Internal Revenue Bulletin 2003-21 (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. 2003–43, page 935.
Health plans.This ruling sets forth the rules regarding the use
of debit and credit cards to reimburse participants in self-insured
medical reimbursement plans. Rev. Rul. 2002–80 distinguished.
Rev. Rul. 2003–50, page 944.
LIFO; price indexes; department stores.The March 2003 Bu-
reau 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, March 31, 2003.
Rev. Rul. 2003–51, page 938.
Transfer to corporation.This ruling provides guidance regard-
ing the control requirement under section 351 of the Code in-
volving successive transfers of property and stock. Rev. Ruls.
70–140, 70–522, 79–70, and 79–194 distinguished.
T.D. 9055, page 945.
Final regulations under section 3406 of the Code clarify the
method of determining whether a payer has received two IRS no-
tices that a payee’s taxpayer identification number (TIN) is in-
correct, for purposes of backup withholding. This document also
contains regulations under section 6724 which clarify when an
information return filer must solicit a payee’s TIN in response to
a penalty notice based on an incorrect TIN if a notice under sec-
tion 3406(a)(1)(B) was already received with respect to the same
tax year.
Announcement 2003–35, page 956.
This document sets forth an advance notice of proposed rule-
making (REG–100420–03) and asks for comments on a pos-
sible safe harbor the IRS and the Treasury Department are
considering that would allow a financial statement-tax confor-
mity approach to valuation of certain securities and commodi-
ties for purposes of section 475 of the Code. This approach
would be elective and would have certain requirements that must
be met before the safe harbor could be used, including record-
keeping and record production requirements. The ANPRM also
seeks comments on any other alternative valuation methodol-
ogy.
EMPLOYEE PLANS
T.D. 9056, page 940.
Final regulations under section 408 of the Code provide a new
method to be used for calculating the net income attributable to
an IRA contribution that is distributed as a returned contribu-
tion pursuant to section 408(d)(4) or recharacterized pursuant
to section 408A(d)(6). These regulations will affect IRA owners
and IRA trustees, custodians, and issuers.
Notice 2003–32, page 949.
Weighted average interest rate update.The weighted aver-
age interest rate for May 2003 and the resulting permissible
range of interest rates used to calculate current liability for pur-
poses of the full funding limitation of section 412(c)(7) of the Code
are set forth.
(Continued on the next page)
Bulletin No. 2003–21
May 27, 2003
Finding Lists begin on page ii.

EXEMPT ORGANIZATIONS
Notice 2003–31, page 948.
This notice announces that the Treasury Department and the Ser-
vice intend to propose regulations providing guidance under sec-
tion 501(m) of the Code, which will define the term“commercial-
type insurance”and address how section 501(m) applies to
organizations described in sections 501(c)(3) and 501(c)(4), in-
cluding health maintenance organizations. This notice also re-
quests comments on the content of the regulations to be
proposed. Finally, this notice announces that, in light of the regu-
lations project, the Service is withdrawing from the Internal Rev-
enue Manual the sections of Part 7.8.1, Chapter 27, Exempt
Organizations Examination Guidelines Handbook, Health Main-
tenance Organizations that relate to section 501(m) of the
Code.
Announcement 2003–34, page 953.
A list is provided of organizations now classified as private foun-
dations.
EXCISE TAX
Announcement 2003–33, page 953.
The Service announces the availability of new Form 8876,Ex-
cise Tax on Structured Settlement Factoring Transactions.
Use this form to report and pay the 40% excise tax imposed un-
der section 5891 of the Code on the factoring discount of a struc-
tured settlement factoring transaction.
ADMINISTRATIVE
Rev. Proc. 2003–37, page 950.
This procedure describes documentation and information a tax-
payer that uses the fair market value method of apportionment
of interest expense may prepare and make available to the Ser-
vice upon request in order to establish the fair market value of
the taxpayer’s assets to the satisfaction of the Commissioner as
required by section 1.861–9T(g)(1)(iii) of the regulations. It also
sets forth the procedure to be followed in the case of elec-
tions to use the fair market value method.
May 27, 20032003–21 I.R.B.

The IRS Mission
Provide America’s taxpayers top quality service by helping them
understand and meet their tax responsibilities and by applying
the tax law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of the
Commissioner of Internal Revenue for announcing official rul-
ings and procedures of the Internal Revenue Service and for pub-
lishing Treasury Decisions, Executive Orders, Tax Conventions,
legislation, court decisions, and other items of general inter-
est. It is published weekly and may be obtained from the Super-
intendent of Documents on a subscription basis. Bulletin contents
are consolidated semiannually into Cumulative Bulletins, which
are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, modify,
or amend any of those previously published in the Bulletin. All pub-
lished rulings apply retroactively unless otherwise indicated. Pro-
cedures relating solely to matters of internal management are
not published; however, statements of internal practices and pro-
cedures that affect the rights and duties of taxpayers are pub-
lished.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpay-
ers or technical advice to Service field offices, identifying de-
tails and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be re-
lied on, used, or cited as precedents by Service personnel in the
disposition of other cases. In applying published rulings and pro-
cedures, the effect of subsequent legislation, regulations, court
decisions, rulings, and procedures must be considered, and Ser-
vice personnel and others concerned are cautioned against reach-
ing the same conclusions in other cases unless the facts and
circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions of
the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A, Tax
Conventions and Other Related Items, and Subpart B, Legisla-
tion and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these sub-
jects are contained in the other Parts and Subparts. Also in-
cluded in this part are Bank Secrecy Act Administrative Rulings.
Bank Secrecy Act Administrative Rulings are issued by the De-
partment of the Treasury’s Office of the Assistant Secretary (En-
forcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The first Bulletin for each month includes a cumulative index for
the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the first Bulletin of the succeeding semiannual pe-
riod, respectively.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.
2003–21 I.R.B.May 27, 2003

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 105.—Amounts
Received Under Accident and
Health Plans
(Also Section 106, 125.)
Health plans.This ruling sets forth the
rules regarding the use of debit and credit
cards to reimburse participants in self-
insured medical reimbursement plans.
Rev. Rul. 2003–43
ISSUE
Whether, under the facts described,
employer-provided expense reimburse-
ments made through debit or credit cards
and other electronic media are excludable
from gross income under § 105 of the In-
ternal Revenue Code.
FACTS
Situation 1.Employer N sponsors one
or more major medical plans for employ-
ees that provide coverage under accident
and health insurance. Each plan has a fixed
copayment amount (e.g., a $15 copayment
for physician office visits). Employer N also
sponsors both a health flexible spending ar-
rangement (health FSA) and a health re-
imbursement arrangement (HRA). The
health FSA and the HRA reimburse the un-
insured medical care expenses of all par-
ticipating employees and their spouses and
dependents up to a maximum reimburse-
ment amount that is fixed at the begin-
ning of each year. The health FSA is paid
pursuant to salary reduction elections un-
der Employer N’s § 125 cafeteria plan. The
HRA is paid by Employer N and employ-
ees make no salary reduction election to pay
for the HRA. The HRA plan document
specifies that coverage under the HRA is
available only after expenses exceeding the
dollar amount elected under the § 125 health
FSA have been paid from the health FSA.
Both the health FSA and the HRA meet the
nondiscrimination requirements of § 105(h).
In conjunction with the health FSA and
the HRA, Employer N permits electronic
reimbursement of medical expenses through
the use of a debit card or stored-value card
(“card”). Under the arrangement adopted by
Employer N, each participating employee
is issued a card and certifies upon enroll-
ment in the health FSA and HRA and each
plan year thereafter that the card will only
be used for eligible medical care expenses,
as defined in § 213(d), of the employee and
the employee’s spouse and dependents. The
employee also certifies that any expense
paid with the card has not been reimbursed
and that the employee will not seek reim-
bursement under any other plan covering
health benefits. An employee-cardholder un-
derstands that the certification, which is
printed on the back of the card, is reaf-
firmed each time the card is used. The card-
holder also agrees to acquire and retain
sufficient documentation for any expense
paid with the card, including invoices and
receipts where appropriate. The card is au-
tomatically cancelled at termination of em-
ployment.
The cardholder’s use of the card is lim-
ited to the maximum dollar amount of cov-
erage available in the cardholder’s health
FSA or HRA. As described below, the card
is ineffective except at those merchants and
service providers authorized by Employer
N, so that the use of the card at other mer-
chants or service providers would be re-
jected. Employer N limits the card’s use to
specified Merchant Codes relating to health
care. Thus, the card’s use is limited to phy-
sicians, pharmacies, dentists, vision care of-
fices, hospitals, and other medical care
providers. When a cardholder uses the card
at the point-of-sale, the merchant or ser-
vice provider is paid the full amount of the
charge (assuming there is sufficient cov-
erage available in the health FSA or HRA),
and the cardholder’s maximum available
coverage remaining is reduced by that
amount.
To provide assurance that only eligible
medical expenses are reimbursed, Employer
N has established, in the health FSA and
HRA documents, the following procedures
for substantiating claimed medical expenses
after the use of the card.
First, if the dollar amount of the trans-
action at a health care provider equals the
dollar amount of the copayment for that ser-
vice under the major medical plan of the
specific employee-cardholder, the charge is
fully substantiated without the need for sub-
mission of a receipt or further review. For
example, Employee A is enrolled in a ma-
jor medical plan with a $15 physician’s of-
fice visit copayment. When Employee A
uses the card to satisfy the copayment re-
quirement, the system matches the amount
of the transaction, $15, with the copay-
ment under Employee A’s coverage and the
fact that the transaction is at a physician’s
office.
Second, Employer N permits automatic
reimbursement, without further review, of
recurring expenses that match expenses pre-
viously approved as to amount, provider,
and time period (e.g., for an employee who
refills a prescription drug on a regular ba-
sis at the same provider for the same
amount).
Third, if the merchant, service provider,
or other independent third-party (e.g., Phar-
macy Benefit Manager), at the time and
point of sale, provides information to verify
to Employer N (including electronically by
e-mail, the internet, intranet, or telephone)
that the charge is for a medical expense, the
charge is fully substantiated without the
need for submission of a receipt or fur-
ther review (i.e., “real-time substantia-
tion”). For example, Employee A fills a
prescription at a pharmacy. The Pharmacy
Benefit Manager under Employee A’s ma-
jor medical coverage provides informa-
tion that $37.85 of the cost of the
prescription is a medical expense that is not
covered by the major medical coverage. Be-
cause the information about the medical ex-
pense, $37.85, matches the amount of the
transaction, the transaction is substanti-
ated. The transaction would also be fully
substantiated where, for example, treat-
ment at a physician’s office results in
charges in addition to the copayment and,
after obtaining authorization for the card,
the provider is prompted to enter treat-
ment codes and charges. The additional
third-party information regarding the type
of care, date of service, and amount pro-
vides substantiation of the expense with-
out the need for further review.
Employer N’s procedures provide that
all charges to the card, other than copay-
ments, recurring expenses, and real-time
substantiation as described above, are treated
as conditional pending confirmation of the
charge. Thus, Employer N requires that ad-
ditional third-party information, such as
2003–21 I.R.B.935May 27, 2003

merchant or service provider receipts, de-
scribing (1) the service or product, (2) the
date of the service or sale and, (3) the
amount, be submitted for review and sub-
stantiation.
An employee may also obtain benefits
under the health FSA or HRA without the
use of the card by submitting to Employer
N either an Explanation of Benefits (EOB)
received from a health insurance provider
or a receipt from a merchant or service pro-
vider showing that funds are owed for an
eligible medical expense (e.g.,onade-
ductible). In this case, Employer N pays the
merchant or service provider directly. Al-
ternatively, an employee may pay the mer-
chant or service provider directly and submit
a claim for reimbursement, including third-
party information supporting the claim.
Under Employer N’s card arrangement,
a few of the claims that have been reim-
bursed are subsequently identified as not
qualifying for reimbursement. As a re-
sult, Employer N has adopted, in the health
FSA and HRA plan documents, all of the
following correction procedures with re-
spect to the improper payments. First, upon
identifying an improper payment, Employer
N requires the employee to pay back to the
plan an amount equal to the improper pay-
ment. Second, where this proves unsuc-
cessful, Employer N has the amount of the
improper payment withheld from the em-
ployee’s wages or other compensation to the
extent consistent with applicable law. Third,
if the improper payment still remains out-
standing, Employer N utilizes a claims sub-
stitution or offset approach to resolve
improper claims. For example, if Employee
A has received an improper reimburse-
ment of $200 and subsequently submits a
substantiated claim incurred during the same
coverage period, no reimbursement is made
until the improper payment is fully re-
couped. In addition to the above, Employer
N takes other actions to ensure that fur-
ther violations of the terms of the card do
not occur, including denial of access to the
card until the indebtedness is repaid by the
employee.
If these correction efforts prove unsuc-
cessful, or are otherwise unavailable, the
employee remains indebted to Employer N
for the amount of the improper payment.
In that event and consistent with its busi-
ness practices, Employer N treats the pay-
ment as it would any other business
indebtedness.
Situation 2.The facts are the same as
Situation 1, except that Employer P’s pro-
cedures utilize sampling techniques based
on transaction amounts. For example, Em-
ployer P reviews 20% of dental office trans-
actions paid with the card that have not
been otherwise substantiated and are above
$100 on the assumption that no dental cos-
metic procedures are available for less than
$100. Also, Employer P reviews a smaller
percentage (e.g., 5%) of physician office
transactions paid with the card that have not
been otherwise substantiated and are be-
low $150 on the assumption that almost all
such charges are for eligible medical care.
In addition, Employer P does not review
any card transaction below a low dollar
threshold (e.g., $25) or where the amount
of the transaction is a multiple of a speci-
fied whole-dollar amount (e.g., $5, $10, $15,
etc.) on the assumption that these latter
amounts are copayments. Only those pay-
ments selected for review are required to
be substantiated by submission of mer-
chant or service provider receipts. Thus,
Employer P does not substantiate all reim-
bursements made through the card.
Situation 3.Employer R sponsors ma-
jor medical plans, a health FSA, and an
HRA for employees. The health FSA and
the HRA meet the nondiscrimination re-
quirements of§105(h). In conjunction with
the health FSA and the HRA, Employer R
has entered into an agreement with a spon-
soring bank to issue to each participating
employee a credit card with individual lim-
its equaling the coverage available in the
health FSA or HRA. As in Situation 1, Em-
ployer R requires each employee to cer-
tify upon enrollment in the plans (which is
reaffirmed upon each use of the credit card)
that the card will only be used for eli-
gible medical care expenses and that any
medical expense paid with the card has not
been reimbursed and the employee will not
seek reimbursement under any other plan
covering health benefits. In addition, as in
Situation 1, the credit card is usable only
at a merchant or service provider with a
specified Merchant Code relating to health
care. Pursuant to the agreement between
Employer R and the sponsoring bank, Em-
ployer R agrees to be liable to the spon-
soring bank for all charges made with the
credit card against the line of credit. When
the card is used at the point-of-sale, the
merchant or service provider is paid the full
amount of the charge by the sponsoring
bank.
Employer R utilizes substantiation meth-
ods identical to those of Employer N in
Situation 1, so that copayments, recurring
expenses, and real-time substantiation need
no further review. Employer R treats all
other charges to the card as conditional
pending confirmation of the medical ex-
pense. If the claim is approved, the em-
ployee’s maximum available coverage in the
health FSA or HRA is reduced by that
amount and Employer R repays the spon-
soring bank. If the employee fails to pro-
vide substantiation of the medical expense
or the claim is denied, Employer R re-
pays the sponsoring bank and the employee
becomes liable to Employer R for the
charge. To recoup amounts that have been
identified as improper payments, Employer
R has adopted the same correction proce-
dures as those utilized by Employer N in
Situation 1. Also, as described in Situa-
tion 1, an employee may obtain benefits un-
der the health FSA or HRA without the use
of the credit card.
LAW AND ANALYSIS
Section 61(a)(1) and§1.61–21(a)(3) of
the Income Tax Regulations provide that,
except as otherwise provided in subtitle A,
gross income includes compensation for ser-
vices, including fees, commissions, fringe
benefits, and similar items.
Section 106 provides that“gross in-
come of an employee does not include
employer-provided coverage under an ac-
cident or health plan.”Section 1.106–1 pro-
vides that the gross income of an employee
does not include contributions which the
employee’s employer makes to an acci-
dent or health plan for compensation
(through insurance or otherwise) for per-
sonal injuries or sickness to the employee
or the employee’s spouse or dependents (as
defined in§152).
Section 105(a) provides that“amounts
received by an employee through acci-
dent or health insurance for personal inju-
ries or sickness shall be included in gross
income to the extent such amounts (1) are
attributable to contributions by the em-
ployer which were not includible in the
gross income of the employee, or (2) are
paid by the employer.”
Section 105(e) states that amounts re-
ceived under an accident or health plan for
May 27, 20039362003–21 I.R.B.

