Internal Revenue Bulletin 2002-12 (PDF rendition): IRS Revenue Rulings

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

HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Rev. Rul. 2002–13, page 637.
Interest rates; underpayments and overpayments.The
rate of interest determined under section 6621 of the Code for
the calendar quarter beginning April 1, 2002, will be 6 percent
for overpayments (5 percent in the case of a corporation), 6
percent for underpayments, and 8 percent for large corporate
underpayments. The rate of interest paid on the portion of a
corporate overpayment exceeding $10,000 will be 3.5 per-
cent.
Rev. Rul. 2002–14, page 636.
LIFO; price indexes; department stores.The January 2002
Bureau of Labor Statistics price indexes are accepted for use
by department stores employing the retail inventory and last-in,
first-out inventory methods for valuing inventories for tax years
ended on, or with reference to, January 31, 2002.
REG–118861–00, page 651.
Proposed regulations apply to a deemed sale or acquisition of
an insurance company’s assets pursuant to an election under
section 338 of the Code, to a sale or acquisition of an insur-
ance trade or business subject to section 1060, and to the
acquisition of insurance contracts through assumption reinsur-
ance. The regulations also concern the effect under section
381 of certain corporate liquidations and reorganizations on
certain tax attributes of insurance companies. The regulations
apply to insurance companies and to corporations selling and
purchasing stock of insurance companies. A public hearing is
scheduled for September 18, 2002.
Notice 2002–18, page 644.
Loss duplication.The IRS announces that regulations will be
issued to prevent duplication of losses within a consolidated
group on dispositions of member stock.
EXEMPT ORGANIZATIONS
Announcement 2002–32, page 664.
A list is provided of organizations now classified as private
foundations.
ADMINISTRATIVE
REG–107366–00, page 645.
Proposed regulations under section 7433 of the Code relate to
civil causes of action for damages caused by unlawful collec-
tion actions of officers and employees of the IRS and the
awarding of costs and certain fees. The regulations reflect
amendments made by the Taxpayer Bill of Rights 2 and the IRS
Restructuring and Reform Act of 1998.
Announcement 2002–33, page 666.
This document withdraws proposed regulations (REG–
251502–96, 1998–1 C.B. 621) relating to section 7433 of the
Code. The proposed regulations implemented provisions of the
Taxpayer Bill of Rights 2 (TBOR2). New proposed regulations
containing provisions of both TBOR2 and the IRS Restructuring
and Reform Act of 1998 are published in this Bulletin (REG–
107366–00).
Announcement 2002–35, page 667.
This document contains a correction to the advance notice of
proposed regulations (Announcement 2002–9, 2002–7 I.R.B.
536) that clarifies the application of section 263(a) of the Code
to expenditures incurred in acquiring, creating, or enhancing
certain intangible assets or benefits.
Finding Lists begin on page ii.
Bulletin No. 2002–12
March 25, 2002

The IRS Mission
Provide America’s taxpayers top quality service by helping
them understand and meet their tax responsibilities and by
applying the tax law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
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 consolidated semiannually into Cumulative Bulle-
tins, which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the Bul-
letin. All published rulings apply retroactively unless otherwise
indicated. Procedures relating solely to matters of internal
management are not published; however, statements of inter-
nal 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 rev-
enue ruling. In those based on positions taken in rulings to tax-
payers 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.—1986 Code.
This part includes rulings and decisions based on provisions of
the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A, Tax
Conventions and Other Related Items, and Subpart B, Legisla-
tion and Related Committee Reports.
Part III.—Administrative, Procedural, and
Miscellaneous.
To the extent practicable, pertinent cross references to these
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 Secre-
tary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The first Bulletin for each month includes a cumulative index for
the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the first Bulletin of the succeeding semiannual
period, respectively.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.
March 25, 20022002–12 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 472.—Last-in, First-
out Inventories
26 CFR 1.472–1: Last-in, first-out inventories.
LIFO; price indexes; department
stores.The January 2002 Bureau of
Labor Statistics price indexes are
accepted for use by department stores
employing the retail inventory and last-in,
first-out inventory methods for valuing
inventories for tax years ended on, or
with reference to, January 31, 2002.
Rev. Rul. 2002–14
The following Department Store
Inventory Price Indexes for January 2002
were issued by the Bureau of Labor Sta-
tistics. The indexes are accepted by the
Internal Revenue Service, under § 1.472–
1(k) of the Income Tax Regulations and
Rev. Proc. 86–46 (1986–2 C.B. 739), for
appropriate application to inventories of
department stores employing the retail
inventory and last-in, first-out inventory
methods for tax years ended on, or with
reference to, January 31, 2002.
The Department Store Inventory Price
Indexes are prepared on a national basis
and include (a) 23 major groups of
departments, (b) three special combina-
tions of the major groups — soft goods,
durable goods, and miscellaneous goods,
and (c) a store total, which covers all
departments, including some not listed
separately, except for the following:
candy, food, liquor, tobacco, and contract
departments.
BUREAU OF LABOR STATISTICS, DEPARTMENT STORE
INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS
(January 1941 = 100, unless otherwise noted)
GroupsJan.
2001
Jan.
2002
Percent Change
from Jan. 2001
to Jan. 2002
1
1.Piece Goods ------------------------------------------------------------490.8479.8-2.2
2.Domestics and Draperies --------------------------------------------614.6588.3-4.3
3.Women’s and Children’s Shoes ------------------------------------628.8607.3-3.4
4.Men’s Shoes -----------------------------------------------------------886.8875.0-1.3
5.Infants’ Wear -----------------------------------------------------------609.2602.2-1.1
6.Women’s Underwear -------------------------------------------------556.3556.80.1
7.Women’s Hosiery -----------------------------------------------------343.8350.31.9
8.Women’s and Girls’ Accessories -----------------------------------526.9559.06.1
9.Women’s Outerwear and Girls’ Wear -----------------------------369.7350.2-5.3
10.Men’s Clothing --------------------------------------------------------586.1565.6-3.5
11.Men’s Furnishings ----------------------------------------------------603.2586.5-2.8
12.Boys’ Clothing and Furnishings ------------------------------------484.6467.1-3.6
13.Jewelry ------------------------------------------------------------------956.1918.2-4.0
14.Notions ------------------------------------------------------------------784.3770.1-1.8
15.Toilet Articles and Drugs --------------------------------------------987.1969.1-1.8
16.Furniture and Bedding -----------------------------------------------685.2625.9-8.7
17.Floor Coverings -------------------------------------------------------630.1630.40.0
18.Housewares ------------------------------------------------------------769.4757.8-1.5
19.Major Appliances -----------------------------------------------------229.9227.0-1.3
20.Radio and Television -------------------------------------------------56.851.9-8.6
1
Absence of a minus sign before the percentage change in this column signifies a price increase.
2002–12 I.R.B.636March 25, 2002

BUREAU OF LABOR STATISTICS, DEPARTMENT STORE
INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS—CONTINUED
(January 1941 = 100, unless otherwise noted)
GroupsJan.
2001
Jan.
2002
Percent Change
from Jan 2001
to Jan. 2002
1
21.Recreation and Education
2
------------------------------------------91.088.1-3.2
22.Home Improvements
2
------------------------------------------------127.7124.6-2.4
23.Auto Accessories
2
-----------------------------------------------------108.7110.51.7
Groups 1—15: Soft Goods -----------------------------------------------583.7566.2-3.0
Groups 16—20: Durable Goods -----------------------------------------432.9417.1-3.6
Groups 21—23: Misc. Goods
2
-------------------------------------------99.497.5-1.9
Store Total
3
-------------------------------------------------------------527.4511.5-3.0
1
Absence of a minus sign before the percentage change in this column signifies a price increase.
2
Indexes on a January 1986=100 base.
3
The store total index covers all departments, including some not listed separately, except for the following: candy, food,
liquor, tobacco, and contract departments.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Michael Burkom of the Office of
Associate Chief Counsel (Income Tax and
Accounting). For further information
regarding this revenue ruling, contact Mr.
Burkom at (202) 622–7718 (not a toll-
free call).
Section 6621.—Determin-
ation of Interest Rate
26 CFR 301.6621–1: Interest rate.
Interest rates; underpayments and
overpayments.The rate of interest deter-
mined under section 6621 of the Code for
the calendar quarter beginning April 1,
2002, will be 6 percent for overpayments
(5 percent in the case of a corporation), 6
percent for underpayments, and 8 percent
for large corporate underpayments. The
rate of interest paid on the portion of a
corporate overpayment exceeding
$10,000 will be 3.5 percent.
Rev. Rul. 2002–13
Section 6621 of the Internal Revenue
Code establishes the rates for interest on
tax overpayments and tax underpayments.
Under§6621(a)(1), the overpayment rate
beginning April 1, 2002, is the sum of the
federal short-term rate plus 3 percentage
points (2 percentage points in the case of
a corporation), except the rate for the por-
tion of a corporate overpayment of tax
exceeding $10,000 for a taxable period is
the sum of the federal short-term rate plus
0.5 of a percentage point for interest com-
putations made after December 31, 1994.
Under§6621(a)(2), the underpayment
rate is the sum of the federal short-term
rate plus 3 percentage points.
Section 6621(c) provides that for pur-
poses of interest payable under§6601 on
any large corporate underpayment, the
underpayment rate under§6621(a)(2) is
determined by substituting“5 percentage
points”for“3 percentage points.”See
§6621(c) and§301.6621–3 of the Regu-
lations on Procedure and Administration
for the definition of a large corporate
underpayment and for the rules for deter-
mining the applicable date. Section
6621(c) and§301.6621–3 are generally
effective for periods after December 31,
1990.
Section 6621(b)(1) provides that the
Secretary will determine the federal
short-term rate for the first month in each
calendar quarter.
Section 6621(b)(2)(A) provides that
the federal short-term rate determined
under§6621(b)(1) for any month applies
during the first calendar quarter begin-
ning after such month.
Section 6621(b)(2)(B) provides that in
determining the addition to tax under
§6654 for failure to pay estimated tax for
any taxable year, the federal short-term
rate that applies during the third month
following such taxable year also applies
during the first 15 days of the fourth
month following such taxable year.
Section 6621(b)(3) provides that the
federal short-term rate for any month is
the federal short-term rate determined
during such month by the Secretary in
accordance with§1274(d), rounded to
the nearest full percent (or, if a multiple
of 1/2 of 1 percent, the rate is increased to
the next highest full percent).
Notice 88–59 (1988–1 C.B. 546)
announced that, in determining the quar-
terly interest rates to be used for overpay-
ments and underpayments of tax under
§6621, the Internal Revenue Service will
use the federal short-term rate based on
daily compounding because that rate is
most consistent with§6621 which, pur-
suant to§6622, is subject to daily com-
pounding.
Rounded to the nearest full percent,
the federal short-term rate based on daily
compounding determined during the
month of January 2002 is 3 percent.
Accordingly, an overpayment rate of 6
March 25, 20026372002–12 I.R.B.

percent (5 percent in the case of a corpo-
ration) and an underpayment rate of 6
percent are established for the calendar
quarter beginning April 1, 2002. The
overpayment rate for the portion of a cor-
porate overpayment exceeding $10,000
for the calendar quarter beginning April
1, 2002, is 3.5 percent. The underpayment
rate for large corporate underpayments
for the calendar quarter beginning April
1, 2002, is 8 percent. These rates apply to
amounts bearing interest during that cal-
endar quarter.
Under§6621(b)(2)(B), the 6 percent
rate that applies to estimated tax under-
payments for the first calendar quarter in
2002, as provided in Rev. Rul. 2001–63
(2001–52 I.R.B. 606), also applies to such
underpayments for the first 15 days in
April 2002.
Interest factors for daily compound
interest for annual rates of 3.5 percent, 5
percent, 6 percent, and 8 percent are pub-
lished in Tables 12, 15, 17, and 21 of Rev.
Proc. 95–17 (1995–1 C.B. 556, 566, 569,
571, and 575).
Annual interest rates to be com-
pounded daily pursuant to§6622 that
apply for prior periods are set forth in the
tables accompanying this revenue ruling.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Raymond Bailey of the Office of
Associate Chief Counsel (Procedure &
Administration), Administrative Provi-
sions & Judicial Practice Division. For
further information regarding this revenue
ruling, contact Mr. Bailey at (202) 622–
6226 (not a toll-free call).
TABLE OF INTEREST RATES
PERIODS BEFORE JUL. 1, 1975—PERIODS ENDING DEC. 31, 1986
OVERPAYMENTS AND UNDERPAYMENTS
PERIODRATE
In 1995–1 C.B.
DAILY RATE TABLE
Before Jul. 1, 19756%Table 2, pg. 557
Jul. 1, 1975—Jan. 31, 19769%Table 4, pg. 559
Feb. 1, 1976—Jan. 31, 19787%Table 3, pg. 558
Feb. 1, 1978—Jan. 31, 19806%Table 2, pg. 557
Feb. 1, 1980—Jan. 31, 198212%Table 5, pg. 560
Feb. 1, 1982—Dec. 31, 198220%Table 6, pg. 560
Jan. 1, 1983—Jun. 30, 198316%Table 37, pg. 591
Jul. 1, 1983—Dec. 31, 198311%Table 27, pg. 581
Jan. 1, 1984—Jun. 30, 198411%Table 75, pg. 629
Jul. 1, 1984—Dec. 31, 198411%Table 75, pg. 629
Jan. 1, 1985—Jun. 30, 198513%Table 31, pg. 585
Jul. 1, 1985—Dec. 31, 198511%Table 27, pg. 581
Jan. 1, 1986—Jun. 30, 198610%Table 25, pg. 579
Jul. 1, 1986—Dec. 31, 19869%Table 23, pg. 577
TABLE OF INTEREST RATES
FROM JAN. 1, 1987—DEC. 31, 1998
OVERPAYMENTSUNDERPAYMENTS
1995–1 C.B.1995–1 C.B.
RATETABLEPGRATETABLEPG
Jan. 1, 1987—Mar. 31, 19878%215759%23577
Apr. 1, 1987—Jun. 30, 19878%215759%23577
Jul. 1, 1987—Sep. 30, 19878%215759%23577
Oct. 1, 1987—Dec. 31, 19879%2357710%25579
Jan. 1, 1988—Mar. 31, 198810%7362711%75629
2002–12 I.R.B.638March 25, 2002

TABLE OF INTEREST RATES
FROM JAN. 1, 1987—DEC. 31, 1998—CONTINUED
OVERPAYMENTSUNDERPAYMENTS
1995–1 C.B.1995–1 C.B.
RATETABLEPGRATETABLEPG
Apr. 1, 1988—Jun. 30, 19889%7162510%73627
Jul. 1, 1988—Sep. 30, 19889%7162510%73627
Oct. 1, 1988—Dec. 31, 198810%7362711%75629
Jan. 1, 1989—Mar. 31, 198910%2557911%27581
Apr. 1, 1989—Jun. 30, 198911%2758112%29583
Jul. 1, 1989—Sep. 30, 198911%2758112%29583
Oct. 1, 1989—Dec. 31, 198910%2557911%27581
Jan. 1, 1990—Mar. 31, 199010%2557911%27581
Apr. 1, 1990—Jun. 30, 199010%2557911%27581
Jul. 1, 1990—Sep. 30, 199010%2557911%27581
Oct. 1, 1990—Dec. 31, 199010%2557911%27581
Jan. 1, 1991—Mar. 31, 199110%2557911%27581
Apr. 1, 1991—Jun. 30, 19919%2357710%25579
Jul. 1, 1991—Sep. 30, 19919%2357710%25579
Oct. 1, 1991—Dec. 31, 19919%2357710%25579
Jan. 1, 1992—Mar. 31, 19928%696239%71625
Apr. 1, 1992—Jun. 30, 19927%676218%69623
Jul. 1, 1992—Sep. 30, 19927%676218%69623
Oct. 1, 1992—Dec. 31, 19926%656197%67621
Jan. 1, 1993—Mar. 31, 19936%175717%19573
Apr. 1, 1993—Jun. 30, 19936%175717%19573
Jul. 1, 1993—Sep. 30, 19936%175717%19573
Oct. 1, 1993—Dec. 31, 19936%175717%19573
Jan. 1, 1994—Mar. 31, 19946%175717%19573
Apr. 1, 1994—Jun. 30, 19946%175717%19573
Jul. 1, 1994—Sep. 30, 19947%195738%21575
Oct. 1, 1994—Dec. 31, 19948%215759%23577
Jan. 1, 1995—Mar. 31, 19958%215759%23577
Apr. 1, 1995—Jun. 30, 19959%2357710%25579
Jul. 1, 1995—Sep. 30, 19958%215759%23577
Oct. 1, 1995—Dec. 31, 19958%215759%23577
Jan. 1, 1996—Mar. 31, 19968%696239%71625
Apr. 1, 1996—Jun. 30, 19967%676218%69623
Jul. 1, 1996—Sep. 30, 19968%696239%71625
Oct. 1, 1996—Dec. 31, 19968%696239%71625
Jan. 1, 1997—Mar. 31, 19978%215759%23577
Apr. 1, 1997—Jun. 30, 19978%215759%23577
Jul. 1, 1997—Sep. 30, 19978%215759%23577
Oct. 1, 1997—Dec. 31, 19978%215759%23577
March 25, 20026392002–12 I.R.B.

TABLE OF INTEREST RATES
FROM JAN. 1, 1987—Dec. 31, 1998—CONTINUED
OVERPAYMENTSUNDERPAYMENTS
1995–1 C.B.1995–1 C.B.
RATETABLEPGRATETABLEPG
Jan. 1, 1998—Mar. 31, 19988%215759%23577
Apr. 1, 1998—Jun. 30, 19987%195738%21575
Jul. 1, 1998—Sep. 30, 19987%195738%21575
Oct. 1, 1998—Dec. 31, 19987%195738%21575
TABLE OF INTEREST RATES
FROM JANUARY 1, 1999—PRESENT
NONCORPORATE OVERPAYMENTS AND UNDERPAYMENTS
1995–1 C.B.
RATETABLEPAGE
Jan. 1, 1999—Mar. 31, 19997%19573
Apr. 1, 1999—Jun. 30, 19998%21575
Jul. 1, 1999—Sep. 30, 19998%21575
Oct. 1, 1999—Dec. 31, 19998%21575
Jan. 1, 2000—Mar. 31, 20008%69623
Apr. 1, 2000—Jun. 30, 20009%71625
Jul. 1, 2000—Sep. 30, 20009%71625
Oct. 1, 2000—Dec 31, 20009%71625
Jan. 1, 2001—Mar. 31, 20019%23577
Apr. 1, 2001—Jun. 30, 20018%21575
Jul. 1, 2001—Sep. 30, 20017%19573
Oct. 1, 2001—Dec. 31, 20017%19573
Jan. 1, 2002—Mar. 31, 20026%17571
Apr. 1, 2002—Jun. 30, 20026%17571
2002–12 I.R.B.640March 25, 2002

TABLE OF INTEREST RATES
FROM JANUARY 1, 1999—PRESENT
CORPORATE OVERPAYMENTS AND UNDERPAYMENTS
OVERPAYMENTSUNDERPAYMENTS
1995–1 C.B.1995–1 C.B.
RATETABLEPGRATETABLEPG
Jan. 1, 1999—Mar. 31, 19996%175717%19573
Apr. 1, 1999—Jun. 30, 19997%195738%21575
Jul. 1, 1999—Sep. 30, 19997%195738%21575
Oct. 1, 1999—Dec. 31, 19997%195738%21575
Jan. 1, 2000—Mar. 31, 20007%676218%69623
Apr. 1, 2000—Jun. 30, 20008%696239%71625
Jul. 1, 2000—Sep. 30, 20008%696239%71625
Oct. 1, 2000—Dec. 31, 20008%696239%71625
Jan. 1, 2001—Mar. 31, 20018%215759%23577
Apr. 1, 2001—Jun. 30, 20017%195738%21575
Jul. 1, 2001—Sep. 30, 20016%175717%19573
Oct. 1, 2001—Dec. 31, 20016%175717%19573
Jan. 1, 2002—Mar. 31, 20025%155696%17571
Apr. 1, 2002—Jun. 30, 20025%155696%17571
TABLE OF INTEREST RATES FOR
LARGE CORPORATE UNDERPAYMENTS
FROM JANUARY 1, 1991—PRESENT
1995–1 C.B.
RATETABLEPAGE
Jan. 1, 1991—Mar. 31, 199113%31585
Apr. 1, 1991—Jun. 30, 199112%29583
Jul. 1, 1991—Sep. 30, 199112%29583
Oct. 1, 1991—Dec. 31, 199112%29583
Jan. 1, 1992—Mar. 31, 199211%75629
Apr. 1, 1992—Jun. 30, 199210%73627
Jul. 1, 1992—Sep. 30, 199210%73627
Oct. 1, 1992—Dec. 31, 19929%71625
Jan. 1, 1993—Mar. 31, 19939%23577
Apr. 1, 1993—Jun. 30, 19939%23577
Jul. 1, 1993—Sep. 30, 19939%23577
Oct. 1, 1993—Dec. 31, 19939%23577
Jan. 1, 1994—Mar. 31, 19949%23577
Apr. 1, 1994—Jun. 30, 19949%23577
Jul. 1, 1994—Sep. 30, 199410%25579
Oct. 1, 1994—Dec. 31, 199411%27581
Jan. 1, 1995—Mar. 31, 199511%27581
March 25, 20026412002–12 I.R.B.

