Internal Revenue Bulletin 2004-42 (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
4-42
October 18, 2004
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
T.D. 9158, page 665.
REG–169135–03, page 697.
Final, temporary, and proposed regulations under sections 338
and 1060 of the Code will affect the treatment of certain nu-
clear decommissioning funds in the allocation of purchase price
in deemed and actual asset acquisitions. The rule will not ap-
ply to nuclear decommissioning funds qualifying under section
468A. The new treatment is elective on the part of taxpayers.
REG–10128
2–04, page 698.
Proposed r
egulations under section 269B of the Code gener-
ally treat
a stapled foreign corporation as a domestic corpora-
tion for U
.S. federal income tax purposes, unless the stapled
foreign c
orporation and the corresponding domestic stapled
corporat
ion are foreign-owned. Under the regulations, while
astapled
foreign corporation is not an includible corporation
under se
ction 1504(b) for most purposes, it may be an includi-
ble corp
oration for purposes of regulations sections 1.904(i)–1
and 1.86
1–11T(d)(6). They also provide that a conversion of a
domesti
c corporation to a foreign corporation (or vice versa) as
aresult
of section 269B is treated as an F reorganization; limit
the app
lication of treaty benefits to stapled foreign corpora-
tions;
provide special collection procedures for tax liabilities of
staple
d foreign corporations; address issues involving multiple
classe
s of stock in determining whether a foreign corporation
is a sta
pled foreign corporation; and provide the Commissioner
with a
uthority to disregard certain stapled stock structures in-
volvi
ng related parties. A public hearing is scheduled for De-
cembe
r 15, 2004.
Rev. Proc. 2004–59, page 678.
This procedure describes the section 1441 Voluntary Compli-
ance Program (VCP) which is available to certain withholding
agents with respect to the withholding, payment, and reporting
of certain taxes due on payments to foreign persons.
ESTATE TAX
REG–145988–03, page 693.
Proposed regulations relate to the predeceased parent rule,
which provides an exception to the general rules of section
2651 of the Code for determining the generation assignment of
a transferee of property for generation-skipping transfer (GST)
purposes. The proposed regulations also provide rules regard-
ing a transferee assigned to more than one generation. A pub-
lic hearing is scheduled for December 14, 2004.
EMPLOYMENT TAX
Rev. Rul. 2004–98, page 664.
Parking reimbursements.This ruling holds that certain
amounts paid to an employee as “reimbursements” for a
parking expense that the employee supposedly “paid” through
a salary reduction are wages for purposes of the Federal
Insurance Contributions Act (FICA), the Federal Unemployment
Tax Act (FUTA), and the collection of income tax at source on
wages (federal income tax withholding).
(Continued on the next page)
Fi
nding Lists begin on page ii.

TAX CONVENTIONS
Announcement 2004–81, page 675.
This announcement provides the rates for various types of in-
come under a new income tax treaty with Sri Lanka. The treaty
is generally effective January 1, 2004. The tables in this an-
nouncement can be used, depending on the effective dates to
supplement Tables 1 and 2 of Publication 515,Withholding of
Tax on Nonresident Aliens and Foreign Entities (For Withholding
in 2004)and Publication 901,U.S. Tax Treaties.
ADMINISTRATIVE
T.D. 9156, page 669.
Final regulations under section 6091 of the Code relate to the
filing of hand-carried returns and other documents, remove ref-
erences to IRS titles and organizational units that have been
superseded, and replace them with updated references to of-
fices and officers that are sufficiently flexible to take into ac-
count any future changes to structure or operations of the IRS.
REG–101282–04, page 698.
Proposed regulations under section 269B of the Code gener-
ally treat a stapled foreign corporation as a domestic corpora-
tion for U.S. federal income tax purposes, unless the stapled
foreign corporation and the corresponding domestic stapled
corporation are foreign-owned. Under the regulations, while
a stapled foreign corporation is not an includible corporation
under section 1504(b) for most purposes, it may be an includi-
ble corporation for purposes of regulations sections 1.904(i)–1
and 1.861–11T(d)(6). They also provide that a conversion of a
domestic corporation to a foreign corporation (or vice versa) as
a result of section 269B is treated as an F reorganization; limit
the application of treaty benefits to stapled foreign corpora-
tions; provide special collection procedures for tax liabilities of
stapled foreign corporations; address issues involving multiple
classes of stock in determining whether a foreign corporation
is a stapled foreign corporation; and provide the Commissioner
with authority to disregard certain stapled stock structures in-
volving related parties. A public hearing is scheduled for De-
cember 15, 2004.
Notice
2004–66, page 677.
The Ser
vice is suspending certain income limitation require-
ments u
nder section 42 of the Code for certain low-income
housin
g credit properties in Florida as a result of the devasta-
tion ca
used by Hurricane Charley and Hurricane Frances.
Rev. Proc. 2004–60, page 682.
Per diemallowances.This procedure provides rules for
deeming substantiated the amount of certain reimbursed trav-
elingexpensesofanemployeeaswellasoptionalrulesfor
determining the amount of deductible meals and incidental ex-
penses while traveling away from home. Rev. Proc. 2003–80
superseded.
October 18, 20042004–42 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.
2004–42 I.R.B.October 18, 2004

Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 62.—Adjusted
Gross Income Defined
26 CFR 1.62–2: Reimbursements and other expense
allowance arrangements.
Rules are set forth under which a reimbursement or
other expense allowance arrangement for the cost of
lodging, meal, and incidental expenses, or for meal
and incidental expenses, incurred by an employee
while traveling away from home will satisfy the re-
quirements of § 62(c) of the Code as to substantia-
tion of the amount of the expenses. See Rev. Proc.
2004-60, page 682.
Section 132.—Certain
Fringe Benefits
26 CFR 1.132–9(b): Qualified transportation
fringes.
Parking reimbursements.This rul-
ing holds that certain amounts paid to
an employee as “reimbursements” for a
parking expense that the employee sup-
posedly “paid” through a salary reduction
are wages for purposes of the Federal
Insurance Contributions Act (FICA), the
Federal Unemployment Tax Act (FUTA),
and the collection of income tax at source
on wages (federal income tax withhold-
ing).
Rev. Rul. 2004–98
ISSUE(S)
Whether, under the facts described be-
low, the exclusion from gross income un-
der § 132(a)(5) applies to payments from
an employer to employees characterized as
“reimbursements” by the employer.
FACTS
Employer X decides to provide parking
for its employees. The parking will be on
or near X’s business premises.
Before X implements the arrangement
for parking, as described below, X pays
Employee A monthly wages of $1,500.
After withholding for employee FICA
tax of $114.75 and withholding for fed-
eral income tax of $83.80, A’s net pay is
$1,301.45.
Monthly wages
$1,500.00
FICA tax withholding(114.75)
Federal income tax
withholding
(83.80)
Net monthly payment
$1,301.45
X implements a payroll arrangement
under which the amount of its employ-
ees’ cash compensation is reduced in re-
turn for X providing parking. In addi-
tion, X makes “reimbursement” payments
to employees with respect to parking ex-
penses in amounts that cause employees’
net after-tax pay from X to be the same
amount as it would have been if there was
no compensation reduction. X takes the
position that both the compensation re-
duction amounts and the “reimbursement”
payments are excluded from gross income
of employees and are not subject to Federal
Insurance Contributions Act (FICA) tax,
Federal Unemployment Tax Act (FUTA)
tax, or federal income tax withholding.
X can make the compensation reduction
used to pay for parking under X’s payroll
arrangement mandatory or elective. For
example, X could unilaterally reduce all
employees’ salaries and provide parking to
all employees. Alternatively, X could offer
employees the choice, as permitted under
section 132(f)(4), between cash compen-
sation and parking, and provide parking to
the employees electing to reduce their cash
compensation.
After X implements the arrangement,
Employee A’s monthly wages of $1,500
are reduced by $100 in exchange for the
parking. From the remaining $1,400, X
withholds employee FICA tax of $105
and federal incometax of $73.30. X then
pays A an additional $79.75 as a purported
reimbursement of parking expenses, with
the result that A’s net pay remains at
$1,301.45.
Monthly wages
$1,400.00
FICA tax withholding(105.00)
Federal income tax
withholding
(73.30)
Subtotal
$1,221.70
Additional payment79.75
Net monthly payment
$1,301.45
LAW AND ANALYSIS
Section 132(a)(5) provides that any em-
ployer-provided fringe benefit that quali-
fies as a “qualified transportation fringe”
is excluded from gross income. Section
132(f)(1) provides that the term “quali-
fied transportation fringe” means (1) trans-
portation between home and work in a
commuter highway vehicle, (2) any tran-
sit pass, and (3) qualified parking. Under
§ 132(f)(5)(C), the term “qualified park-
ing” means parking provided by an em-
ployertoanemployeeonorneartheem-
ployer’s business premises.
Section 132(f)(4) provides that no
amount shall be included in the gross in-
come of an employee solely because the
employee may choose between any qual-
ified transportation fringe and compensa-
tion that would otherwise be includible in
the gross income of such employee.
Section 132(f)(3) provides that a qual-
ified transportation fringe includes a cash
reimbursement by an employer to an em-
ployee for qualified parking expenses.
Section 1.132–9(b) Q/A–16(a) of the reg-
ulations provides that a reimbursement
must be made under abona fidereim-
bursement arrangement within the mean-
ing of § 1.132–9(b) Q/A–16(c) in order to
be excluded from gross income. Section
1.132–9(b) Q&A–16(c) provides that em-
ployers that make cash reimbursements
must establish abona fidereimbursement
arrangement to establish that their em-
ployees have, in fact, incurred expenses
for qualified parking. The employer
must implement reasonable procedures to
ensure that an amount equal to the reim-
bursement was incurred by the employee
for qualified parking.
Sections 3121(a) and 3306(b) define
the term “wages” for FICA and FUTA
purposes, respectively, as all remunera-
tion for employment, including the cash
value of all remuneration (including bene-
fits) paid in any medium other than cash,
with certain specified exceptions. Section
3401(a) contains a similar definition for
purposes of federal income tax withhold-
ing. Sections 3121(a)(20), 3306(b)(16),
and 3401(a)(19) provide for purposes of
FICA, FUTA, and federal income tax with-
2004–42 I.R.B.664October 18, 2004

holding, respectively, that the definition
of “wages” does not include any benefit
provided to or on behalf of an employee
if, at the time such benefit is provided, it
is reasonable to believe that the employee
will be able to exclude such benefit from
income under § 132.
X’s position with respect to the trans-
action described in this ruling is meritless.
An employee may exclude from gross
income employer reimbursements for
qualified parking expenses, but only if
those expenses were actually incurred by
the employee. If an employee is given a
choice between cash compensation or an
employer-provided benefit under a statu-
tory exception to the constructive receipt
rules, such as § 132(f)(4), or if an employer
unilaterally reduces an employee’s cash
compensation for the purpose of providing
a non-taxable benefit, the benefit is treated
as provided directly by the employer rather
than purchased by the employee with the
amount of the compensation reduction.
Otherwise, the value of the benefit would
not be excluded from the employee’s
gross income. The cost of providing the
parking is incurred by Employer X, not
Employee A, and the value of the benefit
is excludable from A’s gross income under
§ 132(a)(5) because the parking is on or
near X’s business premises, and the park-
ing benefit is provided by X. Although
the § 132(a)(5) exclusion applies to the
qualified parking benefits provided by X,
there is no expense incurred by Employee
A for X to reimburse, and therefore the
“reimbursement” payments that X makes
to A are not excluded from gross income
under § 132(a)(5). The conclusion would
be the same whether the compensation
reduction was mandatory or elective. The
conclusion would also be the same if the
employer originally provided free parking
to employees and then upon implementing
the payroll arrangement purported to im-
pose a charge on employees for parking.
See also, Rev. Rul. 2002–3, 2002–1 C.B.
316, which holds that a purported reim-
bursement of health insurance premiums
paid by the employer, and not by em-
ployees, is not excludable from the gross
income of employees under §§ 106(a) and
105(b).
Because the “reimbursement” pay-
ments were not reimbursements of ex-
penses incurred by A for parking, it was
unreasonable for X to believe at the time
the “reimbursements” were paid to A that
A would be able to exclude the payments
from gross income under § 132(a)(5).
Thus, the “reimbursement” payments are
not excluded from wages for FICA, FUTA,
or federal income tax withholding pur-
poses under §§ 3121(a)(20), 3306(b)(16),
or 3401(a)(19), respectively.
HOLDING
The exclusion from gross income un-
der § 132(a)(5) does not apply to the
payments characterized by the employer
as “reimbursements.” Employee A has not
incurred an expense for parking for which
there can be a reimbursement. Accord-
ingly, amounts that Employer X pays to
Employee A purportedly as reimburse-
ments are included in Employee A’s gross
income and are wages subject to employ-
ment taxes under §§ 3121(a), 3306(b), and
3401(a). This is the outcome whether or
not the amounts of Employer X’s pay-
ments are calculated to provide Employee
A with the same net pay A received prior
to the implementation of the payroll ar-
rangement.
In addition, this ruling applies to ar-
rangements with respect to benefits other
than parking where: (1) an employee’s
salary (and gross income) is reduced in re-
turn for a non-taxable benefit, and (2) the
employer “reimburses” the employee for
some or all of the cost of the non-taxable
benefit and excludes the reimbursement
from the employee’s salary (and gross in-
come) even though that cost was paid by
the employer and not the employee.
DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Stephen D. Suetterlein of the Office
of Associate Chief Counsel (Tax Exempt
& Government Entities). For further infor-
mation regarding this revenue ruling, con-
tact Mr. Suetterlein at (202) 622–6040 (not
a toll-free call).
Section 162.—Trade or
Business Expenses
26 CFR 1.162–17: Reporting and substantiation of
certain business expenses of employees.
Rules are set forth for substantiating the amount
of a deduction or an expense for lodging, meal, and
incidental expenses, or for meal and incidental ex-
penses, incurred while traveling away from home that
most nearly represents current costs. See Rev. Proc.
2004-60, page 682.
Section 267.—Losses,
Expenses, and Interest With
Respect to Transactions
Between Related Taxpayers
26 CFR 1.267(a)–1: Deductions disallowed.
When a payor provides aper diemallowance to an
employee who is a related party, the rules set forth for
the deemed substantiation to the payor of the amount
of the employee’s ordinary and necessary business
expenses for lodging, meal, and incidental expenses
incurred while traveling away from home do not ap-
ply. See Rev. Proc. 2004-60, page 682.
Section 274.—Disallowance
of Certain Entertainment,
etc., Expenses
26 CFR 1.2
74–5: Substantiation requirements.
Rules are
set forth for an optional method for
substant
iating the amount of ordinary and necessary
business
expenses of an employee for lodging, meal,
and incid
ental expenses, or for meal and inciden-
tal expe
nses, incurred while traveling away from
home whe
n a payor provides aper diemallowance
under a r
eimbursement or other expense allowance
arrange
ment to pay for such expenses. Rules are
also set
forth for an optional method for employees
and self
-employed individuals to use in computing
the ded
uctible costs of business meal and incidental
expens
es paid or incurred while traveling away from
home. S
ee Rev. Proc. 2004-60, page 682.
Section 338.—Certain
Stock Purchases Treated
as Asset Acquisitions
26 CFR 1.338–6: Allocation of ADSP and AGUB
among target assets.
T.D. 9158
DEPARTMENT OF
THE TREASURY
Internal Revenue Service
26 CFR Part 1
Treatment of Certain Nuclear
Decommissioning Funds
for Purposes of Allocating
Purchase Price in Certain
October 18, 20046652004–42 I.R.B.

Deemed and Actual Asset
Acquisitions
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regula-
tions.
SUMMARY: This document contains fi-
nal and temporary regulations relating to
the allocation of purchase price in certain
deemed and actual asset acquisitions un-
der sections 338 and 1060. These regula-
tions affect sellers and purchasers of nu-
clearpowerplantsorofthestockofcor-
porations that own nuclear power plants.
The text of the temporary regulations also
serves as the text of the proposed regu-
lations (REG–169135–03) set forth in the
notice of proposed rulemaking on this sub-
ject in this issue of the Bulletin.
DATES:Effective Date:These regulations
are effective on September 15, 2004.
FOR FURTHER INFORMATION
CONTACT: Richard Starke at (202)
622–7790 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
Sections 338 and 1060 and the regula-
tions thereunder provide a methodology by
which the purchase or sales price in cer-
tain actual and deemed asset acquisitions is
computed and allocated among the assets
acquired or treated as acquired. The pur-
chase price generally includes liabilities
of the seller that are assumed by the pur-
chaser. Those liabilities, however, must
be treated as having been incurred by the
purchaser. In order to be treated as hav-
ing been incurred by the purchaser, in addi-
tion to other requirements, economic per-
formance must have occurred with respect
to the liability.
Sections 338 and 1060 and the regu-
lations promulgated thereunder employ a
residual method of allocation under which
assets are divided into seven classes and
the consideration is allocated to each of
the first six classes in turn, up to the fair
market value of the assets in the class.
The residual amount is allocated to assets
in the last class. Accordingly, under the
residual method of §1.338–6, the purchase
or sales price is first allocated to Class I
assets (cash and general deposit accounts
other than certain certificates of deposit),
then Class II assets (actively traded per-
sonal property, certificates of deposit, for-
eign currency, US government securities,
and publicly traded stock), then Class III
assets (assets that the taxpayer marks to
market at least annually and certain debt
instruments), then Class IV assets (inven-
tory), then Class V assets (assets that are
not assets of another class), then Class
VI assets (section 197 intangibles, except
goodwill and going concern value), and
then Class VII assets (goodwill and going
concern value). The ordering of the non-
residual classes generally reflects a pol-
icy of allocating basis first to those assets
that are susceptible to more accurate valua-
tion or the cost of which is recovered most
rapidly. See Notice of Proposed Rulemak-
ing REG–107069–97, 1999–2 C.B. 346,
350, 354 [64 FR 43462, 43465, 43469;
August 10, 1999].
In connection with the sale of a nuclear
power station, the assets sold by the seller
and purchased by the purchaser may in-
clude the plant, equipment, operating as-
sets, and one or more funds holding assets
that have been set aside for the purpose of
satisfying the owner’s responsibility to de-
commission the nuclear power station af-
ter the conclusion of its useful life (the
decommissioning liability), and the pur-
chaser may have agreed to satisfy the de-
commissioning liability. One or more of
the funds may be funds described in sec-
tion 468A (qualified funds). Contributions
to qualified funds are limited by statute
and regulations but give rise to a deduc-
tion in the year of contribution. The quali-
fied fund, not the contributor, is treated as
theowneroftheassetsofthefundandis
taxed on the income earned on the fund’s
assets. The assets of qualified funds are
not treated as sold or purchased in an ac-
tual or deemed sale of the assets of a cor-
poration that owns a nuclear power plant.
One or more of the funds, however, may
be funds that are not described in section
468A (nonqualified funds). Contributions
to nonqualified funds do not give rise to a
deduction in the year of contribution. In
addition, the assets of a nonqualified fund
continue to be treated as assets of the con-
tributor.
Because the decommissioning liability
will not satisfy the economic performance
test until decommissioning occurs, as of
the purchase date, it is not included in the
purchase price that the purchaser allocates
to the acquired assets. As a result, as of
the purchase date, the purchase price to
be allocated by the purchaser among the
acquired assets may be significantly less
than the fair market value of those assets.
This situation will generally persist un-
til economic performance with respect to
the decommissioning liability is satisfied
through decommissioning.
Under the residual method, the pur-
chase price is allocated to the nonqualified
fund’s assets, which are typically Class II
assets, before it is allocated to the plant,
equipment, and other operating assets,
which are typically Class V assets. Be-
cause the purchase price does not reflect
the decommissioning liability and is first
allocated to the assets of the nonquali-
fied fund, the purchase price allocated to
the plant, equipment, and other operating
assets may be less than their fair market
value. To the extent the purchase price
allocated to the plant, equipment, and
other operating assets is less than their
fair market value, the purchaser will not
recover a tax benefit (i.e., a depreciation
deduction) for the decommissioning liabil-
ity until economic performance occurs on
decommissioning. This result is appropri-
ate given Congress’s decision in enacting
section 468A not to allow a plant operator
a deduction prior to decommissioning for
funds set aside in excess of those amounts
set aside in qualified funds, and Con-
gress’s decision in enacting section 461(h)
not to allow a deduction for costs that do
not satisfy the economic performance test.
A number of commentators have ar-
gued that economic performance occurs
with respect to such decommissioning
liabilities at the time of the purchase.
These commentators have based their po-
sitions on section 461(h)(2)(A)(ii) and
§1.461–4(d)(5).
The IRS and Treasury Department do
not believe that this position is consis-
tent with the rule and policies of section
461(h)(2). Under section 461(h)(2)(A)(ii),
if a liability arises out of the providing of
property to the taxpayer by another person,
economic performance occurs as such per-
son provides such property. Decommis-
sioning liabilities are the same type of lia-
2004–42 I.R.B.666October 18, 2004

bilities to both the seller and the purchaser
and are fixed by the same circumstances,
specifically acquiring a power plant and
the license to operate it. The economic per-
formance rules look at the nature of the li-
ability and look to what the taxpayer is re-
quired to “perform” in order to satisfy the
liability. To the purchaser, merely acquir-
ing the power plant does not satisfy the
decommissioning liabilities. Instead, the
purchaser cannot be considered to satisfy
the liabilities until it performs those ser-
vices required to decommission the plant.
See section 461(h)(2)(B) (providing that
where the liability of the taxpayer requires
the taxpayer to provide property or ser-
vices, economic performance occurs as the
taxpayer provides such property or ser-
vice). Therefore, section 461(h)(2)(A)(ii)
does not apply to treat economic perfor-
mance as satisfied at the time of purchase.
With respect to the application of
§1.461–4(d)(5), that regulation provides
thatif,inconnectionwiththesaleor
exchange of a trade or business by a tax-
payer, the purchaser expressly assumes a
liability arising out of the trade or busi-
ness that the taxpayer (the seller) but for
the economic performance requirement
would have been entitled to incur as of the
date of the sale, economic performance
with respect to that liability occurs as the
amount of the liability is properly included
in the amount realized on the transaction
by the taxpayer (the seller). The IRS and
Treasury Department believe the “tax-
payer” described in §1.461–4(d)(5) is the
seller, and the acceleration of economic
performance is for the “taxpayer.” Section
1.461–4(d)(5) does not address the treat-
ment of the purchaser. This interpretation
is consistent with the discussion of the
preamble to that regulation. (T.D. 8408,
1992–1 C.B. 157, 160 [57 FR 12412–3,
12415–6; April 10, 1992].
Nonetheless, the IRS and Treasury
Department recognize the special circum-
stances related to the purchase and sale of
nuclear power plants and transfer of non-
qualified funds. The Nuclear Regulatory
Commission requires, as one of several
decommissioning alternatives available to
nuclear power plant operators, that funds
be established and maintained to fund de-
commissioning and related administrative
expenditures and that the use of such set
aside funds be primarily restricted to such
uses. Thus, although the assets in non-
qualified funds are relatively liquid, they
are ones to which the purchaser’s access
is significantly limited.
To mitigate the tax effect of these de-
commissioning liabilities’ not satisfying
the statutory requirements for economic
performance as to the purchaser, these
temporary regulations add §1.338–6T.
That regulation provides that, for pur-
poses of allocating purchase or sales price
among the acquisition date assets of a
target, a taxpayer may elect to treat a non-
qualified fund as if such fund were an
entity classified as a corporation the stock
of which were among the acquisition date
assets of the target and a Class V asset. In
these cases, for allocation purposes, the
hypothetical corporation will be treated as
bearing the responsibility for decommis-
sioning to the extent assets of the fund are
expected to be used for that purpose. A
section 338(h)(10) election will be treated
as made for the hypothetical corporation
(regardless of whether the requirements
for a section 338(h)(10) election are oth-
erwise satisfied).
The election provided for in these tem-
porary regulations converts the assets of
the nonqualified fund from primarily Class
IandClassIIassetstotheassetsofacor-
poration the stock of which is a Class V
asset and allows the present cost of the
decommissioning liability funded by the
nonqualified fund, which otherwise can-
not be taken into account for income tax
purposes, to be netted against the fund as-
sets for the sole purpose of valuing the
stock of the hypothetical subsidiary cor-
poration. Therefore, if this election were
made, it would be expected that the as-
sets of the nonqualified fund would be al-
located a much smaller amount of the ini-
tial purchase price than if no such elec-
tion had been made, and the disposition of
fund assets would result in gain. A larger
amount of the initial purchase price, how-
ever, would be available for allocation to
the plant and other operating assets.
This election is available for applica-
ble asset acquisitions and qualified stock
purchases on or after September 15, 2004.
The purchaser may make this election re-
gardless of whether the seller or sellers
also make the election. However, in the
case of a deemed asset acquisition under
section 338, if the target corporation is an S
corporation, all of theS corporation share-
holders, including those that do not sell
their stock, must consent to the election
for the election to be effective as to any
S corporation shareholder. In the case of
a deemed asset acquisition under section
338, the election is made by taking a po-
sition on an original or amended tax re-
turn for the taxable year of the qualified
stock purchase that is consistent with hav-
ing made the election. Such tax return,
however, must be filed no later than the
later of 30 days after the date on which the
section 338 election is due or the day the
original tax return for the taxable year of
the qualified stock purchase is due (with
extensions). The election is irrevocable. If
the transaction is an applicable asset acqui-
sition within the meaning of section 1060,
the election is made by taking a position on
the timely filed original return for the year
of the applicable asset acquisition.
Special Analyses
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. These temporary regula-
tions provide elective relief to certain pur-
chasers of stock and assets by providing
an alternative method for allocating basis
among acquired assets. It is necessary to
provide this relief immediately to remove
an impediment to such transactions. Ac-
cordingly, good cause is found for dispens-
ing with prior notice and comment pur-
suant to 5 U.S.C. 553(b) and for dispens-
ing with a delayed effective date pursuant
to 5 U.S.C. 553(d). For applicability of the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6), see the notice of proposed rulemak-
ing on this subject in this issue of the Bul-
letin. The IRS and the Treasury Depart-
ment request comments from small enti-
ties that believe they might be adversely
affected by these regulations. Pursuant to
section 7805(f) of the Code, these tempo-
rary regulations will be submitted to the
Chief Counsel for the Advocacy of the
Small Business Administration for com-
ment on their impact.
Drafting Information
The principal author of these regula-
tions is Richard Starke, Office of the As-
sociate Chief Counsel (Corporate).
*****
October 18, 20046672004–42 I.R.B.

