Internal Revenue Bulletin 1999-7 (PDF rendition): IRS Revenue Procedures

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

INCOME TAX
Rev. Rul. 99–9, page 14.
LIFO; price indexes; department stores.The December
1998 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, December 31,
1998.
T.D. 8792, page 36.
Final regulations under section 7702B of the Code relate to
consumer protection with respect to qualified long-term care
insurance contracts and relate to events that will result in
the loss of grandfathered status for long-term care insur-
ance contracts issued prior to January 1, 1997.
T.D. 8793, page 15.
REG–111435–98, page 55.
Temporary and proposed regulations under sections 6103
and 6311 of the Code authorize the Secretary of the Trea-
sury to accept payment of internal revenue taxes by credit
card or debit card.
T.D. 8809, page 27.
REG–117620–98, page 59.
Temporary and proposed regulations under section 6330 of
the Code relate to the provision of notice to taxpayers of a
right to a hearing before levy. A public hearing will be held on
June 15, 1999.
T.D. 8810, page 19.
REG–116824–98, page 57.
Temporary and proposed regulations under section 6320 of
the Code relate to the provision of notice to taxpayers of the
filing of a notice of federal tax lien (NFTL).
EMPLOYEE PLANS
T.D. 8794, page 4.
REG–113694–98, page 56.
Final, temporary, and proposed regulations under sections
411 and 417 of the Code relate to the increase from
$3,500 to $5,000 of the limit on distributions from qualified
retirement plans that can be made without participant con-
sent.
T.D. 8795, page 8.
Final regulations under section 411 of the Code provide
guidance on the requirements of section 204(h) of the Em-
ployee Retirement Income Security Act of 1974, as
amended (ERISA), relating to defined benefit plans and to in-
dividual account plans that are subject to the funding stan-
dards of section 302 of ERISA.
ADMINISTRATIVE
Rev. Proc. 99–15, page 42.
Insurance companies; loss reserves; discounting un-
paid losses.The loss payment patterns and discount fac-
tors are set forth for the 1998 accident year. These factors
will be used for computing discounted unpaid losses under
section 846 of the Code.
Rev. Proc. 99–16, page 50.
Insurance companies; discounting estimated salvage
recoverable.The salvage discount factors are set forth for
the 1998 accident year. These factors will be used for com-
puting estimated salvage recoverable under section 832 of
the Code.
Rev. Proc. 99–17, page 52.
Commodities dealers; securities or commodities
traders: procedures for making elections.This proce-
dure prescribes the time and manner for dealers in com-
modities and traders in securities or commodities to elect to
use the mark-to-market method of accounting under section
475 of the Code.
Announcement 99–14, page 60.
Final regulation T.D. 8611, 1995–2 C.B. 286, relating to
conduit financing arrangements under section 7701 of the
Code, is corrected.
Internal Revenue
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Bulletin No. 1999–7
February 16, 1999
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.
Department of the Treasury
Internal Revenue Service
Finding Lists begin on page 62.
IRB 1999-7 2/11/99 4:17 PM Page 1

Mission of the Service
Provide America’s taxpayers top quality service by help-
ing them understand and meet their tax responsibilities
and by applying the tax law with integrity and fairness to
all.
2
Statement of Principles
of Internal Revenue
Tax Administration
The function of the Internal Revenue Service is to adminis-
ter the Internal Revenue Code. Tax policy for raising revenue
is determined by Congress.
With this in mind, it is the duty of the Service to carry out that
policy by correctly applying the laws enacted by Congress;
to determine the reasonable meaning of various Code provi-
sions in light of the Congressional purpose in enacting them;
and to perform this work in a fair and impartial manner, with
neither a government nor a taxpayer point of view.
At the heart of administration is interpretation of the Code. It
is the responsibility of each person in the Service, charged
with the duty of interpreting the law, to try to find the true
meaning of the statutory provision and not to adopt a
strained construction in the belief that he or she is “protect-
ing the revenue.” The revenue is properly protected only
when we ascertain and apply the true meaning of the statute.
The Service also has the responsibility of applying and
administering the law in a reasonable, practical manner.
Issues should only be raised by examining officers when
they have merit, never arbitrarily or for trading purposes.
At the same time, the examining officer should never hesi-
tate to raise a meritorious issue. It is also important that
care be exercised not to raise an issue or to ask a court to
adopt a position inconsistent with an established Service
position.
Administration should be both reasonable and vigorous. It
should be conducted with as little delay as possible and
with great courtesy and considerateness. It should never
try to overreach, and should be reasonable within the
bounds of law and sound administration. It should, howev-
er, be vigorous in requiring compliance with law and it
should be relentless in its attack on unreal tax devices and
fraud.
IRB 1999-7 2/11/99 4:17 PM Page 2

The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi-
cial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly and may be obtained
from the Superintendent of Documents on a subscription
basis. Bulletin contents of a permanent nature are consoli-
dated 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 published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of in-
ternal management are not published; however, statements
of internal practices and procedures that affect the rights
and duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings
to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature
are deleted to prevent unwarranted invasions of privacy and
to comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have
the force and effect of Treasury Department Regulations,
but they may be used as precedents. Unpublished rulings
will not be relied on, used, or cited as precedents by Service
personnel in the disposition of other cases. In applying pub-
lished rulings and procedures, the effect of subsequent leg-
islation, regulations, court decisions, rulings, and proce-
dures must be considered, and Service personnel and oth-
ers concerned are cautioned against reaching the same con-
clusions 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 Subpart B, Legislation and Related
Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and Sub-
parts. Also included in this part are Bank Secrecy Act Admin-
istrative Rulings. Bank Secrecy Act Administrative Rulings
are issued by the Department of the Treasury’s Office of the
Assistant Secretary (Enforcement).
Part IV.—Items of General Interest.
With the exception of the Notice of Proposed Rulemaking
and the disbarment and suspension list included in this part,
none of these announcements are consolidated in the Cumu-
lative Bulletins.
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 quarterly and
semiannual basis, and are published in the first Bulletin of the
succeeding quarterly and semiannual period, respectively.
3
Introduction
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.
IRB 1999-7 2/11/99 4:17 PM Page 3

Section 411.—Minimum Vesting
Standards
26 CFR 1.411(a)–7T: Definitions and special rules
(temporary).
T.D. 8794
DEPARTMENT OF THE TREASURY
Interval Revenue Service
26 CFR Parts and 31
Increase In Cash-Out Limit
Under Sections (411(a)(7),
411(a)(11), and 417(e)(1) for
Qualified Retirement Plans
AGENCY: Internal Revenue Service
(IRS) Treasury.
ACTION: Final and temporary regula-
tions.
SUMMARY: This document contains
final and temporary regulations providing
guidance relating to the increase from
$3,500 to $5,000 of the limit on distribu-
tions from qualified retirement plans that
can be made without participant consent.
This increase is contained in the Taxpayer
Relief Act of 1997. In addition, these reg-
ulations eliminate, for most distributions,
the “lookback rule” pursuant to which the
qualified plan benefits of certain partici-
pants are deemed to exceed this limit on
mandatory distributions. The final and
temporary regulations affect sponsors and
administrators of qualified retirement
plans, and participants in those plans. The
final regulations also amend the existing
final regulations to cross-reference the
temporary regulations. The text of the
temporary regulations also serves, in part,
as the text of the proposed regulations set
forth in REG–113694–98, page 56 in this
Bulletin.
DATES: Effective Date: These regula-
tions are effective December 31, 1998.
Applicability Date:These final and
temporary regulations generally apply to
distributions made on or after March 22,
1999. However, employers are permitted
to apply the final regulations and the tem-
porary regulations other than §1.411(a)–
11T(c)(i) to plan years beginning on or
after August 6, 1997.
FOR FURTHER INFORMATION CON-
TACT: Michael J. Karlan, (202) 622-6030
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to
the Income Tax Regulations and the Em-
ployment Tax Regulations (26 CFR parts
1 and 31) under sections 411(a)(7),
411(a)(11), and 417(e)(1) regarding re-
strictions on involuntary distributions and
joint and survivor annuity requirements
for qualified plans. The final and tempo-
rary regulations change the existing regu-
lations to take into account amendments
made by the Taxpayer Relief Act of 1997
(TRA ’97), Public Law 105–34, 111 Stat.
788 (1997).
Explanation of Provisions
A. Restrictions on Mandatory
Distributions
Prior to the enactment of TRA ’97, sec-
tion 411(a)(11)(A) provided that if the pre-
sent value of any nonforfeitable accrued
benefit exceeded $3,500, a plan met the
requirements of section 411(a)(11) only if
such plan provided that such benefit could
not be immediately distributed without the
consent of the participant. TRA ’97
changed this cash-out limit to $5,000, ef-
fective for plan years beginning after Au-
gust 5, 1997. For this purpose, both be-
fore and after the enactment of TRA ’97,
the present value of a participant’s nonfor-
feitable benefit is calculated in accordance
with section 417(e)(3).
Interpreting the law prior to the
enactment of TRA ’97, §1.411(a)–11(c)(3)
provides that the written consent of a par-
ticipant is required before the commence-
ment of the distribution of any portion of
the participant’s accrued benefit if the pre-
sent value of the nonforfeitable total ac-
crued benefit is greater than $3,500. If the
present value does not exceed $3,500, the
consent requirements are deemed satisfied,
and the plan may distribute such portion to
the participant as a single sum. The regula-
tion further provides that, if the present
value determined at the time of a distribu-
tion to the participant exceeds $3,500, then
the present value at any subsequent time is
deemed to exceed $3,500; this is com-
monly referred to as the “lookback rule.”
Consistent with the TRA ’97 change,
these regulations increase the cash-out
limit to $5,000. In determining whether a
participant’s nonforfeitable accrued bene-
fit may be distributed without consent
during plan years beginning on or after
August 6, 1997, the new cash-out limit of
$5,000 is permitted to be applied as
though it were in effect for all plan years,
including those beginning before August
6, 1997. Thus, for example, a calendar
year plan may be amended to provide for
the involuntary distribution after Decem-
ber 31, 1997, of the accrued benefit of a
participant who terminated employment
on or before that date, if the present value
of the accrued benefit does not exceed
$5,000 at the time of the distribution (sub-
ject to the exception described below for
optional forms of benefit under which at
least one scheduled periodic distribution
is still payable). This result is the same
even if the accrued benefit could only
have been distributed with the partici-
pant’s or the spouse’s consent at termina-
tion of employment because the present
value of the benefit exceeded $3,500 at
that time.
In addition, these temporary regula-
tions eliminate, for many distributions,
the lookback rule under §1.411(a)–11(c)-
(3). Under these regulations, a plan may
provide that the present value of a partici-
pant’s nonforfeitable accrued benefit gen-
erally may be distributed without consent
if that present value does not exceed the
cash-out limit as determined at the time of
the current distribution without regard to
the present value of the participant’s ben-
efit at the time of an earlier distribution.
However, under these temporary regula-
tions, if a participation has begun to re-
ceive distributions pursuant to an optional
form of benefit under which at least one
scheduled periodic distribution is still
payable, and if the present value of the
participant’s nonforfeitable accrued bene-
fit exceeded the $5,000 cash-out limit at
the time of the first distribution under that
optional form of benefit, then the present
value of the participant’s nonforfeitable
accrued benefit may not be distributed
without consent.
February 16, 199941999–7 I.R.B.
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
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B. Immediate Distribution of the Present
Value of a QJSA or QPSA
Prior to the enactment of TRA ’97, sec-
tion 417(e)(1) provided that a plan subject
to sections 401(a)(11) and 417 could pro-
vide that the present value of a qualified
joint and survivor annuity (“QJSA”) or a
qualified preretirement survivor annuity
(“QPSA”) would be immediately distrib-
uted if such value did not exceed $3,500.
Pursuant to section 417(e)(1), no distribu-
tion could be made under the preceding
sentence after the annuity starting date
unless the participant and the spouse of
the participant (or where the participant
had died, the surviving spouse) consented
in writing to such distribution. TRA ’97
changed this dollar limit from $3,500 to
the dollar limit under section
411(a)(11)(A), effective for plan years be-
ginning after August 5, 1997. These regu-
lations change only the dollar limit in
§1.417(e)–1(b)(2)(i) from $3,500 to the
dollar limit under section 411(a)(11)(A),
and do not revise the lookback rule set
forth in that section for plans subject to
sections 401(a)(11) and 417.
C. Proposed Regulations
The proposed regulations set forth in the
notice of proposed rulemaking on this sub-
ject in the Proposed Rules section of the
Federal Registercompletely repeal the
lookback rule under §§1.411(a)– 11(c)(3)
and 1.417(e)–1(b)(2)(i), i.e.,both for plans
that are and plans that are not subject to
sections 401(a)(11) and 417. In accordance
with section 417(e)(1), the proposed regu-
lations provide that, in the case of plans
subject to sections 401(a)(11) and 417,
consent is required after the annuity start-
ing date for the immediate distribution of
the present value of the accrued benefit
being distributed in any form, including a
qualified joint and survivor annuity or a
qualified preretirement survivor annuity,
regardless of the amount of that present
value. Where only a portion of an accrued
benefit is being distributed, this provision
applies only to that portion (and not to the
portion with respect to which no distribu-
tions are being made).
D. Disregard of Certain Past Service
Section 411(a)(7)(B)(i) provides that,
for purposes of determining the em-
ployee’s accrued benefit under the plan,
the plan may disregard service performed
by the employee with respect to which he
has received a distribution of the present
value of his entire nonforfeitable benefit
if such distribution was in an amount not
more than $3,500 (prior to the amend-
ment of the cash-out limit under TRA
’97), as permitted under regulations pre-
scribed by the Secretary. Section
411(a)(7)(B)(i) applies only if the distrib-
ution was made on termination of the em-
ployee’s participation in the plan, and
§1.411(a)–7(d)(4)(i)(C) provides that
such involuntary distributions must have
been made due to the termination of the
employee’s participation in the plan. TRA
’97 changed this $3,500 limit to the dollar
limit under section 411(a)(11)(A), effec-
tive for plan years beginning after August
5, 1997. These temporary regulations pro-
vide that, for purposes of applying section
411(a)(7)(B)(i), an involuntary distribu-
tion of an employee’s nonforfeitable ac-
crued benefit the present value of which
does not exceed $5,000 may be treated as
having occurred due to termination of
participation if the distribution could have
been made due to termination of partici-
pation but for the fact that the present
value exceeded $3,500 at that time.
E. Conforming Amendments
Several other provisions of the Trea-
sury Regulations incorporate the cash-out
limit, and these regulations make con-
forming amendments to those provisions
in order to incorporate the new cash-out
limit under section 411(a)(11). Specifi-
cally, conforming amendments are made
to the following sections: §§1.401(a)–20
Q&A-8(d); 1.401(a)–20 Q&A-24;
1.401(a)(4)–4(b)(2)(ii)(C); 1.401(a)(26)–
4(d)(2); 1.401(a)(26)–6(c)(4); 1.411(a)–
11(b); 1.411(a)–11(c)(7); 1.411(d)–4
Q&A-2(b)(2)(v); 1.411(d)–4 Q&A-4(a);
1.417(e)–1(b)(2)(i); and 31.3121(b)(7)–
2(d)(2)(i).
F. Valuation Rules
Section 417(e)(3) prescribes rules and
definitions for determining the present
value of an accrued benefit under a de-
fined benefit plan for purposes of sections
417 and 411(a)(11)(A). (In the case of a
defined contribution plan, the present
value of the accrued benefit is the value of
the account balance.) The present value of
a participant’s accrued benefit for pur-
poses of the cash-out limit is determined
in accordance with section 417(e)(3)
using the interest rate and mortality tables
in effect under the plan for the annuity
starting date. Thus, for example, if the
present value of the participant’s accrued
benefit using the rate described in section
417(e)(3)(B) (often referred to as the
“PBGC rate”) exceeds $5,000, and the
plan is subsequently amended to reflect
the interest rate described in section
417(e)(3)(A)(ii), the plan may provide
that the present value of the accrued bene-
fit may be distributed without the partici-
pant’s or spouse’s consent if the value of
the accrued benefit does not exceed
$5,000, as determined under the plan pro-
visions then in effect.
G. Benefits Protected from Reduction or
Elimination
Section 411(d)(6) provides, in general,
that a plan shall be treated as not satisfy-
ing the requirements of section 401(a) if
the accrued benefit of a participant is de-
creased, or an optional form of benefit is
eliminated, by an amendment of the plan.
Section 1.411(d)–4, paragraph (b)(2)(v)
of Q&A-2 provides that a plan may be
amended to provide for the involuntary
distribution of an employee’s benefit to
the extent such distribution is permitted
under sections 411(a)(11) and 417(e). In
accordance with that provision, a plan
may be amended for plan years beginning
on or after August 6, 1997, to permit the
involuntary distribution of an accrued
benefit using a cash-out limit of $5,000,
with respect to benefits accrued before the
amendment was adopted and effective.
Such an amendment is permitted even if
the plan, prior to amendment, did not per-
mit involuntary distributions (as well as if
the plan permitted involuntary distribu-
tions if the present value of the partici-
pant’s benefit did not exceed the prior
cash-out limit of $3,500). Such an amend-
ment will not violate the anti-cutback
rules of section 411(d)(6).
H. Remedial Amendment Period
Rev. Proc. 98–14 (1998–4 I.R.B. 22) at
section 4, provides the remedial amend-
ment period for certain plan amendments
made pursuant to TRA ’97. A plan may be
amended retroactively to implement the
increase in the cash-out limit to $5,000 in
accordance with section 4 of the revenue
procedure.
1999–7 I.R.B.5February 16, 1999
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Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in EO 12866.
Therefore, a regulatory assessment is not
required. It also has been determined that
section 553(b) of the Administrative Pro-
cedure Act (5 U.S.C. chapter 5) does not
apply to these regulations, and because
the regulations does not impose a collec-
tion of information on small entities, the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Pursuant to sec-
tion 7805(f) of the Internal Revenue
Code, these regulations will be submitted
to the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on their impact on small business.
Drafting Information
The principal author of these regula-
tions is Michael J. Karlan, Office of the
Associate Chief Counsel (Employee Ben-
efits and Exempt Organizations). How-
ever, other personnel from the IRS and
Treasury Department participated in their
development.
*****
Adoption of Amendment to the
Regulations
Accordingly 26 CFR parts 1 and 31 are
amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry for
§1.411(a)–7T and revising the entry for
§1.411(d)–4 to read as follows:
Authority: 26 U.S.C. 7805***
§1.411(a)–7T also issued under 26
U.S.C. 411(a)(7)(B)(i).
§1.411(d)–4 also issued under 26
U.S.C. 411(d)(6).***
Par. 2. Section 1.411(a)–7 is amended
by adding a sentence at the end of the
concluding text of paragraph (d)(4)(i) to
read as follows:
§1.411(a)–7 Definitions and special
rules.
*****
(d) * * *
(4) Certain cash-outs of accrued bene-
fits. (i) ***
*****
*** (For distributions made on or after
March 22, 1999, see §1.411(a)–7T.)
*****
Par. 3. Section 1.411(a)–7T is added to
read as follows:
§1.411(a)–7T Definitions and special
rules (temporary).
(a) through (d)(3) [Reserved]. For fur-
ther guidance, see §1.411(a)–7(a) through
(d)(3).
(d)(4) Certain cash-outs of accrued
benefits—(1) Involuntary cash-outs.For
purposes of determining an employee’s
right to an accrued benefit derived from
employer contributions under a plan, the
plan may disregard service performed by
the employee with respect to which—
(A) The employee receives a distribu-
tion of the present value of his entire non-
forfeitable benefit at the time of the distri-
bution;
(B) The requirements of section
411(a)(11) are satisfied at the time of the
distribution;
(C) The distribution is made due to the
termination of the employee’s participa-
tion in the plan; and
(D) The plan has a repayment provision
which satisfies the requirements of
§1.411(a)–7(d)(4)(iv) in effect at the time
of the distribution.
(d)(4)(ii) through (v) [Reserved]. For
further guidance, see §1.411(a)–7(d)-
(4)(ii) through (v).
(vi) For purposes of paragraph (d)(4)(i)
of this section, a distribution shall be
deemed to be made due to the termination
of an employee’s participation in the plan
if it is made no later than the close of the
second plan year following the plan year
in which such termination occurs, or if
such distribution would have been made
under the plan by the close of such second
plan year but for the fact that the present
value of the nonforfeitable accrued bene-
fit then exceeded the cash-out limit in ef-
fect under §1.411(a)–11T(c)(3)(ii). For
purposes of determining the entire non-
forfeitable benefit, the plan may disregard
service after the distribution, as illustrated
in §1.411(a)–7(d)(2)(i).
(vii) Effective date.Paragraphs
(d)(4)(i) and (vi) of this section apply to
distributions made on or after March 22,
1999, through December 18, 2001. For
plan years beginning before March 22,
1999, see §1.411(a)–7(d)(4)(i). However,
an employer is permitted to apply para-
graphs (d)(4)(i) and (vi) of this section to
plan years beginning on or after August 6,
1997.
(d)(5) and (60 [Reserved]. For further
guidance, see §1.411(a)–7(d)(5) and (6).
Par. 4. Section 1.411(a)–11 is amended
by adding a sentence at the end of para-
graph (c)(3) to read as follows:
§1.411(a)–11 Restriction and valuation of
distributions.
*****
(c) ***
(3) $3,500.*** (For distributions made
on or after March 22, 1999, see
§1.411(a)–11T.)
Par. 5. Section 1.411(a)–11T is added
to read as follows:
§1.411(a)–11T Restriction and valuation
of distributions (temporary).
(a) and (b) [Reserved]. For further
guidance, see §1.411(a)–11(a) and (b).
(c) Consent, etc. requirements—(1)
General rule.[Reserved]. For further
guidance, see §1.411(a)–11(c)(1).
(2) Consent.[Reserved]. For further
guidance, see §1.411(a)–11(c)(2).
(3) Cash-out limit.(i) Written consent
of the participant is required before the
commencement of the distribution of any
portion of an accrued benefit if the pre-
sent value of the nonforfeitable total ac-
crued benefit is greater than the cash-out
limit in effect under paragraph (c)(3)(ii)
of this section on the date the distribution
commences. The consent requirements
are deemed satisfied if such value does
not exceed the cash-out limit, and the plan
may distribute such portion to the partici-
pant as a single sum. Present value for
this purpose must be determined in the
same manner as under section 417(e); see
§1.417(e)–1(d). If a participant has begun
to receive distributions pursuant to an op-
tional form of benefit under which at least
one scheduled periodic distribution ha
snot yet been made, and if the present
value of the participant’s nonforfeitable
accrued benefit, determined at the time of
the first distribution under that optional
form of benefit, exceeded the cash-out
limit currently in effect under paragraph
February 16, 199961999–7 I.R.B.
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1999–7 I.R.B.7February 16, 1999
(c)(3)(ii) of this section, then the present
value of the participant’s nonforfeitable
accrued benefit is deemed to continue to
exceed the cash-out limit. Thus, for exam-
ple, if the present value of a participant’s
accrued benefit does not exceed the cash-
out limit on the date of a distribution after
termination of employment but did, at the
time of an earlier in-service hardship
withdrawal, exceed the cash-out limit in
effect on the date of the post-termination
distribution, the plan is permitted to dis-
tribute the present value of the partici-
pant’s accrued benefit on the date of the
post-termination distribution without he
participant’s consent. However, if a par-
ticipant began to receive scheduled in-
stallment payments under a plan and, at
that time, the participant’s accrued benefit
exceeded the cash-out limit currently in
effect, the present value of the partici-
pant’s accrued benefit is deemed to con-
tinue to exceed the cash-out limit and may
not be distributed without the partici-
pant’s consent.
(ii) The cash-out limit in effect for a
date is the amount described in section
411(a)(11)(A) for the plan year that in-
cludes that date. The cash-out limit in ef-
fect for dates in plan years beginning on
or after August 6, 1997, is $5,000. The
cash-out limit in effect for dates in plan
years beginning before August 6, 1997, is
$3,500.
(iii) Effective date.Paragraphs (c)(3)(i)
and (ii) of this section apply to distribu-
tions made on or after March 22, 1999
through December 18, 2001. For plan
years beginning before March 22, 1999,
see §1.11(a)–11(c)(3). However, an em-
ployer is permitted to apply paragraph
(c)(3)(ii) of this section to plan years be-
ginning on or after August 6, 1997.
(c)(4) through (e) [Reserved]. For fur-
ther guidance, see §1.411(a)–11(c)(4)
through (e).
PARTS 1 AND 31—[AMENDED]
Par. 6. In the table below, for each sec-
tion indicated in the left column, remove
the language in the middle column and
add the language in the right column:
SectionRemoveAdd
1.401(a)–20, Q&A-8,$3,500the cash-out limit in effect
paragraph (d), first sentenceunder §1.411(a)–11T(c)(3)(ii)
1.401(a)–20, Q&A-24,$3,500the cash-out limit in effect
paragraph (a)(1), fourth under §1.411(a)–11T(c)(3)(ii)
sentence
1.401(a)(4)–4, paragraph$3,500the cash-out limit in effect
(b)(2)(ii)(C)under §1.411(a)–11T(c)(3)(ii)
1.401(a)(26)–4, paragraph$3,500the cash-out limit in effect
(d)(2), last sentenceunder §1.411(a)–11T(c)(3)(ii)
1.401(a)(26)–6, paragraph$3,500the cash-out limit in effect
(c)(4), first sentenceunder §1.411(a)–11T(c)(3)(ii)
1.411(a)–11, paragraph (b),$3,500the cash-out limit in effect
first sentenceunder §1.411(a)–11T(c)(3)(ii)
1.411(a)–11, paragraph$3,500the cash-out limit in effect
(c)(7), third sentenceunder §1.411(a)–11T(c)(3)(ii)
1.411(d)–4, Q&A-2, paragraph$3,500the cash-out limit in effect
(b)(2)(v), second, third, andunder §1.411(a)–11T(c)(3)(ii)
fourth sentences
1.411(d)–4, Q&A-2, paragraph$1,750$3,500
(b)(2)(v), second sentence
1.411(d)–4, Q&A-4, paragraph$3,500the cash-out limit in effect
(a), eighth sentenceunder §1.411(a)–11T(c)(3)(ii)
IRB 1999-7 2/11/99 4:17 PM Page 7

