Internal Revenue Bulletin 2004-38 (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.

Bulletin No. 200
4-38
September 20, 20
04
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Rev. Rul. 2004–94, page 491.
Dealers in securities futures contracts.This ruling holds
that Tier 1, Tier 2, and Tier 3 NQLX LLC Market Makers that
satisfy the market maker requirements described in the ruling
perform functions similar to the functions performed by op-
tions dealers (as defined in section 1256(g)(8)(A) of the Code)
and that these NQLX LLC Market Makers are therefore dealers
in securities futures contracts within the meaning of section
1256(g)(9)(B).
Rev. Rul.
2004–95, page 492.
Dealers i
n securities futures contracts.This ruling holds
that Cate
gory 1 and Category 2 OneChicago LLC Market Mak-
ers that s
atisfy the Market Maker requirements described in the
ruling an
d satisfy the section 1256 Dealer Qualification quota-
tion req
uirements described in the ruling perform functions sim-
ilar to t
he functions performed by options dealers (as defined in
section
1256(g)(8)(A) of the Code) and that these OneChicago
LLC Mark
et Makers are therefore dealers in securities futures
contra
cts within the meaning of section 1256(g)(9)(B).
T.D. 9151, page 489.
REG–116265–04, page 505.
Final, temporary, and proposed regulations under section 1031
of the Code replace the Standard Industrial Classification (SIC)
system of codes with the North American Industry Classifica-
tion System (NAICS) for purposes of determining what depre-
ciable tangible personal property is like-kind to other property.
For transfers of property on or before the date of publication
of final regulations, taxpayers may treat properties within the
same SIC product class or the same NAICS product class as
property of a like class and of like-kind.
REG–106889–04, page 501.
Proposed regulations under section 368 of the Code provide
guidance regarding the requirements necessary for a transac-
tion to qualify as a mere change in identity, form, or place of
organization of one corporation under section 368(a)(1)(F).
REG–131264–04, page 506.
Proposed regulations under section 1502 of the Code provide
rules for taking into account items of income, gain, deduction,
and loss of members from transactions between members of a
consolidated group. Section 1.1502–13(c)(7)(ii),Example 13,
illustrates how the matching rules of the intercompany trans-
action regulations treat manufacturer incentive payments from
one member of a group to another. These regulations supple-
ment the fact pattern in this example to provide further guid-
ance regarding the proper treatment of certain of these man-
ufacturer incentive payment transactions under the intercom-
pany transaction regulations.
EXCISE TAX
T.D. 9149, page 494.
REG–163909–02, page 499.
Final, temporary, and proposed regulations under section 4251
of the Code provide guidance for collectors of communications
excise taxes and excise taxes on amounts paid for taxable
transportation under sections 4261 and 4271. These regu-
lations state the time by which collectors must report refusals
to pay or other failures to collect these excise taxes.
(Continued on the next page)
Fi
nding Lists begin on page ii.

ADMINISTRATIVE
T.D. 9139, page 495.
REG–131786–03, page 500.
Final, temporary, and proposed regulations under section 7701
of the Code provide that an eligible entity that makes a timely
and valid election to be classified as an S corporation will be
deemed to have elected to be classified as an association tax-
able as a corporation.
Rev. Proc. 200
4–57, page 498.
This procedur
e allows taxpayers additional time to file the
written state
ment required by Rev. Proc. 2004–23, 2004–16
I.R.B. 785, re
lating to changes in methods of accounting
for costs to a
cquire or create intangible assets. Rev. Proc.
2004–23 modi
fied.
Announcement 2004–68, page 508.
This document contains corrections to proposed regulations
(REG–150562–03, 2004–32 I.R.B. 175) relating to the appli-
cation of section 1045 of the Code to partnerships and their
partners.
September 20, 20042004–38 I.R.B.

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
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled 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, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching 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.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al 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, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Sec-
retary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last 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 last Bulletin of each semiannual period.
The c
ontents 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.
2004–38 I.R.B.September 20, 2004

Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 1031.—Exchange
of Property Held for
Productive Use or
Investment
26 CFR 1.1031(a)–2: Additional rules for exchanges
of personal property.
T.D. 9151
DEPARTMENT OF
THE TREASURY
Internal Revenue Service
26 CFR Part 1
Additional Rules for
Exchanges of Personal
Property Under Section
1031(a)
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regula-
tions.
SUMMARY: This document contains final
and temporary regulations replacing the
use of the Standard Industrial Classifica-
tion (SIC) system with the North American
Industry Classification System (NAICS)
for determining whatproperties are of a
like class for purposes of section 1031 of
the Internal Revenue Code (Code). The
text of these temporary regulations also
serves as the text of the proposed regu-
lations (REG–116265–04) set forth in the
notice of proposed rulemaking on this sub-
ject in this issue of the Bulletin. The fi-
nal regulations consist of technical revi-
sions to reflect the issuance of the tempo-
rary regulations.
DATES:Effective Date:These final and
temporary regulationsare effective August
12, 2004.
Applicability Date:For date of applica-
bility, see §1.1031(a)–2T(d).
FOR FURTHER INFORMATION
CONTACT: J. Peter Baumgarten, (202)
622–4920 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to
26 CFR Part 1 under section 1031(a) relat-
ing to the exchange of items of personal
property that are within the same product
class. Section 1031(a)(1) generally pro-
vides that no gain or loss shall be recog-
nized on the exchange of property held for
productive use in a trade or business or
for investment if the property is exchanged
solelyforpropertyoflikekindtobeheld
either for productive use in a trade or busi-
ness or for investment. Thus, for a trans-
action to qualify as an exchange under sec-
tion 1031, the transaction must constitute
an exchange, the property relinquished and
the property received in the exchange must
be held for use in a trade or business or for
investment, and the exchanged properties
must be of like kind.
Section 1.1031(a)–2(a) provides that
personal properties of a like class are to
be considered of like kind for purposes of
section 1031. Under §1.1031(a)–2(b), de-
preciable tangible personal property is of a
like class to other depreciable tangible per-
sonal property if the exchanged properties
are either within the samegeneral asset
classor within the sameproduct class.The
general asset classes are derived from Rev.
Proc. 87–56, 1987–2 C.B. 674, (dealing
with depreciation of personal property).
Section 1.1031(a)–2(b)(2) adopts certain
of those general asset classes to determine
what property is of like kind for purposes
of exchanging depreciable tangible per-
sonal property under section 1031, and
identifies the types of personal property
included in each general asset class listed.
Section 1.1031(a)–2(b)(3) provides,
in part, that property within a product
class consists of depreciable tangible per-
sonal property that is listed in a 4-digit
product class (or “code”) within Division
D (pertaining to the manufacturing sec-
tor of the economy) of Executive Office
of the President, Office of Management
and Budget,Standard Industrial Clas-
sification Manual(1987) (SIC Manual).
Section 1.1031(a)–2(b)(4) states that the
SIC Manual generally is modified every
5 years and that the product classes for
section 1031 purposes will follow the
modifications of product classes in the
SIC Manual.
Effective January 1, 1997, the Depart-
ment of Commerce discontinued the SIC
system set forth in the SIC Manual and
adopted NAICS as set forth in Executive
Office of the President, Office of Manage-
ment and Budget,North American Indus-
try Classification System,United States,
1997 (NAICS Manual). The NAICS Man-
ual was updated in 2002. Copies of the
NAICS Manual may be obtained from
the National Technical Information Ser-
vice of the Department of Commerce and
may be accessed, with a more complete
listing of manufactured products and man-
ufacturing industries, on the internet at
http://www.census.gov/naics.
Explanation of Provisions
As a result of the replacement of the SIC
system with NAICS, these temporary reg-
ulations discontinue the use of SIC codes
and adopt Sectors 31 through 33 of NAICS
(pertaining to manufacturing) as the sys-
tem for defining the product classes for
purposes of like-kind exchanges of depre-
ciable tangible personal property. Within
NAICS, product classes are designated us-
ing 6-digit codes rather than the 4-digit
codes assigned to product classes under the
SIC system. However, properties within
the same product class under the 4-digit
SIC system generally will be of the same
product class under the 6-digit NAICS. For
example, under the SIC codes, dairy equip-
ment and haying machinery are within the
same product class (SIC code 3523). Un-
der NAICS, milking machines and haying
machines are also within the same product
class (NAICS code 333111).
The temporary regulations gen-
erally incorporate the provisions of
§1.1031(a)–2(b)(3) relating to the use
of product classes but substitute NAICS
codes for SIC codes. For example,
§1.1031(a)–2(b)(3) provides that, un-
der the 4-digit SIC system, any 4-digit
product class ending in 9 (a miscellaneous
category) is not property within a product
class. Similarly, the temporary regulations
2004–38 I.R.B.489September 20, 2004

provide that any NAICS 6-digit product
class ending in 9 is not property within
a product class. Accordingly, such prop-
erty, and property that is not listed in a
6-digit product class, cannot be of a like
class to other property based on the 6-digit
NAICS Manual classification. Taxpayers,
however, may still demonstrate that these
properties are of a like kind.
Comments are specifically requested
regarding the continued utility of SIC
codes and any potential problems in adopt-
ing the 6-digit NAICS codes in lieu of the
4-digit SIC codes, including specific ex-
amples of how a product class is narrowed
if the 6-digit NAICS code is used and
whether this would be a disadvantage to
any class of taxpayers.
The temporary regulations incorporate
the provisions of §1.1031(a)–2(b)(4) that
permit taxpayers, in structuring like-kind
exchanges, to rely on modifications to
the product classes resulting from revi-
sions to the NAICS Manual. The tem-
porary regulations omit the provisions of
§1.1031(a)–2(b)(4) that permit taxpayers
to rely on modifications to the general
asset classes in Rev. Proc. 87–56 for pur-
poses of structuringlike-kind exchanges.
Under section 6253 of the Technical and
Miscellaneous Revenue Act of 1988 (Pub-
lic Law 100–647, 102 Stat. 3342), the
Commissioner may not modify the asset
classes in Rev. Proc. 87–56 for depreci-
ation purposes. However, the temporary
regulations provide that the Commissioner
may, through published guidance of gen-
eral applicability,supplement, modify,
clarify and update the rules for the clas-
sification of properties. Therefore, the
Commissioner may determine through
published guidance not to follow a general
asset class or product class for purposes of
identifying property of like class or may
determine that other properties not listed
within the same or in any product class or
general asset class nevertheless are of a
like class.
Effective Date
In general, the temporary regulations
apply to transfers of property made by tax-
payers on or after August 12, 2004. How-
ever, taxpayers may apply the temporary
regulations to transfers of property made
by taxpayers on or after January 1, 1997, in
taxable years for which the period of limi-
tation has not expired. The temporary reg-
ulations include a transition rule permit-
ting taxpayers to treat properties within the
same product classes under a 4-digit SIC
code as properties of like class for transfers
of property made by taxpayers on or before
the date these temporary regulations are
published as final regulations in theFed-
eral Register. Comments are specifically
requested on whether a longer transition
period should be provided before the use
of the SIC codes is discontinued.
Special Analyses
It has been de
termined that this Trea-
sury decisi
on is not a significant regula-
tory action
as defined in Executive Order
12866. Ther
efore, a regulatory assessment
is not requi
red. It also has been determined
that sectio
n 553(b) of the Administrative
Procedure
Act (5 U.S.C. chapter 5) does
not apply t
o these regulations. Please refer
to the cros
s-referenced notice of proposed
rulemakin
g published elsewhere in this is-
sue of the
Bulletin for applicability of the
Regulato
ry Flexibility Act (5 U.S.C. Chap-
ter 6). Pu
rsuant to section 7805(f) of the
Code, the
se temporary regulations will be
submitte
d to the Chief Counsel for Advo-
cacy of t
he Small Business Administration
for comm
ent on their impact on small busi-
ness.
Drafting Information
The principal author of these tempo-
rary regulations is J. Peter Baumgarten of
theOfficeoftheAssociateChiefCounsel
(Income Tax and Accounting). However,
other personnel from the IRS and Treasury
participated in their development.
Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
Part 1 — INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. In §1.1031(a)–2, paragraphs
(b)(3) through (b)(6), paragraph (b)(7)Ex-
ample 3andExample 4, are revised and a
sentence is added at the end of paragraph
(d) to read as follows:
§1.1031(a)–2 Additional rules for
exchanges of personal property.
*****
(b)(3) through (b)(6) [Reserved]. For
further guidance, see §1.1031(a)–2T(b)(3)
through (b)(6).
(b)(7)***
Example 3. [Reserved]. For further
guidance, see §1.1031(a)–2T(b)(2),Exam-
ple 3.
Example 4. [Reserved]. For further
guidance, see §1.1031(a)–2T(b)(2),Exam-
ple 4.
*****
(d) * * * For transfers of property made
by taxpayers on or after January 1, 1997,
see §1.1031(a)–2T(d).
Par. 3. Section 1.1031(a)–2T is added
to read as follows:
§1.1031(a)–2T Additional rules
for exchanges of personal property
(temporary).
(a) through (b)(2) [Reserved]. For
further guidance, see §1.1031(a)–2(a)
through (b)(2).
(3)Product classes. Except as provided
in paragraphs (b)(4) and (b)(5) of this sec-
tion, or as provided by the Commissioner
in published guidance of general applica-
bility, property within a product class con-
sists of depreciable tangible personal prop-
erty that is described in a 6-digit prod-
uct class within Sectors 31, 32, and 33
(pertaining to manufacturing industries) of
the North American Industry Classifica-
tion System (NAICS), set forth in Exec-
utive Office of the President, Office of
Management and Budget,North Ameri-
can Industry Classification System,United
States, 2002 (NAICS Manual), as peri-
odically updated. Copies of the NAICS
Manual may be obtained from the National
Technical Information Service, an agency
of the U.S. Department of Commerce, and
may be accessed on the internet. Sectors
31 through 33 of the NAICS Manual con-
tain listings of specialized industries for
the manufacture of described products and
equipment. For this purpose, any 6-digit
NAICS product class with a last digit of 9
(a miscellaneous category) is not a prod-
uct class for purposes of this section. If a
property is listed in more than one prod-
uct class, the property is treated as listed in
any one of those product classes. A prop-
September 20, 20044902004–38 I.R.B.