Adoption of Amendments to the
Regulations
Paragraph 1. The authority citation for
part 1 is amended by adding entries in nu-
merical order to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.338–6T also issued under 26
U.S.C. 337(d), 338, and 1502. * * *
Par. 2. Section 1.338–0 is amended
by adding an entry in the list of captions
for paragraph (c)(5) of §1.338–6 and
§1.338–6T to read as follows:
§1.338–0 Outline of topics.
*****
§1.338–6 Allocation of ADSP and AGUB
among target assets.
*****
(c) * * *
(5) Allocation to certain nuclear decom-
missioning funds. [Reserved]
*****
§1.338–6T Allocation of ADSP and AGUB
among target assets (temporary).
(a) through (c)(4) [Reserved].
(c)(5) Allocation to certain nuclear de-
commissioning funds.
(d) [Reserved].
Par. 3. Section 1.338–6 is amended by
adding paragraph (c)(5) to read as follows:
§1.338–6 Allocation of ADSP and AGUB
among target assets.
*****
(c) * * *
(5)Allocation to certain nuclear de-
commissioning funds. [Reserved]. For fur-
ther guidance, see §1.338–6T.
*****
Par. 4. Section 1.338–6T is added to
read as follows:
§1.338–6T Allocation of ADSP and AGUB
among target assets (temporary).
(a) through (c)(4) [Reserved]. For fur-
ther guidance, see §1.338–6(a) through
(c)(4).
(5)Allocation to certain nuclear de-
commissioning funds—(i)General rule.
For purposes of allocating ADSP or
AGUB among the acquisition date as-
sets of a target (and for no other purpose),
a taxpayer may elect to treat a nonqualified
nuclear decommissioning fund (as defined
in paragraph (c)(5)(ii) of this section) of
the target as if—
(A) Such fund were an entity classified
as a corporation;
(B) The stock of the corporation were
among the acquisition date assets of the
target and a Class V asset;
(C) The corporation owned the assets of
the fund;
(D) The corporation bore the respon-
sibility for decommissioning one or more
nuclear power plants to the extent assets of
the fund are expected to be used for that
purpose; and
(E) A section 338(h)(10) election were
made for the corporation (regardless of
whether the requirements for a section
338(h)(10) election are otherwise satis-
fied).
(ii)Definition of nonqualified nuclear
decommissioning fund. A nonqualified
nuclear decommissioning fund means a
trust, escrow account, Government fund
or other type of agreement—
(A) That is established in writing by the
owner or licensee of a nuclear generating
unit for the exclusive purpose of funding
the decommissioning of one or more nu-
clear power plants;
(B) That is described to the Nuclear
Regulatory Commission in a report de-
scribed in 10 CFR 50.75(b) as providing
assurance that funds will be available for
decommissioning;
(C) That is not a Nuclear Decommis-
sioning Reserve Fund, as described in sec-
tion 468A;
(D) That is maintained at all times in the
United States; and
(E) The assets of which are to be used
only as permitted by 10 CFR 50.82(a)(8).
(iii)Availability of election.Pmay
make the election described in this para-
graph (c)(5) regardless of whether the sell-
ing consolidated group (or the selling affil-
iate or the S corporation shareholders) also
makes the election. In addition, the sell-
ing consolidated group (or the selling affil-
iate or the S corporation shareholders) may
make the election regardless of whether P
also makes the election. If T is an S corpo-
ration, all of the S corporation sharehold-
ers, including those that do not sell their
stock, must consent to the election for the
election to be effective as to any S corpo-
ration shareholder.
(iv)Time and manner of making elec-
tion. The election described in this para-
graph (c)(5) is made by taking a position
on an original or amended tax return for
the taxable year of the qualified stock pur-
chase that is consistent with having made
the election. Such tax return must be filed
no later than the later of 30 days after the
date on which the section 338 election is
due or the day the original tax return for
the taxable year of the qualified stock pur-
chase is due (with extensions).
(v)Irrevocability of election. An elec-
tion made pursuant to this paragraph (c)(5)
is irrevocable.
(vi)Effective date. This paragraph
(c)(5) applies to qualified stock purchases
occurring on or after September 15, 2004.
(d) [Reserved]. For further guidance,
see §1.338–6(d).
Par. 5. Section 1.1060–1 is amended by
revising the Outline of Topics in paragraph
(a)(3) to add an entry to reflect the addition
of paragraph (e)(1)(ii)(C); by adding a sen-
tence to the end of paragraph (c)(3); and
by adding paragraph (e)(1)(ii)(C) to read
as follows:
§1.1060–1 Special allocation rules for
certain asset acquisitions.
(a) * * *
(3) * * *
*****
(e) Reporting requirements.
(1) Applicable asset acquisitions.
(ii) Time and manner of reporting.
(C) Election describedin §1.338–6T(c)(5).
*****
(c) * * *
(3) * * * For further guidance, see
§1.1060–1T.
(e) * * *
(1) * * *
(ii) * * *
(C)Allocation to certain nuclear de-
commissioning funds.[Reserved].Forfur-
ther guidance, see §1.338–6T.
*****
Par. 6. Section 1.1060–1T is added to
read as follows:
§1.1060–1T Special allocation rules for
certain asset acquisitions (temporary).
(a) through (c)(2) [Reserved]. For fur-
ther guidance, see §1.1060–1(a) through
(c)(2).
2004–42 I.R.B.668October 18, 2004

(c)(3)Certain costs. The seller and
purchaser each adjusts the amount allo-
cated to an individual asset to take into
account the specific identifiable costs in-
curred in transferring that asset in connec-
tion with the applicable asset acquisition
(e.g., real estate transfer costs or security
interest perfection costs). Costs so allo-
cated increase, or decrease, as appropriate,
the total consideration that is allocated un-
der the residual method. No adjustment
is made to the amount allocated to an in-
dividual asset for general costs associated
with the applicable asset acquisition as a
whole or with groups of assets included
therein (e.g., non-specific appraisal fees or
accounting fees). These latter amounts are
taken into account only indirectly through
their effect on the total consideration to
be allocated. If an election described in
§1.338–6T(c)(5) is made with respect to an
applicable asset acquisition, any allocation
of costs pursuant to this paragraph (c)(3)
shall be made as if such election had not
been made. The preceding sentence ap-
plies to applicable asset acquisitions occur-
ring on or after September 15, 2004.
(c)(4) through (e)(1)(ii)(B) [Reserved].
For further guidance, see §1.1060–1(c)(4)
through (e)(1)(ii)(B).
(e)(1)(ii)(C)Election described in
§1.338–6T(c)(5)—(1)Availability.The
election described in§1.338–6T(c)(5) is
available in respect of an applicable asset
acquisition provided that the requirements
of that section are satisfied. Such election
may be made by the seller, regardless of
whether the purchaser also makes the elec-
tion, and may be made by the purchaser,
regardless of whether the seller also makes
the election.
(2)Time and manner of making
election. The election described in
§1.338–6T(c)(5) is made by taking a po-
sition on a timely filed original tax return
for the taxable year of the applicable asset
acquisition that is consistent with having
made the election.
(3)Irrevocability of election. The elec-
tion described in §1.338–6T(c)(5) is irre-
vocable.
(4)Effective date. This paragraph
(e)(1)(ii)(C) appliesto applicable asset ac-
quisitions occurring on or after September
15, 2004.
(e)(2) [Reserved]. For further guid-
ance, see §1.1060–1(e)(2).
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
Approved September 8, 2004.
Gregory F. Jenner,
Acting Assistant Secretary of the Treasury.
(Filed by the Office of the Federal Register on September
15, 2004, 8:45 a.m., and published in the issue of the Federal
Register for September 16, 2004, 69 F
.R. 55740)
Section 1060.—Special
Allocation Rules for Certain
Asset Acquisitions
Regulations relate to the allocation of purchase
price in certain deemed and actual asset acquisitions
under sections 338 and 1060. See T.D. 9158, page
665. See REG-169135-03, page 697.
Section 6091.—Place for
Filing Returns or Other
Documents
26 CFR 1.6091–2: Place for filing income tax re-
turns.
T.D. 9156
DEPARTMENT OF
THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 20, 25, 31,
40, 41, 44, 53, 55, 156, and
301
Place for Filing
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains final
regulations that update obsolete references
in the existing regulations under section
6091 of the Internal Revenue Code (Code)
regarding the place for filing hand-carried
returns and other documents. These final
regulations reflect changes in the organiza-
tional structure of the IRS but do not make
substantive changes to taxpayers’ current
ability to hand carry returns to a local IRS
office.
DATES: These final regulations are effec-
tive September 16, 2004.
FOR FURTHER INFORMATION
CONTACT: Emly B. Berndt of the Office
of the Associate Chief Counsel (Proce-
dure and Administration), Administrative
Provisions and Judicial Practice, (202)
622–4940 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
This document contains final regula-
tions that amend 26 CFR parts 1, 20, 25,
31, 40, 41, 44, 53, 55, 156, and 301 with
respect to the place for filing returns and
other documents under section 6091 of
the Code. These final regulations reflect
the changes in the IRS organizational
structure following the Internal Revenue
Service Restructuring and Reform Act
of 1998 (112 Stat. 685). These final
regulations specify where the IRS now
accepts hand-carried returns in a manner
consistent with the instructions in Notice
2003–19, 2003–1 C.B. 703, and do not
make any substantive changes to a tax-
payer’s ability to hand carry returns to a
local IRS office.
These final regulations remove the ex-
amples under §1.6091–4(a)(4), which are
obsolete due to various amendments to the
Code, and add an example in their place
that illustrates the application of the rules
in §1.6091–4(a)(2) and (3) to a current pro-
vision of the Code. These final regula-
tions also include one citation correction in
§1.6091–1(b). In certain cases, these final
regulations cross reference regulations that
contain references toobsolete IRS offices
or titles. Taxpayers in those cases should
continue to follow any updated instruc-
tions in other published guidance. See,
e.g., Notice 2003–19.
Special Analyses
It has been determined that these fi-
nal regulations are not a significant regu-
latory action as defined in Executive Or-
der 12866. Therefore, a regulatory assess-
ment is not required. It 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 final regulations
October 18, 20046692004–42 I.R.B.

for two reasons. First, these final regula-
tions reflect changes in the organizational
structure of the IRS and are rules con-
cerning agency organization, procedure, or
practice that are exempted from the notice
and comment requirement of 5 U.S.C. 553.
Second, for good cause, Treasury and the
IRS have determined that notice and pub-
lic procedure are impracticable, unneces-
sary, and contrary to the public interest be-
cause these final regulations do not make
substantive changes to taxpayers’ current
ability to hand carry returns to a local IRS
office. Instead, these final regulations re-
place obsolete references to IRS organi-
zations and titles with updated references
that are sufficiently flexible to take into ac-
count future changes to IRS structure or
operations. In addition, these final regula-
tions reflect existing instructions given to
taxpayers with respect to the hand-carry-
ing of returns. Because no notice of pro-
posed rulemaking is required, the provi-
sions of the Regulatory Flexibility Act (5
U.S.C. chapter 6) do not apply. Pursuant
to section 7805(f) of the Code, these fi-
nal regulations were submitted four weeks
priortofilingwiththeOffice of the Fed-
eral Registerto the Chief Counsel for Ad-
vocacy of the Small Business Administra-
tion for comment on their impact on small
business.
Drafting Information
The principal authors of these final
regulations are Ann M. Kramer and
Emly B. Berndt of the Office of the As-
sociate Chief Counsel (Procedure and
Administration), Administrative Provi-
sions and Judicial Practice Division.
*****
Amendments to the Regulations
Accordingly, 26 CFR parts 1, 20, 25,
31, 40, 41, 44, 53, 55, 156, and 301 are
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 * * *
§1.6091–1(b) [Amended]
Par. 2. Section 1.6091–1 is amended as
follows:
1. Paragraph (b)(1) is amended by
removing the reference “1.6031–1” and
adding “1.6031(a)–1” in its place.
2. Paragraph (b)(5) is amended by
removing the language “paragraph (d)
of §1.6035–1 and paragraph (d) of
§1.6035–2” and adding “§1.6035–1” in
its place.
3. Paragraph (b)(8) is amended by re-
moving the language “paragraph (d) of
§1.6042–1 and”.
4. Paragraph (b)(11) is amended by
removing the language “paragraph (b)
of §1.6044–1, and” and the parenthetical
“(relating to returns for calendar years
after 1962)”.
5. Paragraph (b)(12) is amended by
removing the language “(e)” and adding
“(j)(2)” in its place.
Par. 3. Section 1.6091–2 is amended as
follows:
1. The introductory text is amended
by removing the parenthetical “(relating to
income tax returns required to be filed with
the Director of International Operations)”
and adding the parenthetical “(relating to
certain international income tax returns)”
in its place.
2. Paragraph (a)(1) is revised.
3. Paragraph (b) is amended by remov-
ing the language “the district director for
the internal revenue district in which is lo-
cated” and adding “any person assigned
the responsibility to receive returns in the
local Internal Revenue Service office that
serves” in its place.
4. Paragraph (d)(1) is revised.
5. Paragraph (d)(2), first sentence, is
amended by removing the language “the
district director (or with any person as-
signed the administrative supervision of an
area, zone or local office constituting a per-
manent post of duty within the internal rev-
enue district of such director)” and adding
“any person assigned the responsibility to
receive hand-carried returns in the local In-
ternal Revenue Service office” in its place.
6. Paragraph (e)(1) is amended by re-
moving the language “internal revenue
district referred to in paragraph (a) of this
section” and adding “legal residence or
principal place of business of the person
required to make the return” in its place.
7. Paragraph (e)(2) is amended by re-
moving the language “internal revenue
district referred to in paragraph (b) of this
section” and adding “principal place of
business or principal office or agency of
the corporation” in its place.
8. Paragraph (f)(1) is amended by re-
moving the language “the district direc-
tor” and adding “any person assigned the
responsibility to receive returns in the lo-
cal Internal Revenue Service office” in its
place.
9. Paragraph (f)(2) is amended by re-
moving the language “the district direc-
tor” and adding “any person assigned the
responsibility to receive returns in the lo-
cal Internal Revenue Service office” in its
place.
10. Paragraph (g) is amended by re-
moving the language “the district direc-
tor” and adding “any person assigned the
responsibility to receive returns in the lo-
cal Internal Revenue Service office” in its
place.
The revisions read as follows:
§1.6091–2 Place for filing income tax
returns.
(a)Individuals, estates, and trusts.(1)
Except as provided in paragraph (c) of this
section, income tax returns of individuals,
estates,andtrustsshallbefiledwithany
person assigned the responsibility to re-
ceive returns at the local Internal Revenue
Service office that serves the legal resi-
dence or principal place of business of the
person required to make the return.
*****
(d) * * *
(1)Persons other than corporations.
Returns of persons other than corporations
which are filed by hand carrying shall be
filed with any person assigned the respon-
sibility to receive hand-carried returns in
the local Internal Revenue Service office
as provided in paragraph (a) of this sec-
tion.
*****
Par. 4. Section 1.6091–3 is amended by
revising the section heading and introduc-
tory text to read as follows:
§1.6091–3 Filing certain international
income tax returns.
The following income tax returns shall
be filed as directed inthe applicable forms
and instructions:
*****
Par. 5. Section 1.6091–4 is amended as
follows:
2004–42 I.R.B.670October 18, 2004

1. Paragraph heading for (a) is amended
by removing the language “district other
than required district” and adding “office
other than required office” in its place.
2. Paragraph (a)(1) is amended by re-
moving the language “internal revenue
district” and adding “Internal Revenue
Service office” in its place.
3. Paragraph (a)(2), first sentence is
amended by removing the language “a di-
rector of”.
4. Paragraph (a)(2), first sentence is
amended by removing the language “the
director” and adding “that service center”
in its place.
5. Paragraph (a)(2), first sentence is
amended by removing the language “with
him” and adding “there” in its place.
6. Paragraph (a)(2), second sentence is
amended by removing the language “di-
rector of a”.
7. Paragraph (a)(3)(i) is amended by
removing the language “the director of”.
8. Paragraph (a)(3)(i) is amended by
removing the language “district director”
and adding “members of the office” in its
place.
9. Paragraph (a)(3)(ii) is amended by
removing the language “director of a”.
10. Paragraph (a)(3)(iii) is amended by
removing the language “director of a”.
11. Paragraph (a)(4) is revised.
12. Paragraph (b) is amended by re-
moving the language “district” and adding
“Internal Revenue Service office” in its
place.
The revision reads as follows:
§1.6091–4 Exceptional cases.
(a) * * *
(4) The application of paragraphs (a)(2)
and (3) of this section may be illustrated by
the following example:
Example. The Commissioner has authorized the
Internal Revenue Service Center, Philadelphia, Penn-
sylvania (for all purposes except venue), to receive
Form 1120. Except for that authorization, A, a corpo-
ration with its principal place of business in Greens-
boro, North Carolina, is required to file its Form 1120
for Year X with the Internal Revenue Service Center,
Atlanta, Georgia. In addition, A may file an election
to defer development expenditures paid or incurred
in Year X. Under §1.616–2(e)(2) and applicable pub-
lished guidance (in this case Notice 2003–19, 2003–1
C.B. 703) that statement of election must be filed with
the service center that serves A’s principal place of
business where A filed its income tax return. A may
make that election on its income tax return or by fil-
ing it separately. Under paragraph (a)(2) of this sec-
tion, A may send its Form 1120 to either the Internal
Revenue Service Center, Philadelphia, Pennsylvania,
or to the Internal Revenue Service Center, Atlanta,
Georgia. If A files its statement of election separately
from its income tax return for Year X, then the state-
ment of election is not a proper attachment to A’s in-
come tax return and A should send the statement of
election to the Internal Revenue Service Center, At-
lanta, Georgia (with which A must, without regard to
paragraph (a)(2) of this section, file its income tax re-
turn), no later than the time prescribed for filing Form
1120 for Year X (including extensions).
*****
PART 20—ESTATE TAXES
Par. 6. The authority citation for part
20 continues to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
§20.6091–1 [Amended]
Par. 7. Section 20.6091–1 is amended
as follows:
1. Paragraph (a)(1) is amended by re-
moving the language “district” and adding
“location” in its place.
2. Paragraph (a)(2) is amended by re-
moving the language “The district direc-
tor (or with any person assigned the ad-
ministrative supervision of an area, zone or
local office constituting a permanent post
of duty within an internal revenue district
of such director) in whose district” and
adding “Any person assigned the respon-
sibility to receive returns in the local In-
ternal Revenue Service office serving the
location in which” in its place.
3. Paragraph (b) is amended by remov-
ing the language “the Director of Inter-
national Operations, Washington, DC, de-
pending upon the place” and adding “as”
in its place.
§20.6091–2 [Amended]
Par. 8. Section 20.6091–2 is amended
by removing the language “internal rev-
enue district” and adding “local Internal
Revenue Service office” in its place.
PART 25—GIFT TAXES
Par. 9. The authority citation for part
25 continues to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
§25.6091–1 [Amended]
Par. 10. Section 25.6091–1 is amended
as follows:
1. Paragraph (a), first sentence is
amended by removing the language “the
district director for the district in which the
legal residence or principal place of busi-
ness of the donor is located” and adding
“any person assigned the responsibility to
receive returns in the local Internal Rev-
enue Service office that serves the legal
residence or principal place of business of
the donor” in its place.
2. Paragraph (a), second sentence is
amended by removing the language “lo-
cated in an internal revenue district, the gift
tax return shall be filed with the district di-
rector for the internal revenue district in
which the donor’s principal place of busi-
ness is located” and adding “served by a
local Internal Revenue Service office, the
gift tax return shall be filed with any per-
son assigned the responsibility to receive
returns in that office” in its place.
3. Paragraph (b), second sentence is
amended by removing the language “the
district director (or with any person as-
signed the administrative supervision of an
area, zone or local office constituting a per-
manent post of duty within the internal rev-
enue district of such director)” and adding
“any person assigned the responsibility to
receive hand-carried returns in the local In-
ternal Revenue Service office” in its place.
4. Paragraph (c) is amended by remov-
ing the language “which is located in an in-
ternal revenue district” and adding “in the
United States” in its place.
5. Paragraph (c) is further amended by
removing the language “the Director of In-
ternational Operations, Washington, D.C.,
depending upon the place” and adding “as”
in its place.
§25.6091–2 [Amended]
Par. 11. Section 25.6091–2 is amended
by removing the language “internal rev-
enue district” and adding “local Internal
Revenue Service office” in its place.
PART 31—EMPLOYMENT TAXES
AND COLLECTION OF INCOME TAX
AT SOURCE
Par. 12. The authority citation for part
31 continues to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 13. Section 31.6091–1 is amended
as follows:
1. Paragraph (a), first sentence is
amended by removing the language “The”
and adding “Except as provided in para-
graph (c) of this section, the” in its place.
October 18, 20046712004–42 I.R.B.

