Internal Revenue Bulletin 2002-41 (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.

# Internal Revenue bulletin

## HIGHLIGHTS OF THIS ISSUE

These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.

## INCOME TAX

Rev. Rul. 2002-64, page 688.
LIFO; price indexes; department stores. The August 2002
Bureau of Labor Statistics price indexes are accepted for use by
department stores employing the retail inventory and last-in, first-
out inventory methods for valuing inventories for tax years ended
on, or with reference to, August 31, 2002.

Notice 2002-64, page 690.
New markets tax credit; other federal tax benefits. This no-
tice provides guidance to taxpayers on federal tax benefits that
do not limit the availability of the new markets tax credit under
section 45D of the Code.

Notice 2002-65, page 690.

This notice advises taxpayers and their representatives that the
transaction it describes, which uses a straddle, an S corpora-
tion or a partnership, and one or more transitory shareholders
or partners to claim a loss while deferring an offsetting gain, is
subject to challenge by the Service on several grounds. This no-
tice holds that the described transaction is a "listed transac-
tion" and warns of penalties that may be imposed if taxpayers
claim losses from such a transaction.

## EXEMPT ORGANIZATIONS

Announcement 2002-92, page 709.

This document requests comments regarding proposed revi-
sions of Form 1023, Application for Recognition of Exemp-
tion Under Section 501(c)(3) of the Internal Revenue Code,
and Instructions for Form 1023.

## ADMINISTRATIVE

Rev. Proc. 2002-63, page 691.

Per diem allowances. This procedure provides rules for deem-
ing substantiated the amount of certain reimbursed traveling ex-
penses of an employee as well as optional rules for determining
the amount of deductible meals and incidental expenses while
traveling away from home. Rev. Proc. 2001-47 superseded.

Rev. Proc. 2002-65, page 700.
Business expenses; capital expenditures; railroad track
maintenance costs. This procedure provides a safe harbor
method of accounting (track maintenance allowance method) for
track structure expenditures paid or incurred by certain rail-
roads. It also provides procedures for a qualifying taxpayer to
obtain automatic consent from the Commissioner to change to
the track maintenance allowance method. In addition, this pro-
cedure provides an option for certain qualifying taxpayers to settle
the issue of track structure expenditures for open taxable years
using the track maintenance allowance method. Rev. Procs.
2001-46 and 2002-9 modified and amplified.

Announcement 2002-93, page 709.

This document contains a correction to the date and location of
a public hearing on proposed regulations (REG-165868-01,
2002-31 I.R.B. 270) under section 419A of the Code, which pro-
vide guidance regarding whether a welfare benefit plan is part
of a 10-or-more employer plan.

Finding Lists begin on page ii.

Department of the Treasury
Internal Revenue Service

# The IRS Mission

Provide America's taxpayers top quality service by helping them
understand and meet their tax responsibilities and by applying
the tax law with integrity and fairness to all.

## Introduction

The Internal Revenue Bulletin is the authoritative instrument of the
Commissioner of Internal Revenue for announcing official rul-
ings and procedures of the Internal Revenue Service and for pub-
lishing Treasury Decisions, Executive Orders, Tax Conventions,
legislation, court decisions, and other items of general inter-
est. It is published weekly and may be obtained from the Super-
intendent of Documents on a subscription basis. Bulletin contents
are consolidated semiannually into Cumulative Bulletins, which
are sold on a single-copy basis.

It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, modify,
or amend any of those previously published in the Bulletin. All pub-
lished rulings apply retroactively unless otherwise indicated. Pro-
cedures relating solely to matters of internal management are
not published; however, statements of internal practices and pro-
cedures that affect the rights and duties of taxpayers are pub-
lished.

Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpay-
ers or technical advice to Service field offices, identifying de-
tails and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.

Rulings and procedures reported to the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be re-
lied on, used, or cited as precedents by Service personnel in the
disposition of other cases. In applying published rulings and pro-

cedures, the effect of subsequent legislation, regulations, court
decisions, rulings, and procedures must be considered, and Ser-
vice personnel and others concerned are cautioned against reach-
ing the same conclusions in other cases unless the facts and
circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I .- 1986 Code. This part includes rulings and decisions
based on provisions of the Internal Revenue Code of 1986.

Part II .- Treaties and Tax Legislation. This part is divided into
two subparts as follows: Subpart A, Tax Conventions and Other
Related Items, and Subpart B, Legislation and Related Commit-
tee Reports.

Part III .- Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these sub-
jects are contained in the other Parts and Subparts. Also in-
cluded in this part are Bank Secrecy Act Administrative Rulings.
Bank Secrecy Act Administrative Rulings are issued by the De-
partment of the Treasury's Office of the Assistant Secretary (En-
forcement).

Part IV .- Terms of General Interest. This part includes no-
tices of proposed rulemakings, disbarment and suspension lists,
and announcements.

The first Bulletin for each month includes a cumulative index for
the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the first Bulletin of the succeeding semiannual pe-
riod, respectively.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

# Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

## Section 62 .- Adjusted Gross Income Defined

26 CFR 1.62-2: Reimbursements and other ex-
pense allowance arrangements.

Rules are provided under which a reimburse-
ment or other expense allowance arrangement for the
cost of lodging, meal, and incidental expenses, or of
meal and incidental expenses, incurred by an em-
ployee while traveling away from home will satisfy
the requirements of § 62(c) of the Code as to sub-
stantiation of the amount of the expenses. See Rev.
Proc. 2002-63, page 691.

## Section 162 .- Trade or Business Expenses

26 CFR 1.162-17: Reporting and substantiation of
certain business expenses of employees.

Rules are provided for substantiating the amount
of a deduction of an expense for meal and inciden-
tal expenses, or for incidental expenses only, in-
curred while traveling away from home. See Rev. Proc.
2002-63, page 691.

## Section 267 .- Losses, Expenses, and Interest With Respect to Transactions Be- tween Related Taxpayers

26 CFR 1.267(a)-1: Deductions disallowed.

When a payor provides a per diem allowance to
an employee who is a related party, the rules pro-
vided for the deemed substantiation to the payor of
the amount of the employee's ordinary and neces-
sary business expenses for lodging, meal, and inci-

dental expenses incurred while traveling away from
home do not apply. See Rev. Proc. 2002-63, page 691.

## Section 274 .- Disallowance of Certain Entertainment, etc., Expenses

26 CFR 1.274-5: Substantiation requirements.

Rules are provided for an optional method for sub-
stantiating the amount of ordinary and necessary busi-
ness expenses of an employee for lodging, meal, and
incidental expenses, or for meal and incidental ex-
penses, incurred while traveling away from home when
a payor provides a per diem allowance under a re-
imbursement or other expense allowance arrange-
ment. Rules are alo provided for an optional method
for employees and self-employed individuals to use
in computing the deductible costs of business meal and
incidental expenses, or incidental expenses only, paid
or incurred while traveling away from home. See Rev.
Proc. 2002-63, page 691.

## Section 446 .- General Rule for Methods of Accounting

26 CFR 1.446-1: General rule for methods of
accounting.

A safe harbor method of accounting is provided
for track structure expenditures paid or incurred by
Class II or III railroads, as well as procedures for au-
tomatic consent to change to this method. See Rev.
Proc. 2002-65, page 700.

## Section 472 .- Last-in, First-out Inventories

26 CFR 1.472-1: Last-in, first-out inventories.

LIFO; price indexes; department

stores. The August 2002 Bureau of La-
bor Statistics price indexes are accepted for
use by department stores employing the re-
tail inventory and last-in, first-out inven-
tory methods for valuing inventories for tax
years ended on, or with reference to,
August 31, 2002.

## Rev. Rul. 2002-64

The following Department Store Inven-
tory Price Indexes for August 2002 were is-
sued by the Bureau of Labor Statistics. The
indexes are accepted by the Internal Rev-
enue Service, under § 1.472-1(k) of the In-
come Tax Regulations and Rev. Proc. 86-
46, 1986-2 C.B. 739, for appropriate
application to inventories of department
stores employing the retail inventory and
last-in, first-out inventory methods for tax
years ended on, or with reference to
August 31, 2002.

The Department Store Inventory Price
Indexes are prepared on a national basis and
include (a) 23 major groups of depart-
ments, (b) three special combinations of the
major groups - soft goods, durable goods,
and miscellaneous goods, and (c) a store to-
tal, which covers all departments, includ-
ing some not listed separately, except for
the following: candy, food, liquor, tobacco,
and contract departments.

BUREAU OF LABOR STATISTICS, DEPARTMENT STORE INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS (January 1941 = 100, unless otherwise noted)

Groups

August 2001

August 2002

Percent Change from August 2001 to August 20021

1. Piece Goods

485.7

481.8

-0.8

2. Domestics and Draperies

591.8

577.9

-2.3

3. Women's and Children's Shoes

655.4

634.4

-3.2

4. Men's Shoes

856.4

892.1

4.2

Infant's Wear

609.5

600.1

-1.5

Women's Underwear

567.5

532.7

-6.1

7. Women's Hosiery

354.8

342.7

-3.4

8. Women's and Girl's Accessories

547.2

523.9

-4.3

9. Women's Outerwear and Girls' Wear

361.6

361.5

0.0

# BUREAU OF LABOR STATISTICS, DEPARTMENT STORE INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS (January 1941 = 100, unless otherwise noted)

Groups

August 2001

August 2002

Percent Change from August 2001 to August 20021

10. Men's Clothing

579.2

563.8

-2.7

11. Men's Furnishings

583.9

589.4

0.9

12. Boys' Clothing and Furnishings

469.2

439.2

-6.4

13. Jewelry

936.3

887.0

-5.3

14. Notions

793.0

793.2

0.0

15. Toilet Articles and Drugs

969.9

969.2

-0.1

16. Furniture and Bedding

633.9

623.9

-1.6

17. Floor Coverings

623.8

621.3

-0.4

18. Housewares

767.6

749.4

-2.4

19. Major Appliances

226.9

221.8

-2.2

20. Radio and Television

53.4

47.9

-10.3

21. Recreation and Education2

89.3

85.7

-4.0

22. Home Improvements2

125.8

125.4

-0.3

23. Auto Accessories2

109.4

111.8

2.2

Groups 1 - 15: Soft Goods

575.5

565.9

-1.7

Groups 16 - 20: Durable Goods

421.8

408.4

-3.2

Groups 21 - 23: Misc. Goods2

98.2

96.2

-2.0

Store Total3

518.8

508.3

-2.0

1Absence of a minus sign before the percentage change in this column signifies a price increase.

2Indexes on a January 1986=100 base.

3The store total index covers all departments, including some not listed separately, except for the following: candy, food, liquor,
tobacco, and contract departments.

## DRAFTING INFORMATION

The principal author of this revenue rul-
ing is Michael Burkom of the Office of As-
sociate Chief Counsel (Income Tax and
Accounting). For further information re-
garding this revenue ruling, contact
Mr. Burkom at (202) 622-7718 (not a toll-
free call).

## Section 481 .- Adjustments Required by Changes in Method of Accounting

26 CFR 1.481-1: Adjustments in general.

# Part III. Administrative, Procedural, and Miscellaneous

## Section 45D New Markets Tax Credit

## Notice 2002-64

### PURPOSE

This notice provides guidance to tax-
payers on federal tax benefits that do not
limit the availability of the new markets tax
credit under § 45D of the Internal Rev-
enue Code.