TABLE OF INTEREST RATES FOR
LARGE CORPORATE UNDERPAYMENTS
FROM JANUARY 1, 1991—PRESENT—CONTINUED
1995–1 C.B.
RATETABLEPAGE
Apr. 1, 1995—Jun. 30, 199512%29583
Jul. 1, 1995—Sep. 30, 199511%27581
Oct. 1, 1995—Dec. 31, 199511%27581
Jan. 1, 1996—Mar. 31, 199611%75629
Apr. 1, 1996—Jun. 30, 199610%73627
Jul. 1, 1996—Sep. 30, 199611%75629
Oct. 1, 1996—Dec. 31, 199611%75629
Jan. 1, 1997—Mar. 31, 199711%27581
Apr. 1, 1997—Jun. 30, 199711%27581
Jul. 1, 1997—Sep. 30, 199711%27581
Oct. 1, 1997—Dec. 31, 199711%27581
Jan. 1, 1998—Mar. 31, 199811%27581
Apr. 1, 1998—Jun. 30, 199810%25579
Jul. 1, 1998—Sep. 30, 199810%25579
Oct. 1, 1998—Dec. 31, 199810%25579
Jan. 1, 1999—Mar. 31, 19999%23577
Apr. 1, 1999—Jun. 30, 199910%25579
Jul. 1, 1999—Sep. 30, 199910%25579
Oct. 1, 1999—Dec. 31, 199910%25579
Jan. 1, 2000—Mar. 31, 200010%73627
Apr. 1, 2000—Jun. 30, 200011%75629
Jul. 1, 2000—Sep. 30, 200011%75629
Oct. 1, 2000—Dec. 31, 200011%75629
Jan. 1, 2001—Mar. 31, 200111%27581
Apr. 1, 2001—Jun. 30, 200110%25579
Jul. 1, 2001—Sep. 30, 20019%23577
Oct. 1, 2001—Dec. 31, 20019%23577
Jan. 1, 2002—Mar. 31, 20028%21575
Apr. 1, 2002—Jun. 30, 20028%21575
TABLE OF INTEREST RATES FOR CORPORATE
OVERPAYMENTS EXCEEDING $10,000
FROM JANUARY 1, 1995—PRESENT
1995–1 C.B.
RATETABLEPAGE
Jan. 1, 1995—Mar. 31, 19956.5%18572
Apr. 1, 1995—Jun. 30, 19957.5%20574
Jul. 1, 1995—Sep. 30, 19956.5%18572
Oct. 1, 1995—Dec. 31, 19956.5%18572
2002–12 I.R.B.642March 25, 2002

TABLE OF INTEREST RATES FOR CORPORATE
OVERPAYMENTS EXCEEDING $10,000
FROM JANUARY 1, 1995—PRESENT—CONTINUED
1995–1 C.B.
RATETABLEPAGE
Jan. 1, 1996—Mar. 31, 19966.5%66620
Apr. 1, 1996—Jun. 30, 19965.5%64618
Jul. 1, 1996—Sep. 30, 19966.5%66620
Oct. 1, 1996—Dec. 31, 19966.5%66620
Jan. 1, 1997—Mar. 31, 19976.5%18572
Apr. 1, 1997—Jun. 30, 19976.5%18572
Jul. 1, 1997—Sep. 30, 19976.5%18572
Oct. 1, 1997—Dec. 31, 19976.5%18572
Jan. 1, 1998—Mar. 31, 19986.5%18572
Apr. 1, 1998—Jun. 30, 19985.5%16570
Jul. 1. 1998—Sep. 30, 19985.5%16570
Oct. 1, 1998—Dec. 31, 19985.5%16570
Jan. 1, 1999—Mar. 31, 19994.5%14568
Apr. 1, 1999—Jun. 30, 19995.5%16570
Jul. 1, 1999—Sep. 30, 19995.5%16570
Oct. 1, 1999—Dec. 31, 19995.5%16570
Jan. 1, 2000—Mar. 31, 20005.5%64618
Apr. 1, 2000—Jun. 30, 20006.5%66620
Jul. 1, 2000—Sep. 30, 20006.5%66620
Oct. 1, 2000—Dec. 31, 20006.5%66620
Jan. 1, 2001—Mar. 31, 20016.5%18572
Apr. 1, 2001—Jun. 30, 20015.5%16570
Jul. 1, 2001—Sep. 30, 20014.5%14568
Oct. 1, 2001—Dec. 31, 20014.5%14568
Jan. 1, 2002—Mar. 31, 20023.5%12566
Apr. 1, 2002—Jun. 30, 20023.5%12566
March 25, 20026432002–12 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
IRS Announces Regulations
Will be Issued to Prevent
Duplication of Losses Within a
Consolidated Group on
Dispositions of Member Stock
Notice 2002–18
In Notice 2002–11 (2002–7 I.R.B.
526), the Internal Revenue Service
announced its intention to promulgate
interim regulations that, prospectively
from the date of their issuance, will
require consolidated groups to determine
the allowable loss on a sale or disposition
of subsidiary stock under an amended
§1.337(d)–2 of the Income Tax Regula-
tions.
Concurrently with this Notice, the IRS
and Treasury are filing with the Federal
Register temporary regulations under
§§337(d) and 1502 of the Internal Rev-
enue Code that set forth rules governing a
consolidated group’s allowable loss, or
basis reduction, on a disposition or
deconsolidation of subsidiary stock, as
described in Notice 2002–11. These rules
do not disallow stock loss that reflects net
operating losses or built-in asset losses of
a subsidiary member.
Nonetheless, the IRS and Treasury
believe that a consolidated group should
not be able to benefit more than once
from one economic loss. Accordingly, the
IRS and Treasury intend to issue regula-
tions that will prevent a consolidated
group from obtaining a tax benefit from
both the utilization of a loss from the dis-
position of stock (or another asset that
reflects the basis of stock) and the utiliza-
tion of a loss or deduction with respect to
another asset that reflects the same eco-
nomic loss. For example, where a mem-
ber of a group contributes built-in loss
assets to another member of the group in
exchange for stock of such member in a
transaction in which the basis of such
stock is determined, directly or indirectly,
in whole or in part, by reference to the
basis of such assets and the transferor
member sells such stock without causing
the deconsolidation of the transferee, the
group may benefit from the built-in loss
in the contributed assets more than once.
It is expected that the regulations will
defer or otherwise limit utilization of the
loss on the stock in such transactions and
other transactions that facilitate the
group’s utilization of a single loss more
than once. Such regulations will apply to
dispositions of stock (or another asset that
reflects the basis of stock) occurring on or
after March 7, 2002.
The IRS and Treasury are devoting
substantial resources to the development
of the regulations described in this Notice
in order to issue the regulations in an
expeditious manner. In addition, the IRS
and Treasury are studying the various
approaches that could be implemented to
give full effect to§337(d) and to reflect
the single entity principles of the consoli-
dated return rules.
REQUEST FOR PUBLIC COMMENT
Comments are requested on the scope
and substance of the regulations. Direct
all written comments to Internal Revenue
Service, Attn: CC:ITA:RU (Notice 2002–
18), room 5226, Internal Revenue Ser-
vice, P.O. Box 7604, Ben Franklin Sta-
tion, Washington, DC 20044. In the
alternative, comments may be hand deliv-
ered Monday through Friday between the
hours of 8:00 a.m. and 5:00 p.m. to:
CC:ITA:RU (Notice 2002–18), Courier’s
desk, Internal Revenue Service,1111
Constitution Avenue, NW, Washington,
DC,orsubmittedelectronicallyto:
Notice.Comments@irscounsel.treas.gov.
Please include“Notice 2002–18”in the
subject line of your e-mail comments. All
submissions will be open to public
inspection.
2002–12 I.R.B.644March 25, 2002

Part IV. Items of General Interest
Notice of Proposed
Rulemaking
Civil Cause of Action for
Damages Caused by Unlawful
Tax Collection Actions,
Including Actions Taken in
Violation of Section 362 of
Section 524 of the
Bankruptcy Code
REG–107366–00
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing.
SUMMARY: This document contains
proposed regulations relating to civil
causes of action for damages caused by
unlawful collection actions of officers and
employees of the IRS and the awarding of
costs and certain fees. The proposed regu-
lations reflect amendments made by the
Taxpayer Bill of Rights 2 and the Internal
Revenue Service Restructuring and
Reform Act of 1998. The proposed regu-
lations affect all persons who suffer dam-
ages caused by unlawful collection
actions of officers or employees of the
IRS.
DATES: Written comments and requests
for a public hearing must be received by
May 6, 2002.
ADDRESSES: Send submissions to:
CC:ITA:RU (REG–107366–00), room
5226, Internal Revenue Service, POB
7604, Ben Franklin Station, Washington,
DC 20044. In the alternative, submissions
may be hand delivered to: CC:ITA:RU
(REG–107366–00), room 5226, Internal
Revenue Service,1111Constitution
Avenue NW, Washington DC. Alterna-
tively, taxpayers may submit comments
electronically via the Internet by selecting
the“Tax Regs”option on the IRS Home
Page, or by submitting comments directly
to the IRS Internet site atwww.irs.gov/
regs.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations, Kevin
B. Connelly, (202) 622–3630 (not a toll-
free number).
SUPPLEMENTAL INFORMATION:
Background
This document contains proposed
amendments to the Procedure and Admin-
istration Regulations (26 CFR part 301)
relating to civil actions for damages
caused by unlawful collection actions of
officers or employees of the IRS. The
Taxpayer Bill of Rights 2 (TBOR2), Pub-
lic Law 104–168 (110 Stat. 1465),
amended section 7433 of the Internal
Revenue Code of 1986 (Code) by increas-
ing the maximum amount of damages a
taxpayer may be awarded for unlawful
collection actions from $100,000 to
$1,000,000. TBOR2 also eliminated the
jurisdictional requirement that administra-
tive remedies be exhausted before a court
may award damages; TBOR2 authorized
the court, however, to reduce damages if
it determined that the plaintiff did not
exhaust administrative remedies. These
TBOR2 provisions were effective for
actions of IRS officers or employees after
July 30, 1996. The Internal Revenue Ser-
vice Restructuring and Reform Act of
1998 (RRA 1998), Public Law 105–206
(112 Stat. 685), although retaining the
pre-existing authorization for an award of
damages in the case of reckless or inten-
tional disregard of the Code or regula-
tions, amended section 7433 by providing
that taxpayers may file actions for dam-
ages caused by the negligent disregard of
the Code or regulations. In addition, this
amendment provided that an action for
damages could be brought for the IRS’s
willful violation of section 362 (relating
to the automatic stay) or section 524
(relating to the effect of discharge) of the
Bankruptcy Code. The maximum amount
of damages that may be awarded for neg-
ligent disregard is $100,000. The maxi-
mum amount of damages that may be
awarded for reckless or intentional disre-
gard or for willful violations of section
362 or 524 of the Bankruptcy Code is
$1,000,000. RRA 1998 also reinstated the
requirement under section 7433 that the
plaintiff must exhaust administrative rem-
edies before a court may award damages.
These RRA 1998 provisions are effective
for actions of IRS officers or employees
after July 22, 1998.
RRA 1998 also added new subsection
(h) to section 7426, which authorizes per-
sons who bring wrongful levy actions
under section 7426 to sue for damages
caused by the reckless or intentional, or
negligent, disregard of any provision of
the Code, plus costs of the action. Consis-
tent with section 7433, damages awarded
under section 7426(h) are limited to
$1,000,000 for reckless or intentional dis-
regard and $100,000 for negligent disre-
gard. In addition, a plaintiff must exhaust
administrative remedies before a court
may award damages under section
7426(h). The provisions of section 7433
relating to mitigation and the period for
bringing an action also apply to actions
brought under section 7426(h).
Explanation of Provisions
§301.7426–2
RRA 1998 added a new subsection (h)
to section 7426. Subsection (h) authorizes
persons to sue the United States in federal
district court for damages due to a wrong-
ful levy caused by the reckless or inten-
tional, or negligent, disregard of a provi-
sion of the Code. Plaintiffs are entitled to
recover the lesser of actual direct eco-
nomic damages and costs of the action or
$1,000,000 ($100,000 in the case of neg-
ligence). The amendment also provided
that the rules of section 7433(d) relating
to exhaustion of administrative remedies,
mitigation of damages and the period for
bringing an action shall apply. The pro-
posed regulations thus adopt rules like
those promulgated under section 7433
that plaintiffs must mitigate damages and
no damages may be awarded unless the
court determines that the plaintiff has
exhausted administrative remedies avail-
able within the IRS,e.g., by filing an
administrative claim for damages. The
proposed regulations also provide that
March 25, 20026452002–12 I.R.B.

any action for damages under this section
must be brought within 2 years after the
date the action accrues. This two-year
limitations period is independent of the
nine-month period after the wrongful levy
during which the IRS may return, or the
third party may make a claim for, wrong-
fully levied property.
§301.7430–8
Section 7430 provides that reasonable
administrative costs may be awarded to
the prevailing party in an administrative
proceeding brought by or against the
United States in connection with the
determination, collection, or refund of
any tax, interest, or penalty under Title
26. Because, prior to the amendments in
RRA 1998, taxpayers generally were not
entitled to recover costs for administra-
tive proceedings in connection with col-
lection matters, the current regulations
exclude such collection matters, including
proceedings under sections 7432 and
7433, from the definition ofadministra-
tive proceedings. To reflect the RRA 1998
amendments, the proposed regulations
expand the definition of an administrative
proceeding to include any administrative
action for damages under section 7433(e)
and any procedure or action brought
before the IRS seeking relief with respect
to a violation by the IRS of section 362 or
524 of the Bankruptcy Code.
The proposed regulations provide that
the prevailing party is a party who estab-
lishes that, in connection with the collec-
tion of his or her federal tax, the IRS has
willfully violated a provision of section
362 or 524 of the Bankruptcy Code. The
only administrative costs that may be
awarded are those incurred after the date
of the bankruptcy petition that gave rise
to the section 362 stay or section 524 dis-
charge injunction.
A claim with the IRS for administra-
tive costs must be filed within 90 days
after the date the IRS mails its decision
on the taxpayer’s administrative claim for
damages under§301.7433–2(e) or claim
for relief from a violation of section 362
or 524 of the Bankruptcy Code.
§301.7433–1
Section 3102 of RRA 1998 amended
section 7433(a) of the Code by providing
that a taxpayer may sue the United States
in a district court of the United States for
damages caused by the negligent disre-
gard of the Code or regulations in con-
nection with the collection of the taxpay-
er’s tax liability. Section 801 of TBOR2
amended section 7433(b) by increasing
the maximum amount of damages that a
taxpayer may recover for damages caused
by the reckless or intentional disregard of
the Code or regulations from $100,000 to
$1,000,000. Section 3102 of RRA 1998
caps the amount of damages that a tax-
payer may recover for negligent disregard
at $100,000. The proposed regulations
under§301.7433–1 reflect these changes.
§301.7433–2
RRA 1998 also amended section 7433
by adding a new subsection (e). Subsec-
tion (e) gives taxpayers the right to peti-
tion the bankruptcy court to recover dam-
ages if, in connection with the collection
of a federal tax, any officer or employee
of the IRS willfully violates section 362
or 524 of the Bankruptcy Code or any
regulation promulgated thereunder. Dam-
ages in connection with a claim under
section 7433(e) are recoverable under
section 7433(b) and are subject to the
limitations imposed by section 7433(d).
Section 362 relates to the automatic
stay, which arises by operation of law
when a debtor files a bankruptcy petition.
The stay prohibits certain collection
actions against the debtor, the debtor’s
property, and the property of the bank-
ruptcy estate. Prior to enactment of sec-
tion 7433(e), individuals injured by the
IRS’s willful violation of the automatic
stay could only sue to recover actual
damages, including costs and attorneys’
fees, under Bankruptcy Code section
362(h). Section 7433(e) provides an alter-
native cause of action to recover dam-
ages, but still permits an individual to
recover damages under section 362(h) of
the Bankruptcy Code, in lieu of an action
under section 7433(e). However, section
7433(e) explicitly provides that adminis-
trative and litigation costs incurred in
pressing a claim under section 362(h) of
the Bankruptcy Code may only be paid
pursuant to, and subject to the conditions
described in, section 7430 of the Code.
Section 7430 authorizes the payment of
administrative and litigation costs only if
a taxpayer exhausts administrative rem-
edies. The proposed regulations provide
that in order to qualify for an award of
administrative and litigation costs in an
action under section 362(h) of the Bank-
ruptcy Code, a taxpayer must (as in the
case of damages actions under section
7433(e)) file an administrative claim with
the IRS relating to the violation of the
automatic stay.
Section 524 sets forth the effect of a
discharge under the Bankruptcy Code. A
discharge operates as an injunction
against the commencement or continua-
tion of any action to collect a discharged
debt as a personal liability of the debtor.
Prior to enactment of section 7433(e), a
debtor who believed the IRS had willfully
violated the discharge injunction could
request the Bankruptcy Court under
Bankruptcy Code section 105 to hold the
IRS in contempt and seek to recover dam-
ages under that Bankruptcy Code provi-
sion. Section 7433(e) now provides the
exclusive remedy for the IRS’s willful
violation of the discharge injunction.
The proposed regulations set forth pro-
cedures relating to these claim and dam-
age allowance provisions. Damages
recoverable under section 7433(e) for a
violation of the automatic stay or the dis-
charge injunction are limited to (1) the
actual, direct economic damages sus-
tained by the taxpayer (and the taxpayer
has a duty to mitigate those damages),
plus (2) costs of the action. The maxi-
mum damage award is $1,000,000. No
petition for damages under section
7433(e) may be filed in a bankruptcy
court unless the taxpayer first exhausts
administrative remedies within the IRS.
Similar to rules previously adopted
with respect to other wrongful collection
actions, the proposed regulations define
direct, economic damages as actual, pecu-
niary damages sustained by the taxpayer
as a result of the willful violation of sec-
tion 362 or 524 of the Bankruptcy Code.
Injuries such as inconvenience, loss of
reputation, and emotional distress, are not
compensable except to the extent they
result in actual pecuniary loss.
The proposed regulations define costs
of the action that are recoverable as dam-
ages under section 7433(e) as: (1) fees of
the clerk and marshal; (2) fees of the
court reporter for all or any part of the
stenographic transcript necessarily
obtained for use in the case; (3) fees and
disbursements for printing and witnesses;
2002–12 I.R.B.646March 25, 2002

(4) fees for exemplification and copies of
paper necessarily obtained for use in the
case; (5) docket fees; and (6) compensa-
tion of court appointed experts and inter-
preters. Costs of the action do not include
any costs other than those enumerated in
this paragraph.
Reasonable administrative and litiga-
tion costs, including attorneys fees, are
not recoverable as direct economic dam-
ages. These costs are recoverable, if at all,
under section 7430. The taxpayer gener-
ally will be entitled to reasonable litiga-
tion costs under section 7430 if the tax-
payer (1) files an administrative claim
with the IRS, (2) establishes that the IRS
willfully violated either the automatic
stay under Bankruptcy Code Section 362
or the discharge injunction under section
524, (3) substantially prevails with
respect to the amount of damages in con-
troversy, and (4) meets the requirements
of sections 7430(c)(4)(A)(ii) regarding
net worth.
A petition for damages under section
7433 may not be filed in a bankruptcy
court unless the taxpayer first files an
administrative claim for damages with the
IRS. The claim must be made in writing
to the Chief, Local Insolvency Unit for
the judicial district in which the bank-
ruptcy was filed. The claim must include:
(1) the claimant taxpayer’s name, tax-
payer identification number, current
address, current home and work tele-
phone numbers and any convenient times
to be contacted; (2) the court and case
number of the bankruptcy case in which
the violation occurred; (3) a description,
in reasonable detail, of the violation (with
copies of any available substantiating
documentation or correspondence with
the IRS); (4) a description of the injuries
incurred by the taxpayer filing the claim
(with copies of any available substantiat-
ing documentation or evidence); (5) the
dollar amount of the claim, including any
damages that have not yet been incurred
but which are reasonably foreseeable
(along with any available substantiating
documentation or evidence); and (6) the
signature of the taxpayer or any duly
authorized representative.
The proposed regulations provide that,
after an administrative claim for damages
has been filed, a petition for damages
under section 7433 may not be filed in a
bankruptcy court until the earlier of (1)
the time a decision is rendered on the
claim or (2) six months from the date the
administrative claim is filed. Because a
taxpayer must petition the bankruptcy
court for damages within two years after
the cause of action accrues, the proposed
regulations contain an exception for
claims filed in the last six months before
the two-year limitation period expires. In
those circumstances, taxpayers may file
petitions for damages at any time after
they file their administrative claims and
before the period of limitations expires. A
cause of action accrues under this section
when the taxpayer has had a reasonable
opportunity to discover all essential ele-
ments of a possible cause of action.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in
Executive Order 12866. Therefore, a
regulatory assessment is not required. It
also has been determined that section
553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) does not apply to
these regulations, and because the regula-
tion does not impose a collection of infor-
mation on small entities, the Regulatory
Flexibility Act (5 U.S.C. chapter 6) does
not apply. Pursuant to section 7805(f) of
the Code, this notice of proposed rule-
making will be submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on its
impact on small business.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written comments
that are submitted timely (preferably a
signed original and eight (8) copies) to
the IRS. Alternatively, taxpayers may
submit comments electronically to the
IRS Internet atwww.irs.gov/regs. All
comments will be available for public
inspection and copying. The IRS and
Treasury request comments on the clarity
of the proposed rules and how they may
be made easier to understand or to imple-
ment. A public hearing may be scheduled
if requested in writing by a person that
timely submits written comments. If a
public hearing is scheduled, notice of the
date, time, and place for the hearing will
be published in theFederal Register.
Drafting Information
The principal author of these regula-
tions is Kevin B. Connelly, Office of
Associate Chief Counsel (Procedure and
Administration), Collection, Bankruptcy
& Summons Division, CC:PA:CBS, IRS.
However, other personnel from the IRS
and the Treasury Department participated
in their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 301 is pro-
posed to be amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read in part as fol-
lows:
Authority: 26 U.S.C. 7805***
Par. 2. Section 301.7426–2 is added to
read as follows:
§301.7426–2 Recovery of damages in
certain cases.
(a)In general. In addition to remedies
related to wrongful levy set forth in
§301.7426–1(b), if a district court of the
United States finds in any action brought
under section 7426 that any officer or
employee of the Internal Revenue Service
recklessly or intentionally, or by reason of
negligence, disregarded any provision of
this title, the United States shall be liable
to the plaintiff for damages. The plaintiff
has a duty to mitigate damages. The total
amount of damages recoverable under
this section is the lesser of $1,000,000
($100,000 in the case of negligence), or
the sum of—
(1) Actual, direct economic damages
as defined in§301.7433–1(b) sustained
as a proximate result of the reckless,
intentional, or negligent actions of the
officer or employee, reduced by the
amount of any damages awarded under
§301.7426–1(b); and
(2) Costs of the action as defined in
§301.7433–1(c).
March 25, 20026472002–12 I.R.B.