employees are treated as amounts received
through accident or health insurance for pur-
poses of§105. Section 1.105–5(a) pro-
vides that an accident or health plan is an
arrangement for the payment of amounts to
employees in the event of personal inju-
ries or sickness. Thus, amounts that are paid
to an employee regardless of whether the
employee incurs expenses for medical care
or suffers a personal injury or sickness are
not received under an accident or health
plan.
Section 105(b) states that, except in the
case of amounts attributable to (and not in
excess of) deductions allowed under§213
(relating to medical expenses) for any prior
taxable year, gross income does not in-
clude amounts referred to in§105(a) if such
amounts are paid, directly or indirectly, to
the taxpayer to reimburse the taxpayer for
expenses incurred by the taxpayer for the
medical care (as defined in§213(d)) of the
taxpayer or the taxpayer’s spouse or de-
pendents (as defined in§152).
Section 1.105–2 provides that only
amounts that are paid specifically to reim-
burse the taxpayer for expenses incurred by
the taxpayer for the prescribed medical care
are excludable from gross income. Sec-
tion 105(b) does not apply to amounts that
the taxpayer would be entitled to receive
irrespective of whether or not the taxpayer
incurs expenses for medical care. Accord-
ingly, if an employee is not paid specifi-
cally to reimburse medical care expenses
but is entitled to receive the payment irre-
spective of whether any medical expenses
have been incurred, none of those pay-
ments are excludable from gross income un-
der§105(b) whether or not the employee
has incurred medical expenses during the
year.
Under§125, an employer may estab-
lish a cafeteria plan that permits an em-
ployee to choose among two or more
benefits, consisting of cash (generally, sal-
ary) and qualified benefits, including ac-
cident or health coverage. Pursuant to§125,
the amount of an employee’s salary reduc-
tion applied to purchase such coverage is
not included in gross income, even though
it is available to the employee and the em-
ployee could have chosen to receive cash
instead. If an employee elects salary re-
duction pursuant to§125, the accident and
health coverage is excludable from gross in-
come under§106 as employer-provided ac-
cident or health coverage.
Q&A–7(a) of§1.125–2 of the Proposed
Income Tax Regulations states that health
plans that are FSAs must conform to the
generally applicable rules under§§105 and
106 in order for the coverage and reim-
bursements to qualify for tax-favored treat-
ment. Thus, health FSAs must qualify as
accident or health plans and reimburse-
ments must be paid specifically to reim-
burse the participant for medical expenses
incurred previously during the period of
coverage.
Q&A–7(b)(5) of§1.125–2 addresses
claims substantiation for health FSAs and
provides that a health FSA may reimburse
a medical expense only if the participant
provides a written statement from an in-
dependent third-party stating that the medi-
cal expense has been incurred and the
amount of such expense and the partici-
pant also provides a written statement that
the medical expense has not been reim-
bursed or is not reimbursable under any
other health plan coverage.
Part1ofNotice2002–45, 2002–28
I.R.B. 93, describes an HRA as an arrange-
ment that: (1) is paid for solely by the em-
ployer and not pursuant to salary reduction;
(2) reimburses the employee for medical
care expenses as defined in§213(d); and
(3) provides that any unused portion of the
maximum dollar amount available during
the coverage period is carried forward to
subsequent coverage periods. Part 2 of the
notice provides that to qualify for the ex-
clusion under§§106 and 105, an HRA may
only provide benefits that reimburse
§213(d) medical expenses and that each
medical expense submitted for reimburse-
ment must be substantiated.
Rev. Rul. 2002–80, 2002–49 I.R.B. 925,
describes plans in which amounts are au-
tomatically paid to an employee as“ad-
vance reimbursements”or“loans”of
uninsured medical expenses. The employer
treats the“advance reimbursements”or
“loans”as an indebtedness that is forgiven
by the end of the year or upon termina-
tion of employment. In addition, to the ex-
tent an employee does not have uninsured
medical expenses equal to the“advance re-
imbursements”or“loans,”the excess pay-
ments to the employee are included in gross
income. The ruling holds that the exclu-
sion from gross income under§105(b) does
not apply to these plans because the“ad-
vance reimbursements”or“loans”are paid
to the employee whether or not the em-
ployee incurs medical expenses. See
§1.105–2
Not all health-related expenses qualify
for tax-free treatment under§105(b). Only
amounts that are paid specifically to reim-
burse eligible medical care expenses as de-
fined in§213(d) receive tax-favored
treatment. Therefore, to provide certainty
that a particular expense is for medical care
within the meaning of§213(d), all claims
for expense reimbursements must be sub-
stantiated. However,§105(b) does not
specify the method of substantiation. The
procedures adopted by Employer N in Situ-
ation 1 with respect to the electronic re-
imbursement of medical expenses meet the
requirements of§105(b). First, Employer
N requires a certification upon enrollment
and a reaffirmation upon each use of the
card, as printed on the back, that the card
will only be used for eligible medical care
expenses. Second, reimbursements for medi-
cal expenses are processed only if they
originate with certain vendors having health
care related Merchant Codes. Third, Em-
ployer N’s procedures provide that every
claim is reviewed and substantiated, ei-
ther automatically without additional docu-
mentation or manually through the
submission of merchant or service pro-
vider receipts. Fourth, Employer N has
adopted meaningful correction procedures
for claims that are subsequently identi-
fied as impermissible. These procedures
meet the requirements of§105(b) and the
same conclusion applies to the procedures
adopted by Employer R in Situation 3.
In contrast, the sampling techniques
adopted by Employer P in Situation 2 do
not provide that every claim is substanti-
ated. Thus, because Employer P’s proce-
dures, by plan design, do not specifically
limit reimbursements or payments of claims
to eligible medical expenses, the proce-
dures do not meet the requirements of
§105(b).
HOLDING
Employer-provided expense reimburse-
ments made through debit or credit cards
and other electronic media, as described in
Situation 1 and Situation 3, are exclud-
able from gross income under§105(b).
Employer-provided expense reimburse-
ments, as described in Situation 2, are not
excludable from gross income under
§105(b) because the payments are made ir-
2003–21 I.R.B.937May 27, 2003

respective of whether any medical expenses
have been incurred. Thus, in Situation 2, all
payments made during the year, includ-
ing amounts paid to reimburse medical ex-
penses, are included in the gross income of
the employee.
SCOPE
This ruling addresses only issues un-
der the specific Code sections mentioned.
No inference is intended as to any other
section of the Internal Revenue Code.
EFFECT ON OTHER REVENUE
RULINGS
Rev. Rul. 2002–80 is distinguished be-
cause in that ruling, unlike Situations 1 and
3, a payment is made in advance and irre-
spective of the employee incurring a medi-
cal expense. In Situations 1 and 3, a
payment is made concurrent with the em-
ployee incurring a medical expense that is
substantiated. Final regulations under§125
will reflect the modifications to the rules
concerning claims substantiation of health
FSA expenses as set forth in this revenue
ruling.
FORM 1099 CONSIDERATION
Under the facts described, payments
made to medical service providers through
the use of debit, credit, and stored-value
cards are reportable by the employer on
Form 1099–MISC under§6041. Section
6041 provides for information reporting by
persons engaged in a trade or business who
make payments of fixed or determinable in-
come to another person in the course of
such trade or business of $600 or more in
a taxable year. The exceptions provided in
§1.6041–3 may apply to this requirement,
such as the exception for payments to tax-
exempt hospitals.
EFFECTIVE DATE
The holding in Situation 2 is effective
for plan years beginning after December 31,
2003.
COMMENTS REQUESTED
The Service requests comments on sam-
pling techniques or statistical approaches,
other than those described in Situation 2,
that may be used by employers in identi-
fying types of transactions that should be
deemed to be substantiated. The method-
ology proposed should demonstrate that the
outcome of measures selected provide a
high degree of certainty sufficient to con-
stitute substantiation that the employee has
incurred a medical expense. Send com-
ments to: CC:PA:RU (Rev. Rul. 2003–
43), Room 5226, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington, DC 20044. Comments may be hand-
delivered between the hours of 8 a.m. and
4 p.m. to: CC:PA:RU (Rev. Rul. 2003–
43), Courier’s Desk, Internal Revenue Ser-
vice,1111Constitution Avenue, NW,
Washington, DC. In the alternative, tax-
payers may submit comments electroni-
cally at:Notice.Comments@irscounsel.
treas.gov. All comments will be available
for public inspection.
DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Barbara E. Pie of the Office of Di-
vision Counsel/Associate Chief Counsel
(Tax Exempt and Government Entities). For
further information regarding this revenue
ruling, contact Ms. Pie at (202) 622–6080
(not a toll-free call).
Section 351.—Transfer to
Corporation Controlled by
Transferor
26 CFR 1.351–1: Transfer to corporation
controlled by transferor.
Transfer to corporation.This ruling
provides guidance regarding the control re-
quirement under section 351 of the Code
involving successive transfers of property
and stock. Rev. Ruls. 70–140, 70–522, 79–
70, and 79–194 distinguished.
Rev. Rul. 2003–51
ISSUE
Whether a transfer of assets to a corpo-
ration (the“first corporation”) in exchange
for an amount of stock in the first corpo-
ration constituting control satisfies the con-
trol requirement of§351 of the Internal
Revenue Code if, pursuant to a binding
agreement entered into by the transferor
with a third party prior to the exchange, the
transferor transfers the stock of the first cor-
poration to another corporation (the“sec-
ond corporation”) simultaneously with the
transfer of assets by the third party to the
second corporation, and immediately there-
after, the transferor and the third party are
in control of the second corporation.
FACTS
Corporation W, a domestic corpora-
tion, engages in businesses A, B, and C. The
fair market values of businesses A, B, and
C are $40x, $30x, and $30x, respectively.
X, a domestic corporation unrelated to W,
also engages in business A through its
wholly owned domestic subsidiary, Y. The
fair market value of X’s Y stock is $30x.
W and X desire to consolidate their busi-
ness A operations within a new corpora-
tion in a holding company structure.
Pursuant to a prearranged binding agree-
ment with X, W forms a domestic corpo-
ration, Z, by transferring all of its business
A assets to Z in exchange for all of the
stock of Z (the“first transfer”). Immedi-
ately thereafter, W contributes all of its Z
stock to Y in exchange for stock of Y (the
“second transfer”). Simultaneous with the
second transfer, X contributes $30x to Y to
meet the capital needs of business A after
the restructuring in exchange for addi-
tional stock of Y (the“third transfer”). Af-
ter the second and third transfers, Y transfers
the $30x and its business A assets to Z (the
“fourth transfer”). After the second and third
transfers, W and X own 40 percent and 60
percent, respectively, of the outstanding
stock of Y. Viewed separately, each of the
first transfer, the combined second and third
transfers, and fourth transfer qualifies as a
transfer described in§351.
LAW
Section 351(a) provides that no gain or
loss shall be recognized if property is trans-
ferred to a corporation by one or more per-
sons solely in exchange for stock in such
corporation and immediately after the ex-
change such person or persons are in con-
trol (as defined in§368(c)) of the
corporation.
Section 368(c) defines control to mean
the ownership of stock possessing at least
80 percent of the total combined voting
power of all classes of stock entitled to vote
and at least 80 percent of the total num-
ber of shares of all other classes of stock
of the corporation.
Section 1.351–1(a)(1) of the Income Tax
Regulations provides that the phrase“im-
mediately after the exchange”does not nec-
May 27, 20039382003–21 I.R.B.

essarily require simultaneous exchanges by
two or more persons, but comprehends a
situation where the rights of the parties have
been previously defined and the execu-
tion of the agreement proceeds with an ex-
pedition consistent with orderly procedure.
Courts have held that the control re-
quirement of§351 is not satisfied where,
pursuant to a binding agreement entered into
by the transferor prior to the transfer of
property to the corporation in exchange for
stock, the transferor loses control of the cor-
poration by a taxable sale of all or part of
that stock to a third party who does not also
transfer property to the corporation in ex-
change for stock.See, e.g., S. Klein on the
Square, Inc. v. Commissioner, 188 F.2d 127
(2d Cir.),cert. denied, 342 U.S. 824 (1951);
Hazeltine Corp. v. Commissioner,89F.2d
513 (3d Cir. 1937);Intermountain Lum-
ber Co. v. Commissioner, 65 T.C. 1025
(1976). The Service has reached the same
conclusion when addressing similar facts.
SeeRev. Rul. 79–194, 1979–1 C.B. 145;
Rev. Rul. 79–70, 1979–1 C.B. 144; Rev.
Rul. 70–522, 1970–2 C.B. 81.
In Rev. Rul. 70–140, 1970–1 C.B. 73,
A, an individual, owns all of the stock of
corporation X and operates a business simi-
lar to that of X through a sole proprietor-
ship. Pursuant to an agreement between A
and Y, an unrelated, widely held corpora-
tion, A transfers all of the assets of the sole
proprietorship to X in exchange for addi-
tional shares of X stock. A then transfers
all his X stock to Y solely in exchange for
voting common stock of Y. The ruling rea-
sons that because the two steps of the trans-
action are parts of a prearranged plan, they
may not be considered independently of
each other for federal income tax purposes.
The ruling concludes that A’s receipt of the
X stock in exchange for the sole propri-
etorship assets is transitory and without sub-
stance for tax purposes because it is
apparent that the assets of the sole propri-
etorship are transferred to X to enable Y to
acquire those assets without the recogni-
tion of gain to A. Accordingly, the ruling
treats A as transferring its sole proprietor-
ship assets directly to Y in a transfer to
which§351 does not apply, and Y as trans-
ferring these assets to X, independently of
A’s transfer of the X stock to Y in ex-
change for Y voting stock. The exchange
by A of the stock of X solely for voting
stock of Y constitutes an exchange to which
§354 applies.See also§1.1361–5(b)(3),
Example 9.
In Rev. Rul. 77–449, 1977–2 C.B. 110,
amplified byRev. Rul. 83–34, 1983–1C.B.
79, and Rev. Rul. 83–156, 1983–2 C.B. 66,
a corporation transfers assets to a wholly
owned subsidiary, which in turn transfers,
as part of the same plan, the same assets
to its own wholly owned subsidiary. The
ruling states that the transfers should be
viewed separately for purposes of§351.
Because each transfer satisfies the require-
ments of§351, no gain or loss is recog-
nized by the transferor.
In Rev. Rul. 83–34, corporation P owns
80 percent of the stock of a subsidiary, S1.
An unrelated corporation owns the remain-
ing 20 percent. P transfers assets to S1
solely in exchange for additional shares of
S1 stock. As part of the same plan, S1
transfers the same assets to S2, a newly
formed corporation of which S1 will be an
80 percent shareholder. An unrelated cor-
poration will own the remaining 20 per-
cent of the S2 stock. Citing Rev. Rul. 77–
449, the ruling concludes that the transfers
should be viewed separately for purposes
of§351 and that each transfer satisfies the
requirements of§351.
In Rev. Rul. 84–111, 1984–2 C.B. 88,
Situation 1, a partnership transfers all of its
assets to a newly formed corporation in ex-
change for all the outstanding stock of the
corporation and the assumption by the cor-
poration of the partnership’s liabilities. The
partnership then terminates by distribut-
ing all the stock of the corporation to the
partners in proportion to their partnership
interests. The steps undertaken by the part-
nership were parts of a plan to transfer the
partnership operations to a corporation or-
ganized for valid business reasons in ex-
change for its stock and were not devices
to avoid or evade recognition of gain. The
ruling concludes that, under§351, the part-
nership recognizes no gain or loss on the
transfer of its assets to the corporation in
exchange for the corporation’s stock and the
corporation’s assumption of the partner-
ship’s liabilities, notwithstanding the part-
nership’s subsequent distribution of the
corporation’s stock to the partners and con-
sequent loss of control within the mean-
ing of§368(c) of the corporation.
ANALYSIS
As described above, if the first trans-
fer were viewed as separate from each of
the other transfers, the first transfer would
satisfy the technical requirements of a trans-
fer under§351 because W transfers prop-
erty to Z in exchange for stock in Z and,
immediately after the exchange, W is in
control of Z. However, because the first and
second transfers are undertaken pursuant to
a prearranged binding agreement, it is nec-
essary to determine whether the second
transfer causes the first transfer to fail to
satisfy the control requirement of§351.
“Section 351 has been described as a de-
liberate attempt by Congress to facilitate the
incorporation of ongoing businesses and to
eliminate any technical constructions which
are economically unsound.”Hempt Bros.,
Inc. v. United States, 490 F.2d 1172, 1177
(3d Cir.),cert. denied, 419 U.S. 826 (1974).
Section 351(a) is intended to apply to“cer-
tain transactions where gain or loss may
have accrued in a constitutional sense, but
where in a popular and economic sense
there has been a mere change in the form
of ownership and the taxpayer has not re-
ally‘cashed in’on the theoretical gain, or
closed out a losing venture.”Portland Oil
Co. v. Commissioner, 109 F.2d 479, 488 (1st
Cir.),cert. denied, 310 U.S. 650 (1940).See
S. Rep. No. 67–275, at 12 (1921) (explain-
ing that the predecessor to§351 was en-
acted in 1921 to“permit business to go
forward with the readjustments required by
existing conditions”). A transaction de-
scribed under§351“lacks a distinguish-
ing characteristic of a sale, in that, instead
of the transaction having the effect of ter-
minating or extinguishing the beneficial in-
terests of the transferors in the transferred
property,...thetransferors continue to be
beneficially interested in the transferred
property and have dominion over it by vir-
tue of their control of the new corporate
owner of it.”American Compress & Ware-
house Co. v. Bender, 70 F.2d 655, 657 (5th
Cir.),cert. denied, 293 U.S. 607 (1934).
As described above, courts have held that
the control requirement of§351 is not sat-
isfied where, pursuant to a binding agree-
ment entered into by the transferor prior to
the transfer of property to the corporation
in exchange for stock, the transferor loses
control of the corporation by a taxable sale
of all or part of that stock to a third party
that does not also transfer property to the
corporation in exchange for stock. Treat-
ing a transfer of property that is followed
by such a prearranged sale of the stock re-
ceived as a transfer described in§351 is
2003–21 I.R.B.939May 27, 2003