### BACKGROUND

Section 45D(a)(1) allows a new mar-
kets tax credit on a credit allowance date
(as defined in § 45D(a)(3)) to a taxpayer
who holds a qualified equity investment in
a qualified community development en-
tity (CDE), as defined in § 45D(c).

Section 45D(b)(1) provides that an eq-
uity investment in a CDE is a "qualified eq-
uity investment" only if, among other
things, the CDE uses substantially all of the
proceeds of the investment to make quali-
fied low-income community investments.

Section 45D(d) provides that the term
"qualified low-income community invest-
ment" means (A) any capital or equity in-
vestment in, or loan to, any qualified active
low-income community business, (B) the
purchase from another CDE of any loan
made by the entity which is a qualified low-
income community investment, (C) finan-
cial counseling and other services specified
in regulations prescribed by the Secretary
to businesses located in, or residents of,
low-income communities, and (D) any eq-
uity investment in, or loan to, any CDE.

Section 45D(i)(1) authorizes the Secre-
tary to prescribe regulations as may be ap-
propriate to carry out § 45D including
regulations that limit the new markets tax
credit for investments that are directly or
indirectly subsidized by other federal tax
benefits (including the low-income hous-
ing credit under § 42 and the exclusion from
gross income under § 103).

On December 26, 2001, the Treasury
Department and the Internal Revenue Ser-
vice published temporary regulations (T.D.
8971, 2002-3 I.R.B. 308 [66 FR 66307])
in the Federal Register. The text of the
temporary regulations does not provide

guidance as to what federal tax benefits
limit the availability of the new markets tax
credit.

### DISCUSSION

Until further guidance is provided, the
availability of federal tax benefits, other than
§ 42, does not limit the availability of the
new markets tax credit. The Treasury De-
partment and the Service are studying how
§ 42 may limit the availability of the new
markets tax credit.

Federal tax benefits that do not limit the
availability of the new markets tax credit
include, for example: (1) the rehabilita-
tion credit under § 47; (2) all deprecia-
tion deductions under §§ 167 and 168,
including the additional first-year depre-
ciation for certain property acquired after
September 10, 2001, and before Septem-
ber 11, 2004, under § 168(k), and the ex-
pense deduction for certain depreciable
property under § 179; and (3) all tax ben-
efits relating to certain designated areas such
as empowerment zones and enterprise com-
munities under §§ 1391 through 1397D, the
District of Columbia Enterprise Zone un-
der §§ 1400 through 1400B, renewal com-
munities under §§ 1400E through 1400J,
and the New York Liberty Zone under
§ 1400L.

Taxpayers may rely on this notice prior
to the issuance of further guidance. In the
future, the Secretary may issue guidance that
limits the new markets tax credit for in-
vestments which are directly or indirectly
subsidized by other federal tax benefits.

## DRAFTING INFORMATION

The principal author of this notice is
Greg Doran of the Office of Associate Chief
Counsel (Passthroughs and Special Indus-
tries). For further information regarding this
notice, contact Mr. Doran at (202) 622-
3040 (not a toll-free call).

## Passthrough Entity Straddle Tax Shelter

## Notice 2002-65

The Internal Revenue Service and the
Treasury Department have become aware
of a type of transaction, described below,

that is being used by taxpayers for the pur-
pose of generating deductions. This no-
tice alerts taxpayers and their representatives
that the tax benefits purportedly gener-
ated by these transactions are not allow-
able for federal income tax purposes. This
notice also alerts taxpayers, their represen-
tatives, and promoters of these transac-
tions of certain responsibilities that may
arise from participating in these transac-
tions.

## FACTS

This transaction involves a series of pre-
planned steps. First, Taxpayer and one or
more other shareholders form a corpora-
tion that elects to be treated as an S cor-
poration under § 1362(a) of the Internal
Revenue Code. Taxpayer initially has a mi-
nority stock interest in the S corporation.

The S corporation enters into straddles
on foreign currencies and may acquire other
assets. The S corporation terminates the gain
leg of a foreign currency straddle, and al-
locates the gain to the shareholders pro rata
according to their stock ownership. The gain
increases each shareholder's basis in the
stock of the S corporation under § 1367
(a)(1). The S corporation redeems the stock
of all of the shareholders other than Tax-
payer, and the other shareholders claim a
loss as a result of the redemption. The S
corporation files an election under
§ 1377(a)(2) to treat the S corporation's tax-
able year as though it consists of two sepa-
rate taxable years, with the first year ending
on the date of the redemption.

After the redemption, the S corpora-
tion terminates the loss leg of the foreign
currency straddle. In order to maximize the
allowable loss, Taxpayer also may engage
in a transaction that is intended to increase
Taxpayer's basis in the S corporation. For
example, Taxpayer may make a loan to the
S corporation.

The entire loss from the loss leg of the
straddle passes through to Taxpayer, the sole
remaining shareholder in the S corpora-
tion, under § 1366. The loss reduces Tax-
payer's basis in the stock (and indebtedness,
if any) of the S corporation under
§ 1367(a)(2). Due to the reduction in Tax-
payer's basis in the S corporation's stock
(and indebtedness, if any), Taxpayer will
recognize gain when the corporation makes

additional payments to Taxpayer or Tax-
payer disposes of Taxpayer's interest in the
S corporation.

Similar transactions may be structured
using a partnership in the place of the S cor-
poration.

## ANALYSIS

The transaction described in this no-
tice has been designed to use a straddle, one
or more transitory shareholders, and the
rules of subchapter S to allow Taxpayer to
claim an immediate loss while deferring an
offsetting gain in Taxpayer's investment in
the S corporation. The Service intends to
challenge the purported tax benefits from
this transaction on a number of grounds.
First, the Service may disallow Taxpay-
er's loss under § 165(c)(2) by asserting that
the loss was not incurred in a transaction
undertaken for profit. See Smith v. Com-
missioner, 78 T.C. 350 (1982) and Fox v.
Commissioner, 82 T.C. 1001 (1984) (dis-
allowing losses from straddle transactions).
Second, the Service may disregard the tran-
sitory ownership of the shareholders other
than Taxpayer. See Comtel Corporation v.
Commissioner, 376 F.2d 791 (2d Cir. 1967)
(transitory shareholders' interests not re-
spected). Under this argument, the Ser-
vice would allocate all of the income and
losses from the activities of the S corpo-
ration to Taxpayer. Third, the Service may
disallow Taxpayer's loss deduction under
§ 269 by asserting that Taxpayer acquired
control of the S corporation with the prin-
cipal purpose of avoiding or evading fed-
eral income tax. In addition, the Service
may challenge the allowance of the loss de-
duction based on other statutory provi-
sions, including § 988, and judicial
doctrines, including the step transaction doc-
trine and the doctrines of economic sub-
stance, business purpose, and substance over
form. Transactions that use a partnership in-
stead of an S corporation also will be chal-
lenged under the partnership anti-abuse rule
contained in § 1.701-2 of the Income Tax
Regulations. See § 1.701-2(d) (Ex. 8).

Transactions that are the same as, or sub-
stantially similar to, the transaction de-
scribed in this notice are identified as "listed
transactions" for purposes of § 1.6011-
4T(b)(2) of the temporary Income Tax
Regulations and § 301.6111-2T(b)(2) of the
temporary Procedure and Administration
Regulations. See also § 301.6112-1T, A-4.
The transaction described in this notice and

the transaction described in Notice 2002-
50, 2002-28 I.R.B. 98, (Partnership Straddle
Tax Shelter) are substantially similar trans-
actions. For purposes of § 1.6011-4T(b)(2)
and § 301.6111-2T(b)(2), a transaction will
be considered the same as, or substan-
tially similar to, the transaction described
in this notice even if the gain and loss legs
of the straddle are triggered in separate tax-
able years, or if, at the time relevant for
making such determination, the corpora-
tion in the transaction has not elected un-
der § 1377(a)(2) to treat the S corporation's
taxable year as though it consisted of two
separate taxable years. Further, it should be
noted that, independent of their classifica-
tion as "listed transactions" for purposes of
§§ 1.6011-4T(b)(2) and 301.6111-2T(b)(2),
transactions that are the same as, or sub-
stantially similar to, the transaction de-
scribed in this notice may already be subject
to the disclosure requirements of § 6011, the
tax shelter registration requirements of
§ 6111 or the list maintenance require-
ments of § 6112 (§§ 1.6011-4T, 301.6111-
1T, 301.6111-2T and 301.6112-1T, A-3 and
A-4).

Persons who are required to satisfy the
registration requirement of § 6111 with re-
spect to the transaction described in this no-
tice and who fail to do so may be subject
to the penalty under § 6707(a). Persons who
are required to satisfy the list-keeping re-
quirement of § 6112 with respect to the
transaction and who fail to do so may be
subject to the penalty under § 6708(a). In
addition, the Service may impose penal-
ties on participants in this transaction or
substantially similar transactions, or, as ap-
plicable, on persons who participate in the
promotion or reporting of this transaction
or substantially similar transactions, in-
cluding the accuracy-related penalty un-
der § 6662, the return preparer penalty under
§ 6694, the promoter penalty under § 6700,
and the aiding and abetting penalty under
§ 6701.

The principal author of this notice is
Demetri Yatrakis of the Office of Associ-
ate Chief Counsel (Passthroughs and Spe-
cial Industries). For further information
regarding this notice, contact Mr. Yatrakis
at (202) 622-3060 (not a toll-free call).

26 CFR 601.105: Examination of returns and
claims for refund, credit, or abatement; determina-
tion of correct tax liability.

(Also Part I, §§ 62, 162, 267, 274; 1.62-2, 1.162-
17, 1.267(a)-1, 1.274-5.)

# Rev. Proc. 2002-63

## SECTION 1. PURPOSE

This revenue procedure updates Rev.
Proc. 2001-47, 2001-2 C.B. 332, by pro-
viding rules under which the amount of or-
dinary and necessary business expenses of
an employee for lodging, meal, and inci-
dental expenses or for meal and inciden-
tal expenses incurred while traveling away
from home will be deemed substantiated un-
der § 1.274-5 of the Income Tax Regula-
tions when a payor (the employer, its agent,
or a third party) provides a per diem al-
lowance under a reimbursement or other ex-
pense allowance arrangement to pay for
such expenses. In addition, this revenue pro-
cedure provides an optional method for em-
ployees and self-employed individuals who
pay or incur meal costs to use in comput-
ing the deductible costs of business meal
and incidental expenses paid or incurred
while traveling away from home. This rev-
enue procedure also provides an optional
method for use in computing the deduct-
ible costs of incidental expenses paid or in-
curred while traveling away from home by
employees and self-employed individuals
who do not pay or incur meal costs and
who are not reimbursed for the incidental
expenses. Use of a method described in this
revenue procedure is not mandatory, and a
taxpayer may use actual allowable expenses
if the taxpayer maintains adequate records
or other sufficient evidence for proper sub-
stantiation. This revenue procedure does not
provide rules under which the amount of
an employee's lodging expenses will be
deemed substantiated when a payor pro-
vides an allowance to pay for those ex-
penses but not meal and incidental expenses.