David A. Mader,
Acting Deputy Commissioner
of Internal Revenue.
Approved November 18, 1998.
Donald C. Lubick,
Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on De-
cember 18, 1998, 8:45 a.m., and published in the
issue of the Federal Register for December 21, 1998,
63 F.R. 70335)
26 CFR 1.411(d)–6: Section 204(h) notice.
T.D. 8795
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Notice of Significant Reduction
in the Rate of Future Benefit
Accrual
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations that provide guidance on
the requirements of section 204(h) of the
Employee Retirement Income Security
Act of 1974, as amended (ERISA), relat-
ing to defined benefit plans and to indi-
vidual account plans that are subject to
the funding standards of section 302 of
ERISA. It requires the plan administrator
to give notice of plan amendments,
which provide for a significant reduction
in the rate of future benefit accrual, to
participants in the plan and certain other
parties.
DATES:Effective Date:December 14,
1998
Applicability Dates:For dates of ap-
plicability of these regulations, see Effec-
tive Dates under Supplementary Informa-
tion.
FOR FURTHER INFORMATION CON-
TACT: Diane S. Bloom at(202)622-6214
or Christine L. Keller at (202)622-6090
(not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained
in these final regulations has been re-
viewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act of
1995 (44 U.S.C. 3705(d)) under the con-
trol number 1545–1477. The collection of
information in these final regulations is in
§1.411(d)–6. Responses to this collection
of information are required in order to ob-
tain a benefit. Specifically, this informa-
tion is required for a taxpayer who wants
to amend a qualified plan to significantly
reduce the rate of future benefit accrual.
This information will be used to notify
participants, alternate payees and em-
ployee organizations of the amendment.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it dis-
plays a valid control number.
The estimated average burden per
recordkeeper varies from 1 hour to 40
hours, depending on individual circum-
stances, with an estimated average of 5
hours.
Estimated number of respondents:
3,000.
Estimated annual frequency of re-
sponses: Once.
Comments concerning the accuracy of
this burden estimate and suggestions for
reducing this burden should be sent to the
Internal Revenue Service,Attn: IRS
Clearance Officer, OP:FS:FP, Washing-
ton, DC 20224, and to the Office of Man-
agement and Budget,Attn: Desk Officer
for the Department of the Treasury, Office
of Information and Regulatory Affairs,
Washington, DC 20503.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
On December 12, 1995, temporary reg-
ulations (T.D. 8631, 1996–1 C.B. 54),
under section 411 of the Internal Revenue
Code, 26 U.S.C. 411, were filed, provid-
ing guidance on section 204(h) of the Em-
ployee Retirement Income Security Act of
1974, as amended (ERISA), 29 U.S.C.
1054(h). The temporary regulations were
published in the Federal Registeron De-
cember 15, 1995 (60 F.R. 64320). A no-
tice of proposed rulemaking (EE–34–95,
1996–1 C.B. 761), cross-referencing the
temporary regulations, was published in
the Federal Register(60 F.R. 64401) on
the same day.
1.411(d)–4, Q&A-4, paragraph§1.401(a)–4 Q&A-4§1.401(a)(4)–4(b)(2)(ii)(C)
(a), last sentence in the
parenthetical
1.417(e)–1, paragraph $3,500the cash-out limit in effect
(b)(2)(i), first, fourth, and fifthunder §1.411(a)–11T(c)(3)(ii)
sentences
31.3121(b)(7)–2, paragraph$3,500the cash-out limit in effect
(d)(2)(i), last sentenceunder §1.411(a)–11T(c)(3)(ii)
of this chapter
February 16, 199981999–7 I.R.B.
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After consideration of the comments
received regarding the proposed regula-
tions, the temporary regulations are re-
placed and the proposed regulations are
adopted as revised by this Treasury deci-
sion.
Section 204(h) was added to ERISA by
section 11006(a) of the Single-Employer
Pension Plan Amendments Act of 1986
(Title XI of Public Law 99-272), and was
amended by section 1879(u)(1) of the Tax
Reform Act of 1986, Public Law 99–514.
Pursuant to section 101(a) of the Reorga-
nization Plan No. 4 of 1978, 29 U.S.C.
1001nt, the Secretary of the Treasury has
authority to issue regulations under parts
2 and 3 of subtitle B of title I of ERISA
(including section 204 of ERISA). Under
section 104 of Reorganization Plan No. 4,
the Secretary of Labor retains enforce-
ment authority with respect to parts 2 and
3 of subtitle B of title I of ERISA, but, in
exercising such authority, is bound by the
regulations issued by the Secretary of the
Treasury.
In addition to the proposed and tempo-
rary regulations, prior guidance relating
to the requirements of section 204(h) has
been provided in Rev. Proc. 94–13 (1994–
1 C.B. 566), Notice 90–73 (1990–2 C.B.
353), Notice 89–92 (1989–2 C.B. 410),
Rev. Proc. 89–65 (1989–2 C.B. 786), No-
tice 88–131 (1988–2 C.B. 546), and No-
tice 87–21 (1987–1 C.B. 458).
Explanation of Provisions
Section 204(h) applies if a defined ben-
efit plan or a money purchase pension or
other individual account plan that is sub-
ject to the funding standards of section
302 of ERISA is amended to provide for a
significant reduction in the rate of future
benefit accrual. It requires the plan ad-
ministrator to give written notice of the
amendment to participants in the plan, to
alternate payees, and to employee organi-
zations representing participants in the
plan (or to a person designated, in writing,
to receive the notice on behalf of a partic-
ipant, alternate payee, or employee orga-
nization). The notice must set forth the
plan amendment and its effective date and
must be provided after adoption of the
amendment and not less than 15 days be-
fore the effective date of the amendment.
A plan amendment that is subject to the
notice requirements of section 204(h)
may also be subject to additional report-
ing and disclosure requirements under
title I of ERISA, such as the requirement
to provide a summary of material modifi-
cations. See sections 102(a) and 104(a)
of ERISA, 29 U.S.C. 1022 and 1024, and
the regulations thereunder for guidance
on when a summary of material modifica-
tions must be provided. Section 204(h)
notice must be provided at least 15 days
before the effective date of an amendment
significantly reducing the rate of future
benefit accrual, even though a summary
of material modifications describing the
amendment is provided at a later date.
Summary of Comments
Commentators generally supported the
basic rules in the proposed and temporary
regulations, and the final regulations are
substantially similar to the proposed and
temporary regulations. However, a num-
ber of clarifications have been made in re-
sponse to comments.
For example, changes have been made
in the rules for cases in which there has
been a failure to notify all affected partici-
pants in accordance with section 204(h).
The proposed and temporary regulations
provided in Q&A-12 that if a plan admin-
istrator fails to notify more than a de min-
imis percentage of affected participants,
the plan administrator is considered to
have complied with section 204(h) only
with respect to those participants who
were provided with section 204(h) notice.
In response to comments, the final regula-
tions have added a requirement that the
plan administrator have acted in good
faith in order for this relief to apply. Thus,
where there is an intentional failure to give
section 204(h) notice, the amendment will
not be effective as to any participant.
In addition, the final regulations pro-
vide that the basic rule in Q&A-13 of the
final regulations (that the amendment will
not be effective with respect to partici-
pants or alternate payees who did not re-
ceive section 204(h) notice) applies un-
less the number of participants who were
not provided with section 204(h) notice is
de minimisand certain other conditions
(described in Q&A-14 of the final regula-
tions) are satisfied. Thus, the regulations
clarify that, except for the limited circum-
stances set forth in Q&A-14 of the final
regulations relating to certain de minimis
failures to notify, the amendment will not
be effective with respect to participants or
alternate payees who did not receive no-
tice in accordance with section 204(h).
At the suggestion of commentators, the
final regulations also address the applica-
tion of section 204(h) to a sale of a busi-
ness, as well as its application to plan
mergers and transfers of plan assets and
liabilities. The final regulations add ex-
amples that apply the general principles
established under the regulations to typi-
cal sales and merger transactions. In re-
sponse to one commentator, an example
has been added to illustrate that a plan
merger can require notice under section
204(h).
In response to requests by commenta-
tors for additional guidance on the me-
chanics of providing section 204(h) no-
tice, Q&A-11 has been added providing
rules that can be relied on to calculate the
15-day notice period. These rules provide
that when section 204(h) notice is deliv-
ered by first class mail, the notice is con-
sidered given as of the date of the United
States postmark stamped on the cover in
which the document is mailed.
Commentators also suggested that the
rules under the temporary regulations
concerning plan terminations needed to
be expanded. The final regulations con-
tain an example illustrating the applica-
tion of section 204(h) to certain specific
situations that arise when a defined bene-
fit plan cannot be terminated on a pro-
posed termination date because there is a
failure to satisfy all of the requirements of
title IV of ERISA for terminating the
plan. The example provides, in part, that
if all of the requirements of title IV are
not satisfied accruals will still cease if an
amendment has been adopted that ceases
accruals as of a specified date and section
204(h) notice of that amendment, includ-
ing a statement of its effective date, is
given. Apart from this clarification, the
rule under the temporary regulations con-
cerning terminations under title IV re-
mains unchanged.
The final regulations, like the proposed
and temporary regulations, interpret sec-
tion 204(h) as applying with respect to
changes that affect the annual benefit
commencing at normal retirement age.
The statutory phrase “rate of future bene-
fit accrual” implies, on its face, that sec-
tion 204(h) is limited to changes in the
accrued benefit. Nonetheless, one com-
mentator suggested that the temporary
1999–7 I.R.B.9February 16, 1999
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regulations be changed to require section
204(h) notice when defined benefit plans
are amended to significantly reduce or
eliminate early retirement subsidies or op-
tional forms of benefit. Most commenta-
tors, however, generally supported the
basic standard of the regulations under
which a reduction in the rate of future
benefit accrual depends on whether the
amendment affects the annual benefit
commencing at normal retirement age.
Some commentators also noted that the
approach in the proposed and temporary
regulations would ease plan administra-
tion. Accordingly, the final regulations
retain the rule of the proposed and tempo-
rary regulations that, for purposes of sec-
tion 204(h), an amendment to a defined
benefit plan affects the rate of future ben-
efit accrual only if it is reasonably ex-
pected to change the amount of the future
annual benefit commencing at normal re-
tirement age.
The final regulations clarify that the
term “annual benefit commencing at nor-
mal retirement age” refers, in a defined
benefit plan, to the benefit payable in the
form in which the terms of the plan ex-
press the accrued benefit. In the case of a
defined benefit plan that does not express
the accrued benefit as an annual benefit,
the final regulations provide that the term
“annual benefit commencing at normal
retirement age” refers to the benefit
payable in the form of a single life annu-
ity commencing at normal retirement age
that is the actuarial equivalent of the ac-
crued benefit expressed under the terms
of the plan under the principles of section
411(c)(3) (relating to actuarial adjust-
ments to determine an employee’s ac-
crued benefit).
Some commentators also suggested
that certain bright-line standards be estab-
lished for some of the rules, including
how to determine whether an amendment
results in a significant reduction and what
constitutes a de minimispercentage of
participants for purposes of the rules re-
lating to failure to provide notice to all
participants and alternate payees. Be-
cause the wide variety of potential facts
and circumstances make it difficult to
adopt clear standards that are appropriate
in all circumstances, the final regulations
do not include such bright-line standards.
Effective Dates
The final regulations apply to amend-
ments adopted on or after December 12,
1998. The final regulations provide that
the rules set forth in the temporary regula-
tions apply to determine whether section
204(h) and the final regulations are satis-
fied with respect to an amendment that is
adopted before the effective date of the
final regulations (and on or after the ef-
fective date of the temporary regulations).
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in EO 12866.
Therefore, a regulatory assessment is not
required. It also has been determined that
section 553(b) of the Administrative Pro-
cedure Act (5 U.S.C. chapter 5) does not
apply to these regulations and because the
notice of proposed rulemaking preceding
the regulations was issued prior to March
29, 1996, the Regulatory Flexibility Act
(5 U.S.C. chapter 6) does not apply to
these regulations, and, therefore, a Regu-
latory Flexibility Analysis is not required.
Pursuant to section 7805(f) of the Internal
Revenue Code, the notice of proposed
rulemaking preceding these regulations
was submitted to the Chief Counsel for
Advocacy of the Small Business Admin-
istration for comment on their impact on
small business.
Drafting Information
The principal author of these regula-
tions is Christine L. Keller. However,
other personnel from the IRS and Trea-
sury Department participated in their de-
velopment.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
PART 1—INCOME TAXES
Par. 1. The authority citation for part 1
is amended by removing the entry for
§1.411(d)–6T and by adding an entry in
numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.411(d)–6 is issued under Re-
organization Plan No. 4 of 1978, 29
U.S.C. 1001nt. * * *
§1.411(d)–6T [Removed]
Par. 2. Section 1.411(d)–6T is re-
moved.
Par. 3. Section 1.411(d)–6 is added to
read as follows:
§1.411(d)–6 Section 204(h) notice.
Q-1: What are the requirements of sec-
tion 204(h) of the Employee Retirement
Income Security Act of 1974, as amended
(ERISA)(29 U.S.C 1054(h))?
A-1: (a) Requirements of section
204(h). Section 204(h) of ERISA (“sec-
tion 204(h)”) generally requires written
notice of an amendment to certain plans
that provides for a significant reduction in
the rate of future benefit accrual. Section
204(h) generally requires the notice to be
provided to plan participants, alternate
payees, and employee organizations. The
plan administrator must provide the no-
tice after adoption of the plan amendment
and not less than 15 days before the effec-
tive date of the plan amendment.
(b) Other notice requirements. Other
provisions of law may require that certain
parties be notified of a plan amendment.
See, for example, sections 102 and 104 of
ERISA, and the regulations thereunder,
for requirements relating to summary plan
descriptions and summaries of material
modifications.
Q-2: To which plans does section
204(h) apply?
A-2: Section 204(h) applies to defined
benefit plans that are subject to part 2 of
subtitle B of title I of ERISA and to indi-
vidual account plans that are subject to
both such part 2 and the funding standards
of section 302 of ERISA. Accordingly, in-
dividual account plans that are not subject
to the funding standards of section 302,
such as profit-sharing and stock bonus
plans, are not subject to section 204(h).
Q-3: What is “section 204(h) notice”?
A-3: “Section 204(h) notice” is notice
that complies with section 204(h)and the
rules in this section.
Q-4: For which amendments is section
204(h) notice required?
A-4: (a)In general.Section 204(h)
notice is required for an amendment to a
February 16, 1999101999–7 I.R.B.
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plan described in Q&A-2 of this section
that provides for a significant reduction in
the rate of future benefit accrual.
(b) Delegation of authority to Commis-
sioner.The Commissioner of Internal
Revenue may provide through publication
in the Internal Revenue Bulletin of rev-
enue rulings, notices, or other documents
(see §601.601(d)(2) of this chapter) that
section 204(h) notice need not be pro-
vided for plan amendments otherwise de-
scribed in paragraph (a) of this Q&A-4
that the Commissioner determines to be
necessary or appropriate, as a result of
changes in the law, to maintain compli-
ance with the requirements of the Internal
Revenue Code of 1986, as amended
(Code) (including requirements for tax
qualification), ERISA, or other applicable
federal law.
Q-5: What is an amendment that af-
fects the rate of future benefit accrual for
purposes of section 204(h)?
A-5: (a) In general—(1) Defined bene-
fit plans. For purposes of section 204(h),
an amendment to a defined benefit plan
affects the rate of future benefit accrual
only if it is reasonably expected to change
the amount of the future annual benefit
commencing at normal retirement age.
For this purpose, the annual benefit com-
mencing at normal retirement age is the
benefit payable in the form in which the
terms of the plan express the accrued ben-
efit (or, in the case of a plan in which the
accrued benefit is not expressed in the
form of an annual benefit commencing at
normal retirement age, the benefit pay-
able in the form of a single life annuity
commencing at normal retirement age
that is the actuarial equivalent of the ac-
crued benefit expressed under the terms
of the plan, as determined in accordance
with the principles of section 411(c)(3) of
the Code).
(2) Individual account plans. For pur-
poses of section 204(h), an amendment to
an individual account plan affects the rate
of future benefit accrual only if it is rea-
sonably expected to change the amounts
allocated in the future to participants’ ac-
counts. Changes in the investments or in-
vestment options under an individual ac-
count plan are not taken into account for
this purpose.
(b) Determination of rate of future ben-
efit accrual. In accordance with para-
graph (a) of this Q&A-5, the rate of future
benefit accrual is determined without re-
gard to optional forms of benefit (other
than the annual benefit described in para-
graph (a) of this Q&A-5), early retirement
benefits, or retirement-type subsidies,
within the meaning of such terms as used
in section 411(d)(6) of the Code (section
204(g) of ERISA). The rate of future
benefit accrual is also determined without
regard to ancillary benefits and other
rights or features as defined in §1.401(a)-
(4)-4(e).
(c) Examples. These examples illus-
trate the rules in this Q&A-5:
Example 1.A plan is amended with respect to fu-
ture benefit accruals to eliminate a right to com-
mencement of a benefit prior to normal retirement
age. Because the amendment does not change the
annual benefit commencing at normal retirement
age, it does not reduce the rate of future benefit ac-
crual for purposes of section 204(h).
Example 2.A plan is amended to modify the ac-
tuarial factors used in converting an annuity form of
distribution to a single sum form of distribution.
The use of these modified assumptions results in a
lower single sum. Because the amendment does not
affect the annual benefit commencing at normal re-
tirement age, it does not change the rate of future
benefit accrual for purposes of section 204(h).
Q-6: What plan provisions are taken
into account in determining whether there
has been a reduction in the rate of future
benefit accrual?
A-6: (a) Plan provisions taken into ac-
count. All plan provisions that may affect
the rate of future benefit accrual of partic-
ipants or alternate payees must be taken
into account in determining whether an
amendment provides for a significant re-
duction in the rate of future benefit ac-
crual. Such provisions include, for exam-
ple, the dollar amount or percentage of
compensation on which benefit accruals
are based; in the case of a plan using per-
mitted disparity under section 401(l) of
the Code, the amount of disparity be-
tween the excess benefit percentage or ex-
cess contribution percentage and the base
benefit percentage or base contribution
percentage (all as defined in section
401(l)); the definition of service or com-
pensation taken into account in determin-
ing an employee’s benefit accrual; the
method of determining average compen-
sation for calculating benefit accruals; the
definition of normal retirement age in a
defined benefit plan; the exclusion of cur-
rent participants from future participation;
benefit offset provisions; minimum bene-
fit provisions; the formula for determin-
ing the amount of contributions and for-
feitures allocated to participants’ accounts
in an individual account plan; and the ac-
tuarial assumptions used to determine
contributions under a target benefit plan
(as defined in §1.401(a)(4)–8(b)(3)(i)).
(b) Plan provisions not taken into ac-
count.Plan provisions that do not affect
the rate of future benefit accrual of partic-
ipants or alternate payees are not taken
into account in determining whether there
has been a reduction in the rate of future
benefit accrual. For example, provisions
such as vesting schedules or optional
forms of benefit (other than the annual
benefit described in Q&A-5(a) of this sec-
tion) are not taken into account.
(c) Examples.The following example
illustrates the rules in this Q&A-6:
Example.A defined benefit plan provides a nor-
mal retirement benefit equal to 50% of final average
compensation times a fraction (not in excess of one),
the numerator of which equals the number of years
of participation in the plan and the denominator of
which is 20. A plan amendment that changes the nu-
merator or denominator of that fraction must be
taken into account in determining whether there has
been a reduction in the rate of future benefit accrual.
Q-7: What is the basic principle used in
determining whether an amendment pro-
vides for a significant reduction in the rate
of future benefit accrual for purposes of
section 204(h)?
A-7: Whether an amendment provides
for a significant reduction in the rate of
future benefit accrual for purposes of sec-
tion 204(h) is determined based on rea-
sonable expectations taking into account
the relevant facts and circumstances at the
time the amendment is adopted. For a de-
fined benefit plan this is done by compar-
ing the amount of the annual benefit com-
mencing at normal retirement age as
determined under Q&A-5(a)(1) under the
terms of the plan as amended, with the
amount of the annual benefit commencing
at normal retirement age as determined
under Q&A-5(a)(1) under the terms of the
plan prior to amendment. For an individ-
ual account plan, this is done in accor-
dance with Q&A-5(a)(2) by comparing
the amounts to be allocated in the future
to participants’ accounts under the terms
of the plan as amended, with the amounts
to be allocated in the future to partici-
pants’ accounts under the terms of the
plan prior to amendment.
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Q-8: Are employees who have not yet
become participants in a plan at the time
an amendment to the plan is adopted
taken into account in applying section
204(h) with respect to the amendment?
A-8: No. Employees who have not yet
become participants in a plan at the time
an amendment to the plan is adopted are
not taken into account in applying section
204(h) with respect to the amendment.
Thus, if section 204(h) notice is required
with respect to an amendment, the plan
administrator need not provide section
204(h) notice to such employees.
Q-9: If section 204(h) notice is re-
quired with respect to an amendment,
must such notice be provided to partici-
pants or alternate payees whose rate of fu-
ture benefit accrual is not reduced by the
amendment?
A-9: (a) In general.A plan administra-
tor need not provide section 204(h) notice
to any participant whose rate of future
benefit accrual is reasonably expected not
to be reduced by the amendment, nor to
any alternate payee under an applicable
qualified domestic relations order whose
rate of future benefit accrual is reasonably
expected not to be reduced by the amend-
ment. A plan administrator need not pro-
vide section 204(h) notice to an employee
organization unless the employee organi-
zation represents a participant to whom
section 204(h) notice is required to be
provided.
(b) Facts and circumstances test.
Whether a participant or alternate payee is
described in paragraph (a) of this Q&A-9
is determined based on all relevant facts
and circumstances at the time the amend-
ment is adopted.
(c) Examples.The following examples
illustrate the rules in this Q&A-9:
Example 1.Plan A is amended to reduce signifi-
cantly the rate of future benefit accrual of all current
employees who are participants in the plan. It is rea-
sonable to expect based on the facts and circum-
stances that the amendment will not reduce the rate
of future benefit accrual of former employees who
are currently receiving benefits or that of former em-
ployees who are entitled to vested benefits. Accord-
ingly, the plan administrator is not required to pro-
vide section 204(h) notice to such former
employees.
Example 2.The facts are the same as in Example
1except that Plan A also covers two groups of alter-
nate payees. The alternate payees in the first group
are entitled to a certain percentage or portion of the
former spouse’s accrued benefit, and for this pur-
pose the accrued benefit is determined at the time
the former spouse begins receiving retirement bene-
fits under the plan. The alternate payees in the sec-
ond group are entitled to a certain percentage or por-
tion of the former spouse’s accrued benefit, and for
this purpose the accrued benefit was determined at
the time the qualified domestic relations order was
issued by the court. It is reasonable to expect that
the benefits to be received by the second group of al-
ternate payees will not be affected by any reduction
in a former spouse’s rate of future benefit accrual.
Accordingly, the plan administrator is not required
to provide section 204(h) notice to the alternate pay-
ees in the second group.
Example 3.Plan B covers hourly employees and
salaried employees. Plan B provides the same rate
of benefit accrual for both groups. The employer
amends Plan B to reduce significantly the rate of fu-
ture benefit accrual of the salaried employees only.
At that time, it is reasonable to expect that only a
small percentage of hourly employees will become
salaried in the future. Accordingly, the plan admin-
istrator is not required to provide section 204(h) no-
tice to the participants who are currently hourly em-
ployees.
Example 4. Plan C covers employees in Division
M and employees in Division N. Plan C provides
the same rate of benefit accrual for both groups. The
employer amends Plan C to reduce significantly the
rate of future benefit accrual of employees in Divi-
sion M. At that time, it is reasonable to expect that
in the future only a small percentage of employees
in Division N will be transferred to Division M. Ac-
cordingly, the plan administrator is not required to
provide section 204(h) notice to the participants who
are employees in Division N.
Example 5.The facts are the same facts as in Ex-
ample 4,except that at the time the amendment is
adopted, it is expected that soon thereafter Division
N will be merged into Division M in connection with
a corporate reorganization (and the employees in Di-
vision N will become subject to the plan’s amended
benefit formula applicable to the employees in Divi-
sion M). In this instance, the plan administrator must
provide section 204(h) notice to the participants who
are employees in Division M and to the participants
who are employees in Division N.
Q-10: Does a notice fail to comply with
section 204(h) if it contains a summary of
the amendment and the effective date,
without the text of the amendment itself?
A-10: No, the notice does not fail to
comply with section 204(h) merely be-
cause the notice contains a summary of
the amendment, rather than the text of the
amendment, if the summary is written in a
manner calculated to be understood by the
average plan participant and contains the
effective date. The summary need not ex-
plain how the individual benefit of each
participant or alternate payee will be af-
fected by the amendment.
Q-11: How may section 204(h) notice
be provided?
A-11: A plan administrator (including a
person acting on behalf of the plan admin-
istrator such as the employer or plan
trustee) may use any method reasonably
calculated to ensure actual receipt of the
section 204(h) notice. First class mail to
the last known address of the party is an
acceptable delivery method. Likewise,
hand delivery is acceptable. Section
204(h) notice may be enclosed with or
combined with other notice provided by
the employer or plan administrator. For
example, a notice of intent to terminate
under title IV of ERISA or a notice to in-
terested parties of the application for a de-
termination letter may also serve as sec-
tion 204(h) notice if it otherwise meets
the requirements of this section.
Q-12: How may the 15-day notice re-
quirement be satisfied?
A-12: (a) Generally. A section 204(h)
notice is deemed to have been provided at
least 15 days before the effective date of
the amendment if it has been provided by
the end of the 15th day before the effec-
tive date. When notice is delivered by
first class mail, the notice is considered
provided as of the date of the United
States postmark stamped on the cover in
which the document is mailed.
(b) Example.The following example
illustrates the provisions of this Q&A-12:
Example. Plan A is amended to reduce signifi-
cantly the rate of future benefit accruals effective
December 1, 1999. The plan administrator causes
section 204(h) notice to be mailed to all affected par-
ticipants. The mailing is postmarked November 16,
1999. Accordingly, the section 204(h) notice is con-
sidered to be given not less than 15 days before the
effective date of the plan amendment.
Q-13: If a plan administrator fails to
provide section 204(h) notice to some
participants or alternate payees, will the
plan administrator be considered to have
complied with section 204(h) with respect
to participants and alternate payees who
were provided with section 204(h) notice?
A-13: The plan administrator will be
considered to have complied with section
204(h) with respect to a participant to
whom section 204(h) notice is required to
be provided if the participant and any em-
ployee organization representing the par-
ticipant were provided with section
204(h) notice, and if the plan administra-
tor has made a good faith effort to comply
with the requirements of section 204(h).
The plan administrator will be considered
to have complied with section 204(h) with
respect to an alternate payee to whom sec-
February 16, 1999121999–7 I.R.B.
IRB 1999-7 2/11/99 4:17 PM Page 12

tion 204(h) notice is required to be pro-
vided if the alternate payee was provided
with section 204(h) notice, and if the plan
administrator made a good faith effort to
comply with the requirements of section
204(h). If these conditions are satisfied
the amendment will become effective in
accordance with its terms with respect to
the participants and alternate payees to
whom section 204(h) notice was pro-
vided. Except to the extent provided in
Q&A-14, the amendment will not become
effective with respect to those participants
and alternate payees who were not pro-
vided with section 204(h) notice.
Q-14: Will a plan be considered to
have complied with section 204(h) if the
plan administrator provides section
204(h) notice to all but a de minimis per-
centage of participants and alternate pay-
ees to whom section 204(h) notice must
be provided?
A-14: The plan will be considered to
have complied with section 204(h) and
the amendment will become effective in
accordance with its terms with respect to
all parties to whom section 204(h) notice
was required to be provided (including
those who did not receive notice prior to
discovery of the omission), if the plan ad-
ministrator—
(a) Has made a good faith effort to
comply with the requirements of section
204(h);
(b) Has provided section 204(h) notice
to each employee organization that repre-
sents any participant to whom section
204(h) notice is required to be provided;
(c) Has failed to provide section 204(h)
notice to no more than a de minimis per-
centage of participants and alternate pay-
ees to whom section 204(h) notice is re-
quired to be provided; and
(d) Provides section 204(h) notice to
those participants and alternate payees
promptly upon discovering the oversight.
Q-15: How does section 204(h) apply
to the sale of a business?
A-15: (a) Generally.Whether section
204(h) notice is required in connection
with the sale of a business depends on
whether a plan amendment is adopted that
significantly reduces the rate of future
benefit accrual.
(b) Examples.The following examples
illustrate the rules of this Q&A-15:
Example 1.Corporation Q maintains Plan A, a
defined benefit plan that covers all employees of
Corporation Q, including employees in its Division
M. Plan A provides that participating employees
cease to accrue benefits when they cease to be em-
ployees of Corporation Q. On January 1, 2000, Cor-
poration Q sells all of the assets of Division M to
Corporation R. Corporation R maintains Plan B,
which covers all of the employees of Corporation R.
Under the sale agreement, employees of Division M
become employees of Corporation R on the date of
the sale (and cease to be employees of Corporation
Q), Corporation Q continues to maintain Plan A fol-
lowing the sale, and the employees of Division M
become participants in Plan B. In this Example, no
section 204(h) notice is required because no plan
amendment was adopted that reduced the rate of fu-
ture benefit accrual. The employees of Division M
who become employees of Corporation R ceased to
accrue benefits under Plan A because their employ-
ment with Corporation Q terminated.
Example 2.Subsidiary Y is a wholly owned sub-
sidiary of Corporation S. Subsidiary Y maintains
Plan C, a defined benefit plan that covers employees
of Subsidiary Y. Corporation S sells all of the stock
of Subsidiary Y to Corporation T. At the effective
date of the sale of the stock of Subsidiary Y, in ac-
cordance with the sale agreement between Corpora-
tion S and Corporation T, Subsidiary Y amends Plan
C so that all benefit accruals cease. In this Example,
section 204(h) notice is required to be provided be-
cause Subsidiary Y adopted a plan amendment that
significantly reduced the rate of future benefit ac-
crual in Plan C.
Example 3.Corporation U maintains two plans:
Plan D covers employees of Division N and Plan E
covers the rest of the employees of Corporation U.
Plan E provides a significantly lower rate of future
benefit accrual than Plan D. Plan D is merged with
Plan E, and all of the employees of Corporation U
will accrue benefits under the merged plan in accor-
dance with the benefit formula of former Plan E. In
this Example, section 204(h) notice is required.
Example 4. Corporation V maintains several
plans, including Plan F, which covers employees of
Division P. Plan F provides that participating em-
ployees cease to accrue further benefits under the
plan when they cease to be employees of Corpora-
tion V. Corporation V sells all of the assets of Divi-
sion P to Corporation W, which maintains Plan G for
its employees. Plan G provides a significantly lower
rate of future benefit accrual than Plan F. Plan F is
merged with Plan G as part of the sale, and employ-
ees of Division P who become employees of Corpo-
ration W will accrue benefits under the merged plan
in accordance with the benefit formula of former
Plan G. In this Example, no section 204(h) notice is
required because no plan amendment was adopted
that reduced the rate of future benefit accrual. Under
the terms of Plan F as in effect prior to the merger,
employees of Division P cease to accrue any further
benefits under Plan F after the date of the sale
because their employment with Corporation V ter-
minated.
Q-16: How are amendments to cease
accruals and terminate a plan treated
under section 204(h)?
A-16: (a) General rule—(1) Rule.An
amendment providing for the cessation of
benefit accruals on a specified future date
and for the termination of a plan is subject
to section 204(h).
(2) Example.The following example
illustrates the rule of paragraph (a)(1) of
this Q&A-16:
Example.(i) An employer adopts an amendment
that provides for the cessation of benefit accruals
under a defined benefit plan on December 31, 2001,
and for the termination of the plan pursuant to title
IV of ERISA as of a proposed termination date that
is also December 31, 2001. As part of the notice of
intent to terminate required under title IV in order to
terminate the plan, the plan administrator gives sec-
tion 204(h) notice of the amendment ceasing accru-
als, which states that benefit accruals will cease “on
December 31, 2001.” However, because all the re-
quirements of title IV for a plan termination are not
satisfied, the plan cannot be terminated until a date
that is later than December 31, 2001.
(ii) Nonetheless, because section 204(h) notice
was given stating that the plan was amended to
cease accruals on December 31, 2001, section
204(h) does not prevent the amendment to cease ac-
cruals from being effective on December 31, 2001.
The result would be the same had the section 204(h)
notice informed the participants that the plan was
amended to provide for a proposed termination date
of December 31, 2001, and to provide that “benefit
accruals will cease on the proposed termination date
whether or not the plan is terminated on that date.”
However, the cessation of accruals would not be ef-
fective on December 31, 2001, had the section
204(h) notice merely stated that benefit accruals
would cease “on the termination date” or “on the
proposed termination date.”
(b) Terminations in accordance with
title IV of ERISA.A plan that is termi-
nated in accordance with title IV of
ERISA is deemed to have satisfied section
204(h) not later than the termination date
(or date of termination, as applicable) es-
tablished under section 4048 of ERISA.
Accordingly, section 204(h) would in no
event require that any additional benefits
accrue after the effective date of the ter-
mination.
(c) Amendment effective before termi-
nation date of a plan subject to title IV of
ERISA.To the extent that an amendment
providing for a significant reduction in
the rate of future benefit accrual has an ef-
fective date that is earlier than the termi-
nation date (or date of termination, as ap-
plicable) established under section 4048
of ERISA, that amendment is subject to
section 204(h). Accordingly, the plan ad-
ministrator must provide section 204(h)
notice (either separately or with or as part
1999–7 I.R.B.13February 16, 1999
IRB 1999-7 2/11/99 4:17 PM Page 13

of the notice of intent to terminate) with
respect to such an amendment.
Q-17: When does section 204(h) be-
come effective?
A-17: (a)Statutory effective date.
With respect to defined benefit plans, sec-
tion 204(h) generally applies to plan
amendments adopted on or after January
1, 1986. With respect to individual ac-
count plans, section 204(h) applies to plan
amendments adopted on or after October
22, 1986.
(b) Regulatory effective date—(1) Gen-
eral regulatory effective date. This sec-
tion is applicable for amendments
adopted on or after December 12, 1998.
(2) Special rule for amendments
adopted under the temporary regulations.
Whether an amendment that is adopted on
or after December 15, 1995 and before
December 12, 1998 complies with section
204(h) is determined under the rules of
section 1.411(d)-6T in effect prior to De-
cember 14, 1998(See §1.411(d)- 6T in 26
CFR Part 1 revised as of April 1, 1998).
PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 4. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 5. In §602.101, the table in para-
graph (c) is amended by removing the
entry for 1.411(d)6–T and by adding an
entry in numerical order to read as follows:
§602.101 OMB Control numbers.
* * * * *
(c)* * *
CFR part or section Current OMB
where identifiedcontrol No.
and described
* * * * *
1.411(d)–6 . . . . . . . . . . . . . . . 1545–1447
* * * * *
Robert E. Wenzel,
Deputy Commissioner of
Internal Revenue.
Approved December 4, 1998.
Jonathan Talisman,
Deputy Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on De-
cember 11, 1998, 8:45 a.m., and published in the
issue of the Federal Register for December 14, 1998,
63 F.R. 68678)
Section 472.—Last-in, First-out
Inventories
26 CFR 1.472–1: Last-in, first-out inventories.
LIFO; price indexes; department
stores.The December 1998 Bureau of
Labor Statistics price indexes are ac-
cepted for use by department stores em-
ploying the retail inventory and last-in,
first-out inventory methods for valuing
inventories for tax years ended on, or with
reference to, December 31, 1998.
Rev. Rul. 99–9
The following Department Store Inven-
tory Price Indexes for December 1998
were issued by the Bureau of Labor Sta-
tistics. The indexes are accepted by the
Internal Revenue Service, under § 1.472–
1(k) of the Income Tax Regulations and
Rev. Proc. 86–46, 1986–2 C.B. 739, for
appropriate application to inventories of
department stores employing the retail in-
ventory and last-in, first-out inventory
methods for tax years ended on, or with
reference to, December 31, 1998.
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 total, which covers all departments,
including some not listed separately, ex-
cept for the following: candy, food,
liquor, tobacco, and contract departments.
February 16, 1999141999–7 I.R.B.
BUREAU OF LABOR STATISTICS, DEPARTMENT STORE
INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS
(January 1941 = 100, unless otherwise noted)
Percent Change
DecDecfrom Dec.1997
Groups19971998to Dec 1998
1
1. Piece Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 522.7546.84.6
2. Domestics and Draperies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 620.8631.21.7
3. Women’s and Children’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . 661.6660.9– 0.1
4. Men’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 894.5905.31.2
5. Infants’ Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 620.2628.71.4
6. Women’s Underwear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 548.7559.62.0
7. Women’s Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297.0304.1 2.4
8. Women’s and Girls’ Accessories . . . . . . . . . . . . . . . . . . . . . . . . . 541.1536.4– 0.9
9. Women’s Outerwear and Girls’ Wear . . . . . . . . . . . . . . . . . . . . . 406.4401.0–1.3
10. Men’s Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 606.0603.3–0.4
11. Men’s Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 598.6591.9–1.1
12. Boys’ Clothing and Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . 505.4493.7–2.3
IRB 1999-7 2/11/99 4:17 PM Page 14

BUREAU OF LABOR STATISTICS, DEPARTMENT STORE
INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS (Continued)
(January 1941 = 100, unless otherwise noted)
Percent Change
DecDecfrom Dec.1997
Groups19971998to Dec 1998
1
13. Jewelry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 948.3953.00.5
14. Notions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 797.8771.9–3.2
15. Toilet Articles and Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 922.4939.41.8
16. Furniture and Bedding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 662.6691.14.3
17. Floor Coverings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 581.1602.53.7
18. Housewares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 806.6806.50.0
19. Major Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241.7236.0–2.4
20. Radio and Television . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73.969.6–5.8
21. Recreation and Education
2
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108.6101.6– 6.4
22. Home Improvements
2
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133.4130.6–2.1
23. Auto Accessories
2
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108.0107.7– 0.3
Groups 1 – 15: Soft Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 594.5595.00.1
Groups 16 – 20: Durable Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . 460.9458.0– 0.6
Groups 21 – 23: Misc. Goods
2
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111.7106.6– 4.6
Store Total
3
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 548.2544.8– 0.6
1
Absence of a minus sign before percentage change in this column signifies 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, to-
bacco, and contract departments.
1999–7 I.R.B.15February 16, 1999
DRAFTING INFORMATION
The principal author of this revenue
ruling is Richard C. Farley, Jr. of the Of-
fice of Assistant Chief Counsel (Income
Tax and Accounting). For further infor-
mation regarding this revenue ruling, con-
tact Mr. Farley on (202) 622-4970 (not a
toll-free call).
Section 832.—Insurance
Company Taxable Income
26 CFR 1.832–4: Gross income.
The salvage discount factors are set forth for the
1998 accident year. These factors will be used for
computing estimated salvage recoverable for pur-
poses of section 832 of the Code. See Rev. Proc.
99–16, page 50.
Section 846.—Discounted
Unpaid Losses Defined
26 CFR 1.846–1: Application of discount factors.
The loss payment patterns and discount factors
are set forth for the 1998 accident year. These fac-
tors will be used for computing discounted unpaid
losses under section 846 of the Code. See Rev. Proc.
99–15, page 42.
26 CFR 1.846–1: Application of discount factors.
The salvage discount factors are set forth for the
1998 accident year. These factors will be used for
computing estimated salvage recoverable for pur-
poses of section 832 of the Code. See Rev. Proc.
99–16, page 50.
Section 6311.—Payment of Tax
by Commercially Acceptable
Means
26 CFR 301.6311–2T: Payment by credit card and
debit card (temporary).
T.D. 8793
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 301
Payment by Credit Card and
Debit Card
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Temporary regulations.
SUMMARY: This document contains
temporary regulations that authorize the
Secretary of the Treasury to accept pay-
ment of internal revenue taxes by credit
card or debit card. The temporary regula-
tions reflect changes to the law made by
the Taxpayer Relief Act of 1997, and will
affect all persons who pay their tax liabil-
ities by credit card or debit card pursuant
to guidance prescribed by the Secretary.
The text of the temporary regulations also
serves as the text of the proposed regula-
tions set forth in REG–111435–98, page
55 in this Bulletin.
DATES: Effective Date: These temporary
regulations are effective January 1, 1999.
Applicability Date: For dates of ap-
plicability, see §301.6311–2T(h) of these
regulations.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations,
IRB 1999-7 2/11/99 4:17 PM Page 15

