches long. All pages shall have margins on both sides
of each page that are no less than 1 inch wide, and margins on the top and bottom of each page that are no less
than 3/4 inch wide. Text and footnotes shall appear in consistent typeface no smaller than 12 characters per inch,
with double spacing between each line of text and single spacing between each line of indented quotations and foot-
notes. Quotations in excess of five lines shall be set off from the surrounding text and indented. Not more than 10
days after submission of its memorandum, each Party shall submit its Final Offer. No additional factual informa-
tion may be submitted by either Party after their Final Offer has been made.

Any and all information and materials that a Party provides throughout the Arbitration Session shall be submitted
to the Administrator. The Administrator will ensure that each Party receives the materials submitted by the oppos-
ing Party. Any objections to statements of fact, not previously presented, will be submitted to the Administrator within
10 days. If there are no objections, the Administrator will forward the submissions to the Arbitrator no earlier than
the date the employment contract with the Arbitrator has been approved.

a.
The Parties shall have no right to offer witnesses at the Arbitration Session. The Arbitrator has the
sole power to request the testimony of witnesses during the Arbitration Session and to direct the ques-
tioning of such witnesses.

b.
The Arbitrator may order a Party to produce other documents, exhibits or evidence deemed neces-
sary or appropriate.

c.
At the Arbitrator's sole discretion, oral arguments may be requested at the Arbitration Session. In the
absence of such a request, there will be no oral presentation by the Parties at the Arbitration Ses-
sion.

d.
The Parties agree to clarify issues that may arise in calculating any deficiency or overpayment re-
sulting from the Arbitrator's decision.

e.
The Arbitrator's decision will be used by the Parties to determine the Taxpayer's tax liability and pen-
alties, if applicable.

f.
The Parties agree that statutory interest will apply to any deficiency, including penalties, resulting from
the Arbitrator's decision.

8\.
CONTACT WITH ARBITRATOR. The Parties agree that there shall be no ex parte communications between the
Arbitrator and either Party or agent for a Party. In addition, the Arbitrator may not have contact with any other in-
dividuals, including witnesses outside the Arbitration Session, concerning the arbitration matter without the ex-
press approval of the Parties. Any contact with the Arbitrator by either Party must be in the presence of the other
Party and the Administrator. Should the Parties require additional information or clarification regarding the Arbi-
tration process, they shall contact the Administrator.

9\.
TIME OF ARBITRATION SESSION. Within 45 days of the date the Arbitrator receives the information to be
provided by the Parties under Section 7 of this Agreement, the Arbitrator will contact the parties and set the time
for the Arbitration Session, if the Arbitrator decides that a hearing is necessary. The Arbitrator will decide on the
necessity of oral arguments and presentation of witnesses during the Arbitration Session. If there are to be oral ar-
guments during the Arbitration Session, the Arbitrator will decide the time allotted for the arguments. The Arbi-
trator is free to allocate time necessary for presentation of witnesses without regard for equal time between the Parties;
however, any such hearing will not exceed 8 hours, including any oral arguments or the presentation of witnesses.
Alternatively, the Arbitrator may elect to render a decision based on the written record alone, without a hearing.

10\.
PLACE OF ARBITRATION. The Taxpayer has selected [City, State] as the site for the Arbitration Session, sub-
ject to change by agreement among the Parties and the Arbitrator. The Service will provide the space and facili-
ties for the Arbitration Session.

11\.
CONFIDENTIALITY. Service and Treasury employees who participate in any way in the arbitration process and
any person under contract to the Service pursuant to section 6103(n) of the Internal Revenue Code of 1986, as amended,
including the Arbitrator, that the Service invites to participate will be subject to the confidentiality and disclosure
provisions of the Internal Revenue Code, including sections 6103, 7213, and 7431. Any dispute resolution com-
munication related to the arbitration proceeding is confidential and may not be disclosed by any party, nonparty
participant, or arbitrator except as provided under 5 U.S.C. § 574. A dispute resolution communication includes all
oral or written communications prepared for purposes of a dispute resolution proceeding. See 5 U.S.C. § 571(5).

The Taxpayer consents to the disclosure by the Service of the Taxpayer's returns and return information incident
to the arbitration to any participant for the Taxpayer identified in the initial list of participants in section 2 of this
Agreement, to any participant for the Taxpayer identified in writing by the Taxpayer subsequent to execution of
this Agreement, and to any persons, including witnesses, who participate in this Arbitration Session on behalf of
either Party. If the Arbitration Agreement is executed by a person pursuant to a power of attorney executed by the
Taxpayer, that power of attorney must clearly express the grant of authority by the Taxpayer to consent to dis-
close the returns and return information of the Taxpayer by the Service to third parties, and a copy of that power
of attorney must be attached to this Agreement.

12\.
I.R.C. SECTION 7214(a)(8) DISCLOSURE. The Parties acknowledge that employees of the Service and all other
Treasury employees involved in this arbitration are bound by section 7214(a)(8) and must report information con-
cerning violations of any revenue law to the Secretary.

13\.
RECORD. Neither the Taxpayer nor the Service shall make a stenographic record of the Arbitration Session, ex-
cept that a transcript of the Arbitration Session may be provided to the Arbitrator, if requested. The Parties agree
that any stenographic record or other recording of the Arbitration Session shall remain confidential and will be de-
stroyed once the Arbitrator reaches a decision.

14\.
TERMINATIONS AND POSTPONEMENT. Due to the particular nature and scope of the Contingent Liability
Transactions and the procedures outlined in Rev. Proc. 2002-67, the Taxpayer agrees to full participation in this Ar-
bitration Process. Termination by the Service for any reason other than final settlement with the Service will sub-
ject the Taxpayer to the full range of Service audit and deficiency procedures. In addition, the Contingent Liability
Transaction issue will not be considered under the settlement, mediation or arbitration procedures under Notice 2001-67
(LMSB/Appeals Fast Track Dispute Resolution Program), 2001-2 C.B. 544; Announcement 2002-60 (Extension of
Test of Arbitration Procedure for Appeals), 2002-26 I.R.B. 28; and Rev. Proc. 2002-44 (Mediation Procedure for
Appeals), 2002-26 I.R.B. 10.

If the Parties reach a settlement by agreement at any time prior to the date set for the arbitration hearing, or if no
hearing is ordered, prior to the decision of the Arbitrator, the Parties may withdraw from the Arbitration Process.
Any such settlement negotiations will be conducted by Appeals subject to the concurrence of Counsel. If settle-
ment is reached, Appeals will effectuate the settlement of agreed issues using established issue or case closing pro-
cedures.

15\.
DECISION BY ARBITRATOR. Within 30 days after the hearing, the Arbitrator will select one of the Final Of-
fers proposed by the Parties. After the Arbitrator renders a decision and advises the Administrator and the Parties
of the decision, the case or issues will be closed using established procedures for case closing, including prepara-
tion of a Form 906, Specific Matters Closing Agreement. The closing agreement will include provisions reflecting
the requirements of Section 7 of Rev. Proc. 2002-67.

16\.
ARBITRATOR'S DECISION IS FINAL. The Parties agree to be bound by the Arbitrator's decision. Neither Party
may appeal the decision of the Arbitrator nor contest the decision in any judicial proceeding, including but not lim-
ited to the Tax Court, the Court of Federal Claims, or a federal district or federal appellate court. Each Party en-
ters into this agreement in reliance on the other Party's agreement to be bound by the decision of the Arbitrator.

17\.
PRECEDENTIAL USE. The decision by the Arbitrator will not be binding on, or otherwise control, the Parties
for Contingent Liability Transactions not covered by the Arbitration. Except as provided in this Agreement, the Ar-
bitrator's decision may not be used as precedent by any Party.

The Commissioner is not precluded or impeded under section 7605(b) or any administrative provisions adopted by
the Commissioner from conducting a later examination or inspection of records with respect to any taxable year
of a participating Taxpayer by inspecting information, documents and materials supplied in connection with the Ar-
bitration Session.