erty’s 6-digit product class is referred to as
the property’s NAICS code.
(4)Modifications of NAICS product
classes. The product classes of the NAICS
Manual may be updated or otherwise mod-
ified from time to time as the manual is
updated, effective on or after the date of
the modification. The NAICS Manual
generally is modified every five years, in
yearsendingina2or7(suchas2002,
2007, and 2012). The applicability date of
the modified NAICS Manual is announced
in theFederal Registerand generally is
January 1 of the year the NAICS Manual
is modified. Taxpayers may rely on these
modifications as they become effective
in structuring exchanges under this sec-
tion. Taxpayers may rely on the previous
NAICS Manual for transfers of property
made by a taxpayer during the one-year
period following the effective date of the
modification. For transfers of property
made by a taxpayer on or after January 1,
1997, and on or before January 1, 2003,
the NAICS Manual of 1997 may be used
for determining product classes of the ex-
changed property.
(5)Administrative procedures for re-
vising general asset classes and product
classes. The Commissioner may, through
published guidance of general applicabil-
ity, supplement, modify, clarify, or update
the guidance relating to the classification
of properties provided in this paragraph
(b). (See §601.601(d)(2) of this chapter.)
For example, the Commissioner may de-
termine not to follow (in whole or in part)
a general asset class for purposes of iden-
tifying property of like class, may deter-
mine not to follow (in whole or in part)
any modification of product classes pub-
lished in the NAICS Manual, or may deter-
mine that other properties not listed within
the same or in any product class or gen-
eral asset class nevertheless are of a like
class. The Commissioner also may de-
termine that two items of property that
are listed in separate product classes or in
product classes with a last digit of 9 are
of a like class, or that an item of property
that has a NAICS code is of a like class
to an item of property that does not have a
NAICS code.
(6)No inference outside of section
1031. The rules provided in this section
concerning the use of general asset classes
or product classes are limited to exchanges
under section 1031. No inference is in-
tended with respect to the classification
of property for other purposes, such as
depreciation.
(7)Examples. The provisions of this
paragraph (b) are illustrated by the follow-
ing examples:
Example 1andExample 2[Reserved]. For further
guidance, see §1.1031(a)–2(b)(7),Example 1andEx-
ample 2.
Example 3. Taxpayer E transfers a grader to F in
exchange for a scraper. Neither property is within any
of the general asset classes. However, both proper-
ties are within the same product class (NAICS code
333120). The grader and scraper are of a like class
and deemed to be of a like kind for purposes of sec-
tion 1031.
Example 4. Taxpayer G transfers a personal
computer (asset class 00.12), an airplane (asset class
00.21) and a sanding machine (NAICS code 333210),
to H in exchange for a printer (asset class 00.12), a
heavy general purpose truck(asset class 00.242) and
a lathe (NAICS code 333210). The personal com-
puter and the printer are of a like class because they
are within the same general asset class; the sanding
machine and the lathe are of a like class because they
are within the same product class (although neither
property is within any of the general asset classes).
The airplane and the heavy general purpose truck are
neither within the same general asset class nor within
the same product class, and are not of a like kind.
(8)Transition rule. Properties within
the same product classes based on the
4-digit codes contained in Division D of
the Executive Office of the President, Of-
fice of Management and Budget, Standard
Industrial Classification Manual (1987),
will be treated as property of a like class
for transfers of property made by taxpay-
ers on or before the date these regulations
are published as final regulations in the
Federal Register.
(c) [Reserved]. For further guidance,
see §1.1031(a)–2(c).
(d)Effective dates. This section applies
to transfers of property made by taxpay-
ers on or after August 12, 2004. How-
ever, taxpayers may apply this section to
transfers of property made by taxpayers on
or after January 1, 1997, in taxable years
for which the period of limitation for fil-
ing a claim for refund or credit under sec-
tion 6511 has not expired. For all other
exchanges occurring prior to August 12,
2004, see §1.1031(a)–2(d).
Linda M. Kroening,
Acting Deputy Commissioner for
Services and Enforcement.
Approved July 28, 2004.
Gregory F. Jenner,
Acting Assistant Secretary of the Treasury.
(Filed by the Office of the Federal Register on August 12,
2004, 8:45 a.m., and published in the issue of the Federal
Register for August 13, 2004, 69 F.R. 50067)
Section 1256.—Section
1256 Contracts Marked
to Market
Dealers in securities futures con-
tracts.This ruling holds that Tier 1, Tier
2, and Tier 3 NQLX LLC Market Makers
that satisfy the market maker require-
ments described in the ruling perform
functions similar to the functions per-
formed by options dealers (as defined in
section 1256(g)(8)(A) of the Code) and
that these NQLX LLC Market Makers
are therefore dealers in securities futures
contracts within the meaning of section
1256(g)(9)(B).
Rev. Rul. 2004–94
ISSUE
IfaTier1,Tier2,orTier3NQLXLLC
(NQLX) Market Maker satisfies the re-
quirements described below, is it a dealer
in securities futures contracts (SFCs)
within the meaning of § 1256(g)(9)(B) of
the Internal Revenue Code?
FACTS
NQLX has been designated by the
Commodity Futures Trading Commission
(CFTC) as a contract market that is per-
mitted to list SFCs. As such, NQLX is
a “qualified board or exchange” within
the meaning of § 1256(g)(7). NQLX has
a market maker program under which
NQLX members may qualify as NQLX
Market Makers. NQLX Market Makers
are obligated to provide liquidity for their
specifically assigned SFC products that
trade on NQLX. For this purpose, an SFC
product consists of contracts that may
have varying maturities but that all relate
to a particular underlying security or a
particular narrow-based index of securi-
ties. NQLX Market Makers fall into one
of three classes: Tier 1, Tier 2, and Tier
3. Tier 1 Market Makers are assigned at
least 50, if not all, SFC products listed on
NQLX. Tier 2 Market Makers are assigned
2004–38 I.R.B.491September 20, 2004

25 to 49 SFC products listed on NQLX.
Tier 3 Market Makers are assigned fewer
than 25 SFC products listed on NQLX.
In each case, the SFC products assigned
to a Market Maker in the aggregate must
account for at least 20% of the total vol-
ume in all SFCs traded on NQLX for the
preceding calendar quarter.
An NQLX Market Maker must meet all
of the following requirements:
(1) Be a member of NQLX;
(2) Be registered as a floor trader or
floor broker with the CFTC or as a dealer
with the Securities Exchange Commission
(SEC);
(3) Maintain records sufficient to prove
compliance with the NQLX Market Maker
requirements, including, but not limited to,
documents concerning personnel effecting
relevant orders, relevant trade and cash
blotters, relevant stock records, and docu-
ments concerning applicable internal sys-
tem capacity and performance; and
(4) Hold itself out as willing to buy and
sell SFCs for its own account on a regular
or continuous basis.
For an NQLX Market Maker to fulfill
the regular or continuous requirement in
paragraph (4) above, it must satisfy the
following criteria for each of its assigned
SFC products:
(i) Provide continuous two-sided quo-
tations for the first two delivery months of
each assigned SFC product throughout the
trading day, except during unusual market
conditions as determined by NQLX (such
as a fast market in either the SFC product
or the security underlying the SFC prod-
uct) at which times the Market Maker must
use its best efforts to quote continuously
and competitively;
(ii) Quote for the first two delivery
months, with (A) a Maximum Bid/Ask
Spread of no more than the greater of
$0.10 or 150% of the bid/ask spread in the
primary market for the security underly-
ing the SFC product and (B) a Minimum
Number of Contacts of no less than the
lesser of 10 contracts or the corresponding
contract size equivalent of the best bid and
best offer for the security underlying the
SFC product; and
(iii) Respond to requests for quota-
tion in each assigned SFC product within
5 seconds for all delivery months other
than the first two delivery months with a
two-sided quotation that has (A) a Maxi-
mum Bid/Ask Spread of no more than the
greater of $0.20 or 150% of the bid/ask
spread in the primary market for the secu-
rity underlying the SFC product and (B)
a Minimum Number of Contracts of no
less than the lesser of 5 contracts or the
corresponding contract size equivalent of
the best bid and best offer for the security
underlying the SFC product.
Any NQLX Market Maker that fails
to comply with the NQLX rules, CFTC
rules, or SEC rules, as applicable, is sub-
ject to disciplinary action in accordance
with NQLX rules.
LAW
Section 1256(g)(8)(A) defines the term
“options dealer” to mean any person regis-
tered with an appropriate national securi-
ties exchange as a market maker or special-
ist in listed options. Section 1256(g)(9)(B)
provides that a person shall be treated as
a dealer in SFCs or options on such con-
tracts if the Secretary determines that such
person performs, with respect to such con-
tracts or options, as the case may be, func-
tions similar to the functions performed by
an options dealer. Section 1256(g)(9)(B)
further provides that such determination
shall be made to the extent appropriate to
carry out the purposes of that section.
The legislative history for § 1256(g)(9)
states the following with respect to the de-
termination process:
The determination of who is a dealer
in securities futures contracts is to be
made in a manner that is appropriate to
carry out the purposes of the provision,
which generally is to provide compa-
rable tax treatment between dealers in
securities futures contracts, on the one
hand, and dealers in equity options,
on the other. Although traders in se-
curities futures contracts (and options
on such contracts) may not have the
same market-making obligations as
market makers or specialists in equity
options, many traders are expected to
perform analogous functions to such
market makers or specialists by pro-
viding market liquidity for securities
futures contracts (and options) even
in the absence of a legal obligation to
do so. Accordingly, the absence of
market-making obligations is not in-
consistent with a determination that a
class of traders are dealers in securities
futures contracts (and options), if the
relevant factors, including providing
market liquidity for such contracts (and
options), indicate that the market func-
tions of the traders is comparable to
that of equity options dealers.
H.R. Conf. Rep. No. 106–1033, at 1036
(2000).
HOLDING
It is determined that Tier 1, Tier 2,
and Tier 3 NQLX Market Makers that
satisfy the requirements described above
perform functions similar to the func-
tions performed by options dealers (as
defined in § 1256(g)(8)(A)) and that
these NQLX Market Makers are there-
fore dealers in SFCs within the meaning
of § 1256(g)(9)(B). This determination
will cease to apply in the event of mate-
rial changes in the NQLX Market Maker
program affecting the Tier 1, Tier 2, or
Tier 3 Market Makers described above.
See§ 601.601(d)(2)(v) of the Income Tax
Regulations.
EFFECTIVE DATE
Theeffectivedateofthisrulingisthe
date of publication in the Internal Revenue
Bulletin. Because this ruling is prospec-
tive only, the holding applies to SFCs that
are entered into by a dealer in SFCs on or
after the effective date of this ruling.
DRAFTING INFORMATION
The principal author of this revenue rul-
ing is K. Scott Brown of the Office of As-
sociate Chief Counsel (Financial Institu-
tions & Products). For further informa-
tion regarding this revenue ruling, contact
K. Scott Brown at (202) 622–3920 (not a
toll-free call).
Dealers in securities futures con-
tracts.This ruling holds that Category 1
and Category 2 OneChicago LLC Mar-
ket Makers that satisfy the Market Maker
requirements described in the ruling and
satisfy the section 1256 Dealer Qualifi-
cation quotation requirements described
in the ruling perform functions similar to
the functions performed by options deal-
ers (as defined in section 1256(g)(8)(A)
of the Code) and that these OneChicago
LLC Market Makers are therefore dealers
September 20, 20044922004–38 I.R.B.

in securities futures contracts within the
meaning of section 1256(g)(9)(B).
Rev. Rul. 2004–95
ISSUE
If a Category 1 or Category 2
OneChicago LLC (OneChicago) Mar-
ket Maker satisfies the Market Maker
requirements described below and sat-
isfies the Section 1256 Dealer Qualifi-
cation quotation requirements described
below, is it a dealer in securities futures
contracts (SFCs) within the meaning of
§ 1256(g)(9)(B) of the Internal Revenue
Code?
FACTS
OneChicago has been designated by the
Commodity Futures Trading Commission
(CFTC) as a contract market that is per-
mitted to list SFCs. As such, OneChicago
is a “qualified board or exchange” within
the meaning of § 1256(g)(7). OneChicago
has a market maker program under which
OneChicago members may qualify as
OneChicago Market Makers eligible for
the market maker exclusion provided in
OneChicago’s customer margin rules.
OneChicago Market Makers are obli-
gated to provide liquidity for their specifi-
cally assigned SFC products that trade on
OneChicago. For this purpose, an SFC
product consists of contracts that may
have varying maturities but that all relate
to a particular underlying security or a par-
ticular narrow-based index of securities.
A Category 1 or Category 2
OneChicago Market Maker must meet
all of the following requirements:
(1) Be a member of OneChicago;
(2) Be registered as a floor trader or
floor broker with the CFTC or as a dealer
with the Securities and Exchange Com-
mission (SEC);
(3) Maintain records sufficient to prove
compliance with OneChicago Market
Maker requirements and the related regu-
lations and rules of the CFTC or SEC, as
applicable, including, without limitation,
trading account statements and other fi-
nancial records sufficient to detail activity;
and
(4) Hold itself out as willing to buy and
sell SFCs for its own account on a regular
or continuous basis.
For a OneChicago Market Maker to ful-
fill the regular or continuous requirement
in paragraph (4) above, it must satisfy the
following criteria, as applicable, for each
of its assigned SFC products:
Category 1 Market Maker— The mem-
ber provides continuous two-sided quo-
tations throughout the trading day for
all delivery months of all assigned SFC
products (where such assigned SFC prod-
ucts represent in the aggregate at least a
meaningful proportion of the total trading
volume on OneChicago), except during
unusual market conditions as determined
by OneChicago (such as a fast market in
either an SFC product or a security un-
derlying an SFC product), at which time
the member must use its best efforts to
quote continuously and competitively;
and, when the member provides quota-
tions, it quotes for a minimum of one SFC
with a Maximum Bid/Ask Spread of no
more than the greater of $0.20 or 150%
of the bid/ask spread in the primary mar-
ket for the security underlying each SFC
product; or
Category 2 Market Maker— The mem-
ber responds to at least 75% of the re-
quests for quotation (RFQs) for all deliv-
ery months of all assigned SFC products
(where such assigned SFC products rep-
resent in the aggregate at least a mean-
ingful proportion of the total trading vol-
ume on OneChicago), except during un-
usual market conditions as determined by
OneChicago (such as a fast market in ei-
ther an SFC product or a security under-
lying an SFC product), at which times
the member must use its best efforts to
quote competitively;and, when the mem-
ber responds to RFQs, it quotes within five
seconds for a minimum of one SFC with
a Maximum Bid/Ask Spread of no more
than the greater of $0.20 or 150% of the
bid/ask spread in the primary market for
the security underlying each SFC product.
For purposes of thepreceding require-
ments for Category 1 and Category 2 Mar-
ket Makers, a “meaningful proportion of
the total trading volume on OneChicago”
means a minimum of 20% of the trading
volume of SFCs traded on OneChicago
during the calendar quarter.
Any OneChicago Market Maker that
fails to comply with the OneChicago rules,
CFTC rules, or SEC rules, as applicable,
is subject to disciplinary action in accor-
dance with OneChicago rules.
Section 1256 Dealer Qualification.
Category 1 and Category 2 Market Mak-
ers seeking to qualify as a § 1256(g)(9)(B)
dealer under OneChicago’s market maker
program must agree to meet minimum
quotation size requirements for all of their
assigned SFC products that are speci-
fied for purposes of the market maker
exclusion provided in OneChicago’s mar-
gin rules. Category 1 and Category 2
Market Makers must provide continuous
two-sided quotations or respond to re-
quests for quotations in accordance with
the applicable obligations set forth above
by quoting:
(a) ten contracts for each product not
coveredby(b)or(c);
(b) five contracts for each product spec-
ified by the member to the extent such quo-
tations are provided for delivery months
other than the next two delivery months
then trading; and
(c) one contract for any single stock fu-
tures contract where the average market
price for the underlying stock was $100 or
higher for the preceding calendar month
or for any narrow-based stock index fu-
tures contract, as defined by § 1a(25) of the
Commodity Exchange Act.
LAW
Section 1256(g)(8)(A) defines the term
“options dealer” to mean any person regis-
tered with an appropriate national securi-
ties exchange as a market maker or special-
ist in listed options. Section 1256(g)(9)(B)
provides that a person shall be treated as
a dealer in SFCs or options on such con-
tracts if the Secretary determines that such
person performs, with respect to such con-
tracts or options, as the case may be, func-
tions similar to the functions performed by
an options dealer. Section 1256(g)(9)(B)
further provides that such determination
shall be made to the extent appropriate to
carry out the purposes of that section.
The legislative history for § 1256(g)(9)
states the following with respect to the de-
termination process:
The determination of who is a dealer
in securities futures contracts is to be
made in a manner that is appropriate to
carry out the purposes of the provision,
which generally is to provide compa-
rable tax treatment between dealers in
securities futures contracts, on the one
hand, and dealers in equity options,
2004–38 I.R.B.493September 20, 2004