not consistent with Congress’intent in en-
acting§351 to facilitate the rearrange-
ment of the transferor’s interest in its
property. Treating a transfer of property that
is followed by a nontaxable disposition of
the stock received as a transfer described
in§351 is not necessarily inconsistent with
the purposes of§351. Accordingly, the con-
trol requirement may be satisfied in such
a case, even if the stock received is trans-
ferred pursuant to a binding commitment
in place upon the transfer of the property
in exchange for stock. For example, in Rev.
Rul. 84–111,Situation 1, the partnership’s
transfer of property to the transferee cor-
poration qualified as a transfer described in
§351, even though the partnership relin-
quished control of the transferee corpora-
tion within the meaning of§368(c)
pursuant to a prearranged plan to transfer
the transferee stock.
In Rev. Rul. 70–140, the transfer of as-
sets to the transferor’s wholly owned sub-
sidiary followed by an exchange of stock
of the wholly owned subsidiary for stock
of another corporation was recast as a di-
rect transfer of assets to the unrelated,
widely held corporation in a taxable trans-
action. In Rev. Rul. 70–140, there was no
alternative form of transaction that would
have qualified for nonrecognition treat-
ment. In contrast, in this case, W’s trans-
fer of the business A assets to Z was not
necessary for W and X to combine their
business A assets in a holding company
structure in a manner that would have quali-
fied for nonrecognition of gain or loss un-
der§351. A transfer of W’s business A
assets to Y in exchange for Y stock as part
of a plan that included X’s transfer of $30x
to Y in exchange for Y stock, and Y’s trans-
fer of the business A assets and $30x to Z
in exchange for all of the Z stock, would
have qualified as successive transfers de-
scribed in§351.SeeRev. Rul. 83–34; Rev.
Rul. 77–449. Accordingly, in these circum-
stances, Rev. Rul. 70–140 is distinguish-
able.
In this case, even though the first trans-
fer is followed by a transfer of the stock re-
ceived, treating the first transfer as a transfer
described in§351 is not inconsistent with
the purposes of§351. Accordingly, the sec-
ond transfer will not cause the first trans-
fer to fail to satisfy the control requirement
of§351.
HOLDING
A transfer of assets to the first corpo-
ration in exchange for an amount of stock
in the first corporation constituting con-
trol satisfies the control requirement of
§351 even if, pursuant to a binding agree-
ment entered into by the transferor with
a third party prior to the exchange, the
transferor transfers the stock of the first cor-
poration to the second corporation simul-
taneously with the transfer of assets by the
third party to the second corporation, and
immediately thereafter, the transferor and
the third party are in control of the sec-
ond corporation.
EFFECT ON OTHER REVENUE
RULINGS
Rev. Rul. 79–194, 1979–1 C.B. 145,
Rev. Rul. 79–70, 1979–1 C.B. 144, Rev.
Rul. 70–522, 1970–2 C.B. 81, and Rev. Rul.
70–140, 1970–1 C.B. 73, are distinguished.
DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Lisa K. Leong of the Office of As-
sociate Chief Counsel (Corporate). For
further information regarding this revenue
ruling, contact Ms. Leong at (202) 622–
7530 (not a toll-free call).
Section 408.—Individual
Retirement Accounts
26 CFR 1.408–4: Treatment of distributions from
individual retirement arrangements.
T.D. 9056
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
(IRS)
26 CFR Part 1
Earnings Calculation for
Returned or Recharacterized
IRA Contributions
AGENCY: Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations.
SUMMARY: This document contains fi-
nal regulations that provide a new method
to be used for calculating the net income
attributable to IRA contributions that are dis-
tributed as a returned contribution pursu-
ant to section 408(d)(4) of the Internal
Revenue Code (Code) or recharacterized
pursuant to section 408A(d)(6). These regu-
lations will affect IRA owners and IRA
trustees, custodians, and issuers.
DATES:Effective Date:These final regu-
lations are effective on May 5, 2003.
Applicability Date:These final regula-
tions are applicable for calculating income
allocable to IRA contributions made on or
after January 1, 2004.
FOR FURTHER INFORMATION CON-
TACT: Cathy Vohs at (202) 622–6090.
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to
the Income Tax Regulations (26 CFR Part
1) under Code sections 408 and 408A.
These regulations provide a new method for
calculating the net income attributable to
IRA contributions that are distributed as a
returned contribution pursuant to section
408(d)(4) or recharacterized pursuant to sec-
tion 408A(d)(6).
Section 408(d)(4) provides that an IRA
contribution will not be included in the IRA
owner’s gross income when distributed as
a returned contribution if: (1) it is received
by the IRA owner on or before the day pre-
scribed by law (including extensions) for
filing the owner’s federal income tax re-
turn for the year of the contribution; (2) no
deduction is allowed with respect to the
contribution; and (3) the distribution is ac-
companied by the amount of net income at-
tributable to the contribution.
Section 408A(d)(6) provides that a con-
tribution made to one type of IRA may be
recharacterized as having been made to an-
other type of IRA if: (1) the recharacter-
ization transfer occurs on or before the date
prescribed by law (including extensions) for
filing the IRA owner’s federal income tax
return for the year for which the contribu-
tion was made; (2) no deduction is allowed
with respect to the contribution to the trans-
May 27, 20039402003–21 I.R.B.

feror IRA; and (3) the transfer is accom-
panied by any net income allocable to the
contribution.
Notice 2000–39, 2000–2 C.B. 132, pro-
vided a new method for calculating net in-
come that generally based the calculation
of the amount of net income attributable to
a contribution on the actual earnings and
losses of the IRA during the time it held the
contribution, and provided that under the
new method, net income could be nega-
tive. Notice 2000–39 provided that until fur-
ther guidance is issued, either the old
method (i.e., the method specified in
§1.408–4(c)(2)(ii)) or the new method may
be used to calculate net income.
Proposed regulations under sections 408
and 408A were published in theFederal
Registeron July 23, 2002 (REG–124256–
02, 2002–33 I.R.B. 383 [67 FR 48067]).
These proposed regulations incorporated,
with certain modifications, the new method
provided in Notice 2000–39. The public re-
action to Notice 2000–39 was generally fa-
vorable and few comments were received
on the proposed regulations. Consequently,
these final regulations adopt the rules in the
proposed regulations without modifica-
tion.
Explanation of Provisions
These final regulations retain, without
change, the methods provided in the pro-
posed regulations. Thus, under these final
regulations, for purposes of returned con-
tributions under section 408(d)(4) and re-
characterized contributions under section
408A(d)(6), the net income attributable to
a contribution is determined by allocating
to the contribution apro-rataportion of the
net income on the assets in the IRA
(whether positive or negative) during the pe-
riod the IRA held the contribution. This new
method is represented by the following
formula:
Net Income = Contribution x (Adjusted Closing Balance - Adjusted Opening Balance)
Adjusted Opening Balance.
Under the final regulations, generally, the
adjusted opening balance means the fair
market value of the IRA at the beginning
of the computation period plus the amount
of any contributions or transfers made to
the IRA during the computation period. A
special rule is provided for an IRA asset that
is not normally valued on a daily basis. In
this case, the fair market value of the as-
set at the beginning of the computation pe-
riod is deemed to be the most recent,
regularly determined, fair market value of
the asset, determined as of a date that co-
incides with or precedes the first day of the
computation period. One commentator sug-
gested that the application of this special
rule be extended to all IRA assets as an al-
ternate fair market value determination so
that the value of an IRA at the beginning
of the computation period could be the most
recent statement value just prior to the con-
tribution, rather than the actual value on the
exact date of the contribution.
The final regulations do not extend the
special valuation rule to all IRA assets be-
cause the IRS and Treasury believe that if
an IRA asset is normally valued on a daily
basis, these values must be used so that the
calculation of the amount of net income at-
tributable to a contribution is based on the
actual earnings and losses of the IRA dur-
ing the time it held the contribution. The
alternate rule suggested by the commen-
tator would increase the chances of pro-
ducing anomalous results because account
activity in the part of the year that pre-
cedes the date the contribution was made
would be taken into account in the calcu-
lation of the net income attributable to the
contribution.
One commentator suggested that where
both regular Roth IRA contributions and
conversion contributions have been made
to the same Roth IRA, the net income cal-
culation attributable to a recharacteriza-
tion of a conversion contribution may
require that some of the regular Roth IRA
contributions be recharacterized to the tra-
ditional IRA. The commentator recom-
mended that if a conversion contribution is
being recharacterized, and the Roth IRA
contains both regular contributions and con-
version contributions, the final rules should
permit the principal amount of any regu-
lar Roth IRA contributions in that same
Roth IRA to remain in the Roth IRA.
The final regulations retain the rule,
without modification, that net income cal-
culations and allocations must be based on
the overall value of an IRA and the dol-
lar amounts contributed, distributed or re-
characterized to or from the IRA. Even in
a recharacterization of an amount con-
verted to a Roth IRA where the Roth IRA
contains both regular contributions and con-
version contributions, the final regula-
tions do not permit net income, including
any losses, to be allocated other thanpro
rata. Thus, the principal amount of regu-
lar Roth IRA contributions cannot be pro-
tected against adjustment for theirpro rata
share of net income, including any net
losses, during the computation period. Once
contributions are commingled in an ac-
count, those dollars are no longer associ-
ated with particular assets or contributions.
In the absence of maintaining separate ac-
counts, tying particular assets to a particu-
lar contribution would create administrative
problems for taxpayers, IRA providers and
the IRS.
Effective Date
These final regulations are applicable for
calculating income allocable to IRA con-
tributions made on or after January 1, 2004.
For purposes of determining net income ap-
plicable to IRA contributions made dur-
ing 2002 and 2003, taxpayers may continue
to apply the rules set forth in Notice
2000–39 or may rely on the proposed regu-
lations.
Special Analyses
It has been determined that these final
regulations are not a significant regula-
tory 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. Because
§1.408–11 and A–2(c) of§1.408A–5 im-
pose no new collection of information on
small entities, 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 Inter-
2003–21 I.R.B.941May 27, 2003

nal Revenue Code, the notice of proposed
rulemaking that preceded these final regu-
lations was submitted to the Chief Coun-
sel for Advocacy of the Small Business
Administration for comment on its im-
pact on small business.
Drafting Information
The principal author of these regula-
tions is Cathy A. Vohs of the Office of the
Division Counsel/Associate Chief Coun-
sel (Tax Exempt and Government Enti-
ties). However, other personnel from the
IRS and Treasury participated in their de-
velopment.
*****
AdoptionofAmendmentstothe
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PA RT 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding entries in nu-
merical order to read in part as follows:
Authority: 26 U.S.C. 7805***
§1.408–4 also issued under 26 U.S.C. 408.
§1.408–11 also issued under 26 U.S.C.
408.***
Par.2.In§1.408–4, paragraph (c)(1) is
amended by adding two sentences before
the current first sentence to read as follows:
§1.408–4 Treatment of distributions from in-
dividual retirement arrangements.
*****
(c)***(1)***The rules in this para-
graph (c) apply for purposes of determin-
ing net income attributable to IRA
contributions made before January 1, 2004,
and returned pursuant to section 408(d)(4).
The rules in§1.408–11 apply for purposes
of determining net income attributable to
IRA contributions made on or after Janu-
ary 1, 2004, and returned pursuant to sec-
tion 408(d)(4).***
*****
Par. 3. Section 1.408–11 is added to read
as follows:
§1.408–11 Net income calculation for re-
turned or recharacterized IRA contribu-
tions.
(a)Net income calculation for returned
IRA contributions—(1)General rule. For
purposes of returned contributions under
section 408(d)(4), the net income attribut-
able to a contribution made to an IRA is de-
termined by allocating to the contribution
apro-rataportion of the earnings on the as-
sets in the IRA during the period the IRA
held the contribution. This attributable net
income is calculated by using the follow-
ing formula:
Net Income = Contribution x (Adjusted Closing Balance - Adjusted Opening Balance)
Adjusted Opening Balance.
(2)Special rule. If an IRA is estab-
lished with a contribution and no other con-
tributions, distributions or transfers are made
to or from that IRA, then the subsequent
distribution of the entire account balance of
the IRA pursuant to section 408(d)(4) will
satisfy the requirement of that Internal Rev-
enue Code section that the return of a con-
tribution be accompanied by the amount of
net income attributable to the contribu-
tion.
(b)Definitions. For purposes of this sec-
tion the following definitions apply:
(1)Adjusted opening balance. The term
adjusted opening balancemeans the fair
market value of the IRA at the beginning
of the computation period plus the amount
of any contributions or transfers (includ-
ing the contribution that is distributed as a
returned contribution pursuant to section
408(d)(4) and recharacterizations of con-
tributions pursuant to section 408A(d)(6))
made to the IRA during the computation pe-
riod.
(2)Adjusted closing balance. The term
adjusted closing balancemeans the fair
market value of the IRA at the end of the
computation period plus the amount of any
distributions or transfers (including rechar-
acterizations of contributions pursuant to
section 408A(d)(6)) made from the IRA dur-
ing the computation period.
(3)Computation period. The termcom-
putation periodmeans the period begin-
ning immediately prior to the time that the
contribution being returned was made to the
IRA and ending immediately prior to the
removal of the contribution. If more than
one contribution was made as a regular con-
tribution and is being returned from the
IRA, the computation period begins im-
mediately prior to the time the first con-
tribution being returned was contributed.
(4)Regular contribution. The termregu-
lar contributionmeans an IRA contribu-
tion made by the IRA owner that is neither
a trustee-to-trustee transfer from another
IRA nor a rollover from another IRA or re-
tirement plan.
(c)Additional rules. (1) When an IRA
asset is not normally valued on a daily ba-
sis, the fair market value of the asset at the
beginning of the computation period is
deemed to be the most recent, regularly de-
termined, fair market value of the asset, de-
termined as of a date that coincides with or
precedes the first day of the computation
period. In addition, solely for purposes of
this section, notwithstanding A–3of
§1.408A–5, recharacterized contributions are
taken into account for the period they are
actually held in a particular IRA.
(2) In the case of an IRA that has re-
ceived more than one regular contribu-
tion for a particular taxable year, the last
regular contribution made to the IRA for the
year is deemed to be the contribution that
is distributed as a returned contribution un-
der section 408(d)(4), up to the amount of
the contribution identified by the IRA owner
as the amount distributed as a returned con-
tribution.
(3) In the case of an individual who
owns multiple IRAs, the net income cal-
culation is performed only on the IRA con-
taining the contribution being returned, and
that IRA is the IRA that must distribute the
contribution.
(d)Examples. The following examples
illustrate the net income calculation un-
der section 408(d)(4) and this section:
Example 1. (i) On May 1, 2004, when her IRA is
worth $4,800, Taxpayer A makes a $1,600 regular con-
tribution to her IRA. Taxpayer A requests that $400
of the May 1, 2004, contribution be returned to her
pursuant to section 408(d)(4). Pursuant to this re-
quest, on February 1, 2005, when the IRA is worth
$7,600, the IRA trustee distributes to Taxpayer A the
$400 plus attributable net income. During this time,
no other contributions have been made to the IRA and
no distributions have been made.
May 27, 20039422003–21 I.R.B.

(ii) The adjusted opening balance is $6,400 [$4,800
+ $1,600] and the adjusted closing balance is $7,600.
Thus, the net income attributable to the $400 May 1,
2004, contribution is $75 [$400 x ($7,600 - $6,400)
÷$6,400]. Therefore, the total to be distributed on Feb-
ruary 1, 2005, pursuant to§408(d)(4) is $475.
Example 2. (i) Beginning in January 2004, Tax-
payer B contributes $300 on the 15th of each month
to an IRA for 2004, resulting in an excess regular con-
tribution of $600 for that year. Taxpayer B requests
that the $600 excess regular contribution be returned
to her pursuant to section 408(d)(4). Pursuant to this
request, on March 1, 2005, when the IRA is worth
$16,000, the IRA trustee distributes to Taxpayer B the
$600 plus attributable net income. The excess regu-
lar contributions to be returned are deemed to be the
last two made in 2004: the $300 December 15 con-
tribution and the $300 November 15 contribution. On
November 15, the IRA was worth $11,000 immedi-
ately prior to the contribution. No distributions or trans-
fers have been made from the IRA and no
contributions or transfers, other than the monthly con-
tributions (including $300 in January and February
2005), have been made.
(ii) As of the beginning of the computation pe-
riod (November 15), the adjusted opening balance is
$12,200 [$11,000 + $300 + $300 + $300 + $300] and
the adjusted closing balance is $16,000. Thus, the net
income attributable to the excess regular contribu-
tions is $187 [$600 x ($16,000 - $12,200)÷$12,200].
Therefore, the total to be distributed as returned con-
tributions on March 1, 2005, to correct the excess regu-
lar contribution is $787 [$600 + $187].
Par.4.In§1.408A–5, A–2(c) is revised
to read as follows:
§1.408A–5 Recharacterized contribu-
tions.
*****
A–2.***
(c) (1) If paragraph (b) of this A–2 does
not apply, then, for purposes of determin-
ing net income attributable to IRA contri-
butions, the net income attributable to the
amount of a contribution is determined by
allocating to the contribution apro-ratapor-
tion of the earnings on the assets in the IRA
during the period the IRA held the contri-
bution. This attributable net income is cal-
culated by using the following formula:
Net Income = Contribution x (Adjusted Closing Balance - Adjusted Opening Balance)
Adjusted Opening Balance.
(2) For purposes of this paragraph (c),
the following definitions apply:
(i) The termadjusted opening balance
means the fair market value of the IRA at
the beginning of the computation period
plus the amount of any contributions or
transfers (including the contribution that is
being recharacterized pursuant to section
408A(d)(6) and any other recharacteriza-
tions) made to the IRA during the compu-
tation period.
(ii) The termadjusted closing balance
means the fair market value of the IRA at
the end of the computation period plus the
amount of any distributions or transfers (in-
cluding contributions returned pursuant to
section 408(d)(4) and recharacterizations of
contributionspursuanttosection
408A(d)(6)) made from the IRA during the
computation period.
(iii) The termcomputation periodmeans
the period beginning immediately prior to
the time the particular contribution being
recharacterized is made to the IRA and end-
ing immediately prior to the recharacter-
izing transfer of the contribution. If a series
of regular contributions was made to the
IRA, and consecutive contributions in that
series are being recharacterized, the com-
putation period begins immediately prior to
the time the first of the regular contribu-
tions being recharacterized was made.
(3) When an IRA asset is not normally
valued on a daily basis, the fair market
value of the asset at the beginning of the
computation period is deemed to be the
most recent, regularly determined, fair mar-
ket value of the asset, determined as of a
date that coincides with or precedes the first
day of the computation period. In addi-
tion, solely for purposes of this paragraph
(c), notwithstanding A–3 of this section, re-
characterized contributions are taken into
account for the period they are actually held
in a particular IRA.
(4) In the case of an individual with mul-
tiple IRAs, the net income calculation is
performed only on the IRA containing the
particular contribution to be recharacter-
ized, and that IRA is the IRA from which
the recharacterizing transfer must be made.
(5) In the case of multiple contribu-
tions made to an IRA for a particular year
that are eligible for recharacterization, the
IRA owner can choose (by date and by dol-
lar amount, not by specific assets acquired
with those dollars) which contribution, or
portion thereof, is to be recharacterized.
(6) The following examples illustrate the
net income calculation under section
408A(d)(6) and this paragraph:
Example 1. (i) On March 1, 2004, when her Roth
IRA is worth $80,000, Taxpayer A makes a $160,000
conversion contribution to the Roth IRA. Subse-
quently, Taxpayer A discovers that she was ineli-
gible to make a Roth conversion contribution in 2004
and so she requests that the $160,000 be recharac-
terized to a traditional IRA pursuant to section
408A(d)(6). Pursuant to this request, on March 1, 2005,
when the IRA is worth $225,000, the Roth IRA trustee
transfers to a traditional IRA the $160,000 plus allo-
cable net income. No other contributions have been
made to the Roth IRA and no distributions have been
made.
(ii) The adjusted opening balance is $240,000
[$80,000 + $160,000] and the adjusted closing bal-
ance is $225,000. Thus the net income allocable to the
$160,000 is -$10,000 [$160,000 x ($225,000 -
$240,000)÷$240,000]. Therefore, in order to rechar-
acterize the March 1, 2004, $160,000 conversion con-
tribution on March 1, 2005, the Roth IRA trustee must
transfer from Taxpayer A’s Roth IRA to her tradi-
tional IRA $150,000 [$160,000 - $10,000].
Example 2. (i) On April 1, 2004, when her tradi-
tional IRA is worth $100,000, Taxpayer B converts
the entire amount, consisting of 100 shares of stock
in ABC Corp. and 100 shares of stock in XYZ Corp.,
by transferring the shares to a Roth IRA. At the time
of the conversion, the 100 shares of stock in ABC
Corp. are worth $50,000 and the 100 shares of stock
in XYZ Corp. are also worth $50,000. Taxpayer B de-
cides that she would like to recharacterize the ABC
Corp. shares back to a traditional IRA. However, B
may choose only by dollar amount the contribution
or portion thereof that is to be recharacterized. On the
date of transfer, November 1, 2004, the 100 shares of
stock in ABC Corp. are worth $40,000 and the 100
shares of stock in XYZ Corp. are worth $70,000. No
other contributions have been made to the Roth IRA
and no distributions have been made.
(ii) If B requests that $50,000 (which was the value
of the ABC Corp. shares at the time of conversion)
be recharacterized, the net income allocable to the
$50,000 is $5,000 [$50,000 x ($110,000 - $100,000)
÷$100,000]. Therefore, in order to recharacterize
$50,000 of the April 1, 2004, conversion contribu-
tion on November 1, 2004, the Roth IRA trustee must
transfer from Taxpayer B’s Roth IRA to a tradi-
tional IRA assets with a value of $55,000 [$50,000
+ $5,000].
(iii) If, on the other hand, B requests that $40,000
(which was the value of the ABC Corp. shares on No-
vember 1) be recharacterized, the net income allo-
cable to the $40,000 is $4,000 [$40,000 x ($110,000
- $100,000)÷$100,000]. Therefore, in order to re-
characterize $40,000 of the April 1, 2004, conver-
sion contribution on November 1, 2004, the Roth IRA
trustee must transfer from Taxpayer B’s Roth IRA to
a traditional IRA assets with a value of $44,000
[$40,000 + $4,000].
2003–21 I.R.B.943May 27, 2003