18\.
JOINT COMMITTEE ON TAXATION. If applicable, a settlement entered into as a result of this Arbitration Pro-
ceeding will be reported to the Joint Committee on Taxation in accordance with section 6405.

INTERNAL REVENUE SERVICE

By:

Date:

[Taxpayer]

By:

Date:

# Exhibit 3

## Information Request

### A. Fast Track Dispute Resolution Procedure - Contingent Liability Cases.

During the ninety (90) day period following its election to participate in the Fast Track Dispute Resolution Procedure - Con-
tingent Liability Cases, the taxpayer will submit to the LMSB examination team assigned to its case the following information
and documents related to the purported Section 351 exchange(s), the liability company ("LC"), persons involved in the transac-
tions, and the sale of the LC stock. The taxpayer may submit any additional information or documents it wishes the Internal Rev-
enue Service to consider.

### 1. Basic Transaction and Organizational Structure:

1.1.
Identify the transferor(s) and the transferee corporation(s) that participated in the purported Section 351 transac-
tion or transactions that resulted in the transfer of liabilities by the taxpayer to the LC ("LC transaction").

1.2.
Describe the stock that was issued to each transferor, including its class, characteristics, rights, preferences, re-
strictions, and obligations of its holders.

1.3. Describe each step of the LC transaction in detail in the order of occurrence providing flowcharts or structural
diagrams, if available (creation of such documents would facilitate an earlier understanding of the issue).

1.4.
Describe the organizational structure of the LC before and after the transaction, providing supporting documen-
tation including but not limited to:

1.4.1. Articles of Incorporation and Amended or Restated Articles.

1.4.2. Recapitalization documents.

1.4.3. All minutes or resolutions of the Board of Directors, Audit or Finance committees, or other approval com-
mittees pertaining to the planning, approval or implementation of the recapitalization and LC transac-
tion, including all documents presented to the Board or committees.

1.4.4. Shareholders or Buy-Sell agreements, including amendments.

1.5.
If the LC was in existence prior to the transaction, describe its business operations and identify its significant as-
sets and shareholders.

1.5.1. Was the LC a member of the taxpayer's consolidated group before the transaction?

1.5.2. Was the LC a member of the taxpayer's consolidated group after the transaction?

1.6.
State the purported business purpose of the LC transaction(s).

1.7.
Describe the transactions for which the taxpayer reported a capital loss for the sale of the LC stock.

1.7.1. Identify the purchaser(s) and seller(s) of the stock.

1.7.2. Describe any prior or subsequent relationships of the purchaser(s) and the seller(s) or the taxpayer.

1.7.3. Identify the LC stock that was sold to the purchaser(s).

1.7.4. Identify the capital loss reported on the sale of the LC stock and the taxable years in which the loss is
claimed, including amounts carried back and carried forward.

1.7.5. Describe how the taxpayer computed the basis of the LC stock sold.

1.8.
State the business purpose for the sale of the LC stock by the taxpayer.

1.9.
Copy of the General Ledger accounts of the taxpayer affected by any part of the contingent liability transaction.
1.9.1. Trace all identified items and amounts as line items on the taxpayer's tax returns.

1.10.
The names and job titles of officers and other employees of the taxpayer familiar with the LC transactions and
subsequent events.

1.10.1. Identify the officers and other employees listed above who are available to meet with the audit team dur-
ing the audit team's 120-day review period.

2\.
Planning and Source of the Transaction:

2.1.
Identify the source of the idea of an LC transaction and its structure.

2.1.1. Did the idea to engage in a LC transaction originate with an outside tax advisor to the taxpayer?

2.1.2. Did the idea to engage in a LC transaction originate with an outside business/non-tax advisor to the tax-
payer?

2.1.3. Did the idea to engage in a LC transaction originate with the tax department of the taxpayer?

2.1.4. Did the idea to engage in a LC transaction originate in a business unit of the taxpayer?

2.1.5. Identify the principal persons within the taxpayer's organization or outside the company who are the source
of the idea.

2.1.6. Identify the principal persons who participated in planning the LC transaction and its structure, including
their affiliation and role in the planning process.

2.2.
Copies of any communications, brochures, memoranda or other materials received from or sent to the sources (in-
ternal or external to the taxpayer's organization) of the idea of a LC transaction.

2.3.
Describe any studies, analyses, forecasts, projections or other due diligence performed or prepared in connection
with planning the LC transaction by any entity involved.

2.3.1. Copy of any reports or documents identified in 2.3.

2.4.
Did the taxpayer receive any tax opinion(s) regarding the transaction?

2.4.1. Identify the author(s) of tax opinion(s).

2.4.2. Identify the source of the tax opinion(s).

2.4.3. Identify when the tax opinion(s) were received.

2.4.4. Who paid the author(s) of the tax opinion(s).

2.4.5. Copy of any engagement letter(s) pertaining to tax opinion(s) received.

2.4.6. Copy of the tax opinion(s).

2.5.
Did the taxpayer receive outside legal, actuarial or other professional opinions or studies regarding non-tax as-
pects of the LC transaction?

2.5.1. Copies of such opinions or studies.

2.5.2. Copies of engagement agreements pertaining to the scope of the services performed and compensation ar-
rangements.

2.6.
Was the taxpayer subject to confidentiality agreement(s) with its outside tax advisor(s) within the meaning of sec-
tion 6111(d)?

2.6.1. Copies of such agreement(s).

2.7.
Identify the capital gains that were netted with the stock capital loss.

2.7.1. When were the capital gains transactions completed and gain amount known?

3\.
Third-Party Shareholders of the LC:

3.1.
How were the third-party shareholders identified or selected to participate in the LC transaction?

3.1.1. Copies of communications with the third party and other materials pertaining to the LC transaction pro-
vided to the third party.

3.1.2. Were any third-parties owned directly or indirectly by any person or entity involved in the source or plan-
ning of the LC transaction? Identify that ownership relationship.

3.2.
Was a third-party shareholder organized for the purpose of the LC transaction?

3.2.1. If so, identify the shareholder and who organized it?

3.3.
Describe the business activities of the third-party shareholders prior to becoming a shareholder of the LC.

3.4.
Did a third-party shareholder, or any affiliate of a third-party shareholder, have any prior relationship with the tax-
payer?

3.4.1. Describe the nature of that relationship?

3.4.2. Copy of any agreements pertaining to that relationship.

3.5.
Did the taxpayer solicit other persons or entities to be shareholders of the LC that did not become shareholders?

3.5.1. Identify the other persons or entities.

3.5.2. Provide a copy of any correspondence or other solicitation materials.

3.6.
Copy of agreements with a third-party shareholder, including but not limited to:

3.6.1. Subscription agreement or other purchase commitment.

3.6.2. Other documents evidencing the purchase of the LC shares, such as buy-sell, purchase or sale agree-
ments.

3.6.3. Other formal or informal arrangements between taxpayer or LC and third party that might offset, in whole
or in part, any risks or rights to profits that the third party had in the LC.

3.7.
Did the taxpayer and third-party shareholders negotiate over the terms of the stock or the purchase price of the
shares issued to them?

3.7.1. Identify the persons who engaged in such negotiations.

3.7.2. Did any third-party shareholder perform a due diligence study or investigation in connection with its pur-
chase? Identify any such shareholders and describe the due diligence performed.

3.7.3. Copies of documents provided to the third party in connection with its due diligence efforts.

3.8.
Why did the third party become a shareholder of the LC?

3.8.1. From the taxpayer's perspective, what value did the third-party shareholder add to the LC?

3.9.
Did any third-party shareholder have a nonshareholder relationship with the taxpayer or the LC after the trans-
action?