(b)Administrative remedies must be
exhausted. The court may not award a
judgment for damages under paragraph
(a) of this section unless the court deter-
mines that the plaintiff has filed an
administrative claim pursuant to para-
graph (d) of this section, and has satisfied
the requirements of paragraph (c) of this
section.
(c)No request for damages in a dis-
trict court of the United States prior to
filing an administrative claim. (1) Except
as provided in paragraph (c)(2) of this
section, no request for damages under
paragraph (a) of this section shall be
maintained in any district court of the
United States before the earlier of the fol-
lowing dates—
(i) The date the decision is rendered on
a claim filed in accordance with para-
graph (d) of this section; or
(ii) The date that is six months after
the date an administrative claim is filed in
accordance with paragraph (d) of this sec-
tion.
(2) If an administrative claim is filed
in accordance with paragraph (d) of this
section during the last six months of the
period of limitations described in para-
graph (f) of this section, the claimant may
file an action in a district court of the
United States any time after the adminis-
trative claim is filed and before the expi-
ration of the period of limitations.
(d)Procedures for an administrative
claim—(1)Manner. An administrative
claim for the lesser of $1,000,000
($100,000 in the case of negligence) or
actual, direct economic damages as
defined in§301.7433–1(b) shall be sent
in writing to the Chief, Local Insolvency
Unit for the area in which the levy was
made.
(2)Form. The administrative claim
shall include—
(i) The name, taxpayer identification
number, current address and current home
and work telephone numbers (indicating
any convenient times to be contacted) of
the person making the claim;
(ii) The grounds, in reasonable detail,
for the claim (include copies of any avail-
able substantiating documentation or cor-
respondence with the Internal Revenue
Service);
(iii) A description of the damages
incurred by the claimant filing the claim
(include copies of any available substan-
tiating documentation or evidence);
(iv) The dollar amount of the claim,
including any damages that have not yet
been incurred but which are reasonably
foreseeable (include copies of any avail-
able substantiating documentation or evi-
dence); and
(v) The signature of the claimant or
duly authorized representative.
(3)Duly authorized representative. For
purposes of this paragraph (d), a duly
authorized representative is any attorney,
certified public accountant, enrolled actu-
ary, or any other person permitted to rep-
resent the claimant before the Internal
Revenue Service who is not disbarred or
suspended from practice before the Inter-
nal Revenue Service and who has a writ-
ten power of attorney executed to the
claimant.
(e)No liability for damages for any
sum in excess of the dollar amount sought
in the administrative claim. See
§301.7433–1(f).
(f)Period of limitations—(1)Time for
filing. A civil action under paragraph (a)
of this section must be brought in a dis-
trict court of the United States within 2
years after the date the cause of action
accrues.
(2)Right of action accrues. A cause of
action under paragraph (a) of this section
accrues when the plaintiff has had a rea-
sonable opportunity to discover all essen-
tial elements of a possible cause of
action.
(g)Recovery of costs under section
7430. See§301.7433–1(h).
(h)Effective date. This section is
applicable on the date final regulations
are published in theFederal Register.
Par. 3. Section 301.7430–1 is amended
by redesignating paragraphs (e), (f), and
(g) as paragraphs (f), (g), and (h), respec-
tively, and adding a new paragraph (e) to
read as follows:
§301.7430–1 Exhaustion of
administrative remedies.
*****
(e)Actions involving willful violations
of the automatic stay under section 362 of
the Bankruptcy Code—(1)Section 7433
claims. A party has not exhausted admin-
istrative remedies within the Internal
Revenue Service with respect to asserted
violations of the automatic stay under
section 362 of the Bankruptcy Code or
the discharge provisions under section
524 of the Bankruptcy Code unless it files
an administrative claim for damages or
for relief from a violation of section 362
or 524 of the Bankruptcy Code with the
Chief, Local Insolvency Unit, for the area
in which the bankruptcy petition that is
the basis for the asserted automatic stay
was filed pursuant to§301.7433–2(e)
and satisfies the other conditions set forth
in§301.7433–2(d) prior to filing a peti-
tion under section 7433.
(2)Section 362(h) claims. A party has
not exhausted administrative remedies
within the Internal Revenue Service with
respect to asserted violations of the auto-
matic stay under section 362 of the Bank-
ruptcy Code unless it files an administra-
tive claim for relief from a violation of
section 362 of the Bankruptcy Code with
the Chief, Local Insolvency Unit, for the
area in which the bankruptcy petition that
is the basis for the asserted automatic stay
was filed pursuant to§301.7433–2(e)
and satisfies the other conditions set forth
in§301.7433–2(d) prior to filing a peti-
tion under section 362(h) of the Bank-
ruptcy Code.
*****
§301.7430–2 [Amended]
Par.4.In§301.7430–2, paragraph
(c)(2) is amended by:
1. Adding the language“except that
requests with respect to administrative
proceedings defined by§301.7430–8(c)
should be made to the Chief, Local Insol-
vency Unit”at the end of the first sen-
tence.
2. Removing the language“District
Director for the district”and adding
“Internal Revenue Service office”in its
place in the second sentence.
Par. 5. Section 301.7430–3 is amended
by:
1. Revising paragraph (a)(4),
2. Paragraph (b) is amended by adding
the language“except those collection
actions described by section 7433(e)”at
the end of the last sentence.
The revision reads as follows:
2002–12 I.R.B.648March 25, 2002

§301.7430–3 Administrative proceeding
and administrative proceeding date.
(a)***
(4) Proceedings in connection with
collection actions (as defined in para-
graph (b) of this section), including pro-
ceedings under section 7432 or 7433,
except proceedings brought under section
7433(e) and§301.7433–2 or proceedings
otherwise described in§301.7430–8(c).
See§301.7430–8.
*****
Par. 6. Section 301.7430–6 is amended
by adding a sentence at the end of the
section to read as follows:
§301.7430–6 Effective dates.
* * * Sections 301.7430–2(c)(2),
7430–3(a)(4) and (b) are applicable with
respect to actions taken by the Internal
Revenue Service after July 22, 1998.
Par. 7. Section 301.7430–8 is added to
read as follows:
§301.7430–8 Administrative costs
incurred in damage actions for
violations of sections 362 and 524 of the
Bankruptcy Code.
(a)In general. The Internal Revenue
Service may grant a taxpayer’s request
for recovery of reasonable administrative
costs incurred in connection with the
administrative proceeding before the
Internal Revenue Service relating to the
willful violation of section 362 or 524 of
the Bankruptcy Code only if the taxpayer
is a prevailing party.
(b)Prevailing party. A taxpayer is a
prevailing party for purposes of this sec-
tion only if—
(1) The taxpayer satisfies the net worth
and size limitations in paragraph (f) of
§301.7430–5;
(2) The taxpayer establishes that in
connection with the collection of his or
her federal tax an officer or employee of
the Internal Revenue Service has willfully
violated a provision of section 362 or 524
of the Bankruptcy Code; and
(3) The position of the Internal Rev-
enue Service in the proceeding was not
substantially justified.
(c)Administrative proceeding. For
purposes of this section, an administrative
proceeding is a proceeding related to an
administrative claim presented to the
Internal Revenue Service seeking relief
from a violation of section 362 or 524 of
the Bankruptcy Code by the Internal Rev-
enue Service or recovery of damages
from the Internal Revenue Service under
§301.7433–2(e).
(d)Costs incurred after filing of bank-
ruptcy petition. Administrative costs may
be recovered only if incurred on or after
the date of filing of the bankruptcy peti-
tion that formed the basis for the stay on
collection under Bankruptcy Code section
362 or the discharge injunction under
Bankruptcy Code section 524, as the case
might be.
(e)Time for filing claim for adminis-
trative costs. (1) For purposes of this sec-
tion, the taxpayer must file a claim for
administrative costs before the Internal
Revenue Service not later than 90 days
after the date the Internal Revenue Ser-
vice mails to the taxpayer, or otherwise
notifies the taxpayer of, the decision
regarding the claim for relief from or
damages relating to a violation of the col-
lection stay or the discharge injunction to
the taxpayer.
(2) If the Internal Revenue Service
denies the claim for administrative costs
in whole or in part, the taxpayer must file
a petition with the Bankruptcy Court for
administrative costs no later than 90 days
after the date on which the denial of the
claim for administrative costs is mailed,
or otherwise furnished, to the taxpayer. If
the Internal Revenue Service does not
respond on the merits to a request by the
taxpayer for an award of reasonable
administrative costs within 6 months after
such request is filed, the Internal Revenue
Service’s failure to respond may be con-
sidered by the taxpayer as a denial of an
award of reasonable administrative costs.
(3) For purposes of paragraphs (e)(1)
and (2) of this section, if the 90th day
falls on a Saturday, Sunday, or a legal
holiday, the 90-day period shall end on
the next succeeding day which is not a
Saturday, Sunday, or a legal holiday. The
term legal holiday means a legal holiday
in the District of Columbia. If the request
for costs is to be filed with the Internal
Revenue Service at an office of the Inter-
nal Revenue Service located outside the
District of Columbia but within an inter-
nal revenue district, the term legal holi-
day also means a statewide legal holiday
in the state where such office is located.
(f)Effective date. This section is appli-
cable with respect to actions taken by the
Internal Revenue Service after July 22,
1998.
Par. 8. Section 301.7433–1 is amended
as follows:
1. In paragraph (a) introductory text, in
the first sentence, the language“,orby
reason of negligence,”is added after the
language“recklessly or intentionally”.In
addition, the language“$100,000”in the
third sentence is removed and
“$1,000,000 ($100,000 in the case of neg-
ligence)”is added in its place.
2. In paragraph (b)(1) the language
“, or negligent,”is added after the lan-
guage“reckless or intentional”.
3. In paragraph (e)(1), in the first sen-
tence, the language“$100,000”is
removed and“$1,000,000 ($100,000 in
the case of negligence)”is added in its
place. In addition, the language“district
director (marked for the attention of the
Chief, Special Procedures Function) of
the district”is removed and“Chief, Local
Insolvency Unit in the area”is added in
its place.
4. In paragraph (h), in the penultimate
sentence, the language“7432(a)”is
removed and“7433(a)”is added in its
place.
5. Revising paragraph (i).
The revision reads as follows:
§301.7433–1 Civil cause of action for
certain unauthorized collection actions.
*****
(i)Effective dates. The portions of this
section relating to reckless or intentional
acts are applicable to actions taken by
Internal Revenue Service officials after
July 30, 1996. The portions of this section
relating to negligent acts are applicable to
actions taken by the Internal Revenue
Service officials after July 22, 1998.
Par. 9. Section 301.7433–2 is added to
read as follows:
§301.7433–2 Civil cause of action for
violation of section 362 or 524 of the
Bankruptcy Code.
(a)In general. (1) If, in connection
with the collection of a federal tax with
respect to a taxpayer, an officer or
March 25, 20026492002–12 I.R.B.

employee of the Internal Revenue Service
willfully violates any provision of section
362 (relating to the automatic stay) or
section 524 (relating to discharge) of title
11, United States Code, or any regulation
promulgated under the provisions of title
11, United States Code, the taxpayer may
file a petition for damages against the
United States in federal bankruptcy court.
The taxpayer has a duty to mitigate dam-
ages. The total amount of damages recov-
erable under this section is the lesser of
$1,000,000, or the sum of—
(i) Actual, direct economic damages
sustained as a proximate result of the
willful actions of the officer or employee;
and
(ii) Costs of the action.
(2) An action under this section consti-
tutes the exclusive remedy under the
Internal Revenue Code for violations of
sections 362 and 524 of the Bankruptcy
Code. In addition, taxpayers injured by
violations of section 362 of the Bank-
ruptcy Code may maintain actions under
section 362(h) of the Bankruptcy Code
(relating to an individual injured by a
willful violation of the stay).
(b)Actual, direct economic damages—
(1)Definition. See§301.7433–1(b)(1).
(2)Litigation costs and administrative
costs not recoverable as actual, direct
economic damages. Litigation costs and
administrative costs are not recoverable
as actual, direct economic damages.
These costs may be recoverable under
section 7430 (see paragraph (h) of this
section), or, solely to the extent described
in paragraph (c) of this section, as costs
of the action.
(c)Costs of the action. Costs of the
action recoverable as damages under this
section are limited to the costs set forth in
§301.7433–1(c).
(d)No civil action in federal bank-
ruptcy court prior to filing an administra-
tive claim—(1)In general. Except as pro-
vided in paragraph (d)(2) of this section,
no action under paragraph (a)(1) of this
section shall be maintained in any bank-
ruptcy court before the earlier of the fol-
lowing dates—
(i) The date the decision is rendered on
a claim filed in accordance with para-
graph (e) of this section; or
(ii) The date that is six months after
the date an administrative claim is filed in
accordance with paragraph (e) of this sec-
tion.
(2)When administrative claim filed in
last six months of period of limitations.If
an administrative claim is filed in accor-
dance with paragraph (e) of this section
during the last six months of the period of
limitations described in paragraph (g) of
this section, the taxpayer may petition the
bankruptcy court any time after the
administrative claim is filed and before
the expiration of the period of limitations.
(e)Procedures for an administrative
claim—(1)Manner. An administrative
claim for the lesser of $1,000,000 or
actual, direct economic damages as
defined in paragraph (b) of this section
shall be sent in writing to the Chief, Local
Insolvency Unit, for the judicial district in
which the taxpayer filed the underlying
bankruptcy case giving rise to the alleged
violation.
(2)Form. The administrative claim
shall include—
(i) The name, taxpayer identification
number, current address, and current
home and work telephone numbers (with
an identification of any convenient times
to be contacted) of the taxpayer making
the claim;
(ii) The location of the bankruptcy
court in which the underlying bankruptcy
case was filed and the case number of the
case in which the violation occurred;
(iii) A description, in reasonable detail,
of the violation (include copies of any
available substantiating documentation or
correspondence with the Internal Revenue
Service);
(iv) A description of the injuries
incurred by the taxpayer filing the claim
(include copies of any available substan-
tiating documentation or evidence);
(v) The dollar amount of the claim,
including any damages that have not yet
been incurred but which are reasonably
foreseeable (include copies of any avail-
able documentation or evidence); and
(vi) The signature of the taxpayer or
duly authorized representative.
(3)Duly authorized representative
defined. For purposes of this paragraph
(e), a duly authorized representative is
any attorney, certified public accountant,
enrolled actuary, or any other person per-
mitted to represent the taxpayer before
the Internal Revenue Service who is not
disbarred or suspended from practice
before the Internal Revenue Service and
who has a written power of attorney
executed by the taxpayer.
(f)No action in bankruptcy court for
any sum in excess of the dollar amount
sought in the administrative claim.No
action for actual, direct economic dam-
ages under paragraph (a) of this section
may be instituted in federal bankruptcy
court for any sum in excess of the amount
(already incurred and estimated) of the
administrative claim filed under para-
graph (e) of this section, except where the
increased amount is based upon newly
discovered evidence not reasonably dis-
coverable at the time the administrative
claim was filed, or upon allegation and
proof of intervening facts relating to the
amount of the claim.
(g)Period of limitations—(1)Time for
filing. A petition for damages under para-
graph (a) of this section must be filed in
bankruptcy court within two years after
the date the cause of action accrues.
(2)Right of action accrues. A cause of
action under paragraph (a) of this section
accrues when the taxpayer has had a rea-
sonable opportunity to discover all essen-
tial elements of a possible cause of
action.
(h)Recovery of litigation costs and
administrativecostsundersection
7430—(1)In general. Litigation costs, as
defined in§301.7433–1(b)(2)(i), includ-
ing attorneys fees, not recoverable under
this section may be recoverable under
section 7430 if a taxpayer challenges in
whole or in part an Internal Revenue Ser-
vice denial of an administrative claim for
damages by filing a petition in the bank-
ruptcy court. If, following the Internal
Revenue Service’s denial of an adminis-
trative claim for damages, a taxpayer files
a petition in the bankruptcy court chal-
lenging that denial in whole or in part,
substantially prevails with respect to the
amount of damages in controversy, and
meets the requirements of section
7430(c)(4)(A)(ii) (relating to net worth
and size requirements), the taxpayer will
be considered a prevailing party for pur-
poses of section 7430, unless the Internal
2002–12 I.R.B.650March 25, 2002

Revenue Service establishes that the posi-
tion of the Internal Revenue Service in
the proceeding was substantially justified.
Such taxpayer will generally be entitled
to attorneys’fees and other reasonable
litigation costs not recoverable under this
section. For purposes of this paragraph
(h), if the Internal Revenue Service does
not respond on the merits to an adminis-
trative claim for damages within six
months after the claim is filed, the Inter-
nal Revenue Service’s failure to respond
will be considered a denial of the claim
on the grounds that the Internal Revenue
Service did not willfully violate Bank-
ruptcy Code section 362 or 524.
(2)Administrative costs—(i)In gen-
eral. Administrative costs, as defined in
§301.7433–1(b)(2)(ii), including attor-
neys’fees, not recoverable under this sec-
tion may be recoverable under section
7430. See§301.7430–8.
(ii)Limitation regarding recoverable
administrative costs. Administrative costs
may be awarded only if incurred on or
after the date of filing of the bankruptcy
petition that formed the basis for the stay
on collection under Bankruptcy Code sec-
tion 362 or the discharge injunction under
Bankruptcy Code section 524, as the case
might be.
(i)Effective date. This section is appli-
cable to actions taken by the Internal
Revenue Service officials after July 22,
1998.
Robert E. Wenzel,
Deputy Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on
March 5, 2002, 8:45 a.m., and published in the issue
of the Federal Register for March 6, 2002, 67 F.R.
9929)
Notice of Proposed
Rulemaking and Notice of
Public Hearing
Application of Section 338 to
Insurance Companies
REG–118861–00
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
SUMMARY: This document contains
proposed regulations that apply to a
deemed sale or acquisition of an insur-
ance company’s assets pursuant to an
election under section 338 of the Internal
Revenue Code, to a sale or acquisition of
an insurance trade or business subject to
section 1060, and to the acquisition of
insurance contracts through assumption
reinsurance. It also contains proposed
regulations under section 381 concerning
the effect of certain corporate liquidations
and reorganizations on certain tax
attributes of insurance companies. The
proposed regulations apply to insurance
companies and to corporations selling and
purchasing stock of insurance companies.
This document also provides a notice of
public hearing on the proposed regula-
tions.
DATES: Written or electronic comments
and requests to speak (with outlines of
oral comments to be discussed) at the
public hearing scheduled for September
18, 2002, must be received by August 28,
2002.
ADDRESSES: Send submissions to:
CC:ITA:RU (REG–118861–00), room
5226, Internal Revenue Service, POB
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may be hand
delivered Monday through Friday
between the hours of 8:00 a.m. and 5:00
p.m. to CC:ITA:RU (REG–118861–00),
Courier’s Desk, Internal Revenue Ser-
vice,1111Constitution Avenue, NW,
Washington, DC 20044. Alternatively,
taxpayers may submit comments elec-
tronically directly to the IRS Internet site
atwww.irs.gov/regs. The public hearing
will be held in the auditorium, Internal
Revenue Building,1111 Constitution
Avenue, NW, Washington, DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the proposed regula-
tions, Gary Geisler, (202) 622–3970, or
Mark Weiss, (202) 622–7790, concerning
submissions of comments, the hearing,
and/or to be placed on the building access
list to attend the hearing, Guy Traynor,
(202) 622–7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
Overview of the Proposed Regulations
These proposed regulations apply to
taxable asset acquisitions and dispositions
of insurance businesses and companies,
many of which occur by virtue of elec-
tions under section 338 of the Internal
Revenue Code (Code). A number of ques-
tions have arisen concerning the tax con-
sequences of such transactions, and
numerous requests for clarification were
received in response to the proposal of
regulations under sections 338 and 1060
(REG–107069–97, 1999–2 C.B. 346 [64
FR 43462]) in 1999. The Treasury deci-
sion finalizing those regulations in Febru-
ary, 2001, announced the intention of the
IRS and Treasury to provide guidance
regarding the treatment of a deemed asset
sale by an insurance company in a sepa-
rate project (T.D. 8940, 2001–15 I.R.B.
1016, 1017 [66 FR 9925]). That addi-
tional guidance is proposed in this docu-
ment.
In taxable asset acquisitions governed
by section 338 or 1060 generally, the total
cost of the acquisition is apportioned
among specific assets under a residual
method that extrapolates the price of each
asset from the overall price of the trans-
action (including assumed liabilities),
ranking the assets in classes for priority
of allocation, with goodwill and going
concern value (Class VII assets) ranked
last and section 197 intangibles (Class VI
assets) ranked next to last. See§§1.338–
6(b)(2) and 1.1060–1(a)(1). Rights under
an insurance company’s outstanding
insurance contracts (commonly known as
insurance in force) that are acquired
through assumption reinsurance as part of
a taxable asset acquisition generally are
intangible assets that constitute section
197 intangibles within the meaning of
section 197(d) and, hence, are classified
as Class VI assets under§1.338–
6(b)(2)(vi).
The termassumption reinsurance
refers to an arrangement whereby the
reinsurer, or buyer, becomes solely liable
to the policyholders on contracts trans-
ferred by the ceding company, or seller,
who ceases to have any liability under the
transferred contracts. See§1.809–
5(a)(7)(ii); see alsoColonial American
March 25, 20026512002–12 I.R.B.