Mitchel S. Hyman, (202) 622-3620 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains temporary reg-
ulations amending the Procedure and Ad-
ministration Regulations (26 CFR part
301) under sections 6103 and 6311 of the
Internal Revenue Code. The regulations
reflect the amendment of sections 6103
and 6311 by section 1205 of the Taxpayer
Relief Act of 1997 (Public Law 105-34,
111 Stat. 788, 995)(1997 Act) and section
4003(k) of the Tax and Trade Relief Ex-
tension Act of 1998 (Public Law 105-277,
112 Stat. 2681).
As amended by the 1997 Act, section
6311(a) provides that it shall be lawful for
the Secretary to receive payment for inter-
nal revenue taxes by any commercially
acceptable means that the Secretary
deems appropriate to the extent and under
the conditions provided in regulations
prescribed by the Secretary. The legisla-
tive history accompanying the Act ex-
plains that commercially acceptable
means includes “electronic funds trans-
fers, including those arising from credit
cards, debit cards, and charge cards.” H.
Conf. Rep. 220, 105th Cong., 1st Sess.
652 (1997). The current regulations
under Treas. Reg. §301.6311–1 permit
payment of taxes by checks, drafts drawn
on financial institutions, or money orders.
The temporary regulations add payments
by credit cards (which includes charge
cards) and debit cards to the acceptable
methods of payment under section 6311.
Methods of payment by electronic
funds transfer other than by credit card or
debit card are currently authorized by sec-
tion 6302 of the Internal Revenue Code
and its implementing regulations. For ex-
ample, Treas. Reg. § 1.6302–4 permits in-
dividuals to voluntarily remit payments of
income taxes by electronic funds transfer.
Thus, the temporary regulations only ad-
dress payments by credit card and debit
card. Section 6302 and its regulations
will remain the authority for forms of
payment by electronic funds transfer
other than payments by credit card and
debit card.
Section 6103(a) of the Code prohibits
disclosure of returns and return informa-
tion except as expressly provided in the
Code. Section 1205(c)(1) of the 1997 Act
(as amended by section 6012(b)(2) of the
Internal Revenue Service Restructuring
and Reform Act of 1998, Public Law 105-
206) added section 6103(k)(9) to the
Code. Section 6103(k)(9) authorizes the
IRS to disclose returns and return infor-
mation to financial institutions and others
to the extent necessary for the administra-
tion of section 6311. Section 6103(k)(9)
further provides that disclosures of infor-
mation for purposes other than to accept
payments by check or money order (for
example, by credit card, or debit card)
shall be made only to the extent autho-
rized by written procedures promulgated
by the Secretary. Section 6311(e) pro-
vides that no person shall use or disclose
any information obtained pursuant to sec-
tion 6103(k)(9) related to credit card or
debit card transactions except to the ex-
tent authorized by written procedures pro-
mulgated by the Secretary.
Any person who uses or discloses in-
formation in violation of section 6311(e)
is subject to civil liability for damages.
See I.R.C. section 7431(h), added by sec-
tion 1205(c)(2) of the 1997 Act (as
amended by Public Law 105-206, section
6012(b)(3)).
Explanation of Provisions
The temporary regulations provide that
internal revenue taxes may be paid by
credit card or debit card. Payment of
taxes by credit card or debit card is volun-
tary on the part of the taxpayer. However,
only credit cards or debit cards approved
by the Secretary may be used for this pur-
pose, only the types of tax liabilities spec-
ified by the Secretary may be paid by
credit card or debit card, and all such pay-
ments must be made in the manner and in
accordance with the forms, instructions,
and procedures prescribed by the Secre-
tary. Thus, payments by credit card or
debit card may be limited to certain desig-
nated cards, to payments made through
certain service providers, or to payments
of specific types of taxes. It is anticipated
that the Secretary will be entering into
contracts with specific card issuers or
other persons such as third parties who
will process the credit and debit card
transactions, to facilitate payments by
credit cards and debit cards, subject to the
requirement that the Secretary may not
pay any fee or provide any other mone-
tary consideration under such contracts.
Under the temporary regulations, a
payment by credit card or debit card re-
ceived by the Secretary will be deemed
made when the credit card or debit card
transaction is authorized by the card is-
suer, provided the payment is actually re-
ceived by the Secretary in the ordinary
course of business and is not returned due
to correction of errors relating to the
credit card or debit card account.
The temporary regulations provide, as
required by section 6311(d)(3), that pay-
ments of taxes by credit card or debit card
are subject to the error resolution proce-
dures of section 161 of the Truth in Lend-
ing Act, 15 U.S.C. section 1666, section
908 of the Electronic Fund Transfer Act,
15 U.S.C. 1693f, or any similar provi-
sions of state law, only for the purpose of
resolving errors relating to the credit card
or debit card account, but not for the pur-
pose of resolving any errors, disputes, or
adjustments relating to the underlying tax
liability. These provisions ensure that any
disputes concerning the merits of the tax
liability will be resolved in the traditional
administrative and judicial forums (e.g.,
filing a petition in Tax Court, paying the
disputed tax and filing a claim for re-
fund), and will not be raised in any dis-
pute with the card issuer, financial institu-
tion, or other person participating in the
credit card or debit card transaction.
As authorized by section 6311(d)-
(3)(E), the temporary regulations permit
the Secretary to return funds erroneously
received due to errors relating to the
credit card or debit card account by ar-
ranging for a credit to the taxpayer’s ac-
count with the issuer of the credit card or
debit card or other appropriate financial
institution or person. Returns of funds
through credit card or debit card credits,
however, are only available to correct er-
rors relating to the credit card and debit
card account, and not to refund overpay-
ments of taxes.
The temporary regulations also provide
that the Internal Revenue Service may not
impose any fee or charge on persons mak-
ing payment of taxes by credit card or
debit card. The regulations provide that
the imposition of fees or charges by is-
suers of credit cards or debit cards or by
any other financial institution or person
participating in the credit card or debit
February 16, 1999161999–7 I.R.B.
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card transaction are not prohibited. The
Internal Revenue Service may not receive
any part of any fees that may be charged.
The temporary regulations also provide
the procedures required under sections
6103(k)(9) and 6311(e) with respect to
use and disclosure of information relating
to payment of taxes by credit card and
debit card. IRS personnel are authorized
to disclose to card issuers, financial insti-
tutions, and other persons information
necessary to process the tax payment or to
bill or collect the amount charged or deb-
ited (for example, to resolve billing er-
rors). Pursuant to section 6311(e), infor-
mation received by any person in
connection with payment of tax by credit
card or debit card shall be treated as con-
fidential by all persons who receive such
information, whether such information is
received from the Secretary or from any
other person including the taxpayer.
The temporary regulations set forth the
limited purposes and activities for which
such information may be used or dis-
closed by card issuers, financial institu-
tions, and other persons. The permitted
purposes and activities principally in-
volve credit card and debit card process-
ing, billing, collection, account servicing,
account transfers, internal business
records, legal compliance, and legal pro-
ceedings. The temporary regulations ex-
pressly prohibit selling the information,
sharing it with credit bureaus, or using it
for any marketing purpose, for example,
marketing tax-related products or any
marketing that targets those who have
used a credit card or debit card to pay
taxes.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in EO 12866.
Therefore, a regulatory assessment is not
required. It also has been determined that
these regulations must be effective by
January 1, 1999, to permit taxpayers the
opportunity to pay taxes by credit card for
the 1999 filing season, and, therefore, it
has been determined that sections 553(b)
and (d) of the Administrative Procedure
Act (5 U.S.C. chapter 5) do not apply to
these regulations. It has also been deter-
mined that because the regulations do not
impose a collection of information on
small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply.
Pursuant to section 7805(f) of the Internal
Revenue Code, this temporary regulation
will be submitted to the Chief Counsel for
Advocacy of the Small Business Admin-
istration for comment on its impact on
small business.
Drafting Information
The principal author of these regula-
tions is Mitchel S. Hyman of the Office of
Assistant Chief Counsel (General Litiga-
tion) CC:EL:GL, IRS. However, other
personnel from the IRS and Treasury De-
partment participated in their develop-
ment.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 301 is
amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read in part as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.6103(k)(9)–1T is
added to read as follows:
§301.6103(k)(9)–1T Disclosure of
returns and return information relating to
payment of tax by credit card and debit
card (temporary).
Officers and employees of the Internal
Revenue Service may disclose to card is-
suers, financial institutions or other per-
sons such return information as the Secre-
tary deems necessary in connection with
processing credit card and debit card
transactions to effectuate payment of tax
as authorized by §301.6311–2T. Officers
and employees of the Service may dis-
close such return information to such per-
sons as the Secretary deems necessary in
connection with billing or collection of
the amounts charged or debited, including
resolution of errors relating to the credit
card or debit card account as described in
§301.6311–2T(d).
Par. 3. Section 301.6311–2T is added
to read as follows:
§301.6311–2T Payment by credit card
and debit card (temporary).
(a) Authority to receive—(1) Payments
by credit card and debit card. Internal
revenue taxes may be paid by credit card
or debit card as authorized by this section.
Payment of taxes by credit card or debit
card is voluntary on the part of the tax-
payer. However, only credit cards or
debit cards approved by the Secretary
may be used for this purpose, only the
types of tax liabilities specified by the
Secretary may be paid by credit card or
debit card, and all such payments must be
made in the manner and in accordance
with the forms, instructions and proce-
dures prescribed by the Secretary. All ref-
erences in this section to “tax” also in-
clude interest, penalties and additions to
tax.
(2) Payments by electronic funds trans-
fer other than payments by credit card
and debit card.Provisions relating to
payments by electronic funds transfer
other than payments by credit card and
debit card are contained in section 6302
and the Treasury Regulations promul-
gated pursuant to section 6302.
(3) Definitions—(i) Credit cardmeans
any credit card as defined in section
103(k) of the Truth in Lending Act, 15
U.S.C. section 1602(k), including any
credit card, charge card or other credit de-
vice issued for the purpose of obtaining
money, property, labor or services on
credit.
(ii) Debit cardmeans any accepted
card or other means of access as defined
in section 903(1) of the Electronic Funds
Transfer Act, 15 U.S.C. 1693a(1), includ-
ing any debit card or similar device or
means of access to an account issued for
the purpose of initiating electronic fund
transfers to obtain money, property, labor
or services.
(b) When payment is deemed made.A
payment of tax by credit card or debit
card shall be deemed made when the is-
suer of the credit card or debit card prop-
erly authorizes the transaction, provided
the payment is actually received by the
Secretary in the ordinary course of busi-
ness and is not returned pursuant to para-
graph (d)(3) of this section.
(c) Payment not made—(1) Continuing
liability of taxpayer.A taxpayer who ten-
ders payment of taxes by credit card or
1999–7 I.R.B.17February 16, 1999
IRB 1999-7 2/11/99 4:17 PM Page 17