on the other. Although traders in se-
curities futures contracts (and options
on such contracts) may not have the
same market-making obligations as
market makers or specialists in equity
options, many traders are expected to
perform analogous functions to such
market makers or specialists by pro-
viding market liquidity for securities
futures contracts (and options) even
in the absence of a legal obligation to
do so. Accordingly, the absence of
market-making obligations is not in-
consistent with a determination that a
class of traders are dealers in securities
futures contracts (and options), if the
relevant factors, including providing
market liquidity for such contracts (and
options), indicate that the market func-
tions of the traders is comparable to
that of equity options dealers.
H.R. Conf. Rep. No. 106–1033, at 1036
(2000).
HOLDING
It is determined that Category 1 and
Category 2 OneChicago Market Makers
that satisfy the Market Maker require-
ments described above and satisfy the
Section 1256 Dealer Qualification quo-
tation requirements described above per-
form functions similar to the functions
performed by options dealers (as de-
fined in § 1256(g)(8)(A)) and that these
OneChicago Market Makers are therefore
dealers in SFCs within the meaning of
§ 1256(g)(9)(B). This determination will
cease to apply in the event of material
changes in the OneChicago Market Maker
program affecting the Category 1 or Cat-
egory 2 Market Makers described above.
See§ 601.601(d)(2)(v) of the Income Tax
Regulations.
EFFECTIVE DATE
The effective date of this ruling is the
date of publication in the Internal Revenue
Bulletin. Because this ruling is prospec-
tive only, the holding applies to SFCs that
are entered into by a dealer in SFCs on or
after the effective date of this ruling.
DRAFTING INFORMATION
The principal author of this revenue rul-
ingisK.ScottBrownoftheOfficeofAs-
sociate Chief Counsel (Financial Institu-
tions & Products). For further informa-
tion regarding this revenue ruling, contact
K. Scott Brown at (202) 622–3920 (not a
toll-free call).
Section 4291.—Cases
Where Persons Receiving
PaymentMustCollectTax
26 CFR 49.4291–1: Persons receiving payment must
collect tax.
T.D. 9149
DEPARTMENT OF
THE TREASURY
Internal Revenue Service
26 CFR Parts 40 and 49
Collected Excise Taxes; Duties
of Collector
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regula-
tions.
SUMMARY: This document contains fi-
nal and temporary regulations relating to
the obligations of persons that receive
payments for air transportation or com-
munications services subject to excise tax
when persons liable for tax refuse to pay
the tax. These temporary regulations af-
fect persons that receive payments subject
to tax and persons liable for those taxes.
The text of the temporary regulations also
serves as the text of the proposed reg-
ulations (REG–163909–02) set forth in
the notice of proposed rulemaking on this
subject in this issue of the Bulletin.
DATES:Effective Date:These regulations
are effective October 1, 2004.
Applicability Date:For dates of ap-
plicability, see §§40.6302(c)–3T(b)(2)(ii)
and 49.4291–1T.
FOR FURTHER INFORMATION
CONTACT: Taylor Cortright (202)
622–3130 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to
the Excise Tax Procedural Regulations (26
CFR part 40) and the Facilities and Ser-
vices Excise Tax Regulations (26 CFR part
49). Section 4251 of the Internal Revenue
Code (Code) imposes an excise tax on
amounts paid for certain communications
services. Sections 4261(a) and (b) impose
excise taxes on amounts paid for taxable
transportation of persons by air. Section
4261(e)(3) provides that any amount paid
to an air carrier or related party for the right
to provide mileage awards for (or other re-
ductions in the cost of) any transportation
of persons by air is treated for purposes of
section 4261(a) as an amount paid for tax-
able transportation and is therefore subject
to tax. Section 4261(c) imposes an excise
tax on any amount paid for the air trans-
portation of persons that begins or ends in
the United States. Section 4271 imposes
an excise tax on amounts paid for taxable
transportationofpropertybyair. These
taxes collectively are referred to as col-
lected excise taxes.
For each of the collected excise taxes,
the person liable for the tax is the person
making the payment on which tax is im-
posed (the taxpayer). Under section 4291,
the person receiving the payment on which
tax is imposed (the collector) generally
must collect the tax from the person mak-
ing the payment and pay it over to the gov-
ernment.
If the taxpayer refuses to pay the tax the
collector is required, under §49.4291–1,
to report this refusal to the IRS. The IRS
will then assert the tax against the taxpayer.
Current regulations do not specify the time
within which the collector must report this
refusal to the IRS.
Collectors are responsible for filing
returns with respect to the collected ex-
cise taxes and for making deposits of
taxasrequiredbysection6302. Sec-
tion 40.6302(c)–3 provides an alternative
method for computing the amount of de-
posits of collected excise taxes. Under
the alternative method, collectors may
compute the amount of tax to be deposited
on the basis of amounts considered as
collected instead of on the basis of actual
collections of tax. A person may use the
alternative method with respect to a tax
only if the person separately accounts for
the tax. The separate account must reflect
for each month all items of tax that are
included in amounts billed or tickets sold
to customers during the month and items
of adjustment (including bad debts and
September 20, 20044942004–38 I.R.B.

errors) relating to the tax for prior months
within the period of limitations for cred-
its or refunds. When a collector using
the alternative method determines that a
taxpayer has refused to pay the tax, the
collector adjusts the separate account to
reflect that the tax was not collected. Cur-
rent regulations do not specify the time for
adjusting the separate account to reflect
that refusal.
The temporary regulations provide that
the collector must report the refusal to pay
the tax to the IRS by the due date of the
return on which the tax would have been
reported but for the refusal to pay. In
addition, the temporary regulations pro-
vide that, for a person using the alterna-
tive method, the separate account cannot
be adjusted to reflect a refusal to pay tax
for the month unless such refusal has been
reported.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It also has been deter-
mined that section 553(b) of the Admin-
istrative Procedure Act (5 U.S.C. chapter
5) does not apply to these regulations. For
applicability of the the Regulatory Flexi-
bility Act, please refer to the cross-refer-
enced notice of proposed rulemaking pub-
lished elsewhere in this issue of the Bul-
letin. Pursuant to section 7805(f) of the
Code, these temporary regulations will be
submitted to the Chief Counsel for Advo-
cacy of the Small Business Administration
for comment on their impact on small busi-
ness.
Drafting Information
The principal author of these regula-
tions is Patrick S. Kirwan, Office of As-
sociate Chief Counsel (Passthroughs and
Special Industries). However, other per-
sonnel from the IRS and Treasury Depart-
ment participated in their development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 40 and 49
are amended as follows:
PART 40—EXCISE TAX
PROCEDURAL REGULATIONS
Paragraph 1. The authority citation for
part 40 is amended by adding an entry in
numerical order to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Section 40.6302(c)–3T also issued un-
der 26 U.S.C. 6302 * * *
Par. 2. Paragraph (b)(2)(ii) of
§40.6302(c)–3 is amended by:
a. Removing the language “and” at the
end of paragraph (b)(2)(ii)(A).
b. Redesignating paragraph (b)(2)(ii)
(B) as paragraph (b)(2)(ii)(C) and re-
moving the language “Items” and adding
“Other items” in its place.
c. Adding new paragraph (b)(2)(ii)(B)
to read as follows:
§40.6302(c)–3 Special rules for use of
Government depositaries under chapter
33.
*****
(b) * * *
(2) * * *
(ii) * * *
(B) [Reserved]. For further guidance,
see §40.6302(c)–3T(b)(2)(ii)(B).
*****
Par. 3. Section 40.6302(c)–3T is added
to read as follows:
§40.6302(c)–3T Special rules for use of
Government depositaries under chapter
33 (temporary).
(a) through (b)(2)(ii)(A) [Re-
served]. For further guidance, see
§40.6302(c)–3(a) through (b)(2)(ii)(A).
(b)(2)(ii)(B) Applicable October
1, 2004, the account required under
§40.6302(c)–3(b)(2)(i)(A) may not re-
flect an item of adjustment for any month
during a quarter if the adjustment results
from a refusal to pay or inability to collect
the tax and the uncollected tax has not
been reported under §49.4291–1 of this
chapter on or before the due date of the
return for that quarter; and
(b)(2)(ii)(C) through (g) [Re-
served]. For further guidance, see
§40.6302(c)–3(b)(2)(ii)(C) through (g).
PART 49—FACILITIES AND
SERVICES EXCISE TAXES
Par. 4. The authority citation for part
49 continues to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 5. Section 49.4291–1 is amended
by adding a sentence after the third sen-
tence to read as follows:
§49.4291–1 Persons receiving payment
must collect tax.
* * * For further guidance, see
§49.4291–1T. * * *
Par. 6. Section 49.4291–1T is added to
read as follows:
§49.4291–1T Persons receiving payment
must collect tax (temporary).
Applicable October 1, 2004, a person
required to report uncollected tax under
§49.4291–1 must make the report on or
before the due date of the return on which
the refusal to pay or inability to collect
such tax is reflected (or could be reflected
but for the limitation in §40.6302(c)–3T).
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
Approved June 21, 2004.
Gregory F. Jenner,
Acting Assistant Secretary of the Treasury.
(Filed by the Office of the Federal Register on August 9,
2004, 8:45 a.m., and published in the issue of the Federal
Register for August 10, 2004, 69 F.R. 48393)
Section 7701.—Definitions
26 CFR 301.7701–3: Classification of certain busi-
ness entities.
T.D. 9139
DEPARTMENT OF
THE TREASURY
Internal Revenue Service
26 CFR Part 301
2004–38 I.R.B.495September 20, 2004