Life Ins. Co. v. Commissioner, 491 U.S.
244, 247 (1989);Beneficial Life Ins. Co.
v. Commissioner, 79 T.C. 627, 636
(1982). It has historically been the IRS’s
position that, where insurance contracts
are acquired from an insurance company
as part of a taxable asset acquisition, the
transfer of contract rights and assumption
of related liabilities is treated as an
assumption reinsurance transaction if the
ceding company ceases to be liable to the
policyholders. SeeSouthwestern Life Ins.
Co. v. Commissioner, 560 F.2d 627 (5th
Cir. 1977),cert.denied, 435 U.S. 995
(1978); see also H.R. Rep. No. 103–213,
103d Cong., 1st Sess. 687 n.25 (1993);
§1.338–1(a)(2).
Section 1.817–4(d) prescribes rules for
the income tax treatment of assumption
reinsurance transactions entered into by
life insurance companies in the ordinary
course of business. Under§1.817–
4(d)(2)(ii) and (iii), the reinsurer is
treated as receiving premium income
from the reinsured in an amount equal to
at least the increase in the reinsurer’s
reserves resulting from the transaction,
and the reinsurer is entitled to deduct the
increase in its reserves that is attributable
to the acquisition of the insurance con-
tracts. If the reinsurer receives an amount
less than the amount of such reserves, the
difference is treated as the amount paid
by the reinsurer for the purchase of the
reinsured contracts (i.e., the ceding com-
mission). The reinsurer must capitalize
the ceding commission as an item of
deferred expense. Thus, the reinsurer’s
deduction for its increase in reserves
resulting from the assumption reinsurance
transaction offsets premium income, and
the reinsurer is treated as purchasing
intangible assets (i.e., insurance contracts)
to the extent that the net consideration
received by the reinsurer is less than its
increase in reserves. If the actual amount
received by the reinsurer exceeds the
increase in the reinsurer’s reserves result-
ing from the transaction, the entire
amount received by the reinsured is
treated as premium income, and the rein-
surer is not treated as having paid any
amount for the purchase of the reinsured
contracts (i.e., the economics of the trans-
action indicate that the insurance con-
tracts have no positive value).
Under§1.817–4(d), the ceding com-
pany treats the gross amount paid to the
reinsurer, reduced by any payment
received from the reinsurer, as an item of
deduction for consideration paid for rein-
surance. See§1.817–4(d)(2)(i). This
deduction fully or partially offsets the
amount included in the gross income of
the ceding company that is attributable to
the decrease in the ceding company’s
reserves as a result of the reinsurance
transaction. Because the amount of the
deduction is reduced by the amount that
the reinsurer actually or implicitly pays to
purchase the contracts, the net effect is to
treat any amount received by the ceding
company for the sale of the reinsured
contracts as ordinary income.
Although§1.817–4(d) applies only to
assumption reinsurance transactions
involving life insurance companies, the
general structure of the regulations is not
based on any statutory provisions unique
to life insurance companies. Moreover,
because these rules are an application of
general principles of insurance taxation,
many should apply not only to assump-
tion reinsurance transactions, but also to
indemnity reinsurance transactions, where
the ceding company is not fully relieved
of the policy risks.
The proposed regulations generally
treat the transfer of an insurance or annu-
ity contract or group of such contracts
(hereinafter insurance contracts) and the
assumption of related reserve liabilities
that are deemed to occur by reason of an
election under section 338 in a manner
consistent with the treatment of ordinary
assumption reinsurance transactions
under§1.817–4(d) and other provisions
of subchapter L of chapter 1, subtitle A of
the Code and the regulations promulgated
thereunder. The proposed regulations pro-
vide similar rules for acquisitions of
insurance businesses governed by section
1060, whether effected through assump-
tion or indemnity reinsurance. Thus, in
the case of both a deemed and an actual
transfer of an insurance business, the
reinsurer (in the case of a section 338
election, new target) is treated as receiv-
ing premium income for its assumption of
reserve liabilities and having an offsetting
deduction for its increase in reserves, and
the ceding company (in the case of a sec-
tion 338 election, old target) is treated as
having income in the amount of the
reduction in its reserves and having a
deduction for the premium it pays for the
reinsurer’s assumption of those liabilities.
Moreover, consistent with§1.817–4(d),
the consideration allocated to the value of
the insurance contracts acquired in the
assumption reinsurance transaction is
treated as an amount paid by the reinsurer
to purchase intangible assets and as ordi-
nary income to the ceding company.
However, section 1.817–4(d) does not
fully describe the income tax treatment of
insurance contracts that are transferred
and the related reserve liabilities that are
assumed as part of the acquisition of an
entire company or trade or business. In
particular,§1.817–4(d) addresses trans-
actions in which the consideration paid
for the transfer of insurance contracts and
assumption of related liabilities is known
and not part of a larger acquisitive trans-
action. Therefore, in order to give effect
to the principles and rules governing tax-
able asset acquisitions for all trades or
businesses generally, these proposed
regulations depart in certain respects from
the rules governing assumption reinsur-
ance transactions effected in the ordinary
course of business. The key elements of
the proposed regulations are as follows:
1. In general, the seller’s tax reserves
are treated in the same manner as
fixed liabilities that have been taken
into account for Federal income tax
purposes and, thus, the seller’s clos-
ing tax reserves are treated as a
liability in the computation of the
seller’s aggregate deemed sales price
(ADSP) and the buyer’s adjusted
grossed-up basis (AGUB).
2. The residual method that otherwise
applies to transactions governed by
sections 338 and 1060 applies to allo-
cate the ADSP and AGUB among
classes of transferred assets, includ-
ing insurance contracts, which consti-
tute Class VI assets (regardless of
whether they are section 197 intan-
gibles). Thus, the amount of consid-
eration allocated to insurance con-
tracts under the residual method is
treated as the amount paid by the
buyer for the purchase of insurance
contracts in the assumption reinsur-
ance transaction (i.e., as a ceding
commission to the seller).
3. The gross amount of the reinsurance
premium paid by the seller to the
2002–12 I.R.B.652March 25, 2002

buyer is deemed to equal the seller’s
closing tax reserves in all cases,
thereby eliminating the possibility of
immediate net taxable income to the
buyer.
Computation and Allocation of AGUB
and ADSP
In accordance with the principles set
forth above, these proposed regulations
provide rules regarding the computation
and allocation of AGUB and ADSP where
the target is an insurance company. See
proposed§1.338–11(a) through (c). A
special rule provides that, for purposes of
allocating AGUB and ADSP under the
residual method, the fair market value of
insurance contracts is the amount a will-
ing reinsurer would pay a willing ceding
company in an arm’s length transaction as
a ceding commission for the reinsurance
of the specific insurance contracts if the
gross reinsurance premium for the insur-
ance contracts were equal to old target’s
tax reserves for the insurance contracts.
See proposed§1.338–11(b)(2).
Rules comparable to the proposed
rules governing the computation and allo-
cation of AGUB and ADSP are proposed
to apply to applicable asset acquisitions
under section 1060. See proposed
§1.1060–1(c)(5). To insure that these
rules apply only to acquisitions of insur-
ance businesses and not to ordinary rein-
surance transactions, the proposed regula-
tions describe when an acquisition of
insurance contracts will be treated as an
applicable asset acquisition. The proposed
regulations provide that the mere reinsur-
ance of insurance contracts by an insur-
ance company is not an applicable asset
acquisition, even if it enables the rein-
surer to establish a customer relationship
with the owners of the reinsured con-
tracts. However, the transfer of an insur-
ance business is an applicable asset acqui-
sition if the purchaser acquires significant
business assets, in addition to insurance
contracts, to which goodwill and going
concern value could attach. See proposed
§1.1060–1(b)(9).
Treatment of Liabilities
For purposes of computing ADSP and
AGUB, the proposed regulations treat old
target’s closing tax reserves (before giv-
ing effect to the deemed sale and assump-
tion reinsurance transaction) as a liability.
See proposed§1.338–11(b)(1). The IRS
and Treasury recognize that in the context
of acquisitions of businesses other than
insurance businesses, courts have held
that when contingent liabilities assumed
in connection with an asset acquisition
mature, such liabilities, like fixed liabili-
ties, must be capitalized as a cost of the
acquired assets, even if those matured
liabilities would have been currently
deductible had they been incurred in the
acquirer’s own historic business. See
Pacific Transport Co. v. Commissioner,
483 F.2d 209, 214 (9th Cir. 1973),cert.
denied, 415 U.S. 948 (1974);Illinois Tool
Works Inc. v. Commissioner, 117 T.C. No.
4 (July 31, 2001). As a theoretical matter,
in the context of acquisitions of insurance
businesses, capitalization could be
required, and deductions could be disal-
lowed, for all post-acquisition increases
in reserves that are attributable to liabili-
ties under acquired insurance contracts
that were contingent at the time of the
acquisition.
For a number of reasons, however, the
IRS and Treasury believe that it would be
inappropriate to require capitalization of
all such post-acquisition increases in an
insurance company’s assumed reserve
liabilities. First, to the extent that reserves
are discounted and post-acquisition
increases are attributable to increases in
the present value of assumed liabilities
reflected in the acquisition date reserves,
such increases are more properly treated
as a currently deductible business
expense of the reinsurer, analogous to
interest on a fixed liability, rather than as
a capital cost of the acquired assets. Sec-
ond, to the extent that insurance reserves
represent estimates of contingent liabili-
ties under insurance contracts, the IRS
and Treasury recognize that adjustments
to these estimates are customary and that,
unlike adjustments in other businesses,
such adjustments may either increase or
decrease an insurance company’s taxable
income. Thus, it would be impractical and
inappropriate to treat all such adjustments
as adjustments to the cost of acquired
assets. No inference, however, is intended
regarding the tax treatment of contingent
liabilities in situations not covered by
these proposed regulations.
Although the IRS and Treasury believe
that certain increases in reserves that are
attributable to acquired insurance con-
tracts should be currently deductible, the
IRS and Treasury believe that post-
acquisition reserve increases should be
capitalized in certain situations where it
becomes clear that the ceding company’s
tax reserves as of the acquisition date
were understated. In such cases, increas-
ing the tax reserves attributable to the
acquired insurance contracts after the
acquisition should not produce a more
favorable result for the reinsurer than had
the ceding company increased such
reserves before the acquisition. Accord-
ingly, proposed§1.338–11(d) provides
for the capitalization by the reinsurer of
certain reserve increases in the four tax-
able years after the acquisition date.
Tax reserve increases from three
sources with respect to acquired contracts
could potentially be subject to capitaliza-
tion under these proposed regulations:
increases of unpaid loss reserves attribut-
able to changes in loss estimates,
increases of other reserves through
changes in methodology or assumptions,
and increases of unpaid loss reserves as a
result of reinsuring acquired contracts at a
loss. See proposed§1.338–11(d)(3) and
(d)(4). In particular, the proposed regula-
tions require capitalization of unpaid loss
reserve increases in excess of cumulative
annual increases of two percent from the
acquisition date reserves for unpaid losses
attributable to acquired insurance con-
tracts and for acquired contracts trans-
ferred through reinsurance transactions.
Capitalization is not required, however, to
the extent increases to reserves for unpaid
losses attributable to acquired insurance
contracts reflect the time value of money.
In addition, the reinsurer is not required
to capitalize any post-acquisition reserve
increases to the extent such increases
occur while it is under state receivership
or to the extent the deduction for the
reserve increase is spread over the 10 suc-
ceeding taxable years pursuant to section
807(f). See proposed§1.338–11(d)(2).
To the extent a reinsurer is required to
capitalize reserve increases, the reinsurer
must include such amount in gross
income in the year of the increase to off-
set the deduction taken under section
832(b)(5) for the reserve increases. The
reinsurer must include the amount to be
capitalized in AGUB and treat such
amount as additional premium received in
March 25, 20026532002–12 I.R.B.

the deemed asset sale as of the year of the
adjustment. See proposed§1.338–
11(d)(1). The ceding company does not
make any adjustments under this provi-
sion. See proposed§1.338–11(d)(1).
Other Issues
In addition to providing guidance
regarding the treatment of the deemed
asset sale under section 338 and the
assumption reinsurance transaction that is
deemed to occur in connection therewith,
the proposed regulations provide guid-
ance on several other issues that arise in
the context of these transactions. In gen-
eral, these other rules also apply to insur-
ance companies that sell an insurance
business in a transaction governed by sec-
tion 1060 if the sale occurs in connection
with the complete liquidation of the ced-
ing company. See proposed§1.1060–
1(c)(5). The rules in the proposed regula-
tions under section 197 also apply to
reinsurers of insurance businesses in
transactions governed by section 1060 if
effected through assumption reinsurance.
Amortization Under Section 197
These regulations propose amend-
ments to the regulations under section
197 to provide guidance concerning the
treatment under section 197 of insurance
contracts acquired through assumption
reinsurance transactions. For purposes of
this section, the terminsurance contracts
includes an annuity contract or group of
annuity contracts. See proposed§1.197–
2(g)(5).
Section 197(f)(5) provides that, in the
case of any amortizable section 197 intan-
gible resulting from an assumption rein-
surance transaction, the amount taken into
account as the adjusted basis of such
intangible under section 197 is the excess
of (A) the amount paid or incurred by the
acquirer in the assumption reinsurance
transaction, over (B) the amount required
to be capitalized under section 848 in
connection with the transaction. For
policy related intangibles acquired in an
assumption reinsurance transaction, sec-
tion 197(f)(5) determines the amount that
must be capitalized and amortized under
section 197 and the portion that may be
expensed because it is reflected in the
reinsurer’s capitalization of specified
policy acquisition expenses under section
848.
The current regulations under section
197 reserve the interpretation of section
197(f)(5) in the context of stock acquisi-
tions with respect to which an election
under section 338 is made. See§1.197–
2(g)(5)(ii)(C). For other assumption rein-
surancetransactions,§1.197–
2(g)(5)(ii)(A) interprets the amount paid
or incurred as the amount determined
under§1.817–4(d)(2) and the amount
required to be capitalized under section
848 as the amount of the specified policy
acquisition expenses that are attributable
to the reinsurer’s net positive consider-
ation for the reinsurance agreement (as
determined under§1.848–2(f)(3)).
The proposed regulations clarify that
section 197(f)(5) determines the basis of
an amortizable section 197 intangible
asset with respect to insurance contracts
acquired in an assumption reinsurance
transaction. See proposed§1.197–
2(g)(5)(i)(A). Under these proposed regu-
lations, the amount paid or incurred to
acquire the relevant insurance contracts
is, in a transaction governed by section
338 or 1060, the amount of the AGUB or
consideration allocable to the insurance
contracts under the residual method. For
this purpose, the insurance contracts are
valued by assuming a gross premium
equal to the tax reserves. For transactions
not governed by section 338 or 1060, the
amount paid or incurred for insurance
contracts is the excess of the increase in
the reinsurer’s tax reserves resulting from
the transaction (computed in accordance
with sections 807, 832(b)(4)(B), and 846)
over the value of the net assets received
from the ceding company in the transac-
tion. See proposed§1.197–2(g)(5)(i)(C).
Proposed§1.197–2(g)(5)(i)(D) pro-
vides guidance concerning the amount
required to be capitalized under section
848 in connection with an assumption
reinsurance transaction. Section 848
requires an insurance company to capital-
ize annually an amount of its“general
deductions”as“specified policy acquisi-
tion expenses”(DAC). Each year, an
insurance company capitalizes its general
deductions (amounts otherwise deductible
under sections 161et seq.and 401et
seq.) up to the percentage set forth in sec-
tion 848(c) of the amount by which pre-
miums received on specified insurance
contracts in the taxable year exceeds
return premiums and premiums paid for
reinsurance (net premiums). The assump-
tion reinsurance transaction itself typi-
cally generates no general deductions for
the reinsurer. Accordingly, the amount to
be capitalized must be determined by ref-
erence to the reinsurer’s other general
expenses and the effect of the transaction
on the reinsurer’s net premiums. The IRS
and Treasury believe that, for purposes of
section 197(f)(5)(B), the amount required
to be capitalized under section 848 in
connection with the transaction should
take into account the ceding company’s
actual DAC capitalization amount, based
on its general deductions for the year and
its net premiums for the year, including
premiums received in the assumption
reinsurance transaction.
Under the proposed regulations, the
computation of the amount described in
section 197(f)(5)(B) is based on the actual
capitalization amount and is determined
at the end of the year by multiplying the
DAC for the taxable year by a fraction,
the numerator of which is the tentative
positive capitalization amount for the rel-
evant group of acquired insurance con-
tracts and the denominator of which is the
total tentative positive capitalization
amount for the taxable year with regard to
all specified insurance contracts. The ten-
tative positive capitalization amount for
the acquired insurance contracts is the net
positive consideration received for the
insurance contracts in the assumption
reinsurance transaction multiplied by the
percentage factor applicable to the insur-
ance contracts under section 848(c). The
total tentative positive capitalization
amount for the taxable year is the sum of
each year’s net premiums (in each cat-
egory) multiplied by its applicable per-
centage factor. The total amount required
to be capitalized under section
197(f)(5)(B) cannot be less than zero or
greater than the amount of the DAC for
the year.
The amortization of intangibles under
section 197 is a general deduction rel-
evant in computing DAC. The amount of
2002–12 I.R.B.654March 25, 2002