## SECTION 2. BACKGROUND AND CHANGES

.01 Section 162(a) of the Internal Rev-
enue Code allows a deduction for all the or-
dinary and necessary expenses paid or
incurred during the taxable year in carry-
ing on any trade or business. Under that
provision, an employee or self-employed in-

dividual may deduct expenses paid or in-
curred while traveling away from home in
pursuit of a trade or business. However, un-
der § 262, no portion of the travel expenses
that is attributable to personal, living, or
family expenses is deductible.

.02 Section 274(n) generally limits the
amount allowable as a deduction under
§ 162 for any expense for food, bever-
ages, or entertainment to 50 percent of the
amount of the expense that otherwise would
be allowable as a deduction. In the case of
any expenses for food or beverages con-
sumed while away from home (within the
meaning of § 162(a)(2)) by an individual
during, or incident to, the period of duty
subject to the hours of service limitations
of the Department of Transportation,
§ 274(n)(3) gradually increases the deduct-
ible percentage to 80 percent for taxable
years beginning in 2008. For taxable years
beginning in 2002, the deductible percent-
age for these expenses is 65 percent.

.03 Section 274(d) provides, in part, that
no deduction shall be allowed under § 162
for any traveling expense (including meals
and lodging while away from home) un-
less the taxpayer complies with certain sub-
stantiation requirements. The section further
provides that regulations may prescribe that
some or all of the substantiation require-
ments do not apply to an expense that does
not exceed an amount prescribed by such
regulations.

.04 Section 1.274-5(g) of the regula-
tions, in part, grants the Commissioner the
authority to prescribe rules relating to re-
imbursement arrangements or per diem al-
lowances for ordinary and necessary
expenses paid or incurred while traveling
away from home. Pursuant to this grant of
authority, the Commissioner may prescribe
rules under which such arrangements or al-
lowances, if in accordance with reason-
able business practice, will be regarded (1)
as equivalent to substantiation, by adequate
records or other sufficient evidence, of the
amount of such travel expenses for pur-
poses of § 1.274-5(c), and (2) as satisfy-
ing the requirements of an adequate
accounting to the employer of the amount
of such travel expenses for purposes of
§ 1.274-5(f).

.05 For purposes of determining ad-
justed gross income, § 62(a)(2)(A) allows
an employee a deduction for expenses al-
lowed by Part VI (§ 161 and following),
subchapter B, chapter 1 of the Code, paid

or incurred by the employee in connec-
tion with the performance of services as an
employee under a reimbursement or other
expense allowance arrangement with a
payor.

.06 Section 62(c) provides that an ar-
rangement will not be treated as a reim-
bursement or other expense allowance
arrangement for purposes of § 62(a)(2)(A)
if it-

(1) does not require the employee to
substantiate the expenses covered by the ar-
rangement to the payor, or

(2) provides the employee with the
right to retain any amount in excess of the
substantiated expenses covered under the ar-
rangement.

Section 62(c) further provides that the sub-
stantiation requirements described therein
shall not apply to any expense to the ex-
tent that, under the grant of regulatory au-
thority prescribed in § 274(d), the
Commissioner has provided that substan-
tiation is not required for such expense.

.07 Under § 1.62-2(c)(1) a reimburse-
ment or other expense allowance arrange-
ment satisfies the requirements of § 62(c)
if it meets the requirements of business con-
nection, substantiation, and returning
amounts in excess of expenses as speci-
fied in the regulations. Section 1.62-2(e)(2)
specifically provides that substantiation of
certain business expenses in accordance
with rules prescribed under the authority of
§ 1.274-5(g) or 1.274-5(j) will be treated
as substantiation of the amount of such ex-
penses for purposes of § 1.62-2. Under
§ 1.62-2(f)(2), the Commissioner may pre-
scribe rules under which an arrangement
providing per diem allowances will be
treated as satisfying the requirement of re-
turning amounts in excess of expenses, even
though the arrangement does not require the
employee to return the portion of such an
allowance that relates to days of travel sub-
stantiated and that exceeds the amount of
the employee's expenses deemed substan-
tiated pursuant to rules prescribed under
§ 274(d), provided the allowance is rea-
sonably calculated not to exceed the amount
of the employee's expenses or anticipated
expenses and the employee is required to
return any portion of such an allowance that
relates to days of travel not substantiated.

.08 Section 1.62-2(h)(2)(i)(B) provides
that if a payor pays a per diem allowance
that meets the requirements of § 1.62-
2(c)(1), the portion, if any, of the allow-

ance that relates to days of travel
substantiated in accordance with § 1.62-
2(e), that exceeds the amount of the em-
ployee's expenses deemed substantiated for
such travel pursuant to rules prescribed un-
der § 274(d) and § 1.274-5(g) or § 1.274-
5(j), and that the employee is not required
to return, is subject to withholding and pay-
ment of employment taxes. See
§§ 31.3121(a)-3, 31.3231(e)-1(a)(5),
31.3306(b)-2, and 31.3401(a)-4 of the Em-
ployment Tax Regulations. Because the em-
ployee is not required to return this excess
portion, the reasonable period of time pro-
visions of § 1.62-2(g) (relating to the re-
turn of excess amounts) do not apply to this
portion.

.09 Under § 1.62-2(h)(2)(i)(B)(4), the
Commissioner may, in his or her discre-
tion, prescribe special rules regarding the
timing of withholding and payment of em-
ployment taxes on per diem allowances.

.10 Section 1.274-5(j)(1) grants the
Commissioner the authority to establish a
method under which a taxpayer may elect
to use a specified amount for meals paid or
incurred while traveling away from home
in lieu of substantiating the actual cost of
meals.

.11 The Internal Revenue Service in-
tends to issue regulations pursuant to
§ 274(d) granting the Commissioner the au-
thority to establish a method under which
a taxpayer may elect to use a specified
amount for incidental expenses paid or in-
curred while traveling away from home in
lieu of substantiating the actual cost of in-
cidental expenses. The regulations are ex-
pected to apply to incidental expenses paid
or incurred after September 30, 2002.

.12 Sections 3.02, 4.04(5), and 5.06 pro-
vide transition rules for the last 3 months
of calendar year 2002 due to changes in the
effective date of the CONUS rates pub-
lished by GSA.

.13 Section 3.02(3) of this revenue pro-
cedure contains revisions to the defini-
tion of incidental expenses.

.14 Section 4.03 of this revenue proce-
dure contains revisions to the optional
method for substantiating meal and inci-
dental expenses.

.15 Section 4.05 of this revenue proce-
dure is added to provide a new optional
method for substantiating incidental ex-
penses.

.16 Section 5.04 of this revenue proce-
dure contains revisions to the list of high-

cost localities and to the high-low rates for
purposes of section 5.

.17 Section 7 of this revenue proce-
dure is revised by renumbering section 7.07
of Rev. Proc. 2001-47 as section 7.08 in
this revenue procedure; by renumbering sec-
tion 7.08 of Rev. Proc. 2001-47 as sec-
tion 7.10 in this revenue procedure; and by
inserting sections 7.07 and 7.09 in this rev-
enue procedure to describe the applica-
tion of section 4.05 of this revenue
procedure.

## SECTION 3. DEFINITIONS

.01 Per diem allowance. The term "per
diem allowance" means a payment under
a reimbursement or other expense allow-
ance arrangement that meets the require-
ments specified in § 1.62-2(c)(1) and that
is -

(1) paid with respect to ordinary and
necessary business expenses incurred, or
which the payor reasonably anticipates will
be incurred, by an employee for lodging,
meal, and incidental expenses or for meal
and incidental expenses for travel away
from home in connection with the perfor-
mance of services as an employee of the
employer,

(2) reasonably calculated not to ex-
ceed the amount of the expenses or the an-
ticipated expenses, and

(3) paid at or below the applicable
federal per diem rate, a flat rate or stated
schedule, or in accordance with any other
Service-specified rate or schedule.

.02 Federal per diem rate and federal
M&IE rate.

(1) General rule. The federal per diem
rate is equal to the sum of the applicable
federal lodging expense rate and the ap-
plicable federal meal and incidental ex-
pense (M&IE) rate for the day and locality
of travel.

(a) CONUS rates. The rates for lo-
calities in the continental United States
("CONUS") are set forth in Appendix A to
41 C.F.R. ch. 301. However, in applying
section 4.01, 4.02, or 4.03 of this revenue
procedure, taxpayers may continue to use
the CONUS rates in effect for the first 9
months of 2002 for expenses of all CO-
NUS travel away from home that are paid
or incurred during calendar year 2002 in
lieu of the updated GSA rates. A taxpayer
must consistently use either these rates or
the updated rates for the period of Octo-
ber 1, 2002, through December 31, 2002.

(b) OCONUS rates. The rates for
localities outside the continental United
States ("OCONUS") are established by the
Secretary of Defense (rates for non-foreign
localities, including Alaska, Hawaii, Pu-
erto Rico, the Northern Mariana Islands, and
the possessions of the United States) and
by the Secretary of State (rates for for-
eign localities), and are published in the Per
Diem Supplement to the Standardized Regu-
lations (Government Civilians, Foreign Ar-
eas) (updated on a monthly basis).

(c) Internet access to the rates. The
CONUS and OCONUS rates may be found
on the Internet at www.policyworks.gov/
perdiem.

(2) Locality of travel. The term "lo-
cality of travel" means the locality where
an employee traveling away from home in
connection with the performance of ser-
vices as an employee of the employer stops
for sleep or rest.

(3) Incidental expenses.

(a) Travel before January 1, 2003.
For travel away from home before Janu-
ary 1, 2003, the term "incidental expenses"
includes, but is not limited to, expenses for
laundry, cleaning and pressing of cloth-
ing, and fees and tips for services, such as
for porters and baggage carriers. The term
"incidental expenses" does not include taxi-
cab fares, lodging taxes, or the costs of tele-
grams or telephone calls.

(b) Travel after December 31, 2002.
For travel away from home after Decem-
ber 31, 2002, the term "incidental expenses"
has the meaning given to it in the Federal
Travel Regulations, 41 C.F.R. Part 300
(2002). For example, the term "incidental
expenses" includes fees and tips given to
porters, baggage carriers, bellhops, hotel
maids, stewards or stewardesses and oth-
ers on ships, and hotel servants in foreign
countries but does not include expenses for
laundry, cleaning and pressing of cloth-
ing, lodging taxes, or the costs of tele-
grams or telephone calls.

### .03 Flat rate or stated schedule.

(1) In general. Except as provided in
section 3.03(2) of this revenue procedure,
an allowance is paid at a flat rate or stated
schedule if it is provided on a uniform and
objective basis with respect to the expenses
described in section 3.01 of this revenue
procedure. Such allowance may be paid
with respect to the number of days away
from home in connection with the perfor-
mance of services as an employee or on any

other basis that is consistently applied and
in accordance with reasonable business
practice. Thus, for example, an hourly pay-
ment to cover meal and incidental expenses
paid to a pilot or flight attendant who is
traveling away from home in connection
with the performance of services as an em-
ployee is an allowance paid at a flat rate
or stated schedule. Likewise, a payment
based on the number of miles traveled (such
as cents per mile) to cover meal and inci-
dental expenses paid to an over-the-road
truck driver who is traveling away from
home in connection with the performance
of services as an employee is an allow-
ance paid at a flat rate or stated schedule.