2. Paragraph (a) is further amended by
removing from the first sentence the lan-
guage “the district director for the internal
revenue district in which is located” and
adding “any person assigned the responsi-
bility to receive returns in the local Inter-
nal Revenue Service office that serves” in
its place, and removing the last sentence.
3. Paragraph (b) is amended by re-
moving the language “the district director
for the district in which is located” and
adding “any person assigned the responsi-
bility to receive returns in the local Inter-
nal Revenue Service office that serves” in
its place.
4. Paragraph (c) is revised.
5. Paragraph (e)(1) is amended by re-
moving the language “the district director
(or with any person assigned the admin-
istrative supervision of an area, zone or
local office constituting a permanent post
of duty within the internal revenue district
of such director)” and adding “any per-
son assigned the responsibility to receive
hand-carried returns in the local Internal
Revenue Service office” in its place.
6. Paragraph (e)(2) is amended by re-
moving the language “the district director
(or with any person assigned the admin-
istrative supervision of an area, zone or
local office constituting a permanent post
of duty within the internal revenue district
of such director)” and adding “any per-
son assigned the responsibility to receive
hand-carried returns in the local Internal
Revenue Service office” in its place.
7. Paragraph (e)(3)(i) is amended by re-
moving the language “in any internal rev-
enue district” and adding “served by a lo-
cal Internal Revenue Service office” in its
place.
8. The heading for paragraph (f) is
amended by removing the language “dis-
trict other than required district”and
adding “office other than required office”
in its place.
9. Paragraph (f) is amended by remov-
ing the language “internal revenue district”
and adding “local Internal Revenue Ser-
vice office” in its place.
10. Paragraph (g) is amended by re-
moving the language “internal revenue
district” and adding “local Internal Rev-
enue Service office” in its place.
The revision reads as follows:
§31.6091–1 Place for filing returns.
*****
(c)Returns of taxpayers outside the
United States. The return of a person
(other than a corporation) outside the
United States having no legal residence or
principal place of business in the United
States, or the return of a corporation having
no principal place of business or principal
office or agency in the United States, shall
be filed with the Internal Revenue Service,
Philadelphia, Pennsylvania 19255, or as
otherwise directed in the applicable forms
and instructions.
*****
PART 40—EXCISE TAX
PROCEDURAL REGULATIONS
Par. 14. The authority citation for part
40 continues to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
§40.6091–1 [Amended]
Par. 15. Section 40.6091–1 is amended
as follows:
1. Paragraph (b)(1) is amended by re-
moving the language “the district director
for the internal revenue district in which is
located” and adding “any person assigned
the responsibility to receive hand-carried
returns in the local Internal Revenue Ser-
vice office that serves” in its place.
2. Paragraph (b)(2) is amended by re-
moving the language “the district director
for the internal revenue district in which is
located” and adding “any person assigned
the responsibility to receive hand-carried
returns in the local Internal Revenue Ser-
vice office that serves” in its place.
3. Paragraph (c) is amended by re-
moving the language “instructions of the
district director requiring that filing” and
adding “forms and instructions, or other
published guidance” in its place.
PART41—EXCISETAXONUSE
OF CERTAIN HIGHWAY MOTOR
VEHICLES
Par. 16. The authority citation for part
41 continues to read as follows:
Authority: 26 U.S.C. 7805.
§41.6091–1 [Amended]
Par. 17. Section 41.6091–1 is amended
as follows:
1. Paragraph (b)(1) is amended by re-
moving the language “the Commissioner
in the internal revenue district in which is
located” and adding “any person assigned
the responsibility to receive hand-carried
returns in the local Internal Revenue Ser-
vice office that serves” in its place.
2. Paragraph (b)(2) is amended by re-
moving the language “the Commissioner
in the internal revenue district in which is
located” and adding “any person assigned
the responsibility to receive hand-carried
returns in the local Internal Revenue Ser-
vice office that serves” in its place.
PART 44—EXCI
SE TAXES AND
GAMBLING
Par. 18. The authority citation for part
44 continues to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
§44.6091–1 [Amended]
Par. 19. Section 44.6091–1 is amended
as follows:
1. Paragraph (a), first sentence is
amended by removing the language “A”
and adding “Except as provided in para-
graph (b) of this section, a” in its place.
2. Paragraph (a), first sentence is fur-
ther amended by removing the language
“the district directorof internal revenue
for the district in which is located” and
adding “any person assigned the responsi-
bility to receive returns in the local Inter-
nal Revenue Service office that serves” in
its place.
3. Paragraph (a) is amended by remov-
ing the second sentence.
4. Paragraph (b) is amended by remov-
ing the language “any internal revenue dis-
trict” and adding “the United States” in its
place.
5. Paragraph (b) is further amended by
removing the language “Director, Interna-
tional Operations Division, Internal Rev-
enue Service, Washington, DC 20225” and
adding “Internal Revenue Service Center,
Cincinnati, Ohio 45999, or as otherwise di-
rected in the applicable forms and instruc-
tions” in its place.
6. Paragraph (d) is amended by re-
moving the language “the district director
(or with any person assigned the admin-
istrative supervision of an area, zone or
local office constituting a permanent post
of duty within the internal revenue district
of such director)” and adding “any per-
2004–42 I.R.B.672October 18, 2004

son assigned the responsibility to receive
hand-carried returns in the local Internal
Revenue Service office” in its place.
PART 53—FOUNDATION AND
SIMILAR EXCISE TAXES
Par. 20. The authority citation for part
53 continues to read as follows:
Authority: 26 U.S.C. 7805.
§53.6091–1 [Amended]
Par. 21. Section 53.6091–1 is amended
as follows:
1. Paragraph (a) is amended by remov-
ing the language “the district director for
the internal revenue district in which is lo-
cated” and adding “any person assigned
the responsibility to receive returns in the
local Internal Revenue Service office that
serves” in its place.
2. Paragraph (b) is amended by remov-
ing the language “the district director for
the internal revenue district in which is lo-
cated” and adding “any person assigned
the responsibility to receive returns in the
local Internal Revenue Service office that
serves” in its place.
3. Paragraph (c), second sentence is
amended by removing the language “the
district director (or with any person as-
signed the administrative supervision of an
area, zone or local office constituting a per-
manent post of duty within the internal rev-
enue district of such director)” and adding
“any person assigned the responsibility to
receive hand-carried returns in the local In-
ternal Revenue Service office” in its place.
4. Paragraph (d) is amended by remov-
ing the language “the district director” and
adding “any person assigned the responsi-
bility to receive returns in the local Internal
Revenue Service office” in its place.
§53.6091–2 [Amended]
Par. 22. Section 53.6091–2 is amended
by removing the language “internal rev-
enue district” and adding “local Internal
Revenue Service office” in its place.
PART 55—EXCISE TAXES AND
INVESTMENTS
Par. 23. The authority citation for part
55 continues to read, in part, as follows:
Authority: Secs. 6001, 6011, 6071,
6091,and7805***
§55.6091–1 [Amended]
Par. 24. Section 55.6091–1 is amended
as follows:
1. Paragraph (a) is amended by remov-
ing the language “the district director for
the internal revenue district in which is lo-
cated” and adding “any person assigned
the responsibility to receive returns in the
local Internal Revenue Service office serv-
ing” in its place.
2. Paragraph (b), second sentence is
amended by removing the language “the
district director (or with any person as-
signed the administrative supervision of an
area, zone or local office constituting a per-
manent post of duty within an internal rev-
enue district of such director)” and adding
“any person assigned the responsibility to
receive hand-carried returns in the local In-
ternal Revenue Service office” in its place.
§55.6091–2 [Amended]
Par. 25. Section 55.6091–2 is amended
by removing the language “internal rev-
enue district” and adding “local Internal
Revenue Service office” in its place.
PART 156—EXCISE TAX ON
GREENMAIL
Par. 26. The authority citation for part
156 continues to read, in part, as follows:
Authority: Secs. 6001, 6011, 6061,
6071, 6091, 6161, and 7805 * * *
Par. 27. Section 156.6091–1 is
amended as follows:
1. Paragraph (a) is amended by remov-
ing the language “the district director for
the internal revenue district in which is lo-
cated” and adding “any person assigned
the responsibility to receive returns in the
local Internal Revenue Service office that
serves” in its place.
2. Paragraph (b) is amended by remov-
ing the language “the district director for
the internal revenue district in which is lo-
cated” and adding “any person assigned
the responsibility to receive returns in the
local Internal Revenue Service office that
serves” in its place.
3. Paragraph (c) is amended by remov-
ing the language “the district director for
the internal revenue district in which is lo-
cated” and adding “any person assigned
the responsibility to receive returns in the
local Internal Revenue Service office that
serves” in its place.
4. Paragraph (d) is revised.
5. Paragraph (e), second sentence is
amended by removing the language “the
district director (or with any person as-
signed the administrative supervision of an
area, zone or local office constituting a per-
manent post of duty within an internal rev-
enue district of such director)” and adding
“any person assigned the responsibility to
receive hand-carried returns in the local In-
ternal Revenue Service office” in its place.
The revision reads as follows:
§156.6091–1 Place for filing chapter 54
(Greenmail) tax returns.
*****
(d)Returns of taxpayers outside the
United States. The return of a person
(other than a partnership or a corporation)
outside the United States having no legal
residence or principal place of business or
agency in the United States, or the return
of a partnership or a corporation having
no principal place of business or principal
office or agency in the United States, shall
be filed with the Internal Revenue Service,
Philadelphia, PA 19255, or as otherwise
directed in the applicable forms and in-
structions.
*****
§156.6091–2 [Amended]
Par. 28. Section 156.6091–2 is
amended by removing the language “with
any internal revenue district” and adding
“in any local Internal Revenue Service
office” in its place.
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 29. The authority citation for part
301 continues to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
§301.6091–1 [Amended]
Par. 30. Section 301.6091–1 is
amended as follows:
1. Paragraph (b)(1), first sentence is
amended by removing the language “the
district director (or with any person as-
signed the administrative supervision of an
area, zone or local office constituting a per-
manent post of duty within the internal rev-
enue district of such director) for the in-
ternal revenue district in which is located”
October 18, 20046732004–42 I.R.B.

and adding “any person assigned the re-
sponsibility to receive hand-carried returns
in the local Internal Revenue Service office
that serves” in its place.
2. Paragraph (b)(1), first sentence is
further amended by removing the language
“internal revenue district in which was”
and adding “local Internal Revenue Ser-
vice office serving” in its place.
3. Paragraph (b)(1), last sentence is
amended by removing the language “(i)
with the Office of International Opera-
tions, by hand carrying to such Office,
or (ii) with the office of the assistant re-
gional commissioner (alcohol and tobacco
tax) by hand carrying to such office” and
adding in its place the language “with an
office of the Alcohol and Tobacco Tax
and Trade Bureau, by hand carrying as
specified in regulations of the Alcohol and
Tobacco Tax and Trade Bureau, see, 27
CFR chapter I, subchapter F”.
4. Paragraph (b)(2) is amended by re-
moving the language “the district director
(or with any person assigned the adminis-
trative supervision of an area, zone or lo-
cal office constituting a permanent post of
duty within the internal revenue district of
such director) for the internal revenue dis-
trict in which is located” and adding “any
person assigned the responsibility to re-
ceive hand-carried returns in the local In-
ternal Revenue Service office that serves”
in its place.
5. Paragraph (b)(2), last sentence is
amended by removing the language “(i)
with the Office of International Opera-
tions, by hand carrying to such Office,
or (ii) with the office of the assistant re-
gional commissioner(alcohol and tobacco
tax) by hand carrying to such office” and
adding in its place the language “with an
office of the Alcohol and Tobacco Tax
and Trade Bureau, by hand carrying as
specified in regulations of the Alcohol and
Tobacco Tax and Trade Bureau, see, 27
CFR chapter I, subchapter F”.
6. Paragraph (c) is amended by remov-
ing the language “district director” and
adding “any person assigned the responsi-
bility to receive hand-carried returns in the
local Internal Revenue Service office” in
its place.
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
Approved July 13, 2004.
Gregory F. Jenner,
Acting Assistant Secretary of the Treasury.
(Filed by the Office of the Federal Register on September
15, 2004, 8:45 a.m., and published in the issue of the Federal
Register for September 16, 2004, 69 F.R. 55743)
2004–42 I.R.B.674October 18, 2004

Part II. Treaties and Tax Legislation
Subpart A.—Tax Conventions and Other Related Items
Supplemental Tables of
Income Tax Rates Under New
Income Tax Convention With
Sri Lanka
Announcement 2004–81
The United States recently exchanged
instruments of ratification for a new in-
come tax treaty with Sri Lanka.
Effective dates. The provisions relat-
ing to withholding tax at source are effec-
tive for amounts paid or credited on or after
September 1, 2004. For all other taxes, the
treaty is effective for tax periods beginning
on or after January 1, 2004.
Tables 1 and 2. The following tables
can be used to supplement Tables 1 and
2inPublication515,Withholding of Tax
on Nonresident Aliens and Foreign Entities
(For Withholding in 2004)and Publication
901,U.S. Tax Treaties. The footnotes in
Publication 901 that relate to the column
headings in these tables generally apply to
these new entries.
Table 1.Tax Rates on Income Other Than Personal Service Income
Income code number12367910 11 12 131421
Country/Code
10
a,b
10
a,b,c
10
a,b
15
a,d
15
a,d
0
a,g
10
a
10
a
10
a,e
300
f,h
30Sri LankaCE
IncomeCodes10 Industrial royalties
11 Copyright royalties — Motion pictures and Television
1 Interest paid by U.S. obligors — General12 Copyright royalties — Other
2 Interest on real property mortgages13 Real property income and Natural resources royalties
3 Interest paid to controlling foreign corporations14 Pensions and annuities
6 Dividends paid by U.S. corporations— General21 Social security payment
7 Dividends qualifying for direct dividend rate
9 Capital gains
F
ootnotes
aThe reduction in rate does not apply if the recipient hasa permanent establishment in the United States and the
property giving rise to the income is effectively connected with this permanent establishment. The reduction in rate
also does not apply if the property giving rise to the incomeis effectively connected with a fixed base in the United
States from which the recipient performs independent personal services.
bThe rate is 15% for contingent interest that does not qualifyas portfolio interest. Generally, this is interest based on
receipts, sales, income, or changes in the value of property.
cThe reduced rate does not apply to an excess inclusion for aresidual interest in a real estate mortgage investment
conduit (REMIC).
dThe rate applies to dividends paid by a real estate investment trust (REIT) only if the beneficial owner of the
dividends is (a) an individual holding less than a 10% interest in the REIT, (b) a person holding not more than 5% of
any class of the REIT’s stock and the dividends are paid on stock that is publicly traded, or (c) a person holding not
more than a 10% interest in the REIT and the REIT is diversified.
eThe rate is 5% for the rental of tangible personal property.
fExemption does not apply to U.S. Government (federal, state, or local) pensions and annuities; a 30% rate applies
to these pensions and annuities.
gThe exemption does not apply to a sale of a U.S. company’s stock representing ownership of 50% or more.
hDoes not apply to annuities.
October 18, 20046752004–42 I.R.B.

Table 2.Compensation for Personal Services PerformedinUnitedStatesExemptfrom
Withholding and U.S. Income Tax Under Income Tax Treaties
Category of personal services
CountryCode Purpose
Maximum
presence in
U.S.
Required
Employer or
Payer
Maximum
Amount of
Compensation
Article
No.
Sri Lanka16Independent personal services
2,3
183 daysAny contractor No limit15
20Public entertainment
3
183 daysAny contractor
$6,000 p.a.
4
18
17Dependent personal services
1,2
183 daysAny foreign
resident
No limit16
20Public entertainment
1
183 daysAny foreign
resident
$6,000 p.a.
4
18
19
Studying and training:
Remittances or allowances
5
No limitNo limit21(1)
Any foreign
resident
Compensation while gaining
experience
6
1 yearSri Lankan
resident
7
$6,000
21(2)
Footnotes
1The exemption does not apply if the employee’s compensation is borne by a permanent establishment or fixed base
that the employer has in the United States.
2Fees paid to a resident of Sri Lanka for services performed in the United States as a director of a U.S. corporation
are subject to U.S. tax.
3Exemption does not apply to the extent income is attributable to the recipient’s fixed U.S. base.
4Does not apply if the gross receipts (including reimbursements) exceed this amount during the year. Income is fully
exempt if visit is wholly or substantially supported by public funds of the United States or Sri Lanka or their
political subdivisions orlocal authorities.
5Applies only to a full-time student or trainee.
6Applies only if the training or experience is received from a person other than the alien’s employer.
7Applies also to a participant in a program sponsored bythe U.S. government or an international organization.
2004–42 I.R.B.676October 18, 2004

Part III. Administrative, Procedural, and Miscellaneous
Relief From Certain
Low-Income Housing
Credit Requirements Due
to Hurricane Charley and
Hurricane Frances
Notice 2004–66
The Internal Revenue Service is sus-
pending certain income limitation re-
quirements under § 42 of the Internal
Revenue Code for certain low-income
housing credit properties in Florida as a
result of the devastation caused by Hur-
ricane Charley and Hurricane Frances.
This relief is being granted pursuant to
the Service’s authority under § 42(n) and
§ 1.42–13(a) of the Income Tax Regula-
tions.
BACKGROUND
On August 13, 2004, and September 4,
2004, respectively, the President declared
major disasters for the State of Florida as a
result of Hurricane Charley and Hurricane
Frances. These declarations were made
under the Robert T. Stafford Disaster Re-
lief and Emergency Assistance Act, Title
42 U.S.C. 5121–5206 (2000 & Supp. I
2001). Subsequently, the Federal Emer-
gency Management Agency (FEMA) des-
ignated counties for Individual Assistance.
The State of Florida has requested that
the Service allow owners of low-income
housing credit projects to provide tempo-
rary housing in vacant units to individuals
displaced (displaced individuals) because
their homes were destroyed or damaged as
a result of the devastation caused by Hurri-
cane Charley and Hurricane Frances. The
State of Florida has further requested that
the temporary housing of the displaced in-
dividuals in low-income units without re-
gard to income not cause the owners to lose
low-income housing credits.
SUSPENSION OF INCOME
LIMITATION
Because of the widespread damage to
housing caused by the hurricanes, the Ser-
vice has determined that it is appropriate
to temporarily suspend certain income lim-
itation requirements under § 42 for qual-
ified low-income housing projects in the
State of Florida that are beyond the first
year of the credit period under § 42(f)(1).
The suspension will apply to low-income
housing projects, approved by the Florida
Housing Finance Corporation, in which
vacant units are rented to individuals dis-
placed by Hurricane Charley or Hurricane
Frances. The Florida Housing Finance
Corporation will determine the appropri-
ate period of temporary housing for each
project, not to extend beyond September
30, 2005.
During the temporary housing period
established by the Florida Housing Fi-
nance Corporation, the status of a vacant
unit (that is, market rate or low-income for
purposes of § 42) that becomes temporar-
ily occupied by a displaced individual
remains the same as the unit’s status be-
fore the displaced individual moves in.
Displaced individuals temporarily occu-
pying vacant units will not be treated as
low-income tenants under § 42(i)(3)(A)(ii)
(a low-income unit that was vacant before
theeffectivedateofthisnoticewillcon-
tinue to be treated as a vacant low-income
unit even if it houses a displaced individ-
ual and a market rate unit that was vacant
before the effective date of this notice will
continue to be treated as a vacant market
rate unit even if it houses a displaced in-
dividual). Thus, the fact that a vacant unit
becomes occupied by a displaced individ-
ual will not affect the building’s applicable
fraction under § 42(c)(1)(B) for purposes
of determining the building’s qualified
basis, nor will it affect the 20–50 test or
40–60 test of § 42(g)(1). If the income
of occupants in low-income units exceeds
140 percent of the applicable income lim-
itation, the temporary occupancy of a unit
by a displaced individual will not cause
application of the available unit rule under
§ 42(g)(2)(D)(ii). In addition, the project
owner is not responsible during the tem-
porary housing period to make attempts to
rent to low-income individuals the low-in-
come units housing displaced individuals.
All other rules and requirements of § 42
will continue to apply.
At the end of the temporary housing pe-
riod established by the Florida Housing Fi-
nance Corporation, the applicable income
limitations contained in § 42(g)(1), the
available unit rule under § 42(g)(2)(D)(ii),
and the requirement to make reasonable
attempts to rent vacant units to low-in-
come individuals resume. The suspension
of income limitations is subject to the re-
quirements listed below.
REQUIREMENTS FOR SUSPENSION
OF INCOME LIMITATIONS
To qualify for the suspension of income
limitations, the project owner must meet
all of the following requirements:
(1) Major Disaster Area
The displaced individual must have
resided in a Florida county designated
for Individual Assistance by FEMA as a
result of Hurricane Charley or Hurricane
Frances.
(2) Approval of Florida Housing Finance
Corporation
The project owner must obtain approval
from the Florida Housing Finance Corpo-
rationtoobtainthereliefdescribedinthis
notice. The Florida Housing Finance Cor-
poration will determine the appropriate pe-
riod of temporary housing for each project,
not to extend beyond September 30, 2005.
(3) Certificationsand Recordkeeping
To comply with the requirements of
§ 1.42–5, project owners are required to
maintain and certify certain information
concerning each displaced individual,
specifically: name, address, social secu-
rity number, and a statement signed under
penalties of perjury by the displaced in-
dividual that, because of damage to the
individual’s home in a Florida county
designated for Individual Assistance by
FEMA as a result of Hurricane Charley
or Hurricane Frances, the individual re-
quires temporary housing. The owner
must also certify the date the individual
began temporary occupancy and the date
the project will discontinue providing
temporary housing as established by the
Florida Housing Finance Corporation.
The certifications and recordkeeping for
displaced individuals must be maintained
as part of the annual compliance moni-
toring process with the Florida Housing
Finance Corporation.
October 18, 20046772004–42 I.R.B.

(4) Rent Restrictions
Rent for the low-income units housing
displaced individuals must not exceed the
existing rent-restricted rates for the low-
income units established under § 42(g)(2).
(5) Protection of Existing Tenants
Existing tenants in occupied low-in-
come units cannot be evicted or have their
tenancy terminated as a result of efforts to
provide temporary housing for displaced
individuals.
EFFECTIVE DATE
This notice is effective August 13, 2004
(the date of the President’s major disas-
ter declaration as a result of Hurricane
Charley).
PAPERWORK REDUCTION ACT
The collection of information contained
in this notice has been reviewed and ap-
proved by the Office of Management and
Budget in accordance with the Paperwork
Reduction Act (44 U.S.C. 3507) under
control number 1545–1907.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.
The collection of information in this
notice is in the section titled “REQUIRE-
MENTS FOR SUSPENSION OF IN-
COME LIMITATIONS,” under “(3) Cer-
tifications and Recordkeeping.” This in-
formation is required to enable the Service
and the Florida Housing Finance Corpora-
tion to verify that the individuals obtaining
temporary housing in approved low-in-
come housing projects are displaced from
their homes in a Florida county designated
for Individual Assistance by FEMA as a
result of Hurricane Charley and Hurricane
Frances. This information will be used
in the Florida Housing Finance Corpo-
ration’s compliance monitoring process.
The collection of information is required
to obtain a benefit. The likely respondents
are individuals, businesses, and nonprofit
institutions.
The estimated total annual recordkeep-
ing burden is 750 hours.
The estimated annual burden per
recordkeeper is approximately 15 minutes.
The estimated number of recordkeepers is
3,000.
Books or records relating to a collection
of information must be retained as long
as their contents may become material to
the administration of the internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
DRAFTING INFORMATION
The principal author of this notice is
Jack Malgeri of the Office of the Associate
Chief Counsel (Passthroughs and Special
Industries). For further information re-
garding this notice, contact Mr. Malgeri at
(202) 622–3040 (not a toll-free call).
26 CFR 1.1441–7: Offer to resolve issues arising from certain tax, withholding, and reporting obligations of U.S. withholding agents with respect topayments to
foreign persons.
Rev. Proc. 2004–59
TABLE OF CONTENTS
SECTION 1 GENERAL
............................................................................................. 679
.01Background. ............................................................................................... 679
.02Applicablelaw. ............................................................................................. 679
.03SummaryoftheSection1441VCP. ........................................................................... 679
.04Noeffectonorapplicabilitytootherobligations. ............................................................... 680
SECTION 2 ELIGIBLE WITHHOLDING AGENTS.................................................................... 680
.01Eligiblewithholdingagents. .................................................................................. 680
.02Withholdingagentscurrentlyunderexamination. ............................................................... 680
SECTION 3 TAX, WITHHOLDING, AND REPORTING OBLIGATIONS SUBJECT TO THE SECTION 1441
VCP
.................................................................................................. 680
.01Disclosuresandrepresentationsofwithholdingagent. ........................................................... 680
.02FailuressubjecttotheSection1441VCP. ...................................................................... 680
SECTION 4 SUBMISSION PROCEDURES............................................................................ 680
.01Ingeneral. ................................................................................................. 680
.02Requiredinformation. ....................................................................................... 680
.03Requireddocuments. ........................................................................................ 681
.04Signatures. ................................................................................................. 681
.05Powerofattorneyrequirements. .............................................................................. 681
.06Penaltyofperjurystatement. ................................................................................. 681
.07Markedletterandmarkedenvelope. ........................................................................... 681
.08Mailingaddress. ............................................................................................ 681
2004–42 I.R.B.678October 18, 2004

SECTION 5 PROCESSING OF SECTION 1441 VCP REQUESTS......................................................... 681
.01Inadequateorincompletesubmissionorrequestforadditionalinformation. ........................................ 681
.02Determiningtaxliability. .................................................................................... 681
.03Reviewofwithholdingagent’scorrectiveprocedures. ........................................................... 681
.04Othertaxliabilitiesorissues. ................................................................................. 681
.05Verification. ................................................................................................ 681
.06Acknowledgmentletter. ..................................................................................... 682
.07 Failure to reach resolution.................................................................................... 682
.08Applicabilityofsections6103and6110. ....................................................................... 682
.09Conferences. ............................................................................................... 682
SECTION 6 EFFECTIVE DATE AND SUNSET DATE.................................................................. 682
SECTION 7 PAPERWORK REDUCTION ACT........................................................................ 682
SECTION 8 CONTACT INFORMATION.............................................................................. 682
SECTION 1 GENERAL
.01 Background. This revenue proce-
dure describes the Section 1441 Voluntary
Compliance Program (the “Section 1441
VCP”), which is available to certain with-
holding agents with respect to the with-
holding, payment, and reporting of cer-
tain taxes due on payments to foreign per-
sons. “Payments” includes both actual and
deemed payments.
In Treasury Decision 8734, 1997–2
C.B. 109 [62 F.R. 53387], the Treasury
Department and the Internal Revenue Ser-
vice (the “IRS”) issued comprehensive
regulations (the “final regulations”) un-
der chapter 3 (sections 1441–1464) and
subpart G of Subchapter A of chapter
61 (sections 6041–6050S) of the Internal
Revenue Code. The final regulations were
amended by T.D. 8804, 1999–1 C.B. 793
[63 F.R. 72183], T.D. 8856, 2000–1 C.B.
298 [64 F.R. 73408], T.D. 8881, 2000–1
C.B. 1158 [65 F.R. 32152], and T.D.
9023, 2002–2 C.B. 955 [67 F.R. 70310].
The final regulations generally were ef-
fective January 1, 2001. In addition, in
Notice 2001–4, 2001–1 C.B. 267, Notice
2001–11, 2001–1 C.B. 464, and Notice
2001–43, 2001–2 C.B. 72, the IRS and
Treasury provided clarification and guid-
ance regarding certain aspects of the final
regulations.
Financial institutions have commented
that they have expended significant effort
to implement the final regulations. This ef-
fort has involved ongoing documentation
of account holders and major systems and
procedural changes. As part of this effort,
financial institutions have been identifying
tax deficiencies and failures in their sys-
tems and have come forward to the IRS to
disclose and resolve issues arising from the
effort to implement the final regulations.
To provide consistent treatment with re-
spect to withholding agents, this revenue
procedure formalizes a program for disclo-
sure and resolution of these implementa-
tion issues.
The IRS is initiating the Section 1441
VCP as a temporary program. See section
6 of this revenue procedure for the effec-
tive date and sunset date of the program.
See section 2 of this revenue procedure for
the withholding agents that are eligible to
participate in the program. See section 3
of this revenue procedure for the tax, with-
holding, and reporting obligations covered
by the Section 1441 VCP.
.02 Applicable law. The objective
of the Section 1441 VCP is to enhance
voluntary compliance among certain
withholding agents making payments
of U.S.-source dividends, interest, rents,
royalties, and other fixed or determinable,
annual or periodicalincome (“FDAP in-
come”) to foreign persons. Generally,
FDAP income received by a foreign per-
son from sources within the United States
is subject to tax under section 871(a)
or 881(a) of the Internal Revenue Code
(the “Code”). The tax is imposed on the
gross amount of income, generally at a
30-percent rate. Section 1441 of the Code
requires any person who pays to a foreign
person income subject to tax under section
871(a) or 881(a) to deduct and withhold
the 30-percent tax from the gross amount
paid. The rate of tax, and therefore the
withholding obligation, may be reduced
or eliminated under other provisions of
the Code or under an applicable income
tax treaty. A withholding agent is required
to determine the status of the persons to
whom it makes payments by obtaining
documentation from them and may with-
hold at a reduced rate on payments to
foreign persons only if the foreign person
has furnished the required documentation.
See § 1.1441–1et seq.of the Income Tax
Regulations. See also IRS Publication
515,Withholding of Tax on Nonresident
Aliens and Foreign Corporations.
.03 Summary of the Section 1441 VCP.
The Section 1441 VCP applies only to
tax and reporting obligations that relate
to Forms 1042 and 1042-S. It does not
apply to tax and reporting obligations that
relate to Forms 945 and 1099 except to the
extent that correction of a failure to doc-
ument U.S. persons or misclassification
of U.S. and foreign persons requires filing
or correction of thoseforms. The Section
1441 VCP does not provide substantive
determinations about a payment (such as
the amount, timing, character, or source
of such a payment) concerning whether or
to what extent it was an amount subject
to withholding. A withholding agent that
requests consideration under the Section
1441 VCP agrees to (1) identify those
areas in which it is not in compliance with
tax, withholding, and reporting obliga-
tions on payments to foreign persons; (2)
pay any tax, interest, and penalties (all as
determined by the IRS) due to satisfy its
outstanding tax, withholding, and report-
ing obligations; and (3) institute corrective
procedures that will ensure compliance in
the future with the withholding agent’s
tax, withholding, and reporting obliga-
tions. The IRS will not impose penalties
for identified underpayments or deficien-
cies if such underpayments or deficiencies
are due to reasonablecause. See section
5.02(3) of this revenue procedure. The IRS
October 18, 20046792004–42 I.R.B.