Deemed Election To Be an
Association Taxable as a
Corporation for a Qualified
Electing S Corporation
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regula-
tions.
SUMMARY: This document contains a
temporary regulation that deems certain
eligible entities that file timely S cor-
poration elections to have elected to be
classified as associations taxable as cor-
porations. This regulation affects certain
eligible entities filing timely elections
to be S corporations on or after July 20,
2004. The text of this temporary regula-
tion also serves as the text of the proposed
regulations (REG–131786–03) set forth in
a notice of proposed rulemaking on this
subject published elsewhere in this issue
of the Bulletin.
DATES:Effective Date:These regulations
are effective July 20, 2004.
FOR FURTHER INFORMATION
CONTACT: Rebekah A. Myers, (202)
622–3050 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
Section 301.7701–3(a) provides that
an eligible entity with two or more own-
ers may elect to be classified as an as-
sociation (and thus acorporation under
§301.7701–2(b)(2)) or a partnership, and
an eligible entity with a single owner may
elect to be classified as an association or to
be disregarded as an entity separate from
its owner. Section 301.7701–3(b) provides
that, unless the entity elects otherwise, a
domestic eligible entity is a partnership if
it has two or more owners or is disregarded
as an entity separate from its owner if it
has a single owner. Section 301.7701–3(c)
describes the time and place for filing
an entity classification election. Section
301.7701–3(c)(1)(i) provides that an eli-
gible entity may elect to be classified as
other than its default classification or to
change its classification by filing Form
8832, “Entity Classification Election”,
with the service center designated on the
form.
A taxpayer whose default classification
is a partnership or a disregarded entity
may seek to be classified as an S corpo-
ration. In these cases, the taxpayer must
elect to be classified as an association un-
der §301.7701–3(c)(1)(i) by filing Form
8832 and must elect to be an S corpora-
tion under section 1362(a) by filing Form
2553, “Election by a Small Business Cor-
poration.” In some cases, an entity may
timely file the Form 2553 but fail to file
the Form 8832. The entity must then sub-
mit a letter ruling request for an extension
of time under §301.9100 to file a late en-
tity classification election. The temporary
regulation provides relief for these entities.
In other cases, the Form 2553 and the Form
8832 are filed late, and the entity must sub-
mit a ruling request under §301.9100 to file
a late entity classification election and un-
der section 1362(b)(5) to file a late S cor-
poration election. Rev. Proc. 2004–48,
2004–32 I.R.B. 172, provides relief for
these entities.
Explanation of Provisions
Requiring eligible entities to file two
elections in order to be classified as S cor-
porations creates a burden on those enti-
ties and on the Internal Revenue Service
(IRS). The temporary regulation simplifies
these paperwork requirements by eliminat-
ing, in certain cases, the requirement that
the entity elect to be classified as an associ-
ation. Instead, an eligible entity that makes
a timely and valid election to be classified
as an S corporation will be deemed to have
elected to be classified as an association
taxable as a corporation.
The temporary regulation amends
§301.7701–3(c)(1)(v) to provide that,
if an eligible entity makes a timely and
valid election to be an S corporation under
section 1362(a)(1),it is treated as having
made an election to be classified as an as-
sociation under §301.7701–3. However, if
the eligible entity’s election is not timely
and valid, the default classification rules
provided in §301.7701–3(b) will apply to
the entity unless the Service provides late
S corporation election relief or inadvertent
invalid election relief. If the late or invalid
election is not perfected, the default rules
will maintain the passthrough taxation
treatment by classifying the entity as a
partnership or a disregarded entity.
Effective Date
The regulations apply to elections to
be an S corporation filed on or after July
20, 2004. However, eligible entities that
timely filed S elections July 20, 2004, may
also rely on the provisions of the regula-
tion.
Special Analysis
It has been determined that this Trea-
sury decision is not asignificant regula-
tory action as defined in Executive Order
12866. Therefore a regulatory assessment
is not required. For the applicability of the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6), refer to the Special Analysis section
of the preamble to the notice of proposed
rulemaking on this subject published else-
whereinthisissueoftheBulletin.
Drafting Information
The principal author of this regulation
is Rebekah A. Myers, Office of Associate
Chief Counsel (Passthroughs and Special
Industries). However, other personnel
from the IRS and Treasury Department
participated in their development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read, in part, as fol-
lows:
Authority: 26 U.S.C. 7805 ***
Par. 2. Section 301.7701–3 is amended
by adding paragraphs (c)(1)(v)(C) and
(h)(3) to read as follows:
§301.7701–3 Classification of certain
business entities.
*****
(c) * * *
(1) * * *
(v) * * *
September 20, 20044962004–38 I.R.B.

(C)S corporations.[Reserved].For
further guidance, see §301.7701–3T(c)
(1)(v)(C).
*****
(h) * * *
(3)Deemed elections for S corpora-
tions. [Reserved]. For further guidance,
see §301.7701–3T(h)(3).
Par. 3. Section 301.7701–3T is added
to read as follows:
§301.7701–3T Classification of certain
business entities (temporary).
(a) through (c)(1)(v)(B) [Reserved].
For further guidance, see §301.7701–3(a)
through (c)(1)(v)(B).
(c)(1)(v)(C)S corporations.Aneli-
gible entity that timely elects to be an S
corporation under section 1362(a)(1) is
treated as having made an election under
this section to be classified as an associa-
tion, provided that (as of the effective date
of the election under section 1362(a)(1))
the entity meets all other requirements
to qualify as a small business corpora-
tion under section 1361(b). Subject to
§301.7701–3(c)(1)(iv), the deemed elec-
tion to be classified as an association will
apply as of the effective date of the S cor-
poration election and will remain in effect
until the entity makes a valid election, un-
der §301.7701–3(c)(1)(i), to be classified
as other than an association.
(c)(2) through (h)(2)(iii) [Reserved].
For further guidance, see §301.7701–
3(c)(2) through (h)(2)(iii).
(h) * * *
(3)Deemed elections for S corpora-
tions. Paragraph (c)(1)(v)(C) of this sec-
tion applies to timely S corporation elec-
tions under section 1362(a) filed on or after
July 20, 2004. Eligible entities that filed
timely S elections before July 20, 2004,
may also rely on the provisions of the reg-
ulation.
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
Approved July 6, 2004.
Gregory F. Jenner,
Acting Assistant Secretary of the
Treasury (Tax Policy).
(Filed by the Office of the Federal Register on July 19, 2004,
8:45 a.m., and published in the issue of the Federal Register
for July 20, 2004, 69 F.R. 43317)
2004–38 I.R.B.497September 20, 2004

Part III. Administrative, Procedural, and Miscellaneous
26 CFR 601.204: Changes in accounting periods
and in methods of accounting.
(Also, Part 1, §§ 162, 263, 446, 461, 481;
1.167(a)–3(b), 1.263(a)–4, 1.263(a)–5, 1.446–1,
1.461–4, 1.461–5, 1.481–1.)
Rev. Proc. 2004–57
SECTION 1. PURPOSE
This revenue procedure allows ad-
ditional time for taxpayers to comply
with the requirements of section 6.02 of
Rev. Proc. 2004–23, 2004–16 I.R.B.
785. Section 6.02 of Rev. Proc. 2004–23
requires certain taxpayers that seek to
change to a method of accounting pro-
vided in §§ 1.263(a)–4, 1.263(a)–5, and
1.167(a)–3(b) of the Income Tax Reg-
ulations to submit a written statement
containing information necessary to ob-
tain automatic consent for the change.
SECTION 2. BACKGROUND
.01 On March 24, 2004, the Internal
Revenue Service released Rev. Proc.
2004–23. Rev. Proc. 2004–23 provides
procedures under which certain taxpayers
may obtain automatic consent for the tax-
payer’s first taxable year ending on or after
December 31, 2003, to change to a method
of accounting provided in §§ 1.263(a)–4,
1.263(a)–5, and 1.167(a)–3(b) of the In-
come Tax Regulations. As a term and
condition of obtaining this automatic
consent, taxpayers must file Form 3115,
Application for Change in Accounting
Method, and provide therein certain infor-
mation specifically required by Rev. Proc.
2004–23.
.02 Section 6.02 of Rev. Proc. 2004–23
provides transition rules applicable to cer-
tain taxpayers that filed Form 3115 prior
to April 26, 2004, and did not include
in the Form 3115 all of the information
required by Rev. Proc. 2004–23. In
lieu of preparing and filing a new Form
3115, these transition rules permit taxpay-
erstoprepareandfileawrittenstatement
that includes all of the necessary infor-
mation that was not included in the orig-
inal Form 3115. Section 6.02(2) of Rev.
Proc. 2004–23 requires taxpayers to sub-
mit the written statement, with an attached
copy of page 1 of the original Form 3115
filed by the taxpayer, to the national of-
fice within the timely filing requirements
of section 6.02(3)(a) (including the auto-
matic extension period described in sec-
tion 6.02(3)(b)(i)) of Rev. Proc. 2002–9,
2002–1 C.B. 327, as modified and clarified
by Announcement 2002–17, 2002–1 C.B.
561, modified and amplified by Rev. Proc.
2002–19, 2002–1 C.B. 696, and ampli-
fied, clarified, and modified by Rev. Proc.
2002–54, 2002–2 C.B. 432.
.03 Section 6.02(3) of Rev. Proc.
2004–23 requires taxpayers to attach the
written statement and a copy of the orig-
inal Form 3115 to the taxpayer’s federal
income tax return for the taxpayer’s —
(i) first taxable year ending on or after
December 31, 2003, or
(ii) second taxable year ending on or
after December 31, 2003, if the taxpayer
prior to April 26, 2004, has filed the tax-
payer’s federal income tax return for the
taxpayer’s first taxable year ending on or
after December 31, 2003, that includes
a Form 3115, a copy of which also has
been filed with the national office, and the
§ 481(a) adjustment included on that re-
turn was computed correctly as described
in section 5 of Rev. Proc. 2004–23.
SECTION 3. ADDITIONAL TIME TO
SUBMIT WRITTEN STATEMENT
.01 A taxpayer is treated as meeting
the timely filing requirement of section
6.02(2) of Rev. Proc. 2004–23 if the
taxpayer submits the written statement
referred to in section 6.02(2) of Rev. Proc.
2004–23, along with the attached copy of
page 1 of the original Form 3115 filed by
the taxpayer, to the national office at the
special address provided in section 4.01(3)
of Rev. Proc. 2004–23 on or before the
time that the taxpayer files the federal
income tax return referred to in section
6.02(3)(i) or (ii) (whichever is applicable)
of Rev. Proc. 2004–23.
.02 A taxpayer is treated as meeting
the timely filing requirement of section
6.02(3)(ii) of Rev. Proc. 2004–23 by at-
taching the written statement and a copy of
the original Form 3115 to the taxpayer’s
federal income tax return for the tax-
payer’s second taxable year ending on or
after December 31, 2003, if the taxpayer
prior to April 26, 2004, filed the tax-
payer’s federal income tax return for the
taxpayer’s first taxable year ending on or
after December 31, 2003, that included a
Form 3115, a copy of which also has been
filed with the national office, whether or
not the § 481(a) adjustment was computed
correctly in the taxpayer’s federal income
tax return for the taxpayer’s first taxable
year ending on or after December 31,
2003, but only if computing the § 481(a)
adjustment in accordance with section 5
of Rev. Proc. 2004–23 does not result in
any change in the taxable income reported
on that return.
.03 For purposes of section 3.01 of this
revenue procedure, section 6.02(3)(ii) of
Rev. Proc. 2004–23 is applied after taking
into account section 3.02 of this revenue
procedure.
.04 Sections 3.01 and 3.02 of this rev-
enue procedure do not apply to a taxpayer
described in section 4.03(2) of Rev. Proc.
2004–23 (relating to an unauthorized
change in method of accounting or change
in the treatment of an item).
SECTION 4. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 2004–23 is modified.
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective on
September 1, 2004.
SECTION 6. INQUIRIES
For further information regard-
ing this revenue procedure, contact
Grace Matuszeski of the Office of As-
sociate Chief Counsel (Income Tax and
Accounting) at (202) 622–7900 (not a
toll-free call).
September 20, 20044982004–38 I.R.B.

Part IV. Items of General Interest
Notice of Proposed
Rulemaking by
Cross-Reference to
Temporary Regulations
Collected Excise Taxes; Duties
of Collector
REG–163909–02
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
by cross-reference to temporary regula-
tions.
SUMMARY: In this issue of the Bull
etin,
the IRS is issuing temporary regu
lations
(T.D. 9149) relating to the obli
gations of
persons that receive payments f
or air trans-
portation or communications se
rvices sub-
ject to excise tax when persons l
iable for
the tax refuse to pay the tax. Th
etext
of those temporary regulation
salsoserves
as the text of these proposed re
gulations.
These proposed regulations a
ffect persons
liable for those taxes and per
sons that re-
ceive payments subject to tax
.
DATES: Written and electronic comments
and requests for a public hearing must be
received by November 8, 2004.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–163909–02), room
5203, Internal Revenue Service, POB
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may be
hand delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to: CC:PA:LPD:PR (REG–163909–02),
Courier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW, Wash-
ington, DC. Alternatively, taxpayers may
submit comments electronically via the
IRS Internet site atwww.irs.gov/regs,or
via the Federal eRulemaking Portal at
www.regulations.gov(indicate IRS and
REG–163909–02).
FOR FURTHER INFORMATION
CONTACT: Concerning submissions, the
Publication and Regulations Unit, (202)
622–7180; concerning the regulations,
Taylor Cortright, (202) 622–3130 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
These proposed regulations relate to the
obligations of persons that receive pay-
ments for air transportation or communi-
cations services subject to excise tax when
persons liable for the tax refuse to pay the
tax. These proposed regulations would
amend the Excise Tax Procedural Regula-
tions (26 CFR part 40) and the Facilities
and Services Excise Tax Regulations (26
CFR part 49). The text of temporary reg-
ulations published in this issue of the Bul-
letin also serves as the text of these pro-
posed regulations. The preamble to the
temporary regulations explains the tempo-
rary regulations.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory as-
sessment is not required. It also has been
determined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C. chap-
ter 5) does not apply to these regulations,
and because the notice of proposed rule-
making does not impose a collection of in-
formation on small entities, the provisions
of the Regulatory Flexibility Act (5 U.S.C.
chapter 6) do not apply. Pursuant to sec-
tion 7805(f) of the Code, this notice of pro-
posed rulemaking will be submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written comments
(a signed original and eight (8) copies)
or electronic comments that are submitted
timely to the IRS. The IRS and Treasury
Department specifically request comments
on the clarity of the proposed regulations
and how they may be made easier to un-
derstand. All comments will be available
for public inspection and copying. A pub-
lic hearing may be scheduled if requested
in writing by any person that timely sub-
mits written comments. If a public hearing
is scheduled, notice of the date, time, and
place for the hearing will be published in
theFederal Register.
Drafting Information
The principal author of these regula-
tions is Patrick S. Kirwan, Office of As-
sociate Chief Counsel (Passthroughs and
Special Industries). However, other per-
sonnel from the IRS and Treasury Depart-
ment participated in their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR parts 40 and 49
are proposed to be amended as follows:
PART 40—EXCISE TAX
PROCEDURAL REGULATIONS
Paragraph 1. The authority citation for
part 40 continues to read, in part, as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 40.6302(c)–3 is amend-
ed by revising paragraph (b)(2)(ii)(B) to
read as follows:
§40.6302(c)–3 Special rules for use of
Government depositaries under chapter
33.
*****
(b) * * *
(2) * * *
(ii) * * *
(B) [The text of this proposed
paragraph is the same as the text of
§40.6302(c)–3T(b)(2)(ii)(B) published
elsewhere in this issue of the Bulletin].
*****
PART 49—FACILITIES AND
SERVICES EXCISE TAXES
Par. 3. The authority citation for part
49 continues to read in part as follows:
2004–38 I.R.B.499September 20, 2004