(2) Limitation. For purposes of this
revenue procedure, an allowance that is
computed on a basis similar to that used in
computing the employee's wages or other
compensation (such as the number of hours
worked, miles traveled, or pieces produced)
does not meet the business connection re-
quirement of § 1.62-2(d), is not a per diem
allowance, and is not paid at a flat rate or
stated schedule, unless, as of December 12,
1989, (a) the allowance was identified by
the payor either by making a separate pay-
ment or by specifically identifying the
amount of the allowance, or (b) an allow-
ance computed on that basis was com-
monly used in the industry in which the
employee is employed. See § 1.62-
2(d)(3)(ii).

## SECTION 4. PER DIEM SUBSTAN- TIATION METHOD

.01 Per diem allowance. If a payor pays
a per diem allowance in lieu of reimburs-
ing actual expenses for lodging, meal, and
incidental expenses incurred or to be in-
curred by an employee for travel away from
home, the amount of the expenses that is
deemed substantiated for each calendar day
is equal to the lesser of the per diem al-
lowance for such day or the amount com-
puted at the federal per diem rate (see
section 3.02 of this revenue procedure) for
the locality of travel for such day (or par-
tial day, see section 6.04 of this revenue
procedure).

.02 Meals only per diem allowance. If
a payor pays a per diem allowance only for
meal and incidental expenses in lieu of re-
imbursing actual expenses for meal and in-
cidental expenses incurred or to be incurred
by an employee for travel away from home,
the amount of the expenses that is deemed

substantiated for each calendar day is equal
to the lesser of the per diem allowance for
such day or the amount computed at the
federal M&IE rate for the locality of travel
for such day (or partial day). A per diem
allowance is treated as paid only for meal
and incidental expenses if (1) the payor pays
the employee for actual expenses for lodg-
ing based on receipts submitted to the payor,
(2) the payor provides the lodging in kind,
(3) the payor pays the actual expenses for
lodging directly to the provider of the lodg-
ing, (4) the payor does not have a reason-
able belief that lodging expenses were or
will be incurred by the employee, or (5) the
allowance is computed on a basis similar
to that used in computing the employee's
wages or other compensation (such as the
number of hours worked, miles traveled, or
pieces produced).

.03 Optional method for meals and in-
cidental expenses only deduction. In lieu of
using actual expenses in computing the
amount allowable as a deduction for ordi-
nary and necessary meal and incidental ex-
penses paid or incurred for travel away from
home, employees and self-employed indi-
viduals who pay or incur meal expenses
may use an amount computed at the fed-
eral M&IE rate for the locality of travel for
each calendar day (or partial day) the em-
ployee or self-employed individual is away
from home. Such amount will be deemed
substantiated for purposes of paragraphs
(b)(2) and (c) of § 1.274-5, provided the
employee or self-employed individual sub-
stantiates the elements of time, place, and
business purpose of the travel for that day
(or partial day) in accordance with those
regulations. See section 6.05(1) of this rev-
enue procedure for rules related to the ap-
plication of the limitation found in § 274(n)
to amounts determined under this section
4.03. See section 4.05 of this revenue pro-
cedure for a method for incidental expenses
that may be used by employees or self-
employed individuals who do not pay or in-
cur meal expenses.

.04 Special rules for transportation in-
dustry.

(1) In general. This section 4.04 ap-
plies to (a) a payor that pays a per diem al-
lowance only for meal and incidental
expenses for travel away from home as de-
scribed in section 4.02 of this revenue pro-
cedure to an employee in the transportation
industry, or (b) an employee or self-
employed individual in the transportation

industry who computes the amount allow-
able as a deduction for meal and inciden-
tal expenses for travel away from home in
accordance with section 4.03 of this rev-
enue procedure.

(2) Rates. A taxpayer described in sec-
tion 4.04(1) of this revenue procedure may
treat $40 as the federal M&IE rate for any
CONUS locality of travel, and $45 as the
federal M&IE rate for any OCONUS lo-
cality of travel. A payor that uses either (or
both) of these special rates with respect to
an employee must use the special rate(s) for
all amounts subject to section 4.02 of this
revenue procedure paid to that employee for
travel away from home within CONUS
and/or OCONUS, as the case may be, dur-
ing the calendar year. Similarly, an em-
ployee or self-employed individual that uses
either (or both) of these special rates must
use the special rate(s) for all amounts com-
puted pursuant to section 4.03 of this rev-
enue procedure for travel away from home
within CONUS and/or OCONUS, as the
case may be, during the calendar year. See
section 4.04(5) of this revenue procedure
for transition rules.

(3) Periodic rule. A payor described
in section 4.04(1) of this revenue proce-
dure may compute the amount of the em-
ployee's expenses that is deemed
substantiated under section 4.02 of this rev-
enue procedure periodically (not less fre-
quently than monthly), rather than daily, by
comparing the total per diem allowance paid
for the period to the sum of the amounts
computed at the federal M&IE rate(s) for
the localities of travel for the days (or par-
tial days) the employee is away from home
during the period. For example, assume an
employee in the transportation industry trav-
els away from home within CONUS on 17
days (including partial days) during a cal-
endar month and receives a per diem al-
lowance only for meal and incidental
expenses from a payor that uses the spe-
cial rule under section 4.04(2) of this rev-
enue procedure. The amount deemed
substantiated under section 4.02 of this rev-
enue procedure is equal to the lesser of the
total per diem allowance paid for the month
or $680 (17 days at $40 per day).

(4) Transportation industry defined.
For purposes of this section 4.04, an em-
ployee or self-employed individual is "in
the transportation industry" only if the em-
ployee's or individual's work (a) is of the
type that directly involves moving people

or goods by airplane, barge, bus, ship, train,
or truck, and (b) regularly requires travel
away from home which, during any single
trip away from home, usually involves
travel to localities with differing federal
M&IE rates. For purposes of the preced-
ing sentence, a payor must determine that
an employee or a group of employees is "in
the transportation industry" by using a
method that is consistently applied and in
accordance with reasonable business prac-
tice.

(5) Transition rules. Under the
calendar-year convention provided in sec-
tion 4.04(2), a taxpayer who used the fed-
eral M&IE rates during the first 9 months
of calendar year 2002 to substantiate the
amount of an individual's travel expenses
under sections 4.02 or 4.03 of Rev. Proc.
2001-47 may not use, for that individual,
the special transportation industry rates pro-
vided in this section 4.04 until January 1,
2003. Similarly, a taxpayer who used the
special transportation industry rates dur-
ing the first 9 months of calendar year 2002
to substantiate the amount of an individu-
al's travel expenses may not use, for that
individual, the federal M&IE rates until
January 1, 2003.

.05 Optional method for incidental ex-
penses only deduction. In lieu of using ac-
tual expenses in computing the amount
allowable as a deduction for ordinary and
necessary incidental expenses paid or in-
curred for travel away from home, em-
ployees and self-employed individuals who
do not pay or incur meal expenses for a cal-
endar day (or partial day) of travel away
from home may use an amount computed
at the rate of $2 per day for each calen-
dar day (or partial day) the employee or
self-employed individual is away from
home. Such amount will be deemed sub-
stantiated for purposes of paragraphs (b)(2)
and (c) of § 1.274-5, provided the em-
ployee or self-employed individual sub-
stantiates the elements of time, place, and
business purpose of the travel for that day
(or partial day) in accordance with those
regulations. See section 4.03 of this rev-
enue procedure for a method that may be
used by employees or self-employed indi-
viduals who pay or incur meal expenses.
The method authorized by this section 4.05
may not be used by payors that use sec-
tion 4.01, 4.02 or 5.01 of this revenue pro-
cedure, or by employees or self-employed
individuals who use the method described

in section 4.03 of this revenue procedure.
See section 6.05(4) of this revenue proce-
dure for rules related to the application of
the limitation found in § 274(n) to amounts
determined under this section 4.05.

## SECTION 5. HIGH-LOW SUBSTANTIATION METHOD

.01 General rule. If a payor pays a per
diem allowance in lieu of reimbursing ac-
tual expenses for lodging, meal, and inci-
dental expenses incurred or to be incurred
by an employee for travel away from home
and the payor uses the high-low substan-
tiation method described in this section 5
for travel within CONUS, the amount of the
expenses that is deemed substantiated for
each calendar day is equal to the lesser of
the per diem allowance for such day or the

amount computed at the rate set forth in
section 5.02 of this revenue procedure for
the locality of travel for such day (or par-
tial day, see section 6.04 of this revenue
procedure). Except as provided in section
5.06 of this revenue procedure, this high-
low substantiation method may be used in
lieu of the per diem substantiation method
provided in section 4.01 of this revenue pro-
cedure, but may not be used in lieu of the
meals only substantiation method provided
in section 4.02 or 4.03 of this revenue pro-
cedure.

.02 Specific high-low rates. Except as
provided in section 5.06 of this revenue pro-
cedure, the per diem rate set forth in this
section 5.02 is $204 for travel to any “high-
cost locality" specified in section 5.03 of
this revenue procedure, or $125 for travel

to any other locality within CONUS.
Whichever per diem rate applies, it is ap-
plied as if it were the federal per diem rate
for the locality of travel. For purposes of
applying the high-low substantiation method
and the § 274(n) limitation on meal ex-
penses (see section 6.05 of this revenue pro-
cedure), the federal M&IE rate shall be
treated as $45 for a high-cost locality and
$35 for any other locality within CONUS.

.03 High-cost localities. The following
localities have a federal per diem rate of
$165 or more, and are high-cost localities
for all of the calendar year or the portion
of the calendar year specified in parenthe-
sis under the key city name, except as pro-
vided in section 5.06 of this revenue
procedure:

Key City

County or other defined location

California

Napa

(April 1-November 15)

Palm Springs

Riverside

(January 1-May 31)

San Francisco

San Mateo/Redwood City

San Mateo

Santa Monica

City limits of Santa Monica

(June 1-September 30)

Sunnyvale/Palo Alto/San Jose

Santa Clara

Tahoe City

Placer

Colorado

Aspen

Pitkin

(January 1-April 30)

Silverthorne/Keystone

Summit

Telluride

San Miguel

(December 20-September 30)

Vail

Eagle

(December 1-March 31)

District of Columbia

Washington, D.C. (also the cities of Alexandria, Fairfax, and Falls Church, and the counties of Arlington, Fairfax, and Loudoun, in Virginia; and the counties of Montgomery and Prince George's in Maryland)

Washington, D.C.