3.9.1. Describe the nature of that relationship.

3.9.2. Copy of agreements pertaining to that relationship.

3.10.
Provide the name, current position, address and telephone number of a primary contact person for each third-
party shareholder who has personal knowledge about the third party's participation in the LC transactions or stock
sale, and if such person is not currently an employee or representative of the third party, the name of a person
who has access to third-party records.

3.11.
Are there any restrictions on the ability of the third-party shareholder to sell the stock?

3.12.
Did any agreement provide the third-party shareholder with a means of disposing of its stock? If so, provide such
agreement or agreements.

3.13. If the price for resale of the stock was subject to some future contingency or valuation, provide any documents
showing expectations at, or in advance of, the time of the LC transaction showing the projected sales price.

3.14. Who currently owns the LC stock? If it has been sold or transferred, supply the details of such sale or transfer.

### 4. Assets Transferred:

4.1.
Identify all the assets transferred to the LC by the transferors in the purported Section 351 exchange, including
its basis in the hands of the transferor and its fair market value at the time of the transfer.

4.2.
If the assets transferred consisted of intercompany account or note receivables:

4.2.1. Did the receivable exist prior to planning the LC transaction? If so, describe when and how it originated.

4.2.2. If not, did the taxpayer have a business purpose for the creation of the intercompany receivable? De-
scribe the business purpose and provide documentation supporting that business purpose.

4.2.3. Were any payments made on the receivable to the LC after the LC transaction?

4.2.4. Identify the amounts paid, by whom and when.

4.2.5. Identify how the payments were made, e.g., cash or journal entries.

4.2.6. Supply documentation demonstrating that the obligor was financially capable of making the payments due
on any debt instrument contributed to the capital of the LC.

4.2.7. Were any assets transferred to the obligor on any debt instrument contributed to the capital of the LC within
60 days before or after the date on which the obligation was created?

4.3.
If the assets transferred consisted of cash, describe how the LC utilized the cash.

4.3.1. Were there any side agreements associated with the transfer of cash?

4.3.2. If so, provide copies of any lending agreements, loans, notes, letters of credit or other documents be-
tween the LC, taxpayer, or other members of the taxpayer's group.

4.4.
Copy of documents evidencing the asset, such as

4.4.1. Promissory notes for receivables.

4.4.2. Purchase agreements for other assets owned by a transferor.

4.5.
Copy of transfer documents, such as

4.5.1. Assignments.

4.5.2. Wire transfers for cash.

4.6.
Document the basis of all assets transferred that affect the basis of the stock sold.

### 5. Nature of Liabilities Transferred:

5.1.
Specifically identify the liabilities transferred.

5.2.
How were the liabilities identified?

5.2.1. Who identified the type of liabilities to be transferred?

5.2.2. Who identified the specific liabilities transferred?

5.2.3. What criteria was used to select the liabilities transferred?

5.2.4. Were all liabilities of the taxpayer of the same nature or type transferred to the LC (e.g., were all envi-
ronmental liability risks transferred or only selected ones)?

5.2.5. How was the amount of the liabilities to be transferred determined and computed?

5.3.
Did the taxpayer perform an in-house valuation of the liabilities?

5.3.1. Who performed the valuation?

5.3.2. Describe the person(s) qualifications to value the liabilities.

5.3.3. Copy of the valuation report, including assumptions, conclusions and worksheets or compilation of the re-
sults.

5.4.
Did the taxpayer receive third-party valuation(s) of the liabilities to be transferred?

5.4.1. Who performed the valuation?

5.4.2. Describe the person(s) qualifications to value the liabilities.

5.4.3. Copy of the valuation report, including assumptions, conclusions and worksheets or compilation of the re-
sults.

5.5.
Was the taxpayer studying ways to manage or reduce the liabilities transferred to the LC before considering whether
to engage in the LC transaction?

5.5.1. Who was conducting the study?

5.5.2. Documentary evidence that such study was being performed and when.

5.6.
Did the transferred liabilities relate directly to a core business activity of the taxpayer?

5.6.1. Identify the core business activity and the liabilities' relationship to it.

5.6.2. How were the liabilities reported by the transferor for financial reporting purposes prior to the LC trans-
action?

5.7.
Did the taxpayer make subsequent transfers of similar liabilities to the LC?
5.7.1. Describe the subsequent transfers.

5.8.
Was the taxpayer required to give notice to and/or obtain approval of a relevant Federal or State regulatory agency
with respect to the transfer of the liability?

5.8.1. If so, was such notice given/approval obtained?

5.8.2. Provide copies of the notice(s) and approval(s).

5.9.
Was the taxpayer required to give notice to and/or obtain approval of other third parties (e.g., employees, banks,
lenders or other creditors, particularly the creditors of the specific liability transferred) with respect to the trans-
fer of the liability?

5.9.1. If so, was such notice given/approval obtained?

5.9.2. Provide copies of the notice(s) and approval(s).

### 6. Management of Liabilities Transferred:

6.1.
Describe how the liabilities were managed or administered before the LC transaction, including the name and po-
sition of the person responsible for overseeing the daily management or administration activities.

6.2.
Describe how the management or administration of the liabilities changed after the LC transaction, including the
name and position of the person responsible for overseeing the daily management or administration activities.

6.3.
Did any of the third-party shareholders play an active and ongoing role in the management and/or administra-
tion of the liabilities before or after the LC transaction?

6.3.1. Describe the role played.

6.3.2. Copy of any agreements with third-party shareholders related to the management and/or administration of
the liabilities.

6.4.
Did the LC engage the services of outside consultants or other professionals in connection with the management
or administration of the liabilities?

6.4.1. Identify the consultants or professionals.

6.4.2. Describe the consultants' experience or other qualifications in managing or administering the types of li-
abilities transferred to the LC.

6.4.3. Describe the services performed.

6.4.4. Copy of any agreements with such consultants or professionals.

6.5.
If any liabilities have been paid since the LC transaction, identify the entity that made the actual payments to the
creditor?

6.5.1. If any liabilities were actually paid by someone other than the LC, how did the LC record the payments?

### 7. Liability Company

7.1.
Did the LC have any employees or officers?

7.1.1. How many and what services did they perform?

7.1.2. Who paid their compensation, including bonuses?

7.1.3. Were any of these individuals also employees or officers of the taxpayer's affiliated group?

7.1.4. Identify the CEOs or CFOs of the LC since the LC transaction to current.

7.2.
Did the LC have business operations that were separate from the management and/or administration of the li-
abilities transferred in the LC transaction?

7.2.1. Describe those operations.

7.3.
Did the LC manage or administer liabilities of parties unrelated to the taxpayer?

7.3.1. Describe.

7.4.
Describe any specific activities of the LC that were intended to reduce or improve management of the liabilities.

7.5.
Did the LC achieve cost savings with respect to the liabilities it assumed?

7.5.1. Identify those savings and provide a computation evidencing the savings.

7.6.
Did the LC transaction confer any non-tax economic, accounting or financial statement benefits for the tax-
payer? Describe.

7.7.
Have any of the liabilities been paid, satisfied, written-off or eliminated since transferred to the LC?

7.7.1. Identify the liabilities and amounts, including the taxable year.

7.7.2. Describe how the liability was paid or otherwise satisfied.

7.7.3. If the liability has been written-off by a creditor or eliminated by the taxpayer or LC, explain the circum-
stances.

7.8.
Did the LC claim deductions or capitalize the payment of any of the liabilities?

7.8.1. Identify the amounts claimed, including the taxable years reported and whether deducted or capitalized.

7.9.
Provide the following documents:

7.9.1. Separate financial statements of the LC since the LC transaction (if such statements are not available, year-
end trial balances of the LC).

7.9.2. If the LC was not a member of the taxpayer's consolidated group for federal income tax purposes at any
time since the LC transaction, a copy of the LC's separate Forms 1120 for that period.

7.9.3. Copies of minutes of meetings of shareholders and/or board of directors of the LC since the LC transac-
tion.

7.9.4. Copy of General Ledger accounts affected by the contingent liability transaction, payments of liabilities
and collections on receivables transferred.