Authority: 26 U.S.C. 7805 * * *
Par. 4. Section 49.4291–1 is amended
by revising the fourth sentence to read as
follows:
§49.4291–1 Persons receiving payment
must collect tax.
***[Thetextofthisproposedsentence
is the same as the text of §49.4291–1T
published elsewhere in this issue of the
Bulletin].* * *
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on August 9,
2004, 8:45 a.m., and published in the issue of the Federal
Register for August 10, 2004, 69 F.R. 48432)
Notice of Proposed
Rulemaking by Cross
Reference to Temporary
Regulations
Deemed Election To Be an
Association Taxable as a
Corporation for a Qualified
Electing S Corporation
REG–131786–03
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
by cross reference to temporary regula-
tions.
SUMMARY: In this issue of the Bulletin,
the IRS is issuing temporary regulations
(T.D. 9139) that deem certain eligible en-
tities that file timely S corporation elec-
tions to have electedto be classified as
associations taxable as corporations. The
text of those temporary regulations also
serves as the text of these proposed regula-
tions. These regulations affect certain eli-
gible entities filing timely elections to be S
corporations on or after July 20, 2004.
DATES: A request for a public hearing and
written or electronic comments must be
received by October 18, 2004.
ADDRESSES: Send submissions to
CC:PA:LPD:PR (REG–131786–03), room
5203, Internal Revenue Service, POB
7604, Ben Franklin Station, Washing-
ton, DC, 20044. Submissions may be
hand delivered between the hours of 8
a.m. and 4 p.m. to CC:PA:LPD:PR
(REG–131786–03), Courier’s Desk,
Internal Revenue Service, 1111 Con-
stitution Avenue, NW, Washington,
DC, or sent electronically, via the IRS
Internet site at:www.irs.gov/regsor
via the Federal E-Rulemaking Por-
tal atwww.regulations.gov(IRS and
REG–131786–03).
FOR FURTHER INFORMATION
CONTACT: Rebekah A. Myers at (202)
622–3050 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
Temporary regulations published else-
whereinthisissueofthe Bulletin amend
§301.7701–3T(c)(1)(v)(C) to provide that
certain eligible entities that file timely S
corporation elections are deemed to have
elected to be classified as associations tax-
able as corporations. The text of the tem-
porary regulations also serves as the text of
these proposed regulations. The preamble
to the temporary regulations explains the
temporary regulations.
Special Analysis
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in Exec-
utive Order 12866. Therefore a regulatory
assessment is not required. It is hereby
certified that the collection of information
in these regulations will not have a sig-
nificant economic impact on a substantial
number of small entities. This certification
is based upon the fact that the purpose of
the regulation is to decrease the number of
entities required to file an entity classifi-
cation election, Form 8832. Therefore, a
Regulatory Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6) is not required. Pursuant to section
7805(f) of the Internal Revenue Code, this
notice of proposed regulation will be sub-
mitted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on its impact on small business.
Comments and Requests for Public
Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any written (a signed
original and eight (8) copies) or electronic
comments that are submitted timely to
the IRS. The IRS and Treasury Depart-
ment request comments on the clarity of
the proposed rules and how they can be
made easier to understand. All comments
will be available for public inspection and
copying. A public hearing will be sched-
uled if requested in writing by any person
that timely submits written comments. If a
public hearing is scheduled, notice of the
date, time, and place of the public hearing
will be published in theFederal Register.
Drafting Information
The principal author of this regulation
is Rebekah A. Myers, Office of Associate
Chief Counsel (Passthroughs and Special
Industries), IRS. However, other person-
nel from the IRS and Treasury Department
participated in their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read, in part, as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Para.2.Section 301.7701–3
is amended by adding paragraphs
(c)(1)(v)(C) and (h)(3) to read as fol-
lows:
§301.7701–3 Classification of certain
business entities.
[The text of the proposed amendment
is the same as the text of §301.7701–3T
published elsewhere in this issue of the
Bulletin].
September 20, 20045002004–38 I.R.B.

Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on July 19, 2004,
8:45 a.m., and published in the issue of the Federal Register
for July 20, 2004, 69 F.R. 43369)
Notice of Proposed
Rulemaking
Reorganizations Under
Section 368(a)(1)(E) or (F)
REG–106889–04
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains pro-
posed regulations that provide guidance
regarding the requirements for a transac-
tion to qualify as a reorganization under
section 368(a)(1)(E) or (F) of the Inter-
nal Revenue Code. The proposed regu-
lations will affect corporations and their
shareholders.
DATES: Written or electronic comm
ents
and requests for a public hearing
must be
received by November 10, 2004.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–106889–04), room
5203, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may be
hand-delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to CC:PA:LPD:PR (REG–106889–04),
Courier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW, Wash-
ington, DC, or sent electronically, via the
Internal Revenue Service Internet site at
www.irs.gov/regsor via the Federal eRule-
making Portal atwww.regulations.gov
(IRS — REG–106889–04).
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed reg-
ulations, Robert B. Gray, (202) 622–7550;
concerning submissions of comments,
Guy R. Traynor, (202) 622–7180 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
In general, upon the exchange of prop-
erty, gain or loss must be accounted for
if the new property differs materially, in
kind or extent, from the old property. See
Internal Revenue Code (Code) §1001;
§1.368–1(b). The purpose of the reorgani-
zation provisions of the Internal Revenue
Code (the Code) is to except from the
general rule certain specifically described
exchanges that are required by business
exigencies and effect only a readjust-
ment of continuing interests in property
under modified corporate forms. See
§1.368–1(b).
Section 368(a)(1)(E) provides that the
term reorganization includes a recapital-
ization (an E reorganization). A recapital-
ization has been defined as a “reshuffling
of a capital structure within the framework
of an existing corporation.”Helvering v.
Southwest Consolidated Corp., 315 U.S.
194 (1942).
Section 368(a)(1)(F) provides that
the term reorganization includes a mere
change in identity, form, or place of or-
ganization of one corporation, however
effected (an F reorganization). One court
has described the F reorganization as fol-
lows:
[The F reorganization] encompass[es]
only the simplest and least significant
of corporate changes. The (F)-type re-
organization presumes that the surviv-
ing corporation is the same corporation
as the predecessor in every respect, ex-
cept for minor or technical differences.
For instance, the (F) reorganization typ-
ically has been understood to compre-
hend only such insignificant modifica-
tions as the reincorporation of the same
corporate business with the same as-
sets and the same stockholders surviv-
ing under a new charter either in the
same or in a different State, the renewal
of a corporate charter having a limited
life, or the conversion of a U.S.-char-
tered savings and loan association to a
State-chartered institution.
Berghash v. Commissioner, 43 T.C. 743,
752 (1965) (citation and footnotes omit-
ted),aff’d, 361 F.2d 257 (2
nd
Cir. 1966).
To qualify as a reorganization, a trans-
action must generally satisfy not only the
statutory requirements of the reorganiza-
tion provisions but also certain nonstatu-
tory requirements, including the continuity
of interest and continuity of business enter-
prise requirements. See §1.368–1(b). The
purpose of the continuity requirements is
to ensure that reorganizations are limited
to readjustments of continuing interests in
property under modified corporate form
and to prevent transactions that resemble
sales from qualifying for nonrecognition
of gain or loss available to corporate re-
organizations. §1.368–1(d)(1) and (e)(1);
see alsoLeTulle v. Scofield, 308 U.S. 415
(1940);Helvering v. Minnesota Tea Co.,
296 U.S. 378 (1935);Pinellas Ice & Cold
Storage Co. v. Commissioner,287 U.S.
462 (1933).
Despite the general rule, the courts and
the Service have taken the position that
the continuity of interest and continuity
of business enterprise requirements need
not be satisfied for a transaction to qual-
ify as an E reorganization. SeeHickok
v. Commissioner, 32 T.C. 80 (1959);
Rev. Rul. 82–34, 1982–1 C.B. 59; Rev.
Rul. 77–415, 1977–2 C.B. 311. In Rev-
enue Rulings 77–415 and 82–34, the IRS
reasoned that the continuity of interest
and continuity of business enterprise re-
quirements are necessary in an acquisitive
reorganization to ensure that the transac-
tion does not involve an otherwise taxable
transfer of stock or assets, but that they
are not necessary when the transaction
involves only a single corporation.
Although an F reorganization may in-
volve an actual or deemed transfer of as-
sets from one corporation to another, such
a transaction effectively involves only one
corporation. In this way, an F reorgani-
zation is much like an E reorganization,
which can only involve one corporation
even in form. As a result, an F reorga-
nization is treated for most purposes of
the Code as if the reorganized corporation
were the same entity as the corporation in
existence before the reorganization. Con-
sequently, the taxableyear of the corpora-
tion does not end on the date of the transfer,
and the losses of the reorganized corpora-
tion can be carried back to offset income
of its predecessor. See §1.381(b)–1(a)(2).
Nonetheless, courts have applied the conti-
nuity requirements in determining whether
a transaction qualifies as an F reorganiza-
tion. See,e.g.,Pridemark, Inc. v. Com-
missioner, 345 F.2d 35 (4
th
Cir. 1965)
2004–38 I.R.B.501September 20, 2004

(stating that the application of the F reor-
ganization statute is limited to cases where
the corporate enterprise continues uninter-
rupted, except perhaps for a distribution
of some of its liquid assets);Yoc Heat-
ing Corp. v. Commissioner,61T.C.168
(1973) (holding that continuity of interest
is required for an F reorganization).
The Service and the Treasury Depart-
ment have considered whether continuity
of interest and continuity of business en-
terprise should be requirements of an F
reorganization. Because F reorganizations
involve only the slightest change in a cor-
poration and do not resemble sales, the
Service and the Treasury Department have
concluded that applying the continuity
of interest and continuity of business en-
terprise requirements to transactions that
would otherwise qualify as F reorganiza-
tions is not necessary to protect the policies
underlying the reorganization provisions.
Therefore, these proposed regulations pro-
vide that a continuity of interest and a
continuity of business enterprise are not
required for a transaction to qualify as an
F reorganization. In addition, to reflect the
IRS’ position in Revenue Rulings 77–415
and 82–34, these proposed regulations
provide that a continuity of interest and a
continuity of business enterprise are not
required for a transaction to qualify as an
E reorganization.
In light of the proposed rules regarding
the application of the continuity require-
ments to transactions that otherwise qual-
ify as F reorganizations, the IRS and the
Treasury Department believe it is desirable
to provide guidance regarding the charac-
teristics of F reorganizations. These regu-
lations propose such criteria.
Consistent with section 368(a)(1)(F),
the proposed regulations provide that, to
qualify as an F reorganization, a trans-
action must result in a mere change in
identity, form, or place of organization of
one corporation. The proposed regula-
tions further provide that a transaction that
involves an actual or deemed transfer is
a mere change only if four requirements
are satisfied. First, all the stock of the
resulting corporation, including stock is-
sued before the transfer, must be issued in
respect of stock of the transferring corpo-
ration. Second, there must be no change
in the ownership of the corporation in the
transaction, except a change that has no
effect other than that of a redemption of
less than all the shares of the corpora-
tion. Third, the transferring corporation
must completely liquidate in the trans-
action. Fourth, the resulting corporation
must not hold any property or have any
tax attributes (including those specified
in section 381(c)) immediately before the
transfer.
The first two requirements reflect the
Supreme Court’s holding inHelvering v.
Southwest Consolidated,315U.S.194
(1942), that a transaction that shifts the
ownership of the proprietary interests in
a corporation cannot be a mere change.
These requirements prevent a transac-
tion that involves the introduction of a
new shareholder or new capital into the
corporationfromqualifyingasanFre-
organization. Such an introduction may
occur, for example, when a new share-
holder contributes assets to the resulting
corporation in exchange for stock before
a merger of the transferring corporation
into the resulting corporation. Notwith-
standing these requirements, the proposed
regulations permit the resulting corpo-
ration’s issuance of a nominal amount
of stock not in respect of stock of the
transferring corporation to facilitate the
organization of the resulting corporation.
This rule is designed to permit reincorpo-
ration in a jurisdiction that requires, for
example, minimum capitalization, two or
more shareholders, or ownership of shares
by directors. It is also intended to permit
a transfer of assets to certain pre-existing
entities.
The second requirement allows changes
of ownership that have no effect other than
a redemption of less than all the shares of
the corporation to reflect the case law hold-
ing that certain transactions qualify as F re-
organizations even ifshareholders are re-
deemed in the transaction. SeeReef Corp.
v. U.S., 368 F.2d 125 (5
th
Cir. 1966) (hold-
ing that a redemption of 48 percent of the
stock of a corporation that occurred dur-
ing a change in place of incorporation did
not cause the transaction to fail to qualify
as an F reorganization); cf.Casco Prod-
ucts Corp. v. Commissioner,49T.C.32
(1967) (holding that the surviving corpo-
ration in a merger was the continuation of
the merging corporation for purposes of al-
lowing a loss carryback, despite the forced
redemption of nine percent of the stock of
the merging corporation).
The third requirement (providing for
the liquidation of the transferring corpora-
tion) and the fourth requirement (limiting
the assets the resulting corporation may
hold immediately before the transfer) re-
flect the statutory requirement that an F
reorganization involve only one corpora-
tion. Although the proposed regulations
generally require that the transferring cor-
poration completely liquidate in the trans-
action, they do not require the transferring
corporation to legally dissolve, thereby fa-
cilitating preservation of the value of the
transferring corporation’s charter. Further,
to accommodate transactions in jurisdic-
tions where it is customary to preserve
pre-existing entities for future use rather
than create new ones, the proposed regu-
lations permit the retention of a nominal
amount of assets for the sole purpose of
preserving the transferring corporation’s
legal existence.
Although the proposed regulations gen-
erally require that the resulting corpora-
tion not hold any property or have any tax
attributes immediately before the transfer,
they do allow the resulting corporation to
hold or to have held a nominal amount
of assets to facilitate its organization or
preserve its existence, and to have tax at-
tributes related to these assets. In addi-
tion, to accommodate transactions involv-
ing the refinancing of debt or the leveraged
redemption of shareholders, the proposed
regulations provide that this requirement
will not be violated if, before the trans-
fer, the resulting corporation holds the pro-
ceeds of borrowings undertaken in connec-
tion with the transaction.
As described above, section 368(a)
(1)(F) provides that an F reorganization
includes a mere change in identity, form,
or place of organization of one corpora-
tion, however effected. The IRS and the
Treasury Department believe that the in-
clusion of the words “however effected”
in the statutory definition of an F reor-
ganization reflects aCongressional intent
to treat as an F reorganization a series of
transactions that together result in a mere
change. The proposed regulations reflect
this view by providing that a series of
related transactions that together result in
a mere change may qualify as an F reorga-
nization.
The IRS and the Treasury Department
also recognize that a reorganization qual-
ifying under section 368(a)(1)(F) may be
September 20, 20045022004–38 I.R.B.