Florida

Key West

Monroe

(January 1-April 30)

Key City

County or other defined location

Idaho

Sun Valley

City limits of Sun Valley

Illinois

Chicago

Cook and Lake

Louisiana

New Orleans/St. Bernard

Orleans, St. Bernard

(January 1-May 31)

Plaquemine, and Jefferson Par- ishes

Maine

Kennebunk/Kittery/Sanford

York

(June 15-October 31)

Maryland

(For the counties of Montgomery and

Prince George's, see

District of Columbia)

Baltimore

Ocean City

Worcester

(June 15-October 31)

Massachusetts

Boston

Suffolk

Cambridge

Middlesex (except Lowell)

Martha's Vineyard

Dukes

(June 1-October 15)

Nantucket

(June 15-October 15)

Michigan

Mackinac Island

Mackinac

Traverse City

Grand Traverse

Montana

Big Sky

Gallatin (except West Yellowstone)

Nevada

Stateline

Douglas

New Jersey

Atlantic City

Atlantic

(June 1-November 30)

Cape May

Cape May (except Ocean City)

(June 1-November 30)

Edison

Middlesex (except Piscataway)

Newark

Essex, Bergen, Hudson and Passaic

Ocean City

City limits of Ocean City

(June 15-September 15)

Piscataway/Belle Mead

Somerset; and the city limits of Piscataway

Princeton/Trenton

New York
The Bronx/Brooklyn/Queens
Manhattan
Nassau County/Great Neck
Staten Island
Suffolk County
White Plains

Pennsylvania
Hershey
(June 1-September 15)
King of Prussia/Ft. Washington/Bala Cynwyd
(April 1-November 30)
Philadelphia

Utah

Ogden/Layton/Davis County
(January 15-February 28)
Park City
(December 15-March 31)
Provo
(January 15-February 28)
Salt lake City
(January 15-February 28)

County or other defined location

Mercer

The boroughs of The Bronx, Brooklyn, and Queens
The borough of Manhattan
Nassau
Richmond
Suffolk
City limits of White Plains

City limits of Hershey

Montgomery
Philadelphia

Weber and Davis

Summit

Utah

Salt Lake, Dugway Proving Ground, and Tooele Army Depot

Virginia
(For the cities of Alexandria, Fairfax, and Falls Church, and the counties of Arlington, Fairfax, and Loudoun, see Dis-
trict of Columbia)
Wintergreen
Nelson
Washington
Seattle

King

.04 Changes in high-cost localities. The
list of high-cost localities in section 5.03 of
this revenue procedure differs from the list
of high-cost localities in section 5.03 of Rev.
Proc. 2001-47.

(1) The following localities (listed by
key cities) have been added to the list of
high-cost localities: Santa Monica, Cali-
fornia; Baltimore, Maryland; Staten Is-
land, New York; King of Prussia/Ft.
Washington/Bala Cynwyd, Pennsylvania;
Philadelphia, Pennsylvania; and Seattle,
Washington.

(2) The portion of the year for which
the following is a high-cost locality (listed
by key city) has been changed: Ogden/
Layton/Davis County, Utah.

(3) The following locality has been re-
moved from the list of high-cost localities:
Palm Beach, Florida.

.05 Specific limitation.

(1) Except as provided in section
5.05(2) of this revenue procedure, a payor
that uses the high-low substantiation method
with respect to an employee must use that
method for all amounts paid to that em-
ployee for travel away from home within
CONUS during the calendar year. See sec-
tion 5.06 of this revenue procedure for tran-
sition rules.

(2) With respect to an employee de-
scribed in section 5.05(1) of this revenue
procedure, the payor may reimburse ac-
tual expenses or use the meals only per

diem method described in section 4.02 of
this revenue procedure for any travel away
from home, and may use the per diem sub-
stantiation method described in section 4.01
of this revenue procedure for any OCO-
NUS travel away from home.

.06 Transition rules. A payor who used
the substantiation method of section 4.01
of Rev. Proc. 2001-47 for an employee dur-
ing the first 9 months of calendar year 2002
may not use the High-Low Substantiation
Method in section 5 of this revenue pro-
cedure for that employee until January 1,
2003. A payor who used the High-Low
Substantiation Method of section 5 of Rev.
Proc. 2001-47 for an employee during the
first 9 months of calendar year 2002 must

continue to use the High-Low Substantia-
tion Method for the remainder of calen-
dar year 2002 for that employee. A payor
described in the previous sentence may use
the rates and high-cost localities published
in section 5 of Rev. Proc. 2001-47, in lieu
of the updated rates and high-cost locali-
ties provided in section 5 of this revenue
procedure, for travel on or after October 1,
2002, and before January 1, 2003, if those
rates and localities are used consistently dur-
ing this period for all employees reim-
bursed under this method.

## SECTION 6. LIMITATIONS AND SPECIAL RULES

.01 In general. The federal per diem rate
and the federal M&IE rate described in sec-
tion 3.02 of this revenue procedure for the
locality of travel will be applied in the same
manner as applied under the Federal Travel
Regulations, 41 C.F.R. Part 301-11 (2002),
except as provided in sections 6.02 through
6.04 of this revenue procedure.

.02 Federal per diem rate. A receipt for
lodging expenses is not required in deter-
mining the amount of expenses deemed
substantiated under section 4.01 or 5.01 of
this revenue procedure. See section 7.01 of
this revenue procedure for the require-
ment that the employee substantiate the
time, place, and business purpose of the ex-
pense.

.03 Federal per diem or M&IE rate. A
payor is not required to reduce the fed-
eral per diem rate or the federal M&IE rate
for the locality of travel for meals pro-
vided in kind, provided the payor has a rea-
sonable belief that meal and incidental
expenses were or will be incurred by the
employee during each day of travel.

.04 Proration of the federal per diem or
M&IE rate. Pursuant to the Federal Travel
Regulations, in determining the federal per
diem rate or the federal M&IE rate for the
locality of travel, the full applicable fed-
eral M&IE rate is available for a full day
of travel from 12:01 a.m. to 12:00 mid-
night. The method described in section
6.04(1) of this revenue procedure must be
used for purposes of determining the
amount deemed substantiated under sec-
tion 4.03 or 4.05 of this revenue proce-
dure for partial days of travel away from
home. For purposes of determining the
amount deemed substantiated under sec-
tion 4.01, 4.02, 4.04 or 5 of this revenue
procedure for partial days of travel away

from home, either of the following meth-
ods may be used to prorate the federal
M&IE rate to determine the federal per
diem rate or the federal M&IE rate for the
partial days of travel:

(1) The rate may be prorated using the
method prescribed by the Federal Travel
Regulations. Currently the Federal Travel
Regulations allow three-fourths of the ap-
plicable federal M&IE rate for each par-
tial day during which the employee or self-
employed individual is traveling away from
home in connection with the performance
of services as an employee or self-employed
individual. The same ratio may be applied
to prorate the allowance for incidental ex-
penses described in section 4.05 of this rev-
enue procedure; or

(2) The rate may be prorated using
any method that is consistently applied and
in accordance with reasonable business
practice. For example, if an employee trav-
els away from home from 9 a.m. one day
to 5 p.m. the next day, a method of pro-
ration that results in an amount equal to two
times the federal M&IE rate will be treated
as being in accordance with reasonable busi-
ness practice (even though only one and a
half times the federal M&IE rate would be
allowed under the Federal Travel Regula-
tions).

.05 Application of the appropriate
§ 274(n) limitation on meal expenses. Ex-
cept as provided in section 6.05(4), all or
part of the amount of an expense deemed
substantiated under this revenue proce-
dure is subject to the appropriate limita-
tion under § 274(n) (see section 2.02 of this
revenue procedure) on the deductibility of
food and beverage expenses.

(1) When an amount for meal and in-
cidental expenses is computed pursuant to
section 4.03 of this revenue procedure, the
taxpayer must treat such amount as an ex-
pense for food and beverages.

(2) When a per diem allowance is paid
only for meal and incidental expenses, the
payor must treat an amount equal to the
lesser of the allowance or the federal M&IE
rate for the locality of travel for such day
(or partial day, see section 6.04 of this rev-
enue procedure) as an expense for food and
beverages.

(3) When a per diem allowance is paid
for lodging, meal, and incidental expenses,
the payor must treat an amount equal to the
federal M&IE rate for the locality of travel
for each calendar day (or partial day) the

employee is away from home as an ex-
pense for food and beverages. For pur-
poses of the preceding sentence, when a per
diem allowance for lodging, meal, and in-
cidental expenses is paid at a rate that is less
than the federal per diem rate for the lo-
cality of travel for such day (or partial day),
the payor may treat an amount equal to 40
percent of such allowance as the federal
M&IE rate for the locality of travel for such
day (or partial day).

(4) When an amount for incidental ex-
penses is computed under section 4.05 of
this revenue procedure, none of the amount
so computed is subject to limitation un-
der § 274(n) on the deductibility of food and
beverage expenses.

.06 No double reimbursement or deduc-
tion. If a payor pays a per diem allow-
ance in lieu of reimbursing actual expenses
for lodging, meal, and incidental expenses
or for meal and incidental expenses in ac-
cordance with section 4 or 5 of this rev-
enue procedure, any additional payment
with respect to such expenses is treated as
paid under a nonaccountable plan, is in-
cluded in the employee's gross income, is
reported as wages or other compensation on
the employee's Form W-2, and is subject
to withholding and payment of employ-
ment taxes. Similarly, if an employee or
self-employed individual computes the
amount allowable as a deduction for meal
and incidental expenses for travel away
from home in accordance with section 4.03
or 4.04 of this revenue procedure, no other
deduction is allowed to the employee or
self-employed individual with respect to
such expenses. For example, assume an em-
ployee receives a per diem allowance from
a payor for lodging, meal, and incidental
expenses or for meal and incidental ex-
penses incurred while traveling away from
home. During that trip, the employee pays
for dinner for the employee and two busi-
ness associates. The payor reimburses as a
business entertainment meal expense the
meal expense for the employee and the two
business associates. Because the payor also
pays a per diem allowance to cover the cost
of the employee's meals, the amount paid
by the payor for the employee's portion of
the business entertainment meal expense is
treated as paid under a nonaccountable plan,
is reported as wages or other compensa-
tion on the employee's Form W-2, and is
subject to withholding and payment of em-
ployment taxes.

.07 Related parties. Sections 4.01 and 5
of this revenue procedure will not apply in
any case in which a payor and an employee
are related within the meaning of § 267(b),
but for this purpose the percentage of own-
ership interest referred to in § 267(b)(2)
shall be 10 percent.

SECTION 7. APPLICATION

.01 If the amount of travel expenses is
deemed substantiated under the rules pro-
vided in section 4 or 5 of this revenue pro-
cedure, and the employee actually
substantiates to the payor the elements of
time, place, and business purpose of the
travel for that day (or partial day) in ac-
cordance with paragraphs (b)(2) and (c)
(other than subparagraph (2)(iii)(A) thereof)
of § 1.274-5, the employee is deemed to
satisfy the adequate accounting require-
ments of § 1.274-5(f) as well as the re-
quirement to substantiate by adequate
records or other sufficient evidence for pur-
poses of § 1.274-5(c). See § 1.62-2(e)(1)
for the rule that an arrangement must re-
quire business expenses to be substanti-
ated to the payor within a reasonable period
of time.

.02 An arrangement providing per diem
allowances will be treated as satisfying the
requirement of § 1.62-2(f)(2) with respect
to returning amounts in excess of expenses
if the employee is required to return within
a reasonable period of time (as defined in
§ 1.62-2(g)) any portion of such an allow-
ance that relates to days of travel not sub-
stantiated, even though the arrangement
does not require the employee to return the
portion of such an allowance that relates to
days of travel substantiated and that ex-
ceeds the amount of the employee's ex-
penses deemed substantiated. For example,
assume a payor provides an employee an
advance per diem allowance for meal and
incidental expenses of $200, based on an
anticipated 5 days of business travel at $40
per day to a locality for which the federal
M&IE rate is $34, and the employee sub-
stantiates 3 full days of business travel. The
requirement to return excess amounts will
be treated as satisfied if the employee is re-
quired to return within a reasonable pe-
riod of time (as defined in § 1.62-2(g)) the
portion of the allowance that is attribut-
able to the 2 unsubstantiated days of travel
($80), even though the employee is not re-
quired to return the portion of the allow-
ance ($18) that exceeds the amount of the

employee's expenses deemed substanti-
ated under section 4.02 of this revenue pro-
cedure ($102) for the 3 substantiated days
of travel. However, the $18 excess por-
tion of the allowance is treated as paid un-
der a nonaccountable plan as discussed in
section 7.04 of this revenue procedure.