(iv) Regardless of the amount of the contribu-
tion recharacterized, the determination of that amount
(or of the net income allocable thereto) is not af-
fected by whether the recharacterization is accom-
plished by the transfer of shares of ABC Corp. or of
shares of XYZ Corp.
(7) This paragraph (c) applies for pur-
poses of determining net income attribut-
able to IRA contributions, made on or after
January 1, 2004. For purposes of deter-
mining net income attributable to IRA con-
tributions made before January 1, 2004, see
paragraph (c) of this A–2of§1.408A–5 (as
it appeared in the April 1, 2003, edition of
26 CFR part 1).
*****
David A. Mader,
Assistant Deputy Commissioner of
Internal Revenue.
Approved April 25, 2003.
Pamela F. Olson,
Assistant Secretary of the Treasury.
(Filed by the Office of the Federal Register on May 2, 2003,
8:45 a.m., and published in the issue of the Federal Regis-
ter for May 5, 2003, 68 F.R. 23586)
Section 472.—Last-in,
First-out Inventories
26 CFR 1.472–1: Last-in, first-out inventories.
LIFO; price indexes; department
stores.The March 2003 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, March
31, 2003.
Rev. Rul. 2003–50
The following Department Store Inven-
tory Price Indexes for March 2003 were is-
sued by the Bureau of Labor Statistics. The
indexes are accepted by the Internal Rev-
enue Service, under§1.472–1(k) of the In-
come 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, March
31, 2003.
The Department Store Inventory Price
Indexes are prepared on a national basis and
include (a) 23 major groups of depart-
ments, (b) three special combinations of the
major groups—soft goods, durable goods,
and miscellaneous goods, and (c) a store to-
tal, which covers all departments, includ-
ing 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)
Groups
Mar.
2002
Mar.
2003
Percent Change
from Mar. 2002
to Mar. 2003
1
1.Piece Goods .............................................................................. 490.6458.9-6.5
2.Domestics and Draperies .......................................................... 583.6552.6-5.3
3.Women’s and Children’s Shoes ............................................... 647.4642.6-0.7
4.Men’s Shoes.............................................................................. 903.0842.0-6.8
5.Infants’Wear ............................................................................. 624.2600.3-3.8
6.Women’s Underwear................................................................. 563.7524.9-6.9
7.Women’s Hosiery...................................................................... 355.7341.2-4.1
8.Women’s and Girls’Accessories.............................................. 563.4556.0-1.3
9.Women’s Outerwear and Girls’Wear ...................................... 401.0380.1-5.2
10.Men’s Clothing ......................................................................... 594.6570.0-4.1
11.Men’s Furnishings .................................................................... 607.3591.1-2.7
12.Boys’Clothing and Furnishings............................................... 482.6470.9-2.4
13.Jewelry ...................................................................................... 905.5871.7-3.7
14.Notions ...................................................................................... 800.4797.7-0.4
15.Toilet Articles and Drugs.......................................................... 972.7976.30.4
16.Furniture and Bedding .............................................................. 630.0625.2-0.8
17.Floor Coverings ........................................................................ 616.3589.1-4.4
18.Housewares ............................................................................... 756.2734.0-2.9
19.Major Appliances ...................................................................... 223.2217.5-2.6
20.Radio and Television ................................................................51.146.6-8.8
21.Recreation and Education
2
.......................................................87.583.8-4.2
22.Home Improvements
2
............................................................... 125.6125.70.1
23.Auto Accessories
2
..................................................................... 110.8111.70.8
May 27, 20039442003–21 I.R.B.

BUREAU OF LABOR STATISTICS, DEPARTMENT STORE
INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS
(January 1941 = 100, unless otherwise noted)
Groups
Mar.
2002
Mar.
2003
Percent Change
from Mar. 2002
to Mar. 2003
1
Groups 1–15: Soft Goods ..................................................................... 591.8570.4-3.6
Groups 16–20: Durable Goods ............................................................. 414.6400.8-3.3
Groups 21–23: Misc. Goods
2
...............................................................97.295.0-2.3
Store Total
3
................................................................................ 526.5508.5-3.4
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 rul-
ing is Michael Burkom of the Office of As-
sociate Chief Counsel (Income Tax and
Accounting). For further information re-
garding this revenue ruling, contact
Mr. Burkom at (202) 622–7718 (not a toll-
free call).
Section 861.—Income From
Sources Within the United
States
26 CFR 1.861–8T: Computations of taxable income
from sources within the United States and from
other sources and activities (Temporary).
26 CFR 1.861–9T: Allocation and apportionment
of interest expense (Temporary).
See Rev. Proc. 2003–37, page 950.
Section 864.—Definitions and
Special Rules
This revenue procedure provides guidance to
taxpayers that use the fair market value method to
apportioninterestexpenseforpurposesof
calculating the foreign tax credit. See Rev. Proc.
2003–37, page 950.
Section 901.—Taxes of
Foreign Countries and of
Possessions of United States
This revenue procedure provides guidance to
taxpayers that use the fair market value method
apportioninterestexpenseforpurposesof
calculating the foreign tax credit. See Rev. Proc.
2003–37, page 950.
Section 904.—Limitation on
Credit
This revenue procedure provides guidance to
taxpayers that use the fair market value method to
apportioninterestexpenseforpurposesof
calculating the foreign tax credit. See Rev. Proc.
2003–37, page 950.
Section 3406.—Backup
Withholding
26 CFR 31.3406(d)–5: Backup withholding when
the Service or a broker notifies the payor to
withhold because the payee’s taxpayer
identification number is incorrect.
T.D. 9055
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 31 and 301
Receipt of Multiple Notices
With Respect to Incorrect
Taxpayer Identification
Numbers
AGENCY: Internal Revenue Service (IRS),
Treasury.
ACTION: Final Regulations.
SUMMARY: This document contains fi-
nal regulations relating to backup with-
holding. These regulations clarify the
method of determining whether the payor
has received two notices that a payee’s tax-
payer identification number (TIN) is in-
correct. If a payor receives two or more
such notices with respect to the same ac-
count during a three-year period, the payor
must begin backup withholding unless the
payee provides verification of its correct
TIN pursuant to the regulations. This docu-
ment also contains regulations which clarify
when an information return filer must so-
licit a payee’s TIN following the receipt of
a penalty notice.
DATES: These regulations are effective
January 1, 2004.
FOR FURTHER INFORMATION CON-
TACT: Nancy L. Rose at (202) 622–4910
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to
the Employment Tax Regulations (26 CFR
2003–21 I.R.B.945May 27, 2003

part 31) under section 3406 of the Inter-
nal Revenue Code (Code), and to the Pro-
cedure and Administration Regulations (26
CFR part 301) under section 6724 of the
Code. These regulations finalize proposed
amendments to existing§§31.3406(d)–
5(d)(2)(ii) and (g)(4), and 301.6724–1(f)(2),
(f)(3), (f)(5), and (k). These regulations also
revise existing§301.6724(f)(1) and (g)(1)
to remove obsolete cross-references. A no-
tice of proposed rulemaking (REG–116644–
01, 2002–31 I.R.B. 268 [67 FR 44579]) was
published in theFederal Registeron July
3, 2002. The IRS received written com-
ments responding to the notice of pro-
posed rulemaking, but no commentators
requested the opportunity to present oral
comments at a public hearing. A notice can-
celling the public hearing scheduled for Oc-
tober 22, 2002, was published on October
17, 2002 (67 FR 64067).
Explanation of Provisions and Sum-
mary of Comments
Section 3406
Section 3406 imposes a requirement to
backup withhold on any reportable pay-
ment if the Secretary notifies the payor that
the TIN furnished by the payee is incor-
rect. After receiving a notice of incorrect
TIN, the payor must backup withhold on
reportable payments until the payee fur-
nishes another TIN. However, if the payor
receives two notices with respect to the
same account within a three year period, the
payor must backup withhold on report-
able payments until the payor receives a
verification of the payee’s TIN from the So-
cial Security Administration or the IRS.
The regulations under section 3406 set
forth detailed procedures for payors to fol-
low after receipt of a notice of incorrect TIN
from the IRS. When the first such notice
is received by the payor, the payor must
send a notice (commonly referred to as a
“B”notice) to the payee stating that the
payee will be subject to backup withhold-
ing if the payee does not furnish a certi-
fied TIN. If a second notice of incorrect
TIN is received by a payor with respect to
the payee’s account within a three-year pe-
riod, the payor must send a second“B”no-
tice to the payee stating that the payee will
be subject to backup withholding unless the
payor receives verification of the payee’s
TIN from the Social Security Administra-
tion or IRS.
If the payor receives two or more no-
tices of incorrect TIN with respect to a pay-
ee’s account within the same calendar year,
the regulations provide that the multiple no-
tices may be treated as one notice for pur-
poses of sending out a first“B”notice, and
must be treated as one notice for purposes
of sending out a second“B”notice. How-
ever, in some cases, a payor may receive
multiple notices of incorrect TIN in differ-
ent calendar years which relate to the same
payee’s account for the same year. This may
occur where a payor files different types of
information returns with respect to the same
payee, such as a Form 1099–B (gross pro-
ceeds reported by brokers) and a Form
1099–DIV (payment of dividends). Typi-
cally these information returns all contain
the same TIN, following information con-
tained in the payor’s records. Variations in
the processing of such returns by the IRS
may result in the issuance of incorrect TIN
notices at different times.
The amendments to the regulations pro-
vide that two or more notices of incorrect
TIN relating to the same payee and the
same year, but which are received in dif-
ferent calendar years, count as one no-
tice. Accordingly, a payor who sends a first
“B”notice to the payee after receipt of the
first notice of incorrect TIN would not be
required to send a second“B”notice af-
ter receipt of the second notice of incor-
rect TIN if the second notice relates to an
information return filed for the same year
as the first notice.
Section 6724
Section 6724 provides for a waiver of
information reporting penalties under sec-
tions 6721 through 6723 where the fail-
ure giving rise to such penalties was due
to reasonable cause and not willful ne-
glect. Under§301.6724–1(a) of the regu-
lations, in order to prove reasonable cause
for a failure, the filer must establish ei-
ther that there are significant mitigating fac-
tors with respect to the failure or that the
failure arose from events beyond the fil-
er’s control. In addition, the filer must have
acted in a responsible manner both be-
fore and after the failure.
Section 301.6724–1(c)(1)(v) of the regu-
lations provides that certain actions of the
payee or another person providing neces-
sary information with respect to the re-
turn may be an event beyond the filer’s
control. Thus, a payee’s furnishing of an in-
correct TIN to a payor may be an event be-
yond the payor’s control.
As provided in§301.6724–1(a), the
payor must also act in a responsible man-
ner with respect to the failure. That sec-
tion sets forth special rules for acting in a
responsible manner with respect to incor-
rect TINs. The filer is required to make an
initial solicitation for the payee’s correct
TIN at the time the account is opened, and
up to two annual solicitations following re-
ceipt of penalty notices.
If a filer receives a penalty notice with
respect to an incorrect payee TIN and a no-
tice of incorrect TIN under section
3406(a)(1)(B) during the same calendar year
for the same payee, the filer will satisfy the
section 6724 annual solicitation require-
ments by sending the required“B”no-
tice. The filer does not have to make
another solicitation pursuant to section 6724.
The amendments to the regulations ad-
dress the situation where a filer receives a
section 3406(a)(1)(B) notice with respect to
a payee in one year, and the following year
receives a penalty notice with respect to the
same payee and the same year as the sec-
tion 3406(a)(1)(B) notice. The amendments
provide that the filer is not required to make
an annual solicitation for the payee’s TIN
pursuant to section 6724 in this situation,
provided the filer has sent the required“B”
notice.
The written comments received ex-
pressed the view that the proposed regu-
lations clarified the backup withholding
rules and reduced the regulatory burden as-
sociated with backup withholding. No re-
visions to the proposed amendments were
suggested by commentators.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It has also 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
regulation does not impose a collection of
information on small entities, the Regula-
tory Flexibility Act (5 U.S.C. chapter 6)
does not apply.
Drafting Information
The principal author of these regula-
tions is Nancy L. Rose of the Office of the
Associate Chief Counsel (Procedure and
May 27, 20039462003–21 I.R.B.

Administration), Administrative Provi-
sions and Judicial Practice Division.
*****
AdoptionofAmendmentstothe
Regulations
Accordingly, 26 CFR parts 31 and 301
are amended as follows:
PA RT 3 1—EMPLOYMENT TAXES
AND COLLECTION OF INCOME TAX
AT SOURCE
Par. 1. The authority citation for part 31
continues to read in part as follows:
Authority: 26 U.S.C. 7805***
Par. 2. Section 31.3406(d)–5 is amended
by revising paragraphs (d)(2)(ii) and (g)(4)
to read as follows:
§31.3406(d)–5 Backup withholding when
the Service or a broker notifies the payor
to withhold because the payee’s taxpayer
identification number is incorrect.
*****
(d)***
(2)***
(ii)Two or more notices for an account
for the same year or received in the same
year. A payor who receives, under the same
payor taxpayer identification number, two
or more notices under paragraph (c)(1) or
(2) of this section with respect to the same
payee’s account for the same year, or in the
same calendar year, need only send one no-
tice to the payee under this section.
*****
(g)***
(4)Receipt of two notices for the same
year or in the same calendar year. A payor
who receives, under the same payor tax-
payer identification number, two or more
notices under paragraph (c)(1) or (2) of this
section with respect to the same payee’s ac-
count for the same year, or in the same cal-
endar year, must treat such notices as one
notice for purposes of this paragraph (g).
*****
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 3. The authority citation for part 301
continues to read in part as follows:
Authority: 26 U.S.C. 7805***
Par. 4. Section 301.6724–1 is amended
as follows:
1. Amending paragraph (f)(1)(ii), fourth
sentence, by removing“(n)”after“sec-
tion 6721”.
2. Revising paragraphs (f)(2) and (f)(3).
3. Amending paragraph (f)(5)(vi), last
sentence, by removing the language“para-
graph (f)(2)”and adding“paragraph (f)(3)”
in its place.
4. Amending paragraph (g)(1) by re-
moving the language“as provided under
section 6724(c)(1)”.
5. Amending paragraph (k),Example
3(ii), second sentence, by removing the lan-
guage“§35a.3406–1(c)(1) of this para-
graph”and adding“§31.3406(d)–5(d)(2)(i)
of this chapter”in its place; and by remov-
ing the language“(f)(2)”and adding“(f)(3)”
in its place.
6. Amending paragraph (k),Example
3(ii), fifth sentence, by removing the lan-
guage“§301.6721–1T”and adding
“§301.6721–1”in its place.
7. Amending paragraph (k),Example
3(iii), fifth sentence, by removing the lan-
guage“§35a.3406–1(c)(1)”and adding
“§31.3406(d)–5(d)(2)(i)”in its place.
8. Amending paragraph (k),Example
3(iii), last sentence, by removing the lan-
guage“§301.6721–1T”and adding
“§301.6721–1”in its place.
9. Amending paragraph (k),Example 5,
final sentence, by removing the language
“§301.6721–1T”and adding“§301.6721–1”
in its place.
10. Amending paragraph (k),Example
6(ii), sixth sentence, by removing the lan-
guage“(f)(3)”and adding the language
“(f)(2)”in its place.
11. Amending paragraph (k),Example
7(ii), fourth sentence, by removing the lan-
guage“(f)(2)”and adding“(f)(3)”in its
place; and by removing the language
“§35a.3406–1(c)(1)”andadding
“§31.3406(d)–5(g)(1)(ii)”in its place.
12. Amending paragraph (k),Example
7(ii), fifth sentence, by removing the lan-
guage“§35a.3406–1(c)(1)”and adding
“§31.3406(d)–5(g)(1)(ii)”in its place.
The revisions read as follows:
§301.6724–1 Reasonable cause.
*****
(f)***
(2)Manner of making annual solicita-
tion if notified pursuant to section 6721.A
filer that has been notified of an incorrect
TIN by a penalty notice or other notifica-
tion pursuant to section 6721 may satisfy
the solicitation requirement of this para-
graph (f) either by mail, in the manner set
forth in paragraph (e)(2)(i) of this sec-
tion; by telephone, in the manner set forth
in paragraph (e)(2)(ii) of this section; or by
requesting the TIN in person.
(3)Coordination with solicitations un-
der section 3406(a)(1)(b). (i) A filer that has
been notified of an incorrect TIN pursu-
ant to section 3406(a)(1)(B) (except filers
to which§31.3406(d)–5(b)(4)(i)(A) of this
chapter applies) will satisfy the solicita-
tion requirement of this paragraph (f) only
if it makes a solicitation in the manner and
within the time period required under
§31.3406(d)–5(d)(2)(i) or (g)(1)(ii) of this
chapter, whichever applies.
(ii) A filer that has been notified of an
incorrect TIN by a notice pursuant to sec-
tion 6721 (except filers to which
§31.3406(d)–5(b)(4)(i)(A) of this chapter ap-
plies) is not required to make the annual so-
licitation of this paragraph (f) if—
(A) The filer has received an effective
notice pursuant to section 3406(a)(1)(B)
with respect to the same payee, either dur-
ing the same calendar year or for informa-
tion returns filed for the same year; and
(B) The filer makes a solicitation in the
manner and within the time period required
under§31.3406(d)–5(d)(2)(i) or (g)(1)(ii) of
this chapter, whichever applies, before the
filer is required to make the annual solici-
tation of this paragraph (f).
(iii) A filer that has been notified of an
incorrect TIN by a notice pursuant to sec-
tion 6721 with respect to a fiduciary or
nominee account to which§31.3406(d)–
5(b)(4)(i)(A) of this chapter applies is re-
quired to make the annual solicitation of this
paragraph (f).
*****
David A. Mader,
Assistant Deputy Commisioner of
Internal Revenue.
Approved April 13, 2003.
Pamela F. Olson,
Assistant Secretary of the
Treasury (Tax Policy).
(Filed by the Office of the Federal Register on April 28, 2003,
8:45 a.m., and published in the issue of the Federal Regis-
ter for April 29, 2003, 68 F.R. 22594)
2003–21 I.R.B.947May 27, 2003