debit card is not relieved of liability for
such taxes until the payment is actually
received by the Secretary and is not re-
quired to be returned pursuant to para-
graph (d)(3) of this section. This continu-
ing liability of the taxpayer is in addition
to, and not in lieu of, any liability of the
issuer of the credit card or debit card or fi-
nancial institution pursuant to paragraph
(c)(2) of this section.
(2) Liability of financial institutions. If
a taxpayer has tendered a payment of in-
ternal revenue taxes by credit card or debit
card, and the credit card or debit card
transaction has been guaranteed expressly
by a financial institution, and the United
States is not duly paid, the United States
shall have a lien for the guaranteed
amount of the transaction upon all the as-
sets of the institution making such guaran-
tee. The unpaid amount shall be paid out
of such assets in preference to any other
claims whatsoever against such guarantee-
ing institution, except the necessary costs
and expenses of administration and the re-
imbursement of the United States for the
amount expended in the redemption of the
circulating notes of such institution.
(d) Resolution of errors relating to the
credit card or debit card account—(1) In
general. Payments of taxes by credit card
or debit card shall be subject to the applic-
able error resolution procedures of section
161 of the Truth in Lending Act, 15
U.S.C. 1666, or section 908 of the Elec-
tronic Fund Transfer Act, 15 U.S.C.
1693f, or any similar provisions of state
law, for the purpose of resolving errors re-
lating to the credit card or debit card ac-
count, but not for the purpose of resolving
any errors, disputes or adjustments relat-
ing to the underlying tax liability.
(2) Matters covered by error resolution
procedures.(i) The error resolution pro-
cedures of paragraph (d)(1) of this section
apply to the following types of errors:
(A) An incorrect amount posted to the
taxpayer’s account as a result of a compu-
tational error, numerical transposition, or
similar mistake.
(B) An amount posted to the wrong tax-
payer’s account.
(C) A transaction posted to the tax-
payer’s account without the taxpayer’s
authorization.
(D) Similar types of errors that would
be subject to resolution under these proce-
dures in ordinary commercial transactions.
(ii) An error described in paragraphs
(d)(2)(i)(A) through (D) of this section
may only be resolved through the proce-
dures referred to in paragraph (d)(1) of
this section and cannot be a basis for any
claim or defense in any administrative or
court proceeding involving the Secretary.
(3) Return of funds pursuant to error
resolution procedures.Notwithstanding
section 6402 of the Internal Revenue
Code, if a taxpayer is entitled to a return
of funds pursuant to the error resolution
procedures of paragraph (d)(1) of this sec-
tion, the Secretary may, in the Secretary’s
sole discretion, effect such return by ar-
ranging for a credit to the taxpayer’s ac-
count with the issuer of the credit card or
debit card or any other financial institu-
tion or person that participated in the
transaction in which the error occurred.
(4) Matters not subject to error resolu-
tion procedures.The error resolution pro-
cedures of paragraph (d)(1) of this section
do not apply to any error, question or dis-
pute concerning the amount of tax owed
by any person for any year. For example,
these error resolution procedures do not
apply to determine a taxpayer’s entitle-
ment to a refund of tax for any year for
any reason, nor may they be used to pay a
refund. All such matters shall be resolved
through administrative and judicial proce-
dures established pursuant to the Internal
Revenue Code and the rules and regula-
tions thereunder.
(5) Payments of taxes by credit card or
debit card are not subject to section 170 of
the Truth in Lending Act, 15 U.S.C.
1666i, or to any similar provision of state
law.
(e) Fees or charges.The Internal Rev-
enue Service may not impose any fee or
charge on persons making payment of
taxes by credit card or debit card. This
section does not prohibit the imposition of
fees or charges by issuers of credit cards
or debit cards or by any other financial in-
stitution or person participating in the
credit card or debit card transaction. The
Internal Revenue Service may not receive
any part of any fees that may be charged.
(f) Authority to enter into contracts.
The Secretary may enter into contracts re-
lated to receiving payments of tax by
credit card or debit card if such contracts
are cost beneficial to the Government.
The determination of whether the contract
is cost beneficial shall be based on an
analysis appropriate for the contract at
issue and at a level of detail appropriate to
the size of the Government’s investment
or interest. The Secretary may not pay
any fee or charge or provide any other
monetary consideration under such con-
tracts for such payments.
(g) Use and disclosure of information
relating to payment of taxes by credit card
and debit card.Information obtained by
any person other than the taxpayer in con-
nection with payment of taxes by a credit
card or debit card shall be treated as con-
fidential, whether such information is re-
ceived from the Secretary or from any
other person (including the taxpayer). No
person other than the taxpayer shall use or
disclose such information except as fol-
lows:
(1) Card issuers, financial institutions,
or other persons participating in the credit
card or debit card transaction may use or
disclose such information for the purpose
and in direct furtherance of servicing
cardholder accounts, including the resolu-
tion of errors in accordance with para-
graph (d) of this section. This authority
includes the following:
(i) Processing of the credit card or
debit card transaction, in all of its stages
through and including the crediting of the
amount charged on account of tax to the
United States Treasury.
(ii) Billing the taxpayer for the amount
charged or debited with respect to pay-
ment of the tax liability.
(iii) Collection of the amount charged
or debited with respect to payment of the
tax liability.
(iv) Returning funds to the taxpayer in
accordance with paragraph (d)(3) of this
section.
(2) Card issuers, financial institutions
or other persons participating in the credit
card or debit card transaction may use and
disclose such information for the purpose
and in direct furtherance of any of the fol-
lowing activities:
(i) Assessment of statistical risk and
profitability.
(ii) Transfer of receivables or accounts
or any interest therein.
(iii) Audit of account information.
(iv) Compliance with Federal, State, or
local law.
(v) Cooperation in properly authorized
civil, criminal, or regulatory investigations
by Federal, State, or local authorities.
February 16, 1999181999–7 I.R.B.
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(3) Notwithstanding the foregoing, use
or disclosure of information relating to
credit card and debit card transactions for
purposes related to any of the following is
not authorized:
(i) Sale or exchange of such informa-
tion separate from the underlying receiv-
able or account.
(ii) Marketing for any purpose, for ex-
ample, marketing tax-related products or
services, or marketing any product or ser-
vice that targets those who have used a
credit card or debit card to pay taxes.
(iii) Furnishing such information to
any credit reporting agency or credit bu-
reau, except with respect to the aggregate
amount of a cardholder’s account, with
the amount attributable to payment of
taxes not separately identified.
(4) Use and disclosure of information
other than as authorized by this paragraph
(g) may result in civil liability under sec-
tion 7431(h) of the Internal Revenue
Code.
(h) Effective date.This section applies
to payments of taxes made on and after
January 1, 1999, and through January 1,
2002.
Robert E. Wenzel,
Deputy Commissioner of
Internal Revenue.
Approved December 1, 1998.
Donald C. Lubick,
Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on De-
cember 14, 1998, 8:45 a.m., and published in the
issue of the Federal Register for December 15, 1998,
63 F.R. 68995)
Section 6320.—Notice and
Opportunity for Hearing Upon
Filing of Notice of Lien
26 CFR 301.6320–1T: Notice and opportunity for
hearing upon filing of notice of Federal tax lien
(temporary).
T.D. 8810
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 301
Notice and Opportunity for
Hearing Upon Filing of Notice of
Lien
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Temporary regulations.
SUMMARY: This document contains
temporary regulations relating to the pro-
vision of notice to taxpayers of the filing
of a notice of federal tax lien (NFTL).
The regulations implement certain
changes made by section 3401 of the In-
ternal Revenue Service Restructuring and
Reform Act of 1998. They affect taxpay-
ers against whose property and rights to
property the IRS files a NFTL. The text
of these regulations also serves as the text
of the proposed regulations in
REG–116824–98, page 57 in this Bul-
letin.
DATES: These regulations are effective
January 19, 1999.
FOR FURTHER INFORMATION CON-
TACT: Jerome D. Sekula (202) 622-3610
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to
the Procedure and Administration Regula-
tions (26 CFR part 301) that reflect the
addition of section 6320 to the Internal
Revenue Code made by section 3401 of
the Internal Revenue Service Restructur-
ing and Reform Act of 1998 (RRA).
These temporary regulations imple-
ment the provisions of section 6320 and
thus set forth the procedures the IRS will
follow regarding notice to taxpayers of
the filing of a NFTL on or after January
19, 1999, the right to a hearing before the
IRS Office of Appeals (Appeals) with re-
spect to the filing of a NFTL, the proce-
dures that will be followed at those hear-
ings, judicial review of the determinations
reached at the hearings, and the suspen-
sions of various periods of limitation as a
result of a timely request for a hearing.
The legislative history accompanying
RRA also explains that Congress intended
the IRS to grant an equivalent hearing to
taxpayers who do not request a hearing
under section 6320 within the 30-day pe-
riod that commences the day after the five
business day notification period. H.
Conf. Rep. No. 599, 105th Cong., 2d
Sess. 266 (1998). These temporary regu-
lations set forth the procedural require-
ments and rules that will govern the con-
duct of such an equivalent hearing.
Explanation of Provisions
The temporary regulations provide
guidance to taxpayers for purposes of sec-
tion 6320. Pursuant to section 6320, for
NFTLs filed on or after January 19, 1999,
the IRS must provide written notification
of the filing of the NFTL to the taxpayer
named in the NFTL. The notification
under section 6320 may be given in per-
son, left at the taxpayer’s dwelling or
usual place of business, or sent to the tax-
payer by certified or registered mail to the
taxpayer’s last known address not more
than five business days after the day the
NFTL is filed. The notification must state
the amount of unpaid tax, inform the tax-
payer of the right to request a hearing dur-
ing the 30-day period that commences the
day after the end of the five business day
notification period, inform the taxpayer of
the administrative appeals available with
respect to such lien and the procedures re-
lated to such appeals, and inform the tax-
payer of the provisions and procedures re-
lating to the release of liens. Unless the
taxpayer withdraws the request that Ap-
peals conduct a hearing when the tax-
payer has made a timely request for a
hearing, Appeals will hold one collection
due process hearing (CDP hearing) with
respect to the tax and tax period or peri-
ods specified in the CDP hearing notice
(CDP Notice). The taxpayer is entitled to
have a CDP hearing conducted by an Ap-
peals officer who has had no prior in-
volvement with the unpaid tax that is the
subject of the hearing. This requirement,
however, can be waived by the taxpayer
in writing. The taxpayer may seek judi-
cial review of an Appeals determination
issued with respect to a CDP hearing. If a
taxpayer timely requests a CDP hearing,
the periods of limitation relating to collec-
tion after assessment, relating to criminal
prosecutions, and relating to suits are sus-
pended. If the taxpayer has a hearing
with Appeals, the suspension of the ap-
plicable periods of limitation continues
until the determination resulting from that
hearing becomes final by expiration of the
time for seeking review or reconsidera-
tion before the appropriate court. If the
1999–7 I.R.B.19February 16, 1999
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taxpayer has withdrawn the request for a
hearing with Appeals, the suspension of
the applicable periods of limitation ends
as a result of that withdrawal.
The temporary regulations discuss the
procedures for CDP hearings under sec-
tion 6320, including the requirement that
the Appeals officer obtain verification
that all legal and administrative require-
ments for the filing of the NFTL have
been met. The temporary regulations fur-
ther discuss the types of issues that may
or may not be raised at the CDP hearing.
The types of issues that may be raised at
the CDP hearing include appropriate
spousal defenses; challenges to the appro-
priateness of collection actions; collection
alternatives; and challenges to the exis-
tence or amount of the liability specified
in the CDP Notice. An issue may not be
raised at the CDP hearing if the issue was
raised and considered at a previous CDP
hearing under section 6330 or any other
previous administrative or judicial pro-
ceeding in which the taxpayer meaning-
fully participated. Challenges to the exis-
tence or amount of the tax liability
specified in the CDP Notice may be
raised only if the taxpayer did not receive
a statutory notice of deficiency for such
liability or did not otherwise have an op-
portunity to dispute such liability.
Following the CDP hearing, the Ap-
peals officer will issue a Notice of Deter-
mination, which can be appealed to the
United States Tax Court or a district court
of the United States by filing an appropri-
ate pleading with the court that has juris-
diction over the type of tax involved
within 30 days of the date of the determi-
nation. The temporary regulations dis-
cuss the content of the Notice of Determi-
nation and the rules for obtaining judicial
review. The temporary regulations also
provide guidance as to the extent to which
the Appeals officer will retain jurisdiction
with respect to the determination.
Lastly, the temporary regulations pro-
vide rules and procedures with respect to
the administrative hearing (referred to as
an “equivalent hearing”) the IRS will pro-
vide to taxpayers who do not timely re-
quest a hearing under section 6320.
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 assess-
ment is not required. It has also been de-
termined that section 553 (b) of the Ad-
ministrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regula-
tions. For the applicability of the Regula-
tory Flexibility Act (5 U.S.C. chapter 6)
refer to the Special Analyses section of
the preamble to the cross reference notice
of proposed rulemaking published in the
Proposed Rules section of this issue of the
Federal Register. Pursuant to section
7805 (f) of the Internal Revenue Code,
this temporary regulation will be submit-
ted to the Chief Counsel for Advocacy of
the Small Business Administration for
comment on its impact on small business.
Drafting Information
The principal author of this regulation
is Jerome D. Sekula, Office of the Assis-
tant Chief Counsel (General Litigation).
However, other personnel from the IRS
and Treasury Department participated in
its development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 301 is
amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read in part as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.6320–1T is added
under the undesignated centerheading
“Lien for Taxes” to read as follows:
§301.6320–1T Notice and opportunity for
hearing upon filing of notice of Federal
tax lien (temporary).
(a) Notification–(1) In general. For a
notice of federal tax lien (NFTL) filed on
or after January 19, 1999, district direc-
tors, directors of service centers, and the
Assistant Commissioner (International),
or their successors, are required to notify
the person described in section 6321 of
the filing of a NFTL not more than five
business days after the date of any such
filing. The Collection Due Process Hear-
ing Notice (CDP Notice) and other no-
tices given under this section must be
given in person, left at the dwelling or
usual place of business of such person, or
sent by certified or registered mail to such
person’s last known address, not more
than five business days after the day the
NFTL was filed.
(2) Questions and answers. The ques-
tions and answers illustrate the provisions
of this paragraph (a) as follows:
Q-A1. Who is the “person” entitled to
notice under section 6320?
A-A1. Under section 6320(a)(1), noti-
fication of the filing of a NFTL on or after
January 19, 1999, is only required to be
given to the person described in section
6321 who is named on the NFTL that is
filed. The person described in section
6321 is the person liable to pay the tax
due after notice and demand who refuses
or neglects to pay the tax due (hereinafter,
referred to as the taxpayer).
Q-A2. When will the IRS provide the
notice required under section 6320?
A-A2. The IRS will provide this notice
within five business days after the filing
of the NFTL.
Q-A3. Will the IRS give notification to
the taxpayer for each tax period listed in a
NFTL filed on or after January 19, 1999?
A-A3. Yes. Under section 6323(f), a
NFTL can be filed for more than one tax
period. The notification of the filing of a
NFTL will specify each tax and tax period
listed in the NFTL.
Q-A4. Will the IRS give notification to
the taxpayer of any filing of a NFTL for
the same tax period or periods at another
place of filing?
A-A4. Yes. The IRS will notify a tax-
payer when a NFTL is filed on or after
January 19, 1999, for a tax period or peri-
ods at any recording office.
Q-A5. Will the IRS give notification to
the taxpayer if a NFTL is filed on or after
January 19, 1999, for a tax period or peri-
ods for which a NFTL was filed in an-
other recording office prior to that date?
A-A5. Yes. The IRS will notify a tax-
payer when each NFTL is filed on or after
January 19, 1999, for a tax period or peri-
ods, at any location.
Q-A6. Will the IRS give notification to
the taxpayer when a NFTL is refiled on or
after January 19, 1999?
A-A6. No. Section 6320(a)(1) does
not require the IRS to notify the taxpayer
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of the refiling of a NFTL. A taxpayer
may, however, seek reconsideration by
the IRS office that is collecting the tax or
filing the NFTL, an administrative hear-
ing before Appeals, or assistance from the
National Taxpayer Advocate.
Q-A7. Will the IRS give notification to
a known nominee of, or person holding
property of, the taxpayer of the filing of
the NFTL?
A-A7. No. Such person is not the per-
son described in section 6321 and is,
therefore, not entitled to notice, but such
persons have other remedies. See A-B5
of paragraph (b) of this section.
Q-A8. Will the IRS give notification to
the taxpayer when a subsequent NFTL is
filed for the same period or periods?
A-A8. Yes. If the IRS files an addi-
tional NFTL with respect to the same tax
period or periods for which an original
NFTL was filed, the IRS will notify the
taxpayer when the subsequent NFTL is
filed. Not all such notices will, however,
give rise to a right to a CDP hearing (see
paragraph (b) of this section).
Q-A9. How will notification under
section 6320 be accomplished?
A-A9. The IRS will notify the tax-
payer by letter. Included with this letter
will be the additional information the IRS
is required to provide taxpayers as well
as, when appropriate, a Form 12153, Re-
quest for a Due Process Hearing. The
IRS may effect delivery of the letter (and
accompanying materials) in one of three
ways: by delivering the notice personally
to the taxpayer; by leaving the notice at
the taxpayer’s dwelling or usual place of
business; or by mailing the notice to the
taxpayer at his last known address by cer-
tified or registered mail.
Q-A10. What must a CDP Notice
given under section 6320 include?
A-A10. These notices must include, in
simple and nontechnical terms:
(i) The amount of unpaid tax.
(ii) A statement concerning the tax-
payer’s right to request a CDP hearing
during the 30-day period that commences
the day after the end of the five-day pe-
riod described in section 6320(a)(2).
(iii) The administrative appeals avail-
able to the taxpayer with respect to the
NFTL and the procedures relating to such
appeals.
(iv) The statutory provisions and the
procedures relating to the release of liens
on property.
Q-A11. What are the consequences if
the taxpayer does not receive or accept a
CDP Notice that is properly left at the tax-
payer’s dwelling or usual place of busi-
ness, or sent by certified or registered mail
to the taxpayer’s last known address?
A-A11. A CDP Notice properly sent by
certified or registered mail to the tax-
payer’s last known address or left at the
taxpayer’s dwelling or usual place of
business is sufficient to start the 30-day
period that commences the day after the
end of the five business day notification
period within which the taxpayer may re-
quest a CDP hearing. Actual receipt is not
a prerequisite to the validity of the notice.
Q-A12. What if the taxpayer does not
receive the CDP Notice because the IRS
did not send that notice by certified or
registered mail to the taxpayer’s last
known address, or failed to leave it at the
dwelling or usual place of business of the
taxpayer, and the taxpayer fails to request
a CDP hearing with Appeals within the
30-day period commencing the day after
the end of the five business day notifica-
tion period?
A-A12. A NFTL becomes effective
upon filing. The validity and priority of a
NFTL is not conditioned on notification
to the taxpayer pursuant to section 6320.
Therefore, the failure to notify the tax-
payer concerning the filing of a NFTL
does not affect the validity or priority of
the NFTL. When the IRS determines that
it failed properly to provide a taxpayer
with a CDP Notice, it will promptly pro-
vide the taxpayer with a substitute CDP
Notice and an opportunity to request a
CDP hearing.
(3) Examples.The following examples
illustrate the principles of this paragraph
(a):
Example 1. H and W are jointly and severally li-
able with respect to a jointly filed income tax return
for 1996. IRS files a NFTL with respect to H and W
in County X on January 26, 1999. This is the first
NFTL filed on or after January 19, 1999, for their
1996 liability. H and W will each be notified of the
filing of the NFTL.
Example 2.Employment taxes for 1997 are as-
sessed against ABC Corporation. A NFTL is filed
against ABC Corporation for the 1997 liability in
County X on June 5, 1998. A NFTL is filed against
ABC Corporation for the 1997 liability in County Y
on June 17, 1999. The IRS will notify the ABC Cor-
poration with respect to the filing of the NFTL in
County Y.
Example 3. Federal income tax liability for 1997
is assessed against individual D. D buys an asset
and puts it in individual E’s name. A NFTL is filed
against D in County X on June 5, 1999, for D’s fed-
eral income tax liability for 1997. On June 17, 1999,
a NFTL for the same tax liability is filed in County
Y against E, as nominee of D. The IRS will notify D
of the filing of the NFTL in both County X and
County Y. The IRS will not notify E of the NFTL
filed in County X. The IRS is not required to notify
E of the NFTL filed in County Y. Although E is
named on the NFTL filed in County Y, E is not the
person described in section 6321 (the taxpayer) who
is named on the NFTL.
(b) Entitlement to a Collection Due
Process (CDP hearing)—(1) In general.
A taxpayer is entitled to one CDP hearing
with respect to the first filing of a NFTL
(on or after January 19, 1999) for a given
tax period or periods with respect to the
amount of unpaid tax shown on the NFTL
if the taxpayer timely requests such a
hearing. The taxpayer must request such
a hearing during the 30-day period that
commences the day after the end of the
five business day period within which the
IRS is required to provide the taxpayer
with notice of the filing of the NFTL.
(2) Questions and answers.The ques-
tions and answers illustrate the provi-
sions of this paragraph (b) as follows:
Q-B1. Is a taxpayer entitled to a CDP
hearing with respect to the filing of a
NFTL for a tax and tax period previously
subject to a CDP Notice in a different lo-
cation?
A-B1. No. Although the taxpayer will
receive notice of each filing of the NFTL,
under section 6320(b)(2), the taxpayer is
entitled to only one CDP hearing under
section 6320 for each tax period with re-
spect to the first filing of a NFTL that oc-
curs on or after January 19, 1999, with re-
spect to an amount of unpaid tax.
Accordingly, if the taxpayer does not
timely request a CDP hearing with respect
to the first filing of a NFTL on or after
January 19, 1999, for a given tax period
or periods with respect to an amount of
unpaid tax, the taxpayer foregoes the right
to a CDP hearing with Appeals and judi-
cial review of Appeals’s determination as
to the NFTL. Under such circumstances,
a taxpayer, however, may request an
equivalent hearing as described in para-
graph (i) of this section.
Q-B2. Is the taxpayer entitled to a
CDP hearing where a NFTL for a tax and
tax period is filed on or after January 19,
1999, in one recording office and a NFTL
was previously filed in another recording
office prior to that date?
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A-B2. Yes. Under section 6320(b)(2),
the taxpayer is entitled to a CDP hearing
under section 6320 for each tax period
with respect to the first filing of a NFTL
on or after January 19, 1999, with respect
to an amount of unpaid tax, whether or
not a NFTL was filed prior to January 19,
1999, for the same tax and tax period or
periods.
Q-B3. When the IRS provides the tax-
payer with a substitute CDP Notice and
the taxpayer timely requests a CDP hear-
ing, is he entitled to a CDP hearing before
Appeals?
A-B3. Yes. Unless the taxpayer pro-
vides the IRS a written withdrawal of the
request that Appeals conduct a CDP hear-
ing, the taxpayer is entitled to a CDP
hearing before Appeals. Following the
hearing, Appeals will issue a Notice of
Determination, and the taxpayer is enti-
tled to seek judicial review of that Notice
of Determination.
Q-B4. If the IRS sends a second CDP
Notice under section 6320 (other than a
substitute CDP Notice) for a tax period
and with respect to an amount of unpaid
tax for which a section 6320 CDP Notice
was previously sent, is the taxpayer enti-
tled to a second section 6320 CDP
hearing?
A-B4. No. The taxpayer is entitled to
only one CDP hearing under section 6320
for a tax and tax period set forth in a
NFTL with respect to the first filing of a
NFTL that occurs on or after January 19,
1999.
Q-B5. Is a nominee of, or a person
holding property of, the taxpayer entitled
to a CDP hearing or an equivalent hear-
ing?
A-B5. No. Such person is not the per-
son described in section 6321 and is,
therefore, not entitled to a CDP hearing or
an equivalent hearing (as discussed in
paragraph (i) of this section). Such per-
son, however, may seek reconsideration
by the IRS office collecting the tax or fil-
ing the NFTL, an administrative hearing
before Appeals under its Collection Ap-
peals Program, or assistance from the Na-
tional Taxpayer Advocate. However, any
such administrative hearing would not be
a CDP hearing under section 6320 and
any determination or decision resulting
from the hearing would not be subject to
judicial review. Such person may also
avail himself of the administrative proce-
dure included in section 6325(b)(4) of the
Internal Revenue Code or of any other
procedures to which he is entitled.
(3) Examples. The following examples
illustrate the principles of this paragraph
(b):
Example 1.H and W are jointly and severally li-
able with respect to a jointly filed income tax return
for 1996. The IRS files a NFTL with respect to H
and W in County X on January 26, 1999. This is the
first NFTL filed on or after January 19, 1999, for
their 1996 liability. H and W are each entitled to a
CDP hearing with respect to the NFTL filed in
County X.
Example 2. Federal income tax liability for 1997
is assessed against individual D. D buys an asset
and puts it in individual E’s name. A NFTL is filed
against D in County X on June 5, 1999, for D’s fed-
eral income tax liability for 1997. On June 17, 1999,
a NFTL for the same tax liability is filed in County
Y against E, as nominee of D. The IRS will give D a
CDP Notice with respect to the NFTL filed in
County X. It will give D notification of the NFTL
filed in County Y. The IRS will not notify E of the
NFTL filed in County X. The IRS is not required to
notify E of the filing of the NFTL in County Y. Al-
though E is named on the NFTL filed in County Y, E
is not the person described in section 6321 (the tax-
payer) who is named on the NFTL.
(c) Requesting a CDP hearing—(1) In
general. Where a taxpayer is entitled to a
CDP hearing under section 6320, such a
hearing must be requested during the 30-
day period that commences the day after
the end of the five business day period
within which the IRS is required to pro-
vide the taxpayer with a CDP notice with
respect to the filing of the NFTL.
(2) Questions and answers.The ques-
tions and answers illustrate the provi-
sions of this paragraph (c) as follows:
Q-C1. What must a taxpayer do to ob-
tain a CDP hearing?
A-C1. The taxpayer must make a re-
quest in writing for a CDP hearing. A
written request in any form, which re-
quests a CDP hearing, will be acceptable.
The request must include the taxpayer’s
name, address, and daytime telephone
number, and must be signed by the tax-
payer or the taxpayer’s authorized repre-
sentative and dated. Included with the
CDP Notice will be a Form 12153, Re-
quest for a Collection Due Process Hear-
ing, that can be used by the taxpayer in re-
questing a CDP hearing. The Form 12153
requests the following information: the
taxpayer’s name, address, daytime tele-
phone number, and taxpayer identifica-
tion number (SSN or TIN); the type of tax
involved; the tax period at issue; a state-
ment that the taxpayer requests a hearing
with Appeals concerning the filing of the
NFTL; and the reason or reasons why the
taxpayer disagrees with the filing of the
NFTL. Taxpayers are encouraged to use a
Form 12153 in requesting a CDP hearing
so that such a request can be readily iden-
tified and forwarded to Appeals. Taxpay-
ers may obtain a copy of Form 12153 by
contacting the IRS office that issued the
CDP Notice or by calling, toll free, 1-800-
829-3676.
Q-C2. Must the request for the CDP
hearing be in writing?
A-C2. Yes. There are several reasons
why the request for a CDP hearing must
be in writing. First, the filing of a timely
request for a CDP hearing is the first step
in what may result in a court proceeding.
A written request will provide proof that
the CDP hearing was requested and thus
permit the court to verify that it has juris-
diction over any subsequent appeal of the
Notice of Determination issued by Ap-
peals. In addition, the receipt of the writ-
ten request will establish the date on
which the periods of limitation under sec-
tion 6502 (relating to collection after as-
sessment), section 6531 (relating to crimi-
nal prosecutions), and section 6532
(relating to suits) are suspended as a result
of the CDP hearing and any judicial ap-
peal. Moreover, because the IRS antici-
pates that taxpayers will contact the IRS
office that issued the CDP Notice for fur-
ther information, for help in filling out
Form 12153, or in an attempt to resolve
their liabilities prior to going through the
CDP hearing process, the requirement of
a written request should help to prevent
any misunderstanding as to whether a
CDP hearing has been requested. If the
information requested on Form 12153 is
furnished by the taxpayer, the written re-
quest will also help to establish the issues
for which the taxpayer seeks a determina-
tion by Appeals.
Q-C3. When must a taxpayer request a
CDP hearing with respect to a CDP No-
tice issued under section 6320?
A-C3. A taxpayer must submit a writ-
ten request for a CDP hearing within the
30-day period that commences the day
after the end of the five business day pe-
riod following the filing of the NFTL.
Any request filed during the five business
day period (before the beginning of the
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30-day period) will be deemed to be filed
on the first day of the 30-day period. The
period for submitting a written request for
a CDP hearing with respect to a CDP No-
tice issued under section 6320 is slightly
different from the period taxpayers are al-
lowed for submitting a written request for
a CDP hearing with respect to a CDP No-
tice issued under section 6330. For a
CDP Notice issued under section 6330,
the taxpayer must request a CDP hearing
within the 30-day period commencing the
day after the date of the CDP Notice.
Q-C4. How will the timeliness of a
taxpayer’s written request for a CDP hear-
ing be determined?
A-C4. The rules under section 7502
and the regulations under that section and
section 7503 and the regulations under
that section will apply to determine the
timeliness of the taxpayer’s request for a
CDP hearing, if properly transmitted and
addressed as provided in A-C6 of this
paragraph (c)(2).
Q-C5. Is the 30-day period within
which a taxpayer must make a request for
a CDP hearing extended because the tax-
payer resides outside the United States?
A-C5. No. Section 6320 does not make
provision for such a circumstance. Ac-
cordingly, all taxpayers who want a CDP
hearing under section 6320 must request
such a hearing within the 30-day period
that commences the day after the end of
the five business day notification period.
Q-C6. Where should the written re-
quest for a CDP hearing be sent?
A-C6. The written request for a CDP
hearing should be filed with the IRS of-
fice that issued the CDP Notice at the ad-
dress indicated on the CDP Notice. If the
address of that office is not known, the re-
quest may be sent to the District Director
serving the district of the taxpayer’s resi-
dence or principal place of business. If
the taxpayer does not have a residence or
principal place of business in the United
States, the request may be sent to the Di-
rector, Philadelphia Service Center.
Q-C7. What will happen if the tax-
payer does not request a section 6320
CDP hearing in writing within the 30-day
period that commences the day after the
end of the five business day notification
period?
A-C7. If the taxpayer does not request
a CDP hearing in writing within the 30-
day period that commences on the day
after the end of the five business day noti-
fication period, the taxpayer will forego
the right to a CDP hearing under section
6320 with respect to the tax and tax pe-
riod or periods shown on the CDP Notice.
The taxpayer may, however, request an
equivalent hearing. See paragraph (i) of
this section.
Q-C8. When must a taxpayer request a
CDP hearing with respect to a substitute
CDP Notice?
A-C8. A CDP hearing with respect to a
substitute CDP Notice must be requested
in writing by the taxpayer prior to the end
of the 30-day period commencing the day
after the date of the substitute CDP No-
tice.
Q-C9. Can taxpayers attempt to re-
solve the matter of the NFTL with an offi-
cer or employee of the IRS office collect-
ing the tax or filing the NFTL either
before or after requesting a CDP hearing?
A-C9. Yes. Taxpayers are encouraged
to discuss their concerns with the IRS of-
fice collecting the tax or filing the NFTL,
either before or after they request a CDP
hearing. If such a discussion occurs be-
fore a request is made for a CDP hearing,
the matter may be resolved without the
need for Appeals consideration. How-
ever, these discussions do not suspend the
running of the 30-day period that com-
mences the day after the end of the five
business day notification period within
which the taxpayer is required to request a
CDP hearing, nor do they extend that 30-
day period. If discussions occur after the
request for a CDP hearing is filed and the
taxpayer resolves the matter with the IRS
office collecting the tax or filing the
NFTL, the taxpayer may withdraw in
writing the request that a CDP hearing be
conducted by Appeals. The taxpayer can
also waive in writing some or all of the re-
quirements regarding the contents of the
Notice of Determination.
(3) Examples. The following examples
illustrate the principles of this paragraph
(c):
Example 1. A NFTL for a 1997 income tax liabil-
ity assessed against individual A is filed in County X
on June 17, 1999. The IRS mails a CDP Notice to
individual A’s last known address on June 18, 1999.
Individual A has until July 26, 1999, a Monday, to
request a CDP hearing. The five business day period
within which the IRS is required to notify individual
A of the filing of the NFTL in County X expires on
June 24, 1999. The 30-day period within which in-
dividual A may request a CDP hearing begins on
June 25, 1999. Because the 30-day period expires
on July 24, 1999, a Saturday, individual A’s written
request for a CDP hearing will be considered timely
if it is properly transmitted and addressed to the IRS
in accordance with section 7502 and the regulations
thereunder no later than July 26, 1999.
Example 2.Same facts as in Example 1,except
that individual A is on vacation, outside the United
States, or otherwise does not receive or read the
CDP Notice until July 19, 1999. As in (i), individual
A has until July 26, 1999, to request a CDP hearing.
If individual A does not request a CDP hearing, indi-
vidual A may request an equivalent hearing as to the
NFTL at a later time. The taxpayer should make a
request for an equivalent hearing at the earliest pos-
sible time.
Example 3. Same facts as in Example 2,except
that individual A does not receive or read the CDP
Notice until after July 26, 1999, and does not request
a hearing by July 26, 1999. Individual A is not enti-
tled to a CDP hearing. Individual A may request an
equivalent hearing as to the NFTL at a later time.
The taxpayer should make a request for an equiva-
lent hearing at the earliest possible time.
Example 4. Same facts as in Example 1,except
the IRS determines that the CDP Notice mailed on
June 18, 1999, was not mailed to individual A’s last
known address. As soon as practicable after making
this determination, the IRS will mail a substitute
CDP Notice to individual A at individual A’s last
known address, hand deliver the substitute CDP No-
tice to individual A, or leave the substitute CDP No-
tice at individual A’s dwelling or usual place of busi-
ness. Individual A will have 30 days commencing
on the day after the date of the substitute CDP No-
tice within which to request a CDP hearing.
(d) Conduct of CDP hearing—(1) In
general.If a taxpayer requests a CDP
hearing under section 6320(a)(3)(B) (and
does not withdraw that request), the CDP
hearing will be held with Appeals. The
taxpayer is entitled to only one CDP hear-
ing for a tax and tax period set forth in a
NFTL under section 6320 with respect to
the first filing of a NFTL on or after Janu-
ary 19, 1999. To the extent practicable,
the CDP hearing requested under section
6320 will be held in conjunction with any
CDP hearing the taxpayer requests under
section 6330. A CDP hearing will be con-
ducted by an employee or officer of Ap-
peals who has had no involvement with
respect to the tax for the tax period or pe-
riods covered by the hearing prior to the
first CDP hearing under section 6320 or
section 6330, unless the taxpayer waives
that requirement.
(2) Questions and answers. The ques-
tions and answers illustrate the provi-
sions of this paragraph (d) as follows:
Q-D1. Under what circumstances can
a taxpayer receive more than one CDP
hearing with respect to a tax period?
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A-D1. The taxpayer may receive more
than one CDP hearing with respect to a
tax period where the tax involved is a dif-
ferent type of tax (for example, an em-
ployment tax liability, where the original
CDP hearing for the tax period involved
an income tax liability), or where the
same type of tax for the same period is in-
volved, but where the amount of the tax
has changed as a result of an additional
assessment of tax for that period or an ad-
ditional accuracy-related or filing delin-
quency penalty has been assessed. The
taxpayer is not entitled to another CDP
hearing if the additional assessment repre-
sents accruals of interest or accruals of
penalties.
Q-D2. Will a CDP hearing with respect
to one tax period be combined with a
CDP hearing with respect to another tax
period?
A-D2. To the extent practicable, a
hearing with respect to one tax period
shown on the NFTL will be combined
with any and all other hearings to which
the taxpayer may be entitled with respect
to other tax periods shown on the NFTL.
Q-D3. Will a CDP hearing under sec-
tion 6320 be combined with a CDP hear-
ing under section 6330?
A-D3. To the extent practicable, a
CDP hearing under section 6320 will be
held in conjunction with a CDP hearing
under section 6330.
Q-D4. What is considered to be prior
involvement by an employee or officer of
Appeals with respect to the tax and tax
period or periods involved in the hearing?
A-D4. Prior involvement by an em-
ployee or officer of Appeals includes par-
ticipation or involvement in an Appeals
hearing (other than a CDP hearing held
under either section 6320 or section 6330)
that the taxpayer may have had with re-
spect to the tax and tax period or periods
shown on the NFTL.
Q-D5. How can a taxpayer waive the
requirement that the officer or employee
of Appeals had no prior involvement with
respect to the tax and tax period or peri-
ods involved in the CDP hearing?
A-D5. The taxpayer must sign a writ-
ten waiver.
(e) Matters considered at CDP hear-
ing—(1) In general.Appeals has the au-
thority to determine the validity, suffi-
ciency, and timeliness of any CDP Notice
given by the IRS and of any request for a
CDP hearing that is made by a taxpayer.
Prior to the issuance of a determinaton,
the hearing officer is required to obtain
verification from the IRS office collecting
the tax or filing the NFTL that the re-
quirements of any applicable law or ad-
ministrative procedure have been met.
The taxpayer may raise any relevant issue
relating to the unpaid tax at the hearing,
including appropriate spousal defenses,
challenges to the appropriateness of the
NFTL filing, and offers of collection al-
ternatives. The taxpayer also may raise
challenges to the existence or amount of
the tax liability specified on the CDP No-
tice for any tax period shown on the CDP
Notice if the taxpayer did not receive a
statutory notice of deficiency for that tax
liability or did not otherwise have an op-
portunity to dispute that tax liability. Fi-
nally, the taxpayer may not raise an issue
that was raised and considered at a previ-
ous CDP hearing under section 6330 or in
any other previous administrative or judi-
cial proceeding if the taxpayer partici-
pated meaningfully in such hearing or
proceeding. Taxpayers will be expected
to provide all relevant information re-
quested by Appeals, including financial
statements, for its consideration of the
facts and issues involved in the hearing.
(2) Spousal defenses.A taxpayer may
raise any appropriate spousal defenses at a
CDP hearing. To claim a spousal defense
under section 6015, the taxpayer must do
so in writing according to rules prescribed
by the Secretary. Spousal defenses raised
under section 6015 in a CDP hearing are
governed in all respects by the provisions
of section 6015 and the procedures pre-
scribed by the Secretary thereunder.
(3) Questions and answers.The ques-
tions and answers illustrate the provi-
sions of this paragraph (e) as follows:
Q-E1. What factors will Appeals con-
sider in making its determination?
A-E1. Appeals will consider the follow-
ing matters in making its determination:
(i) Whether the IRS met the require-
ments of any applicable law or adminis-
trative procedure.
(ii) Any issues appropriately raised by
the taxpayer relating to the unpaid tax.
(iii) Any appropriate spousal defenses
raised by the taxpayer.
(iv) Any challenges made by the tax-
payer to the appropriateness of the NFTL
filing.
(v) Any offers by the taxpayer for col-
lection alternatives.
(vi) Whether the continued existence of
the filed NFTL represents a balance be-
tween the need for the efficient collection
of taxes and the legitimate concern of the
taxpayer that any collection action be no
more intrusive than necessary.
Q-E2. When is a taxpayer entitled to
challenge the existence or amount of the
tax liability specified in the CDP Notice?
A-E2. A taxpayer is entitled to chal-
lenge the existence or amount of the tax
liability specified in the CDP Notice if the
taxpayer did not receive a statutory notice
of deficiency for such liability or did not
otherwise have an opportunity to dispute
such liability. Receipt of a statutory no-
tice of deficiency for this purpose means
receipt in time to petition the Tax Court
for a redetermination of the deficiency as-
serted in the notice of deficiency. An op-
portunity to dispute a liability includes a
prior opportunity for a conference with
Appeals that was offered either before or
after the assessment of the liability.
Q-E3. Are spousal defenses subject to
the limitations imposed under section
6330(c)(2)(B) on a taxpayer’s right to
challenge the tax liability specified in the
CDP Notice at a CDP hearing?
A-E3. No. The limitations imposed
under section 6330(c)(2)(B) do not apply
to spousal defenses. A spousal defense
raised under section 6015 is governed by
that section; therefore any limitations
under section 6015 will apply.
Q-E4. May a taxpayer raise at a CDP
hearing a spousal defense under section
6015 if that defense was raised and con-
sidered in a prior judicial proceeding that
has become final?
A-E4. No. A taxpayer is precluded by
limitations under section 6015 from rais-
ing a spousal defense under section 6015
in a CDP hearing under these circum-
stances.
Q-E5. What collection alternatives are
available to the taxpayer?
A-E5. Collection alternatives would
include, for example, withdrawal of the
NFTL in circumstances that will facilitate
the collection of the tax liability, an in-
stallment agreement, an offer-in-compro-
mise, the posting of a bond, or the substi-
tution of other assets.
Q-E6. What issues may a taxpayer
raise in a CDP hearing under section 6320
February 16, 1999241999–7 I.R.B.
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if he previously received a notice under
section 6330 with respect to the same tax
and tax period and did not request a CDP
hearing with respect to that notice?
A-E6. The taxpayer may raise appro-
priate spousal defenses, challenges to the
appropriateness of the NFTL filing, and
offers of collection alternatives. The exis-
tence or amount of the tax liability for the
tax and tax period specified in the CDP
Notice may be challenged only if the tax-
payer did not already have an opportunity
to dispute that tax liability. Where the
taxpayer previously received a CDP No-
tice under section 6330 with respect to the
same tax and tax period and did not re-
quest a CDP hearing with respect to that
earlier CDP Notice, the taxpayer already
had an opportunity to dispute the exis-
tence or amount of the tax liability.
Q-E7. How will Appeals issue its de-
termination?
A-E7. (i) Taxpayers will be sent a dated
Notice of Determination by certified or
registered mail. The Notice of Determi-
nation will set forth Appeals’s findings
and decisions. It will state whether the
IRS met the requirements of any applica-
ble law or administrative procedure; it
will resolve any issues appropriately
raised by the taxpayer relating to the un-
paid tax; it will include a decision on any
appropriate spousal defenses raised by the
taxpayer; it will include a decision on any
challenges made by the taxpayer to the
appropriateness of the NFTL filing; it will
respond to any offers by the taxpayer for
collection alternatives; and it will address
whether the continued existence of the
filed NFTL represents a balance between
the need for the efficient collection of
taxes and the legitimate concern of the
taxpayer that any collection action be no
more intrusive than necessary. The No-
tice of Determination will also set forth
any agreements Appeals reached with the
taxpayer, any relief given the taxpayer,
and any actions the taxpayer and/or the
IRS are required to take. Lastly, the No-
tice of Determination will advise the tax-
payer of his right to seek judicial review
within 30 days of the date of the Notice of
Determination.
(ii) Because taxpayers are encouraged
to discuss their concerns with the IRS of-
fice collecting the tax or filing the NFTL,
certain matters that might have been
raised at a CDP hearing may be resolved
without the need for Appeals considera-
tion. Unless as a result of these discus-
sions, the taxpayer agrees to withdraw in
writing the request that Appeals conduct a
CDP hearing, Appeals will still issue a
Notice of Determination. The taxpayer
can, however, waive in writing Appeals’s
consideration of some or all of the matters
it would otherwise consider in making its
determination.
Q-E8. Is there a time limit on the CDP
hearings or on when Appeals must issue a
Notice of Determination?
A-E8. No. Appeals will, however, at-
tempt to conduct CDP hearings as expedi-
tiously as possible.
Q-E9. Why is the Notice of Determi-
nation and its date important?
A-E9. The Notice of Determination
will set forth Appeals’s findings and deci-
sions with respect to the matters set forth
in A-E1 of this paragraph (e)(3). The date
of the Notice of Determination establishes
the beginning date of the 30-day period
within which the taxpayer is permitted to
seek judicial review of Appeals’s determi-
nation.
(4) Examples.The following exam-
ples illustrate the principles of this para-
graph (e).
Example 1. The IRS sends a statutory notice of
deficiency to the taxpayer at his last known address
asserting a deficiency for the taxable year 1995. The
taxpayer receives the notice of deficiency in time to
petition the Tax Court for a redetermination of the
asserted deficiency. The taxpayer does not timely
file a petition with the Tax Court. The taxpayer is
therefore precluded from challenging the existence
or amount of the tax liability in a subsequent CDP
hearing.
Example 2. Same facts as in Example 1,except
the taxpayer does not receive the notice of defi-
ciency in time to petition the Tax Court. The tax-
payer is not, therefore, precluded from challenging
the existence or amount of the tax liability in a sub-
sequent CDP hearing.
Example 3. The IRS properly assesses a trust
fund recovery penalty against the taxpayer. The IRS
offers the opportunity for a conference at which the
taxpayer would have the opportunity to dispute the
liability. The taxpayer declines the opportunity to
participate in such a conference. The taxpayer is
precluded from challenging the existence or amount
of the tax liability in a subsequent CDP hearing.
(f) Judicial review of Notice of Deter-
mination–-(1) In general.Unless the tax-
payer provides the IRS a written with-
drawal of the request that Appeals
conduct a CDP hearing, Appeals is re-
quired to issue a Notice of Determination
in all cases where a taxpayer has timely
requested a CDP hearing in writing. The
taxpayer may appeal such determinations
made by Appeals within 30 days after the
date of the Notice of Determination to the
Tax Court or a district court of the United
States, as appropriate.
(2) Questions and answers.The ques-
tions and answers illustrate the provisions
of this paragraph (f) as follows:
Q-F1. What must a taxpayer do to ob-
tain judicial review of a Notice of Deter-
mination?
A-F1. Subject to the jurisdictional lim-
itations described in A-F2, the taxpayer
must, within the 30-day period commenc-
ing the day after the date of the Notice of
Determination, appeal the determination
by Appeals to the Tax Court or to a dis-
trict court of the United States.
Q-F2. With respect to the relief avail-
able to the taxpayer under section 6015(b)
or (c), what is the time frame within
which a taxpayer may seek Tax Court re-
view of Appeals’s determination follow-
ing a CDP hearing?
A-F2. If the taxpayer seeks Tax Court
review not only of Appeals’s denial of re-
lief under section 6015(b) or (c), but also
of relief requested with respect to other is-
sues raised in the CDP hearing, the tax-
payer should request Tax Court review
within the 30-day period commencing the
day after the date of the Notice of Deter-
mination. If the taxpayer only seeks Tax
Court review of Appeals’s denial of relief
under section 6015(b) or (c), the taxpayer
should request Tax Court review, as pro-
vided by section 6015(e), within 90 days
of Appeals’s determination. If a request
for Tax Court review is filed after the 30-
day period for seeking judicial review
under section 6320, then only the tax-
payer’s section 6015(b) or (c) claims may
be reviewable by the Tax Court.
Q-F3. Where should a taxpayer direct
a request for judicial review of a Notice of
Determination?
A-F3. If the Tax Court would have ju-
risdiction over the type of tax specified in
the CDP Notice (for example, income and
estate taxes), then the taxpayer must seek
judicial review by the Tax Court. If the
tax liability specified in the CDP Notice
arises from a type of tax over which the
Tax Court would not have jurisdiction,
then the taxpayer must seek judicial re-
view by a district court of the United
1999–7 I.R.B.25February 16, 1999
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States in accordance with Title 28 of the
United States Code.
Q-F4. What happens if the taxpayer
timely appeals Appeals’s determination to
the incorrect court?
A-F4. If the court to which the tax-
payer directed a timely appeal of the No-
tice of Determination determines that the
appeal was to the incorrect court (because
of jurisdictional, venue or other reasons),
the taxpayer will have 30 days after the
court’s determination to that effect within
which to file an appeal to the correct
court.
Q-F5. What issue or issues may the
taxpayer raise before the Tax Court or be-
fore a district court if the taxpayer dis-
agrees with the Notice of Determination?
A-F5. In seeking Tax Court or district
court review of Appeals’s Notice of De-
termination, the taxpayer can only request
that the court consider an issue that was
raised in the taxpayer’s CDP hearing.
(g) Effect of request for CDP hearing
and judicial review on periods of limita-
tion—(1) In general.The periods of limi-
tation under section 6502 (relating to col-
lection after assessment), section 6531
(relating to criminal prosecutions), and
section 6532 (relating to suits) are sus-
pended until the date the IRS receives the
taxpayer’s written withdrawal of the re-
quest for a CDP hearing by Appeals or the
determination resulting from the CDP
hearing becomes final by expiration of the
time for seeking review or reconsidera-
tion. In no event shall any of these peri-
ods of limitation expire before the 90th
day after the date on which the IRS re-
ceives the taxpayer’s written withdrawal
of the request that Appeals conduct a CDP
hearing or the determination with respect
to such hearing becomes final upon expi-
ration of the time for seeking review or
reconsideration.
(2) Questions and answers.The ques-
tions and answers illustrate the provisions
of this paragraph (g) as follows:
Q-G1. For what period of time will the
periods of limitation under sections 6502,
6531, and 6532 remain suspended if the
taxpayer timely requests a CDP hearing
concerning the filing of a NFTL?
A-G1. The suspension period com-
mences on the date the IRS receives the
taxpayer’s written request for a CDP hear-
ing. The suspension period continues
until the IRS receives a written withdrawal
by the taxpayer of the request for a CDP
hearing or the determination resulting
from the CDP hearing becomes final by
expiration of the time for seeking review
or reconsideration. In no event shall any
of these periods of limitation expire before
the 90th day after the day on which the
IRS receives the taxpayer’s written with-
drawal of the request that Appeals conduct
a CDP hearing or there is a final determi-
nation with respect to such hearing. The
periods of limitation that are suspended
under section 6320 are those which apply
to the taxes and the tax period or periods
to which the CDP Notice relates.
Q-G2. For what period of time will the
periods of limitation under sections 6502,
6531, and 6532 be suspended if the tax-
payer does not request a CDP hearing
concerning the filing of a NFTL, or the
taxpayer requests a CDP hearing, but his
request is not timely?
A-G2. Under either of these circum-
stances, section 6320 does not provide for
a suspension of the periods of limitation.
(3) Examples.The following exam-
ples illustrate the principles of this para-
graph (g).
Example 1. The period of limitation under sec-
tion 6502 with respect to the taxpayer’s tax period
listed in the NFTL will expire on August 1, 1999.
The IRS sent a CDP Notice to the taxpayer on April
30, 1999. The taxpayer timely requested a CDP
hearing. The IRS received this request on May 15,
1999. Appeals sends the taxpayer its determination
on June 15, 1999. The taxpayer timely seeks judi-
cial review of that determination. The period of lim-
itation under section 6502 would be suspended from
May 15, 1999, until the determination resulting from
that hearing becomes final by expiration of the time
for seeking review or reconsideration before the ap-
propriate court, plus 90 days.
Example 2.Same facts as in Example 1,except
the taxpayer does not seek judicial review of Ap-
peals’s determination. Because the taxpayer re-
quested the CDP hearing when fewer than 90 days
remained on the period of limitation, the period of
limitation will be extended to October 13, 1999 (90
days from July 15, 1999).
(h) Retained jurisdiction of Appeals—
(1) In general. The Appeals office that
makes a determination under section 6320
retains jurisdiction over that determina-
tion, including any subsequent adminis-
trative hearings that may be requested by
the taxpayer regarding the NFTL and any
collection actions taken or proposed with
respect to Appeals’s determination. Once
a taxpayer has exhausted his other reme-
dies, Appeals’s retained jurisdiction per-
mits it to consider whether a change in the
taxpayer’s circumstances affects its origi-
nal determination. Where a taxpayer al-
leges a change in circumstances that af-
fects Appeals’s original determination,
Appeals may consider whether changed
circumstances warrant a change in its ear-
lier determination.
(2) Questions and answers.The ques-
tions and answers illustrate the provisions
of this paragraph (h) as follows:
Q-H1. Are the periods of limitation
suspended during the course of any subse-
quent Appeals consideration of the mat-
ters raised by a taxpayer when the tax-
payer invokes the retained jurisdiction of
Appeals under section 6330(d)(2)(A) or
(d)(2)(B)?
A-H1. No. Under section 6320(b)(2),
a taxpayer is entitled to only one section
6320 CDP hearing with respect to the tax
and tax period or periods specified in the
CDP Notice. Any subsequent considera-
tion by Appeals pursuant to its retained
jurisdiction is not a continuation of the
original CDP hearing and does not sus-
pend the periods of limitation.
Q-H2. Is a decision of Appeals result-
ing from a retained jurisdiction hearing
appealable to the Tax Court or a district
court?
A-H2. No. As discussed in A-H1, a
taxpayer is entitled to only one section
6320 CDP hearing with respect to the tax
and tax period or periods specified in the
CDP Notice. Only determinations result-
ing from CDP hearings are appealable to
the Tax Court or a district court.
(i) Equivalent hearing—(1) In general.
A taxpayer who fails to make a timely re-
quest for a CDP hearing is not entitled to
a CDP hearing. Such a taxpayer may nev-
ertheless request an administrative hear-
ing with Appeals, which is referred to
herein as an “equivalent hearing.” The
equivalent hearing will be held by Ap-
peals and will generally follow Appeals
procedures for a CDP hearing. Appeals
will not, however, issue a Notice of De-
termination. Under such circumstances,
Appeals will issue a Decision Letter.
(2) Questions and answers.The ques-
tions and answers illustrate the provisions
of this paragraph (i) as follows:
Q-I1. What issues will Appeals con-
sider at an equivalent hearing?
A-I1. In an equivalent hearing, Ap-
peals will consider the same issues that it
February 16, 1999261999–7 I.R.B.
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would have considered at a CDP hearing
on the same matter.
Q-I2. Are the periods of limitation
under sections 6502, 6531, and 6532 sus-
pended if the taxpayer does not timely re-
quest a CDP hearing and is subsequently
given an equivalent hearing?
A-I2. No. The suspension period pro-
vided for in section 6330(e) relates only
to hearings requested within the 30-day
period that commences on the day after
the end of the five business day period
following the filing of the NFTL, that is,
CDP hearings.
Q-I3. Will collection action, including
the filing of additional NFTLs, be sus-
pended if a taxpayer requests and receives
an equivalent hearing?
A-I3. Collection action is not required
to be suspended. Accordingly, the deci-
sion to take collection action during the
pendency of an equivalent hearing will be
determined on a case-by-case basis. Ap-
peals may request the IRS office with re-
sponsibility for collecting the taxes to sus-
pend all or some collection action or to
take other appropriate action if it deter-
mines that such action is appropriate or
necessary under the circumstances.
Q-I4. What will the Decision Letter
state?
A-I4. The Decision Letter will gener-
ally contain the same information as a
Notice of Determination.
Q-I5. Will a taxpayer be able to obtain
court review of a decision made by Ap-
peals with respect to an equivalent hear-
ing?
A-I5. Section 6320 does not authorize
a taxpayer to appeal the decision of Ap-
peals with respect to an equivalent hear-
ing. A taxpayer may under certain cir-
cumstances be able to seek Tax Court
review of Appeals’s denial of relief under
section 6015(b) or (c). Such review must
be sought within 90 days of the issuance
of Appeals’s determination on those is-
sues, as provided by section 6015(e).
(j) Effective date.This section is ap-
plicable with respect to any filing of a
NFTL on or after January 19, 1999, and
before January 22, 2002.
Robert E. Wenzel,
Deputy Commissioner of
Internal Revenue.
Approved January 13, 1999.
Donald C. Lubick,
Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on Janu-
ary 19, 1999, 10:56 a.m., and published in the issue
of the Federal Register for January 22, 1999, 64 F.R.
3398)
Section 6330.—Notice and
Opportunity for Hearing Before
Levy
26 CFR 301.6330–1T: Notice and opportunity for
hearing prior to levy (temporary).
T.D. 8809
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 301
Notice and Opportunity for
Hearing Before Levy
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Temporary regulations.
SUMMARY: This document contains
temporary regulations relating to the pro-
vision of notice to taxpayers of a right to a
hearing before levy. The regulations im-
plement certain changes made by section
3401 of the Internal Revenue Service Re-
structuring and Reform Act of 1998. They
affect taxpayers against whose property
the IRS intends to levy. The text of these
regulations also serves as the text of the
proposed regulations set forth in
REG–117620–98, page 59 in this Bulletin.
DATES: This regulation is effective Jan-
uary 19, 1999.
FOR FURTHER INFORMATION CON-
TACT: Jerome D. Sekula (202) 622-3610
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to
the Procedure and Administration Regula-
tions (26 CFR part 301) that reflect the
addition of section 6330 to the Internal
Revenue Code made by section 3401 of
the Internal Revenue Service Restructur-
ing and Reform Act of 1998 (RRA).
Prior to January 1, 1983, the IRS was
only required to notify a taxpayer of its
intention to levy in the case of proposed
levies on salary or wages. Section
6331(d) was amended as a part of the Tax
Equity and Fiscal Responsibility Act of
1982 (TEFRA). The TEFRA amendment
required the IRS to give a taxpayer a no-
tice of its intention to levy, in non-jeop-
ardy situations, before any levy was made
upon the salary, wages, or other property
of the taxpayer. The legislative history of
the TEFRA amendment recognized that,
although a single notice of intent to levy
relating to all property would be suffi-
cient, the IRS was not precluded from
sending multiple notices of intention to
levy.
Under section 6331(a), the IRS may
levy upon a taxpayer’s property and rights
to property if a taxpayer fails to pay a tax
liability. Exemptions from levy are pro-
vided for certain property under section
6334(a). The first step toward levy gener-
ally occurs when the IRS provides a tax-
payer with a written notice and demand
for payment. Under section 6303, a no-
tice and demand is a notice which states
that the tax has been assessed and de-
mands that payment be made. If, in non-
jeopardy situations, the taxpayer fails to
pay the tax within 10 days after notice and
demand, the IRS may seize a taxpayer’s
property or rights to property 30 days
after sending the taxpayer a notice re-
quired under section 6331(d), called a
Notice of Intent to Levy. Although the
notice and demand and the Notice of In-
tent to Levy may be combined and sent at
the same time under Treas. Reg.
§301.6331–2(a)(1), under current practice
these two notices are usually sent sepa-
rately. Generally, the notice and demand
is sent first and, as the second step in the
levy process, the Notice of Intent to Levy
is sent at a later time. The IRS is permit-
ted to proceed with immediate seizure of
a taxpayer’s property or rights to property
without regard to the 10-day waiting pe-
riod if it determines that the collection of
the tax is in jeopardy.
Under section 6331(d), the Notice of
Intent to Levy must contain a brief state-
ment, in simple, nontechnical terms, that
sets forth (A) the statutory provisions re-
lating to the levy and sale of property, (B)
the procedures applicable to the levy and
sale of property, (C) the administrative
1999–7 I.R.B.27February 16, 1999
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appeals available to the taxpayer with re-
spect to levy and sale and the procedures
relating to those appeals, (D) the alterna-
tives available to taxpayers that could pre-
vent levy on the property (including in-
stallment agreements), (E) the statutory
provisions relating to redemption of prop-
erty and the release of liens on property,
and (F) the procedures applicable to the
redemption of property and the release of
a lien on property. The Notice of Intent to
Levy must be given in person, left at the
taxpayer’s dwelling or usual place of
business, or sent by registered or certified
mail to the taxpayer’s last known address.
Prior to January 19, 1999, the IRS gen-
erally complied with the requirements of
section 6331(d) by giving the taxpayer a
Final Notice of Intent to Levy, and en-
closing certain IRS publications which
explain the law, IRS levy and redemption
procedures, administrative appeal
processes and procedures, and various
collection alternatives.
Section 6330 provides that, except
when the Secretary finds that collection of
the tax is in jeopardy or a levy is issued to
collect State tax refunds due to the tax-
payer, no levy may be made on or after
January 19, 1999, unless the Secretary no-
tifies the taxpayer in writing of a right to a
hearing before the IRS Office of Appeals
(Appeals) with respect to the unpaid tax
for the tax period. When the Secretary
has found jeopardy exists and in cases
where a levy is made on a State tax re-
fund, the taxpayer will be given notice of
a right to, and the opportunity for, a hear-
ing within a reasonable time after the levy
action has actually occurred.
Except when it determines that collec-
tion of the tax is in jeopardy or it levies on
State tax refunds, the IRS is prohibited
from levying upon the taxpayer’s prop-
erty or rights to property until 30 days
after providing the taxpayer with the no-
tice of a right to a hearing before Appeals.
If the taxpayer requests such a hearing,
the IRS is, in the absence of jeopardy,
prohibited from levying upon the tax-
payer’s property until the determination
reached by Appeals becomes final.
In order to implement the provisions of
section 6330, the IRS is going to modify
the procedures it follows leading up to the
issuance of a levy. In the absence of a de-
termination that collection of the taxes is
in jeopardy, the IRS will continue to pro-
vide a number of notices to a taxpayer be-
fore levying upon the taxpayer’s property.
Under the procedures the IRS is adopt-
ing to implement section 6330, the levy
process will continue to begin with is-
suance to the taxpayer of a written notice
and demand for payment. Absent a jeop-
ardy determination, a taxpayer who fails
to pay the tax specified in the notice and
demand within 10 days after notice and
demand may, in addition to other notices
such as the annual notice of tax delin-
quency required under section 7524, be
sent an Urgent Notice. The Urgent Notice
will inform the taxpayer that the IRS may
levy upon a taxpayer’s State tax refund
after 30 days from the date of that notice.
This Urgent Notice will include all infor-
mation required under section 6331(d)
and will constitute the notice required
under that section. Accordingly, the Ur-
gent Notice will also begin the ten-day
period leading to an increase in the failure
to pay penalty prescribed by section
6651(d).
These temporary regulations imple-
ment the provisions of section 6330 and
thus set forth the procedures the IRS will
follow regarding notice to taxpayers of a
right to a hearing before Appeals, the pro-
cedures that will be followed at those
hearings, judicial review of the determi-
nations reached at the hearings, and the
suspensions of various periods of limita-
tion as a result of a timely request for a
hearing. The legislative history accompa-
nying RRA also explains that Congress
intended the IRS to grant an equivalent
hearing to taxpayers who do not request a
hearing under section 6330 within the 30-
day period following the date of notifica-
tion. H. Conf. Rep. No. 599, 105th
Cong., 2d Sess. 266 (1998). These tem-
porary regulations set forth the procedural
requirements and rules that will govern
the conduct of such an equivalent hearing.
Explanation of Provisions
The temporary regulations provide
that, except in the case of jeopardy levies
or levies on State tax refunds, the IRS
must notify the taxpayer of its intention to
levy prior to issuing a levy. The notifica-
tion under section 6330 may be given in
person, left at the taxpayer’s dwelling or
usual place of business, or sent to the tax-
payer by certified or registered mail, re-
turn receipt requested, to the taxpayer’s
last known address at least 30 days prior
to the first proposed levy action with re-
spect to the amount of the unpaid tax for
the tax period. The temporary regulations
also provide procedures to be followed in
the event the notification, if mailed, is not
mailed to the taxpayer’s last known ad-
dress. In jeopardy situations and in cases
where a levy is made on a State tax re-
fund, notification to the taxpayer of a
right to a hearing is not required to be
given until the levy action has actually oc-
curred. The temporary regulations set
forth the procedures to be followed for
making the required pre-levy and post-
levy notifications.
Both such notifications must (A) set
forth the amount of unpaid tax, (B) notify
the taxpayer of the right to request a hear-
ing within the 30-day period that com-
mences the day after the date of notifica-
tion, (C) indicate, as appropriate, that the
IRS has levied or plans to levy, and (D)
describe the rights of the taxpayer with re-
spect to such action, including a brief
statement which explains (1) the provi-
sions of the Internal Revenue Code
(Code) relating to levy and sale of prop-
erty, (2) the procedures applicable to the
levy and sale of property under the Code,
(3) the administrative appeals available to
the taxpayer with respect to such levy and
sale and the procedures relating to such
appeals, (4) the alternatives available to
taxpayers which might forestall future
levies on property (including installment
agreements under section 6159), and (5)
the provisions of the Code and procedures
relating to redemption of property and re-
lease of liens on property.
Unless the taxpayer withdraws the re-
quest that Appeals conduct a hearing
when the taxpayer has made a timely re-
quest for a collection due process hearing,
Appeals will hold one section 6330 col-
lection due process hearing (CDP hear-
ing) with respect to the tax and tax period
or periods specified in the collection due
process notice (CDP Notice). The tax-
payer is entitled to have a hearing con-
ducted by an Appeals officer who has had
no prior involvement with the unpaid tax
that is the subject of the hearing. This re-
quirement, however, can be waived by the
taxpayer in writing. A taxpayer may seek
judicial review of an Appeals determina-
tion issued with respect to a CDP hearing.
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Hearings with respect to levies may be
held in conjunction with hearings under
section 6320, involving liens.
If the taxpayer timely requests a CDP
hearing, the periods of limitation relating
to collection after assessment, relating to
criminal prosecution, and relating to suits
are suspended until the suspension ends
as a result of the taxpayer’s withdrawal of
the request for a CDP hearing or until the
determination reached at the CDP hearing
becomes final by the expiration of the
time for seeking review or reconsidera-
tion before the appropriate court. Prior to
issuance of the Appeals determination,
the Appeals officer must verify that all
legal and administrative requirements
pertaining to the proposed levy have been
met. The temporary regulations further
discuss the types of issues that may or
may not be raised at the CDP hearing.
The types of issues that may be raised at
the hearing include appropriate spousal
defenses; challenges to the appropriate-
ness of collection actions; collection alter-
natives; and challenges to the existence or
amount of the liability specified in the
CDP Notice. An issue may not be raised
at the CDP hearing if the issue was raised
and considered at a previous hearing
under section 6320 or any other previous
administrative or judicial proceeding in
which the taxpayer meaningfully partici-
pated. Challenges to the existence or
amount of the tax liability specified in the
CDP Notice may be raised only if the tax-
payer did not receive a statutory notice of
deficiency for such liability or did not
otherwise have an opportunity to dispute
such liability.
Following the CDP hearing, the Ap-
peals officer will issue a Notice of Deter-
mination, which can be appealed to the
United States Tax Court or a district court
of the United States by filing an appropri-
ate pleading with the court that has juris-
diction over the type of tax involved
within 30 days of the date of the determi-
nation. The temporary regulations dis-
cuss the content of the Notice of Determi-
nation and the rules for obtaining judicial
review. The temporary regulations also
provide guidance as to the extent to which
the Appeals officer will retain jurisdiction
with respect to the determination.
Lastly, the temporary regulations pro-
vides rules and procedures with respect to
the administrative hearing (referred to as
an “equivalent hearing”) the IRS will pro-
vide to taxpayers who do not timely re-
quest a hearing under section 6330.
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 assess-
ment is not required. It has also been de-
termined that section 553 (b) of the Ad-
ministrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regula-
tions. For the applicability of the Regula-
tory Flexibility Act (5 U.S.C. chapter 6)
refer to the Special Anayses section of the
preamble to the cross reference notice of
proposed rulemaking published in the
Proposed Rules section of this issue of the
Federal Register.Pursuant to section
7805 (f) of the Internal Revenue Code,
this temporary regulation will be submit-
ted to the Chief Counsel for Advocacy of
the Small Business Administration for
comment on its impact on small business.
Drafting Information
The principal author of this regulation
is Jerome D. Sekula, Office of Assistant
Chief Counsel (General Litigation).
However, other personnel from the IRS
and Treasury Department participated in
its development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 301 is
amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read in part as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.6330–1T is added
under the undesignated centerheading
“Seizure of Property for Collection of
Taxes” to read as follows:
§301.6330–1T Notice and opportunity for
hearing prior to levy (temporary).
(a) Notification—(1) In general. Ex-
cept as specified in paragraph (a)(2) of
this section, the district directors, direc-
tors of service centers, and the Assistant
Commissioner (International), or their
successors, are required to provide per-
sons upon whose property or rights to
property the IRS intends to levy on or
after January 19, 1999, notice of that in-
tention and to give them the right to, and
the opportunity for, a pre-levy Collection
Due Process hearing (CDP hearing) with
the Internal Revenue Service Office of
Appeals (Appeals). This Collection Due
Process Hearing Notice (CDP Notice)
must be given in person, left at the
dwelling or usual place of business of
such person, or sent by certified or regis-
tered mail, return receipt requested, to
such person’s last known address.
(2) Exceptions—(i) State tax refunds.
Section 6330 does not require the IRS to
provide the taxpayer a notification of the
taxpayer’s right to a CDP hearing prior to
issuing a levy to collect State tax refunds
owing to the taxpayer. However, the dis-
trict director, the service center director,
and the Assistant Commissioner (Interna-
tional), or their successors, are required to
give notice of the right to, and the oppor-
tunity for, a CDP hearing with Appeals
with respect to the tax liability for the tax
period for which the levy on the State tax
refund was made on or after January 19,
1999, within a reasonable time after the
levy has occurred. The notification re-
quired to be given following a levy on a
State tax refund is referred to as a post-
levy CDP Notice.
(ii) Jeopardy. Section 6330 does not
require the IRS to provide the taxpayer a
notification of the taxpayer’s right to a
CDP hearing prior to levy when there has
been a determination that collection of the
tax is in jeopardy. However, the district
director, the service center director, and
the Assistant Commissioner (Interna-
tional), or their successors, are required to
provide notice of the right to, and the op-
portunity for, a CDP hearing with Appeals
to the taxpayer with respect to any such
levy issued on or after January 19, 1999,
within a reasonable time after the levy has
occurred. The notification required to be
given following a jeopardy levy is also re-
ferred to as post-levy CDP Notice.
(3) Questions and answers.The ques-
tions and answers illustrate the provisions
of this paragraph (a) as follows:
Q-A1. Who is the “person” to be noti-
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fied under section 6330?
A-A1. Under section 6330(a)(1), a pre-
levy or post-levy CDP Notice is only re-
quired to be given to the person whose
property or right to property is intended to
be levied upon, or, in the case of a levy
made on a State tax refund or in the case
of a jeopardy levy, the person whose
property or right to property was levied
upon. The person described in section
6330(a)(1) is the same person described
in section 6331(a). Pursuant to section
6331(a), notice is to be given to the per-
son liable to pay the tax due after notice
and demand who refuses or neglects to
pay (hereinafter referred to as the tax-
payer).
Q-A2. Will the IRS notify a known
nominee of, a person holding property of,
or a person who holds property subject to
a lien with respect to the taxpayer of its
intention to issue a levy?
A-A2. No. Such a person is not the
person described in section 6331(a), but
such persons have other remedies. See A-
B5 of this paragraph (a)(3).
Q-A3. Will the IRS give notification
for each tax and tax period it intends to in-
clude or has included in a levy issued on
or after January 19, 1999?
A-A3. Yes. The notification of intent
to levy or of the issuance of a jeopardy or
State tax refund levy will specify each tax
and tax period that will be or was in-
cluded in the levy.
Q-A4. Will the IRS give notification to
a taxpayer with respect to levies for a tax
and tax period issued on or after January
19, 1999, even though the IRS had issued
a levy prior to January 19, 1999, with re-
spect to the same tax and tax period?
A-A4. Yes. The IRS will provide ap-
propriate pre-levy or post-levy notifica-
tion to a taxpayer regarding the first levy
it intends to issue or has issued on or after
January 19, 1999, with respect to a tax
and tax period, even though it had issued
a levy with respect to that same tax and
tax period prior to January 19, 1999.
Q-A5. When will the IRS provide this
notice?
A-A5. Pursuant to section 6330(a)(1),
beginning January 19, 1999, the IRS will
give a pre-levy CDP Notice to the tax-
payer of its intent to levy on property or
rights to property, other than State tax re-
funds and in jeopardy levy situations, at
least 30 days prior to the first such levy
with respect to a tax and tax period. If the
taxpayer has not received a pre-levy CDP
Notice and the IRS levies on a State tax
refund or issues a jeopardy levy on or
after January 19, 1999, the IRS will pro-
vide a post-levy CDP Notice to the tax-
payer within a reasonable time after that
levy.
Q-A6. What must the pre-levy CDP
Notice include?
A-A6. Pursuant to section 6330(a)(3),
the notification must include, in simple
and nontechnical terms:
(i) The amount of the unpaid tax.
(ii) Notification of the right to a hear-
ing.
(iii) A statement that the IRS intends to
levy.
(iv) The taxpayer’s rights with respect
to the levy action, including a brief state-
ment that sets forth—
(A) The statutory provisions relating to
the levy and sale of property;
(B) The procedures applicable to the
levy and sale of property;
(C) The administrative appeals avail-
able to the taxpayer with respect to levy
and sale and the procedures relating to
those appeals;
(D) The alternatives available to tax-
payers that could prevent levy on the
property (including installment agree-
ments);
(E) The statutory provisions relating to
redemption of property and the release of
liens on property; and
(F) The procedures applicable to the re-
demption of property and the release of
liens on property.
Q-A7. What must the post-levy CDP
Notice include?
A-A7. Pursuant to section 6330(a)(3),
the notification must include, in simple
and nontechnical terms:
(i) The amount of the unpaid tax.
(ii) Notification of the right to a hear-
ing.
(iii) A statement that the IRS has levied
upon the taxpayer’s State tax refund or
has made a jeopardy levy on property or
rights to property of the taxpayer, as ap-
propriate.
(iv) The taxpayer’s rights with respect
to the levy action, including a brief state-
ment that sets forth—
(A) The statutory provisions relating to
the levy and sale of property;
(B) The procedures applicable to the
levy and sale of property;
(C) The administrative appeals avail-
able to the taxpayer with respect to levy
and sale and the procedures relating to
those appeals;
(D) The alternatives available to tax-
payers that could prevent any further
levies on the taxpayer’s property (includ-
ing installment agreements);
(E) The statutory provisions relating to
redemption of property and the release of
liens on property; and
(F) The procedures applicable to the re-
demption of property and the release of
liens on property.
Q-A8. How will this pre-levy or post-
levy notification be accomplished?
A-A8. (i) The IRS will notify the tax-
payer by means of a pre-levy CDP Notice
or a post-levy CDP Notice, as appropri-
ate. The additional information IRS is re-
quired to provide, together with Form
12153, Request for a Collection Due
Process Hearing, will be included with
that Notice. The IRS may effect delivery
of a pre-levy CDP Notice (and accompa-
nying materials) in one of three ways:
(A) By delivering the notice personally
to the taxpayer.
(B) By leaving the notice at the tax-
payer’s dwelling or usual place of busi-
ness.
(C) By mailing the notice to the tax-
payer at the taxpayer’s last known address
by certified or registered mail, return re-
ceipt requested.
(ii) The IRS may effect delivery of a
post-levy CDP Notice (and accompany-
ing materials) in one of three ways:
(A) By delivering the notice personally
to the taxpayer.
(B) By leaving the notice at the tax-
payer’s dwelling or usual place of busi-
ness.
(C) By mailing the notice to the tax-
payer at the taxpayer’s last known address
by certified or registered mail.
Q-A9. What are the consequences if
the taxpayer does not receive or accept
the notification which was properly left at
the taxpayer’s dwelling or usual place of
business, or properly sent by certified or
registered mail, return receipt requested,
to the taxpayer’s last known address?
A-A9. Notification properly sent to the
taxpayer’s last known address or left at
the taxpayer’s dwelling or usual place of
business is sufficient to start the 30-day
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period within which the taxpayer may re-
quest a CDP hearing. Actual receipt is not
a prerequisite to the validity of the notice.
Q-A10. What if the taxpayer does not
receive the CDP Notice because the IRS
did not send that notice by certified or
registered mail to the taxpayer’s last
known address, or failed to leave it at the
dwelling or usual place of business of the
taxpayer, and the taxpayer fails to request
a CDP hearing with Appeals within the
30-day period commencing the day after
the date of the CDP Notice?
A-A10. When the IRS determines that
it failed properly to provide a taxpayer
with a CDP Notice, it will promptly pro-
vide the taxpayer with a substitute CDP
Notice and provide the taxpayer with an
opportunity to request a CDP hearing.
(4) Examples.The following examples
illustrate the principles of this paragraph
(a):
Example 1. Prior to January 19, 1999, the IRS is-
sues a continuous levy on a taxpayer’s wages and a
levy on that taxpayer’s fixed right to future pay-
ments. The IRS is not required to release either levy
on or after January 19, 1999, until the requirements
of section 6343(a)(1) are met. The taxpayer is not
entitled to a CDP Notice or a CDP hearing under
section 6330 with respect to either levy because both
levy actions were initiated prior to January 19, 1999.
Example 2. The same facts as in Example 1,ex-
cept the IRS intends to levy upon a taxpayer’s bank
account on or after January 19, 1999. The taxpayer
is entitled to a pre-levy CDP Notice with respect to
this proposed new levy.
(b) Entitlement to a CDP hearing—(1)
In general.A taxpayer is entitled to one
CDP hearing with respect to the tax and tax
period covered by the pre-levy or post-levy
CDP Notice provided the taxpayer. The
taxpayer must request such a hearing
within the 30-day period commencing on
the day after the date of the CDP Notice.
(2) Questions and answers.The ques-
tions and answers illustrate the provisions
of this paragraph (b) as follows:
Q-B1. Is the taxpayer entitled to a
CDP hearing where a levy for State tax
refunds is served on or after January 19,
1999, even though the IRS had previously
served other levies prior to January 19,
1999, seeking to collect the taxes owed
for the same period?
A-B1. Yes. The taxpayer is entitled to
a CDP hearing under section 6330 for the
tax and tax period set forth in such a levy
issued on or after January 19, 1999.
Q-B2. Is the taxpayer entitled to a
CDP hearing when the IRS, more than 30
days after issuance of a CDP Notice with
respect to a tax period, provides subse-
quent notice to that taxpayer that it in-
tends to levy on property or rights to
property of the taxpayer for the same tax
and tax period shown on the CDP Notice?
A-B2. No. Under section 6330, only
the first pre-levy or post-levy Notice with
respect to liabilities for a tax and tax pe-
riod constitutes a CDP Notice. If the tax-
payer does not timely request a CDP hear-
ing with Appeals following that first
notification, the taxpayer foregoes the
right to a CDP hearing with Appeals and
judicial review of Appeals’s determina-
tion with respect to collection activity re-
lating to that tax and tax period. The IRS
generally provides additional notices or
reminders (reminder notifications) to the
taxpayer of its intent to levy when no col-
lection action has occurred within 180
days of a proposed levy. Under such cir-
cumstances a taxpayer, however, may re-
quest an equivalent hearing as described
in paragraph (i) of this section.
Q-B3. When the IRS provides a tax-
payer with a substitute CDP Notice and
the taxpayer timely requests a CDP hear-
ing, is the taxpayer entitled to a CDP
Hearing before Appeals?
A-B3. Yes. Unless the taxpayer pro-
vides the IRS a written withdrawal of the
request that Appeals conduct a CDP hear-
ing, the taxpayer is entitled to a CDP
hearing before Appeals. Following the
hearing, Appeals will issue a Notice of
Determination, and the taxpayer is enti-
tled to seek judicial review of that Notice
of Determination.
Q-B4. If the IRS sends a second CDP
Notice under section 6330 (other than a
substitute CDP Notice) for a tax period and
with respect to an amount of unpaid tax for
which a section 6330 CDP Notice was pre-
viously sent, is the taxpayer entitled to a
second section 6330 CDP hearing?
A-B4. No. The taxpayer is entitled to
only one CDP hearing under section 6330
with respect to the tax and tax period.
The taxpayer must request the CDP hear-
ing within 30 days of the date of the first
CDP Notice provided for that tax and tax
period.
Q-B5. Will the IRS give pre-levy or
post-levy CDP Notices to known nomi-
nees of, persons holding property of, or
persons holding property subject to a lien
with respect to the taxpayer?
A-B5. No. Such person is not the per-
son described in section 6331(a) and is,
therefore, not entitled to a CDP hearing or
an equivalent hearing (as discussed in
paragraph (i) of this section). Such per-
son, however, may seek reconsideration
by the IRS office collecting the tax, assis-
tance from the National Taxpayer Advo-
cate, or an administrative hearing before
Appeals under its Collection Appeals Pro-
gram. However, any such administrative
hearing would not be a CDP hearing
under section 6330 and any determination
or decision resulting from the hearing
would not be subject to judicial review.
(c) Requesting a CDP hearing—(1) In
general. Where a taxpayer is entitled to a
CDP hearing under section 6330, such a
hearing must be requested during the 30-
day period that commences that day after
the date of the CDP Notice.
(2) Questions and answers. The ques-
tions and answers illustrate the provisions
of this paragraph (c) as follows:
Q-C1. What must a taxpayer do to ob-
tain a CDP hearing?
A-C1. (i) The taxpayer must make a
request in writing for a CDP hearing. A
written request in any form which re-
quests a CDP hearing will be acceptable.
The request must include the taxpayer’s
name, address, and daytime telephone
number, and must be signed by the tax-
payer or the taxpayer’s authorized repre-
sentative and dated. Included with the
CDP Notice will be a Form 12153, Re-
quest for a Collection Due Process Hear-
ing, that can be used by the taxpayer in re-
questing a CDP hearing. The Form 12153
requests the following information:
(A) The taxpayer’s name, address, day-
time telephone number, and taxpayer
identification number (SSN or TIN).
(B) The type of tax involved.
(C) The tax period at issue.
(D) A statement that the taxpayer re-
quests a hearing with Appeals concerning
the proposed collection activity.
(E) The reason or reasons why the tax-
payer disagrees with the proposed collec-
tion action.
(ii) Taxpayers are encouraged to use a
Form 12153 in requesting a CDP hearing
so that such a request can be readily iden-
tified and forwarded to Appeals. Taxpay-
ers may obtain a copy of Form 12153 by
contacting the IRS office that issued the
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CDP Notice or by calling, toll free, 1-800-
829-3676.
Q-C2. Must the request for the CDP
hearing be in writing?
A-C2. Yes. There are several reasons
why the request for a CDP hearing must
be in writing. First, the filing of a timely
request for a CDP hearing is the first step
in what may result in a court proceeding.
A written request will provide proof that
the CDP hearing was requested and thus
permit the court to verify that it has juris-
diction over any subsequent appeal of the
Notice of Determination issued by Ap-
peals. In addition, the receipt of the writ-
ten request will establish the date on
which the periods of limitation under sec-
tion 6502 (relating to collection after as-
sessment), section 6531 (relating to crimi-
nal prosecutions), and section 6532
(relating to suits) are suspended as a result
of the CDP hearing and any judicial ap-
peal. Moreover, because the IRS antici-
pates that taxpayers will contact the IRS
office that issued the CDP Notice for fur-
ther information, for help in filling out
Form 12153, or in an attempt to resolve
their liabilities prior to going through the
CDP hearing process, the requirement of
a written request should help to prevent
any misunderstanding as to whether a
CDP hearing has been requested. If the
information requested on Form 12153 is
furnished by the taxpayer, the written re-
quest will also help to establish the issues
for which the taxpayer seeks a determina-
tion by Appeals.
Q-C3. When must a taxpayer request a
CDP hearing with respect to a CDP No-
tice issued under section 6330?
A-C3. A taxpayer must submit a writ-
ten request for a CDP hearing with re-
spect to a CDP Notice issued under sec-
tion 6330 within the 30-day period
commencing the day after the date of the
CDP Notice. This period is slightly dif-
ferent from the period allowed taxpayers
to submit a written request for a CDP
hearing with respect to a CDP Notice is-
sued under section 6320. For a CDP No-
tice issued under section 6320, a taxpayer
must submit a written request for a CDP
hearing within the 30-day period com-
mencing the day after the end of the five
business day period following the filing
of the notice of federal tax lien (NFTL).
Q-C4. How will the timeliness of a
taxpayer’s written request for a CDP hear-
ing be determined?
A-C4. The rules under section 7502
and the regulations thereunder and section
7503 and the regulations thereunder will
apply to determine the timeliness of the
taxpayer’s request for a CDP hearing, if
properly transmitted and addressed as
provided in A-C6 of this paragraph (c)(2).
Q-C5. Is the 30-day period within
which a taxpayer must make a request for
a CDP hearing extended because the tax-
payer resides outside the United States?
A-C5. No. Section 6330 does not
make provision for such a circumstance.
Accordingly, all taxpayers who want a
CDP hearing under section 6330 must re-
quest such a hearing within the 30-day pe-
riod commencing the day after the date of
the CDP Notice.
Q-C6. Where should the written re-
quest for a CDP hearing be sent?
A-C6. The written request for a CDP
hearing should be filed with the IRS of-
fice that issued the CDP Notice at the ad-
dress indicated on the CDP Notice. If the
address of that office is not known, the re-
quest may be sent to the District Director
serving the district of the taxpayer’s resi-
dence or principal place of business. If
the taxpayer does not have a residence or
principal place of business in the United
States, the request may be sent to the Di-
rector, Philadelphia Service Center.
Q-C7. What will happen if the tax-
payer does not request a section 6330
CDP hearing in writing within the 30-day
period commencing on the day after the
date of the CDP Notice?
A-C7. If the taxpayer does not request
a CDP hearing with Appeals within the
30-day period commencing the day after
the date of the CDP Notice, the taxpayer
will forego the right to a CDP hearing
under section 6330 with respect to the tax
and tax period or periods shown on the
CDP Notice. In addition, the IRS will be
free to pursue collection action at the con-
clusion of the 30-day period following the
date of the CDP Notice. The taxpayer
may, however, request an equivalent hear-
ing. See paragraph (i) of this section.
Q-C8. When must a taxpayer request a
CDP hearing with respect to a substitute
CDP Notice?
A-C8. A CDP hearing with respect to a
substitute CDP Notice must be requested
in writing by the taxpayer prior to the end
of the 30-day period commencing the day
after the date of the substitute CDP No-
tice.
Q-C9. Can taxpayers attempt to re-
solve the matter of the proposed levy with
an officer or employee of the IRS office
collecting the tax liability stated on the
CDP Notice either before or after request-
ing a CDP hearing?
A-C9. Yes. Taxpayers are encouraged
to discuss their concerns with the IRS of-
fice collecting the tax, either before or
after they request a CDP hearing. If such
a discussion occurs before a request is
made for a CDP hearing, the matter may
be resolved without the need for Appeals
consideration. However, these discus-
sions do not suspend the running of the
30-day period within which the taxpayer
is required to request a CDP hearing, nor
do they extend that 30-day period. If dis-
cussions occur after the request for a CDP
hearing is filed and the taxpayer resolves
the matter with the IRS office collecting
the tax, the taxpayer may withdraw in
writing the request that a CDP hearing be
conducted by Appeals. The taxpayer can
also waive in writing some or all of the re-
quirements regarding the contents of the
Notice of Determination.
(d) Conduct of CDP hearing—(1) In
general.If a taxpayer requests a CDP
hearing under section 6330(a)(3)(B) (and
does not withdraw that request), the CDP
hearing will be held with Appeals. The
taxpayer is entitled to only one CDP hear-
ing under section 6330 with respect to the
tax and tax period or periods shown on
the CDP Notice. To the extent practica-
ble, the CDP hearing requested under sec-
tion 6330 will be held in conjunction with
any CDP hearing the taxpayer requests
under section 6320. A CDP hearing will
be conducted by an employee or officer of
Appeals who has had no involvement
with respect to the tax for the tax period
or periods covered by the hearing prior to
the first CDP hearing under section 6320
or section 6330, unless the taxpayer
waives that requirement.
(2) Questions and answers. The ques-
tions and answers illustrate the provisions
of this paragraph (d) as follows:
Q-D1. Under what circumstances can
a taxpayer receive more than one CDP
hearing with respect to a tax period?
A-D1. The taxpayer may receive more
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than one CDP hearing with respect to a
tax period where the tax involved is a dif-
ferent type of tax (for example, an em-
ployment tax liability, where the original
CDP hearing for the tax period involved
an income tax liability), or where the
same type of tax for the same period is in-
volved, but where the amount of the tax
has changed as a result of an additional
assessment of tax for that period or an ad-
ditional accuracy-related or filing delin-
quency penalty has been assessed. The
taxpayer is not entitled to another CDP
hearing if the additional assessment repre-
sents accruals of interest or accruals of
penalties.
Q-D2. Will a CDP hearing with respect
to one tax period be combined with a
CDP hearing with respect to another tax
period?
A-D2. To the extent practicable, a
hearing with respect to one tax period
shown on a CDP Notice will be combined
with any and all other hearings to which
the taxpayer may be entitled with respect
to other tax periods shown on the CDP
Notice.
Q-D3. Will a CDP hearing under sec-
tion 6330 be combined with a CDP hear-
ing under section 6320?
A-D3. To the extent it is practicable, a
CDP hearing under section 6330 will be
held in conjunction with a CDP hearing
under section 6320.
Q-D4. What is considered to be prior
involvement by an employee or officer of
Appeals with respect to the tax and tax
period or periods involved in the hearing?
A-D4. Prior involvement by an em-
ployee or officer of Appeals includes par-
ticipation or involvement in an Appeals
hearing (other than a CDP hearing held
under either section 6320 or section 6330)
that the taxpayer may have had with re-
spect to the tax and tax period shown on
the CDP Notice.
Q-D5. How can a taxpayer waive the
requirement that the officer or employee of
Appeals had no prior involvement with re-
spect to the tax and tax period or periods?
A-D5. The taxpayer must sign a writ-
ten waiver.
(e) Matters considered at CDP
hearing—(1) In general.Appeals has the
authority to determine the validity, suffi-
ciency, and timeliness of any CDP Notice
given by the IRS and of any request for a
CDP hearing that is made by a taxpayer.
Prior to issuance of a determination, the
hearing officer is required to obtain verifi-
cation from the IRS office collecting the
tax that the requirements of any applica-
ble law or administrative procedure have
been met. The taxpayer may raise any
relevant issue relating to the unpaid tax at
the hearing, including appropriate spousal
defenses, challenges to the appropriate-
ness of the proposed collection action,
and offers of collection alternatives. The
taxpayer also may raise challenges to the
existence or amount of the tax liability for
any tax period shown on the CDP Notice
if the taxpayer did not receive a statutory
notice of deficiency for that tax liability
or did not otherwise have an opportunity
to dispute that tax liability. Finally, the
taxpayer may not raise an issue that was
raised and considered at a previous CDP
hearing under section 6320 or in any other
previous administrative or judicial pro-
ceeding if the taxpayer participated mean-
ingfully in such hearing or proceeding.
Taxpayers will be expected to provide all
relevant information requested by Ap-
peals, including financial statements, for
its consideration of the facts and issues in-
volved in the hearing.
(2) Spousal defenses.A taxpayer may
raise any appropriate spousal defenses at a
CDP hearing. To claim a spousal defense
under section 6015, the taxpayer must do
so in writing according to rules prescribed
by the Secretary. Spousal defenses raised
under section 6015 in a CDP hearing are
governed in all respects by the provisions
of section 6015 and the procedures pre-
scribed by the Secretary thereunder.
(3) Questions and answers.The ques-
tions and answers illustrate the provisions
of this paragraph (e) as follows:
Q-E1. What factors will Appeals con-
sider in making its determination?
A-E1. Appeals will consider the fol-
lowing matters in making its determina-
tion:
(i) Whether the IRS met the require-
ments of any applicable law or adminis-
trative procedure.
(ii) Any issues appropriately raised by
the taxpayer relating to the unpaid tax.
(iii) Any appropriate spousal defenses
raised by the taxpayer.
(iv) Any challenges made by the tax-
payer to the appropriateness of the pro-
posed collection action.
(v) Any offers by the taxpayer for col-
lection alternatives.
(vi) Whether the proposed collection
action balances the need for the efficient
collection of taxes and the legitimate con-
cern of the taxpayer that any collection ac-
tion be no more intrusive than necessary.
Q-E2. When is a taxpayer entitled to
challenge the existence or amount of the
tax liability specified in the CDP Notice?
A-E2. A taxpayer is entitled to chal-
lenge the existence or amount of the tax
liability specified in the CDP Notice if the
taxpayer did not receive a statutory notice
of deficiency for such liability or did not
otherwise have an opportunity to dispute
such liability. Receipt of a statutory no-
tice of deficiency for this purpose means
receipt in time to petition the Tax Court
for a redetermination of the deficiency as-
serted in the notice of deficiency. An op-
portunity to dispute a liability includes a
prior opportunity for a conference with
Appeals that was offered either before or
after the assessment of the liability.
Q-E3. Are spousal defenses subject to
the limitations imposed under section
6330(c)(2)(B) on a taxpayer’s right to
challenge the tax liability specified in the
CDP Notice at a CDP hearing?
A-E3. No. The limitations imposed
under section 6330(c)(2)(B) do not apply
to spousal defenses. A spousal defense
raised under section 6015 is governed by
that section; therefore any limitations
under section 6015 will apply.
Q-E4. May a taxpayer raise at a CDP
hearing a spousal defense under section
6015 if that defense was raised and con-
sidered in a prior judicial proceeding that
has become final?
A-E4. No. A taxpayer is precluded by
limitations under section 6015 from rais-
ing a spousal defense under section 6015
in a CDP hearing under these circum-
stances.
Q-E5. What collection alternatives are
available to the taxpayer?
A-E5. Collection alternatives would
include, for example, a proposal to with-
hold the proposed or future collection ac-
tion in circumstances that will facilitate
the collection of the tax liability, an in-
stallment agreement, an offer-in-compro-
mise, the posting of a bond, or the substi-
tution of other assets.
Q-E6. What issues may a taxpayer
raise in a CDP hearing under section 6330
if he previously received a notice under
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section 6320 with respect to the same tax
and tax period and did not request a CDP
hearing with respect to that notice?
A-E6. The taxpayer may raise appro-
priate spousal defenses, challenges to the
appropriateness of the proposed collec-
tion action, and offers of collection alter-
natives. The existence or amount of the
tax liability for the tax for the tax period
shown in the CDP Notice may be chal-
lenged only if the taxpayer did not already
have an opportunity to dispute that tax lia-
bility. Where the taxpayer previously re-
ceived a CDP Notice under section 6320
with respect to the same tax and tax pe-
riod and did not request a CDP hearing
with respect to that earlier CDP Notice,
the taxpayer already had an opportunity to
dispute the existence or amount of the un-
derlying tax liability.
Q-E7. How will Appeals issue its de-
termination?
A-E7. (i) Taxpayers will be sent a dated
Notice of Determination by certified or
registered mail. The Notice of Determi-
nation will set forth Appeals’s findings
and decisions:
(A) It will state whether the IRS met
the requirements of any applicable law or
administrative procedure.
(B) It will resolve any issues appropri-
ately raised by the taxpayer relating to the
unpaid tax.
(C) It will include a decision on any ap-
propriate spousal defenses raised by the
taxpayer.
(D) It will include a decision on any
challenges made by the taxpayer to the
appropriateness of the collection action.
(E) It will respond to any offers by the
taxpayer for collection alternatives.
(F) It will address whether the pro-
posed collection action represents a bal-
ance between the need for the efficient
collection of taxes and the legitimate con-
cern of the taxpayer that any collection
action be no more intrusive than neces-
sary.
(ii) The Notice of Determination will
also set forth any agreements that Appeals
reached with the taxpayer, any relief
given the taxpayer, and any actions the
taxpayer and/or the IRS are required to
take. Lastly, the Notice of Determination
will advise the taxpayer of his right to
seek judicial review within 30 days of the
date of the Notice of Determination.
(iii) Because taxpayers are encouraged
to discuss their concerns with the IRS of-
fice collecting the tax or filing the NFTL,
certain matters that might have been
raised at a CDP hearing may be resolved
without the need for Appeals considera-
tion. Unless as a result of these discus-
sions, the taxpayer agrees in writing to
withdraw the request that Appeals con-
duct a CDP hearing, Appeals will still
issue a Notice of Determination, but the
taxpayer can waive in writing Appeals’s
consideration of some or all of the matters
it would otherwise consider in making its
determination.
Q-E8. Is there a time limit on the CDP
hearings or on when Appeals must issue a
Notice of Determination?
A-E8. No. Appeals will, however, at-
tempt to conduct CDP hearings as expedi-
tiously as possible.
Q-E9. Why is the Notice of Determi-
nation and its date important?
A-E9. The Notice of Determination
will set forth Appeals’s findings and deci-
sions with respect to the matters set forth
in A-E1 of this paragraph (e)(3). The date
of the Notice of Determination establishes
the beginning date of the 30-day period
within which the taxpayer is permitted to
seek judicial review of Appeals’s determi-
nation.
(4) Examples.The following examples
illustrate the principles of this paragraph
(e).
Example 1.The IRS sends a statutory notice of
deficiency to the taxpayer at his last known address
asserting a deficiency for the tax year 1995. The
taxpayer receives the notice of deficiency in time to
petition the Tax Court for a redetermination of the
asserted deficiency. The taxpayer does not timely
file a petition with the Tax Court. The taxpayer is
therefore precluded from challenging the existence
or amount of the tax liability in a subsequent CDP
hearing.
Example 2.Same facts as in Example 1,except
the taxpayer does not receive the notice of defi-
ciency in time to petition the Tax Court. The tax-
payer is not, therefore, precluded from challenging
the existence or amount of the tax liability in a sub-
sequent CDP hearing.
Example 3. The IRS properly assesses a trust
fund recovery penalty against the taxpayer. The IRS
offers the taxpayer the opportunity for a conference
at which the taxpayer would have the opportunity to
dispute the assessed liability. The taxpayer declines
the opportunity to participate in such a conference.
The taxpayer is precluded from challenging the exis-
tence or amount of the tax liability in a subsequent
CDP hearing.
(f) Judicial review of Notice of Deter-
mination—(1) In general. Unless the tax-
payer provides the IRS a written with-
drawal of the request that Appeals con-
duct a CDP hearing, Appeals is required
to issue a Notice of Determination in all
cases where a taxpayer has timely re-
quested a CDP hearing. The taxpayer
may appeal such determinations made by
Appeals within 30 days after the date of
the Notice of Determination to the Tax
Court or a district court of the United
States, as appropriate.
(2) Questions and answers. The ques-
tions and answers illustrate the provisions
of this paragraph (f) as follows:
Q-F1. What must a taxpayer do to ob-
tain judicial review of a Notice of Deter-
mination?
A-F1. Subject to the jurisdictional lim-
itations described in A-F2 of this para-
graph (f)(2), the taxpayer must, within the
30-day period commencing the day after
the date of the Notice of Determination,
appeal Appeals’s determination to the Tax
Court or to a district court of the United
States.
Q-F2. With respect to the relief avail-
able to the taxpayer under section 6015(b)
or (c), what is the time frame within
which a taxpayer may seek Tax Court re-
view of Appeals’s determination follow-
ing a CDP hearing?
A-F2. If the taxpayer seeks Tax Court
review not only of Appeals’s denial of re-
lief under section 6015(b) or (c), but also
of relief with respect to other issues raised
in the CDP hearing, the taxpayer should
request Tax Court review within the 30-
day period commencing the day after the
date of the Notice of Determination. If
the taxpayer only wants Tax Court review
of Appeals’s denial of relief under section
6015(b) or (c), the taxpayer should re-
quest review by the Tax Court, as pro-
vided by section 6015(e), within 90 days
of Appeals’s determination. If a request
for Tax Court review is filed after the 30-
day period for seeking judicial review
under section 6330, then only the tax-
payer’s section 6015(b) or (c) claims may
be reviewable by the Tax Court.
Q-F3. Where should a taxpayer direct
a request for judicial review of a Notice of
Determination?
A-F3. If the Tax Court would have ju-
risdiction over the type of tax specified in
the CDP Notice (for example, income and
estate taxes), then the taxpayer must seek
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judicial review by the Tax Court. If the
tax liability arises from a type of tax over
which the Tax Court would not have juris-
diction, then the taxpayer must seek judi-
cial review by a district court of the
United States in accordance with Title 28
of the United States Code.
Q-F4. What happens if the taxpayer
timely appeals Appeals’s determination to
the incorrect court?
A-F4. If the court to which the tax-
payer directed a timely appeal of the No-
tice of Determination determines that the
appeal was to the incorrect court (because
of jurisdictional, venue or other reasons),
the taxpayer will have 30 days after the
court’s determination to that effect within
which to file an appeal to the correct
court.
Q-F5. What issue or issues may the
taxpayer raise before the Tax Court or be-
fore a district court if the taxpayer dis-
agrees with the Notice of Determination?
A-F5. In seeking Tax Court or district
court review of Appeals’s Notice of De-
termination, the taxpayer can only ask the
court to consider an issue that was raised
in the taxpayer’s CDP hearing.
(g) Effect of request for CDP hearing
and judicial review on periods of limita-
tion—(1) In general.The periods of limi-
tation under section 6502 (relating to col-
lection after assessment), section 6531
(relating to criminal prosecutions), and
section 6532 (relating to suits) are sus-
pended until the date the IRS receives the
taxpayer’s written withdrawal of the re-
quest for a CDP hearing by Appeals or the
determination resulting from the CDP
hearing becomes final by expiration of the
time for seeking review or reconsidera-
tion. In no event shall any of these peri-
ods of limitation expire before the 90th
day after the date on which the determina-
tion with respect to such hearing becomes
final upon expiration of the time for seek-
ing review or reconsideration.
(2) Questions and answers. The ques-
tions and answers illustrate the provisions
of this paragraph (g) as follows:
Q-G1. For what period of time will the
periods of limitation under section 6502,
section 6531, and section 6532 remain
suspended if the taxpayer timely requests
a CDP hearing concerning a pre-levy or
post-levy CDP Notice?
A-G1. The suspension period com-
mences on the date the IRS receives the
taxpayer’s written request for a CDP hear-
ing. The suspension period continues
until the IRS receives a written with-
drawal by the taxpayer of the request for a
CDP hearing or the determination result-
ing from the CDP hearing becomes final
by expiration of the time for seeking its
review or reconsideration. In no event
shall any of these periods of limitation ex-
pire before the 90th day after the day on
which there is a final determination with
respect to such hearing. The periods of
limitation that are suspended under sec-
tion 6330 are those which apply to the
taxes and the tax period or periods to
which the CDP Notice relates.
Q-G2. For what period of time will the
periods of limitation under section 6502,
section 6531, and section 6532 be sus-
pended if the taxpayer does not request a
CDP hearing concerning the CDP Notice,
or the taxpayer requests a CDP hearing,
but his request is not timely?
A-G2. Under either of these circum-
stances, section 6330 does not provide for
a suspension of the periods of limitation.
(3) Examples.The following exam-
ples illustrate the principles of this para-
graph (g).
Example 1.The period of limitation under sec-
tion 6502 with respect to the taxpayer’s tax period
listed in the CDP Notice will expire on August 1,
1999. The IRS sent a CDP Notice to the taxpayer on
April 30, 1999. The taxpayer timely requested a
CDP hearing. The IRS received this request on May
15, 1999. Appeals sends the taxpayer its determina-
tion on June 15, 1999. The taxpayer timely seeks ju-
dicial review of that determination. The period of
limitation under section 6502 would be suspended
from May 15, 1999, until the determination resulting
from that hearing becomes final by expiration of the
time for seeking review or reconsideration before
the appropriate court, plus 90 days.
Example 2. Same facts as in Example 1,except
the taxpayer does not seek judicial review of Ap-
peals’s determination. Because the taxpayer re-
quested the CDP hearing when fewer than 90 days
remained on the period of limitation, the period of
limitation will be extended to October 13, 1999 (90
days from July 15, 1999).
(h) Retained jurisdiction of Appeals—
(1) In general.The Appeals office that
makes a determination under section 6330
retains jurisdiction over that determina-
tion, including any subsequent adminis-
trative hearings that may be requested by
the taxpayer regarding levies and any col-
lection actions taken or proposed with re-
spect to Appeals’s determination. Once a
taxpayer has exhausted his other reme-
dies, Appeals’s retained jurisdiction per-
mits it to consider whether a change in the
taxpayer’s circumstances affects its origi-
nal determination. Where a taxpayer al-
leges a change in circumstances that af-
fects Appeals’s original determination,
Appeals may consider whether changed
circumstances warrant a change in its ear-
lier determination.
(2) Questions and answers.The ques-
tions and answers illustrate the provisions
of this paragraph (h) as follows:
Q-H1. Are the periods of limitation
suspended during the course of any subse-
quent Appeals consideration of the mat-
ters raised by a taxpayer when the tax-
payer invokes the retained jurisdiction of
Appeals under section 6330(d)(2)(A) or
(d)(2)(B)?
A-H1. No. Under section 6330(b)(2),
a taxpayer is entitled to only one section
6330 CDP hearing with respect to the tax
and tax period or periods to which the un-
paid tax relates. Any subsequent consid-
eration by Appeals pursuant to its retained
jurisdiction is not a continuation of the
original CDP hearing and does not sus-
pend the periods of limitation.
Q-H2. Is a decision of Appeals result-
ing from a subsequent hearing appealable
to the Tax Court or a district court?
A-H2. No. As discussed in A-H1, a
taxpayer is entitled to only one section
6330 CDP hearing with respect to the tax
and tax period or periods specified in the
CDP Notice. Only determinations result-
ing from CDP hearings are appealable to
the Tax Court or a district court.
(i) Equivalent hearing—(1) In general.
A taxpayer who fails to make a timely re-
quest for a CDP hearing is not entitled to
a CDP hearing. Such a taxpayer may nev-
ertheless request an administrative hear-
ing with Appeals, which is referred to
herein as an “equivalent hearing.” The
equivalent hearing will be held by Ap-
peals and will generally follow Appeals
procedures for a CDP hearing. Appeals
will not, however, issue a Notice of De-
termination. Under such circumstances,
Appeals will issue a Decision Letter.
(2) Questions and answers. The ques-
tions and answers illustrate the provisions
of this paragraph (i) as follows:
Q-I1. What issues will Appeals con-
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sider at an equivalent hearing?
A-I1. In an equivalent hearing, Ap-
peals will consider the same issues that it
would have considered at a CDP hearing
on the same matter.
Q-I2. Are the periods of limitation
under sections 6502, 6531, and 6532 sus-
pended if the taxpayer does not timely re-
quest a CDP hearing and is subsequently
given an equivalent hearing?
A-I2. No. The suspension period pro-
vided for in section 6330(e) relates only
to hearings requested within the 30-day
period that commences the day following
the date of the pre-levy or post-levy CDP
Notice, that is, CDP hearings.
Q-I3. Will collection action be sus-
pended if a taxpayer requests and receives
an equivalent hearing?
A-I3. Collection action is not required
to be suspended. Accordingly, the deci-
sion to take collection action during the
pendency of an equivalent hearing will be
determined on a case-by-case basis. Ap-
peals may request the IRS office with re-
sponsibility for collecting the taxes to sus-
pend all or some collection action or to
take other appropriate action if it deter-
mines that such action is appropriate or
necessary under the circumstances.
Q-I4. What will the Decision Letter
state?
A-I4. The Decision Letter will gener-
ally contain the same information as a
Notice of Determination.
Q-I5. Will a taxpayer be able to obtain
court review of a decision made by Ap-
peals with respect to an equivalent hear-
ing?
A-I5. Section 6330 does not authorize
a taxpayer to appeal the decision of Ap-
peals with respect to an equivalent hear-
ing. A taxpayer may under certain cir-
cumstances be able to seek Tax Court
review of Appeals’s denial of relief under
section 6015(b) or (c). Such review must
be sought within 90 days of the issuance
of Appeals’s determination on those is-
sues, as provided by section 6015(e).
(j) Effective date.This section is ap-
plicable with respect to any levy which
occurs on or after January 19, 1999, and
before January 22, 2002.
Robert E. Wenzel,
Deputy Commissioner of
Internal Revenue.
Approved January 13, 1999.
Donald C. Lubick,
Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on Janu-
ary 19, 1999, 10:56 a.m., and published in the issue
of the Federal Register for January 22, 1999, 64 F.R.
3405)
Section 7702B.—Treatment of
Qualified Long-Term Care
Insurance
26 CFR 1.7702N–1: Consumer protection
provisions.
T.D. 8792
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
Qualified Long-Term Care
Insurance Contracts
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final Income Tax Regulations relating to
consumer protection with respect to quali-
fied long-term care insurance contracts
and relating to events that will result in
the loss of grandfathered status for long-
term care insurance contracts issued prior
to January 1, 1997. Changes to the ap-
plicable law were made by the Health In-
surance Portability and Accountability
Act of 1996. The regulations affect is-
suers of long-term care insurance con-
tracts and individuals entitled to receive
payments under these contracts. The reg-
ulations are necessary to provide these
taxpayers with guidance needed to com-
ply with these changes.
DATES: Effective date.These regula-
tions are effective December 10, 1998.
Applicability date. Section 1.7702B–1
(concerning consumer protection provi-
sions) of the regulations applies with re-
spect to contracts issued after December
10, 1999. Section 1.7702B–2 (concerning
special rules for pre-1997 contracts) of the
regulations is applicable January 1, 1999.
FOR FURTHER INFORMATION CON-
TACT: Katherine A. Hossofsky, (202)
622-3477 (not a toll free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments
to the Income Tax Regulations (26 CFR
part 1) to provide rules relating to con-
sumer protection with respect to qualified
long-term care insurance contracts and re-
lating to events that will result in the loss
of grandfathered status for long-term care
insurance contracts issued prior to Janu-
ary 1, 1997.
A notice of proposed rulemaking
(REG–109333–97, 1998–9 I.R.B. 9)
under section 7702B of the Code was
published in the Federal Registeron Jan-
uary 2, 1998 (63 F.R. 35). Written com-
ments were received from the public, and
a public hearing was held on May 13,
1998. After consideration of all the com-
ments, the regulations proposed by REG–
109333–97 are adopted as revised by this
Treasury decision.
Explanation of Statutory Provisions
The Health Insurance Portability and
Accountability Act of 1996 (Public Law
104-191, 110 Stat. 1936, 2054 and
2063)(HIPAA) added section 7702B to
the Internal Revenue Code of 1986 (the
Code). Section 7702B establishes the tax
treatment for qualified long-term care in-
surance contracts. Section 7702B(a)(1)
and (3) of the Code provide that a quali-
fied long-term care insurance contract is
treated as an accident and health insur-
ance contract and that any employer plan
providing coverage under a qualified
long-term care insurance contract is
treated as an accident or health plan with
respect to that coverage.
Section 7702B(a)(2) of the Code pro-
vides that amounts (other than policy-
holder dividends and premium refunds)
received under a qualified long-term care
insurance contract are generally exclud-
able from gross income as amounts re-
ceived for personal injuries and sickness.
Section 213(d)(1)(D) of the Code was
amended by section 322 of HIPAA to pro-
vide that eligible long-term care insurance
premiums, as defined in section
213(d)(10) of the Code, are medical care
expenses.
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Under section 7702B(b)(1)(F) of the
Code, a qualified long-term care insur-
ance contract must meet the consumer
protection provisions of section 7702B(g)
of the Code. In addition, section 4980C
of the Code imposes an excise tax on is-
suers of qualified long-term care insur-
ance contracts that do not provide further
consumer protections.
Section 7702B of the Code applies to
contracts issued after December 31, 1996.
Section 321(f)(2) of HIPAA treats a con-
tract issued before January 1, 1997, as a
qualified long-term care insurance con-
tract under section 7702B(b) of the Code,
and services provided or reimbursed
under such a contract as qualified long-
term care services under section 7702B(c)
of the Code, provided the contract met the
long-term care insurance requirements of
the State in which the contract was sitused
at the time the contract was issued. Sec-
tion 321(f)(2) of HIPAA also provides
that in the case of an individual covered
on December 31, 1996, by a State long-
term care plan under section 7702B(f) of
the Code, the terms of the plan on that
date are treated as a contract meeting the
long-term care insurance requirements of
that State.
Section 321(f)(4) of HIPAA provides
that for purposes of applying sections
101(f), 7702, and 7702A of the Code, nei-
ther the issuance of a rider that is treated
as a qualified long-term care insurance
contract nor the addition of any provision
required to conform any other long-term
care rider to the requirements applicable
to a qualified long-term care insurance
contract is treated as a modification or
material change of the contract.
Explanation of Provisions
The final regulations provide guidance
concerning
• the consumer protection require-
ments that apply to qualified long-
term care insurance contracts under
sections 7702B(g), 7702B(b)(1)(F),
and 4980C of the Code; and
• the grandfather provisions of section
321(f)(2) of HIPAA under which pre-
1997 contracts are treated as quali-
fied long-term care insurance con-
tracts if certain conditions are met.
The standards in the final regulations are
based on safe harbors that were originally
set forth in Notice 97–31 (1997-1 C.B.
417), and in the regulations proposed in
REG–109333–97.
Notice 97–31
Notice 97–31 was issued to provide in-
terim standards for taxpayers to use in in-
terpreting the new long-term care provi-
sions and to facilitate operation of the
insurance market by avoiding the need to
amend contracts. For example, Notice
97–31 includes interim guidance on the
determination of whether an individual is
a chronically ill individual, including safe
harbor definitions of the terms substantial
assistance, hands-on assistance, standby
assistance, severe cognitive impairment,
and substantial supervision.The stan-
dards contained in Notice 97–31 include
interim guidance on both the consumer
protection provisions and the scope of the
statutory grandfather provisions that
apply to long-term care insurance con-
tracts issued before 1997.
Consumer Protection Requirements
Under sections 7702B(b)(1)(F),
7702B(g), and 4980C of the Code, quali-
fied long-term care insurance contracts
and issuers of those contracts are required
to satisfy certain provisions of the Long-
Term Care Insurance Model Act (Model
Act) and Long-Term Care Insurance
Model Regulation (Model Regulation)
promulgated by the National Association
of Insurance Commissioners (NAIC) for
long-term care insurance as of January
1993. The requirements relate to guaran-
teed renewability, unintentional lapse, dis-
closure, prohibitions against post-claims
underwriting, inflation protection, and
prohibitions against pre-existing condi-
tions exclusions and probationary periods.
Section 4980C imposes an excise tax on
an issuer of a qualified long-term care in-
surance contract if, after 1996, the issuer
fails to satisfy certain requirements, in-
cluding requirements relating to applica-
tion forms, reporting, marketing, appropri-
ateness of recommended purchase,
standard format outline of coverage, deliv-
ery of a shopper’s guide, right to return,
outline of coverage, and incontestability.
Most of these requirements are based on
the NAIC Model Act and Regulation.
The final regulations reflect the stan-
dards that were set forth in Notice 97–31
and in the regulations proposed in
REG–109333–97. For example, the con-
sumer protection requirements will be
considered satisfied if a contract complies
with State law in a State that has adopted
the related NAIC model or a more strin-
gent version of the model.
Commentators generally approved of
the consumer protection provisions of the
proposed regulations. Some commenta-
tors suggested that the provisions should
be applied on a prospective basis, such as
for long-term care insurance contracts is-
sued more than one year after publication
of the final regulations. Consistent with
this suggestion, the final regulations
apply to contracts issued after December
10, 1999.
Commentators suggested that if any
State has adopted a Model Act or Model
Regulation requirement, such State’s in-
terpretation of that requirement should be
considered probative but not controlling
of the meaning of the analogous require-
ments for purposes of applying sections
7702B(g) and 4980C of the Code to a
contract sitused in another State. This
suggestion was not adopted. If a particu-
lar State has adopted a Model Act or
Model Regulation requirement, that
State’s interpretation should apply to de-
termine whether the contract meets that
State’s requirement. If a State has not
adopted a particular requirement, the de-
termination of what interpretation should
apply for purposes of section 7702B(g)
and 4980C of the Code is more appropri-
ately made on a case-by-case basis.
Pre-1997 Long-Term Care Insurance
Contracts
Section 321(f)(2) of HIPAA provides
that a contract issued before January 1,
1997, is treated as a qualified long-term
care insurance contract if the contract met
the “long-term care insurance require-
ments of the State” in which the contract
was sitused at the time it was issued.
Under the final regulations, the date on
which a long-term care insurance contract
other than a group long-term care insur-
ance contract is issued is generally the
date assigned to the contract by the insur-
ance company. In no event is the issue
date earlier than the date on which the
policyholder submitted a signed applica-
tion for coverage to the insurance com-
1999–7 I.R.B.37February 16, 1999
IRB 1999-7 2/11/99 4:17 PM Page 37