.03 An employee is not required to in-
clude in gross income the portion of a per
diem allowance received from a payor that
is less than or equal to the amount deemed
substantiated under the rules provided in
section 4 or 5 of this revenue procedure if
the employee substantiates the business
travel expenses covered by the per diem al-
lowance in accordance with section 7.01 of
this revenue procedure. See § 1.274-
5(f)(2)(i). In addition, such portion of the
allowance is treated as paid under an ac-
countable plan, is not reported as wages or
other compensation on the employee's Form
W-2, and is exempt from the withhold-
ing and payment of employment taxes. See
§ 1.62-2(c)(2) and (c)(4).

.04 An employee is required to include
in gross income only the portion of the per
diem allowance received from a payor that
exceeds the amount deemed substantiated
under the rules provided in section 4 or 5
of this revenue procedure if the employee
substantiates the business travel expenses
covered by the per diem allowance in ac-
cordance with section 7.01 of this rev-
enue procedure. See § 1.274-5(f)(2)(ii). In
addition, the excess portion of the allow-
ance is treated as paid under a nonaccount-
able plan, is reported as wages or other
compensation on the employee's Form
W-2, and is subject to withholding and pay-
ment of employment taxes. See § 1.62-
2(c)(3)(ii), (c)(5), and (h)(2)(i)(B).

.05 If the amount of the expenses that
is deemed substantiated under the rules pro-
vided in section 4.01, 4.02, or 5 of this rev-
enue procedure is less than the amount of
the employee's business expenses for travel
away from home, the employee may claim
an itemized deduction for the amount by
which the business travel expenses ex-
ceed the amount that is deemed substanti-
ated, provided the employee substantiates
all the business travel expenses, includes on
Form 2106, Employee Business Expenses,
the deemed substantiated portion of the per
diem allowance received from the payor,
and includes in gross income the portion (if
any) of the per diem allowance received
from the payor that exceeds the amount

deemed substantiated. See § 1.274-
5(f)(2)(iii). However, for purposes of claim-
ing this itemized deduction with respect to
meal and incidental expenses, substantia-
tion of the amount of the expenses is not
required if the employee is claiming a de-
duction that is equal to or less than the
amount computed under section 4.03 of this
revenue procedure minus the amount
deemed substantiated under sections 4.02
and 7.01 of this revenue procedure. The
itemized deduction is subject to the appro-
priate limitation (see section 2.02 of this
revenue procedure) on meal and entertain-
ment expenses provided in § 274(n) and the
2-percent floor on miscellaneous item-
ized deductions provided in § 67.

.06 An employee who pays or incurs
amounts for meal expenses and does not re-
ceive a per diem allowance for meal and
incidental expenses may deduct an amount
computed pursuant to section 4.03 of this
revenue procedure only as an itemized de-
duction. This itemized deduction is sub-
ject to the appropriate limitation on meal
and entertainment expenses provided in
§ 274(n) and the 2-percent floor on mis-
cellaneous itemized deductions provided in
§ 67. See section 7.07 of this revenue pro-
cedure for the treatment of an employee
who does not pay or incur amounts for meal
expenses and does not receive a per diem
allowance for incidental expenses.

.07 An employee who does not pay or
incur amounts for meal expenses and does
not receive a per diem allowance for inci-
dental expenses may deduct an amount
computed pursuant to section 4.05 of this
revenue procedure only as an itemized de-
duction. This itemized deduction is sub-
ject to the 2-percent floor on miscellaneous
itemized deductions provided in § 67. See
section 7.06 of this revenue procedure for
the treatment of an employee who pays or
incurs amounts for meal expenses and does
not receive a per diem allowance for meal
and incidental expenses.

.08 A self-employed individual who pays
or incurs meal expenses for a calendar day
(or partial day) of travel away from home
may deduct an amount computed pursu-
ant to section 4.03 of this revenue proce-
dure in determining adjusted gross income
under § 62(a)(1). This deduction is sub-
ject to the appropriate limitation on meal
and entertainment expenses provided in
§ 274(n).

.09 A self-employed individual who does
not pay or incur meal expenses for a cal-
endar day (or partial day) of travel away
from home may deduct an amount com-
puted pursuant to section 4.05 of this rev-
enue procedure in determining adjusted
gross income under § 62(a)(1).

.10 If a payor's reimbursement or other
expense allowance arrangement evidences
a pattern of abuse of the rules of § 62(c) and
the regulations thereunder, all payments un-
der the arrangement will be treated as made
under a nonaccountable plan. Thus, such
payments are included in the employee's
gross income, are reported as wages or other
compensation on the employee's Form
W-2, and are subject to withholding and
payment of employment taxes. See § 1.62-
2(c)(3), (c)(5), and (h)(2).

## SECTION 8. WITHHOLDING AND PAYMENT OF EMPLOYMENT TAXES

.01 The portion of a per diem allow-
ance, if any, that relates to the days of busi-
ness travel substantiated and that exceeds
the amount deemed substantiated for those
days under section 4.01, 4.02, or 5 of this
revenue procedure is subject to withhold-
ing and payment of employment taxes. See
§ 1.62-2(h)(2)(i)(B).

.02 In the case of a per diem allow-
ance paid as a reimbursement, the excess
described in section 8.01 of this revenue
procedure is subject to withholding and pay-
ment of employment taxes in the payroll pe-
riod in which the payor reimburses the
expenses for the days of travel substanti-
ated. See § 1.62-2(h)(2)(i)(B)(2).

.03 In the case of a per diem allow-
ance paid as an advance, the excess de-
scribed in section 8.01 of this revenue
procedure is subject to withholding and pay-
ment of employment taxes no later than the
first payroll period following the payroll pe-
riod in which the days of travel with re-
spect to which the advance was paid are
substantiated. See § 1.62-2(h)(2)(i)(B)(3).
If some or all of the days of travel with re-
spect to which the advance was paid are not
substantiated within a reasonable period of
time and the employee does not return the
portion of the allowance that relates to those
days within a reasonable period of time, the
portion of the allowance that relates to those
days is subject to withholding and pay-
ment of employment taxes no later than the
first payroll period following the end of the
reasonable period. See § 1.62-2(h)(2)(i)(A).

.04 In the case of a per diem allow-
ance only for meal and incidental expenses
for travel away from home paid to an em-
ployee in the transportation industry by a
payor that uses the rule in section 4.04(3)
of this revenue procedure, the excess of the
per diem allowance paid for the period over
the amount deemed substantiated for the pe-
riod under section 4.02 of this revenue pro-
cedure (after applying section 4.04(3) of this
revenue procedure), is subject to withhold-
ing and payment of employment taxes no
later than the first payroll period follow-
ing the payroll period in which the ex-
cess is computed. See § 1.62-
2(h)(2)(i)(B)(4).

.05 For example, assume that an em-
ployer pays an employee a per diem al-
lowance to cover business expenses for
meals and lodging for travel away from
home at a rate of 120 percent of the fed-
eral per diem rate for the localities to which
the employee travels. The employer does
not require the employee to return the 20
percent by which the reimbursement for
those expenses exceeds the federal per diem
rate. The employee substantiates 6 days of
travel away from home: 2 days in a local-
ity in which the federal per diem rate is
$100 and 4 days in a locality in which the
federal per diem rate is $125. The em-
ployer reimburses the employee $840 for
the 6 days of travel away from home (2 x
(120% x $100) + 4 x (120% x $125)), and
does not require the employee to return the
excess payment of $140 (2 days x $20
($120-$100) + 4 days x $25 ($150-$125)).
For the payroll period in which the em-
ployer reimburses the expenses, the em-
ployer must withhold and pay employment
taxes on $140. See section 8.02 of this rev-
enue procedure.

## SECTION 9. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 2001-47 is hereby super-
seded (except to the extent specified in sec-
tions 4.04(5) and 5.06 of this revenue
procedure) for per diem allowances that are
paid both (1) to an employee on or after
October 1, 2002, and (2) with respect to
lodging, meal, and incidental expenses or
with respect to meal and incidental ex-
penses paid or incurred for travel away from
home on or after October 1, 2002. Rev.
Proc. 2001-47 is also hereby superseded
(except to the extent specified in section
4.04(5) of this revenue procedure) for pur-

poses of computing the amount allowable
as a deduction for meal and incidental ex-
penses or for incidental expenses only paid
or incurred by an employee or self-
employed individual for travel away from
home on or after October 1, 2002.

## DRAFTING INFORMATION

The principal author of this revenue pro-
cedure is John P. Moriarty, of the Office of
Associate Chief Counsel (Income Tax and
Accounting). For further information re-
garding this revenue procedure, contact
Mr. Moriarty at (202) 622-4930 (not a toll-
free call).

26 CFR 601.204: Changes in accounting periods
and in methods of accounting.
(Also Part I, §§ 446, 481; 1.446-1, 1.481-1.)

Rev. Proc. 2002-65

CONTENTS

SECTION 1. PURPOSE

SECTION 2. BACKGROUND

SECTION 3. SCOPE

SECTION 4. DEFINITIONS

.01 Track Structure

.02 Track Structure Expenditures

.03 Current Additions

.04 New Track Structure

.05 Assigned Value of Relay Materials

.06 Operating Items

.07 Salvage Material Credits

.08 Removal Costs

### SECTION 5. TRACK MAINTENANCE ALLOWANCE METHOD FOR CLASS II AND III RAILROADS

.01 In General

.02 Track Maintenance Allowance

.03 Capitalized Amount

.04 Example

(1) Facts

(2) Track maintenance allowance

(3) Capitalized Amount

### SECTION 6. CHANGE IN METHOD OF ACCOUNTING

.01 In General

.02 Issue Not Under Consideration

.03 Issue Under Consideration

.04 Special Rule for Certain Taxpay-
ers with Issue Under Consideration

.05 Special Rule for Taxpayers Reclas-
sified as Class I Railroads

.06 Changes Not Made under this Rev-
enue Procedure

#### SECTION 7. RECORD KEEPING

#### SECTION 8. OPTIONAL SETTLEMENT FOR TAXPAYERS UNDER EXAMINATION, BEFORE AN AREA APPEALS OFFICE, OR BEFORE THE TAX COURT

.01 In General

.02 Terms of Settlement

.03 Procedures for Requesting the Settle-
ment

(1) Initiating the request

(2) Statement of facts, law, and ar-
guments

(3) Perjury statement

.04 Procedures for Processing the Re-
quest

(1) Receipt of request acknowledged

(2) Factual development

(3) Acceptance

(4) Notification of acceptance

.05 Procedures for Implementing the
Settlement

(1) Closing agreement or other ap-
propriate settlement agreement
required

(2) Contents of closing agreement or
other appropriate settlement
agreement

(3) Review and execution of clos-
ing agreement or other appropri-
ate settlement agreement

(4) Amended returns

(5) Application of Rev. Proc. 2002-18

.06 Effect on Other Offices of the Ser-
vice

##### SECTION 9. EFFECTIVE DATE

SECTION 10. EFFECT ON OTHER
DOCUMENTS

DRAFTING INFORMATION

APPENDIX

SECTION 1. PURPOSE

This revenue procedure provides a safe
harbor method of accounting for track struc-
ture expenditures paid or incurred by a
Class II or Class III railroad ("track main-

tenance allowance method"). This rev-
enue procedure also provides procedures for
a qualifying taxpayer to obtain automatic
consent from the Commissioner of Inter-
nal Revenue to change to the track main-
tenance allowance method, including rules
relating to the limitations, terms, and con-
ditions the Commissioner deems neces-
sary to make the change. In addition, this
revenue procedure provides an optional pro-
cedure for a qualifying taxpayer whose
treatment of track structure expenditures is
an issue under consideration in examina-
tion, before an area appeals office, or be-
fore the United States Tax Court ("Tax
Court") to settle open taxable years using
the track maintenance allowance method.