Part III. Administrative, Procedural, and Miscellaneous
Commercial-Type Insurance
Activities of Certain Exempt
Organizations
Notice 2003–31
I. PURPOSE
This notice announces that the Trea-
sury Department and the Internal Rev-
enue Service intend to propose regulations
providing guidance under§501(m) of the
Internal Revenue Code (the“Code”), which
will define the term“commercial-type in-
surance”and address how§501(m) ap-
plies to organizations described in
§501(c)(3) and§501(c)(4), including health
maintenance organizations. This notice also
requests comments on the content of the
regulations to be proposed. Finally, this no-
tice announces that, in light of the regula-
tions project, the Service is withdrawing
from the Internal Revenue Manual the sec-
tions of Part 7.8.1, Chapter 27, Exempt Or-
ganizations Examination Guidelines
Handbook, Health Maintenance Organiza-
tions (the“IRM HMO Guidelines”) that re-
late to§501(m) of the Code.
II. BACKGROUND
A. Legislative History§501(m)
Section 501(c)(3) describes organiza-
tions organized and operated exclusively for
charitable, religious, educational and other
specified purposes. Section 501(c)(4) de-
scribes organizations not organized for profit
but operated exclusively for the promo-
tion of social welfare. Section 501(m) pro-
vides that an organization described in
§501(c)(3) or§501(c)(4) shall be exempt
from tax under§501(a)“only if no sub-
stantial part of its activities consists of pro-
viding commercial-type insurance.”Section
501(m)(3)(A) provides that the term
“commercial-type insurance”does not in-
clude“insurance provided at substantially
below cost to a class of charitable recipi-
ents.”Section 501(m)(3)(B) provides that
the term“commercial-type insurance”does
not include“incidental health insurance pro-
vided by a health maintenance organiza-
tion of a kind customarily provided by such
organizations.”
Congress adopted§501(m) in 1986 be-
cause it was“concerned that exempt chari-
table and social welfare organizations that
engage in insurance activities are engaged
in an activity whose nature and scope is so
inherently commercial that tax exempt sta-
tus is inappropriate.”H.R. Rep. No. 99–
426, at 664 (1985). Congress believed that
the“tax-exempt status of organizations en-
gaged in insurance activities provides an un-
fair competitive advantage to these
organizations”over commercial insurers.
Ibid.
1
B. Definition of Insurance
Neither the Code nor the Income Tax
Regulations (the“Regulations”) define the
term“insurance.”The United States Su-
preme Court, however, has explained that,
for an arrangement to constitute insur-
ance for federal income tax purposes, both
risk shifting and risk distribution must be
present.Helvering v. LeGierse, 312 U.S.
531, 539 (1941).
Risk shifting occurs if a person facing
the possibility of an economic loss trans-
fers some or all of the financial conse-
quences of the potential loss to the insurer,
such that a loss by the insured does not af-
fect the insured because the loss is offset
by the insurance payment. Risk distribu-
tion incorporates the statistical phenom-
enon known as the law of large numbers.
Distributing risk allows the insurer to re-
duce the possibility that a single costly
claim will exceed the amount taken in as
premiums and set aside for the payment of
such a claim. Insuring many independent
risks in return for numerous premiums
serves to distribute risk. By assuming nu-
merous relatively small, independent risks
that occur randomly over time, the insurer
smoothes out losses to match more closely
its receipt of premiums.Clougherty Pack-
ing Co. v. Commissioner, 811 F.2d 1297,
1300 (9th Cir. 1987). Risk distribution nec-
essarily entails a pooling of premiums, so
that a potential insured is not in signifi-
cant part paying for its own risks.See Hu-
mana, Inc. v. Commissioner, 881 F.2d 247,
257 (6th Cir. 1989).
When Congress enacted§501(m), it fol-
lowed the Supreme Court’s definition of in-
surance.See1986 General Explanation, at
585 (Under§501(m),“commercial-type in-
surance does not include arrangements that
are not treated as insurance [i.e., in the ab-
sence of sufficient risk shifting and risk dis-
tribution for the arrangement to constitute
insurance],”citing Helvering v. LeGierse,
312 U.S. at 539).
C. Definition of“Commercial-Type In-
surance”
When§501(m) was enacted, Congress
did not specifically define the term
“commercial-type insurance.”The legisla-
tive history of§501(m) states that
“commercial-type insurance generally is any
insurance of a type provided by commer-
cial insurance companies.”H.R. Rep. No.
99–426, at 665 (1985); H.R. Conf. Rep. No.
99–841, at II–345, 346 (1986); 1986 Gen-
eral Explanation, at 585. Congress explained
that“the provision of insurance to the gen-
eral public at a price sufficient to cover the
costs of insurance generally constitutes an
activity that is commercial.”H.R. Rep. No.
99–426, at 664; 1986 General Explana-
tion, at 584.
InParatransit Insurance Corporation v.
Commissioner, 102 T.C. 745, 754 (1994),
the court held that“‘commercial-type in-
surance,’as used in§501(m), encompasses
every type of insurance that can be pur-
chased in the commercial market.”
2
InFlorida Hospital Trust Fund v. Com-
missioner, 103 T.C. 140, 158 (1994),aff’d
on other grounds, 71 F.3d 808, 812 (11th
Cir. 1996), the court held that the term
“commercial-typeinsurance”under
§501(m) means insurance“normally of-
fered by commercial insurers.”
InNonprofits’Insurance Alliance of
California v. U. S., 32 Fed. Cl. 277, 284
1
For a detailed discussion of the legislative history of§501(m), see H.R. Rep. No. 99–426, at 662–666 (1985); H.R. Conf. Rep. No. 99–841, at II–344–351 (1986); Staff of the Joint Committee on Taxation,Gen-
eral Explanation of the Tax Reform Act of 1986,at583–591 (Comm. Print 1987) (“1986 General Explanation”); H.R. Rep. No. 100–795, at 114–116 (1988); S. Rep. No. 100–445, at 120–122 (1988); H.R. Conf.
Rep. No. 100–1104, at 9 (1988); Staff of the Joint Committee on Taxation,Description of the Technical Corrections Act of 1988 (H.R. 4333 and S. 2238),at115–117 (Comm. Print 1988).
2
The court also found that the organization did not satisfy the exception in§501(m)(3)(A). 102 T.C. at 757–758.
May 27, 20039482003–21 I.R.B.

(1994), the court compared the organiza-
tion’s activities to commercial insurance
companies and found they were“commer-
cial in nature.”
3
III. NEED FOR GUIDANCE
Treasury and the Service believe that
guidance is necessary to provide§501(c)(3)
and§501(c)(4) organizations with greater
certainty as to the definition of the term
“commercial-type insurance”and how
§501(m) applies to organizations described
in§501(c)(3) and§501(c)(4), including
health maintenance organizations. The Code
does not define the term“commercial-
type insurance,”and no regulations or pub-
lished guidance have been issued under
§501(m). In addition, since the enactment
of§501(m), there have been significant de-
velopments in the insurance and health care
industries, including changes in the opera-
tion of health maintenance organizations.
Taxpayers have asked the Service to pro-
vide guidance under§501(m), defining the
term“commercial-type insurance”and de-
scribing the application of the exceptions
in§501(m)(3)(A) and§501(m)(3)(B). Trea-
sury and the Service intend to propose regu-
lations under§501(m). The proposed
regulationswilldefinetheterm
“commercial-type insurance”and address
how§501(m) applies to organizations de-
scribed in§501(c)(3) and§501(c)(4), in-
cluding health maintenance organizations.
Treasury and the Service expect that
these regulations will apply prospectively,
effective as of the date that final regula-
tions under§501(m) are published in the
Federal Register. Treasury and the Ser-
vice will consider proposing appropriate
transition rules, if necessary.
IV. WITHDRAWAL OF IRM
A health maintenance organization that
satisfies the IRM HMO Guidelines is treated
as qualifying for exemption under either
§501(c)(3) or§501(c)(4), as applicable,
and its activities are not treated as
“commercial-typeinsurance”under
§501(m). In light of the regulations project,
the Service is withdrawing for further study
the sections of the IRM HMO Guidelines
that relate to§501(m).
V. REQUEST FOR COMMENTS
Treasury and the Service request com-
ments on the content of the regulations to
be proposed, including the definition of the
term“commercial-type insurance”and the
application of§501(m) to organizations de-
scribed in§501(c)(3) and§501(c)(4), in-
cluding health maintenance organizations.
In particular, comments are requested on
what factors may be indicative of
“commercial-type insurance.”
In addition, comments are requested on
the exception from“commercial-type in-
surance”in§501(m)(3)(A). Comments are
specifically requested on: (i) the meaning
of the term“insurance provided at sub-
stantially below cost,”(ii) the application
of this exception to Medicaid-only health
maintenance organizations, and (iii) the
treatment of grants or contractual pay-
ments from states or the federal govern-
ment for purposes of this exception.
Further, Treasury and the Service re-
quest comments on the exception from
“commercial-typeinsurance”in
§501(m)(3)(B). In light of the legislative
history, comments are specifically requested
on: (i) what historical industry data or other
criteria the Service should use to deter-
mine whether the health insurance a health
maintenance organization provides is“of a
kind customarily provided by such orga-
nizations”; (ii) what factors or criteria the
Service should consider in determining
whether a health maintenance organiza-
tion’s“principal activity”is“providing
health care”; (iii) what factors or criteria the
Service should consider in determining
whether the health insurance a health main-
tenance organization provides is“inciden-
tal to the organization’s principal activity
of providing health care”; and (iv) how this
exception should be applied to a health
maintenance organization that does not pro-
vide“health care to its members predomi-
nantly at its own facility through the use of
health care professionals and other work-
ers employed by the organization.”
4
VI. SUBMISSION OF COMMENTS
Comments should be submitted by Au-
gust 25, 2003, in writing and should in-
clude a reference to Notice 2003–31.
Comments may be submitted to:
Internal Revenue Service
Attn: T:EO:RA:T:1 (Notice 2003–31)
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044
Comments may be hand delivered be-
tween the hours of 8 a.m. and 4 p.m., Mon-
day through Friday, to:
T:EO:RA:T:1 (Notice 2003–31)
Courier’s Desk
Internal Revenue Service
1111Constitution Avenue, N.W.
Washington, DC 20224
Alternatively, comments may be sent via
facsimile to (202) 283–9462 or via e-mail
totege.501m@irs.govand include a refer-
ence to Notice 2003–31.
All comments submitted will be avail-
able for public inspection and copying.
VII. DRAFTING INFORMATION
The principal author of this notice is
Lawrence M. Brauer, TE/GE Division, Ex-
empt Organizations. For further informa-
tion on this notice, contact Mr. Brauer at
(202) 283–9457 (not a toll-free call).
Weighted Average Interest
Rate Update
Notice 2003–32
Sections 412(b)(5)(B) and 412(l)(7)(C)(i)
of the Internal Revenue Code provide that
the interest rates used to calculate current
liability for purposes of determining the full
funding limitation under§412(c)(7) and the
required contribution under§412(l) must
be within a permissible range around the
weighted average of the rates of interest on
30-year Treasury securities during the four-
year period ending on the last day before
the beginning of the plan year.
Notice 88–73, 1988–2 C.B. 383, pro-
vides guidelines for determining the
weighted average interest rate and the re-
sulting permissible range of interest rates
used to calculate current liability for the pur-
pose of the full funding limitation of
§412(c)(7) of the Code.
Section 417(e)(3)(A)(ii)(II) defines the
applicable interest rate, which must be used
for purposes of determining the minimum
3
The court also found that the organization did not satisfy the exception in§501(m)(3)(A). 32 Fed. Cl. at 292.
4
SeeH.R. Rep. No. 99–426, at 665; 1986 General Explanation, at 585.
2003–21 I.R.B.949May 27, 2003

present value of a participant’s benefit un-
der§417(e)(1) and (2), as the annual rate
of interest on 30-year Treasury securities for
the month before the date of distribution or
such other time as the Secretary may by
regulations prescribe. Section 1.417(e)–
1(d)(3) of the Income Tax Regulations pro-
vides that the applicable interest rate for a
month is the annual interest rate on 30-
year Treasury securities as specified by the
Commissioner for that month in revenue
rulings, notices or other guidance pub-
lished in the Internal Revenue Bulletin.
The rate of interest on 30-year Trea-
sury Securities for April 2003 is 4.90 per-
cent. Pursuant to Notice 2002–26, 2002–1
C.B. 743, the Service has determined this
rate as the monthly average of the daily de-
termination of yield on the 30-year Trea-
sury bond maturing in February 2031.
Section 405 of the Job Creation and
Worker Assistance Act of 2002 amended
§412(l)(7)(C) of the Code to provide that
for plan years beginning in 2002 and 2003
the permissible range is extended to 120
percent.
The following rates were determined for
the plan years beginning in the month
shown below.
MonthYear
Weighted
Average
90% to 110%
Permissible
Range
90% to 120%
Permissible
Range
May20035.434.89 to 5.974.89 to 6.52
Drafting Information
The principal authors of this notice are
Paul Stern and Tony Montanaro of the Em-
ployee Plans, Tax Exempt and Govern-
ment Entities Division. For further
information regarding this notice, please
contact the Employee Plans’taxpayer as-
sistance telephone service at 1–877–829–
5500 (a toll-free number), between the hours
of 8:00 a.m. and 6:30 p.m. Eastern time,
Monday through Friday. Mr. Stern
may be reached at 1–202–283–9703.
Mr. Montanaro may be reached at 1–202–
283–9714. The telephone numbers in the
preceding two sentences are not toll-free.
26 CFR 601.105: Examination of returns and
claims for refund, credit, or abatement; determina-
tion of correct tax liability.
(Also Part I,§§864; 1.861–8T; 1.861–9T.)
Rev. Proc. 2003–37
SECTION 1. PURPOSE
This revenue procedure describes docu-
mentation and information a taxpayer that
uses the fair market value method of ap-
portionment of interest expense may pre-
pare and make available to the Internal
Revenue Service (“Service”) upon request
in order to establish the fair market value
of the taxpayer’s assets to the satisfaction
of the Commissioner as required by
§1.861–9T(g)(1)(iii). It also sets forth the
procedures to be followed in the case of
elections to use the fair market value
method.
SECTION 2. BACKGROUND
Section 901 of the Internal Revenue
Code (“Code”) allows taxpayers to elect to
receive a credit, subject to the limitations
of section 904, for any income, war prof-
its, and excess profits taxes paid or ac-
crued during the taxable year to any foreign
country or to any possession of the United
States. Section 904 generally limits the
amount of credit taken under section 901
to the portion of the taxpayer’s U.S. tax at-
tributable to the taxpayer’s taxable income
from sources without the United States.
Sections 862(b) and 863(a) provide that
taxable income attributable to gross in-
come from foreign sources shall be deter-
mined by deducting the expenses, losses,
and other deductions properly apportioned
or allocated thereto and a ratable part of any
expenses, losses, and other deductions that
cannot be definitely allocated to some item
or class of gross income. Section 864(e)(2)
provides that all allocations and apportion-
ments of interest expense must be made on
the basis of assets rather than gross in-
come. Sections 1.861–8T and 1.861–9T pro-
vide general rules governing the asset
method of interest expense apportionment,
and§§1.861–8T(c)(2) and 1.861–9T
(g)(1)(ii) provide that a taxpayer appor-
tions its interest expense on the basis of the
tax book value of its assets or, at the elec-
tion of the taxpayer, the fair market value
of its assets. Under both methods,§1.861–
9T(g)(3) requires assets to be character-
ized according to the source and type of
income that they generate, have gener-
ated, or may reasonably be expected to gen-
erate.
Section 1.861–9T(g)(1)(iii) requires a
taxpayer that elects to apportion its inter-
est expense using the fair market value
method to establish the fair market value
of its assets to the satisfaction of the Com-
missioner for each taxable year. If a tax-
payer fails to establish the fair market value
of an asset to the satisfaction of the Com-
missioner, the Commissioner may deter-
mine the appropriate asset value. If a
taxpayer fails to establish the value of a
substantial portion of its assets to the sat-
isfaction of the Commissioner, the Com-
missioner may require the taxpayer to use
the tax book value method. Section 1.861–
9T(h) provides specific rules for valuing as-
sets for taxpayers that use the fair market
value method of interest expense appor-
tionment.
SECTION 3. DOCUMENT AND
INFORMATION REQUIREMENTS
.01 If a taxpayer satisfies the require-
ments of sections 3.02 and 3.03 of this rev-
enue procedure regarding the preparation
and production of documents and other in-
formation relating to valuation of assets and
the Commissioner determines that the tax-
payer’s valuation of an asset is reason-
able, then the taxpayer will have established
the fair market value of the asset to the sat-
isfaction of the Commissioner pursuant to
§1.861–9T(g)(1)(iii).
.02 A taxpayer satisfies the require-
ments of this section 3.02 if the taxpayer
prepares and makes available to the Ser-
vice upon request a narrative statement de-
scribing the apportionment of interest
expense under the fair market value method
in sufficient detail such that the Service can
May 27, 20039502003–21 I.R.B.