a step in a larger transaction that effects
more than a mere change. For example, in
Revenue Ruling 96–29, 1996–1 C.B. 50,
the IRS ruled that a reincorporation qual-
ified as an F reorganization even though
it was a step in a transaction in which
the reincorporated entity issued common
stock in a public offering and redeemed
stock having a value of 40 percent of the
aggregate value of its outstanding stock
before the offering. In the same ruling, the
IRS ruled that a reincorporation of a cor-
poration in another state qualified as an F
reorganization even though it was a step in
a transaction in which the reincorporated
entity acquired the business of another en-
tity.
Consistent with Revenue Ruling 96–29,
the proposed regulations provide that re-
lated events preceding or following the
transaction or series of transactions that
constitute a mere change do not cause that
transaction or series of transactions to fail
to qualify as an F reorganization. The pro-
posed regulations further provide that the
qualification of the mere change as an F
reorganization does not alter the treatment
of the larger transaction. For example, if
a redemption of stock occurs in a transac-
tion that qualifies as an F reorganization
and the F reorganization is part of a plan
that includes a subsequent merger, the step
or series of steps constituting the F reorga-
nization will not alter the tax consequences
of the subsequent merger.
A number of commentators have ques-
tioned whether distributions of money or
other property in an F reorganization are
distributions to which section 356 applies.
The IRS and the Treasury Department
believe it is appropriate to treat such dis-
tributions as transactions separate from
the F reorganization, even if they occur
during the F reorganization. See,e.g.,
§1.301–1(l). Accordingly, these proposed
regulations provide that if a shareholder
receives money or other property (includ-
ing in exchange for its shares) from the
transferring or resulting corporation in
a transaction that constitutes an F reor-
ganization, the money or other property
is treated as distributed by the transfer-
ring corporation immediately before the
transaction. The tax treatment of such
distributions is governed by sections 301
and 302, and section 356 does not apply to
such distributions. The IRS and the Trea-
sury Department believe that the same
rule should apply in the context of E reor-
ganizations. Comments are requested on
whether there are some E reorganizations
to which this treatment should not apply.
These regulations are proposed to be ef-
fective for transactions that occur on or af-
ter the date these regulations are published
as final regulations in theFederal Regis-
ter.
Effect on Other Documents
Upon the issuance of these regulations
as final regulations, Rev. Rul. 66–284,
1966–2 C.B. 115, Rev. Rul. 74–36,
1974–1 C.B. 85, Rev. Rul. 77–415,
1977–2 C.B. 311, Rev. Rul. 77–479,
1977–2 C.B. 119, Rev. Rul. 79–250,
1979–2 C.B. 156, Rev. Rul. 82–34,
1982–1 C.B. 59, and Rev. Rul. 96–29,
1996–1 C.B. 50, will be obsoleted.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory as-
sessment is not required. It has also been
determined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C. chap-
ter 5) does not apply to these regulations,
and, because these regulations do not im-
pose a collection of information on small
entities, the Regulatory Flexibility Act (5
U.S.C. chapter 6) does not apply. Pursuant
to section 7805(f) of the Code, this notice
of proposed rulemaking will be submitted
to the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on its impact on small businesses.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written (a signed origi-
nal and eight (8) copies) or electronic com-
ments that are submitted timely to the Ser-
vice. The IRS and Treasury Department
request comments on the clarity of the pro-
posed rules and how they can be made eas-
ier to understand. All comments will be
available for public inspection and copy-
ing. A public hearing will be scheduled
if requested in writing by any person that
timely submits written comments. If a
public hearing is scheduled, notice of the
date, time, and place for the public hearing
will be published in theFederal Register.
Drafting Information
The principal author of these proposed
regulations is Robert B. Gray of the Office
of Associate Chief Counsel (Corporate).
However, other personnel from the Service
and Treasury Department participated in
their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.368–1(b) is amended
by adding a sentence after the third sen-
tence to read as follows:
§1.368–1 Purpose and scope of exception
of reorganization exchanges.
*****
(b)Purpose. * * * Notwithstanding the
previous sentence, for transactions on or
after the date these regulations are pub-
lished as final regulations in theFederal
Register, a continuity of the business en-
terprise and a continuity of interest are not
required for a transaction to qualify as a re-
organization under section 368(a)(1)(E) or
(F). * * *
*****
Par. 3. Section 1.368–2 is amended by:
1. Adding and reserving new paragraph
(l).
2. Adding new paragraph (m).
The addition reads as follows:
§1.368–2 Definition of terms.
*****
(l) [Reserved].
(m)Qualification as a reorganization
under section 368(a)(1)(F)—(1)Mere
change—(i)In general. To qualify as a re-
organization under section 368(a)(1)(F), a
transaction must result in a mere change in
identity, form, or place of organization of
2004–38 I.R.B.503September 20, 2004

one corporation (“mere change”). A trans-
action that involves an actual or deemed
transfer is a mere change only if —
(A) All the stock of the resulting cor-
poration, including stock issued before the
transfer, is issued in respect of stock of the
transferringcorporation;
(B) There is no change in the owner-
ship of the corporation in the transaction,
except a change that has no effect other
than that of a redemption of less than all
the shares of the corporation;
(C) The transferring corporation com-
pletely liquidates in the transaction; and
(D) The resulting corporation does
not hold any property or have any tax
attributes (including those specified in
section 381(c)) immediately before the
transfer.
(ii)Exceptions and special rules—(A)
Transferring corporation. Legal dissolu-
tion of the transferring corporation is not
required, and the mere retention of a nom-
inal amount of assets for the sole purpose
of preserving the corporation’s legal exis-
tence will not disqualify the transaction as
a mere change.
(B)Resulting corporation. A transac-
tion will not fail to be a mere change solely
because the resultingcorporation, to fa-
cilitate its organization, issues a nominal
amount of stock other than in respect of
stock of the transferring corporation. At
the time of or before the transfer, the re-
sulting corporation may hold or have held
a nominal amount of assets to facilitate its
organization or preserve its existence as a
corporation, and may have tax attributes
related to holding such assets. Moreover,
the resulting corporation may hold the pro-
ceeds of borrowings undertaken in connec-
tion with the transaction.
(2)Non-application of continuity of in-
terest and continuity of business enterprise
requirements. A continuity of the business
enterprise and a continuity of interest are
not required for a transaction to qualify as a
reorganization under section 368(a)(1)(F).
See §1.368–1(b).
(3)Related transactions—(i)Series of
transactions. A series of related transac-
tions that together result in a mere change
may qualify as a reorganization under sec-
tion 368(a)(1)(F).
(ii)Mere change within a larger trans-
action. A reorganization under section
368(a)(1)(F) may occur within a larger
transaction that effects more than a mere
change. Related events that precede or
follow the transaction or series of trans-
actions that constitutes a mere change
will not cause that transaction or series
of transactions to fail to qualify as a re-
organization under section 368(a)(1)(F).
Qualification of the mere change as a re-
organization under section 368(a)(1)(F)
will not alter the treatment of the larger
transaction.
(4)Treatment of distributions.Ifa
shareholder receives money or other prop-
erty (including in exchange for its shares)
from the transferring or resulting corpo-
ration in a transaction that constitutes a
reorganization under section 368(a)(1)(F),
the money or other property is treated as
distributed by the transferring corporation
immediately before the transaction, and
section 356(a) does not apply to such dis-
tribution. See,e.g., §1.301–1(l).
(5)Examples. The following examples
illustrate the application of this paragraph
(m). In all examples, assume that each
transaction is entered into for a valid busi-
ness purpose and that all corporations are
domestic corporations, unless stated other-
wise. The examples are as follows:
Example 1. C owns all of the stock of W, a State
A corporation. The net value of W’s assets and lia-
bilities is $1,000,000. V, a State B corporation, seeks
to acquire the assets of W. To effect the acquisition,
V and W enter into an agreement under which V will
contribute $1,000,000 to U, a newly formed corpo-
ration of which V is the sole shareholder, and W will
merge into U. In the merger, C surrenders his W stock
in exchange for the $1,000,000 V contributed to U.
After the merger, U holds all of the assets and li-
abilities of W. However, the U stock is not issued
in respect of the W stock as required by paragraph
(m)(1)(i)(A) of this section, and the transaction re-
sults in a change in the ownership of W that has an ef-
fect other than that of a redemption of some of the W
shares in violation of paragraph (m)(1)(i)(B) of this
section. Therefore, the merger of W into U is not a
mere change and does not qualify as a reorganization
under section 368(a)(1)(F).
Example 2. A and B own 75 and 25 percent, re-
spectively, of the stock of X, a State A corporation.
The management of X determines that it would be in
the best interest of X to reorganize under the laws of
State B. Accordingly, X forms Y, a State B corpo-
ration, and X and Y enter into an agreement under
which X will merge into Y. A does not wish to own
stock in Y. In the merger, A surrenders her X stock
in exchange for cash from X from X’s cash reserves,
and B exchanges all of his X stock for all the stock
of Y. Without regard to A’s surrender of her stock in
X, the merger of X into Y is a mere change of X.
The change in ownership caused by A’s surrender of
her stock in X has no effect other than that of a re-
demption of less than all the X shares as described in
paragraph (m)(1)(i)(B) of this section. Therefore, the
merger of X into Y is a mere change and qualifies as
a reorganization under section 368(a)(1)(F).
Example 3. D owns all of the stock of S, a Coun-
try A corporation. The management of S determines
that it would be in the best interest of S to reorga-
nize under the laws of Country B. Under Country B
law, a corporation must have at least two shareholders
to enjoy limited liability. D is advised by a Country
B attorney that the new corporation should issue one
percent of its stock to a shareholder that is not D’s
nominee to assure satisfaction of the two-shareholder
requirement. As part of an integrated plan, E orga-
nizes T, a Country B corporation with 1,000 shares
of common stock authorized, and contributes cash to
T in exchange for ten of the common shares. S then
merges into T under the laws of Country A and Coun-
try B. Pursuant to the plan of merger, D surrenders
his shares of stock in S in exchange for 990 shares
of T common stock. Without regard to the prior is-
suance of T stock to E, the merger of S into T is a
mere change of S. The ten shares of stock issued to
E not in respect of the S stock are nominal and used
to facilitate the organization of T within the meaning
of paragraph (m)(1)(ii)(B) of this section. Therefore,
the issuance of this stock to a new shareholder does
not cause the merger of S into T to fail to be a mere
change. Accordingly, the merger is a reorganization
under section 368(a)(1)(F).
Example 4. A owns all of the stock of H, a cor-
poration that owns all of the stock of S, a corporation
engaged in a manufacturing business. H has owned
the stock of S for many years. H owns no assets other
than the stock of S. A decides to eliminate the holding
company structure by merging H into S. Because it
operates a manufacturing business, the resulting cor-
poration, S, holds property and has tax attributes im-
mediately before the transfer. Therefore, under para-
graph (m)(1)(i)(D) of this section, the merger of H
into S is not a mere change and does not qualify as a
reorganization under section 368(a)(1)(F). The same
result would occur if, instead of H merging into S, S
merged into H.
Example 5. Corporation P owns all of the stock of
S1, a State X corporation.The management of P de-
termines that it would be in the best interest of S1 to
change its place of incorporation to State Y. Accord-
ingly, under an integrated plan, P forms S2, a new
State Y corporation, P contributes the S1 stock to S2,
and S1 merges into S2 under the laws of State X and
State Y. Under paragraph (m)(3)(i) of this section, a
series of transactions that together result in a mere
change of one corporation may qualify as a reorga-
nization under section 368(a)(1)(F). The contribution
ofS1stocktoS2andthemergerofS1intoS2to-
gether constitute a mere change of S1. Therefore, the
transaction qualifies as a reorganization under section
368(a)(1)(F). S1 is treated astransferring its assets to
S2 in exchange for the S2 stock and distributing the
S2 stock to P in exchange for P’s S1 stock.
Example 6. Corporation P owns all of the stock
of S, a State X corporation. The management of P
determines that it would be in the best interest of S to
change its place of incorporation to State Y. Accord-
ingly, P forms New S, a State Y corporation. S then
merges into New S under the laws of State X and State
Y. As part of the same plan, P sells all of its stock in
New S to an unrelated party. Without regard to the
sale of New S stock, the merger of S into New S is a
mere change within the meaning of paragraph (m)(1)
September 20, 20045042004–38 I.R.B.