pany. In addition, if the period between
the date of application and the date on
which the long-term care insurance con-
tract actually becomes effective is sub-
stantially longer than under the insurance
company’s usual business practice, then
the issue date is generally the date the
contract becomes effective. For purposes
of applying the grandfather rule of section
321(f)(2) of HIPAA to a group long-term
care insurance contract, the issue date of
the contract is the date the group contract
was issued. As a result, coverage for an
individual who joins a grandfathered
group long-term care insurance contract
on or after January 1, 1997, is accorded
the same treatment under section
321(f)(2) as is accorded coverage for
those who joined the group before that
date.
Notice 97–31 and the proposed regula-
tions use the term material changeto
identify those changes to pre-1997 long-
term care insurance contracts that are
treated as the issuance of a new contract
and, therefore, result in the loss of grand-
fathered status under section 7702B. The
use of the term materialmay have caused
some confusion in light of the bright line
standards that the regulations are gener-
ally intended to provide. For this reason,
the final regulations do not use the term
materialin this context. No substantive
change is intended by this modification.
The final regulations generally adopt
the standards set forth in the proposed reg-
ulations for purposes of determining
whether a change to a pre-1997 long-term
care insurance contract is considered the
issuance of a new contract.
1
For example,
the final regulations provide that the exer-
cise of any right provided to a policy-
holder or the addition of any right that is
required by State law to be provided to the
policyholder will not be treated as the is-
suance of a new contract. Thus, as illus-
trated in an example in the regulations, the
exercise of a right set forth in a pre-1997
contract, without underwriting, does not
result in the loss of grandfathered status.
The final regulations also provide that
the following practices will not be treated
as the issuance of a new contract for pur-
poses of the grandfathering provision of
section 321(f)(2) of HIPAA: (1) a change
in the mode of premium payment, such as
a change from paying premiums monthly
to quarterly; (2) a classwide increase or
decrease in premiums for contracts that
have been issued on a guaranteed renew-
able basis; (3) a reduction in premiums
due to the purchase of a long-term care in-
surance policy by a member of the policy-
holder’s family; (4) a reduction in cover-
age (with correspondingly lower
premiums) made at the request of a poli-
cyholder; (5) a reduction in premiums that
occurs because the policyholder becomes
entitled to a discount under the issuer’s
pre-1997 premium rate structure (such as
when a policyholder becomes a member
of a group entitled to a group discount, or
changes from smoker to nonsmoker sta-
tus); (6) the addition, without an increase
in premiums, of alternative forms of ben-
efits that may be selected by the policy-
holder; (7) the addition of a rider to in-
crease benefits under a pre-1997 contract
if the rider would constitute a qualified
long-term care insurance contract if it
were a separate contract; (8) the deletion
of a rider or provision of a contract (called
an HHS (Health and Human Services)
rider) that prohibited coordination of ben-
efits with Medicare; (9) the effectuation of
a continuation or conversion of coverage
right under a group contract following an
individual’s ineligibility for continued
coverage under the group contract; and
(10) the substitution of one insurer for an-
other in an assumption reinsurance trans-
action. These exceptions are generally
similar to those listed in the proposed reg-
ulations. In response to comments, how-
ever, the exceptions have been broadened
to permit certain premium reductions and
to clarify that a change in insurer pursuant
to an assumption reinsurance transaction
is not treated as the issuance of a new con-
tract (assuming that the contract would not
otherwise be treated as newly issued, such
as by reason of a change in the amount or
timing of benefits or premiums).
Some commentators suggested that the
regulations include a parenthetical to the
effect that some changes in the amount or
timing of items (such as de minimis
changes in premiums) are not treated as
the issuance of a new contract, even if no
specific exception applies under the regu-
lation. An important purpose of these
regulations is to provide certainty as to
the qualification of pre-1997 long-term
care insurance contracts, and the excep-
tions enumerated in the proposed regula-
tions provide broad relief from treatment
as the issuance of a new contract resulting
in the loss of grandfathered status. Ac-
cordingly, the final regulations do not
contain this additional parenthetical.
Some commentators identified addi-
tional circumstances under which expan-
sion of coverage under a group long-term
care insurance contract should not be
treated as the issuance of a new contract.
For example, some requested that the ad-
dition of a spouse, dependent children, or
others should not be treated as the is-
suance of a new contract. Other commen-
tators suggested that no loss of grandfa-
thering should result from the expansion
of coverage under a group contract by
reason of a corporate merger or acquisi-
tion, or the extension of coverage to col-
lectively bargained employees, or the ad-
dition of former employees. The final
regulations clarify that such expansion is
not treated as the issuance of a new con-
tract, provided that the addition is without
underwriting and is pursuant to the terms
of the contract and the plan under which
the contract was issued as in effect on De-
cember 31, 1996. Thus, the addition of a
business’s assets and related employees
by a company with a pre-1997 group con-
tract is not treated as the issuance of a
new contract if, as of December 31, 1996,
the contract and the plan under which it
was issued provided that new employees
automatically are eligible to participate in
the group contract. If, however, a new
subsidiary is acquired by the company
and the company’s pre-1997 group con-
tract or plan requires that a subsidiary be
designated by the company in order for its
employees to be eligible to participate,
then the designation of the new subsidiary
would be a change in the terms of the con-
tract or in the plan relating to eligibility.
Although the final regulations were not
modified to accommodate further expan-
sion, a new qualified long-term care in-
surance contract could be entered into to
expand coverage under these circum-
stances. Alternatively, the final regula-
tions permit coverage under the pre-1997
February 16, 1999381999–7 I.R.B.
1
These standards are different from those that
apply for purposes of determining the grandfathered
status of other types of insurance contracts under the
Code (including sections 7702, 7702A, 101(f), and
264). Those other provisions limit the tax benefits
associated with the purchase of insurance products
that, unlike pre-1997 long-term care insurance con-
tracts, have a substantial investment orientation.
IRB 1999-7 2/11/99 4:17 PM Page 38