will provide the withholding agent with
a written acknowledgment, as described
in section 5.06 of this revenue procedure,
if the IRS finds the withholding agent’s
proposed procedures and policies relating
to tax, withholding, and reporting obli-
gations applicable to payments to foreign
persons are acceptable.
.04 No effect on or applicability to
other obligations. Subject to the limita-
tions described below, the Section 1441
VCP applies to tax, withholding, and re-
porting obligations under sections 1441,
1442, 1443, and 1461 and related tax,
withholding, and reporting obligations
under sections 3406 and 6041 through
6050N that arise from adjustments under
sections 1441, 1442, 1443, and 1461. The
Section1441VCPdoesnotapplytoand
does not affect any other tax or reporting
obligation. In addition, the Section 1441
VCP does not apply to and does not affect
any other obligations of the taxpayer or
the IRS that are not within the scope of
this revenue procedure.
SECTION 2 ELIGIBLE
WITHHOLDING AGENTS
.01 Eligible withholding agents. Except
as provided in section 2.02, a withhold-
ing agent is eligible for the Section 1441
VCP (an “eligible withholding agent”) if
it is a withholding agent, as defined in
§ 1.1441–7(a)(1) of the Income Tax Reg-
ulations, that is not a “qualified intermedi-
ary,” a “withholding foreign partnership,”
a “withholding foreign trust,” or an “eligi-
ble organization” as defined in section 2.01
of Rev. Proc. 2001–20, 2001–1 C.B. 738.
.02 Withholding agents currently under
examination. A withholding agent is not
eligible for the Section 1441 VCP if the
withholding agent is under examination
with respect to Form 1042 on the date of
the publication of this revenue procedure,
or if it comes under examination prior to
submitting the information required by
section 4 of this revenue procedure. For
this purpose, an examination is treated
as commencing on the date the withhold-
ing agent receives notification from the
IRS of an impending examination or of
an impending referral for examination.
This program also is not available to any
withholding agent that has a case pend-
inginAppealsorinlitigationonissues
involving tax, withholding, or reporting
obligations described in section 3 of this
revenue procedure.
SECTION 3 TAX, WITHHOLDING,
AND REPORTING OBLIGATIONS
SUBJECT TO THE SECTION 1441 VCP
.01 Disclosures and representations of
withholding agent. The Section 1441 VCP
allows a withholding agent to come for-
ward voluntarily to disclose withholding
deficiencies and reporting errors. The Sec-
tion 1441 VCP does not provide substan-
tive determinations about a payment (such
as the amount, timing, character, or source
of such a payment) concerning whether or
to what extent it was an amount subject to
withholding. The Section 1441 VCP will
proceed based on the withholding agent’s
disclosures and representations regarding,
for example, the amount, timing, charac-
ter, and source of payments, and the U.S.
or foreign status of a beneficial owner. The
issuance of an acknowledgment letter, as
described in section 5.06 of this revenue
procedure, is not a determination of the va-
lidity of those disclosures and representa-
tions, which remain subject to subsequent
examination.
.02 Failures subject to the Section 1441
VCP. The failures for which an eligible
withholding agent may make a submission
under the Section 1441 VCP are:
(1) Failure to withhold or pay the cor-
rect amount of tax on dividends, interest,
or other income that would properly be
taken into account on Form 1042 and that
is paid to foreign persons (sections 1441,
1442, and 1443);
(2) Failure to withhold or pay the cor-
rect amount of backup withholding tax as
the result of failure to document U.S. per-
sons or misclassification of U.S. and for-
eign persons (section 3406); and
(3) Failure to correctly report informa-
tion under section 1461 or, in the case of
failures described in(2) above, sections
6041–6050N.
SECTION 4 SUBMISSION
PROCEDURES
.01 In general. In general, a withhold-
ing agent submits a request under the
Section 1441 VCP through a letter to the
IRS at the address in section 4.08 of this
revenue procedure. The submission must
contain the information and documenta-
tion described in sections 4.02 and 4.03 of
this revenue procedure. The IRS will not
accept anonymous submissions under the
Section 1441 VCP.
.02 Required information. The request
for consideration under the Section 1441
VCP must contain the following informa-
tion:
(1) The name, address, and taxpayer
identification number of the withholding
agent.
(2) A description of the current proce-
dures that the withholding agent uses to
determine tax, withholding, and reporting
obligations regarding payments to foreign
persons.
(3) A description of the failures in the
withholding agent’s tax, withholding, and
reporting procedures for payments to for-
eign persons, how and why the failures oc-
curred, and the years affected by such fail-
ures.
(4) The number of persons affected by
such failures and how the number was de-
termined.
(5) A calculation of the total amount
of taxes the withholding agent failed to
withhold, pay, and/or report, not including
interest and penalties, for tax periods open
for assessment or collection under the
provisions of section 6501 of the Code.
This calculation should take into account
properly substantiated adjustments under
section 1463 of the Code. The withhold-
ing agent must agree to report and remit
all of its additional tax, interest, and penal-
ties (all as determined by the IRS), at the
completion of the IRS review. See section
5 of this revenue procedure. (However,
regarding the reasonable-cause exception
to penalties, see section 5.02(3) of this
revenue procedure.) In certain cases in-
volving large liabilities or underpayments,
the IRS will consider the withholding
agent’s proposal for payment of the lia-
bility or underpayment in more than one
installment, or will consider the withhold-
ing agent’s posting of a cash bond under
the procedures outlined in Rev. Proc.
84–58, 1984–2 C.B. 501. See section
5.02(4) of this revenue procedure.
(6) A detailed description of the correc-
tive procedures the withholding agent has
implemented or will implement to ensure
that payments to foreign persons will be
subject to the correct amount of withhold-
ing and that withheld amounts will be paid
2004–42 I.R.B.680October 18, 2004

over and reported to the IRS on the proper
forms in a timely manner.
(7) A statement signed by the withhold-
ing agent or its authorized representative
acknowledging and agreeing that the with-
holding agent’s participation in the section
1441 VCP will not constitute an audit of
the withholding agent.
.03 Required documents. The submis-
sion must be accompanied by the follow-
ing documentation:
(1) A statement that the withholding
agent is an eligible withholding agent.
(2) Copies of workpapers or sched-
ules that clearly explain the withholding
agent’s calculation of its correct tax liabil-
ity regarding payments to foreign persons
(see section 4.02(5) of this revenue pro-
cedure). The workpapers or schedules
should also show to which specific tax
returns and tax periods the liability relates.
(3) Copies of the original Forms 1042
and 945, if any, as filed that relate to the
above calculations.
.04 Signatures. The submission must
be signed by the withholding agent or the
withholding agent’s authorized represen-
tative.
.05 Power of attorney requirements. To
sign the submission or to appear before
the IRS in connection with the submis-
sion, a representative must comply with
the requirements of section 9 of Rev. Proc.
2004–1, 2004–1 I.R.B. 1.
.06 Penalty of perjury statement. The
following declaration must accompany a
Section 1441 VCP submission and any
factual information submitted after the
original submission or any change in
the submission at a later time: “Under
penalties of perjury, I declare that I have
examined this submission, including ac-
companying documents, and to the best
of my knowledge and belief, the facts
presented in support of the Section 1441
VCP request are true, correct, and com-
plete.” The declaration must be signed by
the withholding agent, not the withhold-
ing agent’s representative (described in
section 4.05 above).
.07 Marked letter and marked envelope.
The letter which transmits the submission
to the IRS must be marked “Section 1441
VCP” in the upper right-hand corner of
the letter, and the envelope containing the
submission must be marked “Section 1441
VCP” in the lower left-hand corner of the
envelope.
.08 Mailing address. The submission
must be mailed to the address shown be-
low. The IRS may issue an announcement
later which contains other addresses for the
mailing of Section 1441 VCP submissions.
Internal Revenue Service
290 Broadway
LMSB 12th Floor
New York, NY 10007
ATTN: Section 1441 VCP Coordinator
SECTION 5 PROCESSING OF
SECTION 1441 VCP REQUESTS
.01 Inadequate or incomplete submis-
sion or request for additional information.
If the submission fails to comply with the
provisions of this revenue procedure, or
if the IRS requires additional information,
the IRS representative assigned to the case
will contact the withholding agent or its
authorized representative and explain what
is needed to complete the submission. The
withholding agent will have 90 business
days from the date of this contact to pro-
vide the requested information. Any re-
quest for an extension of the 90-day time
period must be made prior to expiration of
the period and must be approved by the
Section 1441 VCP Coordinator or his or
her designated representative. If the re-
quested information is not received within
90 business days (plus any extension, if
granted), the matter will be closed, and the
IRS may consider the case for examina-
tion.
.02 Determining tax liability. Once the
IRS accepts the submission under the Sec-
tion 1441 VCP, the IRS will analyze the
withholding agent’s calculation of its tax
liability regarding payments to foreign per-
sons and will analyze the accompanying
workpapers, schedules, and returns that
support such calculation. The IRS gener-
ally will apply the following approach to
determine a withholding agent’s liability
for tax, interest, and penalties:
(1) The IRS will normally allow re-
duced rates of withholding in the computa-
tion of any adjustments to taxes and with-
holding of taxes on payments to foreign
persons if the withholding agent has prop-
erly documented the foreign persons and
if the documentation relates to the time of
payment.
(2) Interest on the withholding agent’s
underpayments will be due from the last
date prescribed for payment of the taxes
(determined without regard to the Section
1441 VCP or any extension of time for
payment) to the date on which payment is
received.
(3) The IRS will not assert any penal-
ties on the withholding agent’s liability
if the withholding agent’s failure to with-
hold, pay, and report is due to reasonable
cause.
(4) In certain cases involving large lia-
bilities, the IRS will consider the withhold-
ing agent’s proposal for payment of the lia-
bility in more than one installment. See In-
ternal Revenue Manual (IRM) Handbook
4.20.4, Examination Collectibility Hand-
book. Applicants may also wish to avail
themselves of the procedures for making a
deposit in the nature of a cash bond as con-
tained in Rev. Proc. 84–58, 1984–2 C.B.
501.
.03 Review of withholding agent’s cor-
rective procedures. The withholding agent
must demonstrate to the satisfaction of the
IRS that it has implemented (or that it
has plans for implementing) the corrective
procedures described in its submission un-
der section 4.02(6). The IRS will review
the corrective procedures to assure itself
that these proceduresare reasonably likely
to bring the withholding agent into com-
pliance on a prospective basis. The IRS
will discuss with the withholding agent
the effectiveness of its corrective proce-
dures. The IRS reserves the right to re-
quire modifications to the corrective pro-
cedures or to require additional corrective
procedures before it will issue an acknowl-
edgment letter, as described in section 5.06
below. Where the IRS believes that the
corrective procedures are not adequate to
ensure compliance with the relevant tax,
withholding, and reporting requirements,
the IRS will not issue such an acknowledg-
ment letter.
.04 Other tax liabilities or issues. If
while considering the request the IRS dis-
covers an unrelated tax liability that prop-
erly could have been the subject of the
Section 1441 VCP submission but was not
properly identified in the submission, that
issue will remain outside the scope of the
Section 1441 VCP.
.05 Verification. As part of the process-
ing of the Section 1441 VCP submission,
the IRS reserves the right to verify that cor-
rections have been made to the withhold-
ing agent’s tax, withholding, and reporting
October 18, 20046812004–42 I.R.B.

procedures with respect to payments to for-
eign persons. Verification of such correc-
tions does not constitute an examination
of the books and records of the withhold-
ing agent. If the IRS determines that the
withholding agent has not implemented or
does not plan to implement the proper cor-
rections and procedures, the case may be
considered for examination. More gener-
ally, the IRS does not contemplate opening
examinations on issues properly within the
scope of a Section 1441 VCP submission
but reserves the right to do so. If the IRS
decides to examine the withholding agent,
the examination will be commenced and
completed as soon as possible.
.06 Acknowledgment letter. If, at the
conclusion of its review, the IRS is satis-
fied that the withholding agent has insti-
tuted policies and procedures that ensure
that the correct amounts of taxes on pay-
ments to foreign persons will be withheld,
paid, and reported to the IRS on the proper
forms in a timely manner, and has paid its
outstanding liabilities as determined under
section 5.02 of this revenue procedure (or
has entered into an arrangement for such
payment as described in section 5.02(4)),
then the IRS will issue to the withhold-
ing agent an acknowledgment letter. The
letter shall indicate that, based upon the
IRS review, the withholding agent is at
that time in substantial compliance with
its tax, withholding, and reporting obli-
gations with respect to payments to for-
eign persons. However, the Section 1441
VCP does not provide substantive deter-
minations about a payment (such as the
amount, timing, character, or source of
such a payment) concerning whether or to
what extent it was an amount subject to
withholding, and an acknowledgment let-
ter shall expressly state that the substan-
tial-compliance acknowledgment does not
apply to whether or to what extent pay-
ments are amounts subject to withholding.
After the withholding agent has received
an acknowledgment letter at the comple-
tion of the Section 1441 VCP process, and
provided that the withholding agent in fact
complies with the agreed upon withhold-
ing, payment, and reporting procedures,
the information submitted by the withhold-
ing agent to the IRS under the Section 1441
VCP will not be used as the basis to initiate
an examination of the withholding agent
concerning issues within the scope of the
acknowledgment letter for prior tax years
that were the subject of the Section 1441
VCP submission.
.07 Failure to reach resolution. If res-
olution cannot be reached because suffi-
cient information is not timely provided to
the IRS or because agreement cannot be
reached on corrective procedures, the IRS
may consider the case for examination.
.08 Applicability ofsections 6103 and
6110. The information received or gen-
erated by the IRS under the Section 1441
VCP is subject to the confidentiality re-
quirements of section 6103 of the Code.
The acknowledgment letter is not a written
determination letter within the meaning of
section 6110.
.09 Conferences. If the IRS declines to
issue an acknowledgment letter because
the parties cannot agree upon the amount
of tax, interest, and penalties due, or upon
the required corrective procedures, the
withholding agent may request a confer-
ence. The IRS, in its discretion, may grant
or deny the conference request. The con-
ference may be held either in person or
by telephone. If a conference request is
granted, an IRS representative will contact
the withholding agent.
SECTION 6 EFFECTIVE DATE AND
SUNSET DATE
The Section 1441 VCP is effective on
September 29, 2004. It will be available
for submissions made on or before Decem-
ber 31, 2005.
SECTION 7 PAPERWORK
REDUCTION ACT
The collections of information con-
tained in this revenue procedure have been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act (44
U.S.C. § 3507) under control number
1545–1901.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
control number.
The collections of information con-
tained in this revenue procedure are in
section 4.02 and section 4.03(2). This in-
formation will enable the IRS to determine
whether a withholding agent qualifies for
the Section 1441 VCP. The collections
of information are voluntary. The likely
respondents are financial institutions and
other businesses.
The estimated total annual reporting
burden is 200,000 hours.
The estimated average annual burden
per respondent is 400 hours. The estimated
number of respondents is 500.
The estimated annual frequency of re-
sponses is on occasion.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by 26 U.S.C. § 6103.
SECTION 8 CONTACT INFORMATION
For further information regarding the
Section 1441 VCP contact the Section
1441 VCP Coordinator at (212) 298–2288
(not a toll-free number).
26 CFR 601.105: Examination of returns and claims
for refund, credit, or abatement; determination of
correct tax liability.
(Also, Part I, §§ 62, 162, 267, 274; 1.62–2, 1.162–17,
1.267(a)–1, 1.274–5.)
Rev. Proc. 2004–60
SECTION 1. PURPOSE
This revenue procedure updates Rev.
Proc. 2003–80, 2003–45 I.R.B. 1037, by
providing rules under which the amount of
ordinary and necessary business expenses
of an employee for lodging, meal, and
incidental expenses or for meal and inci-
dental expenses incurred while traveling
away from home are deemed substantiated
under §1.274–5 of the Income Tax Reg-
ulations when a payor (the employer, its
agent, or a third party) provides aper diem
allowance under a reimbursement or other
expense allowance arrangement to pay for
the expenses. In addition, this revenue
procedure provides an optional method
for employees and self-employed individ-
uals who pay or incur meal costs to use
in computing the deductible costs of busi-
ness meal and incidental expenses paid or
incurred while traveling away from home.
This revenue procedure also provides an
optional method for use in computing
the deductible costs of incidental expenses
2004–42 I.R.B.682October 18, 2004

paid or incurred while traveling away from
home by employees and self-employed in-
dividuals who do not pay or incur meal
costs and who are not reimbursed for the
incidental expenses. Use of a method de-
scribed in this revenue procedure is not
mandatory, and a taxpayer may use actual
allowable expenses if the taxpayer main-
tains adequate records or other sufficient
evidence for proper substantiation. This
revenue procedure does not provide rules
under which the amount of an employee’s
lodging expenses will be deemed substan-
tiated when a payor provides an allowance
to pay for those expenses but not meal and
incidental expenses.
SECTION 2. BACKGROUND AND
CHANGES
.01 Section 162(a) of the Internal Rev-
enue Code allows a deduction for all the or-
dinary and necessary expenses paid or in-
curred during the taxable year in carrying
on any trade or business. Under that pro-
vision, an employee or self-employed in-
dividual may deduct expenses paid or in-
curred while traveling away from home in
pursuit of a trade or business. However,
under § 262, no portion of the travel ex-
penses that is attributable to personal, liv-
ing, or family expenses is deductible.
.02 Section 274(n) generally limits the
amount allowable as a deduction under
§162 for any expense for food, bever-
ages, or entertainment to 50 percent of
the amount of the expense that otherwise
would be allowable as a deduction. In the
case of any expenses for food or bever-
ages consumed while away from home
(within the meaning of § 162(a)(2)) by an
individual during, or incident to, the pe-
riod of duty subject to the hours of service
limitations of the Department of Trans-
portation, § 274(n)(3) gradually increases
the deductible percentage to 80 percent for
taxable years beginning in 2008. For tax-
able years beginning in 2004 and 2005, the
deductible percentage for these expenses
is 70 percent.
.03 Section 274(d) provides, in part,
that no deduction is allowed under § 162
for any travel expense (including meals
and lodging while away from home) unless
the taxpayer complies with certain sub-
stantiation requirements. Section 274(d)
further provides that regulations may pre-
scribe that some or all of the substantiation
requirements do not apply to an expense
that does not exceed an amount prescribed
by the regulations.
.04 Section 1.274–5(g), in part, grants
the Commissioner the authority to pre-
scribe rules relating to reimbursement
arrangements orper diemallowances for
ordinary and necessary expenses paid or
incurred while traveling away from home.
Pursuant to this grant of authority, the
Commissioner may prescribe rules under
which these arrangements or allowances,
if in accordance with reasonable busi-
ness practice, will be regarded (1) as
equivalent to substantiation, by adequate
records or other sufficient evidence, of the
amount of travel expenses for purposes
of § 1.274–5(c), and (2) as satisfying the
requirements of an adequate accounting
to the employer of the amount of travel
expenses for purposes of § 1.274–5(f).
.05 For purposes of determining ad-
justed gross income,§ 62(a)(2)(A) allows
an employee a deduction for expenses al-
lowedbyPartVI(§161andfollowing),
subchapter B, chapter 1 of the Code, paid
or incurred by the employee in connection
with the performance of services as an em-
ployee under a reimbursement or other ex-
pense allowance arrangement with a payor.
.06 Section 62(c) provides that an ar-
rangement will not be treated as a reim-
bursement or other expense allowance ar-
rangement for purposes of § 62(a)(2)(A) if
it—
(1) does not require the employee to
substantiate the expenses covered by the
arrangement to the payor, or
(2) provides the employee with the
right to retain any amount in excess of the
substantiated expenses covered under the
arrangement.
Section 62(c) further provides that the sub-
stantiation requirements described therein
do not apply to any expense to the extent
that, under the grant of regulatory authority
prescribed in § 274(d), the Commissioner
has provided that substantiation is not re-
quired for the expense.
.07 Under § 1.62–2(c)(1) a reimburse-
ment or other expense allowance arrange-
ment satisfies the requirements of § 62(c)
if it meets the requirements of business
connection, substantiation, and returning
amounts in excess of expenses as specified
in the regulations. Section 1.62–2(e)(2)
specifically provides that substantiation of
certain business expenses in accordance
with rules prescribed under the author-
ity of § 1.274–5(g) or 1.274–5(j) will be
treated as substantiation of the amount of
the expenses for purposes of § 1.62–2.
Under § 1.62–2(f)(2), the Commissioner
may prescribe rules under which an ar-
rangement providingper diemallowances
is treated as satisfying the requirement of
returning amounts in excess of expenses,
even though the arrangement does not
require the employee to return the por-
tion of the allowance that relates to days
of travel substantiated and that exceeds
the amount of the employee’s expenses
deemed substantiated pursuant to rules
prescribed under § 274(d), provided the
allowance is reasonably calculated not
to exceed the amount of the employee’s
expenses or anticipated expenses and the
employee is required to return within a
reasonable period of time any portion of
the allowance that relates to days of travel
not substantiated.
.08 Section 1.62–2(h)(2)(i)(B) pro-
vides that, if a payor pays aper diem
allowance that meets the requirements
of § 1.62–2(c)(1), the portion, if any,
of the allowance that relates to days of
travel substantiated in accordance with
§ 1.62–2(e), that exceeds the amount of
the employee’s expenses deemed substan-
tiated for the travel pursuant to rules pre-
scribed under § 274(d) and § 1.274–5(g) or
§ 1.274–5(j), and that the employee is not
required to return, is subject to withhold-
ing and payment of employment taxes.
See §§ 31.3121(a)–3, 31.3231(e)–1(a)(5),
31.3306(b)–2, and 31.3401(a)–4 of the
Employment Tax Regulations. Because
the employee is not required to return this
excess portion, the reasonable period of
time provisions of § 1.62–2(g) (relating to
the return of excess amounts) do not apply
to this portion.
.09 Under § 1.62–2(h)(2)(i)(B)(4), the
Commissioner has the discretion to pre-
scribe special rules regarding the timing of
withholding and payment of employment
taxes onper diemallowances.
.10 Section 1.274–5(j)(1) grants the
Commissioner the authority to establish a
method under which a taxpayer may elect
to use a specified amount for meals paid or
incurred while traveling away from home
in lieu of substantiating the actual cost of
meals.
.11 Section 1.274–5(j)(3) grants the
Commissioner the authority to establish a
October 18, 20046832004–42 I.R.B.