B.
Disclaimer. In cases not governed by this settlement initiative, the IRS and the Department of Justice will not be lim-
ited to seeking the information set forth, described or requested in this Information Request.

26 CFR 601.105: Examination of returns and
claims for refund, credit, or abatement; determina-
tion of correct tax liability.
(Also Part I, §§ 103, 702, 704, 706, 707, 761,
1.441-2T, 1.706-1, 1.761-2, 301.7701-4.)

Rev. Proc. 2002-68

#### SECTION 1. PURPOSE

This revenue procedure modifies and su-
persedes Rev. Proc. 2002-16, 2002-9 I.R.B.
572.

#### SECTION 2. BACKGROUND

Rev. Proc. 2002-16 provides proce-
dures for certain partners to take into ac-
count on a monthly basis their distributive
shares of partnership items if the partner-
ship satisfies the definition of an eligible
partnership and makes an election under the
revenue procedure (Monthly Closing Elec-
tion).

A partnership is generally eligible to
make a Monthly Closing Election under
Rev. Proc. 2002-16 if 95 percent of the
partnership's income for the taxable year is
income that is exempt from tax under § 103
of the Internal Revenue Code and the part-
nership's allocations of income, gain, loss,
deduction, and credit are made in accor-
dance with § 704(b). Only money market
fund partners are eligible to consent to the
Monthly Closing Election provided by Rev.
Proc. 2002-16.

Since the issuance of Rev. Proc. 2002-
16, the Department of the Treasury and the
Internal Revenue Service have received a
number of comments. Commentators noted
that medium- and long-term bond funds of-
ten own interests in eligible partnerships,
that these funds are subject to the same part-
nership timing difficulties as money mar-
ket fund partners, and that it is costly and
unnecessary to require separate reporting for
non-fund partners in situations where sub-
stantially all of the partnership's income is
exempt from taxation. Treasury and the Ser-
vice agree that, in the interest of sound and
efficient administration of the tax laws, all
partners in eligible partnerships should be
able to consent to the Monthly Closing
Election.

Certain commentators noted that, to the
extent that many otherwise eligible part-
nerships elected under § 761 to be excluded
from subchapter K, these partnerships might
not be able to elect into the procedures pro-

vided in Rev. Proc. 2002-16 without first
seeking and receiving permission from the
Service to revoke their § 761 elections.

Two of the requirements for eligibility
to elect to be excluded from all or a por-
tion of subchapter K are that the partners
must own the partnership property as co-
owners and the partners must be able to
compute their income without the neces-
sity of computing partnership taxable in-
come. See § 1.761-2(a)(1) and (2) of the
Income Tax Regulations. If a business en-
tity (classified as a partnership) owns a tax-
exempt bond and issues membership
interests that apportion the benefits and bur-
dens of that property to its members in a
manner that differs significantly from di-
rect investment in the bond (such as the pre-
ferred and residual interests in eligible
partnerships that are described in Rev. Proc.
2002-16), the holders of those interests do
not satisfy the requirement that they own
the partnership property as co-owners. Cf.
§ 301.7701-4(c) of the Procedure and Ad-
ministration Regulations. Moreover, if (as
in the case of partnerships described in Rev.
Proc. 2002-16) one class of partners has a
right to partnership income that is supe-
rior to the right of another class of part-
ners, then the net partnership income or loss
allocated to the partners with inferior rights
to partnership income can be determined
only by computing the net income or loss
of the partnership and then by reducing that
net income by income allocable to part-
ners with superior rights to partnership in-
come. These partnerships do not meet the
requirement of § 1.761-2(a)(1) that the
members of the organization be able to
compute their incomes without the neces-
sity of computing partnership income.

If a partnership does not satisfy the re-
quirements for making a § 761(a) elec-
tion, any purported election under § 761(a)
by that partnership is not effective and,
therefore, need not be revoked. However,
because there was some confusion as to
whether the partnerships described in Rev.
Proc. 2002-16 qualified to make an elec-
tion under § 761(a) to be excluded from
subchapter K, section 9 of this revenue pro-
cedure provides transition relief for many
of these taxpayers.

Commentators have requested that con-
sideration be given to simplified report-
ing procedures for some or all of the
partnerships described in Rev. Proc. 2002-
16. This revenue procedure eliminates the

monthly statements that were required un-
der Rev. Proc. 2002-16 but does not elimi-
nate the requirements that a partnership file
Form 1065, U.S. Return of Partnership In-
come, and provide a Schedule K-1 (Form
1065) to each partner. Electing partner-
ships and consenting partners must keep ad-
equate books and records of income, gain,
loss, deduction, and credit relating to part-
nership items to enable the Service to de-
termine each partner's share of the
partnership's monthly income and expenses.
Treasury and the Service request com-
ments on additional simplified reporting
procedures that may be appropriate. Fi-
nally, section 9 of this revenue procedure
extends the transition period provided in
Rev. Proc. 2002-16.

#### SECTION 3. SCOPE

This revenue procedure applies to eli-
gible partnerships (described in section 3.01
of this revenue procedure) that elect the
Monthly Closing Election and to partners
that consent (described in section 6 of this
revenue procedure) to take into account their
distributive shares of partnership income on
a monthly basis. In addition, section 9 of
this revenue procedure applies to all eli-
gible partnerships, whether or not they make
the monthly closing election.

.01 Eligible Partnership.

(1) Generally. An entity is an eli-
gible partnership if all of the following con-
ditions are met as of the test date:

(a) The entity is a partnership for
federal tax purposes;

(b) All allocations of income,
gain, loss, deduction, and credit of the part-
nership are made in accordance with
§ 704(b); and

(c) At least 95 percent of the part-
nership's income for the test period was (or
is reasonably expected to be) interest on tax-
exempt obligations within the meaning of
§ 103 and substantially all of the partner-
ship's expenses and deductions are prop-
erly allocable to producing or collecting that
income or to managing, conserving, or
maintaining property held for the produc-
tion of that income.

(i) If, on the test date, the part-
nership has been in existence for at least 6
full calendar months, then the test period
is the 6 full calendar months preceding the
test date; and

(ii) If, on the test date, the part-
nership has not been in existence for at least

6 full calendar months, then the test pe-
riod is the first 6 full calendar months of
the partnership's existence.

(2) Test Date. The test date is the first
day of the first month for which the
Monthly Closing Election is effective.

# SECTION 4. EFFECT OF MONTHLY CLOSING ELECTION AND CONSENT

If, at the end of any calendar month, an
eligible partnership has a Monthly Clos-
ing Election in effect and one or more part-
ners of the partnership has a Monthly
Closing Consent in effect, then, with re-
spect to each consenting partner, the part-
nership must close its books as described
in § 1.706-1(c)(2) as if the partner had sold
its entire interest in the partnership on the
last day of that month. The consenting part-
ner must include in its taxable income for
that month the partner's distributive share
of items described in § 702(a) earned by the
partnership since the last closing of the
books with respect to the partner and any
guaranteed payments under § 707(c) to the
partner that are deductible by the partner-
ship since the last closing of the books with
respect to the partner. If the partner is on
a 52-53 week taxable year, then the pro-
visions of § 1.441-2T(e) of the tempo-
rary Income Tax Regulations apply as if the
last day of the month were the last day of
the partnership's taxable year.