contract to be expanded by a rider to the
pre-1997 contract if the rider would con-
stitute a qualified long-term care insur-
ance contract if it were issued as a sepa-
rate contract.
2
Finally, it was suggested that the grand-
father provisions of the final regulations
should be effective immediately. The
final regulations with respect to contracts
issued before 1997 are effective January
1, 1999.
Standards before the Effective Date of the
Final Regulations
The consumer protection provisions in
the final regulations apply with respect to
contracts issued after December 10, 1999.
Taxpayers may continue to rely on Notice
97–31 with respect to contracts issued on
or before that date. In addition, a contract
issued on or before December 10, 1999.
will not be treated as failing to satisfy the
consumer protection requirements of sec-
tion 7702B(g) or 4980C of the Code if the
contract satisfies the requirements of the
final regulations. Taxpayers may not rely
on Notice 97–31 with respect to contracts
issued after December 10, 1999.
The final regulations are effective Jan-
uary 1, 1999, with respect to pre-1997
long-term care insurance contracts. Tax-
payers may continue to rely on Notice
97–31 for the purpose of determining
whether a change made before January 1,
1999, to a pre-1997 contract is treated as
the issuance of a new contract. In addi-
tion, a change made before that date to a
pre-1997 contract will not be treated as
the issuance of a new contract if the
change is not treated as the issuance of a
new contract under the final regulations.
Taxpayers may not rely on Notice 97–31
with respect to changes made on or after
January 1, 1999.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in EO 12866.
Therefore, a regulatory assessment is not
required. It has also been determined that
section 553(b) of the Administrative Pro-
cedure Act (5 U.S.C. chapter 5) does not
apply to these regulations, and because
the regulations do not impose a collection
of information on small entities, the Reg-
ulatory Flexibility Act (5 U.S.C. chapter
6) does not apply. Pursuant to section
7805(f) of the Internal Revenue Code, the
notice of proposed rulemaking preceding
these regulations was submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
Drafting Information
The principal author of these regula-
tions is Katherine A. Hossofsky, Office of
Assistant Chief Counsel (Financial Insti-
tutions & Products). However, other per-
sonnel from the IRS and Treasury Depart-
ment participated in their development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Sections 1.7702B–1 and
1.7702B–2 are added to read as follows:
§1.7702B–1 Consumer protection
provisions.
(a)In general. Under sections
7702B(b)(1)(F), 7702B(g), and 4980C,
qualified long-term care insurance con-
tracts and issuers of those contracts are re-
quired to satisfy certain provisions of the
Long-Term Care Insurance Model Act
(Model Act) and Long-Term Care Insur-
ance Model Regulation (Model Regula-
tion) promulgated by the National Associ-
ation of Insurance Commissioners
(NAIC), as adopted as of January 1993.
The requirements for qualified long-term
care insurance contracts under section
7702B(b)(1)(F) and (g) relate to guaran-
teed renewal or noncancellability, prohi-
bitions on limitations and exclusions, ex-
tension of benefits, continuation or con-
version of coverage, discontinuance and
replacement of policies, unintentional
lapse, disclosure, prohibitions against
post-claims underwriting, minimum stan-
dards, inflation protection, prohibitions
against pre-existing conditions exclusions
and probationary periods, and prior hospi-
talization. The requirements for qualified
long-term care insurance contracts under
section 4980C relate to application forms
and replacement coverage, reporting re-
quirements, filing requirements for mar-
keting, standards for marketing, appropri-
ateness of recommended purchase,
standard format outline of coverage, de-
livery of a shopper’s guide, right to re-
turn, outline of coverage, certificates
under group plans, policy summary,
monthly reports on accelerated death ben-
efits, and incontestability period.
(b) Coordination with State require-
ments—(1) Contracts issued in a State
that imposes more stringent requirements.
If a State imposes a requirement that is
more stringent than the analogous re-
quirement imposed by section 7702B(g)
or 4980C, then, under section 4980C(f),
compliance with the more stringent re-
quirement of State law is considered com-
pliance with the parallel requirement of
section 7702B(g) or 4980C. The princi-
ples of paragraph (b)(3) of this section
apply to any case in which a State im-
poses a requirement that is more stringent
than the analogous requirement imposed
by section 7702B(g) or 4980C (as de-
scribed in this paragraph (b)(1)), but in
which there has been a failure to comply
with that State requirement.
(2) Contracts issued in a State that has
adopted the model provisions.If a State
imposes a requirement that is the same as
the parallel requirement imposed by sec-
tion 7702B(g) or 4980C, compliance with
that requirement of State law is consid-
ered compliance with the parallel require-
ment of section 7702B(g) or 4980C, and
failure to comply with that requirement of
State law is considered failure to comply
with the parallel requirement of section
7702B(g) or 4980C.
(3) Contracts issued in a State that has
not adopted the model provisions or more
stringent requirements.If a State has not
adopted the Model Act, the Model Regu-
lation, or a requirement that is the same as
or more stringent than the analogous re-
1999–7 I.R.B.39February 16, 1999
2
As was indicated in the preamble to the pro-
posed regulations, certain of the consumer protec-
tion requirements would not apply to such a rider.
Specifically, sections 7702B(g)(2)(A)(i)(III),
7702B(g)(2)(A)(i)(V), 7702B(g)(2)(A)(i)(VII)
(other than section 9B of the NAIC Model regula-
tion), 7702B(g)(2)(A)(i)(X), 7702B(g)(3),
7702B(g)(4), 4980C(c)(1)(A)(I), and 4980C(c)(2) of
the Internal Revenue Code would apply only the
first time a contract is purchased, and would not
apply to the purchase of a rider.
IRB 1999-7 2/11/99 4:17 PM Page 39

quirement imposed by section 7702B(g)
or 4980C, then the language, caption, for-
mat, and content requirements imposed
by sections 7702B(g) and 4980C with re-
spect to contracts, applications, outlines
of coverage, policy summaries, and no-
tices will be considered satisfied for a
contract subject to the law of that State if
the language, caption, format, and content
are substantially similar to those required
under the parallel provision of the Model
Act or Model Regulation. Only nonsub-
stantive deviations are permitted in order
for language, caption, format, and content
to be considered substantially similar to
the requirements of the Model Act or
Model Regulation.
(c) Effective date. This section applies
with respect to contracts issued after De-
cember 10, 1999.
§1.7702B–2 Special rules for pre-1997
long-term care insurance contracts.
(a) Scope.The definitions and special
provisions of this section apply solely for
purposes of determining whether an in-
surance contract (other than a qualified
long-term care insurance contract de-
scribed in section 7702B(b) and any regu-
lations issued thereunder) is treated as a
qualified long-term care insurance con-
tract for purposes of the Internal Revenue
Code under section 321(f)(2) of the
Health Insurance Portability and Account-
ability Act of 1996 (Public Law 104-191).
(b) Pre-1997 long-term care insurance
contracts—(1) In general.A pre-1997
long-term care insurance contract is
treated as a qualified long-term care in-
surance contract, regardless of whether
the contract satisfies section 7702B(b)
and any regulations issued thereunder.
(2) Pre-1997 long-term care insurance
contract defined.A pre-1997 long-term
care insurance contract is any insurance
contract with an issue date before January
1, 1997, that met the long-term care insur-
ance requirements of the State in which
the contract was sitused on the issue date.
For this purpose, the long-term care insur-
ance requirements of the State are the
State laws (including statutory and ad-
ministrative law) that are intended to reg-
ulate insurance coverage that constitutes
“long-term care insurance” (as defined in
section 4 of the National Association of
Insurance Commissioners (NAIC) Long-
Term Care Insurance Model Act, as in ef-
fect on August 21, 1996), regardless of
the terminology used by the State in de-
scribing the insurance coverage.
(3) Issue date of a contract—(i) In gen-
eral.Except as otherwise provided in this
paragraph (b)(3), the issue date of a con-
tract is the issue date assigned to the con-
tract by the insurance company. In no
event is the issue date earlier than the date
the policyholder submitted a signed appli-
cation for coverage to the insurance com-
pany. If the period between the date the
signed application is submitted to the in-
surance company and the date coverage
under the contract actually becomes ef-
fective is substantially longer than under
the insurance company’s usual business
practice, then the issue date is the later of
the date coverage under the contract be-
comes effective or the issue date assigned
to the contract by the insurance company.
A policyholder’s right to return a contract
within a free-look period following deliv-
ery for a full refund of any premiums paid
is not taken into account in determining
the contract’s issue date.
(ii) Special rule for group contracts.
The issue date of a group contract (includ-
ing any certificate issued thereunder) is
the date on which coverage under the
group contract becomes effective.
(iii) Exchange of contract or certain
changes in a contract treated as a new is-
suance. For purposes of this paragraph
(b)(3)—
(A) A contract issued in exchange for
an existing contract after December 31,
1996, is considered a contract issued after
that date;
(B) Any change described in paragraph
(b)(4) of this section is treated as the is-
suance of a new contract with an issue
date no earlier than the date the change
goes into effect; and
(C) If a change described in paragraph
(b)(4) of this section occurs with regard to
one or more, but fewer than all, of the cer-
tificates evidencing coverage under a
group contract, then the insurance cover-
age under the changed certificates is
treated as coverage under a newly issued
group contract (and the insurance cover-
age provided by any unchanged certifi-
cate continues to be treated as coverage
under the original group contract).
(4) Changes treated as the issuance of
a new contract—(i) In general.For pur-
poses of paragraph (b)(3) of this section,
except as provided in paragraph (b)(4)(ii)
of this section, the following changes are
treated as the issuance of a new con-
tract—
(A) A change in the terms of a contract
that alters the amount or timing of an item
payable by either the policyholder (or cer-
tificate holder), the insured, or the insur-
ance company;
(B) A substitution of the insured under
an individual contract; or
(C) A change (other than an immaterial
change) in the contractual terms, or in the
plan under which the contract was issued,
relating to eligibility for membership in
the group covered under a group contract.
(ii) Exceptions. For purposes of this
paragraph (b)(4), the following changes
are not treated as the issuance of a new
contract—
(A) A policyholder’s exercise of any
right provided under the terms of the con-
tract as in effect on December 31, 1996,
or a right required by applicable State law
to be provided to the policyholder;
(B) A change in the mode of premium
payment (for example, a change from
monthly to quarterly premiums);
(C) In the case of a policy that is guar-
anteed renewable or noncancellable, a
classwide increase or decrease in premi-
ums;
(D) A reduction in premiums due to the
purchase of a long-term care insurance
contract by a family member of the poli-
cyholder;
(E) A reduction in coverage (with a
corresponding reduction in premiums)
made at the request of a policyholder;
(F) A reduction in premiums as a result
of extending to an individual policyholder
a discount applicable to similar categories
of individuals pursuant to a premium rate
structure that was in effect on December
31, 1996, for the issuer’s pre-1997 long-
term care insurance contracts of the same
type;
(G) The addition, without an increase
in premiums, of alternative forms of ben-
efits that may be selected by the policy-
holder;
(H) The addition of a rider (including
any similarly identifiable amendment) to
a pre-1997 long-term care insurance con-
tract in any case in which the rider, if is-
sued as a separate contract of insurance,
would itself be a qualified long-term care
insurance contract under section 7702B
February 16, 1999401999–7 I.R.B.
IRB 1999-7 2/11/99 4:17 PM Page 40

and any regulations issued thereunder (in-
cluding the consumer protection provi-
sions in section 7702B(g) to the extent ap-
plicable to the addition of a rider);
(I) The deletion of a rider or provision
of a contract that prohibited coordination
of benefits with Medicare (often referred
to as an HHS (Health and Human Ser-
vices) rider);
(J) The effectuation of a continuation
or conversion of coverage right that is
provided under a pre-1997 group contract
and that, in accordance with the terms of
the contract as in effect on December 31,
1996, provides for coverage under an in-
dividual contract following an individ-
ual’s ineligibility for continued coverage
under the group contract; and
(K) The substitution of one insurer for
another insurer in an assumption reinsur-
ance transaction.
(5) Examples.The following examples
illustrate the principles of this paragraph
(b):
Example 1. (i) On December 3, 1996, A, an indi-
vidual, submits a signed application to an insurance
company to purchase a nursing home contract that
meets the long-term care insurance requirements of
the State in which the contract is sitused. The insur-
ance company decides on December 20, 1996, that it
will issue the contract, and assigns December 20,
1996, as the issue date for the contract. Under the
terms of the contract, A’s insurance coverage be-
comes effective on January 1, 1997. The company
delivers the contract to A on January 3, 1997. A has
the right to return the contract within 15 days fol-
lowing delivery for a refund of all premiums paid.
(ii) Under paragraph (b)(3)(i) of this section, the
issue date of the contract is December 20, 1996.
Thus, the contract is a pre-1997 long-term care in-
surance contract that is treated as a qualified long-
term care insurance contract.
Example 2.(i) The facts are the same as in Ex-
ample 1, except that the insurance coverage under
the contract does not become effective until March
1, 1997. Under the insurance company’s usual busi-
ness practice, the period between the date of the ap-
plication and the date the contract becomes effective
is 30 days or less.
(ii) Under paragraph (b)(3)(i) of this section, the
issue date of the contract is March 1, 1997. Thus,
the contract is not a pre-1997 long-term care insur-
ance contract, and, accordingly, the contract must
meet the requirements of section 7702B(b) and any
regulations issued thereunder to be a qualified long-
term care insurance contract.
Example 3. (i) B, an individual, is the policy-
holder under a long-term care insurance contract
purchased in 1995. On June 15, 2000, the insurance
coverage and premiums under the contract are in-
creased by agreement between B and the insurance
company.
(ii) Under paragraph (b)(4)(i)(A) of this section,
a change in the terms of a contract that alters the
amount or timing of an item payable by the policy-
holder or the insurance company is treated as the is-
suance of a new contract. Thus, B’s coverage is
treated as coverage under a contract issued on June
15, 2000, and, accordingly, the contract must meet
the requirements of section 7702B(b) and any regu-
lations issued thereunder in order to be a qualified
long-term care insurance contract.
Example 4.(i) C, an individual, is the policy-
holder under a long-term care insurance contract
purchased in 1994. At that time and through De-
cember 31, 1996, the contract met the long-term
care insurance requirements of the State in which
the contract was sitused. In 1996, the policy was
amended to add a provision requiring the policy-
holder to be offered the right to increase dollar limits
for inflation every three years (without the policy-
holder being required to pass a physical or satisfy
any other underwriting requirements). During 2002,
C elects to increase the amount of insurance cover-
age (with a resulting premium increase) pursuant to
the inflation provision.
(ii) Under paragraph (b)(4)(ii)(A) of this section,
an increase in the amount of insurance coverage at
the election of the policyholder (without the insur-
ance company’s consent and without underwriting
or other limitations on the policyholder’s rights) pur-
suant to a pre-1997 inflation provision is not treated
as the issuance of a new contract. Thus, C’s contract
continues to be a pre-1997 long-term care insurance
contract that is treated as a qualified long-term care
insurance contract.
(c) Effective date.This section is effec-
tive January 1, 1999.
David A. Mader,
Acting Deputy Commissioner of
Internal Revenue.
Approved November 24, 1998.
Donald C. Lubick,
Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on De-
cember 9, 1998, 8:45 a.m., and published in the
issue of the Federal Register for December 10, 1998,
63 F.R. 68184)
1999–7 I.R.B.41February 16, 1999
IRB 1999-7 2/11/99 4:17 PM Page 41