amortization, however, cannot be calcu-
lated until section 197(f)(5) is applied to
compute the year’s DAC. To avoid com-
plex calculations, the proposed regula-
tions assume that, for purposes of calcu-
lating the basis for amortization, one-half
of the consideration allocated to the insur-
ance contracts is amortizable under sec-
tion 197. Comments are requested regard-
ing alternative approaches to calculating
the basis for DAC and section 197 amor-
tization.
Losses on Dispositions of Acquired
Insurance Contracts
In general, gain or loss is recognized
on a disposition, including a retirement,
of an asset. Section 197(f)(1)(A), how-
ever, overrides this general rule and bars
the recognition of any loss on the dispo-
sition of an amortizable section 197 intan-
gible acquired in a transaction if the tax-
payer retains one or more other
amortizable section 197 intangibles
acquired in the same transaction. Where
such a loss is denied, the adjusted bases
of the retained intangibles are increased
to account for the amount of the unrecog-
nized loss. Section 1.197–2(g)(2)(B) pro-
vides that the abandonment of an amortiz-
able section 197 intangible, or any other
event rendering an amortizable section
197 intangible worthless, is treated as a
disposition for purposes of the loss disal-
lowance rule of section 197(f)(1)(A).
The regulations under section 197,
however, do not provide any special guid-
ance on the ability of a taxpayer to
recover basis or the proper method for
computing loss on the disposition of an
amortizable section 197 intangible relat-
ing to insurance contracts. Such guidance
is necessary because, in contrast to dispo-
sitions of other intangibles, subchapter L
generally does not compute an“amount
realized”on the disposition of insurance
contracts. Accordingly, the proposed
regulations provide such guidance.
Under the proposed regulations, a dis-
position of a section 197(f)(5) intangible
is any event as a result of which, absent
section 197, recovery of basis is other-
wise allowed for Federal income tax pur-
poses.Seeproposed§1.197–
2(g)(5)(ii)(A). The proposed regulations
provide specific guidance regarding when
recovery of basis is allowed with respect
to a section 197(f)(5) intangible in the
context of an indemnity reinsurance
transaction. In particular, they provide
that basis recovery is permitted when suf-
ficient economic rights related to the
insurance contracts that gave rise to such
intangible have been transferred. Suffi-
cient economic rights are treated as trans-
ferred when the ceding company transfers
the right to future income on insurance
contracts. Sufficient economic rights,
however, are not treated as transferred if
an experience refund provision, a recap-
ture option, or another mechanism
enables the taxpayer to retain a right to a
substantial portion of the future profits on
the reinsured policies. In addition, suffi-
cient economic rights are not treated as
transferred if the reinsurer assumes only a
limited portion of the ceding company’s
risk relating to the underlying reinsured
contracts (e.g., excess loss reinsurance).
The proposed regulations also provide
rules governing the amount of loss recog-
nized on the disposition of a section
197(f)(5) intangible. Such loss equals the
amount, if any, by which the adjusted
basis of the section 197(f)(5) intangible
immediately prior to the disposition
exceeds the amount, if any, that the tax-
payer receives from another person for
the right to future income on the insur-
ance contracts to which the section
197(f)(5) intangible relates. See proposed
§1.197–2(g)(5)(ii)(A)(2). The proposed
regulations also provide that, in determin-
ing the amount of the taxpayer’s loss on
the disposition of a section 197(f)(5)
intangible through a reinsurance transac-
tion, any effect of the transaction on the
amounts capitalized by the taxpayer as
DAC is disregarded. See proposed
§1.197–2(g)(5)(ii)(B).
Other than in the case of certain rein-
surance transactions, the proposed regula-
tions do not provide specific guidance
regarding when a disposition of a section
197(f)(5) intangible occurs or the extent
to which a taxpayer should be permitted
to recover the adjusted basis of a section
197(f)(5) intangible. Comments are
requested regarding whether additional
guidance should address other situations
or issues.
Capitalization Under Section 848
DAC amounts are intended to serve as
a proxy for an insurance company’s
actual cost of acquiring insurance con-
tracts. An insurance company’s DAC for
a particular year will be negative (nega-
tive DAC) if return premiums and premi-
ums paid for reinsurance for the year
exceed premiums received in that year.
Insurance companies are permitted to use
any negative DAC to deduct currently the
unamortized balance of DAC capitalized
in prior years. Any remaining negative
DAC can be carried forward to offset the
DAC attributable to premiums received in
future years.
Under proposed§1.338–11(e), the
assumption reinsurance transaction that
results from section 338 generally has the
same effect under section 848 as other
assumption reinsurance transactions. That
is, the assumption reinsurance transaction
first reduces the current year’s capitaliza-
tion requirement and then offsets any
unamortized DAC capitalized in prior
years, which results in a current expense
deduction.
The IRS and Treasury believe that,
generally, once the ceding company no
longer conducts an insurance business
and ceases to exist for Federal income tax
purposes, any relief from capitalization it
might have enjoyed going forward is not
appropriately transferred to a taxpayer
other than a successor insurance company
under section 381. Because regulations
under§1.381(c)(22)–1(b) have not been
previously amended to reflect the enact-
ment of section 848, the proposed regula-
tions provide that remaining balances of
DAC or excess negative DAC carry over
to a successor insurance company in a
section 381 transaction. See proposed
§1.381(c)(22)–1(b)(13). In all other
cases, these proposed regulations provide
that if, after giving effect to the reinsur-
ance transaction in the deemed asset sale,
the ceding company has remaining DAC
or excess negative DAC, that remaining
DAC is expensed or excess negative
DAC is eliminated. See proposed
§1.338–11(e)(2).
Policyholders Surplus Account
Under section 815, as originally
enacted by the Life Insurance Company
Tax Act of 1959, stock life insurance
companies were required to maintain a
policyholders surplus account (PSA).
Amounts contributed to a PSA were not
included in income subject to tax under
section 801. This deferral was based on
March 25, 20026552002–12 I.R.B.

the theory that such amounts may be nec-
essary to meet future policyholders’
claims.
The deferral afforded by section 815
generally terminated when there was a
distribution from the PSA. For this pur-
pose, a distribution included a distribution
in partial or complete liquidation, a distri-
bution in redemption of stock, dividend
distributions other than distributions
made by a corporation of its stock or
rights to acquire its stock, payments
attributable to distributions to sharehold-
ers made out of other accounts, payments
in discharge of indebtedness attributable
to distributions to shareholders made out
of other accounts, and the balance of poli-
cyholders’surplus accounts on termina-
tion of life insurance status. See section
815, as originally enacted by the Life
Insurance Company Tax Act of 1959;
§1.815–2(c); see also H.R. Conf. Rep.
No. 34, 86th Cong., 1st Sess. 736 (1959),
Technical Explanation of the Life Insur-
ance Company Income Tax Act of 1959,
at 762–64. However, a distribution did
not include a carryover of the PSA to an
acquiring corporation in a transaction
described in section 381. Section
1.381(c)(22)–1(b)(7)(i); Rev. Rul. 77–248
(1977–2 C.B. 228). Therefore, distribu-
tions to a parent life insurance company
of its subsidiary life insurance company’s
assets in the complete liquidation of the
subsidiary under section 332 were not
treated as distributions of the PSA subject
to tax under section 801. See Rev. Rul.
77–248.
In 1984, Congress revised section 815
to prohibit further PSA contributions and
to provide that any direct or indirect dis-
tribution to shareholders from the PSA
would be subject to tax under section 801
in the year of the distribution. The legis-
lative history indicates that the termindi-
rect distributionis to be interpreted
broadly to include both actual and con-
structive distributions of amounts in the
PSA that directly or indirectly are used
for the benefit of shareholders. See Staff
of the Joint Committee on Taxation, 98th
Cong., 2d Sess.,General Explanation of
the Revenue Provisions of the Tax Reform
Act of 1984, at 594 (1984).
When a section 338(h)(10) election is
made, old target is deemed to sell its
assets for the ADSP and to distribute an
amount equal to the proceeds of the stock
sale, if any, to its shareholders in a
deemed liquidation of old target. Section
332 generally applies to the receipt of this
amount by the shareholder of an insur-
ance company target. Although section
381 and the regulations thereunder pro-
vide that the PSA carries over to the
acquiring corporation, the IRS and Trea-
sury believe that where the acquiring cor-
poration acquires less than 50 percent of
old target’s insurance business, such a
rule is appropriate only to the extent that
old target’s insurance business is distrib-
uted in the section 381 transaction. To the
extent that old target’s insurance business
is not distributed in a section 381 transac-
tion, such amount is properly treated as a
distribution of old target’s PSA under sec-
tion 815. When old target’s PSA is sepa-
rated from old target’s insurance business,
the purposes of the PSA are not served by
further deferral because the old target’s
PSA is no longer necessary to meet future
policyholders’claims. The separation of
old target’s PSA from old target’s insur-
ance business effects a distribution of
those funds, even if the shareholder
receiving the distribution has an insur-
ance business of its own. See proposed
amendments to§1.381(c)(22)–1(b)(7)
and§1.338–11(f); see also Rev. Rul.
95–19 (1995–1 C.B. 143).
Recently, some courts have divided
over whether the deemed asset sale result-
ing from a section 338(g) election gives
rise to a distribution by old target of the
PSA to its shareholders. CompareBank-
ers Life and Casualty Co. v. United
States, 79 AFTR2d (RIA) 1726 (N.D. Ill.
1996),aff’d on other grounds, 142 F.3d
973 (7th Cir. 1998),cert. denied, 525
U.S. 961 (1998), withGE Life and Annu-
ity Co. v. United States, 127 F. Supp.2d
794 (E.D. Va. 2000). In a transaction with
respect to which an election has been
made under section 338(g), old target’s
shareholders are treated as having sold
their stock of old target. In addition, old
target is deemed to have sold its assets to
new target for their fair market value and
to terminate its existence. Because there
has been a separation of the value attrib-
utable to the PSA and old target’s life
insurance business for which it was main-
tained, and the shareholders receive that
value in a transaction other than a section
381 transaction, the proposed regulation
effectively provides that the deemed asset
sale pursuant to a section 338(g) election
effects a distribution of the PSA to old
target’s shareholders to the extent the
grossed-up amount realized for the
recently purchased stock exceeds the
shareholders surplus account. See pro-
posed§1.338–11(f).
Section 847 Estimated Tax Payments
To the extent that old target is deemed
to transfer its insurance business to new
target as a result of the deemed asset sale,
old target’s special loss discount account
under section 847(3) must be reduced to
the extent attributable to such transferred
insurance business and old target must
include the amount of such reduction in
gross income for the taxable year of the
transaction. See proposed§1.338–11(g).
However, if any of old target’s insur-
ance business is distributed to its share-
holders in a section 381 transaction, the
acquiring corporation succeeds to the por-
tion of old target’s special loss discount
account that is attributable to the insur-
ance business that is transferred to the
acquiring corporation. See proposed
§1.381(c)(22)–1(b)(14). This rule is
intended to apply to both life and non-life
insurance companies. Old target may
apply the balance of its special estimated
tax account as a credit against any tax
resulting from the inclusion of this
income. Because old target ceases to exist
for Federal income tax purposes, any spe-
cial estimated tax payments remaining
after the credit are voided.
Section 846(e) Election
Under section 846(e), an insurance
company may elect to compute dis-
counted unpaid losses for all eligible lines
of business using its historical payment
pattern as shown on the most recent
annual statement filed before the accident
year instead of the historical payment pat-
tern determined by the Commissioner.
The election can only be made in a deter-
mination year, as defined by section
846(d), for the year in which the election
is made and the four succeeding accident
years.
Because new target is generally treated
as a new corporation that may adopt its
own accounting methods without regard
to the methods used by old target
2002–12 I.R.B.656March 25, 2002

(§1.338–1(b)), new target is not permit-
ted to apply old target’s experience as a
result of any section 846(e) election made
by old target under section 846. Thus, the
proposed regulations do not provide any
special rules under section 846.
Proposed Effective Dates
In general, these amendments are pro-
posed to be applicable when filed as final
regulations with theFederal Register.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in
Executive Order 12866. Therefore, a
regulatory assessment is not required. It is
hereby certified that these regulations do
not have a significant economic impact
on a substantial number of small entities.
This certification is based on the fact that
these regulations do not have a substantial
economic impact because they merely
provide guidance about the operation of
the tax law in the context of acquisitions
of insurance companies and businesses.
Moreover, they are expected to apply pre-
dominantly to transactions involving
larger businesses. Therefore, a Regulatory
Flexibility Analysis under the Regulatory
Flexibility Act (5 U.S.C. chapter 6) is not
required. Pursuant to section 7805(f) of
the Code, this notice of proposed rule-
making will be submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on its
impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written comments
(preferably a signed original and eight (8)
copies) and comments sent via the Inter-
net that are submitted (in the manner
described under the“ADDRESSES”por-
tion of this preamble) timely to the IRS.
The Department of the Treasury and the
IRS specifically request comments on the
clarity of the proposed regulations and
how they may be made easier to under-
stand. All comments will be available for
public inspection and copying.
A public hearing has been scheduled
for September 18, 2002, beginning at 10
a.m. in the auditorium, Internal Revenue
Building,1111Constitution Avenue, NW,
Washington, DC. All visitors must present
photo identification to enter the building.
Because of access restrictions, visitors
will not be admitted beyond the immedi-
ate entrance area more than 15 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 INFORMA-
TION CONTACT”portion of this pre-
amble.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing.
Persons who wish to present oral com-
ments at the hearing must submit written
or electronic comments and an outline of
the topics to be discussed and the time to
be devoted to each topic (preferably a
signed original and eight (8) copies) by
August 28, 2002.
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 dead-
line 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 Mark J. Weiss, Office of
Associate Chief Counsel (Corporate),
IRS. However, other personnel from the
Department of the Treasury and the IRS
participated in their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805***
Section 1.338–11 is also issued under
26 U.S.C. 338.***
Par.2.In§1.197–0, the entries in the
table of contents for§1.197–2, paragraph
(g)(5) are revised to read as follows:
§1.197–0 Table of contents.
This section lists the headings that
appear in§1.197–2.
§1.197–2 Amortization of goodwill and
certain other intangibles.
*****
(g)***
(5) Treatment of certain insurance con-
tracts.
(i) Determination of adjusted basis of
amortizable section 197 intangibles with
respect to insurance contracts under sec-
tion 197(f)(5).
(A) In general.
(B) Assumption reinsurance transactions.
(C) Amount paid or incurred by the rein-
surer for the insurance contracts.
(D) Amount required to be capitalized
under section 848 in connection with the
transaction.
(1) In general.
(2) Cross references and special rules.
(E) Example.
(ii) Application of loss disallowance rule
upon a disposition of an insurance con-
tract acquired in an assumption reinsur-
ance transaction.
(A) Disposition.
(1) In general.
(2) Treatment of indemnity reinsurance
transactions.
(B) Loss.
(C) Examples.
(iii) Effective Date.
*****
Par. 3. Section 1.197–2 is amended by
revising paragraph (g)(5) to read as
follows:
§1.197–2 Amortization of goodwill and
certain other intangibles.
*****
(g)***
(5)Treatment of certain insurance
contracts—(i)Determination of adjusted
basis of amortizable section 197 intan-
gibles with respect to insurance contracts
under section 197(f)(5)—(A)In general.
Section 197 generally applies to insur-
ance contracts acquired from another per-
son through an assumption reinsurance
transaction. Section 197(f)(5) determines
the basis of an amortizable section 197
March 25, 20026572002–12 I.R.B.

intangible with respect to insurance con-
tracts acquired in an assumption reinsur-
ance transaction. The basis of such an
intangible is the excess of the amount
paid or incurred by the acquirer (rein-
surer) for the relevant insurance contract
or group of insurance contracts (hereinaf-
ter insurance contracts) over the amount,
if any, required to be capitalized under
section 848 in connection with such trans-
action. For purposes of this paragraph
(g)(5), the terminsurance contracts
includes an annuity contract or group of
annuity contracts.
(B)Assumption reinsurance transac-
tions. An assumption reinsurance transac-
tion means an arrangement whereby the
reinsurer becomes solely liable to the
policyholders on insurance contracts
transferred by the ceding company. Thus,
the transfer of insurance contracts and
assumption of related liabilities deemed
to occur by reason of a section 338 elec-
tion for a target insurance company is
treated as an assumption reinsurance
transaction.
(C)Amount paid or incurred by the
reinsurer for the insurance contracts. The
amount paid or incurred to acquire insur-
ance contracts is—
(1) In a deemed asset sale resulting
from an election under section 338, the
amount of the AGUB allocable thereto
(see§§1.338–6 and 1.338–11(b)(2));
(2) In an applicable asset acquisition
within the meaning of section 1060, the
amount of the consideration allocable
thereto (see§§1.338–6, 1.338–11(b)(2),
and 1.1060–1(c)(5)); and
(3) In any other transaction, the excess
of the increase in the reinsurer’s tax
reserves resulting from the transaction
(computed in accordance with sections
807, 832(b)(4)(B), and 846) over the
value of the net assets received from the
ceding company in the transaction.
(D)Amount required to be capitalized
under section 848 in connection with the
transaction—(1)In general. With respect
to specified insurance contracts (as
defined in section 848(e)) acquired in an
assumption reinsurance transaction, the
amount required to be capitalized under
section 848 in connection with the acqui-
sition of the relevant contracts is deter-
mined by multiplying the reinsurer’s
specified policy acquisition expenses for
that taxable year by a fraction, the
numerator of which is the reinsurer’s ten-
tative positive capitalization amount for
the relevant acquired insurance contracts
and the denominator of which is the rein-
surer’s total tentative positive capitaliza-
tion amount for the taxable year with
regard to all specified insurance contracts.
For purposes of this paragraph, the tenta-
tive positive capitalization amount for the
relevant acquired insurance contracts is
determined by multiplying the net posi-
tive consideration received by the rein-
surer in the assumption reinsurance trans-
action for the insurance contracts by the
percentage factor applicable to the insur-
ance contracts under section 848(c). The
reinsurer’s total tentative positive capi-
talization amount for the taxable year is
the sum of—
(i) 1.75 percent of the net premiums
for the taxable year on annuity contracts;
(ii) 2.05 percent of the net premiums
for the taxable year on group life insur-
ance contracts; and
(iii) 7.7 percent of the net premiums
for the taxable year on specified insur-
ance contracts other than annuity or group
life insurance contracts.
(2)Cross references and special rules.
In general, for rules applicable to the
determination of specified policy acquisi-
tion expenses, net premiums, and net
positive consideration, see section 848(c)
and (d), and§1.848–2(a) and (f). How-
ever, the following special rules apply
solely for purposes of this paragraph
(g)(5)(i)(D)—
(i) Specified policy acquisition
expenses cannot be less than zero;
(ii) Net premiums for the taxable year
cannot be less than the sum of the posi-
tive consideration for all contracts
acquired by the reinsurer in assumption
reinsurance transactions during the appli-
cable taxable year;
(iii) In computing general deductions
(as defined in section 848(c)(2)), one-half
of the amount paid or incurred by the
reinsurer in the assumption reinsurance
transaction is treated as a section 197
intangible for which an amortization
deduction is allowed under section
197(a); and
(iv) Any reduction of specified policy
acquisition expenses pursuant to an elec-
tion under§1.848–2(i)(4) (relating to an
assumption reinsurance transaction with
an insolvent ceding company) is disre-
garded.
(E)Example. The following example
illustrates this paragraph (g)(5)(i):
Example. (i)Facts. On January 15, P purchases
all the stock of T, an insurance company, in a quali-
fied stock purchase and makes a section 338 elec-
tion for T. T is the issuer of a group life insurance
contract. Under§§1.338–6 and 1.338–11(b)(2), the
amount of AGUB allocable to the group contract is
$15. P and new T are calendar year taxpayers. New
T’s net premiums for the taxable year are $10,000,
which includes $500 net consideration with respect
to the group contract transferred in the transaction.
The remaining $9,500 of new T’s net premiums are
on life insurance contracts that are not group con-
tracts. New T’s specified policy acquisition
expenses for the taxable year, excluding the amorti-
zation of any section 197 intangible acquired in this
transaction, are $199.50.
(ii)Analysis. The deemed asset sale resulting
from the election under section 338 is an assump-
tion reinsurance transaction because new T becomes
solely liable to policyholders on contracts for which
old T formerly was liable. New T’s adjusted basis in
the group life insurance contract immediately fol-
lowing the assumption reinsurance transaction is
determined as follows. The amount paid or incurred
by new T in the assumption reinsurance transaction
with respect to the contract is $15. Solely for pur-
poses of computing the basis of new T’s amortizable
section 197 intangible under section 197(f)(5), new
T’s specified policy acquisition expenses for the
year of the transaction equal $200.00 ($199.50 of
other specified policy acquisition expenses for the
year + $0.50 of assumed amortization expense under
section 197, derived by treating one-half of the
amount paid or incurred for the contract as a section
197 intangible for which an amortization deduction
is allowed ($15.00 x 1/2 x 1/15)). To determine the
amount required to be capitalized under section 848
in connection with the acquisition of the group con-
tract, new T multiplies the $200 of specified policy
acquisition expenses for the taxable year by a frac-
tion, the numerator of which is $10.25 ($500 x
2.05%) and the denominator of which is $741.75
(($500 x 2.05%) + ($9,500 x 7.7%)). Thus, for pur-
poses of applying section 197(f)(5), new T is treated
as capitalizing $2.76 ($200 x $10.25÷$741.75)
under section 848 in connection with the acquisition
of the group contract. Accordingly, the adjusted
basis of the group contract under section 197(f)(5) is
$12.24, the excess of the amount paid or incurred by
the reinsurer for the group contract in the assump-
tion reinsurance transaction ($15) over the amount
treated as capitalized under section 848 in connec-
tion with the transaction ($2.76). New T amortizes
the $12.24 adjusted basis of the group contract over
15 years under section 197. New T deducts the
remaining $2.76 of the $15 of AGUB allocable to
the contract because it is reflected in amounts new
T capitalizes under section 848. In computing its
actual capitalization under section 848 for the tax-
able year, new T takes into account its actual amor-
tization under section 197 (i.e., $12.24 x 1/15 =
2002–12 I.R.B.658March 25, 2002