reconcile the information on Schedule H of
Form 1118 with such apportionment meth-
odology, which narrative statement incor-
porates or is accompanied by the following
information:
(a) A description of how the taxpayer
calculated the aggregate value of the tax-
payer’s assets on the last day of its tax-
able year. In the case of a publicly traded
corporation, the taxpayer must describe how
the taxpayer calculated the aggregate trad-
ing value of stock traded on established se-
curities markets at year-end and how the
taxpayer calculated year-end liabilities to un-
related persons andpro ratashare of year-
end liabilities of all related persons owed
to unrelated persons as required by§1.861–
9T(h)(1)(i). In the case of a corporation that
is not publicly traded, the taxpayer must de-
scribe how the taxpayer calculated the ag-
gregate value of its assets by reference to
the capitalization of corporate earnings as
required by§1.861–9T(h)(1)(i).
(b) A description, by entity, of tangible
assets referred to in§1.861–9T(h)(1)(ii).
With respect to assets that have signifi-
cant value or that generate significant in-
come, the description must include detailed
information for the asset. For example, with
respect to real property, the description
should include location, zoning, and square
footage.
(c) An explanation of company struc-
ture and an identification of cost centers or
other reporting divisions or units to which
assets are assigned.
(d) A description of the valuation tech-
niques used to value tangible assets and the
reasons for selecting such valuation tech-
niques over alternative techniques. Any
valuation study relied upon by the tax-
payer must include an explanation describ-
ing the valuation of the tangible assets as
set forth in§1.861–9T(h)(1)(ii) in detail
sufficient to enable the Service, upon ex-
amination, to duplicate the methodology
used to obtain those fair market values. The
taxpayer must also provide a description of
all assumptions made in applying the valu-
ation techniques used in the study, includ-
ing but not limited to, discount rates,
obsolescence factors, and risk adjustments.
(e) An explanation of the manner in
which tangible assets were combined into
reasonable groupings and the reasons for
such grouping.
(f) An identification of any fungible
property, such as commodities, that was val-
ued using statistical methods of valua-
tion, and an explanation of such methods.
(g) A description of the apportionment
of interest expense to intangible asset val-
ues as computed under§1.861–9T(h)
(1)(iii).
.03 If the taxpayer or a third party used
any computer software to determine asset
values, characterize assets in accordance
with§1.861–9T(g)(3), or calculate the tax-
payer’s foreign tax credit limitation, the tax-
payer satisfies the requirements of this
section 3.03 if the taxpayer makes avail-
able to the Service upon request the
following:
(a) Any computer software executable
code used for such purposes, including an
executable copy of the version of the soft-
ware used in the preparation of the tax-
payer’s return (including any plug-ins,
supplements, etc.), and a copy of all
related electronic data files. Thus, if soft-
ware subsequently is upgraded or supple-
mented, a separate executable copy of the
version used in preparing the taxpayer’s re-
turn must be retained.
(b) Any related computer software source
code acquired or developed by the tax-
payer or a related person, or primarily for
internal use by the taxpayer or such per-
son rather than for commercial distribu-
tion.
(c) In the case of any spreadsheet soft-
ware or similar software, any formulae or
links to supporting worksheets.
For these purposes,“software,”“computer
software executable code,”and“computer
software source code”have the meanings
provided for those terms under section
7612(d). For example, computer software
executable code includes any related user
manuals or similar documentation. Finally,
nothing in this revenue procedure shall af-
fect the limitations and protections appli-
cable to summonses for software under
section 7612, or the authority of the Com-
missioner generally to issue a summons for
information in accordance with subchap-
ter A of Chapter 78 of the Code.
SECTION 4. USE OF FAIR MARKET
VALUE METHOD
.01 A taxpayer may elect to use the fair
market value method with respect to any
taxable year for which the statute of limi-
tations has not closed. However, an elec-
tion to use the fair market value method that
is not made until an audit of the taxable
year to which the election relates has com-
menced, or a taxpayer’s failure to pro-
vide timely the documentation and other
information supporting the valuation of the
taxpayer’s assets, creates administrative dif-
ficulties for the Service. Accordingly, sec-
tion 4 of this revenue procedure sets forth
the procedures the Service will follow in
the case of taxpayers using the fair mar-
ket value method and the actions it will re-
quest of taxpayers.
.02 In the case of a taxpayer that has
made an election to use the fair market
value method prior to the opening confer-
ence for the audit of the taxable year to
which the election relates or who makes
such an election within 90 days of such
opening conference, if the Service issues a
written information document request ask-
ing the taxpayer to provide the documents
and other information described in sec-
tions 3.02 and 3.03 of this revenue proce-
dure and the taxpayer complies with such
request within 30 days of the request, then
the Service will complete its examina-
tion, if any, with respect to the taxpayer’s
method of interest expense apportionment
for that year as part of the current exami-
nation cycle. If the taxpayer does not pro-
vide the documents and information
described in sections 3.02 and 3.03 within
30 days of the request, then the proce-
dures described in section 4.03 of this rev-
enue procedure shall apply.
.03 If a taxpayer makes an election to
use the fair market value method more than
90 days after the opening conference for the
audit of the taxable year to which the elec-
tion relates or the taxpayer does not pro-
vide the documents and information as
requested in accordance with section 4.02
of this revenue procedure, then the Ser-
vice will in a separate cycle determine
whether an examination of the taxpayer’s
method of interest expense apportionment
is warranted and complete any such ex-
amination. The separate cycle will be
worked as resources are available and may
not have the same estimated completion
date as the other issues under examina-
tion for the taxable year. The Service may
ask the taxpayer to agree to extend the stat-
ute of limitations on assessment and
collection for the taxable year to permit ex-
amination of the taxpayer’s method of in-
terest expense apportionment, including
an extension limited, where appropri-
2003–21 I.R.B.951May 27, 2003

ate, to the taxpayer’s method of interest
expense apportionment.
.04 For a taxable year for which the tax-
payer and the Service have agreed to use
the Limited Issue Focused Exam (LIFE)
process announced in IR 2002–133 (De-
cember 4, 2002), the time periods agreed
to in that process shall apply for purposes
of both the election to use the fair market
value method and the provision of docu-
ments and other information with respect
to such method.
SECTION 5. EFFECTIVE DATE
Section 3 of this revenue procedure is
effective for taxpayers using the fair mar-
ket value method for taxable years end-
ing after May 7, 2003. Section 4 of this
revenue procedure is effective for fair mar-
ket value method elections relating to tax-
able years for which the opening conference
of the audit occurs more than 30 days af-
ter May 7, 2003.
SECTION 6. PAPERWORK
REDUCTION ACT
The collection of information contained
in this revenue procedure has been reviewed
and approved by the Office of Manage-
ment and Budget in accordance with the Pa-
perwork Reduction Act (44 U.S.C. 3507)
under control number 1545–1833.
An agency may not conduct or spon-
sor, and a person is not required to re-
spond to, a collection of information unless
the collection of information displays a valid
OMB control number.
The collection of information in this rev-
enue procedure is in section 3, under which
taxpayers may prepare and make avail-
able to the Commissioner upon request the
documents and other information described
therein in order for the Commissioner to
make a determination regarding whether a
taxpayer’s valuation of an asset is reason-
able. This information will be used by rev-
enue agents to assist in determining if the
taxpayer has established the fair market
value of the taxpayer’s assets to the satis-
faction of the Commissioner. The likely re-
spondents are multinational businesses or
other for-profit institutions.
The estimated total annual reporting
and/or recordkeeping burden is 625 hours.
Theestimatedannualburdenper
respondent/recordkeeper is an estimated av-
erage of 5 hours. The estimated number of
respondents and/or recordkeepers is 125.
The estimated frequency of response is on
occasion.
Books or records relating to a collec-
tion of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally tax returns and tax return in-
formation are confidential, as required by
26 U.S.C. 6103.
SECTION 7. DRAFTING
INFORMATION
The principal author of this revenue pro-
cedure is Melissa Arndt of the Office of the
Associate Chief Counsel (International). For
further information regarding this revenue
procedure, contact Ms. Arndt at (202) 622–
3850 (not a toll-free call).
May 27, 20039522003–21 I.R.B.

Part IV. Items of General Interest
New Form 8876,Excise Tax
on Structured Settlement
Factoring Transactions
Announcement 2003–33
The IRS has released newForm 8876,
Excise Tax on Structured Settlement Fac-
toring Transactions. Use Form 8876 to re-
port and pay the 40% excise tax imposed
under section 5891 on the factoring dis-
count.
You can obtain Form 8876 by telephone
or by using IRS electronic information ser-
vices.
Request byNumber or Address
Telephone
1–800–TAX–FORM
(1–800–829–3676)
Personal computer:
IRS web sitewww.irs.gov
File transfer protocol
ftp.irs.gov
Foundations Status of Certain
Organizations
Announcement 2003–34
The following organizations have failed
to establish or have been unable to main-
tain their status as public charities or as op-
erating foundations. Accordingly, grantors
and contributors may not, after this date,
rely on previous rulings or designations in
the Cumulative List of Organizations (Pub-
lication 78), or on the presumption aris-
ing from the filing of notices under section
508(b) of the Code. This listing doesnot
indicate that the organizations have lost their
status as organizations described in sec-
tion 501(c)(3), eligible to receive deduct-
ible contributions.
Former Public Charities.The follow-
ing organizations (which have been treated
as organizations that are not private foun-
dations described in section 509(a) of the
Code) are now classified as private
foundations:
4 Bar M Coach, Inc., Decatur, TX
11th Hour Company, Inc.,
Brooklyn, NY
Academy of Artistic Gymnastics TAAG
Parents Club, San Antonio, TX
Actors Project Theatre Company, Inc.,
Coral Springs, FL
African Cultural Center, Incorporated,
Rockville, MD
American Childrens Ice Theatre, Inc.,
Saugus, MA
Angell School PTO, Ann Arbor, MI
Another Byte, Inc., Flagstaff, AZ
Apex Financial Support Group, Inc.,
East Meadow, NY
Appalachian Focus, Inc.,
Middlesboro, KY
Arizona Education Academy,
Phoenix, AZ
Arkansas Friends for Better Schools,
Little Rock, AR
Arrowhead Elementary Parents and
Teachers Organization,
Lewis Center, OH
Arsenal Football Associates, Ltd.,
Mt. Lake Park, MD
Arts for Art, Inc., New York, NY
Asheville Puppetry Alliance,
Fairview, NC
Ashland United Soccer, Ashland, OH
Asylum, Las Vegas, NV
Baker Brownsfield Athletic Association,
Baton Rouge, LA
Baldwin RHF Housing, Inc.,
Long Beach, CA
Baldwyn Childrens Home, Saltillo, MS
Bean Station PTO, Bean Station, TN
Bible Research Study Institute,
Santa Cruz, CA
Bittenbender Jr. Ballet Co., Inc.,
Mesquite, TX
Blackman TKD Parents Association,
Inc., Albuquerque, NM
Bloomfield Youth Basketball League,
Bloomfield, CT
Borderline Volunteer Caregivers, Inc.,
Monroe, WI
Breakaway Ministries, Burnsville, MN
Breakers of Rocky River, Inc.,
Rocky River, OH
Brentwood Area Soccer Association—
BASA, Pittsburgh, PA
Bridge to Tomorrow Housing, Inc.,
Mineola, NY
British Film Festival, West Jordan, UT
Broadreach Foundation, Raleigh, NC
Burlington Iowa Stepperettes &
Travelers, Burlington, IA
Byron Center Band and Orchestra
Boosters, Kentwood, MI
Capital Area Resource Center of the
Deaf and Hard of Hearing, Inc.,
Richmond, VA
Caprock Childrens Services,
Lubbock, TX
Center for Youth Activism,
State College, PA
Central Florida Riptide, Inc.,
Orlando, FL
Cfec-Chorus, Myrtle Beach, SC
Chance Youth Foundation, Inc.,
Richmond, VA
Childrens Assistance Organization,
Lansing, MI
Christian Faculty and Staff Fellowship,
Fargo, ND
Christian Ministries United,
Richmond, VA
Chronic Fatigue Syndrome Foundation
of Greater Baton Rouge, Inc.,
Baton Rouge, LA
Church Multiplication International, Inc.,
Duluth, GA
Civic Health Institute, Inc.,
Pittsburgh, PA
Clear Ink Foundation, Alamo, CA
Coastal Bend Resource Group, Inc.,
Corpus Christi, TX
2003–21 I.R.B.953May 27, 2003

Colton C A R E Coalition, Colton, OR
Columbia School PTO,
McGuire AFB, NJ
Com Scribe Service, Inc.,
East Lansing, MI
Communities Handling Alterns Needs
for Cont. Education, Memphis, TN
Community Outreach and Youth
Development Services, Inc.,
Macon, GA
Community Preschool Inclusion
Program, Virginia Beach, VA
Copii House Foundation, Inc.,
Cohocton, NY
Copper Basin Baseball Diamond Club,
Inc., Copperhill, TN
Copper Basin Cougar Basketball Club,
Inc., Copperhill, TN
Copper Basin Lady Cougars Softball
Club, Inc., Copperhill, TN
Copper Basin Touch Down Club, Inc.,
Copperhill, TN
Coterie Club, Senatobia, MS
Cottonwood-Granite Baseball League,
Salt Lake City, UT
Cougar Haven, Gore Springs, MS
Crisis Pregnancy Center,
Greenwood, MS
Cy-Fair Special Olympic Booster Club,
Cypress, TX
Cypress Housing Foundation,
Downey, CA
Dan Adders, Incorporated,
Las Vegas, NV
David Binn Foundation, San Diego, CA
Dazzle Song & Dance Company,
Williamsburg, VA
Deer Park FFA Booster Club,
Deer Park, TX
Denton Youth Basketball, Inc.,
Denton, TX
Desert Coyote Youth Hockey Assn.,
Bermuda Dunes, CA
Deutschland Michigan-Exchange,
West Bloomfield, MI
Diabetes Youth Support Foundation,
Santa Monica, CA
Discovery Learning Fund, Inc.,
Newark, NJ
District Resource Investments, Inc.,
Brackettville, TX
Diversity in Literature for Kids (DLK),
Inc., Atlanta, GA
Dobson Crew Chiefs, Chandler, AZ
Dobyns Bennett Orchestra Guild,
Kingsport, TN
Domenica Enrichment Center for Special
Needs, Inc., Ridgewood, NJ
East End Swim Club, Inc., Shirley, NY
East Falmouth Elementary Parent
Teacher Organization,
East Falmouth, MA
East Union Grad Night, Manteca, CA
Edmond Figure Skating Club,
Edmond, OK
Edwards Volunteer Organization,
Newberg, OR
Elegance in Style, Incorporated,
Ellicott City, MD
Empowering Residents to Achieve
Scenic Excellence Foundation, Inc.,
Charleston, WV
Encampment Riverside Youth Baseball,
Encampment, WY
Epiphany Place, Marshall, MN
Express Youth Baseball, Waco, TX
Family Tyme, Madrid, IA
Fantasia Arts of York Maine (FAYM),
York, ME
FCW, Defiance, MO
First Night Newark, Inc., Newark, NJ
For FEMALES, Houston, TX
For the Love of Children,
Colleyville, TX
Fort Lauderdale Childrens Ballet
Theatre, Inc., Ft. Lauderdale, FL
Fort Wellington Hopetown Belair
Charity Association, Brooklyn, NY
Foundation for United Neighborhood
Development Opportunities,
Concord, CA
Framingham Community Development
Corporation, Framingham, MA
Front Forty Productions, Inc.,
Stevens Point, WI
GE Federation Booster Club,
Meraux, LA
George Jenkins High School Chorus
Booster Club, Inc., Lakeland, FL
Georgia Std. Coalition, Inc.,
Gainesville, GA
Get Up On It, Inc., Philadelphia, PA
Global Unity, La Jolla, CA
Gold Coast Basketball, Inc.,
Santa Barbara, CA
Gourmet Gala, Slidell, LA
Grace Little Peoples Learning Center,
Inc., University Cy, MO
Great Hills Swim Team, Inc.,
Austin, TX
Great Lakes Puppetry Center,
Chicago, IL
Greater Roanoke Basketball Union,
Roanoke, VA
Greater Rochesters Kingdom Bound
Kids, Inc., Penfield, NY
Green Ridge Booster Club,
Green Ridge, MO
Gymnastrum Parents Association, Inc.,
Allentown, PA
Hall of Fame Charitable Foundation,
Columbus, OH
Hands From Heaven, San Francisco, CA
Haralson Coalition for Children Youth
and Families, Inc., Bremen, GA
Harbor Arts, Inc., Union Pier, MI
Hard Hat Theater Company,
Toluca Lake, CA
Harvested Seeds, Inc., Birmingham, AL
Haude Elementary Parent Teacher
Organization, Inc., Spring, TX
Health Resource Center for Palestine,
Inc., Sarasota, FL
Heart of the City Neighborhoods, Inc.,
Buffalo, NY
Help Under Direct Care Organization,
Cape Coral, FL
Helping Hands Helping Hearts, Inc.,
Tampa, FL
Helzberg Entrepreneurial Mentoring
Program, Kansas City, MO
Hep C Advocated Network,
Longview, TX
Home Scholars, Richmond, CA
Homeschoolers Support Network, Inc.,
Trenton, NJ
House of Hope of Northeast Tennessee,
Elizabethton, TN
House of Levi Keter Kehuna Shevet
Levi, Inc., New York, NY
Houston Justice & Peace Center,
Houston, TX
Hudson River Community Counseling
Alliance, Mount Kisco, NY
Hurlbutt Elementary School PTO,
Weston, CT
Huron High School PTSO,
Ann Arbor, MI
Inner-City Scholarship Endowment
Fund, New York, NY
International Electronic Library, Incorp.,
Fontana, CA
International Professional Assoc. for
AIDS and Childrens Charities,
New York, NY
Intertribal Arts Project, Inc.,
Falmouth, MA
Iowa City Music Auxiliary, Inc.,
Iowa City, IA
Irvine Girls Softball Association,
Irvine, CA
Island University Foundation,
Corpus Christi, TX
May 27, 20039542003–21 I.R.B.