## SECTION 5. MONTHLY CLOSING ELECTION

.01 Manner of Partnership Making the
Election. An eligible partnership may make
a Monthly Closing Election by filing a
statement with the appropriate service cen-
ter. The statement must be titled "ELEC-
TION UNDER REVENUE PROCEDURE
2002-68," and must include:

(1) Identification of the partner-
ship by name, address, and EIN, and the
name and phone number of a contact per-
son for the partnership;

(2) A statement that the partner-
ship elects a monthly closing of the books
for all present and future consenting part-
ners;

(3) The signature of a person with
authority to sign the partnership's Form
1065, U.S. Return of Partnership Income;
and

(4) The effective month of the elec-
tion. The election is effective for the cal-
endar month in which the election is filed,

unless the partnership requests the elec-
tion to be effective for either of the two im-
mediately preceding calendar months. For
example, if a calendar year partnership
states that the monthly closing election is
to begin for June, the partnership will close
its books June 30. In computing taxable in-
come for any year ending on or after June
30, a consenting partner must include the
partner's share of partnership items and
guaranteed payments for the period from the
partnership's last closing of the books (gen-
erally December 31 of the prior year)
through June 30. There will be a closing of
the books and a monthly inclusion of the
partner's share of these items and guaran-
teed payments at the end of each future
month.

.02 Time for Making the Election. The
partnership's Monthly Closing Election may
be made at any time. See, however, sec-
tion 6.02 of this revenue procedure for limi-
tations on the time for a partner to effect
a Monthly Closing Consent.

# SECTION 6. MONTHLY CLOSING CONSENT

.01 Manner of Partner Effecting the
Consent.

(1) A partner effects a Monthly Clos-
ing Consent by providing a statement of
consent to the custodian or manager of the
partnership. A copy of the statement of con-
sent should also be attached to the part-
ner's income tax return for the first taxable
year in which the consent is effective (for
example, if the partner is a Regulated In-
vestment Company, the statement must be
attached to its Form 1120 RIC, U.S. In-
come Tax Return for Regulated Invest-
ment Companies). Failure to attach a copy
of the partner's statement of consent to the
partner's income tax return does not in-
validate the partner's consent.

(2) The statement of consent must be
titled "STATEMENT OF CONSENT TO
ELECTION UNDER REVENUE PROCE-
DURE 2002-68" and must include:

(a) Identification of both the con-
senting partner and the partnership by name,
address, and TIN, and the name and phone
number of a contact person for each;

(b) A statement that the partner
consents to the partnership's election to a
monthly closing of the books and that the
partner will include in its taxable income
its distributive share of partnership items de-
scribed in § 702(a) and any guaranteed pay-

ments under § 707(c) in a manner that is
consistent with the election;

(d) The effective month of the
consent. The consent is effective for the cal-
endar month in which the partner acquires
the partnership interest, unless the partner
requests that the consent be effective for ei-
ther of the two immediately following cal-
endar months.

.02 Additional Requirements for Mak-
ing a Valid Monthly Closing Consent. A
partner does not qualify for the treatment
described in section 4 of this revenue pro-
cedure unless:

(1) The partner provides the state-
ment of consent described in section 6.01
of this revenue procedure to the custo-
dian or manager of the partnership no later
than the last day of the second calendar
month after the calendar month in which
the partner acquires the partnership inter-
est; and

(2) The partnership's Monthly Clos-
ing Election is effective no later than the
second calendar month after the calendar
month in which the partner acquires the
partnership interest.

.03 Special Transitional Rule. For pur-
poses of satisfying the requirements of sec-
tion 6.02, if an eligible partnership makes
an election under this revenue procedure ef-
fective on or before December 31, 2003,
partners with an interest in the partner-
ship as of the first day of the month the
partnership's election becomes effective will
be treated as having acquired the interest
in the partnership on the first day of that
month.

# SECTION 7. TERMINATION OF MONTHLY CLOSING ELECTION OR MONTHLY CLOSING CONSENT

.01 A Monthly Closing Election or a
Monthly Closing Consent may be revoked
only with the consent of the Commissioner.

.02 Each month after the third month af-
ter a partnership's Monthly Closing Elec-
tion becomes effective, the definition of
eligible partnership in section 3.01 of this
revenue procedure is reapplied to the part-
nership, using the last day of the month as
the test date and that month and the pre-
ceding 2 months as the test period. If for
any month the partnership fails to satisfy
the test mandated by the preceding sen-
tence, then the partnership's Monthly Clos-

ing Election is terminated as of first day of
the month. If the partnership subsequently
qualifies as an eligible partnership, it may
make another Monthly Closing Election
only after obtaining the Commissioner's
consent.

.03 If a consenting partner transfers its
entire interest in a partnership with a
Monthly Closing Election in effect and the
consenting partner later acquires another in-
terest in that partnership, then the part-
ner's Monthly Closing Consent continues
to be effective if the partnership contin-
ues to have its Monthly Closing Election
in effect.

# SECTION 8. EFFECTIVE DATE

This revenue procedure is effective on
October 7, 2002. Partners and partner-
ships that consented and made elections un-
der Rev. Proc. 2002-16 may continue
reporting as authorized in that revenue pro-
cedure; however, the partnerships are no
longer required to provide monthly state-
ments.

# SECTION 9. TRANSITION RULE

For any taxable year beginning before
January 1, 2004, the Service will not chal-
lenge a partnership's or a partner's tax treat-
ment that is consistent with an election to
be excluded from the provisions of sub-
chapter K under § 761(a), provided the part-
nership would be an eligible partnership as
defined in this revenue procedure and the
partners' inclusion of income, gain, loss, de-

duction, and credits is consistent with that
permitted under this revenue procedure.

SECTION 10. EFFECT ON OTHER
DOCUMENTS

Rev. Proc. 2002-16, 2002-9 I.R.B. 572,
is modified and superseded.

## SECTION 11. REQUEST FOR COMMENTS

Comments are requested regarding this
revenue procedure. In particular, comments
are requested concerning the establish-
ment of modified income tax reporting pro-
cedures for eligible partnerships and
consenting partners. All comments will be
available for public inspection and copy-
ing. Comments should be sent to
CC:ITA:RU (Rev. Proc. 2002-68), Room
5226, Internal Revenue Service, POB 7604,
Ben Franklin Station, Washington, DC
20044. Comments may also be hand de-
livered between the hours of 8 a.m. and 5
p.m. to CC:ITA:RU (Rev. Proc. 2002-68),
Courier's Desk, Internal Revenue Service,
1111 Constitution Avenue, NW, Washing-
ton, DC. In the alternative, e-mail your
comments to Notice.Comments@irscounsel.
treas.gov. Please submit comments by De-
cember 6, 2002.

## SECTION 12. PAPERWORK REDUCTION ACT

agency may not conduct or sponsor, and a
person is not required to respond to, a col-
lection of information unless the collec-
tion of information displays a valid OMB
control number.

The collection of information is in sec-
tions 5 and 6 of this revenue procedure.
This information is required to inform the
Service which partners and partnerships are
making the designated election and to re-
port income appropriately. The collection
of information is required to obtain a ben-
efit. The likely respondents are businesses.

The estimated total annual reporting and
recordkeeping burden is 1,000 hours.

The estimated annual burden per
respondent/recordkeeper is 1 hour. The es-
timated number of respondents and record-
keepers is 1000.

The estimated annual frequency of re-
sponses (used for reporting requirements
only) is once.

Books or records relating to a collec-
tion of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally tax returns and tax return in-
formation are confidential, as required by
26 U.S.C. 6103.

# SECTION 13. DRAFTING INFORMATION

The principal author of this revenue pro-
cedure is David A. Shulman of the Office
of the Associate Chief Counsel
(Passthroughs and Special Industries). For
further information regarding this revenue
procedure, contact David A. Shulman at
202-622-3080 (not a toll-free call).

# Part IV. Items of General Interest

## Termination of Appeals Settlement Initiative for Corporate Owned Life Insurance (COLI) Cases

### Announcement 2002-96

The Internal Revenue Service announces
that the Appeals settlement initiative with
respect to broad-based leveraged COLI
plans purchased after June 20, 1986, will
be terminated, and that the Internal Rev-
enue Service and the Department of Jus-
tice will vigorously defend or prosecute all
future COLI litigation.