#### SECTION 2. BACKGROUND

.01 Under § 446(b) of the Internal Rev-
enue Code, the Commissioner has broad au-
thority to determine whether a method of
accounting clearly reflects income. If a tax-
payer's method of accounting does not
clearly reflect income, the computation of
taxable income must be made under a
method that, in the opinion of the Secre-
tary, does clearly reflect income. See Thor
Power Tool Co. v. Commissioner, 439 U.S.
522 (1979); Commissioner v. Hansen, 360
U.S. 446 (1959); § 1.446-1(c)(2)(ii) of the
Income Tax Regulations.

.02 Section 446(e) and § 1.446-1(e) pro-
vide that, except as otherwise provided, a
taxpayer must secure the consent of the
Commissioner before changing a method of
accounting for federal income tax pur-
poses. Section 1.446-1(e)(3)(ii) autho-
rizes the Commissioner to prescribe
administrative procedures setting forth the
limitations, terms, and conditions deemed
necessary to permit a taxpayer to obtain
consent to change a method of account-
ing.

.03 Rev. Proc. 2002-18, 2002-13 I.R.B.
678, provides the procedures under § 446(b)
and § 1.446-1(b) for changes in method of
accounting imposed by the Internal Rev-
enue Service. Rev. Proc. 2002-18 also pro-
vides the procedures that the Service will
use for accounting method issues resolved
by the Service on a nonaccounting-method-
change basis.

.04 A railroad incurs track structure ex-
penditures as a result of performing vari-
ous activities to acquire, construct, maintain,
repair, and improve track structure. To mini-
mize disputes regarding the accounting for

these track structure expenditures, the Ser-
vice will permit a railroad that complies
with the requirements of this revenue pro-
cedure to account for track structure ex-
penditures using the track maintenance
allowance method described in section 5 of
this revenue procedure.

### SECTION 3. SCOPE

This revenue procedure applies to a tax-
payer that chooses to account for track
structure expenditures under the method de-
scribed in section 5 of this revenue proce-
dure, and that meets the following
requirements: 1) the taxpayer is a Class II
or Class III railroad as designated by the
Surface Transportation Board, in accor-
dance with 49 C.F.R. Part 1201 1-1; and
2) the taxpayer does not file, and is not a
member of a combined reporting group that
files, a Railroad Annual Report R-1 ("Form
R-1") with the Surface Transportation
Board.

### SECTION 4. DEFINITIONS

The following definitions apply solely
for purposes of this revenue procedure:

.01 Track Structure. "Track structure"
means the combination of a taxpayer's rail
and other track material (OTM), ties, and
ballast, which provides a track for rail cars
and equipment powered by locomotives.

.02 Track Structure Expenditures. "Track
structure expenditures" for a particular tax-
able year are the sum of the taxpayer's ex-
penditures for that year for current additions
(including new track structure), operating
items, and removal costs.

.03 Current Additions. "Current addi-
tions" are the amounts included in track
structure expenditures that represent capi-
tal additions to the taxpayer's track struc-
ture for financial reporting purposes and that
are taken into account for federal income
tax purposes (see, e.g., §§ 404 and 461).
Thus, for example, current additions do not
include the assigned value of relay mate-
rials.

.04 New Track Structure. "New track
structure" means the amounts included in
track structure expenditures that reflect the
taxpayer's expenditures for (1) track struc-
ture laid where none previously existed; (2)
existing track structure acquired by the tax-
payer; or (3) track structure previously aban-
doned by the taxpayer that must be
rehabilitated or improved to make it suit-

able for the use intended by the taxpayer,
that are taken into account for federal in-
come tax purposes. New track structure in-
cludes the cost of acquiring and installing
new track structure as well as the cost of
any rehabilitation or improvement neces-
sary to put newly acquired or previously
abandoned track structure into operation.
New track structure does not include any
removal costs.

.05 Assigned Value of Relay Materi-
als. The "assigned value of relay materi-
als" means the amounts that reflect the
taxpayer's fair market value adjustments
(excluding rewelding and other process-
ing costs) for track materials relaid that were
previously retired for financial reporting pur-
poses. The assigned value of relay mate-
rials does not include relay track materials
purchased by the taxpayer.

.06 Operating Items. "Operating items"
are the amounts included in track struc-
ture expenditures that represent expendi-
tures for track structure that are deducted
for financial reporting purposes and that are
taken into account for federal income tax
purposes. Thus, for example, operating
items do not include salvage material cred-
its or the assigned value of relay materi-
als.

.07 Salvage Material Credits. “Salvage
material credits" means the amounts that re-
flect credits for the value of salvaged ma-
terials.

.08 Removal Costs. "Removal costs"
means the amount included in track struc-
ture expenditures that represents the tax-
payer's expenditures for track removal for
financial reporting purposes not already in-
cluded in current additions or operating
items and that are taken into account for
federal income tax purposes.

#### SECTION 5. TRACK MAINTENANCE ALLOWANCE METHOD FOR CLASS II AND III RAILROADS

.01 In General. Under the track main-
tenance allowance method, the taxpayer
must determine the amount of its track
structure expenditures that may be cur-
rently deducted under section 5.02 of this
revenue procedure (the track maintenance
allowance) and the amount required to be
capitalized under section 5.03 of this rev-
enue procedure (the capitalized amount). A
taxpayer that uses the track maintenance al-
lowance method described in this section
5 must use that method for all of its track
structure expenditures.

.02 Track Maintenance Allowance. The
track maintenance allowance for a particu-
lar taxable year under the track mainte-
nance allowance method is determined as
follows:

(1) Determine the track structure ex-
penditures for the taxable year;

(2) Subtract from the track structure
expenditures in (1) new track structure; and

(3) Multiply the resulting amount in
(2) by 75 percent.

.03 Capitalized Amount. The capital-
ized amount for the taxable year under the
track maintenance allowance method is de-
termined as follows:

(1) Determine the track structure ex-
penditures for the taxable year (see sec-
tion 5.02(1));

(2) Subtract from the track structure
expenditures in (1) the track maintenance
allowance determined under section 5.02 for
the taxable year to determine the capital
track structure expenditures;

(3) Allocate the capital track struc-
ture expenditures determined in (2) to each
track account (Rail and OTM, Ties, and
Ballast) first to new track to the extent of
the new track structure for each track ac-
count. The remaining capitalized amount

represents replacement track and should be
allocated to each track account in propor-
tion to adjusted current additions (i.e., cur-
rent additions for each track account after
excluding the amount allocated to new track
from each account). If after allocating the
capital track structure expenditures to new
track there are no adjusted current addi-
tions, the remaining capitalized amount must
be allocated to each track account in pro-
portion to the ending book account bal-
ance in each track capital account for the
taxable year. For purposes of determining
basis, the amounts allocated to each track
account must be allocated further to the as-
sets within each account using any reason-
able method;

(4) For each track account, apply the
taxpayer's method of accounting for uni-
form capitalization, as governed by § 263A
and the regulations thereunder, to the
amounts capitalized to new track and to re-
placement track (i.e., the amounts deter-
mined in (3)) to determine the additional
§ 263A costs (as defined in § 1.263A-
1(d)(3)), and, if applicable, interest costs,
that must be capitalized;

(5) For each track account, add the
amounts capitalized to new track and to re-
placement track in (3) to the § 263A costs
and interest costs determined in (4) to de-
termine the total capitalized amount;

(6) For each track account, treat the
total capitalized amount determined in (5)
as a capital expenditure and depreciate that
amount in accordance with § 167 and the
regulations thereunder.

.04 Example.

(1) Facts. X is a railroad that owns
and maintains track structure in the United
States. X uses a calendar year for tax pur-
poses. For the year ending December 31,
2001, X treats the following amounts as
capital additions to its track structure for fi-
nancial reporting purposes:

Ties

$1,180,000

Rail &amp; OTM

370,000

Ballast

600,000

Total

$2,150,000

Included in this amount are:

New track structure

Assigned value of relay materials

Ties

$150,000

Rail &amp; OTM

$250,000

Ballast

$100,000

Total

$500,000

Ties

$ 30,000

Rail &amp; OTM

$120,000

Ballast

$ 0

Total

$150,000

All of these amounts are taken into account for federal income tax purposes in the taxable year ended December 31, 2001, except
for the assigned value of relay materials. Thus, X's current additions for the taxable year ending December 31, 2001, are $2,000,000
($2,150,000 - $150,000).

For the same taxable year, X has expenditures for its track structure that are deducted for financial reporting purposes in the amount
of $2,250,000.

Included in this amount are:

Salvage material credits

($50,000)

Assigned value of relay materials

$100,000

All of X's expenditures for track struc-
ture that are deducted for financial report-
ing purposes are taken into account for
federal income tax purposes in the tax-
able year ended December 31, 2001, ex-
cept for the salvage material credits and the
assigned value of relay materials. Thus, X's

operating items for the taxable year ended
December 31, 2001, are $2,200,000
($2,250,000 + $50,000 - $100,000). For the
taxable year ended December 31, 2001, X
incurred removal costs in the amount of
$300,000, which were not included in cur-
rent additions or operating items, but which

are taken into account for federal income
tax purposes in that year.

(2) Track maintenance allowance. To de-
termine the track maintenance allowance for
the taxable year ended December 31, 2001,
X first determines its track structure ex-
penditures, as follows:

$2,000,000

current additions

2,200,000

operating items

+300,000

removal costs

$4,500,000

track structure expenditures

X then adjusts its track structure expenditures as follows:

$4,500,000
track structure expenditures
(500,000)
new track structure

$4,000,000
adjusted track structure expenditures

X then determines the track maintenance allowance as follows:

$4,000,000
adjusted track structure expenditures

x
☒
.75 allowance

$3,000,000

track maintenance allowance

(3) Capitalized amount. To determine the capitalized amount, X first determines the capital track structure expenditures by sub-
tracting the track maintenance allowance determined in (2) as follows:

$4,500,000
track structure expenditures

(3,000,000) track maintenance allowance
$ 1,500,000 capital track structure expenditures

X then allocates its capital track structure expenditures to each track account (Rail and OTM, Ties, and Ballast) first to new track
to the extent of the $500,000 of new track structure for each track account. The remaining $1,000,000 of capital track structure ex-
penditures is then allocated to replacement track for each track account in proportion to the adjusted current additions. Thus, X al-
locates these amounts as follows:

Current Additions

Amount Capitalized New Track

Adjusted Current Additions

Amount Capitalized- Replacement Track

Ties

$1,150,000

$150,000

$1,000,000

$ 666,667

Rail &amp; OTM

$ 250,000

250,000

Ballast

600,000

100,000

500,000

333,333

Total

$2,000,000

$500,000

$1,500,000

$1,000,000

For each track account, X applies its
method of accounting for uniform capitali-
zation under § 263A to the amounts capi-
talized to new track and to replacement
track to determine the additional § 263A
costs that must be capitalized. The total
capitalized amount for each track account
is determined by combining the amounts
capitalized to new track and to replace-
ment track with the § 263A costs for each
track account. X must depreciate the total
capitalized amount for each track account
in accordance with § 167 and the regula-
tions thereunder.