Jackys Recreation and Family Life
Center, Inc., Kilgore, TX
Jenkins Wrestling Club, Lakeland, FL
Jim Ned Project Graduation,
Tuscola, TX
Jimmy Raye Youth Foundation, Inc.,
Fayetteville, NC
Jo Ella Ellison Ministries DBA Therapon
Counseling Center, Austin, TX
Joseph House Ministries, Tega Cay, SC
Joyful Choices Institute,
Sierra Madre, CA
Juice Guys Care, Inc., Nantucket, MA
K C Youth Sports Inc.,
Overland Park, KS
Kairos Academy, Newark, OH
Kansas City Globe 100 Most Influential
Charitable Fund, Inc.,
Kansas City, MO
Kenya Shoe Expedition, Houston, TX
Keren Chaverim, Inc., Brooklyn, NY
Kids Campus Daycare and Learning
Center, Inc., Florence, NJ
Kinney County Youth Development
Association, Brackettville, TX
Korima Foundation of the Big Bend
Ranch, Inc., Houston, TX
Lady Bug Booster Club, Muncie, IN
Lafayette Youth Amateur Ice Hockey
Association, Inc., Carencro, LA
Lagrange Ball Association, Inc.,
Canton, MO
Lake Country Ami, Inc., Pittsburg, TX
Lake Unified Visitation Center, Inc.,
Griffith, IN
Learning Link, Palm Springs, CA
Lee County MHMR Board, Inc.,
Giddings, TX
Life Builders Ministries, Irvine, CA
Literacy Connection, Kennewick, WA
Literature for Humanity Foundation,
Richmond, CA
Living Books Literacy Center, Inc.,
Austin, TX
Local Active Women LAW Association,
Brownsville, TX
Lone Star Behavioral Health Services,
Inc., Round Rock, TX
Los Amigos Del Fortin, Presidio, TX
Los Angeles Youth Hockey Association,
Long Beach, CA
MacArthur-Eisenhower Scholastic Chess
Club, Schaumburg, IL
Madge and Raford Martin Charitable
Foundation, Inc.,
Indian Rocks Beach, FL
Magic Valley Volleyball Club, Inc.,
Buhl, ID
Mahalick Charitable TR 1519013272,
Charlotte, NC
Maine Property Rights Alliance, Inc.,
Sullivan, ME
Manchester High School Band Boosters,
Chesterfield, VA
Manhigim Hadashim Foundation, Inc.,
San Diego, CA
March for Jesus of South Bend,
Mishawaka, IN
Mariemont High School Parent Teacher
Organization, Cincinnati, OH
Mariemont Junior High PTO,
Cincinnati, OH
Marx Toy Museum, Inc., Erie, PA
Maryland Arts Den, Inc.,
Baltimore, MD
Mascotas Jibaras, San Juan, PR
Maui Dolphins Swim Club,
Pukalani, HI
McArts Fine Art Organization Limited,
Kimball, WV
Mid South Gospel Association,
New Orleans, LA
Mililani High School Spada, Inc.,
Mililani, HI
Millington Area Education Foundation,
Millington, TN
Miracle Network, Inc., Dallas, TX
Miracle Star Womens Recovering
Community, Lancaster, CA
Montour Antique Farm Machine
Collectors Association, Danville, PA
Mountain View Family Youth Center,
Mountain View, MO
Multi-County Child and Family
Services, Forrest City, AR
My Sisters Closet, Baltimore, MD
Nashville Fencing Academy,
Nashville, TN
Natick on Ensemble Theater,
Incorporated, Natick, MA
National Catholic Forensic League, Inc.,
Milford, MA
Nederland Educational Foundation, Inc.,
Nederland, TX
Network of Indian Professionals-New
York Foundation, Inc.,
New York, NY
New Faith New Beginning,
National City, CA
New Hampshire Criminal Justice
Resource Center, Inc., Concord, NH
New Neighbors Charitable Tr.,
Rancho Palos Verdes, CA
Newtowne Court-Washington Elms
Tenant Council, Cambridge, MA
Nicolet Soccer Club, Inc., Glendale, WI
Norman Park Educational Foundation,
Chula Vista, CA
North Louisiana Gospel Association,
Inc., New Orleans, LA
North Warren Elementary School PTO,
N. Warren, PA
Northland College Lumberjack Hockey
Booster Club, Inc., Ashland, WI
Northwestern Choral Boosters,
Rock Hill, SC
Nueva Vida Por Nueva Mexico,
Santa Fe, NM
Nursing Education Alumni Association,
Inc., Astoria, NY
Oakland Community Theatre, Inc.,
Oakland, NJ
Octopi, Richmond, VA
Offering an Entrance to Him Ministries,
Inc., St. Louis, MO
Ohio F C, Dublin, OH
Ohr Hadash Jewish Healing Center, Inc.,
Dallas, TX
Owasso Cheerleader Booster Club
(OCBC), Owasso, OK
P S 11 Programs, Inc., New York, NY
Pacific Justice Institute,
Citrus Heights, CA
Peoples Princess Charitable Foundation,
Tampa, FL
Perimeter Global Associates, Inc.,
Duluth, GA
Philanthropic Charities,
Castro Valley, CA
PHP Ministries, Inc., Ridgewood, NJ
Piece of Work Theater Company, Inc.,
New York, NY
Piihonua EA, Hilo, HI
Pine Tree High School Theater Booster
Club, Longview, TX
Pioneer Lyric Theatre, Denton, TX
Planet ECO, San Diego, CA
Point Dujour Renel, Brooklyn, NY
Pondering the Documentary,
Santa Monica, CA
Presbyterian Learning Center, Inc.,
Morganton, NC
Pride Productions, Port Isabel, TX
Project Vision, Inc., Port St. Lucie, FL
Prospect Historical Society,
Prospect, VA
Rancho Selah, Inc., Harwood, TX
Red River Foundation,
Grand Forks, ND
Relief Effort Act Charitable Trust
(REACT), Quakertown, PA
River City Junior Volleyball, Inc.,
Omaha, NE
2003–21 I.R.B.955May 27, 2003

Rock Youth Ministries, Inc.,
Boynton Beach, FL
Rocks Coordinating Committee,
Chicago, IL
Rolling Plains Industrial Foundation,
Haskell, TX
Rush-Henrietta Soccer Club, Inc.,
Henrietta, NY
S F Striders, San Francisco, CA
Salazar Park Youth Association,
Los Angeles, CA
Salt Council of Triad of Jefferson
County Alabama, Birmingham, AL
San Jose Coral Project, Sunnyvale, CA
Sanders Enterprise Community
Development, Brooklyn, NY
SCDF Loan and Technical Assistance
Fund, Inc., Lafayette, LA
Seaside High School Instrumental Music
Boosters, Marina, CA
Seguin Project, Buffalo, NY
Servants of Society Foundation, Inc.,
Portland, OR
Shaarei Zion Day Care, Inc.,
Baltimore, MD
Share Mothers Program, Inc.,
Madison, TN
Shared Technologies, Incorporated,
Norfolk, VA
Sierra Housing Foundation,
Downey, CA
Sierra Leone Charitable Foundation,
Detroit, MI
Sign of the Times-the Recycle Manland
Project, Inc., Waco, TX
Silhouettes School of Construction,
Oakland, CA
Simple Way, Philadelphia, PA
Somali Community Service, Inc.,
Chelse, MA
Sonoma Creek Adopt-a-Watershed,
Sonoma, CA
South Newton Music Boosters,
Kentland, IN
Southern Senior High School Sports
Booster Club, Inc., Tracys Lndg, MD
Squires League Rockies Baseball
Organization, Inc., Baton Rouge, LA
SRI Sadguru Swayam Prakasha
Avadhootha Swamigal Intl. Mission,
Jackson Heights, NY
St. Louis Gator AAU Basketball,
Chesterfield, MO
Students for DC, Salinas, CA
Talk Afterschool, Inc., Smoketown, PA
Tao of Holy Confucius Association, Inc.,
Oceanside, NY
Tarkington Community Baseball
Association, Inc., Cleveland, TX
TDDJ, Inc., Loxahatchee, FL
Team First Volleyball Club,
Cameron, TX
Technological Instruction International,
Culver City, CA
Templeton Grad Night Committee,
Templeton, CA
Ten Thousand Villages Tucson, Inc.,
Tucson, AZ
Texas Alternative Certification
Association, Katy, TX
Texas Music Library & Research Center,
Houston, TX
Third Eye, San Diego, CA
Together Education Accomplish More
Success, Seattle, WA
Training and Restoring Urban
Empowerment, Cape Girardeau, MO
Trampoline and Tumbling Team
Association, Blue Springs, MO
T R I P Plus, Riverside, CA
Union of Siguiri People, Inc.,
New York, NY
United Rescue Groups, Inc., Austin, TX
United Scholarship America Foundation,
Pleasant Grove, UT
United States Service Agency USSA,
Buena Park, CA
United Success-Ful Ministries, Inc.,
Tacoma, WA
Unity Network and Counseling Center,
Atlanta, GA
Universal Concert Association, Inc.,
Buffalo, NY
Upward Community Builders, Inc.,
Mineola, NY
UW-Random Acts of Kindness,
Madison, WI
Veterans Refuge Center,
Long Beach, CA
Village Project, Seattle, WA
Virginia Citizenship Institute,
Arlington, VA
Virginia Raptors, Virginia Beach, VA
Vox Populi, Philadelphia, PA
Wagner Middle School Parents
Association, New York, NY
Washoe County Assess to Justice
Foundation, Reno, NV
Wax Fruit Theatre Company,
Chicago, IL
WCV, Inc., Brooklyn, NY
We Assist, Inc., Brooklyn, NY
Westchester Chinese School, Inc.,
Scarsdale, NY
Western Institute for Nature Resources
Education and Policy, Rickreall, OR
Westfield Baseball Association, Inc.,
Houston, TX
Windy City P. A. W. S., Chicago, IL
Wing & Groove Theatre Company,
Chicago, IL
Women in Gods Word Ministries,
Rialto, CA
World Historical Society for
Thoroughbred Horses,
Las Vegas, NV
Young Artist With Integrity Destine to
Succeed, Brooklyn, NY
Youth Soccer Development Fund, Inc.,
Norwalk, CT
If an organization listed above submits
information that warrants the renewal of its
classification as a public charity or as a pri-
vate operating foundation, the Internal Rev-
enue 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)–7 of the In-
come Tax Regulations. It is not the prac-
tice of the Service to announce such revised
classification of foundation status in the In-
ternal Revenue Bulletin.
Safe Harbor for Satisfying
Statutory Requirements for
Valuation Under Section 475
for Certain Securities and
Commodities
Announcement 2003–35
AGENCY: Internal Revenue Service (IRS),
Treasury.
ACTION: Advance notice of proposed rule-
making.
SUMMARY: This document describes and
explains a possible framework for a safe
harbor (including recordkeeping and record
retention requirements) that would satisfy
the statutory requirement to value certain
securities and commodities under section
475 of the Internal Revenue Code. This
document also invites comments from the
public on this safe harbor and other alter-
native valuation methodologies. All mate-
rials submitted will be available for public
inspection and copying.
DATES: Written or electronic comments
must be submitted by August 4, 2003.
May 27, 20039562003–21 I.R.B.

ADDRESSES: Send submissions to:
CC:PA:RU (REG–100420–03), room 5226,
Internal Revenue Service, POB 7604, Ben
Franklin Station, Washington, DC 20044.
Submissions may be hand delivered Mon-
day through Friday between the hours of
8 a.m. and 4 p.m. to: CC:PA:RU (REG–
100420–03), Courier’s Desk, Internal Rev-
enue Service,1111Constitution Avenue
NW, Washington, DC. Alternatively, tax-
payers may send electronic comments di-
rectly to the IRS Internet site at
www.irs.gov/regs.
FOR FURTHER INFORMATION CON-
TACT: Concerning submissions, LaNita
Van Dyke, (202) 622–7180; concerning
the proposals, Marsha Sabin or John W.
Rogers III, (202) 622–3950 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
A. Overview
Section 475(a) requires dealers in secu-
rities to mark their securities to market. If
a security is inventory, it must be included
in inventory at its fair market value. If a se-
curity is not inventory and is held at the end
of the taxable year, it must be treated as if
it were sold for its fair market value on the
last business day of the taxable year. Mark-
to-market treatment is available on an elec-
tive basis to commodities dealers and to
traders in securities or commodities.See
sections 475(e) and (f).
Although the meaning of the term“fair
market value”has long been established, it
has been difficult for both taxpayers and the
IRS to determine fair market value in cer-
tain situations. To reduce the administra-
tive burden on taxpayers and the IRS of
determining fair market value under sec-
tion 475, the IRS and the Treasury Depart-
ment are considering the publication of a
notice of proposed rulemaking that, by al-
lowing values used on a financial state-
ment to be used on the tax return, would
provide an elective safe harbor for satis-
fying the statutory requirement to value se-
curities and commodities.
Three broad principles guide eligibil-
ity for the safe harbor. First, any mark-to-
market methodology used on a financial
statement submitted for financial report-
ing purposes would have to be sufficiently
consistent with the mark-to-market meth-
odology used under section 475. Second,
the financial statement would have to be
one for which the taxpayer has a strong in-
centive to report values fairly. Third, if re-
quested, the taxpayer would have to timely
provide the IRS with the information and
documents necessary to verify the relation-
ship between the values reported on the fi-
nancial statement and the values used for
purposes of section 475.
B. Principle One: Mark-to-Market
Methodology for Financial Reporting
To qualify for the safe harbor, a mark-
to-market methodology used for financial
reporting should be sufficiently consis-
tent with the requirements of a mark-to-
market methodology used for section 475.
Under section 475, a mark-to-market meth-
odology must (i) value securities and com-
modities as of the last business day of each
taxable year, (ii) recognize into income the
gains and losses arising from changes in
value each year, and (iii) compute gain or
loss on disposition by reference to the value
at the end of the prior year. To the extent
that mark-to-market methodologies for fi-
nancial reporting and section 475 differ, the
IRS and the Treasury Department request
comments identifying the differences and
addressing whether and how the differ-
ences should affect the safe harbor.
The valuation standard under section 475
is fair market value, the price at which prop-
erty would change hands between a will-
ing buyer and willing seller, neither being
under any compulsion to buy or sell and
both having reasonable knowledge of rel-
evant facts. The IRS and the Treasury De-
partment are considering whether to use the
fair value standard under U.S. Generally Ac-
cepted Accounting Principles (“GAAP”)as
a proxy for the fair market value stan-
dard required for tax purposes. In particu-
lar, the IRS and the Treasury Department
seek comments on whether GAAP per-
mits (i) valuation of securities at the bid
price, (ii) downward adjustments from mid-
market values for future administrative,
hedging, or financing expenses, or (iii) one
or more redundant downward adjustments
from mid-market values for credit risk. (In
other words, if future cash flows are dis-
counted to present value using a rate, such
as LIBOR (London Interbank Offered Rate),
that corresponds to the credit quality of the
counterparty, is there a need for any addi-
tional credit adjustment?)
The IRS and the Treasury Department
are interested in receiving information on
the types of adjustments that are currently
used for financial statement purposes and
an explanation of these adjustments. Com-
ments are requested on the Financial Ac-
counting Standards Board’s consideration
of fair value reporting of derivatives and the
valuation of projected cash flows and any
impact that has on how taxpayers are re-
porting any valuation adjustments for fair
value purposes.
C. Principle Two: Financial Statements
and Business Use
Two factors are relevant in establish-
ing that the taxpayer has a strong incen-
tive to report values of the securities and
commodities fairly on the financial
statement: (i) reporting of values on a fi-
nancial statement; and (ii) significant use
of those reported values in the taxpayer’s
business.
As to the reporting of values, the IRS
and the Treasury Department are consid-
ering various types of financial statements
for the safe harbor. Three classes of finan-
cial statements under consideration are:
(1) A financial statement required to be
filed with the Securities and Exchange
Commission (“SEC”) (the 10–K or the An-
nual Statement to Shareholders);
(2) A financial statement required to be
provided to the federal government or any
of its agencies (other than the SEC or the
IRS); and
(3) A certified audited financial state-
ment not required to be filed with the SEC
or another federal agency.
In certain limited circumstances, it may
also be appropriate to consider financial
statements required to be filed with a state
government or any of its agencies, a po-
litical subdivision of a state, or possibly a
foreign regulator.
It may also be relevant whether a state-
ment is provided to equity holders or credi-
tors.
Comments are requested on the extent
to which each of these various classes of
financial statements is appropriate for the
safe harbor and whether any other classes
of financial statements may be as well.
As to significant use of reported val-
ues in the taxpayer’s business, potentially
significant uses include guiding the tax-
payer’s pricing and risk management de-
cisionsanddeterminingemployee
compensation.
Special considerations arise if securi-
ties or commodities are held by a party re-
2003–21 I.R.B.957May 27, 2003