### APPEALS SETTLEMENT INITIATIVE FOR COLI CASES

In August 2001, Appeals implemented
a coordinated settlement initiative for broad-
based COLI cases that generally permit-
ted taxpayers to settle if they agreed to
concede 80% of the interest deductions
claimed with respect to their COLI plans.

To date, the Service has successfully liti-
gated three cases involving broad-based
COLI transactions. See Winn-Dixie Stores,
Inc. v. Commissioner, 113 T.C. 254 (1999),
aff'd, 254 F.3d 1313 (11th Cir. 2001), cert.
denied, _U.S. _ , 122 S.Ct. 1537 (2002);
IRS v. CM Holdings, Inc., 254 B.R. 578 (D.
Del. 2000), aff'd, 301 F.3d 96 (3d Cir.
2002), petition for reh'g en banc filed, Sept.
27, 2002; and American Electric Power v.
United States, 136 F. Supp. 2d 762 (S.D.
Ohio 2001), appeal filed, No. 01-3495 (6th
Cir. Apr. 20, 2001). In all three cases, the
courts denied the claimed interest deduc-
tions on the ground that the COLI plans
lacked economic substance. In CM Hold-
ings, the appellate court also sustained the
application of accuracy-related penalties for
the understatement of income resulting from
the claimed interest deductions.

As a consequence, the Service has de-
termined that the Appeals COLI settle-
ment initiative will be terminated, subject
to a 45-day window within which taxpay-
ers will be permitted to enter into the cur-
rent settlement arrangement.

## PROCEDURES FOR TERMINATION OF APPEALS SETTLEMENT INITIATIVE

Formal notification of the Service's ter-
mination of the settlement initiative has been
made by letter to taxpayers identified with
COLI Plans by the Large and Mid-Size
Business (LMSB) Operating Division or by
the Appeals Office having jurisdiction over
the taxpayer's case. In order for taxpay-
ers to qualify for the settlement initiative,
a written offer to settle must be mailed or
delivered to the Service within 45 days af-
ter the date of the letter. The written offer
to settle must include the following:

1\. Taxpayer's offer to concede 80% of
the claimed COLI interest deductions; and

2\. Taxpayer's offer to sign a closing
agreement providing that no amount dis-
allowed as an interest deduction shall be al-
lowable as a deduction under any other
provision of the Internal Revenue Code, nor
allowed as an adjustment to the taxpay-
er's investment in the contract (basis) un-
der section 72, nor allowed as an adjustment
to the taxpayer's basis in any other asset,
in any year.

Detailed instructions for opting into the
settlement initiative are set forth in the Ser-
vice's letter to each affected taxpayer.

Qualifying taxpayers who do not re-
ceive such a letter by October 18, 2002, and
who want to make an offer to settle un-
der this announcement should notify the Ap-
peals ACI Coordinator for COLI in writing
at the address listed below on or before No-
vember 18, 2002.

Under the procedures outlined above,
Appeals will continue to accommodate tax-
payers who wish to surrender their COLI
policies by entering into closing agree-
ments that finalize the tax consequences of
such surrender transactions.

## PAPERWORK REDUCTION ACT

under control number 1545-1802. An
agency may not conduct or sponsor, and a
person is not required to respond to, a col-
lection of information unless the collec-
tion of information displays a valid OMB
number.

The collection of information in this an-
nouncement is in the section titled PRO-
CEDURES FOR TERMINATION OF
APPEALS SETTLEMENT INITIATIVE.
This information is required to inform the
Internal Revenue Service of a respondent's
desire to participate in the settlement ini-
tiative. The likely respondents are busi-
nesses or other for-profit institutions, small
businesses or organizations, and individu-
als.

The estimated total annual reporting bur-
den is 200 hours.

The estimated annual burden per re-
spondent varies from 3 hours to 7 hours,
depending on individual circumstances, with
an estimated average of 5 hours. The es-
timated number of respondents is 40.

The estimated frequency of responses is
one time per respondent.

Books or records relating to a collec-
tion of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally tax returns and tax return in-
formation are confidential, as required by
26 U.S.C. § 6103.

## MISCELLANEOUS

In the event that a taxpayer fails to com-
ply with the offer procedures set forth above
or the detailed instructions contained in the
Service's notification letter, Appeals will not
entertain further settlement discussions with
that taxpayer relative to its COLI interest
deductions. Furthermore, the Service and the
Department of Justice will vigorously de-
fend or prosecute all future COLI litiga-
tion that may be initiated.

For further information regarding this no-
tice, you may contact Neil Regberg,
Appeals ACI Coordinator for COLI at (513)
263-4823 (not a toll-free call).
Mr. Regberg may also be reached by fax
at (513) 263-4800 and by mail at the fol-
lowing address: 312 Elm Street, Suite 2330,
P.O. Box 2026, Cincinnati, OH
45202-2763.

# Settlement Initiative for Section 302/318 Basis-Shifting Transactions

## Announcement 2002-97

The Internal Revenue Service announces
an initiative to resolve cases involving basis-
shifting transactions that are the same as or
substantially similar to those described in
Notice 2001-45, 2001-2 C.B. 129. Un-
der the terms of this announcement, tax-
payers who have engaged in basis-shifting
transactions will be given the opportunity
to resolve this issue on the terms set forth
below with minimal further examination or
other administrative proceedings. If tax-
payers elect to resolve their cases in ac-
cordance with this announcement, they must
notify the Service on or before December
3, 2002, as set forth below. Appeals is ex-
pected to issue settlement guidelines on the
tax effect of basis-shifting transactions soon
that will be the same as, or less favorable
than, the terms set forth below.

## ELIGIBILITY REQUIREMENTS

Taxpayers are eligible to participate in
this settlement initiative if:

1\) The underpayment of tax attribut-
able to the basis-shifting transaction is not
due to fraud;

2\) The basis-shifting transaction is not
in litigation, i.e., the issue is not dock-
eted in and under the jurisdiction of any
court, for any year, on the date the tax-
payer elects to participate;

3\) The basis-shifting transaction has not
been designated for litigation, and, if not
designated for litigation, the taxpayer has
not been notified that the basis-shifting
transaction issue is under consideration for
designation for litigation;

4\) Within 60 days from the mailing date
of written notification from the Service of
the decision not to designate, or to re-
move the designation of, the basis-shifting
transaction issue, the taxpayer notifies the
Service that it wishes to participate in this
settlement initiative;

5\) Upon request, the taxpayer provides
to the Service the transactional documents
to support the basis-shifting transaction, and
the transaction conforms to the taxpay-
er's documents; and

6\) The statute of limitations has not ex-
pired for any year in which the taxpayer
claimed tax benefits relating to the basis-
shifting transaction.

## TERMS OF THE RESOLUTION

This settlement initiative focuses on three
aspects of a basis-shifting transaction: (i)
the purchase and sale of shares in a cor-
poration and options on shares in that cor-
poration (hereinafter the "foreign bank");
(ii) the loss attributable to the amount of the
claimed basis shift; and (iii) associated
transaction costs. For purposes of this settle-
ment initiative, the transaction costs will be
deemed to be 8% of the sum of the amount
of the basis shift and the cost of an op-
tion or warrant in a tax indifferent entity
(hereinafter the "foreign corporation"), that
was a party to the basis-shifting transac-
tion.

1\. The gain or loss on the taxpayer's
purchase and sale of shares in a foreign
bank and options on shares in the foreign
bank will be reported in accordance with
the terms of the purchase and sale trans-
actions, but without regard to the claimed
basis shift and excluding all transaction
costs. Thus, if the taxpayer paid 100x dol-
lars for 100x shares of the foreign bank on
day one of the transaction, and sold 95x
shares on day 100 of the transaction for 97x
dollars, the taxpayer would report a gain of
2x dollars as either long or short term gain,
either ordinary or capital, as would be oth-
erwise appropriate.