method under which a taxpayer may elect
to use a specified amount for incidental
expenses paid or incurred while traveling
away from home in lieu of substantiating
the actual cost of incidental expenses.
.12 Sections 3.02(1)(a), 4.04(6), and
5.06 of this revenue procedure provide
transition rules for the last 3 months of
calendar year 2004.
.13 Section 5.02 of this revenue pro-
cedure contains revisions to theper diem
rates for high-cost localities and for other
localities for purposes of section 5.
.14 Sections 5.03 and 5.04 of this rev-
enue procedure contain revisions to the list
of high-cost localities for purposes of sec-
tion 5.
SECTION 3. DEFINITIONS
.01Per diem allowance.Theterm“per
diemallowance” means a payment under a
reimbursement or other expense allowance
arrangement that meets the requirements
specified in § 1.62–2(c)(1) and that is —
(1) paid with respect to ordinary and
necessary business expenses incurred, or
which the payor reasonably anticipates
will be incurred, by an employee for lodg-
ing, meal, and incidental expenses, or for
meal and incidental expenses for travel
away from home in connection with the
performance of services as an employee
of the employer,
(2) reasonably calculated not to ex-
ceed the amount of the expenses or the
anticipated expenses, and
(3) paid at or below the applicable fed-
eralper diemrate, a flat rate or stated
schedule, or in accordance with any other
Service-specified rate or schedule.
.02Federal per diem rate and federal
M&IE rate.
(1)In general. The federalper diem
rate is equal to the sum of the applicable
federal lodging expense rate and the appli-
cable federal meal and incidental expense
(M&IE) rate for the day and locality of
travel.
(a)CONUS rates. The rates for
localities in the continental United States
(“CONUS”) are set forth in Appendix A
to 41 C.F.R. ch. 301. However, in apply-
ing section 4.01, 4.02, or 4.03 of this rev-
enue procedure, taxpayers may continue
to use the CONUS rates in effect for the
first 9 months of 2004 for expenses of all
CONUS travel away from home that are
paid or incurred during calendar year 2004
in lieu of the updated GSA rates. A tax-
payer must consistently use either these
rates or the updated rates for the period
of October 1, 2004, through December 31,
2004.
(b)OCONUS rates. The rates for
localities outside the continental United
States (“OCONUS”) are established by the
Secretary of Defense (rates for non-for-
eign localities, including Alaska, Hawaii,
Puerto Rico, the Northern Mariana Islands,
and the possessions of the United States)
and by the Secretary of State (rates for for-
eign localities), and are published in the
Per DiemSupplement to the Standardized
Regulations (Government Civilians, For-
eign Areas) (updated on a monthly basis).
(c)Internet access to the
rates. The CONUS and OCONUS
rates may be found on the Internet at
www.policyworks.gov/perdiem.
(2)Locality of travel. The term “lo-
cality of travel” means the locality where
an employee traveling away from home in
connection with the performance of ser-
vices as an employee of the employer stops
for sleep or rest.
(3)Incidental expenses. The term “in-
cidental expenses” has the same meaning
as in the Federal Travel Regulations, 41
C.F.R. 300–3.1 (2004). Thus, based on the
current definition of “incidental expenses”
in the Federal Travel Regulations, “inci-
dental expenses” means fees and tips given
to porters, baggage carriers, bellhops, ho-
tel maids, stewards or stewardesses and
others on ships, and hotel servants in for-
eign countries; transportation between
places of lodging or business and places
where meals are taken, if suitable meals
cannot be obtained at the temporary duty
site; and the mailingcost associated with
filing travel vouchers and payment of em-
ployer-sponsored charge card billings.
.03Flat rate or stated schedule.
(1)In general. Except as provided in
section 3.03(2) of this revenue procedure,
an allowance is paid at a flat rate or stated
schedule if it is provided on a uniform
and objective basis with respect to the ex-
penses described in section 3.01 of this
revenue procedure. The allowance may be
paid with respect to the number of days
away from home in connection with the
performance of services as an employee
or on any other basis that is consistently
applied and in accordance with reasonable
business practice. Thus, for example, an
hourly payment to cover meal and inciden-
tal expenses paid to a pilot or flight atten-
dant who is traveling away from home in
connection with the performance of ser-
vices as an employee is an allowance paid
at a flat rate or stated schedule. Likewise,
a payment based on the number of miles
traveled (such as cents per mile) to cover
meal and incidental expenses paid to an
over-the-road truck driver who is traveling
away from home in connection with the
performance of services as an employee is
an allowance paid at a flat rate or stated
schedule.
(2)Limitation. For purposes of this
revenue procedure, an allowance that is
computed on a basis similar to that used
in computing the employee’s wages or
other compensation (such as the number
of hours worked, miles traveled, or pieces
produced) does not meet the business con-
nection requirement of § 1.62–2(d), is not
aper diemallowance, and is not paid at
a flat rate or stated schedule, unless, as
of December 12, 1989, (a) the allowance
was identified by the payor either by mak-
ing a separate payment or by specifically
identifying the amount of the allowance,
or (b) an allowance computed on that ba-
siswascommonlyusedintheindustry
in which the employee is employed. See
§ 1.62–2(d)(3)(ii).
SECTION 4.PER DIEM
SUBSTANTIATION METHOD
.01Per diem allowance.Ifapayorpays
aper diemallowanceinlieuofreimburs-
ing actual lodging, meal, and incidental ex-
penses incurred or to be incurred by an
employee for travel away from home, the
amount of the expenses that is deemed sub-
stantiated for each calendar day is equal to
thelesseroftheper diemallowance for
that day or the amount computed at the
federalper diemrate (see section 3.02 of
this revenue procedure) for the locality of
travel for that day (or partial day, see sec-
tion 6.04 of this revenue procedure).
.02Meal and incidental expenses only
per diem allowance.Ifapayorpaysa
per diemallowance only for meal and in-
cidental expenses in lieu of reimbursing
actual meals and incidental expenses in-
curred or to be incurred by an employee
for travel away from home, the amount of
the expenses that is deemed substantiated
2004–42 I.R.B.684October 18, 2004

for each calendar day is equal to the lesser
of theper diemallowance for that day or
the amount computed at the federal M&IE
rate for the locality of travel for that day
(or partial day). Aper diemallowance
is treated as paid only for meal and inci-
dental expenses if (1) the payor pays the
employee for actual expenses for lodging
based on receipts submitted to the payor,
(2) the payor provides the lodging in kind,
(3) the payor pays the actual expenses for
lodging directly to the provider of the lodg-
ing, (4) the payor does not have a reason-
able belief that lodging expenses were or
will be incurred by the employee, or (5) the
allowance is computed on a basis similar
to that used in computing the employee’s
wages or other compensation (such as the
number of hours worked, miles traveled,
or pieces produced).
.03Optional method for meal and in-
cidental expenses only deduction.Inlieu
of using actual expenses in computing the
amount allowable as a deduction for or-
dinary and necessary meal and inciden-
tal expenses paid or incurred for travel
away from home, employees and self-em-
ployed individuals who pay or incur meal
expenses may use an amount computed at
the federal M&IE rate for the locality of
travel for each calendar day (or partial day)
the employee or self-employed individual
is away from home. This amount will be
deemed substantiated for purposes of para-
graphs (b)(2) and (c) of § 1.274–5, pro-
vided the employee or self-employed indi-
vidual substantiates the elements of time,
place, and business purpose of the travel
for that day (or partial day) in accordance
with those regulations. See section 6.05(1)
of this revenue procedure for rules related
to the application of the limitation under
§ 274(n) to amounts determined under this
section 4.03. See section 4.05 of this rev-
enue procedure for a method for substanti-
ating incidental expenses that may be used
by employees or self-employed individu-
als who do not pay or incur meal expenses.
.04Special rules for transportation in-
dustry.
(1)In general. Thissection4.04ap-
plies to (a) a payor that pays aper diem
allowance only for meal and incidental ex-
penses for travel away from home as de-
scribed in section 4.02 of this revenue pro-
cedure to an employee in the transportation
industry, or (b) an employee or self-em-
ployed individual in the transportation in-
dustry who computes the amount allow-
able as a deduction for meal and incidental
expenses for travel away from home in ac-
cordance with section 4.03 of this revenue
procedure.
(2)Transportation industry defined.
For purposes of this section 4.04, an em-
ployee or self-employed individual is in
the transportation industry only if the em-
ployee’s or individual’s work (a) is of the
type that directly involves moving people
or goods by airplane, barge, bus, ship,
train, or truck, and (b) regularly requires
travel away from home which, during
any single trip away from home, usually
involves travel to localities with differ-
ing federal M&IE rates. For purposes
of the preceding sentence, a payor must
determine that an employee or a group of
employees is in the transportation indus-
try by using a method that is consistently
applied and in accordance with reasonable
business practice.
(3)Rates. A taxpayer described in sec-
tion 4.04(1) of this revenue procedure may
treat $41 as the federal M&IE rate for any
CONUS locality of travel, and $46 as the
federal M&IE rate for any OCONUS lo-
cality of travel. A payor that uses either (or
both) of these special rates with respect to
an employee must use the special rate(s)
for all amounts subject to section 4.02 of
this revenue procedure paid to that em-
ployee for travel away from home within
CONUS and/or OCONUS, as the case may
be, during the calendar year. Similarly, an
employee or self-employed individual that
uses either (or both) of these special rates
must use the special rate(s) for all amounts
computed pursuant to section 4.03 of this
revenue procedure for travel away from
home within CONUS and/or OCONUS, as
the case may be, during the calendar year.
See section 4.04(6) of this revenue proce-
dure for transition rules.
(4)Periodic rule. A payor described
in section 4.04(1) of this revenue proce-
dure may compute the amount of the em-
ployee’s expenses that is deemed substan-
tiated under section 4.02 of this revenue
procedure periodically (not less frequently
than monthly), rather than daily, by com-
paring the totalper diemallowance paid
for the period to the sum of the amounts
computed either at the federal M&IE
rate(s) for the localities of travel, or at the
special rate described in section 4.04(3),
for the days (or partial days) the employee
is away from home during the period.
(5)Examples.
(a)Example 1. Taxpayer, an employee in the
transportation industry, travels away from home on
business within CONUS on 17 days (including par-
tial days) during a calendar month and receives aper
diemallowance only for meal and incidental expenses
from a payor that uses the special rule under sec-
tion 4.04(3) of this revenue procedure. The amount
deemed substantiated undersection4.02ofthisrev-
enue procedure is equal to the lesser of the totalper
diemallowance paid for the month or $697 (17 days
at $41 per day).
(b)Example 2. Taxpayer, a truck driver
employee in the transportation industry, is paid a
“cents-per-mile” allowance that qualifies as an al-
lowance paid under a flat rate or stated schedule as
defined in section 3.03 of this revenue procedure.
Taxpayer travels away from home on business for
10 days. Based on the number of miles driven by
Taxpayer, Taxpayer’s employer pays an allowance
of $400 for the 10 days of business travel. Taxpayer
actually drives for 8 days, and does not drive for the
other 2 days Taxpayer is away from home. Taxpayer
is paid under the periodic rule used for transportation
industry employers andemployees in accordance
with section 4.04(4) of this revenue procedure. The
amount deemed substantiated and excludable from
Taxpayer’s income is the full $400 because that
amount does not exceed $410 (ten days away from
home at $41 per day).
(6)Transition rules. Under the calen-
dar-year convention provided in section
4.04(3), a taxpayer who used the federal
M&IE rates during the first 9 months of
calendar year 2004 to substantiate the
amount of an individual’s travel expenses
under sections 4.02 or 4.03 of Rev. Proc.
2003–80 may not use, for that individual,
the special transportation industry rates
provided in this section 4.04 until January
1, 2005. Similarly, a taxpayer who used
the special transportation industry rates
during the first 9 months of calendar year
2004 to substantiate the amount of an in-
dividual’s travel expenses may not use,
for that individual, the federal M&IE rates
until January 1, 2005.
.05Optional method for incidental ex-
penses only deduction. Inlieuofusing
actual expenses in computing the amount
allowable as a deduction for ordinary and
necessary incidental expenses paid or in-
curred for travel away from home, employ-
ees and self-employed individuals who do
not pay or incur meal expenses for a calen-
dar day (or partial day) of travel away from
home may use, for each calendar day (or
partial day) the employee or self-employed
individual is away from home, an amount
computed at the rate of $3 per day for any
CONUS or OCONUS locality of travel.
October 18, 20046852004–42 I.R.B.

This amount will be deemed substantiated
for purposes of paragraphs (b)(2) and (c)
of § 1.274–5, provided the employee or
self-employed individual substantiates the
elements of time, place, and business pur-
pose of the travel for that day (or partial
day) in accordance with those regulations.
See section 4.03 of this revenue procedure
foramethodthatmaybeusedbyem-
ployees or self-employed individuals who
pay or incur meal expenses. The method
authorized by this section 4.05 may not
be used by payors that use section 4.01,
4.02, or 5.01 of this revenue procedure, or
by employees or self-employed individu-
als who use the method described in sec-
tion 4.03 of this revenue procedure. See
section 6.05(4) of this revenue procedure
for rules related to the application of the
limitation under § 274(n) to amounts de-
termined under this section 4.05.
SECTION 5. HIGH-LOW
SUBSTANTIATION METHOD
.01In general. If a payor pays aper
diemallowance in lieu of reimbursing ac-
tual lodging, meal, and incidental expenses
incurred or to be incurred by an employee
for travel away from home and the payor
uses the high-low substantiation method
described in this section 5 for travel within
CONUS, the amount of the expenses that
is deemed substantiated for each calendar
day is equal to the lesser of theper diem
allowance for that day or the amount com-
puted at the rate set forth in section 5.02
of this revenue procedure for the local-
ity of travel for that day (or partial day,
see section 6.04 of this revenue proce-
dure). Except as provided in section 5.06
of this revenue procedure, this high-low
substantiation method may be used in lieu
of theper diemsubstantiation method pro-
vided in section 4.01 of this revenue pro-
cedure, but may not be used in lieu of
the meals only substantiation method pro-
videdinsection4.02or4.03ofthisrev-
enue procedure.
.02Specific high-low rates. Except as
provided in section 5.06 of this revenue
procedure, theper diemrate set forth in this
section 5.02 is $199 for travel to any “high-
cost locality” specified in section 5.03 of
this revenue procedure, or $127 for travel
to any other locality within CONUS. The
high or low rate, as appropriate, applies
as if it were the federalper diemrate for
the locality of travel. For purposes of ap-
plying the high-low substantiation method
and the § 274(n) limitation on meal ex-
penses (see section 6.05 of this revenue
procedure), the federal M&IE rate shall be
treated as $46 for a high-cost locality and
$36foranyotherlocalitywithinCONUS.
.03High-cost localities. The following
localities have a federalper diemrate of
$163 or more, and are high-cost localities
for all of the calendar year or the portion
of the calendar year specified in parenthe-
sis under the key city name, except as pro-
vided in section 5.06 of this revenue pro-
cedure:
Key CityCounty or other defined location
Arizona
Phoenix
/Scottsdale
Maricop
a
(January 1-May 31)
Calif
ornia
MontereyMonterey
(February 1-November 30)
NapaNapa
(May 1-October 31)
Palm SpringsRiverside
(Ja
nuary 1-May 31)
San DiegoSan Diego
San FranciscoSan Francisco
Santa BarbaraSanta Barbara
Santa MonicaCity limits of Santa Monica
South Lake TahoeEl Dorado
(
December 1-August 31)
2004–42 I.R.B.686October 18, 2004

Key CityCounty or other defined location
Colorado
AspenPitkin
Crested ButteCity limits of Crested Butte
(December 1-M
arch 31)
(Gunnison Cou
nty)
Silverthorne/BreckenridgeSummit
TellurideSan Miguel
(December 1-September 30)
VailEagle
District of Columbia
Washington D.C. (also the cities of Alexandria, Falls Church, and Fairfax, and the counties of Arlington, Loudoun, and
Fairfax, in Virginia; and the counties of Montgomery and Prince George’s in Maryland) (See also Maryland and Virginia)
Delaware
LewesSussex
(July 1-August 31)
Florida
Daytona BeachVolusia
(Febru
ary 1-March 31)
Fort LauderdaleBroward
(October 1-May 31)
Key WestMonroe
MiamiMiami-Dade
(October 1-May 31)
Nap
les
Col
lier
(January 1-March 31)
Palm Beach
(October 1-May 31)
Palm Beach (also the cities of Boca Raton, Delray Beach,
Jupiter, Palm Beach Gardens, Palm Beach Shores, Singer Island
and West Palm Beach)
Illinois
ChicagoCook and Lake
Louisiana
New OrleansOrleans and St. Bernard
(September 1-April 30)Parishes
Maryland
(For the counties of Montgomery and Prince George’s, see District of Columbia)
BaltimoreBaltimore
Cambridge/St. MichaelsDorchester and Talbot
(June 1-August 31)
Ocean CityWorcester
(July 1-August 31)
Massachusetts
BostonSuffolk
CambridgeCity limits of Cambridge
October 18, 20046872004–42 I.R.B.

Key CityCounty or other defined location
HyannisBarnstable
(July 1-August 31)
Martha’s VineyardDukes
(May 1-August
31)
NantucketNantucket
Michigan
Mackinac IslandMackinac
Nevada
Las VegasClark
(September 1-May 31)
New Jersey
Atlantic CityAtlantic
(May 1-October 31)
Cape MayCape May (except Ocean City)
(June 1-August 31)
Ocean C
ity
City li
mits of Ocean City
(June 1-October 31)
Princeton/TrentonMercer
Tom’s RiverOcean
(July 1-August 31)
New Mexico
Santa FeSanta Fe
(July 1-August 31)
New York
Brooklyn/The Bronx/Queens/Staten IslandRichmond and the boroughs of Brooklyn, The Bronx, and
Queens
Carle Place/Garden City/Glen Cove/Nassau
Great Neck/Plainview/Rockville
Centre/Syosset/Uniondale/Woodbury
Lake PlacidEssex
(July 1-August 31)
ManhattanThe borough of Manhattan
Riverhead/Ronkonkoma/MelvilleSuffolk
TarrytownWestchester (except White Plains)
White PlainsCity limits of White Plains
North Carolina
Kill DevilDare
(April 1-October 31)
Pennsylvania
HersheyCity limits of Hershey
(May 1-August 31)
PhiladelphiaPhiladelphia
2004–42 I.R.B.688October 18, 2004

Key CityCounty or other defined location
Rhode Island
Jamestown/Middletown/NewportNewport
(May 1-October 31)
ProvidenceProvidence
South Carolina
Hilton HeadBeaufort
(April 1-October 31)
Myrtle BeachHorry
(June 1-August 31)
Utah
Park CitySummit
(December 1-March 31)
Virginia
(For the cities of Alexandria, Fairfax, and Falls Church, andthe counties of Arlington, Fairfax, and Loudoun, see District
of Columbia)
Virginia Beach
(June 1-August 31)
Cities of Virginia Beach, Norfolk, Portsmouth, Chesapeake,
and Suffolk
Washington
SeattleKing
(May 1-October 31)
.04Changes in high-cost localities.
The list of high-cost localities in section
5.03 of this revenue procedure differs from
the list of high-cost localities in section
5.03 of Rev. Proc. 2003–80 (changes
listed by key cities).
(1) The following localities have been
added to the list of high-cost localities:
Cambridge/St.Michaels, Maryland;
Crested Butte, Colorado; Daytona Beach,
Florida; Fort Lauderdale, Florida; Hilton
Head, South Carolina; Hyannis, Massa-
chusetts; Jamestown/Middletown/New-
port, Rhode Island; Kill Devil, North
Carolina; Lake Placid, New York; Las
Vegas, Nevada; Lewes, Delaware; Miami,
Florida; Monterey, California; Myrtle
Beach, South Carolina; Palm Beach,
Florida; Phoenix/Scottsdale, Arizona;
Providence, Rhode Island; San Diego,
California; Santa Barbara, California;
Santa Fe, New Mexico; South Lake Tahoe,
California; Tarrytown, New York; Tom’s
River, New Jersey; and Virginia Beach,
Virginia.
(2) The portion of the year for which
the following are high-cost localities has
been changed: Aspen, Colorado; Atlantic
City, New Jersey; Cape May, New Jer-
sey; Hershey, Pennsylvania; Key West,
Florida; Martha’s Vineyard, Massachu-
setts; Nantucket, Massachusetts; Napa,
California; Naples, Florida; New Orleans,
Louisiana; Ocean City, Maryland; Ocean
City, New Jersey; Park City, Utah; Seat-
tle, Washington; Telluride, Colorado; and
Vail, Colorado.
(3) The following localities have
been removed from the list of high-cost
localities: Big Sky, Montana; Coeur
d’Alene, Idaho; Edison, New Jersey;
Kennebunk/Kittery/Sanford, Maine; King
of Prussia/Ft. Washington/Bala Cynwyd,
Pennsylvania; Newark, New Jersey; Pis-
cataway/Belle Mead, New Jersey; State-
line, Nevada; Sun Valley, Idaho; Tahoe
City, California; Traverse City, Michigan;
and Wintergreen, Virginia.
(4) The boroughs of Brooklyn and
Staten Island are no longer separately
listed as high-cost localities and are now
combined with the boroughs of The Bronx
and Queens.
.05Specific limitation.
(1) Except as provided in section
5.05(2) of this revenue procedure, a
payor that uses the high-low substanti-
ation method with respect to an employee
must use that method for all amounts paid
to that employee for travel away from
home within CONUS during the calendar
year. See section 5.06 of this revenue
procedure for transition rules.
(2) With respect to an employee de-
scribed in section 5.05(1) of this revenue
procedure, the payor may reimburse ac-
tual expenses or use the meals onlyper
diemmethod described in section 4.02
of this revenue procedure for any travel
away from home, and may use theper
diemsubstantiation method described in
section 4.01 of this revenue procedure for
any OCONUS travel away from home.
.06Transition rules. A payor who used
the substantiation method of section 4.01
of Rev. Proc. 2003–80 for an employee
during the first 9 months of calendar year
2004 may not use the high-low substanti-
ation method in section 5 of this revenue
procedure for that employee until January
1, 2005. A payor who used the high-low
substantiation method of section 5 of Rev.
Proc. 2003–80 for an employee during the
first 9 months of calendar year 2004 must
October 18, 20046892004–42 I.R.B.

continue to use the high-low substantiation
method for the remainder of calendar year
2004 for that employee. A payor described
in the previous sentence may use the rates
and high-cost localities published in sec-
tion 5 of Rev. Proc. 2003–80, in lieu of
the updated rates and high-cost localities
provided in section 5 of this revenue proce-
dure, for travel on or after October 1, 2004,
and before January 1, 2005, if those rates
and localities are used consistently during
this period for all employees reimbursed
under this method.
SECTION 6. LIMITATIONS AND
SPECIAL RULES
.01In general. The federalper diem
rate and the federal M&IE rate described in
section 3.02 of this revenue procedure for
the locality of travel will be applied in the
same manner as applied under the Federal
Travel Regulations, 41 C.F.R. Part 301–11
(2004), except as provided in sections 6.02
through 6.04 of this revenue procedure.
.02Federal per diem rate. A receipt
for lodging expenses is not required in de-
termining the amount of expenses deemed
substantiated under section 4.01 or 5.01 of
this revenue procedure. See section 7.01
of this revenue procedure for the require-
ment that the employee substantiate the
time, place, and business purpose of the
expense.
.03Federal per diem or M&IE rate.A
payor is not required to reduce the federal
per diemrate or the federal M&IE rate for
the locality of travel for meals provided in
kind, provided the payor has a reasonable
belief that meal and incidental expenses
were or will be incurred by the employee
during each day of travel.
.04Proration of the federal per diem or
M&IE rate. Pursuant to the Federal Travel
Regulations, in determining the federalper
diemrate or the federal M&IE rate for
the locality of travel, the full applicable
federal M&IE rate is available for a full
day of travel from 12:01 a.m. to 12:00
midnight. The method described in sec-
tion 6.04(1) of this revenue procedure must
be used for purposes of determining the
amount deemed substantiated under sec-
tion 4.03 or 4.05 of this revenue procedure
for partial days of travel away from home.
For purposes of determining the amount
deemed substantiated under section 4.01,
4.02, 4.04, or 5 of this revenue procedure
for partial days of travel away from home,
either of the following methods may be
used to prorate the federal M&IE rate to
determine the federalper diemrate or the
federal M&IE rate for the partial days of
travel:
(1) The rate may be prorated using the
method prescribed by the Federal Travel
Regulations. Currently the Federal Travel
Regulations allow three-fourths of the ap-
plicable federal M&IE rate for each partial
day during which the employee or self-em-
ployed individual is traveling away from
home in connection with the performance
of services as an employee or self-em-
ployed individual. The same ratio may be
applied to prorate the allowance for inci-
dental expenses described in section 4.05
of this revenue procedure; or
(2) The rate may be prorated using any
method that is consistently applied and in
accordance with reasonable business prac-
tice. For example, if an employee travels
away from home from 9 a.m. one day to
5 p.m. the next day, a method of proration
that results in an amount equal to two times
the federal M&IE rate will be treated as
being in accordance with reasonable busi-
ness practice (even though only one and a
half times the federal M&IE rate would be
allowed under the Federal Travel Regula-
tions).
.05Application of the appropriate
§ 274(n) limitation on meal expenses.Ex-
cept as provided in section 6.05(4), all or
part of the amount of an expense deemed
substantiated under this revenue procedure
is subject to the appropriate limitation un-
der § 274(n) (see section 2.02 of this
revenue procedure) on the deductibility of
food and beverage expenses.
(1) If an amount for meal and inciden-
tal expenses is computed pursuant to sec-
tion 4.03 of this revenue procedure, the
taxpayer must treat that amount as an ex-
pense for food and beverages.
(2) If aper diemallowance is paid only
for meal and incidental expenses, the payor
must treat an amount equal to the lesser of
the allowance or the federal M&IE rate for
the locality of travel for each day (or partial
day, see section 6.04 of this revenue pro-
cedure) as an expense for food and bever-
ages.
(3) If aper diemallowance is paid for
lodging, meal, and incidental expenses, the
payor must treat an amount equal to the
federal M&IE rate for the locality of travel
for each calendar day (or partial day) the
employee is away from home as an ex-
pense for food and beverages. For pur-
poses of the preceding sentence, if aper
diemallowance for lodging, meal, and in-
cidental expenses is paid at a rate that is
less than the federalper diemrate for the
locality of travel for each day (or partial
day), the payor may treat an amount equal
to 40 percent of the allowance as the fed-
eral M&IE rate for the locality of travel for
each day (or partial day).
(4) If an amount for incidental ex-
penses is computed under section 4.05
of this revenue procedure, none of the
amount so computed is subject to limita-
tion under § 274(n) on the deductibility of
food and beverage expenses.
.06No double reimbursement or deduc-
tion. If a payor pays aper diemallowance
in lieu of reimbursing actual lodging,
meal, and incidental expenses or for meal
and incidental expenses in accordance
with section 4 or 5 of this revenue proce-
dure, any additionalpayment with respect
to those expenses is treated as paid un-
der a nonaccountable plan, is included in
the employee’s gross income, is reported
as wages or other compensation on the
employee’s Form W–2, “Wage and Tax
Statement,” and is subject to withhold-
ing and payment of employment taxes.
Similarly, if an employee or self-em-
ployed individual computes the amount
allowable as a deduction for meal and
incidental expenses for travel away from
home in accordance with section 4.03 or
4.04 of this revenue procedure, no other
deduction is allowed to the employee or
self-employed individual with respect to
those expenses. For example, assume an
employee receives aper diemallowance
from a payor for lodging, meal, and inci-
dental expenses or for meal and incidental
expenses incurred while traveling away
from home. During that trip, the employee
pays for dinner for the employee and two
business associates. The payor reimburses
as a business entertainment meal expense
the meal expense for the employee and
the two business associates. Because the
payor also pays aper diemallowance to
cover the cost of the employee’s meals,
the amount paid by the payor for the
employee’s portion of the business enter-
tainment meal expense is treated as paid
under a nonaccountable plan, is reported
as wages or other compensation on the
2004–42 I.R.B.690October 18, 2004