of this section. Under paragraph (m)(3)(ii) of this sec-
tion, related events that precede or follow the trans-
action or series of transactions that constitute a mere
change do not cause that transaction to fail to qualify
as a reorganization under section 368(a)(1)(F). There-
fore, the sale of the New S stock is disregarded in de-
termining whether the merger of S into New S is a
mere change. Accordingly,themergerofSintoNew
S is a reorganization under section 368(a)(1)(F).
Example 7. A owns all of the stock of T and
none of the stock of P. P owns all of the stock of S.
T and S are State M corporations engaged in manu-
facturing businesses. The following transactions oc-
cur pursuant to a single plan. First, T merges into S
with A receiving solely stock in P. Second, P changes
its state of incorporation to State N by merging into
newly organized New P under the laws of State M
and State N. Third, P redeems all the stock issued to
A in respect of his T stock for cash. Without regard
to the other steps, the merger of T into S qualifies as a
reorganization under section 368(a)(1)(A) by reason
of section 368(a)(2)(D). Without regard to the other
steps, the merger of P into New P qualifies as a re-
organization under section 368(a)(1)(F). Under para-
graph (m)(3)(ii) of this section, related events that
precede or follow the transaction or series of transac-
tions that constitute a mere change do not cause that
transaction to fail to qualify as a reorganization un-
der section 368(a)(1)(F). Therefore, the merger of P
into New P qualifies as a reorganization under section
368(a)(1)(F). However, under paragraph (m)(3)(ii) of
this section, the qualification of the merger of P into
New P as a reorganization under section 368(a)(1)(F)
does not alter the tax treatment of the merger of T
into S. Because the P shares received by A in respect
of the T shares are redeemed for cash pursuant to the
plan, the merger of T into S does not satisfy the con-
tinuity of interest requirement and does not qualify as
a reorganization undersection 368(a)(1)(A).
Example 8. Corporation P owns all of the stock
of S, a State A corporation. The management of P
determines that it would be in the best interest of S to
change its form from a State A corporation to a State
A limited partnership. Accordingly, P contributes
one percent of the S stock to newly formed LLC, a
limited liability company, in exchange for all of the
membership interests in LLC. Under §301.7701–3 of
this chapter, LLC is disregarded as an entity separate
from its owner, P. Under a State A statute, S converts
to a State A limited partnership. In the conversion,
P’s interest as a 99 percent shareholder of S is con-
verted into a 99 percent limited partner interest, and
LLC’s interest as a one percent shareholder of S is
converted into a one percent general partner interest.
S then elects, under §301.7701–3(c), to be classified
as a corporation for federal income tax purposes, ef-
fective on the date of the conversion. The conver-
sion of S from a State A corporation to a State A lim-
ited partnership, together with the election to treat S
as a corporation for federaltax purposes, constitutes
a mere change and is a reorganization under section
368(a)(1)(F).
(6)Effective Date. This paragraph (m)
applies to transactionsoccurringonoraf-
ter the date these regulations are published
as final regulations in theFederal Regis-
ter.
Linda M. Kroening,
Acting Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on August 11,
2004, 8:45 a.m., and published in the issue of the Federal
Register for August 12, 2004, 69 F.R. 49836)
Notice of Proposed
Rulemaking by
Cross-Reference to
Temporary Regulations
Additional Rules for
Exchanges of Personal
Property Under Section
1031(a) Regulations
REG–116265–04
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
by cross-reference to temporary regula-
tions.
SUMMARY: In this issue of the Bulletin,
the IRS is issuing final and temporary
regulations (T.D. 9151) replacing the use
of the Standard Industrial Classification
(SIC) system with the North American In-
dustry Classification System (NAICS) for
determining what properties are of a like
class for purposes of section 1031 of the
Internal Revenue Code (Code). The text
of those temporary regulations also serves
as the text of these proposed regulations.
DATES: Written or electronic comments
and requests for a public hearing must be
received by November 12, 2004.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–116265–04), room
5203, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may be
hand-delivered Monday through Friday
betweenthehoursof8a.m. and4p.m.
to: CC:PA:LPD:PR (REG–116265–04),
Courier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW, Wash-
ington, DC. Alternatively, taxpayers may
submit electronic comments directly to the
IRS internet site athttp://www.irs.gov/regs
or via the Federal eRulemaking Portal
athttp://www.regulations.gov(IRS and
REG–116265–04).
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, J. Peter Baumgarten,
202–622–4920; concerning submissions
of comments and/or requests for a public
hearing, Guy Traynor, 202–622–7180 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
Temporary regulations in this issue of
the Bulletin amend 26 CFR Part 1 relat-
ing to section 1031(a)(1). The tempo-
rary regulations substitute NAICS classi-
fication codes for the SIC classification
codes in the regulatory text and permit
the use of NAICS codes for determining
product classes, and therefore property of
like kind, of depreciable tangible personal
property exchanged under section 1031.
The text of those temporary regulations
also serves as the text of these proposed
regulations. The preamble to the tempo-
rary regulations explains the amendments.
Specia
lAnalyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory as-
sessment is not required. It also has been
determined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C. chap-
ter 5) does not apply to these regulations,
and, because the regulations do not im-
pose a collection of information on small
entities, the Regulatory Flexibility Act (5
U.S.C. chapter 6) does not apply. Pursuant
to section 7805(f) of the Code, this notice
of proposed rulemaking will be submitted
to the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on its impact.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written comments
(a signed original and eight (8) copies)
2004–38 I.R.B.505September 20, 2004

or electronic comments that are submitted
timely to the IRS. The IRS and Treasury
Department request comments on the clar-
ity of these proposed regulations and how
they may be made easier to understand.
All comments will be available for public
inspection and copying. A public hearing
will be scheduled if requested in writing
by any person that timely submits written
comments. If a public hearing is sched-
uled, notice of the date, time, and place for
the public hearing will be published in the
Federal Register.
Drafting Information
The principal author of these regula-
tions is J. Peter Baumgarten, Office of As-
sociate Chief Counsel (Income Tax and
Accounting). However, other personnel
from the IRS and Treasury Department
participated in their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority for part 1
continues to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. In §1.1031(a)–2, paragraphs
(b)(3) through (b)(6), andExample 3and
Example 4of paragraph (b)(7) are revised
to read as follows:
§1.1031(a)–2 Additional rules for
exchanges of personal property.
[The text of proposed §1.1031(a)–2,
paragraphs (b)(3) through (b)(6), andEx-
ample 3andExample 4of paragraph (b)(7)
is the same as the text of §1.1031(a)–2T,
paragraphs (b)(3) through (b)(6), andEx-
ample 3andExample 4of paragraph (b)(7)
published elsewhere in this issue of the
Bulletin.] §1.1031(j)–1[Amended]
Par. 3. Section 1.1031(j)–1 is amended
by removing the language “(SIC Code
3531)” inExample 3(ii)(C) andExam-
ple 5(i) of paragraph (d) and adding the
language “(NAICS code 333120)” in its
place.
Linda M. Kroening,
Acting Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on August 12,
2004, 8:45 a.m., and published in the issue of the Federal
Register for August 13, 2004, 69 F.R. 50108)
Notice of Proposed
Rulemaking
Consolidated Returns;
Intercompany Transactions
REG–131264–04
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains pro-
posed regulations that provide guidance
regarding the treatment of manufacturer
incentive payments between members of
a consolidated group. The proposed regu-
lations are necessary to provide additional
guidance for a variety of transactions in-
volving manufacturer incentive payments.
The regulations will affect corporations fil-
ing consolidated returns.
DATES: Written or electronic comments
and requests for a public hearing must be
received by November 11, 2004.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–131264–04), room
5203, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may be
hand-delivered Monday through Friday
betweenthehoursof8a.m. and4p.m.
to CC:PA:LPD:PR (REG–131264–04),
Courier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW, Washing-
ton, DC. Alternatively, taxpayers may sub-
mit comments electronically, via the IRS
Internet site atwww.irs.gov/regsor via the
Federal eRulemaking Portal atwww.regu-
lations.gov(IRS and REG–131264–04).
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed reg-
ulations, Frances Kelly, (202) 622–7770;
concerning submissions of comments
and/or requests for a public hearing,
Treena Garrett, (202) 622–7180 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
This document contains proposed
amendments to the Income Tax Regu-
lations (26 CFR part 1) under section 1502
of the Internal Revenue Code. On July 18,
1995, final regulations (T.D. 8597, 1995–2
C.B. 147) under §1.1502–13, amending
the intercompany transaction system of
the consolidated return regulations, were
published in theFederal Register(60
FR 36671). Those final regulations pro-
vide rules for taking into account items
of income, gain, deduction, and loss of
members from intercompany transactions.
Their purpose is to clearly reflect the tax-
able income (and tax liability) of the group
by preventing intercompany transactions
from creating, accelerating, avoiding, or
deferring consolidated taxable income or
consolidated tax liability.
Accounting for Intercompany
Transactions
Under §1.1502–13(b)(1), an intercom-
pany transaction is a transaction between
corporations that are members of the same
consolidated group immediately after the
transaction. For purposes of §1.1502–13,
S is the member transferring property or
providing services, and B is the member
receiving the property or services.
S’s income, gain, deduction, and
loss from an intercompany transaction,
whether directly or indirectly, are its inter-
company items, and may include amounts
from an intercompany transaction that are
not yet taken into account under its sep-
arate entity method of accounting. B’s
income, gain, deduction, and loss from
an intercompany transaction, or from
property acquired in an intercompany
transaction, are its corresponding items.
An item is a corresponding item whether
it is directly or indirectly from an inter-
company transaction (or from property
acquired in an intercompany transaction).
The recomputed corresponding item is the
corresponding item that B would take into
account if S and B were divisions of a
single corporation and the intercompany
September 20, 20045062004–38 I.R.B.

transaction were between those divisions.
Although neither S nor B actually takes
the recomputed corresponding item into
account, it is computed as if B did take it
into account.
Matching Rule
In general, under the matching rule of
§1.1502–13(c), B takes its corresponding
item into account under its separate entity
accounting method and S takes its inter-
company item into account to reflect the
difference for the year between B’s cor-
responding item taken into account and
the recomputed corresponding item. The
matching rule determines when the inter-
company transaction regulations override
the members’ timing of items under their
otherwise applicable separate entity meth-
ods of accounting.
Manufacturer Incentive Payments
Section 1.1502–13(c)(7)(ii),Example
13, illustrates how the matching rule of
the intercompany transaction regulations
treats manufacturer incentive payments
made by one member of a group to an-
other. In this example, B is a manufacturer
that sells its products to dealers, and S is
a credit company that offers financing,
including financing to customers of the
dealers. Under B’s incentive program, in
Year 1, S purchases the product from an
independent dealer for $100 and leases
it to a nonmember. S pays $90 to the
dealer for the product, and assigns to the
dealer its $10 incentive payment from
B. Under their separate entity accounting
methods, B would deduct the $10 incen-
tive payment in Year 1 and S would take
a $90 basis in the product. The example
assumes that if S and B were divisions
of a single corporation, the $10 payment
would not be deductible and S’s basis in
the property would be $100. The example
concludes that under the matching rule of
§1.1502–13(c), S takes its $10 intercom-
pany item into account as income in Year
1 to reflect the difference between B’s $10
corresponding item (the $10 deduction
taken into account by B) and the $0 re-
computed corresponding item. S’s basis in
the product is $100 (rather than the $90 it
would be under S’s separate entity method
of accounting) and the additional $10 of
basis in the product is recovered based on
subsequent events (e.g., S’s cost recovery
deductions or its sale of the product).
Since §1.1502–13 was issued, it has
become clear that the facts and the under-
lying assumptions inExample 13do not
provide adequate guidance to address the
variety of transactions involving manu-
facturer incentive payments. Accordingly,
the IRS and Treasury Department believe
that § 1.1502–13(c)(7)(ii),Example 13,
should be amended to address certain
of these transactions and to clarify the
proper treatment of such payments under
the intercompany transaction regulations.
Therefore, these proposed regulations
supplement the fact pattern ofExample 13
with two additional fact patterns involving
manufacturer incentive payments.
Proposed Effective Date
The regulations are proposed to apply to
any consolidated return year for which the
due date of the income tax return (without
regard to extensions) is on or after the date
that is sixty days after the date these reg-
ulations are filed as final regulations with
theFederal Register.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory as-
sessment is not required. It is hereby cer-
tified that these regulations will not have a
significant economic impact on a substan-
tial number of small entities. This certi-
fication is based upon the fact that these
regulations will primarily affect affiliated
groups of corporations that have elected
to file consolidated returns, which tend to
be larger businesses. Therefore, a Regula-
tory Flexibility Analysis under the Regula-
tory Flexibility Act (5 U.S.C. chapter 6) is
not required. Pursuant to section 7805(f)
of the Internal Revenue Code, this notice
of proposed rule making will be submitted
to the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on their impact on small business.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any written (a signed
original and eight (8) copies) or electronic
comments that are submitted timely to
the IRS. The IRS and Treasury Depart-
ment request comments on the clarity of
the proposed rules and how they can be
made easier to understand. All comments
will be available for public inspection and
copying. A public hearing will be sched-
uled if requested in writing by any person
that timely submits written or electronic
comments. If a public hearing is sched-
uled, notice of the date, time, and place for
the public hearing will be published in the
Federal Register.
Drafting Information
The principal author of these proposed
regulations is William F. Barry, Office of
the Associate Chief Counsel (Corporate).
However, other personnel from the IRS
and Treasury Department participated in
their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.1502–13 also issued under 26
U.S.C. 1502. * * *
Par. 2. Section 1.1502–13 is amended
by adding paragraph (c)(7)(ii),Example
13(c), (d), and (e), and paragraph (c)(7)(iii)
to read as follows:
§1.1502–13 Intercompany transactions.
*****
(c) * * *
(7)***(i)***
(ii) * * *
Example 13.***(a)***
(c)Deduction for incentive payment on single en-
tity basis. B is a manufacturer that sells its products
to independent dealers for resale. S is a credit com-
pany that offers financing, including financing to cus-
tomers of the independentdealers. During Year 1, B
initiates a program of incentive payments. Under B’s
program, an independent dealer sells product to a cus-
tomer under a retail installment sales contract (RISC)
in which the customer agrees to pay for the product
2004–38 I.R.B.507September 20, 2004