$0.82) rather than the $0.50 assumed for the purpose
of determining basis under section 197(f)(5).
(ii)Application of loss disallowance
rule upon a disposition of an insurance
contract acquired in an assumption rein-
surance transaction. The following rules
apply for purposes of applying the loss
disallowance rules of section 197(f)(1)(A)
to the disposition of a section 197(f)(5)
intangible. For this purpose, a section
197(f)(5) intangible is an amortizable sec-
tion 197 intangible the basis of which is
determined under section 197(f)(5).
(A)Disposition—(1)In general.A
disposition of a section 197 intangible is
any event as a result of which, absent sec-
tion 197, recovery of basis is otherwise
allowed for Federal income tax purposes.
(2)Treatment of indemnity reinsurance
transactions. The transfer through indem-
nity reinsurance of the right to the future
income from the insurance contracts to
which a section 197(f)(5) intangible
relates does not necessarily preclude the
recovery of basis by the ceding company,
provided that sufficient economic rights
relating to the reinsured contracts are
transferred to the reinsurer. However, the
ceding company is not permitted to
recover basis in an indemnity reinsurance
transaction if it has a right to experience
refunds reflecting a significant portion of
the future profits on the reinsured con-
tracts, or if it retains an option to reac-
quire a significant portion of the future
profits on the reinsured contracts through
the exercise of a recapture provision. In
addition, the ceding company is not per-
mitted to recover basis in an indemnity
reinsurance transaction if the reinsurer
assumes only a limited portion of the ced-
ing company’s risk relating to the rein-
sured contracts (e.g., excess loss reinsur-
ance).
(B)Loss. The loss, if any, recognized
by a taxpayer on the disposition of a sec-
tion 197(f)(5) intangible equals the
amount by which the taxpayer’s adjusted
basis in the section 197(f)(5) intangible
immediately prior to the disposition
exceeds the amount, if any, that the tax-
payer receives from another person for
the future income right from the insur-
ance contracts to which the section
197(f)(5) intangible relates. In determin-
ing the amount of the taxpayer’s loss on
the disposition of a section 197(f)(5)
intangible through a reinsurance transac-
tion, any effect of the transaction on the
amounts capitalized by the taxpayer as
specified policy acquisition expenses
under section 848 is disregarded.
(C)Examples. The following examples
illustrate the principles of this paragraph
(g)(5)(ii):
Example 1—(i)Facts. In a prior taxable year, as
a result of a section 338 election with respect to T,
new T was treated as purchasing all of old T’s insur-
ance contracts that were in force on the acquisition
date in an assumption reinsurance transaction.
Under§§1.338–6 and 1.338–11(b)(2), the amount
of AGUB allocable to the future income right from
the purchased insurance contracts was $15, net of
the amounts required to be capitalized under section
848 as a result of the assumption reinsurance trans-
action. At the beginning of the current taxable year,
as a result of amortization deductions allowed by
section 197(a), new T’s adjusted basis in the section
197(f)(5) intangible resulting from the assumption
reinsurance transaction is $12. During the current
taxable year, new T enters into an indemnity reinsur-
ance agreement with R, another insurance company,
in which R assumes 100 percent of the risk relating
to the insurance contracts to which the section
197(f)(5) intangible relates. In the indemnity rein-
surance transaction, R agrees to pay new T a ceding
commission of $10 in exchange for the future prof-
its on the underlying reinsured policies. Under the
indemnity reinsurance agreement, new T continues
to administer the reinsured policies, but transfers
investment assets equal to the required reserves for
the reinsured policies together with all future premi-
ums to R. The indemnity reinsurance agreement
does not contain an experience refund provision or
a provision allowing new T to terminate the reinsur-
ance agreement at its sole option. New T retains the
insurance licenses and other amortizable section 197
intangibles acquired in the deemed asset sale and
continues to underwrite and issue new insurance
contracts.
(ii)Analysis. The indemnity reinsurance agree-
ment constitutes a disposition of the section
197(f)(5) intangible because it involves the transfer
of sufficient economic rights attributable to the
insurance contracts to which the section 197(f)(5)
intangible relates such that recovery of basis is
allowed. For purposes of applying the loss disallow-
ance rules of section 197(f)(1) and paragraph (g) of
this section, new T’s loss is $2 (new T’s adjusted
basis in the section 197(f)(5) intangible immediately
prior to the disposition ($12) less the ceding com-
mission ($10)). Therefore, new T applies $10 of the
adjusted basis in the section 197(f)(5) intangible
against the amount received from R for the future
income right on the reinsured policies and increases
its basis in the amortizable section 197 intangibles
that it acquired and retained from the deemed asset
sale by $2, the amount of the disallowed loss. The
amount of new T’s disallowed loss under section
197(f)(1)(A) is determined without regard to the
effect of the indemnity reinsurance transaction on
the amounts capitalized by new T as specified
policy acquisition expenses under section 848.
Example 2—(i)Facts. Assume the same facts as
inExample 1, except that under the indemnity rein-
surance agreement R agrees to pay new T a ceding
commission of $5 with respect to the underlying
reinsured contracts. In addition, under the indemnity
reinsurance agreement, new T is entitled to an expe-
rience refund equal to any future profits on the rein-
sured contracts in excess of the ceding commission
plus an annual risk charge. New T also has a right
to recapture the business at any time after R has
recovered an amount equal to the ceding commis-
sion.
(ii)Analysis. The indemnity reinsurance agree-
ment between new T and R does not represent a
disposition because it does not involve the transfer
of sufficient economic rights with respect to the
future income on the reinsured contracts. Therefore,
new T may not recover its basis in the section
197(f)(5) intangible to which the contracts relate
and must continue to amortize ratably the adjusted
basis of the section 197(f)(5) intangible over the
remainder of the 15-year recovery period and cannot
apply any portion of this adjusted basis to offset the
ceding commission received from R in the indem-
nity reinsurance transaction.
(iii)Effective date. This paragraph
(g)(5) is applicable to acquisitions and
dispositions on or after the date it is filed
as a final regulation with theFederal
Register. For rules applicable to acquisi-
tions and dispositions on or before that
date, see§1.197–2 in effect prior to that
date (see 26 CFR part 1, revised April 1,
2001).
*****
Par. 4. Section 1.338–0 is amended by
adding entries to the outline of topics for
§1.338–11 to read as follows:
§1.338–0 Outline of topics.
*****
§1.338–11 Effect of section 338 election
with respect to insurance company
target.
(a) In general.
(b) Computation of ADSP and AGUB.
(1) Reserves as an assumed liability.
(2) Allocation of AGUB and ADSP to
specific insurance contracts.
(c) Application of assumption reinsurance
principles.
(1) In general.
(2) Reinsurance premium amount.
(3) Ceding commission.
(4) Examples.
(d) Reserve increases by new target after
the deemed asset sale.
(1) In general.
(2) Exceptions.
(3) Increases in unpaid loss reserves.
(4) Increases in other reserves.
(5) DAC characteristics of the premium
resulting from an adjustment.
March 25, 20026592002–12 I.R.B.

(6) Subsequent dispositions of amortiz-
able section 197 intangibles with respect
to insurance contracts.
(7) Examples.
(e) Effect of section 338 election on old
target’s capitalization amounts under sec-
tion 848.
(1) Determination of net consideration for
specified insurance contracts.
(2) Determination of capitalization
amount.
(3) Section 381 transactions.
(f) Effect of section 338 election on poli-
cyholders surplus account.
(g) Effect of section 338 election on sec-
tion 847 special estimated tax payments.
(h) Effective date.
Par. 5. Section 1.338–1 is amended by
revising the last two sentences of para-
graph (a)(2) and adding a sentence before
the last sentence of paragraph (a)(3), to
read as follows:
§1.338–1 General principles; status of
old target and new target.
(a)***
(2)***Forexample, if the target is
an insurance company for which a section
338 election is made, the deemed asset
sale results in an assumption reinsurance
transaction with respect to the insurance
contracts deemed transferred from old tar-
get to new target. See, generally,§1.817–
4(d), and for specific rules regarding
transactions to which section 338 applies,
§1.338–11.
(3)***Section 1.338–11 provides
special rules for insurance company
targets.***
*****
Par. 6. Section 1.338–11 is added to
read as follows:
§1.338–11 Effect of section 338 election
with respect to insurance company
target.
(a)In general. This section provides
rules that apply where an election under
section 338 is made with respect to a tar-
get that is an insurance company. The
rules in this section apply in addition to
those generally applicable upon the mak-
ing of an election under section 338. In
the case of a conflict between the provi-
sions of this section and other provisions
of the Internal Revenue Code or regula-
tions, the rules set forth in this section
determine the Federal income tax treat-
ment of the parties and the transaction
where a section 338 election is made with
respect to an insurance company target.
(b)ComputationofADSPand
AGUB—(1)Reserves as an assumed
liability. For purposes of computing
ADSP and AGUB under§§1.338–4 and
1.338–5, old target’s reserves for Federal
income tax purposes with respect to any
insurance, annuity, and reinsurance con-
tracts deemed sold by old target to new
target in the deemed asset sale will be
treated as liabilities of old target assumed
by new target. Such reserves are those
properly taken into account by old target
with respect to such contracts at the close
of the taxable year ending on the acquisi-
tion date (before giving effect to the
deemed asset sale and assumption rein-
surance transaction). Such reserves are
hereinafter referred to as old target’s tax
reserves.
(2)Allocation of AGUB and ADSP to
specific insurance contracts. For purposes
of allocating AGUB and ADSP pursuant
to§§1.338–6 and 1.338–7, the fair mar-
ket value of a specific insurance, reinsur-
ance or annuity contract or group of
insurance, reinsurance or annuity con-
tracts (hereinafter insurance contracts) is
the amount of the ceding commission a
willing reinsurer would pay a willing ced-
ing company in an arm’s length transac-
tion for the reinsurance of the contracts if
the gross reinsurance premium for the
contracts were equal to old target’s tax
reserves for the contracts. See§1.197–
2(g)(5) for rules concerning the treatment
of the amount allocable to insurance con-
tracts acquired in the deemed asset sale.
(c)Application of assumption reinsur-
ance principles—(1)In general.Ifatar-
get is an insurance company, the deemed
sale of insurance contracts is treated for
Federal income tax purposes as an
assumption reinsurance transaction
between old target, as the reinsured or
ceding company, and new target, as the
reinsurer or acquiring company, at the
close of the acquisition date. The Federal
income tax treatment of the assumption
reinsurance transaction is determined
under the applicable provisions of sub-
chapter L, chapter 1, subtitle A of the
Internal Revenue Code, as modified by
the rules set forth in this section.
(2)Reinsurance premium amount.In
general, the gross amount of the premium
paid by old target in the assumption rein-
surance transaction is equal to the amount
of old target’s tax reserves with respect to
the contracts deemed transferred from old
target to new target, as computed in para-
graph (b)(1) of this section. Thus, old tar-
get is entitled to a deduction for this
amount, and includes in income the ced-
ing commission, if any, deemed received
from new target. New target is deemed to
receive a reinsurance premium from old
target in the amount of the reserves for
the contracts and to pay old target the
amount of any ceding commission, as
computed in paragraph (c)(3) of this sec-
tion.
(3)Ceding commission. Old target is
deemed to receive a ceding commission
in an amount equal to the amount of
ADSP allocated to the insurance contracts
transferred in the assumption reinsurance
transaction, as determined under
§§1.338–6 and 1.338–7 and paragraph
(b) of this section. New target is deemed
to pay a ceding commission in an amount
equal to the amount of AGUB allocated
to the insurance contracts acquired in the
assumption reinsurance transaction, as
determined under§§1.338–6 and
1.338–7 and paragraph (b) of this section.
(4)Examples. The following examples
illustrate this paragraph (c):
Example 1—(i)Facts. On January 1, 2003, T, an
insurance company, has the following assets with
the following fair market values: $10 cash, $30 of
securities, $10 of equipment, a life insurance con-
tract having a value, under paragraph (b)(2) of this
section, of $17, and goodwill and going concern
value. T has tax reserves of $50 and no other liabili-
ties. On January 1, 2003, P purchases all of the
stock of T for $16 and makes a section 338 election
for T. For purposes of the capitalization require-
ments of section 848, assume new T has $20 of
general deductions in its first taxable year ending on
December 31, 2003, and earns no other premiums
during the year.
(ii)Analysis. (A) For Federal income tax pur-
poses, the section 338 election results in a deemed
sale of the assets of old T to new T. Old T’s ADSP
is $66 ($16 amount realized for the T stock plus $50
liabilities). New T’s AGUB also is $66 ($16 basis
for the T stock plus $50 liabilities). See paragraph
(b)(1) of this section. Each of the AGUB and ADSP
is allocated under the residual method of§1.338–6
to determine the purchase or sale price of each asset
transferred. Each of the AGUB and ADSP is allo-
cated as follows: $10 to cash (Class I), $30 to the
securities (Class II), $10 to equipment (Class V),
$16 to the life insurance contract (Class VI), and $0
to goodwill and going concern value (Class VII).
2002–12 I.R.B.660March 25, 2002

(B) Under section 1001, old T’s amount realized
with respect to the securities is $30 and with respect
to the equipment is $10. As a result of the deemed
asset sale, there is an assumption reinsurance trans-
action between old T (as ceding company) and new
T (as reinsurer) at the close of the acquisition date
with respect to the life insurance contract issued by
old T. See paragraph (c)(1) of this section. Although
the assumption reinsurance transaction results in a
$50 decrease in old T’s reserves, which is taxable
income to old T, the reinsurance premium paid by
old T is deductible by old T. Under paragraph (c)(2)
of this section, old T is deemed to pay a reinsurance
premium equal to the reserve for the life insurance
contract immediately before the deemed asset sale
($50) and is deemed to receive a ceding commission
from new T. Under paragraph (c)(3) of this section,
the portion of the ADSP allocated to the life insur-
ance contract is $16; thus, the ceding commission is
$16. Old T, therefore, is deemed to pay new T a
reinsurance premium of $34 ($50 - $16 = $34). Old
T also has $34 of net negative consideration for
purposes of section 848. See paragraph (e) of this
section for rules relating to the effect of a section
338 election on the capitalization of amounts under
section 848.
(C) New T obtains an initial basis of $30 in the
securities and $10 in the equipment. New T is
deemed to receive a reinsurance premium from old
T in an amount equal to the $50 of reserves for the
life insurance contract and to pay old T a $16 ced-
ing commission for the contract. See paragraphs
(c)(2) and (3) of this section. Accordingly, new T
includes $50 of premium in income and deducts $50
for its increase in reserves. For purposes of section
848, new T has $34 of net positive consideration
with regard to the deemed assumption reinsurance
transaction. Because the only contract involved in
the deemed assumption reinsurance transaction is a
life insurance contract, new T must capitalize $2.62
($34 x 7.7% = $2.62) under section 848. New T will
amortize the $2.62 as provided under section 848.
New T’s adjusted basis in the life insurance con-
tract, which is an amortizable section 197 intan-
gible, is $13.38, the excess of the $16 ceding com-
mission over the $2.62 capitalized under section
848. See section 197 and§1.197–2(g)(5). New T
deducts the $2.62 of the ceding commission that is
not amortizable under section 197 because it is
reflected in the amount capitalized under section
848 and also deducts the remaining $17.38 of its
general deductions.
Example 2—(i)Facts. Assume the same facts as
inExample 1, except the life insurance contract has
a value of $0. Thus, to reinsure the contract in an
arm’s length transaction, T would have to pay the
reinsurer a reinsurance premium in excess of T’s
$50 of tax reserves for the contract.
(ii)Analysis. (A) For Federal income tax pur-
poses, the section 338 election results in a deemed
sale of the assets of old T to new T. Old T’s ADSP
is $66 ($16 amount realized for the T stock plus $50
liabilities). New T’s AGUB also is $66 ($16 basis
for the T stock plus $50 liabilities). See paragraph
(b)(1) of this section. Each of the AGUB and ADSP
is allocated under the residual method of§1.338–6
to determine the purchase or sale price of each asset
transferred. Each of the AGUB and ADSP is allo-
cated as follows: $10 to cash (Class I), $30 to the
securities (Class II), $10 to the equipment (Class V),
$0 to the life insurance contract (Class VI), and $16
to goodwill and going concern value (Class VII).
(B) Under section 1001, old T’s amount realized
with respect to the securities is $30 and with respect
to the equipment is $10. As a result of the deemed
asset sale, there is an assumption reinsurance trans-
action between old T (as ceding company) and new
T (as reinsurer) at the close of the acquisition date
with respect to the life insurance contract issued by
old T. See paragraph (c)(1) of this section. Although
the assumption reinsurance transaction results in a
$50 decrease in old T’s reserves, which is taxable
income to old T, the reinsurance premium deemed
paid by old T to new T is deductible by old T. Under
paragraph (c)(2) of this section, old T is deemed to
pay a reinsurance premium equal to the reserve for
the life insurance contract immediately before the
deemed asset sale ($50), and is deemed to receive
from new T a ceding commission equal to the
amount of AGUB allocated to the life insurance
contract ($0), as provided in paragraph (c)(3) of this
section. Old T also has $50 of net negative consid-
eration for purposes of section 848. See paragraph
(e) of this section for rules relating to the effect of a
section 338 election on capitalization amounts under
section 848.
(C) New T obtains an initial basis of $30 in the
securities and $10 in the equipment. New T is
deemed to receive a reinsurance premium from old
T in an amount equal to the $50 of reserves for the
life insurance contract. Accordingly, new T includes
$50 of premium in income and deducts $50 for its
increase in reserves. For purposes of section 848,
new T has $50 of net positive consideration with
respect to the deemed assumption reinsurance trans-
action. Because the only contract involved in the
assumption reinsurance transaction is a life insur-
ance contract, new T must capitalize $3.85 ($50 x
7.7%) under section 848 from the transaction and
deducts the remaining $16.15 of its general deduc-
tions. Because new T allocates $0 of the AGUB to
the insurance contract, no amount is amortizable
under section 197 with respect to the insurance con-
tract. See paragraph (d) of this section for rules on
adjustments required if, before the end of 2006, new
T increases its reserves for, or reinsures at a loss, the
acquired life insurance contract.
(d)Reserve increases by new target
after the deemed asset sale—(1)In gen-
eral. If, during any of its first four taxable
years, new target increases its reserves for
any insurance contracts acquired in the
deemed asset sale (acquired contracts),
new target shall be treated as receiving in
that year the sum of the positive amounts,
if any, described in paragraphs (d)(3) and
(4) of this section as an additional pre-
mium for the acquired insurance contracts
in the assumption reinsurance transaction
(described in paragraph (c)(1) of this sec-
tion) that occurred in connection with the
deemed asset sale and will include such
amount in income, and such amount will
increase AGUB. See§§1.338–5(b)(2)(ii)
and 1.338–7. Old target makes no adjust-
ments to ADSP under this paragraph (d).
(2)Exceptions. New target is not
required to take into account reserve
increases under this paragraph (d)—
(i) To the extent such increases occur
while it is under state receivership; or
(ii) To the extent its deduction for the
reserve increase is spread under section
807(f) over the 10 succeeding taxable
years.
(3)Increases in unpaid loss reserves.
The amount of reserve increases, if any,
taken into account under this paragraph
(d) with respect to unpaid losses on
acquired contracts is computed using the
formula A/B x (C - [D + E]) where—
(i) A equals old target’s discounted
unpaid losses (determined under section
846) used to compute the tax reserves
included in AGUB under paragraph (b)(1)
of this section;
(ii) B equals old target’s undiscounted
unpaid losses (as defined by section
846(b)(1)) used to compute the tax
reserves included in AGUB under para-
graph (b)(1) of this section;
(iii) C equals new target’s undis-
counted unpaid losses (as defined by sec-
tion 846(b)(1)) at the end of the taxable
year that are attributable to losses
incurred by old target on or before the
acquisition date;
(iv) D (which may be a negative num-
ber) equals the amount determined by—
(A) Multiplying old target’s undis-
counted unpaid losses (as defined by Sec-
tion 846(b)(1)) by 1.02 for new target’s
first taxable year, 1.04 for new target’s
second taxable year, 1.06 for new target’s
third taxable year, or 1.08 for new target’s
fourth taxable year; and
(B) Subtracting the cumulative amount
of losses, loss adjustment expenses, and
reinsurance premiums paid by new target
through the end of the taxable year with
regard to losses incurred by old target on
or before the acquisition date; and
(v) E equals the cumulative amount of
the undiscounted unpaid losses taken into
account in prior taxable years by new tar-
get as adjustments to reserves with regard
to losses incurred by old target on or
before the acquisition date.
(4)Increases in other reserves. The
amount of the increases in reserves other
than unpaid loss reserves is taken into
account under this paragraph (d) to the
extent of any net increase (in the aggre-
gate) in reserves for acquired contracts
March 25, 20026612002–12 I.R.B.