employee’s Form W–2, and is subject to
withholding and payment of employment
taxes.
.07Related parties. Sections 4.01 and
5 of this revenue procedure do not apply if
a payor and an employee are related within
the meaning of § 267(b), but for this pur-
pose the percentage of ownership interest
referred to in § 267(b)(2) shall be 10 per-
cent.
SECTION 7. APPLICATION
.01 If the amount of travel expenses is
deemed substantiated under the rules pro-
vided in section 4 or 5 of this revenue pro-
cedure, and the employee substantiates to
the payor the elements of time, place, and
business purpose of the travel for that day
(or partial day) in accordance with para-
graphs (b)(2) and (c) (other than subpara-
graph (2)(iii)(A) thereof) of § 1.274–5, the
employee is deemed to satisfy the adequate
accounting requirements of § 1.274–5(f)
as well as the requirement to substantiate
by adequate records or other sufficient ev-
idence for purposes of § 1.274–5(c). See
§ 1.62–2(e)(1) for the rule that an arrange-
ment must require business expenses to be
substantiated to the payor within a reason-
able period of time.
.02 An arrangement providingper diem
allowances will be treated as satisfying the
requirement of § 1.62–2(f)(2) of return-
ing amounts in excess of expenses if the
employee is required to return within a
reasonable period of time (as defined in
§ 1.62–2(g)) any portion of the allowance
that relates to days of travel not substan-
tiated, even though the arrangement does
not require the employee to return the por-
tion of the allowance that relates to days
of travel substantiated and that exceeds
the amount of the employee’s expenses
deemed substantiated. For example, as-
sume a payor provides an employee an ad-
vanceper diemallowance for meal and in-
cidental expenses of $200, based on an an-
ticipated 5 days of business travel at $40
per day to a locality for which the fed-
eral M&IE rate is $31, and the employee
substantiates 3 full days of business travel.
The requirement to return excess amounts
will be treated as satisfied if the employee
is required to return within a reasonable
period of time (as defined in § 1.62–2(g))
the portion of the allowance that is at-
tributable to the 2 unsubstantiated days of
travel ($80), even though the employee is
notrequiredtoreturntheportionofthe
allowance ($27) that exceeds the amount
of the employee’s expenses deemed sub-
stantiated under section 4.02 of this rev-
enue procedure ($93) for the 3 substanti-
ated days of travel. However, the $27 ex-
cess portion of the allowance is treated as
paid under a nonaccountable plan as dis-
cussed in section 7.04 of this revenue pro-
cedure.
.03 An employee is not required to in-
clude in gross income the portion of a
per diemallowance received from a payor
that is less than or equal to the amount
deemed substantiated under the rules pro-
vided in section 4 or 5 of this revenue pro-
cedure if the employee substantiates the
business travel expenses covered by the
per diemallowance in accordance with
section 7.01 of this revenue procedure. See
§ 1.274–5(f)(2)(i). In addition, that por-
tion of the allowanceis treated as paid un-
der an accountable plan, is not reported as
wages or other compensation on the em-
ployee’s Form W–2, and is exempt from
the withholding and payment of employ-
ment taxes. See § 1.62–2(c)(2) and (c)(4).
.04 An employee is required to include
in gross income only the portion of theper
diemallowance received from a payor that
exceeds the amount deemed substantiated
under the rules provided in section 4 or 5
of this revenue procedure if the employee
substantiates the business travel expenses
covered by theper diemallowance in ac-
cordance with section 7.01 of this revenue
procedure. See § 1.274–5(f)(2)(ii). In ad-
dition, the excess portion of the allowance
is treated as paid under a nonaccountable
plan, is reported as wages or other compen-
sation on the employee’s Form W–2, and
is subject to withholding and payment of
employment taxes. See § 1.62–2(c)(3)(ii),
(c)(5), and (h)(2)(i)(B).
.05 If the amount of the expenses that
is deemed substantiated under the rules
provided in section 4.01, 4.02, or 5 of this
revenue procedure is less than the amount
of the employee’s business expenses for
travel away from home, the employee
may claim an itemized deduction for the
amount by which the business travel ex-
penses exceed the amount that is deemed
substantiated, provided the employee sub-
stantiates all the business travel expenses,
includes on Form 2106, “Employee Busi-
ness Expenses,” the deemed substantiated
portion of theper diemallowance received
from the payor, and includes in gross in-
come the portion (if any) of theper diem
allowance received from the payor that
exceeds the amount deemed substantiated.
See § 1.274–5(f)(2)(iii). However, for pur-
poses of claiming this itemized deduction
with respect to meal and incidental ex-
penses, substantiation of the amount of the
expenses is not required if the employee
is claiming a deduction that is equal to or
less than the amount computed under sec-
tion 4.03 of this revenue procedure minus
the amount deemed substantiated under
sections 4.02 and 7.01 of this revenue pro-
cedure. The itemized deduction is subject
to the appropriate limitation (see section
2.02 of this revenue procedure) on meal
and entertainment expenses provided in
§ 274(n) and the 2-percent floor on mis-
cellaneous itemized deductions provided
in § 67.
.06 An employee who pays or incurs
amounts for meal expenses and does not
receive aper diemallowance for meal and
incidental expenses may deduct an amount
computed pursuant to section 4.03 of this
revenue procedure only as an itemized de-
duction. This itemized deduction is sub-
ject to the appropriate limitation on meal
and entertainment expenses provided in
§ 274(n) and the 2-percent floor on miscel-
laneous itemized deductions provided in
§ 67. See section 7.07 of this revenue pro-
cedure for the treatment of an employee
who does not pay or incur amounts for
meal expenses and does not receive aper
diemallowance for incidental expenses.
.07 An employee who does not pay or
incur amounts for meal expenses and does
not receive aper diemallowance for in-
cidental expenses may deduct an amount
computed pursuant to section 4.05 of this
revenue procedure only as an itemized de-
duction. This itemized deduction is sub-
ject to the 2-percent floor on miscellaneous
itemized deductions provided in § 67. See
section 7.06 of this revenue procedure for
the treatment of an employee who pays or
incurs amounts for meal expenses and does
not receive aper diemallowance for meal
and incidental expenses.
.08 A self-employed individual who
pays or incurs meal expenses for a calen-
dar day (or partial day) of travel away from
home may deduct an amount computed
pursuant to section 4.03 of this revenue
procedure in determining adjusted gross
October 18, 20046912004–42 I.R.B.

income under § 62(a)(1). This deduction
is subject to the appropriate limitation on
meal and entertainment expenses provided
in § 274(n).
.09 A self-employed individual who
does not pay or incur meal expenses for
a calendar day (or partial day) of travel
away from home may deduct an amount
computed pursuant to section 4.05 of this
revenue procedure in determining adjusted
gross income under § 62(a)(1).
.10 If a payor’s reimbursement or
other expense allowance arrangement ev-
idences a pattern of abuse of the rules of
§ 62(c) and the regulations thereunder,
all payments under the arrangement will
be treated as made under a nonaccount-
able plan. See § 1.62–2(k). Thus, these
payments are included in the employee’s
gross income, are reported as wages or
other compensation on the employee’s
Form W–2, and are subject to withholding
and payment of employment taxes. See
§ 1.62–2(c)(3), (c)(5), and (h)(2).
SECTION 8. WITHHOLDING AND
PAYMENT OF EMPLOYMENT TAXES
.01Theportionofaper diemal-
lowance, if any, that relates to the days
of business travel substantiated and that
exceeds the amount deemed substantiated
for those days under section 4.01, 4.02, or
5 of this revenue procedure is subject to
withholding and payment of employment
taxes. See § 1.62–2(h)(2)(i)(B).
.02 In the case of aper diemallowance
paid as a reimbursement, the excess de-
scribed in section 8.01 of this revenue pro-
cedure is subject to withholding and pay-
ment of employment taxes in the payroll
period in which the payor reimburses the
expenses for the days of travel substanti-
ated. See § 1.62–2(h)(2)(i)(B)(2).
.03 In the case of aper diemallowance
paid as an advance, the excess described
in section 8.01 of this revenue procedure
is subject to withholding and payment of
employment taxes no later than the first
payroll period following the payroll period
in which the days of travel with respect
to which the advance was paid are sub-
stantiated. See § 1.62–2(h)(2)(i)(B)(3). If
some or all of the days of travel with re-
spect to which the advance was paid are
not substantiated within a reasonable pe-
riod of time and the employee does not re-
turn the portion of the allowance that re-
lates to those days within a reasonable pe-
riod of time, the portion of the allowance
that relates to those days is subject to with-
holding and payment of employment taxes
no later than the first payroll period follow-
ing the end of the reasonable period. See
§ 1.62–2(h)(2)(i)(A).
.04 In the case of aper diemallowance
only for meal and incidental expenses for
travel away from home paid to an em-
ployee in the transportation industry by a
payor that uses the rule in section 4.04(4)
of this revenue procedure, the excess of
theper diemallowance paid for the pe-
riod over the amount deemed substanti-
ated for the period under section 4.02 of
this revenue procedure (after applying sec-
tion 4.04(4) of this revenue procedure),
is subject to withholding and payment of
employment taxes no later than the first
payroll period following the payroll pe-
riod in which the excess is computed. See
§ 1.62–2(h)(2)(i)(B)(4).
.05 For example, assume that an em-
ployer pays an employee aper diemal-
lowance to cover business expenses for
meals and lodging for travel away from
home at a rate of 120 percent of the federal
per diemrate for the localities to which
the employee travels. The employer does
not require the employee to return the 20
percent by which the reimbursement for
those expenses exceeds the federalper
diemrate. The employee substantiates 6
days of travel away from home: 2 days
in a locality in which the federalper diem
rate is $100 and 4 days in a locality in
which the federalper diemrate is $125.
The employer reimburses the employee
$840 for the 6 days of travel away from
home (2 x (120% x $100) + 4 x (120% x
$125)), and does not require the employee
to return the excess payment of $140 (2
days x $20 ($120-$100) + 4 days x $25
($150-$125)). For the payroll period in
which the employer reimburses the ex-
penses, the employer must withhold and
pay employment taxes on $140. See sec-
tion 8.02 of this revenue procedure.
SECTION 9. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 2003–80 is superseded
(except to the extent specified in sections
3.02(1), 4.04(6), and 5.06 of this revenue
procedure) forper diemallowances that
are paid both (1) to an employee on or
after October 1, 2004, and (2) with re-
spect to lodging, meal, and incidental ex-
penses or with respect to meal and inci-
dental expenses paid or incurred for travel
away from home on or after October 1,
2004. Rev. Proc. 2003–80 is also su-
perseded (except to the extent specified in
sections 3.02(1) and 4.04(6) of this rev-
enue procedure) for purposes of comput-
ing the amount allowable as a deduction
for meal and incidental expenses or for in-
cidental expenses only paid or incurred by
an employee or self-employed individual
for travel away from home on or after Oc-
tober 1, 2004.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Christian Wood of the Office
of Associate Chief Counsel (Income Tax
and Accounting). For further information
regarding this revenue procedure, con-
tact Mr. Wood at (202) 622–4930 (not a
toll-free call).
2004–42 I.R.B.692October 18, 2004

Part IV. Items of General Interest
Notice of Proposed
Rulemaking and Notice of
Public Hearing
Predeceased Parent Rule
REG–145988–03
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
SUMMARY: This document contains
proposed regulations relating to the pre-
deceased parent rule, which provides an
exception to the general rules of section
2651 of the Internal Revenue Code (Code)
for determining the generation assignment
of a transferee of property for genera-
tion-skipping transfer (GST) tax purposes.
These proposed regulations also provide
rules regarding a transferee assigned to
more than one generation. The proposed
regulations reflect changes to the law
made by the Taxpayer Relief Act of 1997
and generally apply to individuals, trusts,
and estates. This document also provides
notice of a public hearing on these pro-
posed regulations.
DATES: Written or electronic comments
must be received by December 2, 2004.
Requests to speak and outlines of topics to
be discussed at the public hearing sched-
uled for December 14, 2004, at 10 a.m.,
must be received by November 23, 2004.
ADDRESSES: Send submissions to
CC:PA:LPD:PR (REG–145988–03), 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–145988–03),
Courier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW, Wash-
ington, DC, or sent electronically, via the
IRS Internet site at:www.irs.gov/regs
or via the Federal eRulemaking por-
tal atwww.regulations.gov(IRS and
REG–145988–03). The public hearing
will be held in the IRS Auditorium, Inter-
nal Revenue Building, 1111 Constitution
Avenue, NW, Washington, DC.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed reg-
ulations, Lian A. Mito at (202) 622–7830;
concerning submissions of comments, the
hearing and/or to beplaced on the build-
ing access list to attend the hearing, Guy
R. Traynor, (202) 622–7180 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed reg-
ulations under sections 2651(e) and (f)(1)
of the Internal Revenue Code (Code). Sec-
tion 2651(e) was added to the Code by sec-
tion 511(a) of the Taxpayer Relief Act of
1997 (Public Law 105–34; 111 Stat. 778;
1997–4 C.B. 1, vol. 1) (the 1997 Act) and
expands the predeceased parent exception
from GST tax previously contained in for-
mer section 2612(c)(2).
Under chapter 13 of the Code, a GST
tax is imposed on all transfers, whether
made directly or indirectly, to skip persons.
Generally, a skip person is a person who is
two or more generations below the gener-
ation of the transferor, or a trust if all of
the interests are held by skip persons. The
transferor is the individual who transferred
property in a transaction subject to the gift
or estate tax. Transfers that are subject to
the GST tax are direct skips, taxable termi-
nations, and taxable distributions. A direct
skip is a transfer subject to gift or estate tax
of an interest in property to a skip person.
A taxable termination is the termination by
death, lapse of time, release of power, or
otherwise, of an interest in property held
in a trust unless, immediately after the ter-
mination, a non-skip person has an interest
inthepropertyoratnotimeafterthetermi-
nation may a distribution be made from the
trust to a skip person. A taxable distribu-
tion is any distribution (other than a direct
skip or taxable termination) from a trust to
askipperson.
For transfers before 1998, former sec-
tion 2612(c)(2) provided an exception to
the general rule that a transfer, either out-
right or in trust, to a grandchild of the
transferor was a direct skip. Under for-
mer section 2612(c)(2), if a parent of the
transferor’s grandchild was a lineal de-
scendant of the transferor and that parent
was deceased at the time of the transfer,
the grandchild was treated as the child of
the transferor for purposes of determin-
ing whether a transfer was a direct skip.
This rule also applied to a transfer made to
a grandchild of the transferor’s spouse or
former spouse if a parent of the grandchild
was a lineal descendant of the transferor’s
spouse or former spouse and that parent
was deceased at the time of the transfer.
Former section 2612(c)(2) further pro-
vided that, if a transferor’s grandchild was
treated as the transferor’s child, the lineal
descendants of that grandchild also moved
up one generation level. Furthermore, if
any transfer of property to a trust would be
a direct skip but for the application of the
exception, any generation assignment de-
termined under this exception also applied
for purposes of applying chapter 13 of the
Code to transfers from the portion of the
trust attributable to the property. There-
fore, a subsequent distribution of property
from a trust to a grandchild treated as a
child of the transferor was not treated as
a taxable distribution.
Section 511(a) of the 1997 Act repealed
former section 2612(c)(2) and replaced it
with new subsection (e) of section 2651,
which contains the rules for assigning in-
dividuals to generations for purposes of
the GST tax. Section 2651(e) broadens
the predeceased parent rule by expand-
ing its application to: (1) transfers that
would be taxable distributions or taxable
terminations; and (2) transfers to collateral
heirs (lineal descendants of the transferor’s
parents, or the parents of the transferor’s
spouse or former spouse), provided that
the transferor (or the transferor’s spouse or
former spouse) has no living lineal descen-
dants at the time of the transfer. Section
2651(e) applies to terminations, distribu-
tions, and transfers occurring after Decem-
ber 31, 1997.
Section 2651(e) applies if an individual
is a descendant of a parent of the trans-
feror (or the transferor’s spouse or for-
mer spouse) and if the individual’s par-
ent, who also is a lineal descendant of the
parent of the transferor (or the transferor’s
spouse or former spouse), died prior to
October 18, 20046932004–42 I.R.B.

the time the transferor is subject to es-
tate or gift tax on the transfer from which
an interest of that individual is established
or derived. If these criteria are satisfied,
then the individual is treated under sec-
tion 2651(e) as if the individual is a mem-
ber of the generation that is one genera-
tion below the lower of either the trans-
feror’s generation or the generation of the
individual’s youngest living lineal ances-
tor who is also a descendant of the parent
of the transferor (or the transferor’s spouse
or former spouse). Section 2651(e) does
not apply, however, to a transfer to an in-
dividual who is not a lineal descendant of
the transferor (or the transferor’s spouse
or former spouse) if, at the time of the
transfer, the transferor (or the transferor’s
spouse or former spouse, if applicable) has
any living lineal descendant.
Explanation of Provisions
Predeceased Parent Rule
The proposed regulations provide rules
and examples regarding the predeceased
parent rule of section 2651(e). One issue
addressed in these proposed regulations is
the time when an interest is established or
derived. The proposed regulations provide
that, for purposes of section 2651(e), an in-
dividual’s interest in property or a trust is
established or derived at the time the trans-
feror is subject to transfer tax under chap-
ter11or12oftheCode.Ifatransferoris
subject to transfer tax under chapter 11 or
12 of the Code on the property transferred
on more than one occasion, then the indi-
vidual’s interest will be considered estab-
lished or derived on the earliest of those
occasions.
However, the proposed regulations pro-
vide an exception to this general rule for
remainder interests in trusts for which an
election under section 2056(b)(7) (QTIP
election) has been made to treat all or part
of the trust as qualified terminable interest
property (QTIP). Specifically, to the extent
of the QTIP election, the remainder ben-
eficiary’s interest will be deemed to have
been established or derived on the death of
the transferor’s spouse (the income benefi-
ciary), rather than on the transferor’s ear-
lier death. Absent this exception, a remain-
der beneficiary of a QTIP trust would not
benefit from the predeceased parent rule if
the remainder beneficiary’s parent is alive
when the QTIP trust is established, but is
deceased when the income beneficiary’s
interest terminates. Without this excep-
tion, the rule under section 2651(e) would
be more restrictive than the previous rule
under former section 2612(c)(2) which, by
referring to the transfer from the transferor
(i.e., the surviving spouse, in the case of a
QTIP trust), would have made the prede-
ceased parent rule available to the remain-
der beneficiary. The rule under section
2651(e), however, does not apply to any
trust for which the election under section
2652(a)(3) (reverseQTIP) is made. If a
reverse QTIP election is made, the grantor
remains the transferor of the trust for pur-
poses of chapter 13 of the Code. In most
cases in which the reverse QTIP election
has been made for a trust, the transferor’s
GST exemption has been allocated to the
trust. Thus, the trust will be exempt from
GST tax.
Solely for purposes of section 2651(e),
these proposed regulations limit the term
ancestorto a lineal ancestor. No inference
should be drawn with respect to the defini-
tion ofancestorfor purposes of any other
section of the Code.
Individuals Assigned to More Than One
Generation
Under section 2651(f)(1), an individual
whowouldbeassignedtomorethanone
generation is assigned to the youngest of
those generations. This rule prevents the
avoidance of the GST tax through adop-
tion or marriage. Thus, for example, a
transferor cannot avoid GST tax by adopt-
ing the transferor’s adult grandchild. The
Treasury Department and IRS believe,
however, that it is reasonable to presume
that tax avoidance is not a primary motive
when a transferor adopts a descendant of a
parent of the transferor (or the transferor’s
spouse or former spouse) who is a minor.
Thus, under the proposed regulations, if
an adoptive parent legally adopts an indi-
vidual who is: (1) a descendant of a parent
of the adoptive parent (or the adoptive
parent’s spouse or former spouse); and
(2) under the age of 18 at the time of the
adoption, then the adopted individual will
be treated as a member of the generation
that is one generation below the adop-
tive parent for purposes of determining
whether a transfer from the adoptive par-
ent (or the spouse or former spouse of the
adoptive parent, or a lineal descendant of a
grandparent of the adoptive parent) to the
adopted individual is subject to GST tax.
In addition, the proposed regulations
provide that if an individual’s generation
assignment is adjusted with regard to a
transfer under either section 2651(e) or as
a result of an adoption described above, a
corresponding adjustment with respect to
that transfer is made to the generation as-
signment of that individual’s spouse or for-
mer spouse, that individual’s descendants,
and the spouse or former spouse of each of
that individual’s descendants.
Special Analyses
It has been determined that these pro-
posed regulations arenot a significant reg-
ulatory action as defined in Executive Or-
der 12866. Therefore, a regulatory assess-
ment is not required. It also has been de-
termined that section 553(b) of the Admin-
istrative Procedure Act (5 U.S.C. chapter
5) does not apply to these regulations and
because these regulations do not impose a
collection of information on small entities,
the Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Therefore, a
Regulatory Flexibility Analysis is not re-
quired. Pursuant to section 7805(f) of the
Code, these regulations will be submitted
to the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on their impact.
Comments and 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)orelectroniccom-
ments that are submitted timely to the IRS.
The IRS and Treasury Department also re-
quest 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 has been scheduled for
December 14, 2004, beginning at 10 a.m.,
in the Auditorium of the Internal Revenue
Building, 1111 Constitution Avenue, NW,
Washington, DC. Due to building security
procedures, visitors must enter at the Con-
stitution Avenue entrance. In addition, all
visitors must present photo identification
to enter the building. Because of access
2004–42 I.R.B.694October 18, 2004

restrictions, visitors will not be admitted
beyond the immediate entrance area more
than 30 minutes before the hearing starts.
For information about having your name
placed on the building access list to attend
the hearing, see the “FOR FURTHER IN-
FORMATION CONTACT” section of this
preamble.
The rules of 26 CFR 601.601(a)(3) ap-
ply to the hearing. Persons who wish to
present oral comments at the hearing must
submit electronic or written comments and
an outline of the topics to be discussed and
the time to be devoted to each topic (signed
original and eight (8) copies) by Decem-
ber 2, 2004. A period of 10 minutes will
be allotted to each person for making com-
ments. An agenda showing the scheduling
of the speakers will be prepared after the
deadline for receiving outlines has passed.
Copies of the agenda will be available free
of charge at the hearing.
Drafting Information
The principal author of these proposed
regulations is Lian A. Mito of the Office
of Associate Chief Counsel (Passthroughs
and Special Industries). However, other
personnel from the IRS and Treasury
Department participated in their develop-
ment.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 26 is pro-
posedtobeamendedasfollows:
PART 26—GENERATION-SKIPPING
TRANSFER TAX REGULATIONS
UNDER THE TAX REFORM ACT OF
1986
Paragraph 1. The authority citation for
part 26 continues to read, in part, as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. In §26.2600–1, the table is
amended by:
1. Removing the entries for §26.2612–1,
paragraphs (a)(1) and (a)(2).
2. Adding entries for §§26.2651–1,
26.2651–2, and 26.2651–3.
The additions read as follows:
§26.2600–1 Table of contents.
*****
§26.2612–1 Definitions.
(a) * * *
*****
§26.2651–1 Generation assignment.
(a) Special rule for persons with a deceased
parent.
(1) In general.
(2) Special rules.
(3) Established or derived.
(4) Special rule in the case of additional
contributions to a trust.
(b) Limited application to collateral heirs.
(c) Examples.
§26.2651–2 Individual assigned to more
than one generation.
(a) In general.
(b) Exception.
(c) Special rules.
(1) Corresponding generation adjustment.
(2) Continued application of generation as-
signment.
§26.2651–3 Effective dates.
(a) In general.
(b) Transition rule.
Par. 3. Section 26.2612–1 is amended
by:
1. Removing the paragraph designation
and heading for (a)(1).
2. Removing paragraph (a)(2).
3. Removing the second sentence of
paragraph (f).
4. RemovingExamples 6and7in para-
graph (f).
5. RedesignatingExamples 8through15
asExamples 6through13in para-
graph (f).
6. Revising the first sentence of newly
designatedExample 7in paragraph
(f).
7. Revising the first sentence of newly
designatedExample 11in paragraph
(f).
The revisions read as follows:
§26.2612–1 Definitions.
(a) * * *
*****
(f) * * *
Example 7.Taxable termination resulting from
distribution. The facts are the same as inExample 6,
except twenty years after C’s death the trustee exer-
cises its discretionary power and distributes the entire
principal to GGC. * * *
*****
Example 11.Exercise of withdrawal right as tax-
able distribution. The facts are the same as inExam-
ple 10, except GC holds a continuing right to with-
draw trust principal and after one year GC withdraws
$10,000. * * *
*****
Par. 4. Sections 26.2651–1, 26.2651–2,
and 26.2651–3 are added to read as fol-
lows:
§26.2651–1 Generation assignment.
(a)Special rule for persons with a de-
ceased parent—(1)In general. This para-
graph (a) applies for purposes of determin-
ing whether a transfer to or for the ben-
efit of an individual who is a descendant
of a parent of the transferor (or the trans-
feror’s spouse or former spouse) is a gener-
ation-skipping transfer. If that individual’s
parent, who is a lineal descendant of the
parent of the transferor (or the transferor’s
spouse or former spouse), is deceased at
the time the transfer(from which an in-
terest of such individual is established or
derived) is subject to the tax imposed by
chapter 11 or 12 of the Internal Revenue
Code on the transferor, the individual is
treated as if that individual were a mem-
ber of the generation that is one generation
below the lower of—
(i) The transferor’s generation; or
(ii) The generation assignment of the in-
dividual’s youngest living lineal ancestor
who is also a descendant of the parent of
the transferor (or the transferor’s spouse or
former spouse).
(2)Special rules—(i)Corresponding
generation adjustment. If an individual’s
generation assignment is adjusted with
respect to a transfer in accordance with
paragraph (a)(1) of this section, a corre-
sponding adjustment with respect to that
transfer is made to the generation assign-
ment of each—
(A) Spouse or former spouse of that in-
dividual;
(B) Descendant of that individual; and
(C) Spouse or former spouse of each
descendant of that individual.
October 18, 20046952004–42 I.R.B.