February 16, 1999421999–7 I.R.B.
26 CFR 601.201: Rulings and determination
letters.
(Also Part I, sections 846; 1.846–1.)
Rev. Proc. 99–15
SECTION 1. PURPOSE
This revenue procedure prescribes the
loss payment patterns and discount fac-
tors for the 1998 accident year. These
factors will be used for computing dis-
counted unpaid losses under § 846 of the
Internal Revenue Code. See Rev. Proc.
98–11, 1998–4 I.R.B. 9, for background
concerning the loss payment patterns and
application of the discount factors.
SEC. 2. SCOPE
This revenue procedure applies to any
taxpayer that is required to discount its
unpaid losses under § 846 for a line of
business using discount factors published
by the Secretary.
SEC. 3. TABLES OF DISCOUNT
FACTORS
.01 The following tables present sepa-
rately for each line of business the dis-
count factors under § 846 for accident
year 1998. All the discount factors pre-
sented in this section were determined
using the applicable interest rate under
§ 846(c) for 1998, which is 6.31 percent,
and by assuming all loss payments occur
in the middle of the calendar year.
.02 If the groupings of individual lines
of business on the annual statement
changes, taxpayers must discount the un-
paid losses on the resulting lines of busi-
ness in accordance with the discounting
patterns that would have applied to those
unpaid losses based on their classification
on the 1995 annual statement. In addi-
tion, section V of Notice 88-100, 1988-2
C.B. 439, provides rules concerning the
determination of losses for accident years
not separately reported on the annual
statement.
Part III. Administrative, Procedural, and Miscellaneous
.03 Tables
Accident and Health (Other Than Disability Income or Credit Disability Insurance)
Discount factor for all years equals 96.9869 percent.
Auto Physical Damage
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 089.943089.943010.05709.701696.4662
AY+ 199.38149.43840.61860.582294.1086
AY+ 2N/A0.30930.30930.300096.9869
AY+ 3N/A0.30930.00000.0000***
Commercial Auto/Truck Liability/Medical
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 025.807525.807574.192564.920887.5031
AY+ 149.879324.071850.120744.197688.1823
AY+ 267.659217.779932.340828.654288.6007
AY+ 379.771112.111920.228917.974188.8535
AY+ 488.21328.442111.786810.403888.2671
AY+ 593.17784.96466.82225.941587.0908
AY+ 695.96232.78454.03773.445485.3310
AY+ 797.00911.04682.99092.583586.3785
AY+ 897.57190.56282.42812.166289.2148
AY+ 998.21910.64711.78091.635791.8421
AY+10N/A0.64711.13381.071794.5157
AY+11N/A0.64710.48670.472196.9869
AY+12N/A0.48670.00000.0000***
IRB 1999-7 2/11/99 4:17 PM Page 42

Composite Discount Factors
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 035.461135.461164.538955.190985.5157
AY+ 159.144923.683840.855134.253983.8423
AY+ 270.822011.677129.178024.375483.5404
AY+ 381.901911.079918.098114.489480.0603
AY+ 486.36884.466913.631210.798079.2152
AY+ 590.04973.68099.95037.684177.2246
AY+ 692.74882.69917.25125.386074.2771
AY+ 793.82591.07716.17414.615374.7524
AY+ 894.24150.41565.75854.478077.7634
AY+ 994.85680.61535.14324.126180.2252
AY+10N/A0.61534.52793.752082.8658
AY+11N/A0.61533.91253.354385.7336
AY+12N/A0.61533.29722.931688.9107
AY+13N/A0.61532.68192.482192.5511
AY+14N/A0.61532.06652.004396.9869
AY+15N/A2.06650.00000.0000***
Fidelity/Surety
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 024.154024.154075.846070.098592.4222
AY+ 159.096134.942140.903938.494194.1086
AY+ 2N/A20.452020.452019.835796.9869
AY+ 3N/A20.45200.00000.0000***
Financial Guaranty/Mortgage Guaranty
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 09.25139.251390.748783.830292.3762
AY+ 150.565941.314649.434146.521794.1086
AY+ 2N/A24.717124.717123.972396.9869
AY+ 3N/A24.71710.00000.0000***
1999–7 I.R.B.43February 16, 1999
IRB 1999-7 2/11/99 4:17 PM Page 43

International (Composite)
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 035.461135.461164.538955.190985.5157
AY+ 159.144923.683840.855134.253983.8423
AY+ 270.822011.677129.178024.375483.5404
AY+ 381.901911.079918.098114.489480.0603
AY+ 486.36884.466913.631210.798079.2152
AY+ 590.04973.68099.95037.684177.2246
AY+ 692.74882.69917.25125.386074.2771
AY+ 793.82591.07716.17414.615374.7524
AY+ 894.24150.41565.75854.478077.7634
AY+ 994.85680.61535.14324.126180.2252
AY+10N/A0.61534.52793.752082.8658
AY+11N/A0.61533.91253.354385.7336
AY+12N/A0.61533.29722.931688.9107
AY+13N/A0.61532.68192.482192.5511
AY+14N/A0.61532.06652.004396.9869
AY+15N/A2.06650.00000.0000***
Medical Malpractice — Claims-Made
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 06.38996.389993.610176.745481.9841
AY+ 124.001117.611275.998963.429783.4614
AY+ 242.697018.695957.303048.155484.0365
AY+ 358.061015.364041.939035.352784.2955
AY+ 469.665311.604330.334725.618784.4533
AY+ 575.60335.938024.396721.112786.5391
AY+ 681.87866.275318.121415.974688.1535
AY+ 787.85395.975312.146110.821789.0962
AY+ 889.52071.666810.47939.785993.3839
AY+ 994.30254.78185.69755.473196.0616
AY+10N/A4.78180.91570.888196.9869
AY+11N/A0.91570.00000.0000***
February 16, 1999441999–7 I.R.B.
IRB 1999-7 2/11/99 4:17 PM Page 44

Medical Malpractice — Occurrence
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 02.12392.123997.876171.412772.9623
AY+ 16.48314.359293.516971.424276.3757
AY+ 215.59879.115684.401366.532278.8284
AY+ 331.906216.307568.093853.916379.1794
AY+ 445.093113.186854.906943.721879.6290
AY+ 550.07514.982149.924941.343982.8121
AY+ 660.972810.897639.027232.716583.8298
AY+ 769.21388.241130.786226.283785.3752
AY+ 872.86583.651927.134224.176989.1010
AY+ 980.00057.134719.999518.346091.7325
AY+10N/A7.134712.864812.147394.4228
AY+11N/A7.13475.73005.557496.9869
AY+12N/A5.73000.00000.0000***
Miscellaneous Casualty
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 077.666977.666922.333121.158094.7384
AY+ 194.067316.40045.93275.583294.1086
AY+ 2N/A2.96642.96642.877096.9869
AY+ 3N/A2.96640.00000.0000***
Multiple Peril Lines
(Homeowners/Farmowners Multiple Peril, Commercial Multiple Peril,
and Special Liability (Ocean Marine, Aircraft (All Perils), Boiler and Machinery))
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 055.958755.958744.041339.045088.6553
AY+ 177.893921.935222.106118.892085.4607
AY+ 284.00836.114415.991713.779786.1681
AY+ 391.31887.31058.68127.111681.9199
AY+ 492.16700.84827.83306.685885.3545
AY+ 594.38382.21685.61624.822085.8592
AY+ 696.49592.11213.50412.948684.1467
AY+ 797.36700.87122.63302.236584.9399
AY+ 898.00340.63641.99661.721486.2176
AY+ 998.40590.40251.59411.415188.7674
AY+10N/A0.40251.19161.089491.4173
AY+11N/A0.40250.78920.743194.1661
AY+12N/A0.40250.38670.375096.9869
AY+13N/A0.38670.00000.0000***
1999–7 I.R.B.45February 16, 1999
IRB 1999-7 2/11/99 4:17 PM Page 45

Other (Including Credit)
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 066.741866.741833.258231.348494.2575
AY+ 189.275522.533710.724510.092794.1086
AY+ 2N/A5.36225.36225.200796.9869
AY+ 3N/A5.36220.00000.0000***
Other Liability — Claims-Made
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 010.244010.244089.756073.758982.1771
AY+ 129.376319.132370.623758.686483.0973
AY+ 244.411115.034955.588946.887584.3470
AY+ 367.819723.408632.180325.710379.8946
AY+ 473.47535.655526.524721.501481.0617
AY+ 578.86045.385221.139617.305781.8638
AY+ 683.50274.642216.497313.611282.5054
AY+ 784.06760.564915.932413.887687.1656
AY+ 885.21291.145314.787113.583091.8570
AY+ 990.59925.38639.40088.886594.5285
AY+10N/A5.38634.01453.893696.9869
AY+11N/A4.01450.00000.0000***
Other Liability — Occurrence
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 013.575113.575186.424967.713978.3500
AY+ 126.396412.821373.603658.767179.8426
AY+ 240.272513.876159.727548.168080.6464
AY+ 355.456615.184144.543435.551679.8134
AY+ 465.33099.874234.669127.613979.6498
AY+ 574.06478.733925.935320.351178.4690
AY+ 680.90906.844219.091014.578476.3627
AY+ 784.36223.453215.637811.937876.3395
AY+ 884.61630.254215.383712.429080.7938
AY+ 986.73112.114713.268911.032983.1483
AY+10N/A2.114711.15429.548685.6057
AY+11N/A2.11479.03957.970788.1769
AY+12N/A2.11476.92476.293290.8806
AY+13N/A2.11474.81004.509993.7612
AY+14N/A2.11472.69532.614096.9869
AY+15N/A2.69530.00000.0000***
February 16, 1999461999–7 I.R.B.
IRB 1999-7 2/11/99 4:17 PM Page 46

Private Passenger Auto Liability/Medical
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 037.933937.933962.066156.256790.6400
AY+ 167.704429.770532.295629.111190.1396
AY+ 281.531613.827218.468416.691390.3774
AY+ 389.88988.358310.11029.126690.2713
AY+ 494.65314.76335.34694.791289.6074
AY+ 597.12652.47342.87352.543388.5087
AY+ 698.45871.33221.54131.330286.3036
AY+ 798.98110.52241.01890.875585.9258
AY+ 899.23300.25190.76700.671087.4859
AY+ 999.40670.17370.59330.534390.0498
AY+10N/A0.17370.41960.388992.6798
AY+11N/A0.17370.24600.234495.2948
AY+12N/A0.17370.07230.070196.9869
AY+13N/A0.07230.00000.0000***
Products Liability — Claims-Made
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 04.97504.975095.025075.350379.2952
AY+ 115.107210.132284.892869.658082.0540
AY+ 230.956015.848869.044057.712283.5875
AY+ 338.24207.286061.758053.841487.1813
AY+ 468.610130.368131.389925.927282.5975
AY+ 578.59669.986521.403417.266580.6719
AY+ 688.39719.800511.60298.251171.1122
AY+ 793.29574.89866.70433.721055.5008
AY+ 888.3815-4.914211.61859.022677.6571
AY+ 989.61051.229010.38958.324780.1263
AY+10N/A1.22909.16047.582882.7774
AY+11N/A1.22907.93146.794085.6598
AY+12N/A1.22906.70245.955588.8568
AY+13N/A1.22905.47335.064192.5229
AY+14N/A1.22904.24434.116496.9869
AY+15N/A4.24430.00000.0000***
1999–7 I.R.B.47February 16, 1999
IRB 1999-7 2/11/99 4:17 PM Page 47

Products Liability — Occurrence
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 09.06539.065390.934768.544775.3780
AY+ 114.90355.838285.096566.850378.5583
AY+ 229.259114.355570.740956.267079.5396
AY+ 345.646216.387154.353842.921378.9665
AY+ 457.594511.948342.405533.310178.5514
AY+ 563.86346.268936.136628.948380.1080
AY+ 675.226611.363224.773419.058776.9322
AY+ 778.26793.041321.732117.125678.8030
AY+ 878.1898-0.078121.810218.286783.8447
AY+ 981.87223.682518.127815.643786.2972
AY+10N/A3.682514.445312.834088.8455
AY+11N/A3.682510.76289.846991.4903
AY+12N/A3.68257.08036.671494.2243
AY+13N/A3.68253.39793.295596.9869
AY+14N/A3.39790.00000.0000***
Reinsurance A (Nonproportional Property)
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 027.166827.166872.833264.604488.7020
AY+ 168.700841.534031.299225.856682.6112
AY+ 270.03621.335429.963826.111387.1429
AY+ 387.533817.497612.46629.717877.9528
AY+ 490.21322.67949.78687.568377.3318
AY+ 591.37511.16198.62496.847979.3965
AY+ 694.38453.00955.61554.177074.3844
AY+ 793.3293-1.05526.67075.528682.8791
AY+ 8N/A1.03875.63204.806585.3426
AY+ 9N/A1.03874.59324.038787.9283
AY+10N/A1.03873.55453.222690.6623
AY+11N/A1.03872.51582.354993.6071
AY+12N/A1.03871.47711.432596.9869
AY+13N/A1.47710.00000.0000***
February 16, 1999481999–7 I.R.B.
IRB 1999-7 2/11/99 4:17 PM Page 48

Reinsurance B (Nonproportional Liability)
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 06.69626.696293.303868.492073.4075
AY+ 122.394415.698277.605656.627972.9689
AY+ 232.648610.254267.351449.628473.6858
AY+ 350.223417.574849.776634.639169.5892
AY+ 453.58393.360546.416133.360071.8715
AY+ 555.68382.099944.316233.299875.1415
AY+ 663.61447.930636.385627.224074.8210
AY+ 766.42112.806633.578926.048077.5726
AY+ 8N/A2.806630.772324.797880.5850
AY+ 9N/A2.806627.965623.468783.9199
AY+10N/A2.806625.159022.055887.6656
AY+11N/A2.806622.352420.553791.9531
AY+12N/A2.806619.545718.956896.9869
AY+13N/A19.54570.00000.0000***
Reinsurance C (Financial Lines)
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 011.462211.462288.537876.871286.8230
AY+ 144.579133.116955.420947.576085.8449
AY+ 263.913419.334336.086630.643184.9154
AY+ 365.61851.705134.381530.818689.6372
AY+ 479.977814.359320.022217.957889.6897
AY+ 588.91528.937411.08489.875989.0943
AY+ 691.24902.33388.75108.092892.4785
AY+ 794.76453.51555.23554.978895.0957
AY+ 8N/A3.51551.72001.668296.9869
AY+ 9N/A1.72000.00000.0000***
Special Property (Fire, Allied Lines, Inland Marine,
Earthquake, Glass, Burglary and Theft)
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 057.489557.489542.510540.427195.0992
AY+ 190.519333.02979.48078.922294.1086
AY+ 2N/A4.74044.74044.597596.9869
AY+ 3N/A4.74040.00000.0000***
1999–7 I.R.B.49February 16, 1999
IRB 1999-7 2/11/99 4:17 PM Page 49

Workers’ Compensation
Discounted
CumulativeEstimatedUnpaidUnpaid
LossesLosses PaidLosses atLosses atDiscount
Tax YearPaidEach YearYear EndYear EndFactors
(%)(%)(%)(%)(%)
AY+ 023.646123.646176.353962.188281.4474
AY+ 144.816621.170555.183444.284180.2490
AY+ 257.965213.148642.034833.521379.7466
AY+ 372.054214.088927.945821.109975.5385
AY+ 480.55428.500019.445813.677870.3380
AY+ 584.88764.333415.112410.072866.6527
AY+ 687.11732.229712.88278.409465.2770
AY+ 788.26471.147311.73537.757166.1001
AY+ 888.54040.275711.45967.962269.4810
AY+ 988.80620.265811.19388.190673.1708
AY+10N/A0.265810.92798.433377.1719
AY+11N/A0.265810.66218.691381.5163
AY+12N/A0.265810.39638.965786.2394
AY+13N/A0.265810.13049.257391.3813
AY+14N/A0.26589.86469.567496.9869
AY+15N/A9.86460.00000.0000***
February 16, 1999501999–7 I.R.B.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Katherine A. Hossofsky of
the Office of the Assistant Chief Counsel
(Financial Institutions and Products). For
further information regarding this revenue
procedure, contact Ms. Hossofsky on
(202) 622-3477 (not a toll-free number).
26 CFR 601.201: Rulings and determination letters.
(Also Part I, sections 832, 846; 1.832–4, 1.846–1.)
Rev. Proc. 99-16
SECTION 1. PURPOSE
This revenue procedure prescribes the
salvage discount factors for the 1998 acci-
dent year. These factors will be used for
computing discounted estimated salvage
recoverable under § 832 of the Internal
Revenue Code.
SEC. 2. BACKGROUND
Section 832(b)(5)(A) requires that all
estimated salvage recoverable (including
that which cannot be treated as an asset
for state accounting purposes) be taken
into account in computing the deduction
for losses incurred. Under § 832(b)-
(5)(A), paid losses are to be reduced by
salvage and reinsurance recovered during
the taxable year. This amount is adjusted
to reflect changes in discounted unpaid
losses on nonlife insurance contracts and
in unpaid losses on life insurance con-
tracts. An adjustment is then made to re-
flect any changes in discounted estimated
salvage recoverable and in reinsurance re-
coverable.
Pursuant to § 832(b), the amount of es-
timated salvage is determined on a dis-
counted basis in accordance with proce-
dures established by the Secretary.
SEC. 3. SCOPE
This revenue procedure applies to any
taxpayer that is required to discount esti-
mated salvage recoverable under § 832.
SEC. 4. APPLICATION
.01 The following tables present sepa-
rately for each line of business the dis-
count factors under § 832 for the 1998 ac-
cident year. All the discount factors
presented in this section were determined
using the applicable interest rate under §
846(c) for 1998, which is 6.31 percent,
and by assuming all estimated salvage is
recovered in the middle of each calendar
year. See Rev. Proc. 98–12, 1998–4 I.R.B.
18, for background regarding the tables.
.02 These tables must be used by tax-
payers irrespective of whether they
elected to discount unpaid losses using
their own historical experience under
§ 846.
.03 Section V of Notice 88–100, 1988–
2 C. B. 439, provides guidance concern-
ing the determination of discount factors
for unpaid losses for accident years not
separately reported on the annual state-
ment.
.04 Tables.
Accident and Health (Other Than
Disability Income or Credit Disability
Insurance)
Discount factor for all years equals
96.9869 percent.
Auto Physical Damage
Discount
Tax YearFactors
(%)
AY+ 095.5629
AY+ 194.1086
AY+ 296.9869
IRB 1999-7 2/11/99 4:17 PM Page 50

Commercial Auto/Truck
Liability/Medical
Discount
Tax YearFactors
(%)
AY+ 088.0877
AY+ 187.2343
AY+ 288.9748
AY+ 388.2461
AY+ 488.0707
AY+ 590.4769
AY+ 685.7129
AY+ 791.4059
AY+ 889.8209
AY+ 992.4441
AY+1095.0624
AY+1196.9869
Composite Discount Factors
Discount
Tax YearFactors
(%)
AY+ 085.5905
AY+ 183.9679
AY+ 283.5415
AY+ 383.4312
AY+ 484.1790
AY+ 584.7621
AY+ 684.8152
AY+ 784.9063
AY+ 887.7812
AY+ 990.3602
AY+1093.0073
AY+1195.6372
AY+1296.9869
Fidelity/Surety
Discount
Tax YearFactors
(%)
AY+ 092.7722
AY+ 194.1086
AY+ 296.9869
Financial Guaranty/Mortgage
Guaranty
Discount
Tax YearFactors
(%)
AY+ 094.6276
AY+ 194.1086
AY+ 296.9869
International (Composite)
Discount
Tax YearFactors
(%)
AY+ 085.5905
AY+ 183.9679
AY+ 283.5415
AY+ 383.4312
AY+ 484.1790
AY+ 584.7621
AY+ 684.8152
AY+ 784.9063
AY+ 887.7812
AY+ 990.3602
AY+1093.0073
AY+1195.6372
AY+1296.9869
Medical Malpractice — Claims-Made
Discount
Tax YearFactors
(%)
AY+ 069.8162
AY+ 172.5074
AY+ 271.0313
AY+ 370.3729
AY+ 473.9549
AY+ 572.2896
AY+ 682.1032
AY+ 791.3723
AY+ 896.2843
AY+ 996.9869
Medical Malpractice — Occurrence
Discount
Tax YearFactors
(%)
AY+ 063.5702
AY+ 166.9550
AY+ 271.5334
AY+ 375.3549
AY+ 472.1156
AY+ 578.2176
AY+ 683.2218
AY+ 786.3771
AY+ 890.9036
AY+ 993.6031
AY+1096.3255
AY+1196.9869
Miscellaneous Casualty
Discount
Tax YearFactors
(%)
AY+ 094.9654
AY+ 194.1086
AY+ 296.9869
Multiple Peril Lines
(Homeowners/Farmowners Multiple
Peril, Commercial Multiple Peril, and
Special Liability (Ocean Marine,
Aircraft (All Perils), Boiler and
Machinery))
Discount
Tax YearFactors
(%)
AY+ 088.1763
AY+ 187.1178
AY+ 287.8952
AY+ 387.5458
AY+ 488.6854
AY+ 590.1534
AY+ 690.1474
AY+ 789.0852
AY+ 891.5249
AY+ 994.2521
AY+1096.9869
Other (Including Credit)
Discount
Tax YearFactors
(%)
AY+ 096.0279
AY+ 194.1086
AY+ 296.9869
Other Liability — Claims-Made
Discount
Tax YearFactors
(%)
AY+ 077.2493
AY+ 182.7956
AY+ 281.7927
AY+ 379.4299
AY+ 482.4531
AY+ 587.1799
AY+ 685.6712
AY+ 791.4105
AY+ 893.5648
AY+ 996.2785
AY+1096.9869
1999–7 I.R.B.51February 16, 1999
IRB 1999-7 2/11/99 4:17 PM Page 51

Other Liability — Occurrence
Discount
Tax YearFactors
(%)
AY+ 078.2359
AY+ 178.9690
AY+ 281.3835
AY+ 383.3811
AY+ 484.6518
AY+ 582.1857
AY+ 686.3353
AY+ 788.3258
AY+ 892.5005
AY+ 995.1170
AY+1096.9869
Private Passenger Auto
Liability/Medical
Discount
Tax YearFactors
(%)
AY+ 091.4498
AY+ 190.8941
AY+ 289.9496
AY+ 389.5590
AY+ 489.0875
AY+ 589.5493
AY+ 688.3238
AY+ 789.0595
AY+ 889.7588
AY+ 992.3809
AY+1095.0019
AY+1196.9869
Products Liability — Claims-Made
Discount
Tax YearFactors
(%)
AY+ 078.6781
AY+ 180.7444
AY+ 285.2984
AY+ 385.2066
AY+ 480.7335
AY+ 587.8419
AY+ 680.4105
AY+ 787.9957
AY+ 896.7091
AY+ 996.9869
Products Liability — Occurrence
Discount
Tax YearFactors
(%)
AY+ 075.1746
AY+ 177.8160
AY+ 276.1658
AY+ 377.4849
AY+ 479.2679
AY+ 578.6033
AY+ 679.9964
AY+ 771.9945
AY+ 877.5374
AY+ 980.0152
AY+1082.6784
AY+1185.5776
AY+1288.7971
AY+1392.4919
AY+1496.9869
Reinsurance A (Nonproportional
Property)
Discount
Tax YearFactors
(%)
AY+ 086.3003
AY+ 189.5400
AY+ 292.3143
AY+ 391.6614
AY+ 478.5610
AY+ 594.6950
AY+ 693.2835
AY+ 795.9451
AY+ 896.9869
Reinsurance B (Nonproportional
Liability)
Discount
Tax YearFactors
(%)
AY+ 074.2486
AY+ 176.5505
AY+ 277.2843
AY+ 376.6711
AY+ 479.2080
AY+ 574.1857
AY+ 675.9657
AY+ 783.5910
AY+ 886.0435
AY+ 988.5976
AY+1091.2603
AY+1194.0436
AY+1296.9869
Reinsurance C (Financial Lines)
Discount
Tax YearFactors
(%)
AY+ 080.7281
AY+ 183.1505
AY+ 286.4803
AY+ 392.4729
AY+ 491.0172
AY+ 592.9369
AY+ 689.3800
AY+ 796.8709
AY+ 896.9869
Special Property (Fire, Allied Lines,
Inland Marine, Earthquake, Glass,
Burglary and Theft)
Discount
Tax YearFactors
(%)
AY+ 092.0841
AY+ 194.1086
AY+ 296.9869
Workers’ Compensation
Discount
Tax YearFactors
(%)
AY+ 078.0767
AY+ 180.5418
AY+ 282.4774
AY+ 384.0695
AY+ 484.1826
AY+ 584.3480
AY+ 685.5457
AY+ 786.3059
AY+ 888.7588
AY+ 991.4094
AY+1094.1598
AY+1196.9869
DRAFTING INFORMATION
The principal author of this revenue
procedure is Katherine A. Hossofsky of
the Office of the Assistant Chief Counsel
(Financial Institutions and Products). For
further information regarding this revenue
procedure, contact Ms. Hossofsky on
(202) 622-3477 (not a toll-free number).
26 CFR 601.204: Changes in accounting periods
and in methods of accounting.
(Also Part I, sections 446, 475; 1.446–1.)
Rev. Proc. 99–17
February 16, 1999521999–7 I.R.B.
IRB 1999-7 2/11/99 4:17 PM Page 52

SECTION 1. PURPOSE
This revenue procedure provides the ex-
clusive procedure for dealers in commodi-
ties and traders in securities or commodi-
ties to make an election to use the
mark-to-market method of accounting
under § 475(e) or (f) of the Internal Rev-
enue Code.
SECTION 2. BACKGROUND
.01 Section 475(e) allows a dealer in
commodities to elect mark-to-market ac-
counting for commodities. Mark-to-mar-
ket accounting under the election, how-
ever, does not apply to commodities that
meet certain criteria and are identified
under § 475(b)(2) and (e). Such an identi-
fication is ineffective unless it is made be-
fore the close of the day on which the com-
modity was acquired, originated, or
entered into. Section 475(f) grants similar
treatment to traders in securities and com-
modities.
.02 The legislative history to § 475(e)
and (f) states that the mark-to-market elec-
tion will be made in the time and manner
prescribed by the Secretary and will be ef-
fective for the taxable year for which it is
made and all subsequent taxable years, un-
less revoked with the consent of the Secre-
tary. H.R. Rep. No. 148, 105th Cong., 1st
Sess. 446 (1997).
.03 Use of mark-to-market accounting
under § 475(e) or (f) is a method of ac-
counting. Generally, a taxpayer must ob-
tain the consent of the Commissioner to
change a method of accounting for federal
income tax purposes. To obtain this con-
sent, a Form 3115, Application for
Change in Accounting Method, generally
must be filed during the taxable year in
which the taxpayer desires to make the
change in method of accounting. The
Commissioner, however, is authorized to
prescribe administrative procedures set-
ting forth the limitations, terms, and con-
ditions the Commissioner deems neces-
sary to obtain consent. See § 446(e) and
the regulations thereunder.
.04 In computing taxable income,
§ 481(a) requires a taxpayer to take into ac-
count those adjustments necessary to pre-
vent amounts from being duplicated or
omitted when the taxpayer’s taxable in-
come is computed under a method of ac-
counting different from the method used to
compute taxable income for the preceding
taxable year.
.05 For a taxpayer who elects under
§ 475(e) or (f) to change its method of ac-
counting for the taxable year that includes
August 5, 1997, § 1001(d)(4) of the Tax-
payer Relief Act of 1997 (the Act), Pub. L.
No. 105–34, 111 Stat. 788 (August 5,
1997), provides: (1) that any identification
required with respect to securities and
commodities held on August 5, 1997, is
treated as timely made if made on or be-
fore September 4, 1997; and (2) that the
net amount of the adjustments required to
be taken into account by the taxpayer
under § 481 is taken into account ratably
over the 4-taxable-year period beginning
with the taxable year that includes August
5, 1997. The Conference Report to the Act
states that any elections made for a year
after the taxable year that includes August
5, 1997, will be governed by rules and pro-
cedures established by the Secretary. H.R.
Conf. Rep. No. 220, 105th Cong., 1st Sess.
516 (1997).
SECTION 3. SCOPE
This revenue procedure applies to com-
modities dealers, securities traders, and
commodities traders that want to make an
election to use the mark-to-market method
of accounting under § 475(e) or (f).
SECTION 4. EFFECT OF ELECTION
An election under § 475(e) or (f) deter-
mines the method of accounting that an
electing taxpayer is required to use for fed-
eral income tax purposes for securities or
commodities subject to the election. Thus,
beginning with the first taxable year for
which the election is effective (the election
year) and continuing for all subsequent
taxable years (unless the election is re-
voked with the consent of the Commis-
sioner), a method of accounting for securi-
ties or commodities subject to the election
is impermissible for an electing taxpayer
unless the method is in accordance with §
475 and the regulations thereunder. If a
taxpayer described in section 3 of this rev-
enue procedure makes an election under
section 5 of this revenue procedure, and
the taxpayer’s method of accounting for its
taxable year immediately preceding the
election year is inconsistent with § 475, the
taxpayer is required to change its method
of accounting to comply with its election.
Section 6 of this revenue procedure con-
tains procedures for effecting this change.
A taxpayer that makes a § 475(e) or (f)
election but fails to change its method of
accounting to comply with that election is
using an impermissible method.
SECTION 5. PROCEDURES FOR
MAKING THE MARK-TO-MARKET
ELECTIONS
.01 Elections effective for taxable years
for which the original federal income tax
return was filed before March 18, 1999.
For a taxpayer to make a § 475(e) or (f)
election that is effective for a taxable year
for which the original federal income tax
return was filed before March 18, 1999,
the taxpayer must either:
(1) have properly reflected the applica-
tion of § 475 (including any required
§ 481(a) adjustment) in the calculation of
the taxpayer’s tax liability on its original
federal income tax return for the election
year; or
(2) have failed to properly reflect the ap-
plication of § 475 (including any required
§ 481(a) adjustment) in the calculation of
the taxpayer’s tax liability on its original
federal income tax return for the election
year, but clearly demonstrated on that re-
turn its intent to make the election for that
year (for example, by a statement on, or at-
tachment to, the return), and file an
amended return for the election year on or
before June 16, 1999, that properly reflects
the application of § 475 (including any re-
quired § 481(a) adjustment).
.02 Elections effective for other taxable
years beginning before January 1, 1999.
For a taxpayer to make a § 475(e) or (f)
election that is effective for a taxable year
which begins before January 1, 1999, and
for which the original federal income tax
return is filed on or after March 18, 1999,
the taxpayer must make the election by at-
taching a statement that satisfies the re-
quirements in section 5.04 of this revenue
procedure to an original federal income tax
return for the election year that is timely
filed (including extensions).
.03 Elections effective for a taxable year
beginning on or after January 1, 1999.
(1) General procedure.Except as pro-
vided in section 5.03(2) of this revenue
procedure, for a taxpayer to make a §
475(e) or (f) election that is effective for a
taxable year beginning on or after January
1, 1999, the taxpayer must file a statement
that satisfies the requirements in section
5.04 of this revenue procedure. The state-
ment must be filed not later than the due
1999–7 I.R.B.53February 16, 1999
IRB 1999-7 2/11/99 4:17 PM Page 53