over the term of the contract at a below market inter-
est rate. The customer purchases the product from the
independent dealer and enters into a RISC. The RISC
has a face amount of $100 but a fair market value of
$90. The independent dealer assigns the RISC to S in
exchange for a $100 payment from S. B pays $10 to
S to compensate S for the $10 overpayment to the in-
dependent dealer. Assume that under their respective
separate entity accounting methods, B would deduct
the $10 payment in Year 1, and S would take a $90
basis in the RISC and would take the $10 into ac-
count over the term of the RISC. Assume that, if S
and B were divisions of a single corporation, the $10
overpayment to the independent dealer would be de-
ductible in Year 1 and the basis of the RISC would be
$90.
(d)Timing and attributes. Under paragraph
(b)(1) of this section, the incentive payment transac-
tion is an intercompany transaction. Under paragraph
(b)(2)(iii) of this section, S has a $10 intercompany
item not yet taken into account under its separate en-
tity method of accounting. Under the matching rule,
S takes its intercompany item into account to reflect
the difference between B’s corresponding item taken
into account and the recomputed corresponding item.
In Year 1, there is no difference between B’s $10
deduction taken into account and the $10 recomputed
deduction. Accordingly, under the matching rule, S
does not take the $10 incentive payment into account
as intercompany income in Year 1. Instead, S takes
the $10 into income over the term of the RISC. S’s
basis in the RISC is $90.
(e)No intercompany transaction.Bisamanu-
facturer that sells its products to independent dealers
for resale. S is a credit company that offers financ-
ing to purchasers of goods and services, including
the independent dealers. During Year 1, B initiates
a program of incentive payments to the independent
dealers. Under B’s program, S loans $100 to an in-
dependent dealer at a below market interest rate to
finance the independent dealer’s purchase of product
from B. The independent dealer issues a note to S at
a below market interest rate. B pays $10 to S to com-
pensate S for the below market interest rate on the
note. Under §1.1273–2(g)(4), the payment from B to
S is treated as a payment from B to the independent
dealer and then as a payment from the independent
dealer to S. Because the incentive payment is treated
as being made by a member of the group to a non-
member, the transaction is not an intercompany trans-
action under paragraph (b)(1) of this section. There-
fore, §1.1502–13 is not applicable.
*****
(iii)Effective date. Section 1.1502–13
(c)(7)(ii),Example 13(c), (d), and (e) are
proposed to apply to any consolidated re-
turn year for which the due date of the in-
come tax return (without regard to exten-
sions) is on or after the date that is sixty
days after the date these regulations are
filed as final regulations with theFederal
Register.
*****
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on August 12,
2004, 8:45 a.m., and published in the issue of the Federal
Register for August 13, 2004, 69 F.R. 50112)
Section 1045 Application to
Partnerships; Correction
Announcement 2004–68
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: N
otice of proposed rulemaking
and notic
eofpublichearing.
SUMMARY: This document contains
corrections to proposed regulations
(REG–150562–03, 2004–32 I.R.B. 175)
that were published in theFederal Reg-
isteron July 15, 2004 (69 FR 42370).
This regulation relates to the application
of section 1045 of the Internal Revenue
Code to partnerships and their partners.
DATES: These corrections are made as of
July 15, 2004.
FOR FURTHER INFORMATION
CONTACT: Charlotte Chyr at (202)
622–3070 or Jian H. Grant at (202)
622–3050 (not a toll-free number).
SUPP
LEMENTARY INFORMATION:
Background
The proposed regulations that are the
subject of these corrections are under sec-
tion 1045 of the Internal Revenue Code.
Need for correction
As published, the notice of proposed
rulemaking contains errors that may prove
to be misleading and are in need of clarifi-
cation.
Correction of Publication
Accordingly, the publication of
the notice of proposed rulemaking
(REG–150562–03), which was the subject
of FR Doc. 04–15964, is corrected as
follows:
1. On page 42371, column 1, in the pre-
amble, under the subject heading “Back-
ground”, line 3, the language “the sale
of QSB stock held by non-” is corrected
to read “the sale of qualified small busi-
ness (QSB) stock (as defined in section
1202(c)) held by non-”.
2. On page 42371, column 1, in the pre-
amble, under the subject heading “Back-
ground” lines 8 thru 10 are corrected to
read “percent of gain on the sale of QSB
stock from gross income if”.
3. On page 42372, column 1, in the
preamble, under the subject heading “Ex-
planation of Provisions” paragraph 2, line
7, the language “though approach to the
sale and” is corrected to read “through ap-
proach to the sale and”.
§1.1045–1 [Corrected]
4.On page 42377, column 1,
§1.1045–1, paragraph (g),Example 2,
line 5, the language “PRS interest for
$50x, realizing $25 of capital” is corrected
to read “PRS interestfor $50, realizing
$25 of capital”.
LaNita Van Dyke,
Acting Chief, Publications
and Regulations Branch,
Legal Processing Division,
Associate Chief Counsel (Procedure
and Administration).
(Filed by the Office of the Federal Register on August 9,
2004, 8:45 a.m., and published in the issue of the Federal
Register for August 10, 2004, 69 F.R. 48428)
September 20, 20045082004–38 I.R.B.

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 ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis 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 published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes 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 rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published 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 pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis 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 rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations
to show that the previous published rul-
ings 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 fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
2004–38 I.R.B.iSeptember 20, 2004

Numerical Finding List
1
Bulletins 2004–27 through 2004–38
Announcements:
2004-55, 2004-27 I.R.B.15
2004-56, 2004-28 I.R.B.41
2004-57, 2004-27 I.R.B.15
2004-58, 2004-29 I.R.B.66
2004-59, 2004-30 I.R.B.94
2004-60, 2004-29 I.R.B.43
2004-61, 2004-29 I.R.B.67
2004-62, 2004-30 I.R.B.103
2004-63, 2004-31 I.R.B.149
2004-64, 2004-35 I.R.B.402
2004-65, 2004-33 I.R.B.300
2004-66, 2004-35 I.R.B.402
2004-67, 2004-36 I.R.B.459
2004-68, 2004-38 I.R.B.508
Notices:
2004-41, 2004-28 I.R.B.31
2004-43, 2004-27 I.R.B.10
2004-44, 2004-28 I.R.B.32
2004-45, 2004-28 I.R.B.33
2004-46, 2004-29 I.R.B.46
2004-47, 2004-29 I.R.B.48
2004-48, 2004-30 I.R.B.88
2004-49, 2004-30 I.R.B.88
2004-50, 2004-33 I.R.B.196
2004-51, 2004-30 I.R.B.89
2004-52, 2004-32 I.R.B.168
2004-53, 2004-33 I.R.B.209
2004-54, 2004-33 I.R.B.209
2004-55, 2004-34 I.R.B.319
2004-56, 2004-35 I.R.B.375
2004-57, 2004-35 I.R.B.376
2004-59, 2004-36 I.R.B.447
Proposed Regulations:
REG-208246-90, 2004-36 I.R.B.450
REG-153841-02, 2004-31 I.R.B.145
REG-163679-02, 2004-35 I.R.B.390
REG-163909-02, 2004-38 I.R.B.499
REG-108637-03, 2004-37 I.R.B.472
REG-120616-03, 2004-37 I.R.B.474
REG-124405-03, 2004-35 I.R.B.394
REG-131486-03, 2004-28 I.R.B.36
REG-131786-03, 2004-38 I.R.B.500
REG-150562-03, 2004-32 I.R.B.175
REG-152549-03, 2004-36 I.R.B.451
REG-154077-03, 2004-37 I.R.B.476
REG-171386-03, 2004-37 I.R.B.477
REG-101447-04, 2004-34 I.R.B.344
REG-106889-04, 2004-38 I.R.B.501
REG-116265-04, 2004-38 I.R.B.505
Proposed Regulations— Continued:
REG-117307-04, 2004-28 I.R.B.39
REG-129706-04, 2004-37 I.R.B.478
REG-129771-04, 2004-36 I.R.B.453
REG-131264-04, 2004-38 I.R.B.506
REG-136481-04, 2004-37 I.R.B.480
Revenue Procedures:
2004-38, 2004-27 I.R.B.10
2004-39, 2004-29 I.R.B.49
2004-40, 2004-29 I.R.B.50
2004-41, 2004-30 I.R.B.90
2004-42, 2004-31 I.R.B.121
2004-43, 2004-31 I.R.B.124
2004-44, 2004-31 I.R.B.134
2004-45, 2004-31 I.R.B.140
2004-46, 2004-31 I.R.B.142
2004-47, 2004-32 I.R.B.169
2004-48, 2004-32 I.R.B.172
2004-49, 2004-33 I.R.B.210
2004-50, 2004-33 I.R.B.211
2004-51, 2004-33 I.R.B.294
2004-52, 2004-34 I.R.B.319
2004-53, 2004-34 I.R.B.320
2004-54, 2004-34 I.R.B.325
2004-55, 2004-34 I.R.B.343
2004-56, 2004-35 I.R.B.376
2004-57, 2004-38 I.R.B.498
Revenue Rulings:
2004-63, 2004-27 I.R.B.6
2004-64, 2004-27 I.R.B.7
2004-65, 2004-27 I.R.B.1
2004-66, 2004-27 I.R.B.4
2004-67, 2004-28 I.R.B.28
2004-68, 2004-31 I.R.B.118
2004-69, 2004-36 I.R.B.445
2004-70, 2004-37 I.R.B.460
2004-71, 2004-30 I.R.B.74
2004-72, 2004-30 I.R.B.77
2004-73, 2004-30 I.R.B.80
2004-74, 2004-30 I.R.B.84
2004-75, 2004-31 I.R.B.109
2004-76, 2004-31 I.R.B.111
2004-77, 2004-31 I.R.B.119
2004-78, 2004-31 I.R.B.108
2004-79, 2004-31 I.R.B.106
2004-80, 2004-32 I.R.B.164
2004-81, 2004-32 I.R.B.161
2004-82, 2004-35 I.R.B.350
2004-83, 2004-32 I.R.B.157
2004-84, 2004-32 I.R.B.163
2004-85, 2004-33 I.R.B.189
2004-86, 2004-33 I.R.B.191
2004-87, 2004-32 I.R.B.154
2004-88, 2004-32 I.R.B.165
Revenue Rulings— Continued:
2004-89, 2004-34 I.R.B.301
2004-90, 2004-34 I.R.B.317
2004-91, 2004-35 I.R.B.357
2004-92, 2004-37 I.R.B.466
2004-93, 2004-37 I.R.B.462
2004-94, 2004-38 I.R.B.491
2004-95, 2004-38 I.R.B.492
Tax Conventions:
2004-60, 2004-29 I.R.B.43
Treasury Decisions:
9131, 2004-27 I.R.B.2
9132, 2004-28 I.R.B.16
9133, 2004-28 I.R.B.25
9134, 2004-30 I.R.B.70
9135, 2004-30 I.R.B.69
9136, 2004-31 I.R.B.112
9137, 2004-34 I.R.B.308
9138, 2004-32 I.R.B.160
9139, 2004-38 I.R.B.495
9140, 2004-32 I.R.B.159
9141, 2004-35 I.R.B.359
9142, 2004-34 I.R.B.302
9143, 2004-36 I.R.B.442
9144, 2004-36 I.R.B.413
9145, 2004-37 I.R.B.464
9146, 2004-36 I.R.B.408
9147, 2004-37 I.R.B.461
9148, 2004-37 I.R.B.460
9149, 2004-38 I.R.B.494
9151, 2004-38 I.R.B.489
1
A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2004–1 through 2004–26 is in Internal Revenue Bulletin
2004–26, dated June 28, 2004.
September 20, 2004ii2004–38 I.R.B.

Findings List of Current Actions on
Previously Published Items
1
Bulletins 2004–27 through 2004–38
Notices:
98-65
Superseded by
Rev. Proc. 2004-40, 2004-29 I.R.B.50
2001-50
Modified by
Rev. Proc. 2004-46, 2004-31 I.R.B.142
2004-2
Modified by
Notice 2004-50, 2004-33 I.R.B.196
2004-2,
Corrected by
Ann. 2004-67, 2004-36 I.R.B.459
Proposed Regulations:
INTL-116-90
Withdrawn by
REG-208246-90, 2004-36 I.R.B.450
REG-208254-90
Withdrawn by
REG-136481-04, 2004-37 I.R.B.480
REG-104683-00
Partially withdrawn by
Ann. 2004-64, 2004-35 I.R.B.402
REG-150562-03
Corrected by
Ann. 2004-68, 2004-38 I.R.B.508
Revenue Procedures:
79-61
Superseded by
Rev. Proc. 2004-44, 2004-31 I.R.B.134
89-37
Obsoleted by
Rev. Rul. 2004-90, 2004-34 I.R.B.317
94-64
Superseded by
Rev. Proc. 2004-38, 2004-27 I.R.B.10
96-18
Obsoleted by
Rev. Rul. 2004-90, 2004-34 I.R.B.317
96-53
Superseded by
Rev. Proc. 2004-40, 2004-29 I.R.B.50
96-60
Superseded by
Rev. Proc. 2004-53, 2004-34 I.R.B.320
Revenue Procedures— Continued:
98-41
Superseded by
Rev. Proc. 2004-56, 2004-35 I.R.B.376
2000-37
Modified by
Rev. Proc. 2004-51, 2004-33 I.R.B.294
2002-9
Modified and amplified by
Rev. Proc. 2004-41, 2004-30 I.R.B.90
2003-30
Superseded by
Rev. Proc. 2004-54, 2004-34 I.R.B.325
2003-52
Superseded by
Rev. Proc. 2004-50, 2004-33 I.R.B.211
2004-23
Modified by
Rev. Proc. 2004-57, 2004-38 I.R.B.498
2004-4
Modified by
Rev. Proc. 2004-44, 2004-31 I.R.B.134
Revenue Rulings:
54-379
Superseded by
Rev. Rul. 2004-68, 2004-31 I.R.B.118
58-120
Obsoleted by
Rev. Rul. 2004-90, 2004-34 I.R.B.317
62-60
Amplified by
Rev. Proc. 2004-53, 2004-34 I.R.B.320
70-58
Obsoleted by
Rev. Rul. 2004-90, 2004-34 I.R.B.317
73-354
Obsoleted by
Rev. Rul. 2004-76, 2004-31 I.R.B.111
78-371
Distinguished by
Rev. Rul. 2004-86, 2004-33 I.R.B.191
79-64
Obsoleted by
Rev. Rul. 2004-90, 2004-34 I.R.B.317
80-7
Amplified and clarified by
Rev. Rul. 2004-71, 2004-30 I.R.B.74
Rev. Rul. 2004-72, 2004-30 I.R.B.77
Rev. Rul. 2004-73, 2004-30 I.R.B.80
Rev. Rul. 2004-74, 2004-30 I.R.B.84
Revenue Rulings— Continued:
80-366
Obsoleted by
Rev. Rul. 2004-90, 2004-34 I.R.B.317
81-100
Clarified and modified by
Rev. Rul. 2004-67, 2004-28 I.R.B.28
85-70
Amplified and clarified by
Rev. Rul. 2004-71, 2004-30 I.R.B.74
Rev. Rul. 2004-72, 2004-30 I.R.B.77
Rev. Rul. 2004-73, 2004-30 I.R.B.80
Rev. Rul. 2004-74, 2004-30 I.R.B.84
92-105
Distinguished by
Rev. Rul. 2004-86, 2004-33 I.R.B.191
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2004–1 through 2004–26 is in Internal Revenue Bulletin 2004–26, dated June 28, 2004.
2004–38 I.R.B.iiiSeptember 20, 2004
*U.S.G.P.O.: 2004—304–778/60153