(ii)Continued application of genera-
tion assignment. If a transfer to a trust
would be a generation-skipping transfer
but for paragraph (a)(1) of this section, any
generation assignment determined under
this paragraph (a) continues to apply in de-
termining whether any subsequent distri-
bution from (or termination of an interest
in) the portion of the trust attributable to
that transfer is a generation-skipping trans-
fer.
(iii)Ninety-day rule. For purposes of
paragraph (a)(1) of this section, any indi-
vidual who dies no later than 90 days after
a transfer is treated as having predeceased
the transferor.
(iv)Local law. Except as provided in
paragraph (a)(2)(iii) of this section, a liv-
ing descendant is not treated as having pre-
deceased the transferor solely by reason of
a provision of applicable local law;e.g.,an
individual who disclaims is not treated as
a predeceased parent solely because state
law treats a disclaimant as having prede-
ceased the transferor for purposes of de-
termining the disposition of the disclaimed
property.
(3)Established or derived. For pur-
poses of section 2651(e) and paragraph
(a)(1) of this section, an individual’s in-
terest is established or derived at the time
the transferor who transferred the prop-
erty that makes up the interest is subject to
transfer tax imposed by either chapter 11
or 12 of the Internal Revenue Code on the
property transferred.If the transferor will
be subject to transfer tax imposed by either
chapter 11 or 12 of the Internal Revenue
Code on the property transferred on more
than one occasion, then the relevant time
for determining whether paragraph (a)(1)
of this section applies is the earliest time
at which the transferor is subject to the
tax imposed by either chapter 11 or 12 of
the Internal Revenue Code. However, for
purposes of section 2651(e) and paragraph
(a)(1) of this section, the interest of a re-
mainder beneficiary in a trust for which an
election under section 2056(b)(7) (QTIP
election) has been made will be deemed to
have been established or derived, to the ex-
tent of the QTIP election, on the death of
the transferor’s spouse (the income bene-
ficiary). The preceding sentence does not
apply to a trust for which the election under
section 2652(a)(3) (reverse QTIP election)
is made.
(4)Special rule in the case of additional
contributions to a trust. If a transferor re-
ferred to in paragraph (a)(1) of this sec-
tion contributes additional property to a
trust that existed before the application of
paragraph (a)(1), then the additional prop-
erty is treated as being held in a separate
trust for purposes of chapter 13 of the In-
ternal Revenue Code. The provisions of
§26.2654–1(a)(2) apply as if the portions
of the single trust had had separate trans-
ferors. Other subsequent contributions are
treated as contributions to the appropriate
portion of the single trust.
(b)Limited application to collateral
heirs. Paragraph (a) of this section does
not apply in the case of a transfer to any in-
dividual who is not a lineal descendant of
the transferor (or of the transferor’s spouse
or former spouse) if the transferor (or the
transferor’s spouse or former spouse) has
any living lineal descendant at the time of
the transfer.
(c)Examples. The following examples
illustrate the provisions of this section:
Example 1. T establishes an irrevocable trust,
Trust, providing that trust income is to be paid to T’s
grandchild, GC, for 5 years. At the end of the 5-year
period or on GC’s prior death, Trust is to terminate
and the principal is to be distributed to GC if GC is
living or to GC’s children if GC has died. The trans-
fer that occurred on the creation of the trust is subject
to the tax imposed by chapter 12 of the Internal Rev-
enue Code and, at the time of the transfer, T’s child,
C, who is a parent of GC, is deceased. GC is treated
as a member of the generation that is one generation
below T’s generation. As a result, GC is not a skip
person and Trust is not a skip person. Therefore, the
transfer to Trust is not a direct skip. Similarly, dis-
tributions to GC during the term of Trust and at the
termination of Trust will not be GSTs.
Example 2. On January 1, 2004, T transfers
$100,000 to aninter vivostrust that provides T with
an annuity payable for four years or until T’s prior
death. The annuity satisfies the definition of a qual-
ified interest under section 2702(b). When the trust
terminates, the corpus is to be paid to T’s grandchild,
GC. The transfer is subject to the tax imposed by
chapter 12 of the Internal Revenue Code and, at the
time of the transfer, T’s child, C, who is a parent of
GC, is living. C dies in 2006. In this case, C was
alive at the time the transfer by T is subject to the
tax imposed by chapter 12 of the Internal Revenue
Code. Therefore, section 2651(e) and paragraph
(a)(1) of this section do not apply. When the trust
subsequently terminates, the distribution to GC is a
taxable termination.
Example 3. T dies testate in 2002, survived by
T’s spouse, S, their children, C1 and C2, and C1’s
child, GC. Under the terms of T’s will, a trust is es-
tablished for the benefit of S and their descendants.
Under the terms of the trust, all income is payable
to S during S’s lifetime and the trustee may distrib-
ute trust corpus for S’s health, support and mainte-
nance. At S’s death, the corpus is to be distributed,
outright, to C1 and C2. If either C1 or C2 has prede-
ceased S, the deceased child’s share of the corpus is to
be distributed to that child’s descendants, per stirpes.
The executor of T’s estate makes the election under
section 2056(b)(7) to treat the trust property as quali-
fied terminable interest property (QTIP) but does not
make the election under section 2652(a)(3) (reverse
QTIP election). In 2003, C1 dies survived by S and
GC. In 2004, S dies, and the trust terminates. The full
fair market value of the trust is includible in S’s gross
estate under section 2044 and S becomes the trans-
feror of the trust under section 2652(a)(1)(A). Under
the rule in paragraph (a)(3) of this section, GC’s inter-
est is considered established or derived at S’s death,
and because C1 is deceased at that time, GC is treated
as a member of the generation that is one generation
below the generation of the transferor, S. As a result,
GC is not a skip person and the transfer to GC is not
a direct skip.
Example 4. ThefactsarethesameasinExam-
ple 3. However, the executor of T’s estate makes the
election under section 2652(a)(3) (reverse QTIP elec-
tion) for the entire trust. Therefore, T remains the
transferor because, for purposes of chapter 13 of the
Internal Revenue Code, the election to be treated as
qualified terminable interest property is treated as if it
had not been made. In this case, the rule in paragraph
(a)(3) of this section does not apply, so GC’s interest
is established or derived on T’s death in 2002. Be-
cause C1 was living at the time of T’s death, the pre-
deceased parent rule undersection 2651(e) does not
apply, even though C1 was deceased at the time the
transfer from S to GC is subject to the tax under chap-
ter 11 of the Internal Revenue Code. When the trust
terminates, the distribution to GC is a taxable termi-
nation that is subject to the GST tax to the extent the
trust has an inclusion ratiogreater than zero. See sec-
tion 2642(a).
Example 5. T establishes an irrevocable trust pro-
viding that trust income is to be paid to T’s grand-
niece, GN, for 5 years or until GN’s prior death. At
the end of the 5-year period or on GN’s prior death,
the trust is to terminate and the principal is to be dis-
tributed to GN if living, or if GN has died, to GN’s
descendants, per stirpes. S is a sibling of T and the
parent of N. N is the parent of GN. At the time of the
transfer, T has no living lineal descendant, S is living,
N is deceased, and the transfer is subject to the gift
tax imposed by chapter 12 of the Internal Revenue
Code. GN is treated as a member of the generation
that is one generation below T’s generation because
S, GN’s youngest living lineal ancestor who is also a
descendant of T’s parent, is in T’s generation. As a
result, GN is not a skip person and the transfer to the
trust is not a direct skip. In addition, distributions to
GN during the term of the trust and at the termination
of the trust will not be GSTs.
Example 6. On January 1, 2004, T transfers
$50,000 to the great grandchild, GGC, of B, a
brother of T. At the time of the transfer, B’s grand-
child, GC, who is a parent of GGC and a child of
B’s living child, C, is deceased. GGC will be treated
as a member of the generation that is one generation
below the lower of T’s generation or the generation
assignment of GGC’s youngest living lineal ancestor
who is also a descendant ofthe parent of the trans-
feror. In this case, C is GGC’s youngest living lineal
ancestor who is also a descendant of the parent of
2004–42 I.R.B.696October 18, 2004

T. Because C’s generation assignment is lower than
T’s generation, GGC will be treated as a member
of the generation that is one generation below C’s
generation assignment (i.e., GGC will be treated as
a member of GC’s generation). As a result, GGC
remains a skip person and the transfer to GGC is a
direct skip.
§26.2651–2 Individual assigned to more
than 1 generation.
(a)In general. Except as provided
in paragraphs (b) or (c) of this section,
an individual who would be assigned to
more than 1 generation is assigned to the
youngest of the generations to which that
individual would be assigned.
(b)Exception. An adopted individual
will be treated as a member of the genera-
tion that is one generation below the adop-
tive parent for purposes of determining
whether a transfer to the adopted individ-
ual from the adoptive parent (or the spouse
or former spouse of the adoptive parent, or
a lineal descendant of a grandparent of the
adoptive parent) is subject to chapter 13 of
the Internal Revenue Code. For purposes
of this paragraph (b), an adopted individ-
ual is an individual who is—
(1) A descendant of a parent of the
adoptive parent (or the spouse or former
spouse of the adoptive parent); and
(2) Under the age of 18 at the time of
the adoption.
(c)Special rules—(1)Corresponding
generation adjustment. If an individual’s
generation assignment is adjusted with re-
spect to a transfer in accordance with para-
graph (b) of this section, a correspond-
ing adjustment with respect to that trans-
fer is made to the generation assignment
of each—
(i) Spouse or former spouse of that in-
dividual;
(ii) Descendant of that individual; and
(iii) Spouse or former spouse of each
descendant of that individual.
(2)Continued application of generation
assignment. If a transfer to a trust would be
a generation-skipping transfer but for para-
graph (b) of this section, any generation as-
signment determined under paragraph (b)
of this section continues to apply in deter-
mining whether any subsequent distribu-
tion from (or termination of an interest in)
the portion of the trust attributable to that
transfer is a generation-skipping transfer.
§26.2651–3 Effective dates.
(a)In general.Therulesof
§§ 26.2651–1 and 26.2651–2 are ap-
plicable for terminations, distributions,
and transfers occurring on or after the date
these regulations are issued as final regu-
lations in theFederal Register.
(b)Transition rule.(1)Therule
contained in the last two sentences of
§ 26.2651–1(a)(3) is applicable for ter-
minations, distributions, and transfers
occurring on or after the date these regula-
tions are issued as final regulations in the
Federal Register.
(2) Except as provided in paragraph
(b)(1) of this section, in the case of trans-
fers occurring after December 31, 1997,
and before the date that this document is
published in theFederal Registeras a
final regulation, taxpayers may rely on
any reasonable interpretation of section
2651(e). For this purpose, these proposed
regulations are treated as a reasonable in-
terpretation of the statute.
Deborah M. Nolan,
Acting Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on September
2, 2004, 8:45 a.m., and published in the issue of the Federal
Register for September 3, 2004, 69 F.R. 53862)
Notice of Proposed
Rulemaking by
Cross-Reference to
Temporary Regulations
Treatment of Certain Nuclear
Decommissioning Funds
for Purposes of Allocating
Purchase Price in Certain
Deemed and Actual Asset
Acquisitions
REG–169135–03
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
by cross-reference to temporary regula-
tions and notice of public hearing.
SUMMARY: In this issue of the Bulletin,
the IRS is issuing temporary regulations
(T.D. 9158) relating to the treatment of
certain nuclear decommissioning funds in
the allocation of purchase price in deemed
and actual asset acquisitions under sec-
tions 338 and 1060. The text of those tem-
porary regulations also serves as the text of
these proposed regulations.
DATES: Written or electronic comments
must be received by December 15, 2004.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–169135–03), room
5203, Internal Revenue Service, POB
7604 Ben Franklin Station, Washington,
DC 20044. Submissions may be hand
delivered Monday through Friday be-
tween the hours of 8 a.m. and 4 p.m.
to: CC:PA:LPD:PR (REG–169135–03),
Courier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW, Wash-
ington, DC. Alternatively, taxpayers may
submit comments electronically directly to
the IRS Internet site atwww.irs.gov/regs,
or via the Federal eRulemaking Portal
athttp://www.regulations.gov(IRS —
REG–169135–03).
FOR FURTHER INFORMATION
CONTACT: Richard Starke at (202)
622–7790 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
Temporary regulations in this issue of
the Bulletin amend 26 CFR 1 relating to
sections 338 and 1060. The temporary reg-
ulations affect the treatment of certain nu-
clear decommissioning funds in the alloca-
tion of purchase price in deemed and actual
asset acquisitions under sections 338 and
1060. The text of those temporary regula-
tions also serves as the text of these pro-
posed regulations. The preamble to the
temporary regulations explains the amend-
ments.
Comments and 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)orelectroniccom-
ments that are submitted timely to the IRS.
All comments will be available for public
inspection and copying. A public hearing
October 18, 20046972004–42 I.R.B.

will be scheduled if requested in writing by
any person timely submitting written com-
ments. If a public hearing is scheduled,
notice of the date, time, and place for the
hearing will be published in 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 proposed regulations will
not have a significant economic impact
on a substantial number of small entities.
Nevertheless, the IRS and Treasury De-
partment request comments from small en-
tities that believe they might be adversely
affected by these regulations. This certi-
fication is based on the fact that the regu-
lations provide relief to purchasers of nu-
clear power plants, which are generally
not small businesses. Therefore, the Reg-
ulatory Flexibility Act (5 U.S.C. chapter
6) does not apply. Pursuant to section
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
the impact of these regulations.
Drafting Information
The principal author of these regula-
tions is Richard Starke, Office of the As-
sociate Chief Counsel (Corporate).
*****
Proposed Amendments to the
Regulations
Paragraph 1. The authority citation for
part 1 continues to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.338–6 is amended by
adding paragraph (c)(5) to read as follows:
§1.338–6 Allocation of ADSP and AGUB
among target assets.
[The text of this proposed section is the
same as the text of §1.338–6T(c)(5) pub-
lished elsewhere in this issue of the Bul-
letin].
Par. 3. Section 1.1060–1 is amended
by revising paragraph (c)(3) to read as fol-
lows:
§1.1060–1 Special allocation rules for
certain asset acquisitions.
[The text of this proposed section is the
same as the text of §1.1060–1T(c)(3) and
(e)(1)(ii)(C) published elsewhere in this is-
sue of the Bulletin].
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on September
15, 2004, 8:45 a.m., and published in the issue of the Federal
Register for September 16, 2004, 69 F.R. 55790)
Notice of Proposed
Rulemaking and Notice of
Public Hearing
Treatment of a Stapled
Foreign Corporation Under
Sections 269B and 367(b)
REG–101282–04
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
SUMMARY: This document contains a
notice of proposed rulemaking concerning
the definition and tax treatment of a sta-
pled foreign corporation, which generally
is treated for tax purposes as a domestic
corporation under section 269B of the In-
ternal Revenue Code.
DATES: Written or electronic comments
must be received by December 6, 2004.
Outlines of topics to be discussed at the
public hearing scheduled for December 15,
2004, at 10 a.m. must be received by De-
cember 6, 2004.
ADDRESSES: Send submissions to
CC:PA:LPD:PR (REG–101282–04), room
5203, Internal Revenue Service, POB
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–101282–04),
Courier’s desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, NW,
Washington, DC 20224. Alternatively,
taxpayers may submit comments elec-
tronically to the IRS Internet site at
www.irs.gov/regsor via the Federal eRule-
making Portal atwww.regulations.gov
(IRS-REG–101282–04). The public hear-
ingwillbeheldintheauditorium,Internal
Revenue Building, 1111 Constitution Av-
enue, NW, Washington, DC 20224.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Richard L. Osborne, (202)
622–3977, or Bethany Ingwalson, (202)
622–3850; concerning submissions of
comments, the hearing, and/or to be
placed on the building access list to at-
tend the hearing, LaNita Van Dyke, (202)
622–7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
Under section 269B(a)(1), if a domes-
tic corporation and a foreign corporation
are stapled entities, the foreign corporation
will be treated as a domestic corporation
for U.S. Federal tax purposes, unless other-
wise provided in regulations. A domestic
and a foreign corporation are stapled en-
tities if more than 50 percent in value of
the beneficial ownership in each corpora-
tion consists of stapled interests. Section
269B(c)(2). Interests are stapled if, by rea-
son of form of ownership, restrictions on
transfer, or other terms and conditions, in
connection with the transfer of one of such
interests, the other such interests are also
transferred or required to be transferred.
Section 269B(c)(3).
Section 269B(e) provides that a stapled
foreign corporation will not be treated as
a domestic corporationpursuant to section
269B(a)(1) if it is established to the sat-
isfaction of the Secretary that the stapled
corporations are foreign owned. A corpo-
ration is treated as foreign owned if U.S.
persons own directly (or indirectly through
applying paragraphs (2) and (3) of section
958(a) and paragraph (4) of section 318(a))
less than 50 percent of the total combined
voting power of all classes of stock entitled
to vote and less than 50 percent of the total
value of the stock of such corporation.
On August 28, 1989, the IRS and the
Treasury Department issued Notice 89–94,
1989–2 C.B. 416, announcing the inten-
tion to adopt regulations under section
2004–42 I.R.B.698October 18, 2004

269B. The notice stated that regulations
would provide that a stapled foreign cor-
poration treated as a domestic corporation
under section 269B(a)(1) was nevertheless
to be treated as a foreign corporation for
purposes of the definition of an includible
corporation under section 1504(b). Notice
89–94 explained that, under these regu-
lations, the stapled foreign corporation’s
losses would not offset the income of any
member of the affiliated group unless a
valid section 1504(d) election was in ef-
fect for the stapled foreign corporation.
Subsequent to the issuance of Notice
89–94, the IRS and Treasury Department
became aware of instances in which tax-
payers attempted to use section 269B and
Notice 89–94 to manipulate the computa-
tion of their foreign tax credit limitation.
These transactions typically involved sta-
pling the interests of a domestic and for-
eign corporation, all or substantially all
of the interests of which were held by
the same person or related persons. On
July 22, 2003, the IRS and Treasury De-
partment issued Notice 2003–50, 2003–32
I.R.B. 295, to address these situations. No-
tice 2003–50 announced that regulations
would be issued under section 269B pro-
viding that a stapled foreign corporation
will be treated as a domestic corporation in
determining whether it is an includible cor-
poration for purposes of §§1.904(i)–1 and
1.861–11T(d)(6).
Explanation of Provisions
Includible Corporation
Consistent with Notice 89–94, this pro-
posed regulation provides that a stapled
foreign corporation, which is generally
treated as a domestic corporation under
section 269B, nevertheless will be treated
as a foreign corporation for purposes of
the definition of an includible corpora-
tion under section 1504(b). Thus, in the
absence of a valid election under section
1504(d), an affiliated group cannot in-
clude the stapled foreign corporation in
its consolidated tax return and therefore
the affiliated group cannot use the stapled
foreign corporation’s losses to offset in-
come of another member of the group.
As announced in Notice 2003–50, how-
ever, the proposed regulation also treats a
stapled foreign corporation as a domestic
corporation in determining whether it is
an includible corporation for purposes of
§§1.904(i)–1 and 1.861–11T(d)(6).
Determination of Stapled Corporation
Status in the Case of Multiple Classes of
Stock
Section 269B(c)(2) provides that two or
more entities are stapled entities if more
than 50 percent in value of the beneficial
ownership in each entity consists of sta-
pled interests. This proposed regulation
clarifies that this determination is made
on an aggregate basis if there are multiple
classes of stock. For example, if a class
of stock in each corporation (representing
more than 50 percent in value of such cor-
poration) is stapled to a class of stock in the
other corporation (representing less than
50 percent in value of such other corpora-
tion), the two corporations are considered
stapled because, in the aggregate, more
than 50 percent of the value of each corpo-
ration is stapled to the other corporation’s
stock.
Related Party Ownership Rule
In cases where stapled interests consti-
tuting more than 50 percent of the bene-
ficial ownership in each stapled entity are
held by the same or related persons, the
IRS and Treasury Department believe that
the formal transfer restrictions have little
or no substantive consequence and may be
intended to facilitate the affirmative use of
section 269B for tax avoidance purposes.
Accordingly, for purposes of determining
whether a foreign corporation and a do-
mestic corporation are stapled entities un-
der section 269B, this proposed regulation
permits the Commissioner to treat interests
that otherwise would be stapled interests as
not being stapled if the same person or re-
lated persons (within the meaning of sec-
tion 267(b) or 707(b)) hold stapled inter-
ests constituting more than 50 percent of
the beneficial ownership of both corpora-
tions, and a principal purpose of the sta-
pling of those interests is the avoidance
of U.S. income tax. No inference is in-
tended as to whether current structures in-
volving majority interests held by the same
person or related persons are stapled inter-
ests within the meaning of section 269B.
In such cases, the IRS will continue to ap-
ply principles of existing law to determine
whether interests are stapled for purposes
of section 269B. For example, under a sub-
stance-over-form analysis, restrictions on
the transferability ofownership interests
may be disregarded for tax purposes if the
majority interests are held by the same per-
son or related persons.
Inbound and Outbound Conversions
A corporation’s status as either foreign
or domestic may change under section
269B. For example, if a foreign corpora-
tion and a domestic corporation become
stapled entities and are not foreign owned
under section 269B(e), the foreign cor-
poration will be treated as converting to
a domestic corporation for U.S. tax pur-
poses (inbound conversion). Similarly, if
the stapled foreign corporation’s interests
cease to be stapled at some point in the
future, the stapled foreign corporation no
longer will be treated as a domestic corpo-
ration for U.S. tax purposes and, therefore,
will be treated as converting to a foreign
corporation (outbound conversion).
Section 1.367(b)–2(g) provides that an
inbound conversion is treated as a reorga-
nization described in section 368(a)(1)(F)
(F reorganization). This proposed reg-
ulation includes this rule and revises
§1.367(b)–2(g) to include a cross-refer-
ence to the relocated provision. Addition-
ally, this proposed regulation provides that
an outbound conversion also is treated
as an F reorganization. Treatment of an
inbound or outbound conversion as an F
reorganization also applies in cases where
the conversion results from a change in
ownership of a stapled foreign corporation
that changes its status as foreign owned un-
der section 269B(e). In all such cases, this
proposed regulation treats the conversion
as an F reorganization, even though all of
the technical requirements of an F reorga-
nization may not be satisfied. See Staff
of Joint Committee on Taxation, General
Explanation of the Revenue Provisions of
the Deficit Reduction Act of 1984, H.R.
Doc. 4170, 98
th
Cong., 456–57 (1984).
This proposed regulation references
the section 367 regulations for purposes
of determining the tax consequences un-
der section 367 that result from an in-
bound or outbound conversion. Section
1.367(b)–2(f)(2) provides that an inbound
F reorganization includes a transfer of as-
sets by a foreign corporation to a domes-
tic corporation. Section 1.367(a)–1T(f)
October 18, 20046992004–42 I.R.B.