2\. The taxpayer will concede 80% of the
claimed basis shift.

3\. The taxpayer will concede the de-
duction of all transaction costs (other than
deemed transaction costs, as described
above) relating to the basis-shifting trans-
action. The taxpayer will concede 80% of
the deemed transaction costs and treat 20%
of the deemed transaction costs as a capi-
tal loss. The cost of the option or the war-
rant in the foreign corporation shall not be
given any other effect.

## APPLICATION OF PENALTIES

The application of accuracy-related pen-
alties to this transaction will be consid-
ered in each case. The following terms will
be applied under this settlement initiative:

1\. Transactions that were disclosed pur-
suant to the Disclosure Initiative, set forth

in Announcement 2002-2, 2002-2 I.R.B.
304, will not be subject to accuracy-related
penalties.

2\. Transactions that were not disclosed
pursuant to the Disclosure Initiative may be
subject to penalties based on the merits of
the case, including whether the transac-
tion was otherwise voluntarily disclosed.

3\. Participation in this settlement ini-
tiative does not preclude taxpayers from
contesting the application of penalties
through normal audit and deficiency pro-
cedures.

## PROCEDURE FOR RESOLVING CASES

A decision by a taxpayer to resolve a
case under the terms of this announce-
ment must be mailed or delivered to the ap-
propriate Service function, as set out below,
on or before December 3, 2002.

If a taxpayer is under examination for
the year(s) in which benefits from the basis-
shifting transaction were claimed, the tax-
payer must notify the examining agent in
writing that the taxpayer wishes to partici-
pate in the settlement initiative. The ex-
amining agent will make the appropriate
adjustments and prepare any necessary clos-
ing documents.

If a taxpayer is not under examination
for any year in which benefits from the
basis-shifting transaction were claimed, the
taxpayer must notify the Office of Tax Shel-
ter Analysis that it wishes to participate in
the settlement initiative by sending a let-
ter to the Office of Tax Shelter Analysis
with the following information:

1\. The taxpayer's name and address;

2\. The taxpayer's Taxpayer Identifica-
tion Number (either Social Security Num-
ber or Employer Identification Number);

3\. The type of return filed;

4\. The taxable periods for which the
benefits of the basis-shifting transaction
were claimed;

5\. The amount attributable to the
claimed basis-shifting transaction;

6\. The cost of the option or warrant in
the foreign corporation; and

7\. A statement that the taxpayer is elect-
ing to resolve the case under the terms of
this announcement.

The address of the Office of Tax Shel-
ter Analysis is LM:PFTG:OTSA, 1111 Con-
stitution Ave., N.W., Washington, D.C.
20224 and the fax number is (202) 283-
8406.

Taxpayers must provide to the Service
within ten (10) days of their request the in-
formation required by Announcement
2002-2 and certify under penalties of per-
jury that the person signing the disclo-
sure has examined the disclosure and that
to the best of that person's knowledge and
belief, the information provided contains all
relevant facts and is true, correct and com-
plete.

If applicable, a settlement entered into
as a result of this settlement initiative will
be reported to the Joint Committee on Taxa-
tion in accordance with section 6405.

Denial of a taxpayer's request to par-
ticipate in this shelter initiative is not sub-
ject to judicial review.

## PAPERWORK REDUCTION ACT

The collection of information contained
in this announcement has been reviewed
and approved by the Office of Manage-
ment and Budget in accordance with the Pa-
perwork Reduction Act (44 U.S.C. § 3507)
under control number 1545-1803. An
agency may not conduct or sponsor, and a
person is not required to respond to, a col-
lection of information unless the collec-
tion of information displays a valid OMB
number.

The collection of information in this an-
nouncement is in the sections titled AP-
PLICATION OF PENALTIES and
PROCEDURE FOR RESOLVING CASES.
This information is required to apply the
terms of the settlement set forth in this an-
nouncement and determine the appropri-
ate amount of penalties due, if any. The
information will be used to determine
whether the taxpayer has reported the dis-
closed item properly for income tax pur-
poses. The collection of information is
required to obtain the benefit described in
this announcement. The likely respondents
are businesses or other for-profit institu-
tions, small businesses or organizations, and
individuals.

The estimated total annual reporting bur-
den is 2000 hours.

The estimated annual burden per re-
spondent varies from 3 hours to 7 hours,
depending on individual circumstances, with

an estimated average of 5 hours. The es-
timated number of respondents is 400.

The estimated frequency of responses is
one time per respondent.

Books or records relating to a collec-
tion of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally tax returns and tax return in-
formation are confidential, as required by
26 U.S.C. § 6103.

## CONTACT INFORMATION

For information regarding this announce-
ment, call Carol Poindexter, Senior Pro-
gram Analyst at (630) 493-5937 (not a toll-
free call). Ms. Poindexter may also be
reached by fax at (630) 493-5910. Alter-
natively, taxpayers may transmit comments
electronically via the following e-mail
address: Carol.Poindexter@IRS.gov. Please
include "Announcement 2002-97" in the
subject line of any electronic
communication.

## Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding

## Announcement 2002-98

Publication 1187, Specifications for Fil-
ing Form 1042-S, Foreign Person's U.S.
Source Income Subject to Withholding,
Magnetically or Electronically, will not be
revised and reprinted for Tax Year 2002. Fil-
er's should review the following list of mi-
nor changes and incorporate them into their
filing for Tax Year 2002.

· The Tax Year for current year filing
should be updated to 2002.

. The filing due date for Tax Year 2002
is March 17, 2003.

. The testing period for Tax Year 2002
is January 1, 2003, through Febru-
ary 15, 2003

For all other electronic/magnetic filing
requirements, refer to Publication 1187 re-
vised August 2001.

Deletions From Cumulative
List of Organizations
Contributions to Which are
Deductible Under Section 170
of the Code

## Announcement 2002-99

The name of an organization that no
longer qualifies as an organization described
in section 170(c)(2) of the Internal Rev-
enue Code of 1986 is listed below.

Generally, the Service will not disal-
low deductions for contributions made to
a listed organization on or before the date
of announcement in the Internal Revenue
Bulletin that an organization no longer
qualifies. However, the Service is not pre-
cluded from disallowing a deduction for any
contributions made after an organization
ceases to qualify under section 170(c)(2) if
the organization has not timely filed a suit
for declaratory judgment under section 7428
and if the contributor (1) had knowledge of
the revocation of the ruling or determina-
tion letter, (2) was aware that such revo-
cation was imminent, or (3) was in part
responsible for or was aware of the activi-
ties or omissions of the organization that
brought about this revocation.

If on the other hand a suit for declara-
tory judgment has been timely filed, con-
tributions from individuals and organizations
described in section 170(c)(2) that are oth-
erwise allowable will continue to be de-
ductible. Protection under section 7428(c)
would begin on October 28, 2002, and
would end on the date the court first de-
termines that the organization is not de-
scribed in section 170(c)(2) as more
particularly set forth in section 7428(c)(1).
For individual contributors, the maximum
deduction protected is $1,000, with a hus-
band and wife treated as one contributor.
This benefit is not extended to any indi-
vidual, in whole or in part, for the acts or
omissions of the organization that were the
basis for revocation.

Cedar Rapids Boxing Club, Inc.
Marion, IA

# Definition of Terms

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

Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus, if
an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with modified, below).

Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.

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

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

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

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

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

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

new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case,
the previously published ruling is first
modified and then, as modified, is super-
seded.

Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.

Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.

# Abbreviations

The following abbreviations in current
use and formerly used will appear in
material published in the Bulletin.

A-Individual.

Acq .- Acquiescence.

B-Individual.

BE-Beneficiary.

FPH Foreign Personal Holding Company.

F.R .- Federal Register.

FUTA-Federal Unemployment Tax Act.

FX-Foreign Corporation.

G.C.M .- Chief Counsel's Memorandum.

GE-Grantee.

GP-General Partner.

COOP-Cooperative.