lated to the issuer or if derivatives in
securities or commodities (including for-
ward contracts in cash markets) exist be-
tween related parties. Financial consolidation
can cause these securities or commodities
(including derivatives) to be either elimi-
nated (because of netting) or incompletely
reported on financial statements. Addition-
ally, in certain circumstances, these re-
lated party transactions may not receive the
same level of regulatory scrutiny. It is not
clear, therefore, whether the safe harbor
would be appropriate for securities or com-
modities held by a party related to the is-
suer or for derivatives in securities or
commodities that exist between related par-
ties.
D. Principle Three: Recordkeeping and
Record Production
Under the safe harbor, examinations of
returns would focus on how the values used
in the financial statements relate to gain and
loss on the tax returns. Consequently,
records would have to clearly show: (1) that
the same value used on the financial state-
ment was used on the tax return; (2) that
no security subject to section 475 and re-
ported under the required methodology on
the financial statement was excluded in the
application of the safe harbor; and (3) that
only securities or commodities subject to
section 475 had been carried over to the tax
return under the safe harbor.
Given the complexity of the business op-
erations of many taxpayers, comparing a
single line on the financial statement to a
single line on the tax return will not suf-
fice to verify that the same value used for
the financial statement was used on the tax
return. Therefore, a safe harbor will im-
pose specific verification and reconcilia-
tion requirements.
The IRS and the Treasury Department
are concerned about valuation issues that
may arise from pooling of securities and
commodities. Comments are requested on
how securities and commodities are pooled
for purposes of financial reporting, how they
are pooled for tax reporting, and how the
Commissioner can verify the basis deter-
mination of a single position contained in
the pool if that position is sold or settled
in the year following the mark and other po-
sitions in the pool are not sold.
The IRS and the Treasury Department
are similarly concerned about the consoli-
dation and de-consolidation of the busi-
ness structure. Comments are requested on
the impact of the consolidation and de-
consolidation on determining whether the
same securities and commodities will be re-
flected on both the financial statement and
the tax return.
The IRS and the Treasury Department
are considering rules that would require
electing taxpayers to maintain and, if re-
quested, provide to the Commissioner in a
timely manner the following records: (1)
books and records clearly establishing that
the values used in determining gain or loss
under section 475(a) for eligible securi-
ties or commodities were the values used
in the financial statement; (2) for taxpay-
ers filing a Form 1120, a reconciliation of
the amount of net income reported on the
financial statement to the amount reported
on line 1 of the Schedule M–1 on the Form
1120,Corporate Income Tax Return; and
(3) for other taxpayers, a similar reconcili-
ation schedule. The documents for recon-
ciliation purposes include supporting
schedules, exhibits, computer programs used
in producing the values and schedules, and
documentation of rules and procedures gov-
erning determination of the values. Books
and records would include all those that are
required to be maintained for financial or
regulatory reporting purposes, even if those
books and records are not specifically cov-
ered by section 6001. Comments are re-
quested on whether less burdensome
recordkeeping requirements could be de-
veloped that would still allow for effec-
tive verification of conformity.
The IRS and the Treasury Department
are considering situations in which the
Commissioner should enter into agree-
ments with specific taxpayers establish-
ing which records would have to be
maintained, how the records would have to
be maintained, and how long the records
would have to be retained. Because an
agreement would be tailored to a particu-
lar taxpayer’s operations and environment,
it is expected that an agreement would arise
only after individual negotiations. Although
no taxpayer would be entitled to an agree-
ment, an agreement based on an early un-
derstanding of a taxpayer’s operations
would be in the best interests of tax ad-
ministration and, therefore, would be en-
couraged.
E. Eligible Taxpayers
The safe harbor is being considered for
dealers in securities under section 475(c)(1).
Whether the safe harbor would also be ex-
tended to securities traders, dealers in com-
modities, and commodities traders would
largely depend on whether the extension
would comport with the principles described
in the Overview.
F. Eligible Securities and Commodities
Section 475 applies to a wide variety of
securities and commodities. It is relatively
easy for both taxpayers and the IRS to de-
termine the fair market value of positions
for which pricing information is readily
available, such as most actively traded per-
sonal property. The need for a safe har-
bor is most pressing for positions for which
pricing information is not readily avail-
able, including more complex notional prin-
cipal contracts and derivative instruments,
andhedgesdescribedinsections
475(c)(2)(D), (E), and (F). Comments are
requested on what securities should be in-
cluded in the safe harbor.
Commodities raise problems similar to
those for securities, so the need for a safe
harbor is similarly pressing for commodi-
ties (including commodities derivatives) for
which pricing information is not readily
available. Comments are requested address-
ing application of a safe harbor for com-
modities.
G. Comments on Other Valuation
Methodologies and Safe Harbors
Comments are requested on whether
there are other methodologies for deter-
mining fair market values under section 475.
Comments are also requested on whether
other safe harbors could act as proxies for
fair market value under section 475.
Lon B. Smith,
Associate Chief Counsel
(Financial Institutions and Products).
(Filed by the Office of the Federal Register on May 2, 2003,
8:45 a.m., and published in the issue of the Federal Regis-
ter for May 5, 2003, 68 F.R. 23632)
May 27, 20039582003–21 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.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of 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.
2003–21 I.R.B.iMay 27, 2003

Numerical Finding List
1
Bulletins 2003–1 through 2003–20
Announcements:
2003–1, 2003–2 I.R.B.281
2003–2, 2003–3 I.R.B.301
2003–3, 2003–4 I.R.B.361
2003–4, 2003–5 I.R.B.396
2003–5, 2003–5 I.R.B.397
2003–6, 2003–6 I.R.B.450
2003–7, 2003–6 I.R.B.450
2003–8, 2003–6 I.R.B.451
2003–9, 2003–7 I.R.B.490
2003–10, 2003–7 I.R.B.490
2003–11, 2003–10 I.R.B.585
2003–12, 2003–10 I.R.B.585
2003–13, 2003–11 I.R.B.603
2003–14, 2003–11 I.R.B.603
2003–15, 2003–11 I.R.B.605
2003–16, 2003–12 I.R.B.641
2003–17, 2003–15 I.R.B.722
2003–18, 2003–13 I.R.B.675
2003–19, 2003–15 I.R.B.723
2003–20, 2003–15 I.R.B.750
2003–21, 2003–17 I.R.B.846
2003–22, 2003–17 I.R.B.846
2003–23, 2003–16 I.R.B.808
2003–24, 2003–16 I.R.B.810
2003–25, 2003–17 I.R.B.846
2003–26, 2003–18 I.R.B.862
2003–27, 2003–18 I.R.B.862
2003–28, 2003–19 I.R.B.899
2003–29, 2003–20 I.R.B.928
2003–30, 2003–20 I.R.B.929
2003–31, 2003–20 I.R.B.930
2003–32, 2003–20 I.R.B.933
Court Decisions:
2077, 2003–19 I.R.B.868
Notices:
2003–1, 2003–2 I.R.B.257
2003–2, 2003–2 I.R.B.257
2003–3, 2003–2 I.R.B.258
2003–4, 2003–3 I.R.B.294
2003–5, 2003–3 I.R.B.294
2003–6, 2003–3 I.R.B.298
2003–7, 2003–4 I.R.B.310
2003–8, 2003–4 I.R.B.310
2003–9, 2003–5 I.R.B.369
2003–10, 2003–5 I.R.B.369
2003–11, 2003–6 I.R.B.422
2003–12, 2003–6 I.R.B.422
2003–13, 2003–8 I.R.B.513
2003–14, 2003–8 I.R.B.515
2003–15, 2003–9 I.R.B.540
2003–16, 2003–10 I.R.B.575
2003–17, 2003–12 I.R.B.633
2003–18, 2003–14 I.R.B.699
2003–19, 2003–14 I.R.B.703
2003–20, 2003–19 I.R.B.894
2003–21, 2003–17 I.R.B.817
2003–22, 2003–18 I.R.B.851
Notices—Continued:
2003–23, 2003–17 I.R.B.821
2003–24, 2003–18 I.R.B.853
2003–25, 2003–18 I.R.B.855
2003–26, 2003–18 I.R.B.855
2003–27, 2003–19 I.R.B.898
2003–29, 2003–20 I.R.B.917
Proposed Regulations:
REG–209500–86, 2003–2 I.R.B.262
REG–104385–01, 2003–12 I.R.B.634
REG–116641–01, 2003–8 I.R.B.518
REG–125638–01, 2003–5 I.R.B.373
REG–126016–01, 2003–7 I.R.B.486
REG–126485–01, 2003–9 I.R.B.542
REG–103580–02, 2003–9 I.R.B.543
REG–124069–02, 2003–7 I.R.B.488
REG–131478–02, 2003–13 I.R.B.669
REG–138882–02, 2003–8 I.R.B.522
REG–139768–02, 2003–10 I.R.B.583
REG–141097–02, 2003–16 I.R.B.807
REG–141659–02, 2003–20 I.R.B.927
REG–151043–02, 2003–3 I.R.B.300
REG–164464–02, 2003–2 I.R.B.262
Revenue Procedures:
2003–1, 2003–1 I.R.B.1
2003–2, 2003–1 I.R.B.76
2003–3, 2003–1 I.R.B.113
2003–4, 2003–1 I.R.B.123
2003–5, 2003–1 I.R.B.163
2003–6, 2003–1 I.R.B.191
2003–7, 2003–1 I.R.B.233
2003–8, 2003–1 I.R.B.236
2003–9, 2003–8 I.R.B.516
2003–10, 2003–2 I.R.B.259
2003–11, 2003–4 I.R.B.311
2003–12, 2003–4 I.R.B.316
2003–13, 2003–4 I.R.B.317
2003–14, 2003–4 I.R.B.319
2003–15, 2003–4 I.R.B.321
2003–16, 2003–4 I.R.B.359
2003–17, 2003–6 I.R.B.427
2003–18, 2003–6 I.R.B.439
2003–19, 2003–5 I.R.B.371
2003–20, 2003–6 I.R.B.445
2003–21, 2003–6 I.R.B.448
2003–22, 2003–10 I.R.B.577
2003–23, 2003–11 I.R.B.599
2003–24, 2003–11 I.R.B.599
2003–25, 2003–11 I.R.B.601
2003–26, 2003–13 I.R.B.666
2003–27, 2003–13 I.R.B.667
2003–28, 2003–16 I.R.B.759
2003–29, 2003–20 I.R.B.917
2003–30, 2003–17 I.R.B.822
2003–31, 2003–17 I.R.B.838
2003–32, 2003–16 I.R.B.803
2003–33, 2003–16 I.R.B.803
2003–34, 2003–18 I.R.B.856
2003–35, 2003–20 I.R.B.919
2003–36, 2003–18 I.R.B.859
Revenue Rulings:
2003–1, 2003–3 I.R.B.291
2003–2, 2003–2 I.R.B.251
2003–3, 2003–2 I.R.B.252
2003–4, 2003–2 I.R.B.253
2003–5, 2003–2 I.R.B.254
2003–6, 2003–3 I.R.B.286
2003–7, 2003–5 I.R.B.363
2003–8, 2003–3 I.R.B.290
2003–9, 2003–4 I.R.B.303
2003–10, 2003–3 I.R.B.288
2003–11, 2003–3 I.R.B.285
2003–12, 2003–3 I.R.B.283
2003–13, 2003–4 I.R.B.305
2003–14, 2003–4 I.R.B.302
2003–15, 2003–4 I.R.B.302
2003–16, 2003–6 I.R.B.401
2003–17, 2003–6 I.R.B.400
2003–18, 2003–7 I.R.B.467
2003–19, 2003–7 I.R.B.468
2003–20, 2003–7 I.R.B.465
2003–21, 2003–8 I.R.B.509
2003–22, 2003–8 I.R.B.494
2003–23, 2003–8 I.R.B.511
2003–24, 2003–10 I.R.B.557
2003–25, 2003–13 I.R.B.642
2003–26, 2003–10 I.R.B.563
2003–27, 2003–11 I.R.B.597
2003–28, 2003–11 I.R.B.594
2003–29, 2003–11 I.R.B.587
2003–30, 2003–13 I.R.B.659
2003–31, 2003–13 I.R.B.643
2003–32, 2003–14 I.R.B.689
2003–33, 2003–13 I.R.B.642
2003–34, 2003–17 I.R.B.813
2003–35, 2003–14 I.R.B.687
2003–36, 2003–18 I.R.B.849
2003–37, 2003–15 I.R.B.717
2003–38, 2003–17 I.R.B.811
2003–39, 2003–17 I.R.B.811
2003–40, 2003–17 I.R.B.813
2003–41, 2003–17 I.R.B.814
2003–42, 2003–16 I.R.B.754
2003–44, 2003–18 I.R.B.848
2003–45, 2003–19 I.R.B.876
2003–46, 2003–19 I.R.B.878
2003–47, 2003–19 I.R.B.866
2003–48, 2003–19 I.R.B.863
2003–49, 2003–20 I.R.B.903
Tax Conventions:
Ann. 2003–21, 2003–17 I.R.B.846
Treasury Decisions:
9024, 2003–5 I.R.B.365
9025, 2003–5 I.R.B.362
9026, 2003–5 I.R.B.366
9027, 2003–6 I.R.B.413
9028, 2003–6 I.R.B.415
9029, 2003–6 I.R.B.403
9030, 2003–8 I.R.B.495
9031, 2003–8 I.R.B.504
9032, 2003–7 I.R.B.471
9033, 2003–7 I.R.B.483
1
A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 2002–26 through 2002–52 is
in Internal Revenue Bulletin 2003–1, dated January 6, 2003.
May 27, 2003ii2003–21 I.R.B.

Treasury Decisions—Continued:
9034, 2003–7 I.R.B.453
9035, 2003–9 I.R.B.528
9036, 2003–9 I.R.B.533
9037, 2003–9 I.R.B.535
9038, 2003–9 I.R.B.524
9039, 2003–10 I.R.B.561
9040, 2003–10 I.R.B.568
9041, 2003–8 I.R.B.510
9042, 2003–10 I.R.B.564
9043, 2003–12 I.R.B.611
9044, 2003–14 I.R.B.690
9045, 2003–12 I.R.B.610
9046, 2003–12 I.R.B.614
9047, 2003–14 I.R.B.676
9048, 2003–13 I.R.B.644
9049, 2003–14 I.R.B.685
9050, 2003–14 I.R.B.693
9051, 2003–16 I.R.B.755
9052, 2003–19 I.R.B.879
9053, 2003–20 I.R.B.914
9054, 2003–20 I.R.B.909
2003–21 I.R.B.iiiMay 27, 2003

Finding List of Current Actions
on Previously Published Items
2
Bulletins 2003–1 through 2003–20
Notices:
97–19
Modified by
Rev. Proc. 2003–1, 2003–1 I.R.B.1
2000–38
Modified by
Notice 2003–20, 2003–19 I.R.B.894
2001–26
Obsoleted by
T.D. 9032, 2003–7 I.R.B.471
2001–46
Modified by
Notice 2003–6, 2003–3 I.R.B.298
2001–69
Modified and superseded by
Notice 2003–1, 2003–2 I.R.B.257
2002–20
Superseded by
Rev. Proc. 2003–36, 2003–18 I.R.B.859
2002–27
Clarified by
Notice 2003–3, 2003–2 I.R.B.258
2002–40
Modified by
Ann. 2003–18, 2003–13 I.R.B.675
2002–46
Modified by
Notice 2003–10, 2003–5 I.R.B.369
Proposed Regulations:
REG–209500–86
Corrected by
Ann. 2003–6, 2003–6 I.R.B.450
REG–103829–99
Corrected by
Ann. 2003–12, 2003–10 I.R.B.585
REG–126485–01
Withdrawn by
REG–126485–01, 2003–9 I.R.B.542
Corrected by
Ann. 2003–25, 2003–17 I.R.B.846
REG–131478–02
Corrected by
Ann. 2003–24, 2003–16 I.R.B.810
REG–143321–02
Corrected by
Ann. 2003–12, 2003–10 I.R.B.585
REG–164464–02
Corrected by
Ann. 2003–6, 2003–6 I.R.B.450
Revenue Procedures:
83–23
Supplemented by
Rev. Proc. 2003–21, 2003–6 I.R.B.448
84–37
Modified by
Rev. Proc. 2003–1, 2003–1 I.R.B.1
93–38
Obsoleted by
Rev. Proc. 2003–15, 2003–4 I.R.B.321
97–31
Modified by
Rev. Proc. 2003–9, 2003–8 I.R.B.516
98–13
Obsoleted by
T.D. 9032, 2003–7 I.R.B.471
2002–1
Superseded by
Rev. Proc. 2003–1, 2003–1 I.R.B.1
2002–2
Superseded by
Rev. Proc. 2003–2, 2003–1 I.R.B.76
2002–3
Superseded by
Rev. Proc. 2003–3, 2003–1 I.R.B.113
2002–4
Superseded by
Rev. Proc. 2003–4, 2003–1 I.R.B.123
2002–5
Superseded by
Rev. Proc. 2003–5, 2003–1 I.R.B.163
2002–6
Superseded by
Rev. Proc. 2003–6, 2003–1 I.R.B.191
2002–7
Superseded by
Rev. Proc. 2003–7, 2003–1 I.R.B.233
2002–8
Superseded by
Rev. Proc. 2003–8, 2003–1 I.R.B.236
2002–9
Modified and amplified by
Rev. Proc. 2003–20, 2003–6 I.R.B.445
Rev. Rul. 2003–3, 2003–2 I.R.B.252
2002–20
Supplemented by
Rev. Proc. 2003–26, 2003–13 I.R.B.666
2002–22
Modified by
Rev. Proc. 2003–3, 2003–1 I.R.B.113
2002–29
Modified by
Rev. Proc. 2003–10, 2003–2 I.R.B.259
2002–37
Modified by
Rev. Proc. 2002–34, 2002–18 I.R.B.856
Revenue Procedures—Continued:
2002–39
Modified by
Rev. Proc. 2002–34, 2002–18 I.R.B.856
2002–51
Superseded by
Rev. Proc. 2003–31, 2003–17 I.R.B.838
2002–52
Modified by
Rev. Proc. 2003–1, 2003–1 I.R.B.1
2002–53
Superseded by
Rev. Proc. 2003–30, 2003–17 I.R.B.822
2002–57
Superseded by
Rev. Proc. 2003–28, 2003–16 I.R.B.759
2002–67
Supplemented by
Ann. 2003–3, 2003–4 I.R.B.361
2002–75
Superseded by
Rev. Proc. 2003–3, 2003–1 I.R.B.113
2003–3
Amplified by
Rev. Proc. 2003–14, 2003–4 I.R.B.319
2003–7
Corrected by
Ann. 2003–4, 2003–5 I.R.B396
Revenue Rulings:
53–131
Modified by
Rev. Rul. 2003–12, 2003–3 I.R.B.283
57–190
Obsoleted by
Rev. Rul. 2003–18, 2003–7 I.R.B.467
65–190
Revoked by
Rev. Rul. 2003–3, 2003–2 I.R.B.252
66–118
Distinguished by
Rev. Rul. 2003–41, 2003–17 I.R.B.814
69–372
Revoked by
Rev. Rul. 2003–3, 2003–2 I.R.B.252
86–88
Supplemented by
Rev. Rul. 2003–46, 2003–19 I.R.B.878
88–36
Supplemented by
Rev. Rul. 2003–46, 2003–19 I.R.B.878
92–19
Supplemented in part by
Rev. Rul. 2003–24, 2003–10 I.R.B.557
2
A cumulative list of current actions on previously
published items in Internal Revenue Bulletins
2002–26 through 2002–52 is in Internal Revenue
Bulletin 2003–1, dated January 6, 2003.
May 27, 2003iv2003–21 I.R.B.

Revenue Rulings—Continued:
2000–49
Modified and superseded by
Rev. Rul. 2003–49, 2003–20 I.R.B.903
2003–2
Revoked by
Rev. Rul. 2003–22, 2003–8 I.R.B.494
Treasury Decisions:
9002
Corrected by
Ann. 2003–8, 2003–6 I.R.B.451
9021
Corrected by
Ann. 2003–16, 2003–12 I.R.B.641
9022
Supplemented by
Ann. 2003–7, 2003–6 I.R.B.450
Corrected by
Ann. 2003–11, 2003–10 I.R.B.585
9048
Corrected by
Ann. 2003–23, 2003–16 I.R.B.808
2003–21 I.R.B.v*U.S. Government Printing Office: 2003—496–919/60084May 27, 2003