date (without regard to extensions) of the
original federal income tax return for the
taxable year immediately preceding the
election year and must be attached either to
that return or, if applicable, to a request for
an extension of time to file that return.
(2) New taxpayers.A new taxpayer is a
taxpayer for which no federal income tax
return was required to be filed for the tax-
able year immediately preceding the elec-
tion year. A new taxpayer makes the elec-
tion by placing in its books and records no
later than 2 months and 15 days after the
first day of the election year a statement
that satisfies the requirements in section
5.04 of this revenue procedure. To notify
the Service that the election was made, the
new taxpayer must attach a copy of the
statement to its original federal income tax
return for the election year.
.04 Required statement.The statement
must describe the election being made, the
first taxable year for which the election is
effective, and, in the case of an election
under § 475(f), the trade or business for
which the election is made.
SECTION 6. CHANGE IN METHOD OF
ACCOUNTING
.01 Consent.A change in a taxpayer’s
method of accounting to mark-to-market
accounting is a change in method of ac-
counting to which the provisions of §§ 446
and 481 and the regulations thereunder
apply. The Commissioner hereby grants
consent for a taxpayer to change its
method of accounting for securities or
commodities, as appropriate, if the follow-
ing conditions are satisfied:
(1) the taxpayer is described in section 3
of this revenue procedure;
(2) the taxpayer complies with the elec-
tion requirements set forth in section 5 of
this revenue procedure;
(3) the method of accounting to which
the taxpayer is changing is in accordance
with its election under § 475;
(4) the year of change is the election
year; and
(5) the taxpayer complies with the ap-
plicable requirements of this section 6.
.02 Filing requirements.
(1) Taxpayers electing under section
5.01. A taxpayer described in sections 3
and 5.01(1) of this revenue procedure that
changed its method of accounting to prop-
erly reflect the application of § 475 on its
original federal income tax return for the
election year has satisfied the filing re-
quirements of this section 6.02. A taxpayer
described in section 3 that is required to
change its method of accounting to comply
with its election under section 5.01(2) must
comply with the requirements of section
6.02(2) of this revenue procedure (substi-
tuting the amended return required by sec-
tion 5.01(2) for the original return referred
to in section 6.02(2)).
(2) Taxpayers electing under section
5.02 or 5.03(1).A taxpayer described in
section 3 of this revenue procedure that
makes an election under section 5.02 or
5.03(1) of this revenue procedure and is re-
quired to change its method of accounting
must complete and file a Form 3115 for the
year of change pursuant to the filing re-
quirements in section 6.02 of Rev. Proc.
98–60, 1998–51 I.R.B. 16. Thus, the origi-
nal Form 3115 must be attached to the tax-
payer’s timely filed (including extensions)
original federal income tax return for the
year of change, and a copy of the Form
3115 must be filed with the national office
no later than when the original Form 3115
is filed with the federal income tax return
for the year of change. The label described
in section 6.02(3) of Rev. Proc. 98–60,
however, should refer to this revenue pro-
cedure rather than to the APPENDIX of
Rev. Proc. 98–60. Further, in the addi-
tional statement described in section
6.02(5) of Rev. Proc. 98–60, the taxpayer
must agree to all the terms and conditions
in this revenue procedure rather than those
in Rev. Proc. 98–60.
.03Section 481(a) adjustment. If a tax-
payer changes its method of accounting
under section 6.01 of this revenue proce-
dure, the taxpayer must take into account
the net amount of the § 481(a) adjustment
in the manner provided in section 5.04 of
Rev. Proc. 98–60. Thus, the
§ 481(a) adjustment generally is taken into
account ratably over four taxable years be-
ginning with the year of change. For pur-
poses of § 481, a change in method of ac-
counting made under this revenue
procedure is a change in method of ac-
counting initiated by the taxpayer.
SECTION 7. EFFECTIVE DATE
This revenue procedure is effective Feb-
ruary 8, 1999, the date this revenue proce-
dure was made available to the public.
SECTION 8. PAPERWORK
REDUCTION ACT
The collections of information con-
tained in this revenue procedure have
been reviewed and approved by the Of-
fice of Management and Budget in accor-
dance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545-1641.
The collections of information in this
revenue procedure are in sections 5 and 6
of this revenue procedure. This informa-
tion is required by the IRS to facilitate
monitoring taxpayers that make the elec-
tions under § 475(e) or (f). This informa-
tion will be used if a taxpayer making the
election is audited. The likely recordkeep-
ers and respondents are businesses or
other for-profit institutions.
The reporting burden for the collection
of information in section 6.02 of this rev-
enue procedure is reflected in the burden
of Form 3115. The burden of the require-
ment to file amended returns in section
5.01 of this revenue procedure is reflected
in the burden of Forms 1120X and 1040X.
The estimated total annual reporting and/or
recordkeeping burden for the collection of
information described in section 5.01–5.04
of this revenue procedure is 500 hours.
The estimated annual burden per re-
spondent/recordkeeper varies from 15
minutes to 1 hour, depending on individ-
ual circumstances, with an estimated aver-
age of 30 minutes. The estimated number
of respondents and/or recordkeepers is
1,000.
The estimated annual frequency of re-
sponses is once in the existence of each re-
spondent.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it dis-
plays a valid control number assigned by
the Office of Management and Budget.
Books or records relating to a collection
of information must be retained as long as
their contents may become material in the
administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
DRAFTING INFORMATION
The principal author of this revenue pro-
cedure is Jo Lynn Ricks of the Office of the
Assistant Chief Counsel (Financial Institu-
tions and Products). For further informa-
tion regarding this revenue procedure,
contact Ms. Ricks on (202) 622–3920
(not a toll-free call).
February 16, 1999541999–7 I.R.B.
IRB 1999-7 2/11/99 4:17 PM Page 54

1999–7 I.R.B.55February 16, 1999
Notice of Proposed Rulemaking
Payment by Check or Money
Order; Payment by Credit Card
and Debit Card
REG–111435–98
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing and notice of proposed rulemaking by
cross-reference to temporary regulations.
SUMMARY: In T.D. 8793, page 15 in
this Bulletin, the IRS is issuing temporary
regulations relating to payment of internal
revenue taxes by credit card or debit card.
The text of the temporary regulations also
serves as the text of these proposed regu-
lations. This document also contains pro-
posed regulations that provide that pay-
ments of tax by check or money order
should be made payable to the United
States Treasury, in order to implement
changes to the law made by the Internal
Revenue Service Restructuring and Re-
form Act of 1998. These proposed regula-
tions will affect all persons who pay taxes
by check or money order.
DATES: Written or electronically gener-
ated comments and requests for a hearing
must be received by March 15, 1999.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (REG–111435–98),
room 5226, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington, DC 20044. Submissions may be
hand delivered Monday through Friday
between the hours of 8 a.m. and 5 p.m. to:
CC:DOM:CORP:R (REG–111435–98),
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, NW,
Washington, DC. Alternatively, taxpayers
may submit comments electronically via
the Internet by selecting the “Tax Regs”
option on the IRS Home Page, or by sub-
mitting comments directly to the IRS In-
ternet site at http://www.irs.ustreas.gov/
prod/tax_regs/comments.html.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations,
Mitchel S. Hyman, (202) 622-3620; con-
cerning submissions, Michael Slaughter,
(202) 622-7190 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains a proposed
amendment to the Procedure and Admin-
istration Regulations (26 CFR Part 301)
amending §301.6311–1 to reflect the en-
actment of section 3703 of the Internal
Revenue Service Restructuring and Re-
form Act of 1998 (Public Law 105-206,
112 Stat. 685)(1998 Act). Section
301.6311–1 currently states that checks or
money orders should be made payable to
the Internal Revenue Service. Section
3703 of the 1998 Act states that the Secre-
tary of the Treasury shall establish such
rules, regulations, and procedures as are
necessary to allow payment of taxes by
check or money order to be made payable
to the United States Treasury. The
amendment accordingly provides that
checks and money orders should be made
payable to the United States Treasury.
However, checks and money orders made
payable to the Internal Revenue Service
pursuant to the current regulation and
prior instructions will continue to be ac-
cepted.
Additionally, the temporary regulations
in T.D. 8793 amend the Procedure and
Administration Regulations (26 CFR part
301) to add new §§301.6103(k)(9)-1T and
301.6311–2T, providing for payment of
internal revenue taxes by credit card or
debit card. The temporary regulations re-
flect the amendment of sections 6103 and
6311 by section 1205 of the Taxpayer Re-
lief Act of 1997 (Public Law 105-34, 111
Stat. 788, 995) and section 4003(k) of the
Tax and Trade Relief Extension Act of
1998 (Public Law 105-277, 112 Stat.
2681). The text of the temporary regula-
tions serves as the text of these proposed
regulations. The preamble to the tempo-
rary regulations explains the regulations.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in EO
12866. Therefore, a regulatory assess-
ment is not required. It also has been de-
termined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regula-
tions, and because the regulation does not
impose a collection of information on
small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply.
Pursuant to section 7805(f) of the Internal
Revenue Code, this notice of proposed
rulemaking will be submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on its
impact on small business.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any written com-
ments (a signed original and eight (8)
copies) or electronically generated com-
ments that are submitted timely to the
IRS. All comments will be available for
public inspection and copying.
A public hearing may be scheduled if
requested by a person that timely submits
comments. If a public hearing is sched-
uled, notice of the date, time, and place
for the hearing will be published in the
Federal Register.
Drafting Information
The principal author of these regula-
tions is Mitchel S. Hyman, Office of As-
sistant Chief Counsel (General Litigation)
CC:EL:GL, IRS. However, other person-
nel from the IRS and Treasury Depart-
ment participated in their development.
*****
Proposed Amendments to the Regulations
Accordingly, 26 CFR Part 301 is pro-
posed to be amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read in part as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.6103(k)(9)–1 is
added to read as follows:
Part IV. Items of General Interest
IRB 1999-7 2/11/99 4:17 PM Page 55

February 16, 1999561999–7 I.R.B.
§301.6103(k)(9)–1 Disclosure of returns
and return information relating to
payment of tax by credit card and debit
card.
[The text of this proposed section is the
same as the text of §301.6103(k)(9)–1T
published in T.D. 8793.]
§301.6311–1 [Amended]
Par. 3. Section 301.6311–1(a)(1)(i) is
amended by removing the language “In-
ternal Revenue Service” from the third
sentence and adding the language “United
States Treasury” in its place.
Par. 4. Section 301.6311–2 is added to
read as follows:
§301.6311–2 Payment by credit card and
debit card.
[The text of this proposed section is the
same as the text of §301.6311–2T pub-
lished in T.D. 8793.]
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on De-
cember 14, 1998, 8:45 a.m., and published in the
issue of the Federal Register for December 15, 1998,
63 F.R. 69031)
Notice of Proposed Rulemaking
and Notice of Public Hearing
Increase In Cash-Out Limit
Under Sections 411(a)(7),
411(a)(11), and 417(e)(1)
REG–113694–98
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
by cross-reference to temporary regula-
tions and notice of proposed rulemaking.
SUMMARY: In T.D. 8794, page 4 in this
Bulletin, the IRS is issuing temporary
regulations providing guidance relating to
the increase from $3,500 to $5,000 of the
limit on distributions from qualified re-
tirement plans that can be made without
participant consent. This increase is con-
tained in the Taxpayer Relief Act of 1997.
The text of those temporary regulations
also serves as a portion of the text of these
proposed regulations. In addition, these
proposed regulations propose the elimina-
tion, for all distributions, of the “lookback
rule” pursuant to which the qualified plan
benefits of certain participants are
deemed to exceed this limit on mandatory
distributions. These proposed regulations
affect sponsors and administrators of
qualified retirement plans, and partici-
pants in those plans. The text of those
temporary regulations also serves as a
portion of the text of these proposed regu-
lations.
DATES: Written comments and requests
for a public hearing must be received by
March 22, 1999.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (REG–113694–98),
room 5226, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington, DC 20044. Submissions may be
hand delivered Monday through Friday
between the hours of 8 a.m. and 5 p.m. to:
CC:DOM:CORP:R (REG–113694–98),
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, NW,
Washington, DC. Alternatively, taxpayers
may submit comments electronically via
the internet by selecting the “Tax Regs”
option on the IRS Home Page, or by sub-
mitting comments directly to the IRS in-
ternet site at http://www.irs/ustreas.gov/
prod/tax_regs/comments.html.
FOR FURTHER INFORMATION CON-
TACT: Concerning the regulations,
Michael J. Karlan, (202) 622-6030 (not a
toll-free call); concerning submissions,
Michael Slaughter, (202) 622-7190 (not a
toll-free call).
SUPPLEMENTARY INFORMATION:
Background
Temporary regulations in T.D. 8794,
amend the Income Tax Regulations (26
CFR part 1) relating to the increase from
$3,500 to $5,000 of the “cash-out limit”
described in sections 411(a)(7), 411(a)-
(11), and 417(e)(1) of the Internal Rev-
enue Code, as amended by section 1071
of the Taxpayer Relief Act of 1997, Public
Law 105-34, 111 Stat. 788 (1997).
The text of the temporary regulations
also serves as a portion of the text of the
proposed regulations. The preamble to
the temporary regulations explains the
temporary regulations.
As also discussed in the preamble to
the temporary regulations, §1.411(a)–
11(c)(3), interpreting the law prior to the
enactment of TRA ’97, provides that the
written consent of a participant is required
before the commencement of the distribu-
tion of any portion of the participant’s ac-
crued benefit if the present value of the
nonforfeitable total accrued benefit is
greater than $3,500. If the present value
does not exceed $3,500, the consent re-
quirements are deemed satisfied, and the
plan may distribute that portion to the par-
ticipant as a single sum. The regulation
further provides that, if the present value
determined at the time of a distribution to
the participant exceeds $3,500, then the
present value at any subsequent time shall
be deemed to exceed $3,500; this is com-
monly referred to as the “lookback rule.”
Section 1.417(e)–1(b)(2)(i) includes a
parallel lookback rule.
The temporary regulations remove the
lookback rule under section 411(a)(11)
for most distributions, but preserve the
rule for distributions pursuant to an op-
tional form of benefit under which at least
one scheduled periodic distribution is still
payable.
These proposed regulations remove the
lookback rule under §§1.411(a)–11(c)(3)
and 1.417(e)–1(b)(2)(i). In accordance
with section 417(e)(1), these proposed
regulations also provide that, in the case
of plans subject to sections 401(a)(11)
and 417, consent is required after the an-
nuity starting date for the immediate dis-
tribution of the present value of the ac-
crued benefit being distributed in any
form, including a qualified joint and sur-
vivor annuity or a qualified preretirement
survivor annuity, regardless of the amount
of that present value. Where only a por-
tion of an accrued benefit is being distrib-
uted, this provision applies only to that
portion (and not to the portion with re-
spect to which no distributions are being
made).
Under this removal of the lookback
rule, the present value of a participant’s
nonforfeitable accrued benefit could be
distributed without consent if the present
value does not exceed $5,000, even if the
present value of the participant’s nonfor-
IRB 1999-7 2/11/99 4:17 PM Page 56

1999–7 I.R.B.57February 16, 1999
feitable accrued benefit exceeded $5,000
at the time of a previous distribution.
Thus, if the present value of a partici-
pant’s nonforfeitable accrued benefit pre-
viously had been $6,000, but is presently
$4,000, these proposed regulations would
permit the plan to be amended to permit
the present value of that participant’s non-
forfeitable accrued benefit to be distrib-
uted without consent (provided that the
distribution would not fail to satisfy sec-
tion 417(e)(1)). The complete removal of
the lookback rule described in these pro-
posed regulations would become effective
90 days after the publication of final regu-
lations.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in EO
12866. Therefore, a regulatory assess-
ment is not required. It also has been de-
termined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regula-
tions, and because the regulation does not
impose a collection of information on
small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply.
Pursuant to section 7805(f) of the Internal
Revenue Code, this notice of proposed
rulemaking will be submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on its
impact on small business.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any electronic and
written comments (a signed original and
eight (8) copies) that are submitted timely
to the IRS. The IRS and Treasury specifi-
cally request comments on the clarity of
the proposed regulations and how it may
be made easier to understand. All com-
ments will be available for public inspec-
tion and copying. A public hearing may
be scheduled if requested in writing by
any person that timely submits written
comments. If a public hearing is sched-
uled, notice of the date, time, and place
for the hearing will be published in the
Federal Register.
Drafting Information
The principal author of these regula-
tions is Michael J. Karlan, Office of the
Associate Chief Counsel (Employee Ben-
efits and Exempt Organizations). How-
ever, other personnel from the IRS and
Treasury Department participated in their
development.
*****
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
§1.411(a)–7 also issued under 26
U.S.C. 411(a)(7)(B)(i). * * *
Par. 2. Section 1.411(a)–7 is amended
by revising paragraphs (d)(4)(i) and
(d)(4)(vi) to read as follows:
§1.411(a)–7 Definitions and special
rules.
* * * * *
(d) Rules relating to certain distribu-
tions and cash-outs of accrued benefits.
* * *
(4) Certain cash-outs of accrued bene-
fits. (i) and (vi) [The text of proposed
paragraphs (d)(4)(i) and (vi) is the same
as the text of §1.411(a)–7T(d)(4)(i) and
(vi) published in T.D. 8794.]
* * * * *
Par. 3. Section 1.411(a)–11 is amended
by revising paragraph (c)(3) to read as
follows:
§1.411(a)–11 Restriction and valuation
of distributions.
* * * * *
(c) * * *
(3) Cash-out limit. (i) Written consent
of the participant is required before the
commencement of the distribution of any
portion of an accrued benefit if the pre-
sent value of the nonforfeitable total ac-
crued benefit is greater than the cash-out
limit in effect under paragraph (c)(3)(ii)
of this section on the date the distribution
commences. The consent requirements
are deemed satisfied if such value does
not exceed the cash-out limit, and the plan
may distribute such portion to the partici-
pant as a single sum. Present value for
this purpose must be determined in the
same manner as under section 417(e); see
§1.417(e)–1(d).
(ii) [The text of proposed paragraph
(c)(3)(ii) is the same as the text of
§1.411(a)–11T(c)(3)(ii) published in T.D.
8794.]
* * * * *
Par. 4. Section 1.417(e)–1 is amended
by revising the last sentence of paragraph
(b)(2)(i) to read as follows:
§1.417(e)–1 Restrictions and valuations
of distributions from plans subject to
sections 401(a)(11) and 417.
* * * * *
(b) * * *
(2) * * * (i) * * * After the annuity
starting date, consent is required for the
immediate distribution of the present
value of the accrued benefit being distrib-
uted in any form, including a qualified
joint and survivor annuity or a qualified
preretirement survivor annuity regardless
of the amount of such present value.
* * * * *
David A. Mader,
Acting Deputy Commissioner
of Internal Revenue.
(Filed by the Office of the Federal Register on De-
cember 18, 1998, 8:45 a.m., and published in the
issue of the Federal Register for December 21, 1998,
63 F.R. 70356)
Notice of Proposed Rulemaking
and Notice of Public Hearing
Notice and Opportunity for
Hearing Upon Filing of Notice of
Lien
REG–116824–98
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
IRB 1999-7 2/11/99 4:17 PM Page 57

February 16, 1999581999–7 I.R.B.
ing by cross-reference to temporary regu-
lations and notice of public hearing.
SUMMARY: In T.D. 8810, page 19 of
this Bulletin, the IRS is issuing temporary
regulations relating to the notification re-
quired to be provided to any taxpayer
named in a notice of lien under section
6323. The text of those temporary regula-
tions also serves as the text of these pro-
posed regulations. This document also
provides notice of a public hearing on
these proposed regulations.
DATES: Written and electronic com-
ments must be received by April 22, 1999.
Outlines of topics to be discussed at the
public hearing scheduled for June 15,
1999, at 10 a.m. must be received by June
1, 1999.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (REG–116824–98),
room 5226, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington, DC 20044. Submissions may be
hand delivered Monday through Friday
between the hours of 8 a.m. and 5 p.m. to:
CC:DOM:CORP:R (REG–116824–98),
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue NW,
Washington, DC. Alternatively, taxpayers
may submit comments electronically via
the Internet by selecting the “Tax Regs”
option on the IRS Home Page, or by sub-
mitting comments directly to the IRS In-
ternet site at http://www.irs.ustreas.gov/
prod/tax_regs/comments.html. The pub-
lic hearing will be held in room 2615, In-
ternal Revenue Building, 1111 Constitu-
tion Avenue, NW, Washington, DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the hearing, submis-
sion of written comments, and to be
placed on the building access list to attend
the hearing, Michael L. Slaughter (202)
622-7180; concerning the regulations,
Jerome D. Sekula (202) 622-3610 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
Temporary regulations in T.D. 8810
provide rules relating to the notification
required to be provided to any taxpayer
named in a notice of lien under section
6323. The text of those regulations also
serves as the text of these proposed regu-
lations. The preamble to the temporary
regulations explains the temporary regu-
lations and these proposed regulations.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in EO
12866. Therefore, a regulatory assess-
ment is not required. It also has been de-
termined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regula-
tions and, because these regulations do
not impose on small entities a collection
of information requirement, the Regula-
tory Flexibility Act (5 U.S.C. chapter 6)
does not apply. Therefore, a Regulatory
Flexibility Analysis is not required. Pur-
suant to section 7805(f) of the Internal
Revenue Code, this notice of proposed
rulemaking will be submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on its
impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any electronic and
written comments (a signed original and
eight (8) copies) that are submitted timely
to the IRS. All comments will be avail-
able for public inspection and copying.
The IRS and Treasury Department specif-
ically request comments on the clarity of
the proposed rule and how it may be made
easier to understand.
A public hearing has been scheduled
for June 15, 1999, t 10 a.m. in room 2615
of the Internal Revenue Building, 1111
Constitution Avenue NW, Washington,
DC. Due to building security procedures,
visitors must enter at the 10th Street en-
trance, located between Constitution and
Pennsylvania Avenues, NW. In addition,
all visitors must present photo identifica-
tion to enter the building. Because of ac-
cess restrictions, visitors will not be ad-
mitted beyond the immediate entrance
area more than 15 minutes before the
hearing starts. For information about
having a visitor’s name placed on the
building access list to attend the hearing,
see the “FOR FURTHER INFORMA-
TION CONTACT” caption of this pream-
ble.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing. Persons who wish to
present oral comments at the hearing must
submit electronic or written comments by
April 22, 1999, and an outline of the top-
ics to be discussed and the time to be de-
voted to each topic (a signed original and
eight (8) copies) by June 1, 1999.
An agenda showing the scheduling of
the speakers will be prepared after the
deadline for receiving requests to speak
has passed. Copies of the agenda will be
available free of charge at the hearing.
Drafting Information
The principal author of this regulation
is Jerome D. Sekula, Office of Assistant
Chief Counsel (General Litigation).
However, other personnel from the IRS
and Treasury Department participated in
their development.
*****
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 301 is pro-
posed to be amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read in part as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.6320–1 is added to
read as follows:
§301.6320–1 Notice and opportunity for
hearing upon filing of notice of Federal
tax lien.
[The text of this proposed section is the
same as the text of §301.6320–1T pub-
lished in T.D. 8810.]
Robert E. Wenzel,
Deputy Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on Janu-
ary 19, 1999, 10:56 a.m., and published in the issue
of the Federal Register for January 22, 1999, 64 F.R.
3461)
IRB 1999-7 2/11/99 4:17 PM Page 58

1999–7 I.R.B.59February 16, 1999
Notice of Proposed Rulemaking
and Notice of Public Hearing
Notice and Opportunity for
Hearing Before Levy
REG–117620–98
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing by cross-reference to temporary regu-
lations and notice of public hearing.
SUMMARY: In T.D. 8809, page 27 in
this Bulletin, the IRS is issuing temporary
regulations relating to notice to taxpayers
of a right to a hearing before levy. The
text of those temporary regulations also
serves as the text of these proposed regu-
lations. This document also provides no-
tice of a public hearing on these proposed
regulations.
DATES: Written and electronic com-
ments must be received by April 22, 1999.
Outlines of topics to be discussed at the
public hearing scheduled for June 15,
1999, at 10 a.m. must be received by June
1, 1999.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (REG–117620–98),
room 5226, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington, DC 20044. Submissions may be
hand delivered Monday through Friday
between the hours of 8 a.m. and 5 p.m. to:
CC:DOM:CORP:R (REG–117620–98),
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue NW,
Washington, DC. Alternatively, taxpayers
may submit comments electronically via
the Internet by selecting the “Tax Regs”
option on the IRS Home Page, or by sub-
mitting comments directly to the IRS In-
ternet site at http://www.irs.ustreas.gov/
prod/tax_regs/comments.html. The pub-
lic hearing will be held in room 2615, In-
ternal Revenue Building, 1111 Constitu-
tion Avenue, NW, Washington, DC.
FOR FURTHER INFORMATION CON-
TACT: Concerning the hearing, submis-
sion of written comments, and to be
placed on the building access list to attend
the hearing, Michael L. Slaughter (202)
622-7180; concerning the regulations,
Jerome D. Sekula (202) 622-3610 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
Temporary regulations in T.D. 8809
provide rules relating to notice to taxpay-
ers of a right to a hearing before levy. The
text of those regulations also serves as the
text of these proposed regulations. The
preamble to the temporary regulations ex-
plains the temporary regulations and these
proposed regulations.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in EO
12866. Therefore, a regulatory assess-
ment is not required. It also has been de-
termined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regula-
tions and, because these regulations do
not impose on small entities a collection
of information requirement, the Regula-
tory Flexibility Act (5 U.S.C. chapter 6)
does not apply. Therefore, a Regulatory
Flexibility Analysis is not required. Pur-
suant to section 7805(f) of the Internal
Revenue Code, this notice of proposed
rulemaking will be submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on its
impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any electronic and
written comments (a signed original and
eight (8) copies) that are submitted timely
to the IRS. All comments will be avail-
able for public inspection and copying.
The IRS and Treasury Department specif-
ically request comments on the clarity of
the proposed rule and how it may be made
easier to understand.
A public hearing has been scheduled
for June 15, 1999, at 10 a.m. in room
2615 Internal Revenue Building, 1111
Constitution Avenue NW, Washington,
DC. Due to building security procedures,
visitors must enter at the 10th Street en-
trance, located between Constitution and
Pennsylvania Avenues, NW. In addition,
all visitors must present photo identifica-
tion to enter the building. Because of ac-
cess restrictions, visitors will not be ad-
mitted beyond the immediate entrance
area more than 15 minutes before the
hearing starts. For information about hav-
ing a visitor’s name placed on the building
access list to attend the hearing, see the
“FOR FURTHER INFORMATION CON-
TACT” caption of this preamble.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing. Persons who wish to
present oral comments at the hearing must
submit electronic or written comments by
April 22, 1999, and an outline of the top-
ics to be discussed and the time to be de-
voted to each topic (a signed original and
eight (8) copies) by June 1, 1999.
An agenda showing the scheduling of
the speakers will be prepared after the
deadline for receiving requests to speak
has passed. Copies of the agenda will be
available free of charge at the hearing.
Drafting Information
The principal author of this regulation
is Jerome D. Sekula, Office of Assistant
Chief Counsel (General Litigation).
However, other personnel from the IRS
and Treasury Department participated in
their development.
*****
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 301 is pro-
posed to be amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read in part as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.6330–1 is added to
read as follows:
§301.6330–1 Notice and opportunity for
hearing prior to levy.
[The text of this proposed section is the
same as the text of §301.6330–1T pub-
lished in T.D. 8809.]
Robert E. Wenzel,
Deputy Commissioner of
Internal Revenue.
IRB 1999-7 2/11/99 4:17 PM Page 59

February 16, 1999601999–7 I.R.B.
(Filed by the Office of the Federal Register on Janu-
ary 19, 1999, 10:56 a.m., and published in the issue
of the Federal Register for January 22, 1999, 64 F.R.
3405)
Conduit Arrangement
Regulations; Correction
Announcement 99–14
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Correcting amendment.
SUMMARY: This document contains a
correction to final regulations (T.D. 8611,
1995–2 C.B. 286), which were published
in the Federal Registeron Friday, Au-
gust 11, 1995 (60 F.R. 40997) relating to
conduit financing arrangements.
DATES: This correcting amendment is ef-
fective September 11, 1995.
FOR FURTHER INFORMATION CON-
TACT: Phyllis Marcus, (202) 622-3870
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The final regulations that are the sub-
ject of this correction are under section
7701(l) of the Internal Revenue Code.
Need for Correction
As published, final regulations (T.D.
8611) contain an error which may prove
to be misleading and are in need of clarifi-
cation.
*****
Correcting Amendment to Regulations
Accordingly, 26 CFR part 1 is cor-
rected by making the following correcting
amendment:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
§1.881–3 [Corrected]
Par. 2. In §1.881–3, paragraph
(a)(2)(ii)(B)(3) is redesignated as para-
graph (a)(3).
Cynthia E. Grigsby,
Chief, Regulations Unit,
Assistant Chief Counsel (Corporate).
(Filed by the Office of the Federal Register on De-
cember 7, 1998, 8:45 a.m., and published in the
issue of the Federal Register for December 8, 1998,
63 F.R. 67577)
IRB 1999-7 2/11/99 4:17 PM Page 60

1999–7 I.R.B.61February 16, 1999
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”)
that have an effect on previous rulings
use the following defined terms to de-
scribe the effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously
published ruling and points out an essen-
tial difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it ap-
plies to both A and B, the prior ruling is
modified because it corrects a published
position. (Compare with amplified and
clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. A ruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is super-
seded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be pub-
lished that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current use and for-
merly 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 Contribution 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. Proc..—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedral 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.
Definition of Terms
IRB 1999-7 2/11/99 4:17 PM Page 61

February 16, 1999621999–7 I.R.B.
1
A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 1998–1 through 1998–52
will be found in Internal Revenue Bulletin 1999–1,
dated January 4, 1999.
Numerical Finding List
1
Bulletins 1999–1 through 1999–6
Announcements:
99–1, 1999–2 I.R.B. 41
99–2, 1999–2 I.R.B. 44
99–3, 1999–3 I.R.B. 15
99–4, 1999–3 I.R.B. 15
99–5, 1999–3 I.R.B. 16
99–6, 1999–4 I.R.B.24
99–7, 1999–2 I.R.B. 45
99–8, 1999–4 I.R.B.24
99–9, 1999–4 I.R.B. 24
99–10, 1999–5 I.R.B. 63
99–11, 1999–5 I.R.B. 64
99–12, 1999–5 I.R.B. 65
99–13, 1999–6 I.R.B. 18
Notices:
99–1, 1999–2 I.R.B. 8
99–2, 1999–2 I.R.B. 8
99–3, 1999–2 I.R.B. 10
99–4, 1999–3 I.R.B. 9
99–5, 1999–3 I.R.B. 10
99–6, 1999–3 I.R.B. 12
99–7, 1999–4 I.R.B.23
99–8, 1999–5 I.R.B. 26
99–9, 1999–4 I.R.B. 23
99–10, 1999–6 I.R.B. 14
Proposed Regulations:
REG–114663–97, 1999–6 I.R.B. 15
Revenue Procedures:
99–1, 1999–1 I.R.B. 6
99–2, 1999–1 I.R.B. 73
99–3, 1999–1 I.R.B. 103
99–4, 1999–1 I.R.B. 115
99–5, 1999–1 I.R.B. 158
99–6, 1999–1 I.R.B. 187
99–7, 1999–1 I.R.B. 226
99–8, 1999–1 I.R.B. 229
99–9, 1999–2 I.R.B. 17
99–10, 1999–2 I.R.B. 11
99–11, 1999–2 I.R.B. 14
99–12, 1999–3 I.R.B. 13
99–13, 1999–5 I.R.B. 52
99–14, 1999–5 I.R.B. 56
Revenue Rulings:
99–1, 1999–2 I.R.B. 4
99–2, 1999–2 I.R.B. 5
99–3, 1999–3 I.R.B. 4
99–4, 1999–4 I.R.B.19
99–5, 1999–6 I.R.B.8
99–6, 1999–6 I.R.B. 6
99–7, 1999–5 I.R.B. 4
99–8, 1999–6 I.R.B.8
Treasury Decisions:
8789, 1999–3 I.R.B. 5
8791, 1999–5 I.R.B. 7
8796, 1999–4 I.R.B. 16
8797, 1999–5 I.R.B. 5
8799, 1999–6 I.R.B. 10
8800, 1999–4 I.R.B. 20
8801, 1999–4 I.R.B. 5
8802, 1999–4 I.R.B. 10
Treasury Decisions—Continued
8805, 1999–5 I.R.B. 14
8806, 1999–6 I.R.B.4
IRB 1999-7 2/11/99 4:17 PM Page 62

1999–7 I.R.B.63February 16, 1999
Finding List of Current Action on
Previously Published Items
1
Bulletins 1999–1 through 1999–6
Revenue Procedures:
78–10
Obsoleted by
99–12, 1999–3 I.R.B. 13
94–56
Superseded by
99–9, 1999–2 I.R.B. 17
97–23
Superseded by
99–3, 1999–1 I.R.B. 103
98–1
Superseded by
99–1, 1999–1 I.R.B. 6
98–2
Superseded by
99–2, 1999–1 I.R.B. 73
98–3
Superseded by
99–3, 1999–1 I.R.B. 103
98–4
Superseded by
99–4, 1999–1 I.R.B. 115
98–5
Superseded by
99–5, 1999–1 I.R.B. 158
98–6
Superseded by
99–6, 1999–1 I.R.B. 187
98–7
Superseded by
99–7, 1999–1 I.R.B. 226
98–8
Superseded by
99–8, 1999–1 I.R.B. 229
98–22
Modified and amplified by
99–13, 1999–5 I.R.B. 52
98–56
Superseded by
99–3, 1999–1 I.R.B. 103
98–63
Modified by announcement
99–7, 1999–2 I.R.B. 45
1
A cumulative finding list for previously published
items mentioned in Internal Revenue Bulletins
1998–1 through 1998–52 will be found in Internal
Revenue Bulletin 1999–1, dated January 4, 1999.
IRB 1999-7 2/11/99 4:17 PM Page 63

February 16, 1999641999–7 I.R.B.
NOTES
IRB 1999-7 2/11/99 4:17 PM Page 64

Notes
1999–7 I.R.B.65February 16, 1999
IRB 1999-7 2/11/99 4:17 PM Page 65

Notes
February 16, 1999661999–7 I.R.B.
IRB 1999-7 2/11/99 4:17 PM Page 66

IRB 1999-7 2/11/99 4:18 PM Page 67

INTERNAL REVENUE BULLETIN
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IRB 1999-7 2/11/99 4:18 PM Page 68