provides similar treatment in the case
of an outbound conversion. Further, in
both cases, the taxable year of the cor-
poration ends as a result of the deemed
conversion. See §§1.367(a)–1T(e) and
1.367(b)–2(f)(4).
U.S. Treaties
Section 269B(d) provides that a stapled
foreign corporation treated as a domestic
corporation under section 269B will not be
exempt from U.S. tax liability by reason of
anytreatyobligationoftheUnitedStates.
In enacting section 269B(d), Congress was
concerned that a stapled foreign corpora-
tion that is resident in a treaty country
might claim an exclusion from U.S. taxa-
tion, for example, on the basis that its in-
come is not attributable to a permanent es-
tablishment in the United States. See H.R.
Rep. No. 98–432, 98
th
Cong., 1
st
Sess.,
244–45. This would be contrary to the
purpose of section 269B, which is to tax
a stapled foreign corporation on its world-
wide income as if it were a domestic cor-
poration. Accordingly, this proposed reg-
ulation provides that astapled foreign cor-
poration treated as a domestic corporation
under section 269B may not claim an ex-
emption or reduction in tax rates provided
under a treaty entered into by the United
States.
Collection
Under section 269B(b), the Secretary
may prescribe regulations providing that
any U.S. income tax imposed on a stapled
foreign corporation may, if not paid by
such corporation, becollected from the do-
mestic corporation whose ownership inter-
ests are stapled to the foreign corporation’s
ownership interests (stapled domestic cor-
poration) or from the shareholders of the
stapled foreign corporation. This proposed
regulation provides that the Commissioner
may collect the stapled foreign corpora-
tion’s U.S. income tax liability from the
stapled domestic corporation and, subject
to certain limitations, from certain share-
holders of such foreign corporation.
Any U.S. income tax assessed as a tax
liability of the stapled foreign corporation
will be deemed to be properly assessed
as a tax liability of the stapled domestic
corporation and the 10-percent sharehold-
ers of the stapled foreign corporation. For
these purposes, a 10-percent shareholder
of a stapled foreign corporation is defined
as any person owning directly 10 percent
or more of the total value or total com-
bined voting power of all classes of stock
in the stapled foreign corporation for any
day of the foreign corporation’s taxable
year with respect to which the liability re-
lates. The IRS and Treasury Department
are concerned about 10-percent sharehold-
ers interposing entities in order to avoid
collection under these rules. These pro-
posed regulations contain a reserved sec-
tion for rules regarding indirect ownership
and request comments on how to address
situations involving indirect ownership of
the stapled foreign corporation.
The Commissioner may collect from
the stapled domestic corporation any U.S.
income tax properly assessed but not
timely paid by the stapled foreign corpo-
ration, and, if the domestic corporation
fails to timely pay such tax or any por-
tion thereof, from one or more 10-percent
shareholders of the stapled foreign corpo-
ration. The collection action may proceed
against the domestic corporation only af-
ter the Commissioner has issued a notice
and demand for payment of unpaid U.S.
income tax to the stapled foreign corpora-
tion, and the stapled foreign corporation
hasfailedtopaythetaxduebythedate
specified in the notice.A collection action
then may proceed against the 10-percent
shareholders of the stapled foreign cor-
poration if the Commissioner has issued
a notice and demand for payment of the
unpaid tax to the stapled domestic corpora-
tion, and the stapled domestic corporation
has failed to pay such tax by the date spec-
ified.
This proposed regulation limits the
amount of any U.S. income tax liability of
the stapled foreign corporation that may
be collected from any 10-percent share-
holder of a stapled foreign corporation.
The shareholder’s share of the liability
will be determined by assigning an equal
portion of the total U.S. income tax lia-
bility of the stapled foreign corporation
to each day in such corporation’s taxable
year, and then dividing that portion ratably
among the shares outstanding for that day
based on the relative values of such shares.
The shareholder’s share of the liability is
thesumoftheU.S.incometaxliability
allocated to the shares held by such share-
holder for each day in the taxable year.
Proposed Effective Dates
Except as otherwise provided, the
proposed regulations are applicable for
taxable years that begin after the date
on which final regulations are pub-
lished in theFederal Register. Section
1.269B–1(d)(1) and (f) (except in the case
of the collection of tax from a 10-percent
shareholder that is a foreign person) ap-
plies beginning on July 18, 1984, for any
foreign corporation that became stapled
to a domestic corporation after June 30,
1983, and beginning on January 1, 1987,
for any foreign corporation that was sta-
pled to a domestic corporation as of June
30, 1983. Section 1.269B–1(d)(2) applies
for taxable years beginning after July 22,
2003, except that in the case of a foreign
corporation that becomes stapled to a do-
mestic corporation on or after July 22,
2003, then paragraph (d)(2) applies to tax-
able years ending on or after July 22, 2003.
Section 1.269B–1(e) applies beginning on
July 18, 1984, except that §1.269B–1(e)
does not apply, and the foreign corporation
continues for all U.S. tax purposes to be
a foreign entity, if the foreign corporation
was stapled to a domestic corporation as
of June 30, 1983, was entitled to benefits
under an income tax treaty in existence as
of that date, and has remained eligible to
claim such treaty benefits. At such time
as the stapled foreign corporation is no
longer eligible to claim treaty benefits, the
foreign corporation is deemed to convert
to a domestic corporation for U.S. tax
purposes.
Special Analyses
The IRS and the Treasury Department
have determined that this notice of pro-
posed rulemaking is not a significant reg-
ulatory action as defined in Executive Or-
der 12866. Therefore, a regulatory assess-
ment is not required. It has also been de-
termined that section 553(b) of the Admin-
istrative Procedure Act (5 U.S.C. chapter
5) does not apply to these regulations, and
that because this regulation does 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 Internal Revenue
Code, this regulation will be submitted to
the Chief Counsel for Advocacy of the
2004–42 I.R.B.700October 18, 2004

Small Business Administration for com-
ment on its impact on small business.
Comments and 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 Treasury Depart-
ment and the IRS specifically request com-
ments on the clarity of the proposed regu-
lations and how it may be made easier to
understand. All comments will be avail-
able for public inspection and copying.
A public hearing has been scheduled
for December 15, 2004, at 10 a.m., in
the auditorium, Internal Revenue Build-
ing, 1111 Constitution Avenue, NW, Wash-
ington, DC. Due to building security pro-
cedures, visitors must enter at the Constitu-
tion Avenue entrance. In addition, all vis-
itors must present photo identification to
enter the building. Because of access re-
strictions, visitors will not be admitted be-
yond the immediate entrance more than 30
minutes before the hearing starts. For in-
formation about having your name placed
on the building access list to attend the
hearing, see the “FOR FURTHER INFOR-
MATION CONTACT” section of this pre-
amble.
The rules of 26 CFR 601.601(a)(3) ap-
ply to the hearing. Persons who wish to
present oral comments at the hearing must
submit an outline of the topics to be dis-
cussed and the time to be devoted to each
topic (signed original and eight (8) copies)
by December 6, 2004. A period of 10
minutes will be allotted to each person for
making comments.
An agenda showing the scheduling of
the speakers will be prepared after the
deadline for receiving outlines has passed.
Copies of the agenda will be available free
of charge at the hearing.
Drafting Information
The principal authors of these reg-
ulations are Richard L. Osborne and
Bethany Ingwalson, of the Office of As-
sociate Chief Counsel (International).
However, other personnel from the IRS
and Treasury Department participated in
their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 301
are 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 * * *
Section 1.269B(b)–1 also issued under
26 U.S.C. 269B(b).
Par. 2. Section 1.269B–1 is added to
read as follows:
§1.269B–1 Stapled foreign corporations.
(a)Treatment as a domestic corpora-
tion—(1)General rule. Except as oth-
erwise provided, if a foreign corporation
is a stapled foreign corporation within
the meaning of paragraph (b)(1) of this
section, such foreign corporation will be
treated as a domestic corporation for U.S.
Federal income tax purposes. Accord-
ingly, for example, the worldwide income
of such corporation will be subject to the
tax imposed by section 11. For application
of the branch profits tax under section 884,
and application of sections 871(a), 881,
1441, and 1442 to dividends and interest
paid by a stapled foreign corporation, see
§§1.884–1(h) and 1.884–4(d).
(2)Foreign owned exception. Para-
graph (a)(1) of this section will not apply if
a foreign corporation and a domestic cor-
poration are stapled entities (as provided in
paragraph (b) of this section) and such for-
eign and domestic corporations are foreign
owned within the meaning of this para-
graph (a)(2). A corporation will be treated
as foreign owned if it is established to
the satisfaction of the Commissioner that
United States persons hold directly (or in-
directly applying section 958(a)(2) and (3)
and section 318(a)(4)) less than 50 percent
of the total combined voting power of all
classes of stock entitled to vote and less
than 50 percent of the total value of the
stock of such corporation. For the con-
sequences of a stapled foreign corporation
becoming or ceasing to be foreign owned,
therefore converting its status as either a
foreign or domestic corporation within the
meaning of this paragraph (a)(2), see para-
graph (c) of this section.
(b)Definition of a stapled foreign cor-
poration—(1)General rule. A foreign
corporation is a stapled foreign corpora-
tion if such foreign corporation and a do-
mestic corporation are stapled entities. A
foreign corporation and a domestic corpo-
ration are stapled entities if more than 50
percent of the aggregate value of each cor-
poration’s beneficial ownership consists of
interests that are stapled. In the case of
corporations with more than one class of
stock, it is not necessary for a class of stock
representing more than 50 percent of the
beneficial ownership of the foreign corpo-
ration to be stapled to a class of stock rep-
resenting more than 50 percent of the ben-
eficial ownership of the domestic corpora-
tion, provided that more than 50 percent of
the aggregate value of each corporation’s
beneficial ownership (taking into account
all classes of stock) are in fact stapled. In-
terests are stapled if atransferor of one or
more interests in one entity is required, by
form of ownership, restrictions on transfer,
or other terms or conditions, to transfer in-
terests in the other entity. The determina-
tion of whether interests are stapled for this
purpose is based on the relevant facts and
circumstances, including, but not limited
to, the corporations’ by-laws, articles of in-
corporation or association, and stock cer-
tificates, shareholder agreements, agree-
ments between the corporations, and vot-
ing trusts with respect to the corporations.
For the consequences of a foreign corpora-
tion’s change in status as a stapled foreign
corporation (that is not foreign owned) un-
der this paragraph (b)(1), see paragraph (c)
of this section.
(2)Related party ownership rule.For
purposes of determining whether a foreign
corporation is a stapled foreign corpora-
tion, the Commissioner may, at his discre-
tion, treat interests that otherwise would be
stapled interests as not being stapled if the
same person or related persons (within the
meaning of section 267(b) or 707(b)) hold
stapled interests constituting more than 50
percent of the beneficial ownership of both
corporations, and a principal purpose of
the stapling of those interests is the avoid-
ance of U.S. income tax. A stapling of in-
terests may have a principal purpose of tax
avoidance even though the tax avoidance
purpose is outweighed by other purposes
when taken together.
(3)Example. The principles of para-
graph (b)(1) of this section are illustrated
by the following example:
October 18, 20047012004–42 I.R.B.

Example. USCo, a domestic corporation, and
FCo, a foreign corporation, are publicly traded com-
panies, each having two classes of stock outstanding.
USCo’s class A shares, which constitute 75% of the
value of all beneficial ownership in USCo, are stapled
to FCo’s class B shares, which constitute 25% of the
value of all beneficial ownership in F Co. USCo’s
class B shares, which constitute 25% of the value of
all beneficial ownership in USCo, are stapled to FCo
class A shares, which constitute 75% of the value of
all beneficial ownershipin FCo. Because more than
50% of the aggregate value of the stock of each corpo-
ration is stapled to the stock of the other corporation,
USCo and FCo are stapled entities within the mean-
ing of section 269B(c)(2).
(c)Changes in domestic or foreign
status. The deemed conversion of a for-
eign corporation to a domestic corporation
under section 269B is treated as a reor-
ganization under section 368(a)(1)(F).
Similarly, the deemed conversion of a
corporation that is treated as a domes-
tic corporation under section 269B to a
foreign corporation is treated as a reorga-
nization under section 368(a)(1)(F). For
the consequences of a deemed conversion,
including the closing of a corporation’s
taxable year, see §§1.367(a)–1T(e), (f) and
1.367(b)–2(f).
(d)Includible corporation—(1) Except
as provided in paragraph (d)(2) of this sec-
tion, a stapled foreigncorporation treated
as a domestic corporation under section
269B nonetheless will be treated as a for-
eign corporation in determining whether
it is an includible corporation within the
meaning of section 1504(b). Thus, for ex-
ample, a stapled foreign corporation shall
not be eligible to join in the filing of a con-
solidated return undersection 1501, and a
dividend paid by such corporation shall not
constitute a qualifying dividend under sec-
tion 243(b), unless a valid section 1504(d)
election is made with respect to such cor-
poration.
(2) A stapled foreigncorporation will
be treated as a domestic corporation in
determining whether it is an includible
corporation under section 1504(b) for
purposes of applying §§1.904(i)–1 and
1.861–11T(d)(6).
(e)U.S. treaties—(1) A stapled foreign
corporation that is treated as a domestic
corporation under section 269B may not
claim an exemption from U.S. income tax
or a reduction in U.S. tax rates by reason
of any treaty entered into by the United
States.
(2) The principles of this paragraph (e)
are illustrated by the following example:
Example. FCo, a Country X corporation, is a sta-
pled foreign corporation that is treated as a domes-
tic corporation under section 269B. FCo qualifies as
a resident of Country X pursuant to the income tax
treaty between the United States and Country X. Un-
der such treaty, the United States is permitted to tax
business profits of a Country X resident only to the
extent that the business profits are attributable to a
permanent establishment of the Country X resident
in the United States. While FCo earns income from
sources within and without the United States, it does
not have a permanent establishment in the United
States within the meaning of the relevant treaty. Un-
der paragraph (e)(1) of this section, however, FCo is
subject to U.S. Federal income tax on its income as a
domestic corporation without regard to the provisions
of the U.S.- Country X treaty and therefore without
regard to the fact that FCo has no permanent estab-
lishment in the United States.
(f)Tax assessment and collection pro-
cedures—(1)In general. (i) Any income
tax imposed on a stapled foreign cor-
poration by reason of its treatment as a
domestic corporation under section 269B
(whether such income tax is shown on the
stapled foreign corporation’s U.S. Federal
income tax return or determined as a de-
ficiency in income tax) shall be assessed
as the income tax liability of such stapled
foreign corporation.
(ii) Any income tax assessed as a lia-
bility of a stapled foreign corporation un-
der paragraph (f)(1)(i) of this section shall
be considered as having been properly as-
sessed as an income tax liability of the sta-
pled domestic corporation (as defined in
paragraph (f)(4)(i) of this section) and all
10-percent shareholders of the stapled for-
eign corporation (as defined in paragraph
(f)(4)(ii) of this section). The date of such
deemed assessment shall be the date the
income tax liability of the stapled foreign
corporation was properly assessed. The
Commissioner may collect such income
tax from the stapled domestic corporation
under the circumstances set forth in para-
graph (f)(2) of this section and may col-
lect such income tax from any 10-percent
shareholders of the stapled foreign corpo-
ration under the circumstances set forth in
paragraph (f)(3) of this section.
(2)Collection from domestic stapled
corporation. If the stapled foreign corpo-
ration does not pay its income tax liability
that was properly assessed, the unpaid
balance of such income tax or any portion
thereof may be collected from the stapled
domestic corporation, provided that the
following conditions are satisfied:
(i) The Commissioner has issued a no-
tice and demand for payment of such in-
come tax to the stapled foreign corporation
in accordance with §301.6303–1;
(ii) The stapled foreign corporation has
failed to pay the income tax by the date
specified in such notice and demand;
(iii) The Commissioner has issued a no-
tice and demand for payment of the unpaid
portion of such income tax to the stapled
domestic corporation in accordance with
§301.6303–1.
(3)Collection from 10-percent share-
holders of the stapled foreign corporation.
The unpaid balance of the stapled foreign
corporation’s income tax liability may be
collected from a 10-percent shareholder
of the stapled foreign corporation, limited
to each such shareholder’s income tax
liability as determined under paragraph
(f)(4)(iv) of this section, provided the fol-
lowing conditionsare satisfied:
(i) The Commissioner has issued a
notice and demand to the stapled domes-
tic corporation for the unpaid portion of
the stapled foreign corporation’s income
tax liability, as provided in paragraph
(f)(2)(iii) of this section;
(ii) The stapled domestic corporation
has failed to pay the income tax by the date
specified in such notice and demand;
(iii) The Commissioner has issued a no-
tice and demand for payment of the unpaid
portion of such income tax to such 10-per-
cent shareholder of the stapled foreign cor-
poration in accordance with §301.6303–1.
(4)Special rules and definitions.For
purposes of this paragraph (f), the follow-
ing rules and definitions apply:
(i)Stapled domestic corporation. A do-
mestic corporation is astapled domestic
corporationwith respect to a stapled for-
eign corporation if such domestic corpora-
tion and the stapled foreign corporation are
stapled entities as described in paragraph
(b)(1) of this section.
(ii)10-percent shareholder.A10-per-
cent shareholderof a stapled foreign cor-
poration is any person that owned directly
10 percent or more of the total value or to-
tal combined voting power of all classes
of stock in the stapled foreign corporation
for any day of the stapled foreign corpo-
ration’s taxable year with respect to which
the income tax liability relates.
(iii)10-percent shareholder in the case
of indirect ownership of stapled foreign
corporation stock. [Reserved].
(iv)Determination of a 10-percent
shareholder’s income tax liability.The
2004–42 I.R.B.702October 18, 2004

income tax liability of a 10-percent share-
holder of a stapled foreign corporation,
for the income tax of the stapled foreign
corporation under section 269B and this
section, is determined by assigning an
equal portion of the total income tax li-
ability of the stapled foreign corporation
for the taxable year to each day in such
corporation’s taxableyear, and then divid-
ing that portion ratably among the shares
outstanding for that day on the basis of
the relative values of such shares. The
liability of any 10-percent shareholder
for this purpose is the sum of the income
tax liability allocated to the shares held
by such shareholder for each day in the
taxable year.
(v)Income tax.Thetermincome tax
means any income tax liability imposed on
a domestic corporation under title 26 of the
United States Code, including additions to
tax, additional amounts, penalties, and in-
terest related to such income tax liability.
(g)Effective dates—(1) Except as pro-
vided in this paragraph (g), the provisions
of this section are applicable for taxable
years that begin after the date the final reg-
ulations are published in theFederal Reg-
ister.
(2)Paragraphs(d)(1)and(f)ofthissec-
tion (except as applied to the collection of
tax from any 10-percent shareholder of a
stapled foreign corporation that is a foreign
person) are applicable beginning on—
(i) July 18, 1984, for any foreign cor-
poration that became stapled to a domestic
corporation after June 30, 1983; and
(ii) January 1, 1987, for any foreign cor-
poration that was stapled to a domestic cor-
poration as of June 30, 1983.
(3) Paragraph (d)(2) of this section is
applicable for taxable years beginning af-
ter July 22, 2003, except that in the case of
a foreign corporation that becomes stapled
to a domestic corporation on or after July
22, 2003, paragraph (d)(2) of this section
applies for taxable years ending on or after
July 22, 2003.
(4) Paragraph (e) of this section is appli-
cable beginning on July 18, 1984, except
as provided in paragraph (g)(5) of this sec-
tion.
(5) In the case of a foreign corporation
that was stapled to a domestic corporation
as of June 30, 1983, which was entitled to
claim benefits under an income tax treaty
as of that date, and which remains eligi-
ble for such treaty benefits, paragraph (e)
of this section will not apply to such for-
eign corporation and for all purposes of the
Code such corporation will continue to be
treated as a foreign entity. The prior sen-
tence will continue to apply even if such
treaty is subsequently modified by proto-
col, or superseded by a new treaty, so long
as the stapled foreign corporation contin-
ues to be eligible to claim such treaty ben-
efits. If the treaty benefits to which the
stapled foreign corporation was entitled as
of June 30, 1983, are terminated, then a
deemed conversion of the foreign corpora-
tion to a domestic corporation shall occur
pursuant to paragraph (c) of this section as
of the date of such termination.
Par. 3. In §1.367(b)–2, paragraph (g) is
revised to read as follows:
§1.367(b)–2 Definitions and special rules.
*****
(g)Stapled stock under section 269B.
For rules addressing the deemed conver-
sion of a foreign corporation to a domes-
tic corporation under section 269B, see
§1.269B–1(c).
*****
PART 301—PROCEDURE AND
ADMINISTRATION
Par 4. The authority citation for part
301 continues to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Section 301.269B–1 also issued under
26 U.S.C. 269B(b).
Par. 5. Section 301.269B–1 is added to
read as follows:
§301.269B–1 Stapled foreign
corporations.
In accordance with section 269B(a)(1),
a stapled foreign corporation is subject to
the same taxes that apply to a domestic
corporation under Title 26 of the Internal
Revenue Code. For provisions concern-
ing taxes other than income for which the
stapled foreign corporation is liable, apply
the same rules as set forth in §1.269B–1(a)
through (f)(1)(i), and (g), except that refer-
ences toincome taxshall be replaced with
the termtax. In addition, for purposes
of collecting those taxes solely from the
stapled foreign corporation, the termtax
means any tax liability imposed on a do-
mestic corporation under Title 26, includ-
ing additions to tax, additional amounts,
penalties, and interest related to that tax li-
ability.
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on September
3, 2004, 8:45 a.m., and published in the issue of the Federal
Register for September 7, 2004, 69 F.R. 54067)
October 18, 20047032004–42 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.
2004–42 I.R.B.iOctober 18, 2004

Numerical Finding List
1
Bulletins 2004–27 through 2004–42
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
2004-69, 2004-39 I.R.B.542
2004-70, 2004-39 I.R.B.543
2004-71, 2004-40 I.R.B.569
2004-72, 2004-41 I.R.B.650
2004-73, 2004-39 I.R.B.543
2004-74, 2004-40 I.R.B.579
2004-75, 2004-40 I.R.B.580
2004-76, 2004-40 I.R.B.588
2004-77, 2004-41 I.R.B.662
2004-78, 2004-40 I.R.B.592
2004-79, 2004-41 I.R.B.662
2004-80, 2004-41 I.R.B.663
2004-81, 2004-42 I.R.B.675
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
2004-58, 2004-39 I.R.B.520
2004-59, 2004-36 I.R.B.447
2004-60, 2004-40 I.R.B.564
2004-61, 2004-41 I.R.B.596
2004-62, 2004-40 I.R.B.565
2004-63, 2004-41 I.R.B.597
Notices— Continued:
2004-64, 2004-41 I.R.B.598
2004-65, 2004-41 I.R.B.599
2004-66, 2004-42 I.R.B.677
2004-67, 2004-41 I.R.B.600
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-145987-03, 2004-39 I.R.B.523
REG-145988-03, 2004-42 I.R.B.693
REG-149524-03, 2004-39 I.R.B.528
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-169135-03, 2004-42 I.R.B.697
REG-171386-03, 2004-37 I.R.B.477
REG-101282-04, 2004-42 I.R.B.698
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
REG-117307-04, 2004-28 I.R.B.39
REG-124872-04, 2004-39 I.R.B.533
REG-128767-04, 2004-39 I.R.B.534
REG-129274-04, 2004-40 I.R.B.567
REG-129706-04, 2004-37 I.R.B.478
REG-129771-04, 2004-36 I.R.B.453
REG-130863-04, 2004-39 I.R.B.538
REG-131264-04, 2004-38 I.R.B.506
REG-135898-04, 2004-40 I.R.B.568
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
Revenue Procedures— Continued:
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
2004-58, 2004-41 I.R.B.602
2004-59, 2004-42 I.R.B.678
2004-60, 2004-42 I.R.B.682
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
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
2004-96, 2004-41 I.R.B.593
2004-97, 2004-39 I.R.B.516
2004-98, 2004-42 I.R.B.664
Tax Conventions:
2004-60, 2004-29 I.R.B.43
2004-81, 2004-42 I.R.B.675
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
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.
October 18, 2004ii2004–42 I.R.B.

Treasury Decisions— Continued:
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
9150, 2004-39 I.R.B.514
9151, 2004-38 I.R.B.489
9152, 2004-39 I.R.B.509
9153, 2004-39 I.R.B.517
9154, 2004-40 I.R.B.560
9155, 2004-40 I.R.B.562
9156, 2004-42 I.R.B.669
9157, 2004-40 I.R.B.545
9158, 2004-42 I.R.B.665
2004–42 I.R.B.iiiOctober 18, 2004

Findings List of Current Actions on
Previously Published Items
1
Bulletins 2004–27 through 2004–42
Announcements:
99-76
Obsoleted by
T.D. 9157, 2004-40 I.R.B.545
2003-54
Updated and superseded by
Ann. 2004-72, 2004-41 I.R.B.650
2004-70
Amended by
Ann. 2004-77, 2004-41 I.R.B.662
Notices:
88-128
Supplemented by
Notice 2004-61, 2004-41 I.R.B.596
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
2002-70
Modified by
Notice 2004-65, 2004-41 I.R.B.599
2003-76
Supplemented and superseded by
Notice 2004-67, 2004-41 I.R.B.600
Modified by
Notice 2004-65, 2004-41 I.R.B.599
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-165579-02
Withdrawn by
Ann. 2004-69, 2004-39 I.R.B.542
Proposed Regulations— Continued:
REG-150562-03
Corrected by
Ann. 2004-68, 2004-38 I.R.B.508
Ann. 2004-73, 2004-39 I.R.B.543
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
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
2003-28
Superseded by
Rev. Proc. 2004-58, 2004-41 I.R.B.602
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
2003-80
Superseded by
Rev. Proc. 2004-60, 2004-42 I.R.B.682
2004-4
Modified by
Rev. Proc. 2004-44, 2004-31 I.R.B.134
2004-23
Modified by
Rev. Proc. 2004-57, 2004-38 I.R.B.498
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
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
2004-75
Amplified by
Rev. Rul. 2004-97, 2004-39 I.R.B.516
Treasury Decisions:
9031
Removed by
T.D. 9152, 2004-39 I.R.B.509
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.
October 18, 2004iv2004–42 I.R.B.
*U.S.Government Printing Office: 2004—304–778/60157