due to changes in methodology or
assumptions used to compute the reserves
for those contracts (including the adop-
tion by new target of a methodology or
assumptions different from those used by
old target).
(5)DAC characteristics of the pre-
mium resulting from an adjustment. For
purposes of applying section 848, the
additional premium arising from the
adjustment under this paragraph (d) is
allocated among each category of speci-
fied insurance contracts under section
848(c)(1) (and contracts that are not
specified insurance contracts) as
follows—
(i) For each category of specified
insurance contracts (and contracts that are
not specified insurance contracts), by tak-
ing the sum of that category’s contribu-
tion to the amounts in paragraphs (d)(3)
and (4) of this section; and
(ii) Dividing the additional premium
described in paragraph (d)(1) of this sec-
tion in proportion to the positive sums for
each category from paragraph (d)(5)(i) of
this section.
(6)Subsequent dispositions of amortiz-
able section 197 intangibles with respect
to insurance contracts. For rules regard-
ing subsequent dispositions of contracts
acquired in the deemed asset sale, see
also§1.197–2(g)(5)(ii).
(7)Examples. The following examples
illustrate this paragraph (d):
Example 1—(i)Facts. On January 1, 2003, P
purchases all of the stock of T, a non-life insurance
company, for $120 and makes a section 338 election
for T. On the acquisition date, old T has total reserve
liabilities under state law of $725, consisting of
undiscounted unpaid losses of $625 and unearned
premiums of $100. Old T’s tax reserves on the
acquisition date are $580, which consist of dis-
counted unpaid losses (as defined in section 846) of
$500 and unearned premiums (as computed under
section 832(b)(4)(B)) of $80. Old T has assets in
Classes I through V with a fair market value of
$700. As of the beginning of January 1, 2003, old T
also has Class VI assets with a value of $75, con-
sisting of the future profit stream on certain insur-
ance contracts. During 2003, new T makes loss
adjustment expense payments of $200 with respect
to the unpaid losses incurred by old T prior to the
acquisition date. As of December 31, 2003, new T
reports undiscounted unpaid losses of $435 attribut-
able to losses incurred prior to the acquisition date.
The related amount of discounted losses (as defined
in section 846) for those losses is $360.
(ii)Computation and allocation of AGUB. Pur-
suant to§1.338–5 and paragraph (b)(1) of this sec-
tion, as of the acquisition date, AGUB is $700,
reflecting the sum of the amount paid for old T’s
stock ($120) and the tax reserves assumed by new T
in the transaction ($580). Under§1.338–6, new T
allocates the AGUB to each of the assets in Class I
through V up to their fair market value. No AGUB
is available for the assets in Class VI, even though
the future profit stream on old T’s insurance con-
tracts has a fair market value of $75 on the acquisi-
tion date.
(iii)Adjustments for increases in reserves with
respect to unpaid losses. Pursuant to paragraph (d)
of this section, new T must determine whether any
amounts by which it increased its unpaid loss
reserves will be treated as an additional premium.
New T applies the formula of paragraph (d)(3) of
this section, where A equals $500, B equals $625, C
equals $435, D equals $437.50 [($625 x 1.02) -
$200], and E equals $0. Under the formula, new T
is not subject to an adjustment for 2003 because
new T’s undiscounted unpaid losses at the end of the
taxable year ($435) do not exceed $437.50, the
adjusted amount of undiscounted unpaid losses used
in computing AGUB reduced by loss payments
through the end of the taxable year [($625 x 1.02) -
$200].
Example 2—(i)Facts. Assume the same facts as
inExample 1. Further assume that during 2004 new
T deducts total loss and expense payments of $375
with respect to losses incurred by old T prior to the
acquisition date. On December 31, 2004, new T
reports undiscounted unpaid losses of $150 with
respect to losses incurred prior to the acquisition
date. The related amount of discounted unpaid
losses (as defined in section 846) for those losses is
$125.
(ii)Analysis. New T must determine whether
any amounts by which it increased its unpaid loss
reserves during 2004 will be treated as an additional
premium under paragraph (d) of this section. New T
applies the formula of paragraph (d)(3) of this sec-
tion, where A equals $500, B equals $625, C equals
$150, D equals $75 [($625 x 1.04) - $575], and E
equals $0. Pursuant to paragraph (d) of this section,
new T must recognize additional premium income
in 2004 of $60.00 (($500/$625) x ($150 - [$75+$0])
to offset the section 832(b)(5) deduction for
amounts by which it increased those reserves and
must adjust the amount of AGUB allocable to
acquired insurance contracts (Class VI assets) to
reflect the increase in AGUB attributable to the
$60.00 adjustment for increases in reserves. See sec-
tion 197 and the regulations thereunder for the treat-
ment of the amounts allocable to the insurance con-
tracts.
Example 3—(i)Facts. Assume the same facts as
inExample 2. Further assume that on January 1,
2005, new T reinsures the outstanding liability with
respect to losses incurred by old T prior to the
acquisition date through a portfolio reinsurance
transaction with R, another non-life insurance com-
pany. In this transaction, R agrees to assume any
remaining liability with respect to losses incurred
prior to the acquisition date in exchange for a rein-
surance premium of $175. Accordingly, as of
December 31, 2005, new T reports no undiscounted
unpaid losses with respect to losses incurred by old
T prior to the acquisition date.
(ii)Analysis. New T must determine whether
any amounts by which it increased its unpaid loss
reserves will be treated as an additional premium
under paragraph (d) of this section. New T applies
the formula of paragraph (d)(3) of the section,
where A equals $500, B equals $625, C equals $0,
D equals -$87.50 [($625 x 1.06) - ($575 + $175) =
-$87.50], and E equals $75. New T must include
$10.00 (($500/$625) x ($0 - [-$87.50 + $75]) in
gross income for 2005 to offset the section
832(b)(5) deduction for increases to its unpaid loss
reserve and must increase the AGUB allocable to
the acquired insurance contracts (Class VI assets) by
this amount. See section 197 and the regulations
thereunder for the treatment of the amounts allo-
cable to the insurance contracts.
(e)Effect of section 338 election on
old target’s capitalization amounts under
section 848—(1)Determination of net
consideration for specified insurance
contracts. For purposes of applying sec-
tion 848 and§1.848–2(f) to the deemed
assumption reinsurance transaction, old
target’s net consideration (either positive
or negative) with respect to each category
of specified insurance contracts is an
amount equal to—
(i) The allocable portion of the ceding
commission (if any) relating to contracts
in that category; less
(ii) The amount by which old target’s
tax reserves for contracts in that category
has been reduced as a result of the
deemed assumption reinsurance transac-
tion.
(2)Determination of capitalization
amount. Except as provided in
§1.381(c)(22)–1(b)(13)—
(i) If, after the deemed asset sale, old
target has an amount otherwise required
to be capitalized under section 848 for the
taxable year or an unamortized balance of
specified policy acquisition expenses
from prior taxable years, then old target
deducts such remaining amount or unam-
ortized balance as an expense incurred in
the taxable year that includes the acquisi-
tion date; and
(ii) If, after the deemed asset sale, the
negative capitalization amount resulting
from the reinsurance transaction exceeds
the amount that old target can deduct
under section 848(f)(1), then old target’s
capitalization amount is treated as zero at
the close of the taxable year that includes
the acquisition date.
(3)Section 381 transactions. For
transactions described in section 381, see
§1.381(c)(22)–1(b)(13).
(f)Effect of section 338 election on
policyholders surplus account. Except as
specifically provided in§1.381(c)(22)–
1(b)(7), the deemed asset sale effects a
distribution of old target’s policyholders
surplus account to the extent the
2002–12 I.R.B.662March 25, 2002

grossed-up amount realized on the sale to
the purchasing corporation of the pur-
chasing corporation’s recently purchased
target stock (as defined in§1.338–4(c))
exceeds old target’s shareholders surplus
account under section 815(c).
(g)Effect of section 338 election on
section 847 special estimated tax pay-
ments. If old target had elected to claim
an additional deduction under section 847
for taxable years prior to and including
the acquisition date, the amount remain-
ing in old target’s special loss discount
account under section 847(3) must be
reduced to the extent it relates to con-
tracts transferred to new target and the
amount of such reduction must be
included in old target’s gross income for
the taxable year that includes the deemed
assumption reinsurance transaction. Old
target may apply the balance of its special
estimated tax account as a credit against
any tax resulting from such inclusion in
gross income. Any special estimated tax
payments remaining after this credit are
voided and, therefore, are not available
for credit or refund. Pursuant to section
847(1), new target is permitted to claim a
section 847 deduction with respect to
losses incurred prior to the deemed asset
sale, subject to the general requirement
that new target makes timely special esti-
mated tax payments equal to the tax ben-
efit resulting from this deduction. See
§1.381(c)(22)–1(c)(14) regarding the car-
ryover of the special loss discount
account attributable to contracts trans-
ferred in a section 381 transaction.
(h)Effective date. This section applies
to a section 338 election for a target if the
acquisition date is on or after the date this
section is filed as a final regulation with
theFederal Register.
Par. 7. Section 1.381(c)(22)–1is
amended by:
1. Adding a sentence to the end of
paragraph (b)(7)(i).
2. Redesignating existing (b)(7)(ii) as
paragraph (b)(7)(iv) and adding new
paragraphs (b)(7)(ii) and (b)(7)(iii).
3. Adding paragraphs (b)(7)(v), and
(b)(13) and (b)(14).
The revisions read as follows:
§1.381(c)(22)–1 Successor life
insurance company.
*****
(b)***
(7)(i)***However, any amounts
attributable to money or other property
distributed to a person other than the
acquiring corporation under section
381(a) (e.g., boot) shall be treated as a
distribution under section 815.
(ii) Notwithstanding paragraph
(b)(7)(i) of this section, if the transferor
corporation transfers less than 50 percent
of its insurance business to the acquiring
corporation, then the acquiring corpora-
tion shall succeed to a ratable portion of
the dollar balances in the transferor’s
shareholders surplus account, policyhold-
ers surplus account, and other accounts.
The percentage of such accounts to which
the acquiring corporation succeeds is
determined by the ratio of the transferor’s
insurance reserves for the contracts trans-
ferred to the acquiring corporation, as
maintained under section 816(b), to the
transferor’s reserves for all of its con-
tracts maintained under section 816(b)
immediately before the earlier of the dis-
tribution or transfer or the adoption of the
plan of liquidation or reorganization. For
transactions in which the transferor liqui-
dates pursuant to an election under sec-
tion 338(h)(10), see§1.338–11(f) for the
treatment of its remaining policyholders
surplus account. For all other transactions
subject to this paragraph, the transferor
must take into account as income its
remaining policyholders surplus account
to the extent the fair market value of its
assets (net of liabilities) transferred to the
acquiring corporation or to the transfer-
or’s shareholders pursuant to the plan of
liquidation or reorganization exceeds the
transferor’s remaining shareholders sur-
plus account.
(iii) If, pursuant to a plan in existence
at the time of the liquidation or reorgani-
zation, the acquiring corporation transfers
any insurance or annuity contract it
received in the liquidation or reorganiza-
tion to another person, then, for purposes
of paragraph (b)(7)(ii) of this section, that
contract shall be deemed to have been
transferred by the transferor to that other
person after the adoption of the plan of
liquidation or reorganization. If the trans-
feror is an old target within the meaning
of§1.338(h)(10)–1(d)(2), any transfer by
the acquiring corporation to the purchas-
ing corporation (as defined in§1.338–
2(c)(11)) or to any person related to the
purchasing corporation within the mean-
ing of section 197(f)(9)(C) within two
years of the transfer described in section
381(a) will be presumed to have been
pursuant to a plan in existence at the time
of the liquidation or reorganization.
*****
(v) The provisions of this paragraph
(b)(7) are illustrated by the following
examples:
Example 1. P buys the stock of insurance com-
pany target, T, from S for $16, and P and S make a
section 338(h)(10) election for T. T transfers no
insurance contracts to S, or any related party, in
connection with the transaction. Further, assume that
T had $10 in its policyholders surplus account and
no balance in its shareholders surplus account or
other accounts. Immediately before the deemed
asset sale, old T is required to include as ordinary
income the $10 in the policyholders surplus account.
Example 2. Assume the same facts as in
Example 1, except that T holds a block of life insur-
ance contracts P does not wish to acquire, and,
immediately before the sale of T stock, S causes T
to distribute the unwanted block of insurance con-
tracts to S. Further, assume that S is an insurance
company, that the distribution of contracts is treated
as pursuant to a section 332 liquidation, and that old
T’s tax reserves with respect to the distributed con-
tracts represent one-tenth of old T’s tax reserves
with respect to all of its life insurance contracts.
Because T transfers less than 50 percent of its life
insurance business to S pursuant to a section 332
liquidation, S succeeds to a ratable portion of old
T’s policyholders surplus account ($1), and old T
includes as ordinary income the remaining $9 of
that account.
Example 3. Assume the same facts as in
Example 2, except that 14 months after the deemed
asset sale, S and X, a person related to new T under
section 197(f)(9)(C), engage in an indemnity rein-
surance transaction involving the contracts trans-
ferred to S from old T. Because X is related to the
purchasing corporation (P) under section
197(f)(9)(C), and X receives contracts from the
acquiring corporation (S) that S acquired from old T
within two years of the transfer from old T to S, the
contracts are presumed to have been transferred pur-
suant to a plan in existence at the time of old T’s
liquidation. If S cannot establish otherwise, old T is
treated as having distributed the remainder of its
policyholders surplus account. In that case, in the
taxable year of the indemnity reinsurance transac-
tion, S takes into account as ordinary income the
portion of old T’s accounts ($9) that old T or S has
not previously taken into account as income.
*****
(13) The transferor’s unamortized
policy acquisition expenses or positive or
negative capitalization requirements on
its specified insurance contracts.
(14) The special loss discount account,
provided, however, that the acquiring cor-
poration will succeed to the special loss
March 25, 20026632002–12 I.R.B.

discount account only to the extent that it
is attributable to the portion of the transf-
eror’s insurance business acquired by the
acquiring corporation in the section 381
transaction.
Par. 8. Section 1.1060–1 is amended
by:
1. Revising paragraph (a)(2).
2. Adding entries in paragraph (a)(3) in
the outline of topics for paragraphs (b)(9)
and (c)(5).
3. Adding new paragraphs (b)(9) and
(c)(5).
The revision and addition read as fol-
lows:
§1.1060–1 Special allocation rules for
certain asset acquisitions.
(a)***
(2)Effective dates. In general, the pro-
visions of this section apply to any asset
acquisition occurring after March 15,
2001. However, paragraphs (b)(9) and
(c)(5) of this section apply only to appli-
cable asset acquisitions occurring on or
after the date they are filed as final regu-
lations with theFederal Register. For
rules applicable to asset acquisitions on or
before March 15, 2001, see§1.1060–1T
in effect prior to March 16, 2001 (see 26
CFR part 1 revised April 1, 2000).
(3)***
*****
(b)***
(9) Insurance business.
(c)***
(5) Insurance business.
*****
(b)***
(9)Insurance business. The mere rein-
surance of insurance contracts by an
insurance company is not an applicable
asset acquisition, even if it enables the
reinsurer to establish a customer relation-
ship with the owners of the reinsured con-
tracts. However, a transfer of an insur-
ance business is an applicable asset
acquisition if the purchaser acquires sig-
nificant business assets, in addition to
insurance contracts, to which goodwill
and going concern value could attach. For
rules regarding the treatment of an appli-
cable asset acquisition of an insurance
business, see paragraph (c)(5) of this sec-
tion.
(c)***
(5)Insurance business. If the trade or
business transferred is an insurance busi-
ness, the rules of this paragraph (c) are
modified by the principles of§1.338–
11(a) through (d). However, in transac-
tions governed by section 1060, such
principles apply even if the transfer of the
trade or business is effected in whole or
in part through indemnity reinsurance
rather than assumption reinsurance, and,
with respect to the insurer or reinsurer, an
insurance contract (including an annuity
or reinsurance contract) is a Class VI
asset regardless of whether it is a section
197 intangible. In addition, the principles
of§1.338–11(e) through (g) apply if the
transfer occurs in connection with the
complete liquidation of the transferor.
*****
Robert E. Wenzel,
Deputy Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on
March 7, 2002, 8:45 a.m., and published in the issue
of the Federal Register for March 8, 2002, 67 F.R.
10640)
Foundations Status of Certain
Organizations
Announcement 2002–32
The following organizations have
failed to establish or have been unable to
maintain their status as public charities or
as operating foundations. Accordingly,
grantors and contributors may not, after
this date, rely on previous rulings or des-
ignations in the Cumulative List of Orga-
nizations (Publication 78), or on the pre-
sumption arising from the filing of
notices under section 508(b) of the Code.
This listing doesnotindicate that the
organizations have lost their status as
organizations described in section
501(c)(3), eligible to receive deductible
contributions.
Former Public Charities. The follow-
ing organizations (which have been
treated as organizations that are not pri-
vate foundations described in section
509(a) of the Code) are now classified as
private foundations:
Academy of Architecture Arts &
Sciences, Beverly Hills, CA
Aleh-The Society for the Advancement
of Science, Inc., Beverly Hills, CA
Alliance for the Advancement of Peoples
of African Descent,
New Rochelle, NY
Alliance Foundation, Playa Del Ray, CA
Ama Deum, Sherman Oaks, CA
American Coalition of Kidney Patients,
Inc., La Puente, CA
American Foundation Against Cruelty to
Equines Aface, Malibu, CA
American Friends of Chilean Healthcare,
San Francisco, CA
American Mushroom Institute
Community Awareness Scholarship,
Avondale, PA
Anthroposophical Arts Council of
Vermont, Shelburne, VT
Asian American Physicians Association,
Rolling Hills Est, CA
Barbour County Rescue Mission, Inc.,
Clayton, AL
Benedicto Pimentel Verceles,
Lomita, CA
Bolo Productions, Inc., Lancaster, CA
Cameron Silver Foundation,
Los Angeles, CA
Center for Arts Science and Technology,
Hacienda Heights, CA
Center for Informed Politics,
Palo Alto, CA
Center for Peace and Unity,
San Francisco, CA
Central Synagogue Preservation, Inc.,
New York, NY
Chicago Association of Resident
Management Corporation, Chicago, IL
Christmas in April-Calcasieu Area, Inc.,
Sulphur, LA
Coalition of Asian Pacifics in
Entertainment Foundation, Inc.,
West Hollywood, CA
Community Services Operation Need
Voice, Sacramento, CA
Corporation for Better Housing,
Glendale, CA
Cutler Non-Profit Housing Corp.,
Winter Park, FL
C.W.E., Inc., Charlotte, NC
Danzarte-Centro De Danza Y Arte
Folkloricos Del Sudoeste, Inc.,
Tucson, AZ
D.C. Outfitters, Inc., Greenbelt, MD
Diamond Head Studios, Inc.,
Honolulu, HI
Eagle-Pleasant View PTO, Inc.,
Zionsville, IN
2002–12 I.R.B.664March 25, 2002

Educational Development Network, Inc.,
Riverside, CA
Elim Restoration Center, Oak Park, MI
Energy for the Future, Sacramento, CA
Escondido Athletic Booster Foundation,
Escondido, CA
Esther Program, Pasadena, CA
Eye Birth Defects Research Foundation,
Inc., Los Angeles, CA
Faith Housing Corporation,
Los Angeles, CA
Family Resource Foundation, Inc.,
Palmdale, CA
Florida Criminal Justice Executive
Institute Association, Inc.,
Cudjoe Key, FL
Florida Dance Conservatory Ballet Co.,
Inc., Lake Park, FL
Foundation for Nicaraguan Seminarians,
Orange, CA
Foundation for the Advancement of
Manufacturing Education,
Fullerton, CA
Friars Point Youth Awareness Program,
Friars Point, MS
Friends of Adult Literacy Services, Inc.,
Santee, CA
Friends of Education, Inc.,
New York, NY
Golden West Opera Theater,
Los Angeles, CA
Great St. Anthony Red Sea Foundation,
Temple City, CA
Green Star Kauai, Lihue, HI
Gym-Rhythmics, Inc., Cicero, NY
Hana Laulima Lahui O Kau,
Naalehu, HI
Hawaii Recreation and Park Association,
Honolulu, HI
Helkeinu Foundation, Beverly Hills, CA
Helping Friend, Inc., Compton, CA
High Desert Natural History Preserve
1949015, Agua Dulce, CA
His Image Ministries,
Woodland Hills, CA
Homeaid America, Inc., Calabasas, CA
In Choro Novo, Inc., Roslindale, MA
Indigo Ink the St. Louis Association of
African American Writers,
St. Louis, MO
Institute of Spiritual Education and
Evolution, Solvang, CA
Institute of Unification Strategy in US,
Los Angeles, CA
Israel Environmental Fund, Topanga, CA
Israeli Culture Center of Westchester,
Inc., Briarcliff Manor, NY
J. Paul Memorial Foundation, Tracy, CA
Jehovah Shammah World Ministries,
Kihei, HI
Jesus Video Project of San Antonio, Inc.,
San Antonio, TX
JGT Foundation, Inc., Oakland, CA
Kahi Hoomana, Paia, HI
Kansas City Childrens Chorus,
Kansas City, MO
Koa Youth Crime Prevention
Association, Los Angeles, CA
KOL Sephardic Choir, Studio City, CA
Koreatown and West Adams Public
Safety Association, Los Angeles, CA
La Palabra En Cada Hogar,
Costa Mesa, CA
Lakhdar Barouche Foundation, Inc.,
New York, NY
Lancer Water Polo,
La Habra Heights, CA
Lao Senior Association Incorporation,
Richmond, CA
Latino Leadership Council of San Mateo
County, San Mateo, CA
Latino Theater Company,
Los Angeles, CA
Leadership Plano Alumni Association,
Plano, TX
Liberty Singers, Inc., Lake Suzy, FL
Los Angeles Citizens Crime
Commission, Hollywood, CA
Love in the Name of Christ of Hawaii,
Holualoa, HI
Love of People Clinic LOPC, Inc.,
Grand Coteau, LA
Marcus Robertson Childrens Foundation,
Nashville, TN
Mark E. King Medical Research
Foundation, La Verne, CA
McAns City Link, Inc., Decatur, GA
Methadone as a Legitimate Treatment
Alternative, Marysville, CA
Mike Kollie Foundation for Children &
the Needy, Inc., West Haven, CT
Mililani In-Line Hockey Association,
Mililani, HI
Ministry Wives Network International,
Inc., Delray Beach, FL
Minority Professional Golf Development
Association, Chicago, IL
Missy Foundation, Santa Clarita, CA
Nagano 98, Mililani, HI
National Black Presbyterian Caucus,
Inc., Hillside, NJ
Network for International Economic
Development, Midland, TX
New Beginnings Unlimited, Seattle, CA
New Citizen Institute, Inc.,
Los Angeles, CA
North of Market Neighborhood
Improvement Corporation,
San Francisco, CA
North Philadelphia Housing
Development Corporation,
Philadelphia, PA
North Pittsburgh Youth Hockey
Association, Baden, PA
Oakland Cares, Oakland, CA
OC and Spectrum Disorders Association,
Encino, CA
One in a Million United as Brothers,
Blue Island, IL
Pacific Access Housing Associates,
Pasadena, CA
Palms by the Stream Community Farm
of Sylmar, Inc., Sylmar, CA
Papa Foundation, Evanston, IL
Parents University of Wyandotte County,
Inc., Kansas City, KS
Pasadena Grace Community
Development Association,
Pasadena, CA
Pearl Harbor Performing Arts
Association, Pearl Harbor, HI
People for Community Development
Project, Inc., Los Angeles, CA
Pershing Park Housing Opportunity
Corporation, Memphis, TN
Polk Youth Hockey Association, Inc.,
Lakeland, FL
Positive Force Athletic Club,
Incorporated, Kailua Kona, HI
Precious Little Ones, Oakland, CA
Preserve Sight Mississippi, Jackson, MS
Project Heritage, N. Hollywood, CA
Project Worc, Inc., Suttenberg, NJ
Quality Forum, Inc., Los Angeles, CA
Racine County Hockey Association,
Racine, WI
Rancho Vista Community Housing
Association, Chula Vista, CA
Recovery Housing for the Benefit of the
Community, Inc., Lakeworth, FL
Redwood City Police Activity League,
Redwood City, CA
Restoring Hope Center, Inc.,
Fort Worth, TX
Rhema Rescue Mission, Jasper, AL
Rotary Club of Pacific Palisades
Foundation, Pacific Palisades, CA
Saint Lucie County Agape Senior
Citizen Recreational Center,
Fort Pierce, FL
Sam Houston High School Band Booster
Club, Inc., Arlington, TX
Samoa Hawaii Benefit Foundation,
Honolulu, HI
March 25, 20026652002–12 I.R.B.