GR-Grantor.

Ct.D .- Court Decision.

IC-Insurance Company.

I.R.B .- Internal Revenue Bulletin.

D-Decedent.

LE-Lessee.

DC-Dummy Corporation.

LP-Limited Partner.

LR-Lessor.

TT-Trustee.

U.S.C .- United States Code.

DISC-Domestic International Sales Corporation.

DR-Donor.

E-Estate.

P-Parent Corporation.

PHC-Personal Holding Company.

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

PRS Partnership.

PTE-Prohibited Transaction Exemption.

Pub. L .- Public Law.

REIT-Real Estate Investment Trust.

Rev. Proc .- Revenue Procedure.

Rev. Rul .- Revenue Ruling.

S Subsidiary.

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

T-Target Corporation.

T.C .- Tax Court.

T.D .- Treasury Decision.

TFE-Transferee.

TFR-Transferor.

T.I.R .- Technical Information Release.

TP-Taxpayer.

TR-Trust.

DE-Donee.

Del. Order-Delegation Order.

M-Minor.

Nonacq .- Nonacquiescence.

X-Corporation.

O- Organization.

Y-Corporation.

Z-Corporation.

EE-Employee.

E.O .- Executive Order.

ER-Employer.

ERISA-Employee Retirement Income Security Act.

EX-Executor.

F-Fiduciary.

FC-Foreign Country.

FICA-Federal Insurance Contributions Act.

FISC- Foreign International Sales Company.

BK-Bank.

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

C-Individual.

C.B .- Cumulative Bulletin.

CFR-Code of Federal Regulations.

CI-City.

CY-County.

Numerical Finding List1

Notices-Continued:

Revenue Rulings:

Bulletin 2002-26 through 2002-42

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

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

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

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

Announcements:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Proposed Regulations:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2002-59, 2002-38 I.R.B. 557 641

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

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

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

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

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

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

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

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

2002-62, 2002-42 I.R.B. 710 2002-41 I.R.B. 688

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

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

2002-64,

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

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

Treasury Decisions:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Revenue Procedures:

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

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

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

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

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

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

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

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

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

Court Decisions:

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

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

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

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

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

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

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

Notices:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

## Finding List of Current Actions on Previously Published Items1

Bulletin 2002-26 through 2002-42

### Announcements:

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

2000-4
Modified by
Ann. 2002-60, 2002-26 I.R.B. 28
2001-9
Superseded by
Rev. Proc. 2002-44, 2002-26 I.R.B. 10

Notices:

89-25
Modified by
Rev. Rul. 2002-62, 2002-42 I.R.B. 710
97-26
Modified and superseded by
Notice 2002-62, 2002-39 I.R.B. 574
2001-6
Superseded by
Notice 2002-63, 2002-40 I.R.B. 644

2001-62
Modified and superseded by
Notice 2002-62, 2002-39 I.R.B. 574

Proposed Regulations:

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

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

REG-209813-96

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

REG-103823-99

Corrected by

Ann. 2002-67, 2002-30 I.R.B. 237
Ann. 2002-79, 2002-36 I.R.B. 515

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

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

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

REG-118861-00

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

Proposed Regulations-Continued:

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

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

REG-136311-01
Corrected by
Ann. 2002-94, 2002-42 I.R.B. 728
REG-161424-01
Corrected by
Ann. 2002-67, 2002-30 I.R.B. 237

REG-165706-01
Corrected by
Ann. 2002-67, 2002-30 I.R.B. 237

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

REG-102740-02
Corrected by
Ann. 2002-67, 2002-30 I.R.B. 237
REG-106359-02
Corrected by
Ann. 2002-81, 2002-37 I.R.B. 533

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

REG-123305-02
Corrected by
Ann. 2002-69, 2002-31 I.R.B. 283

Revenue Procedures:

88-10
Superseded by
Rev. Proc. 2002-48, 2002-37 I.R.B. 531

91-23
Modified and superseded by
Rev. Proc. 2002-52, 2002-31 I.R.B. 242

91-26
Modified and superseded by
Rev. Proc. 2002-52, 2002-31 I.R.B. 242

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

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

96-14
Modified and superseded by
Rev. Proc. 2002-52, 2002-31 I.R.B. 242
96-53
Amplified by
Rev. Proc. 2002-52, 2002-31 I.R.B. 242

Revenue Procedures-Continued:

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

2001-15
Superseded by
Rev. Proc. 2002-64, 2002-42 I.R.B. 718
2001-17
Modified and superseded by
Rev. Proc. 2002-47, 2002-29 I.R.B. 133
2001-26
Superseded by
Rev. Proc. 2002-53, 2002-31 I.R.B. 253

2001-45
Superseded by
Rev. Proc. 2002-60, 2002-40 I.R.B. 645
2001-46
Modified and amplified by
Rev. Proc. 2002-65, 2002-41 I.R.B. 700
2001-47
Superseded by
Rev. Proc. 2002-63, 2002-41 I.R.B. 691

2001-50
Superseded by
Rev. Proc. 2002-57, 2002-39 I.R.B. 575
2001-52
Updated by
Rev. Proc. 2002-66, 2002-42 I.R.B. 725

2001-54
Superseded by
Rev. Proc. 2002-61, 2002-39 I.R.B. 616

2002-9
Modified and amplified by
Rev. Proc. 2002-46, 2002-28 I.R.B. 105
Rev. Proc. 2002-65, 2002-41 I.R.B. 700
Amplified, clarified, and modified by
Rev. Proc. 2002-54, 2002-35 I.R.B. 432

2002-13
Modified by
Rev. Proc. 2002-45, 2002-27 I.R.B. 40

2002-15
Modified and superseded by
Rev. Proc. 2002-59, 2002-39 I.R.B. 615

2002-19
Amplified and clarified by
Rev. Proc. 2002-54, 2002-35 I.R.B. 432

Revenue Rulings:

54-571
Obsoleted by
T.D. 9010, 2002-33 I.R.B. 341
55-534
Distinguished by
Rev. Rul. 2002-60, 2002-40 I.R.B. 641

1 A cumulative list of current actions on previously published
items in Internal Revenue Bulletins 2002-1 through 2002-25 is
in Internal Revenue Bulletin 2002-26, dated July 1, 2002.

Revenue Rulings-Continued:

Treasury Decisions-Continued:

55-606

8999

Obsoleted by

Corrected by

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

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

59-328

9013

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

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

#### 64-36

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

65-129
Obsoleted by
T.D. 9010, 2002-33 I.R.B. 341
67-197
Obsoleted by
T.D. 9010, 2002-33 I.R.B. 341

69-259
Modified and superseded by
Rev. Rul. 2002-50, 2002-32 I.R.B. 292

69-595
Obsoleted in part by
T.D. 9010, 2002-33 I.R.B. 341

70-608
Obsoleted in part by
T.D. 9010, 2002-33 I.R.B. 341
73-232
Obsoleted by
T.D. 9010, 2002-33 I.R.B. 341
76-225
Revoked by
REG-115781-01, 2002-33 I.R.B. 380
77-53
Obsoleted by
T.D. 9010, 2002-33 I.R.B. 341

85-50
Obsoleted by
T.D. 2002-33 I.R.B. 341
92-17
Amplified by
Rev. Rul. 2002-49, 2002-32 I.R.B. 288
92-75
Clarified by
Rev. Proc. 2002-52, 2002-31 I.R.B. 242
93-70
Obsoleted by
T.D. 9010, 2002-33 I.R.B. 341
94-76
Amplified by
Rev. Rul. 2002-42, 2002-28 I.R.B. 76

Treasury Decisions:

8925
Corrected by
Ann. 2002-89, 2002-39 I.R.B. 626

8997
Corrected by
Ann. 2002-68, 2002-31 I.R.B. 283

Internal Revenue Bulletin 2002-43 (PDF rendition): IRS Revenue Procedures

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