Samsons Boxing Gym, Inc., Medina, OH
Save our Services Coalition, Inc.,
Los Angeles, CA
Scott John Stevenson Judeo-Christian
Maritime Foundation, Palo Verdes, CA
Scott Ministries International,
Redondo Beach, CA
Self Motivated Community Peoples
Village Center, Inc., Baltimore, MD
Sherali Fazal Visram Memorial
Foundation, Inc., Binghamton, NY
Signature Exploratory Theatre and Arts,
Inc., Wichita, KS
South Central Kansas Association of
Teachers of Mathematics, Wichita, KS
Southern California Resident Controlled
Housing Association, Los Angeles, CA
Spiritual Emotional Intensive Care,
Incorporated, Los Angeles, CA
Sponsorlink, Northridge, CA
Steeles Reeducation Centers, Inc.,
Oakland, CA
Stepping Stone to Recovery Foundation,
Los Angeles, CA
Stream of Praise Music Ministries,
El Monte, CA
Street Childrens Relief, Inc.,
Diamond Bar, CA
Striving to Empower People
Successfully, Compton, CA
Supports for Abandoned Children and
Elders Foundation, Los Angeles, CA
Survival Support Group, Glendale, CA
Teen Resources, Inc.,
Colorado Springs, CO
Telacu Housing-Monterey Park, Inc.,
Los Angeles, CA
Tender Loving Care Providers, Inc.,
Hayward, CA
TGC Team Booster Club,
Hattiesburg, MS
Theatre on the Verge, Inc.,
Minneapolis, MN
Tijay Renee Crisis Center,
Los Angeles, CA
Todays Fresh Start, Los Angeles, CA
Tomball Cougar Pride Band Booster
Club, Inc., Tomball, TX
Top Five Percent Club, Honolulu, HI
Touching Hands of Life,
Los Angeles, CA
Trenton Womens Center, Inc.,
Sommerset, NJ
Tri-City Youth Hockey Association, Inc.,
Holyoke, MA
T’shuvah, Inc., Los Angeles, CA
United Church Satellite Network,
Santa Monica, CA
US-Japan Cultural Network,
Torrance, CA
Visual Art League, Lewisville, TX
Voluntary Bar Association of Culver
City and Marina Del Ray,
Culver City, CA
Volunteer Refugee Aid International,
Los Angeles, CA
Wake Our World Foundation,
Chatsworth, CA
Welcome Wagon Club of Sebastian
Florida, Sebastian, FL
West Texas Earth Resources Institute,
Midland, TX
Wildlife History Foundation,
Sacramento, CA
World Awareness Voyages, Honolulu, HI
World Maritime Ministries, Inc.,
Platteville, WI
YMCA of North Oakland Foundation,
Inc., Rochester, NY
If an organization listed above submits
information that warrants the renewal of
its classification as a public charity or as
a private operating foundation, the Inter-
nal Revenue Service will issue a ruling or
determination letter with the revised clas-
sification as to foundation status. Grant-
ors and contributors may thereafter rely
upon such ruling or determination letter
as provided in section 1.509(a)–7ofthe
Income Tax Regulations. It is not the
practice of the Service to announce such
revised classification of foundation status
in the Internal Revenue Bulletin.
Civil Cause of Action for
Certain Unauthorized
Collection Actions
Announcement 2002–33
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Withdrawal of notice of pro-
posed rulemaking.
SUMMARY: This document withdraws
the notice of proposed rulemaking (REG–
251502–96, 1998–1 C.B. 621) relating to
Internal Revenue Code section 7433 that
was published in theFederal Registeron
Wednesday, December 31, 1997. The pro-
posed regulations implemented provisions
of the Taxpayer Bill of Rights 2
(TBOR2). TBOR2 raised the cap on dam-
ages under section 7433 and eliminated
the jurisdictional prerequisite requiring a
taxpayer to exhaust administrative rem-
edies before filing a civil damage action.
FOR FURTHER INFORMATION CON-
TACT: Kevin Connelly, 202–622–3630
(not a toll-free number).
SUPPLEMENTAL INFORMATION:
Background
On Wednesday, December 31, 1997,
the IRS issued proposed regulations titled
Civil Cause of Action for Certain Unau-
thorized Collections Actions (62 FR
68242). Because the Internal Revenue
Service Restructuring and Reform Act of
1998 substantially amended section 7433,
including sections that TBOR2 had previ-
ously amended, we are withdrawing these
proposed regulations (REG–251502–96).
A new notice of proposed rulemaking
(REG–107366–00, published elsewhere
in this Bulletin) containing both the statu-
tory provisions of TBOR2 and RRA1998
with respect to damage actions under sec-
tion 7433, as well as section 7426, has
been opened.
*****
Withdrawal of Notice of Proposed
Rulemaking
Accordingly, under the authority of 26
U.S.C. 7805, the notice of proposed rule-
making that was published in theFederal
Registeron Wednesday, December 31,
1997 (62 FR 68242) is withdrawn.
Robert E. Wenzel,
Deputy Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on
March 1, 2002, 8:45 a.m., and published in the issue
of the Federal Register for March 4, 2002, 67 F.R.
9631)
2002–12 I.R.B.666March 25, 2002

Guidance Regarding
Deduction and Capitalization
of Expenditures; Correction
Announcement 2002–35
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Correction to advance notice
of proposed rulemaking.
SUMMARY: This document contains a
correction to the advance notice of pro-
posed rulemaking (Announcement
2002–9, 2002–7 I.R.B. 536) that was pub-
lished in theFederal Registeron Thurs-
day, January 24, 2002 (67 FR 3461) that
will clarify the application of section
263(a) of the Internal Revenue Code to
expenditures incurred in acquiring, creat-
ing, or enhancing certain intangible assets
or benefits.
DATES: This correction is effective Janu-
ary 24, 2002.
FOR FURTHER INFORMATION CON-
TACT: Andrew J. Keyso, (202) 927–9397
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The advance notice of proposed rule-
making that is the subject of this correc-
tion is under section 263(a) of the Internal
Revenue Code.
Need for Correction
As published, the advance notice of
proposed rulemaking (REG–125638–01)
contains an error which may prove to be
misleading and is in need of clarification.
Correction of Publication
Accordingly, the publication of the
advance notice of proposed rulemaking
(REG–125638–01), which is the subject
of FR Doc. 02–1678 is corrected as fol-
lows:
On page 3464, column 1, line 7, the
language“J.J. Case Company v. United
States, 32”is corrected to read“J.I. Case
Company v. United States, 32.”
Cynthia Grigsby,
Chief, Regulations Unit,
Associate Chief Counsel
(Income Tax and Accounting).
(Filed by the Office of the Federal Register on
March 1, 2002, 8:00 a.m., and published in the issue
of the Federal Register for March 4, 2002, 67 F.R.
9631)
March 25, 20026672002–12 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
effect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus, if
an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
withmodified, below).
Clarifiedis used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously
published ruling and points out an essen-
tial difference between them.
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 pub-
lished position. (Compare withamplified
andclarified, 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
rulings that are obsoleted because of
changes in law or regulations. A ruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revokeddescribes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Supersededdescribes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a
period of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example,modified
andsupersededdescribes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case,
the previously published ruling is first
modified and then, as modified, is super-
seded.
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
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current
use and formerly used will appear in
material published in the Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Intemal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
2002–12 I.R.B.iMarch 25, 2002

Numerical Finding List
1
Bulletins 2002–1 through 2002–11
Announcements:
2002–1, 2002–2 I.R.B.304
2002–2, 2002–2 I.R.B.304
2002–3, 2002–2 I.R.B.305
2002–4, 2002–2 I.R.B.306
2002–5, 2002–4 I.R.B.420
2002–6, 2002–5 I.R.B.458
2002–7, 2002–5 I.R.B.459
2002–8, 2002–6 I.R.B.494
2002–9, 2002–7 I.R.B.536
2002–10, 2002–7 I.R.B.539
2002–11, 2002–6 I.R.B.494
2002–12, 2002–8 I.R.B.553
2002–13, 2002–7 I.R.B.540
2002–14, 2002–7 I.R.B.540
2002–15, 2002–7 I.R.B.540
2002–16, 2002–7 I.R.B.541
2002–17, 2002–8 I.R.B.561
2002–18, 2002–10 I.R.B.621
2002–19, 2002–8 I.R.B.561
2002–20, 2002–8 I.R.B.561
2002–21, 2002–8 I.R.B.562
2002–22, 2002–8 I.R.B.562
2002–23, 2002–8 I.R.B.563
2002–24, 2002–9 I.R.B.606
2002–25, 2002–10 I.R.B.621
2002–26, 2002–11 I.R.B.629
2002–27, 2002–11 I.R.B.629
2002–28, 2002–11 I.R.B.630
2002–29, 2002–11 I.R.B.631
2002–30, 2002–11 I.R.B.632
Notices:
2002–1, 2002–2 I.R.B.283
2002–2, 2002–2 I.R.B.285
2002–3, 2002–2 I.R.B.289
2002–4, 2002–2 I.R.B.298
2002–5, 2002–3 I.R.B.320
2002–6, 2002–3 I.R.B.326
2002–7, 2002–6 I.R.B.489
2002–8, 2002–4 I.R.B.398
2002–9, 2002–5 I.R.B.450
2002–10, 2002–6 I.R.B.490
2002–11, 2002–7 I.R.B.526
2002–12, 2002–7 I.R.B.526
2002–13, 2002–8 I.R.B.547
2002–14, 2002–8 I.R.B.548
2002–15, 2002–8 I.R.B.548
2002–16, 2002–9 I.R.B.567
2002–17, 2002–9 I.R.B.567
2002–19, 2002–10 I.R.B.619
Proposed Regulations:
REG–209135–88, 2002–4 I.R.B.418
REG–209114–90, 2002–9 I.R.B.576
REG–107100–00, 2002–7 I.R.B.529
REG–105344–01, 2002–2 I.R.B.302
REG–112991–01, 2002–4 I.R.B.404
REG–115054–01, 2002–7 I.R.B.530
REG–119436–01, 2002–3 I.R.B.376
REG–120135–01, 2002–8 I.R.B.552
REG–125450–01, 2002–5 I.R.B.457
REG–125626–01, 2002–9 I.R.B.604
REG–142299–01, 2002–4 I.R.B.418
REG–159079–01, 2002–6 I.R.B.493
Revenue Procedures:
2002–1, 2002–1 I.R.B.1
2002–2, 2002–1 I.R.B.82
2002–3, 2002–1 I.R.B.117
2002–4, 2002–1 I.R.B.127
2002–5, 2002–1 I.R.B.173
2002–6, 2002–1 I.R.B.203
2002–7, 2002–1 I.R.B.249
2002–8, 2002–1 I.R.B.252
2002–9, 2002–3 I.R.B.327
2002–10, 2002–4 I.R.B.400
2002–11, 2002–7 I.R.B.526
2002–12, 2002–3 I.R.B.374
2002–13, 2002–8 I.R.B.549
2002–14, 2002–5 I.R.B.450
2002–15, 2002–6 I.R.B.490
2002–16, 2002–9 I.R.B.572
Revenue Rulings:
2002–1, 2002–2 I.R.B.268
2002–2, 2002–2 I.R.B.271
2002–3, 2002–3 I.R.B.316
2002–4, 2002–4 I.R.B.389
2002–5, 2002–6 I.R.B.461
2002–6, 2002–6 I.R.B.460
2002–7, 2002–8 I.R.B.543
2002–8, 2002–9 I.R.B.564
2002–9, 2002–10 I.R.B.614
2002–10, 2002–10 I.R.B.616
2002–11, 2002–10 I.R.B.608
2002–12, 2002–11 I.R.B.624
Treasury Decisions:
8968, 2002–2 I.R.B.274
8969, 2002–2 I.R.B.276
8970, 2002–2 I.R.B.281
8971, 2002–3 I.R.B.308
8972, 2002–5 I.R.B.443
8973, 2002–4 I.R.B.391
8974, 2002–3 I.R.B.318
8975, 2002–4 I.R.B.379
8976, 2002–5 I.R.B.421
8977, 2002–6 I.R.B.463
8978, 2002–7 I.R.B.500
8979, 2002–6 I.R.B.466
8980, 2002–6 I.R.B.477
8981, 2002–7 I.R.B.496
8982, 2002–8 I.R.B.544
8983, 2002–9 I.R.B.565
1
A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 2001–27 through 2001–53 is
in Internal Revenue Bulletin 2002–1, dated January 7, 2002.
March 25, 2002ii2002–12 I.R.B.

Finding List of Current Actions
on Previously Published Items
2
Bulletins 2002–1 through 2002–11
Announcements:
2002–9
Corrected by
Ann. 2002–30, 2002–11 I.R.B.632
Notices:
98–43
Modified and superseded by
Notice 2002–5, 2002–3 I.R.B.320
2000–11
Obsoleted by
Notice 2002–3, 2002–2 I.R.B.289
2001–10
Revoked by
Notice 2002–8, 2002–4 I.R.B.398
2001–61
Supplemented by
Notice 2002–15, 2002–8 I.R.B.548
2001–68
Supplemented by
Notice 2002–15, 2002–8 I.R.B.548
Proposed Regulations:
REG–209135–88
Corrected by
Ann. 2002–15, 2002–7 I.R.B.540
Ann. 2002–30, 2002–11 I.R.B.632
REG–107100–00
Corrected by
Ann. 2002–30, 2002–11 I.R.B.632
REG–105344–01
Corrected by
Ann. 2002–7, 2002–5 I.R.B.459
REG–112991–01
Corrected by
Ann. 2002–30, 2002–11 I.R.B.632
REG–115054–01
Corrected by
Ann. 2002–30, 2002–11 I.R.B.632
REG–119436–01
Corrected by
Ann. 2002–30, 2002–11 I.R.B.632
REG–120135–01
Corrected by
Ann. 2002–30, 2002–11 I.R.B.632
Proposed Regulations:—Continued
REG–125450–01
Corrected by
Ann. 2002–30, 2002–11 I.R.B.632
REG–125626–01
Corrected by
Ann. 2002–30, 2002–11 I.R.B.632
REG–126485–01
Corrected by
Ann. 2002–30, 2002–11 I.R.B.632
REG–137519–01
Corrected by
Ann. 2002–30, 2002–11 I.R.B.632
REG–142299–01
Corrected by
Ann. 2002–15, 2002–7 I.R.B.540
Ann. 2002–30, 2002–11 I.R.B.632
REG–142686–01
Corrected by
Ann. 2002–30, 2002–11 I.R.B.632
REG–159079–01
Corrected by
Ann. 2002–30, 2002–11 I.R.B.632
Revenue Procedures:
84–37
Modified by
Rev. Proc. 2002–1, 2002–1 I.R.B.1
84–57
Obsoleted by
T.D. 8976, 2002–5 I.R.B.421
87–50
Modified by
Rev. Proc. 2002–10, 2002–4 I.R.B.400
96–13
Modified by
Rev. Proc. 2002–1, 2002–1 I.R.B.1
98–49
Obsoleted by
T.D. 8976, 2002–5 I.R.B.421
99–49
Modified and superseded by
Rev. Proc. 2002–9, 2002–3 I.R.B.327
2001–16
Modified by
Ann. 2002–26, 2002–11 I.R.B.629
2002–6
Modified by
Notice 2002–1, 2002–2 I.R.B.283
Revenue Procedures:—Continued
2002–8
Modified by
Notice 2002–1, 2002–2 I.R.B.283
2002–9
Modified and clarified by
Ann. 2002–17, 2002–8 I.R.B.561
Modified and amplified by
Rev. Rul. 2002–9, 2002–10 I.R.B.614
2000–20
Modified by
Rev. Proc. 2002–6, 2002–1 I.R.B.203
2001–1
Superseded by
Rev. Proc. 2002–1, 2002–1 I.R.B.1
2001–2
Superseded by
Rev. Proc. 2002–2, 2002–1 I.R.B.82
2001–3
Superseded by
Rev. Proc. 2002–3, 2002–1 I.R.B.117
2001–4
Superseded by
Rev. Proc. 2002–4, 2002–1 I.R.B.127
2001–5
Superseded by
Rev. Proc. 2002–5, 2002–1 I.R.B.173
2001–6
Superseded by
Rev. Proc. 2002–6, 2002–1 I.R.B.203
2001–7
Superseded by
Rev. Proc. 2002–7, 2002–1 I.R.B.249
2001–8
Superseded by
Rev. Proc. 2002–8, 2002–1 I.R.B.252
2001–13
Corrected by
Ann. 2002–5, 2002–4 I.R.B.420
2001–36
Superseded by
Rev. Proc. 2002–3, 2002–1 I.R.B.117
2001–41
Superseded by
Rev. Proc. 2002–2, 2002–1 I.R.B.82
2001–51
Superseded by
Rev. Proc. 2002–3, 2002–1 I.R.B.117
2
A cumulative list of current actions on previously published
items in Internal Revenue Bulletins 2001–27 through 2001–53 is
in Internal Revenue Bulletin 2002–1, dated January 7, 2002.
2002–12 I.R.B.iiiMarch 25, 2002

Revenue Rulings:
55–747
Revoked by
Notice 2002–8, 2002–4 I.R.B.398
61–146
Distinguished by
Rev. Rul. 2002–3, 2002–3 I.R.B.316
64–328
Modified by
Notice 2002–8, 2002–4 I.R.B.398
66–110
Modified by
Notice 2002–8, 2002–4 I.R.B.398
89–29
Obsoleted by
T.D. 8976, 2002–5 I.R.B.421
92–19
Supplemented in part by
Rev. Rul. 2002–12, 2002–11 I.R.B.624
2002–7
Corrected by
Ann. 2002–13, 2002–7 I.R.B.540
Treasury Decisions:
8971
Corrected by
Ann. 2002–20, 2002–8 I.R.B.561
8972
Corrected by
Ann. 2002–23, 2002–8 I.R.B.563
8973
Corrected by
Ann. 2002–14, 2002–7 I.R.B.540
8975
Corrected by
Ann. 2002–21, 2002–8 I.R.B.562
8976
Corrected by
Ann. 2002–21, 2002–8 I.R.B.562
March 25, 2002iv2002–12 I.R.B.