#### SECTION 6. CHANGE IN METHOD OF ACCOUNTING

.01 In General. A change in a taxpay-
er's treatment of track structure expendi-
tures to the track maintenance allowance
method is a change in method of account-
ing to which §§ 446 and 481 apply.

.02 Issue Not Under Consideration. If
a taxpayer within the scope of this rev-
enue procedure wants to change to the track
maintenance allowance method for either
its first or second taxable year ending on
or after December 31, 2001, ("year of
change") and the treatment of its track struc-
ture expenditures is not an issue under con-
sideration in examination, before an area
appeals office, or before a federal court
(within the meaning of section 3.09 of Rev.
Proc. 2002-9, 2002-3 I.R.B. 327) on Sep-
tember 30, 2002, the taxpayer must fol-
low the automatic change in method of
accounting provisions in Rev. Proc. 2002-9
(or its successor) with the following
modifications:

(1) The scope limitations in section
4.02 of Rev. Proc. 2002-9 do not apply.

(2) A taxpayer that wants to change
to the track maintenance allowance method
for its first taxable year ending on or af-
ter December 31, 2001, and that, on or be-
fore November 29, 2002, files its original
federal income tax return for its first tax-
able year ending on or after December 31,
2001, is not subject to the filing require-
ments in section 6.02(3)(a) of Rev. Proc.
2002-9, provided that it complies with the
following filing requirements. The tax-
payer must complete and file a Form 3115
in duplicate. The original must be attached
to the taxpayer's amended federal income
tax return for its first taxable year ending
on or after December 31, 2001. This
amended return must be filed no later than
June 30, 2003. A copy of the Form 3115
must be filed with the national office (see
section 6.02(6)(a) of Rev. Proc. 2002-9 for
the address) no later than when the tax-
payer's amended return is filed.

(3) To assist the Service in process-
ing changes in method of accounting un-
der this section of the revenue procedure,
and to ensure proper handling, section
6.02(4) of Rev. Proc. 2002-9 is modified
to require that a Form 3115 filed under this
revenue procedure include the statement:
"Automatic Change Filed Under Rev. Proc.
2002-65." This statement should be leg-
ibly printed or typed at the top of any Form
3115 filed under this revenue procedure.

.03 Issue Under Consideration. If a tax-
payer within the scope of this revenue pro-
cedure wants to change to the track
maintenance allowance method for either

its first or second taxable year ending on
or after December 31, 2001, ("year of
change") and the treatment of its track struc-
ture expenditures is an issue under consid-
eration in examination, before an area
appeals office, or before a federal court
(within the meaning of section 3.09 of Rev.
Proc. 2002-9) on September 30, 2002, the
taxpayer must follow the automatic change
in method of accounting provisions in Rev.
Proc. 2002-9 with the following
modifications:

(1) The scope limitations in section
4.02 of Rev. Proc. 2002-9 do not apply.

(3) To assist the Service in process-
ing changes in method of accounting un-
der this section of the revenue procedure,

and to ensure proper handling, section
6.02(4) of Rev. Proc. 2002-9 is modified
to require that a Form 3115 filed under this
revenue procedure include the statement:
"Automatic Change Filed Under Rev. Proc.
2002-65." This statement should be leg-
ibly printed or typed at the top of any Form
3115 filed under this revenue procedure.

(4) The change to the track mainte-
nance allowance method will be made us-
ing a "cut-off method." Under a cut-off
method, only the items arising on or after
the beginning of the year of change are ac-
counted for under the track maintenance al-
lowance method. Any items arising before
the year of change continue to be accounted
for under the taxpayer's former method of
accounting, unless such method of account-
ing is changed as a result of an examina-
tion or a return filed for a year before the
year of change. Because no items are du-
plicated or omitted from income when a
cut-off method is used to effect a change
in accounting method, no § 481(a) adjust-
ment is necessary.

(5) Section 7 of Rev. Proc. 2002-9
does not apply. The taxpayer does not re-
ceive audit protection in connection with a
change to the track maintenance allow-
ance method.

.04 Special Rule for Certain Taxpay-
ers with Issue Under Consideration. If a
taxpayer is within the scope of this rev-
enue procedure, and the treatment of its
track structure expenditures is an issue un-
der consideration (within the meaning of
section 3.09 of Rev. Proc. 2002-9) in ex-
amination, before an area appeals office, or
before the Tax Court on September 30,
2002, the taxpayer may change to the track
maintenance allowance method for its first
or second taxable year ending on or after
December 31, 2001, under section 6.03 of
this revenue procedure or, alternatively, for
an earlier taxable year under section 8 of
this revenue procedure.

.05 Special Rule for Taxpayers Reclas-
sified as Class I Railroads. In the event that
a Class II or Class III railroad is reclassi-
fied as a Class I railroad by the Surface
Transportation Board and required to file
a Form R-1, the railroad is not eligible to
use the method under this revenue proce-
dure for any taxable year that it is a Class

I railroad and must change its method of
accounting for track structure expendi-
tures, beginning with its first full taxable
year as a Class I railroad. The reclassi-
fied railroad may adopt the safe harbor
method of accounting for track structure ex-
penditures of Rev. Proc. 2001-46, 2001-2
C.B. 263, if it otherwise qualifies, and must
do so on a cut-off basis. To this extent, sec-
tion 6.06 of Rev. Proc. 2001-46 is ampli-
fied.

.06 Changes Not Made under this Rev-
enue Procedure. A taxpayer that wants to
change to the track maintenance allow-
ance method described in section 5 of this
revenue procedure that does not change its
method of accounting under section 6 or 8
of this revenue procedure must follow the
change in method of accounting provi-
sions in Rev. Proc. 97-27, 1997-1 C.B. 680
(or any successor).

#### SECTION 7. RECORD KEEPING

Section 6001 provides that every per-
son liable for any tax imposed by the Code,
or for the collection thereof, must keep such
records, render such statements, make such
returns, and comply with such rules and
regulations as the Secretary may from time
to time prescribe. The books or records re-
quired by § 6001 must be kept at all times
available for inspection by authorized in-
ternal revenue officers or employees, and
must be retained so long as the contents
thereof may become material in the ad-
ministration of any internal revenue law.
Section 1.6001-1(e). In order to satisfy the
record keeping requirements of § 6001 and
the regulations thereunder, a taxpayer that
changes to the track maintenance allow-
ance method should maintain records sub-
stantiating all aspects of entitlement to the
deduction, including, but not limited to, the
following:

.01 Work papers or reports that iden-
tify and extract the taxpayer's costs for cur-
rent additions, operating items, and new
track structure, including costs to rehabili-
tate or improve newly acquired or previ-
ously abandoned track structure;

.02 Work papers or reports that iden-
tify and extract the taxpayer's assigned
value of relay materials and salvage ma-
terial credits; and

.03 Work papers or reports that iden-
tify the amount of removal costs.

SECTION 8. OPTIONAL
SETTLEMENT FOR TAXPAYERS
UNDER EXAMINATION, BEFORE AN
AREA APPEALS OFFICE, OR
BEFORE THE TAX COURT

.01 In General. If a taxpayer is within
the scope of this revenue procedure; the
treatment of its track structure expendi-
tures is an issue under consideration (within
the meaning of section 3.09 of Rev. Proc.
2002-9) in examination, before an area ap-
peals office, or before the Tax Court on
September 30, 2002; and the taxpayer does
not change to the track maintenance al-
lowance method under section 6.03 of this
revenue procedure, the Service offers to
settle the track structure expenditure is-
sue by changing the taxpayer's method of
accounting for track structure expendi-
tures to the track maintenance allowance
method in the earliest open taxable year af-
ter which there is no closed taxable year.
.02 Terms of Settlement.

(1) The Service will change the tax-
payer's method of accounting for track
structure expenditures to the track main-
tenance allowance method described in sec-
tion 5 of this revenue procedure.

(2) The change to the track mainte-
nance allowance method will be made in
the earliest open taxable year after which
there is no closed taxable year using a cut-
off method.

(3) The taxpayer must reflect the
settlement on its federal income tax re-
turns for any affected succeeding taxable
years. For example, an amount required to
be capitalized during a taxable year cov-
ered by the settlement should be depreci-
ated in that taxable year and in affected
succeeding taxable years (whether or not
covered by the settlement) in accordance
with the taxpayer's method of accounting
for depreciation.

(4) The Service will not require the
taxpayer to change its method of account-
ing for track structure expenditures to a
method other than the track maintenance al-
lowance method for any taxable year for
which a federal income tax return has been

filed as of the date of the closing agree-
ment or other appropriate settlement agree-
ment, provided that:

(a) the taxpayer has complied with
all the applicable provisions of the clos-
ing agreement or other appropriate settle-
ment agreement;

(b) there has been no taxpayer fraud,
malfeasance, or misrepresentation of a ma-
terial fact;

(c) there has been no change in the
material facts on which the closing agree-
ment or other appropriate settlement agree-
ment was based; and

(d) there has been no change in the
applicable law on which the closing agree-
ment or other appropriate settlement agree-
ment was based.

(5) The taxpayer must execute a clos-
ing agreement under § 7121 or other ap-
propriate settlement agreement as described
in section 8.05 of this revenue procedure.

.03 Procedures for Requesting the Settle-
ment.

(1) Initiating the request.

(a) Taxable years under examina-
tion or in Appeals. A taxpayer that wants
to request a settlement under this section
for taxable years under examination or in
Appeals must submit its request in writ-
ing to the first line examination manager
or appeals officer (whichever is applicable)
on or before June 30, 2003.

(b) Taxable years before the Tax
Court. A taxpayer that wants to request a
settlement under this section for taxable
years before the Tax Court must submit its
request in writing to the Chief Counsel at-
torney assigned to the case on or before the
earlier of June 30, 2003, or the date that is
30 days before the date the case is first set
for trial, which is the date scheduled for the
calendar call.

(2) Statement of facts, law, and ar-
guments. The request for settlement must
include the following information:

(a) the taxpayer's name, address, tele-
phone number, and taxpayer identifica-
tion number;

(b) the taxable years covered by the
proposed settlement;

(d) the taxpayer's current method of
accounting for track structure expendi-
tures;

(e) a statement of the material facts,
including the track maintenance allow-
ance and the capitalized amount under the
track maintenance allowance method for
each taxable year under examination, be-
fore an area appeals office, or before the
Tax Court, and an explanation of the com-
putations used to determine those amounts;
and

(f) a statement of whether the track
maintenance allowance for each taxable year
under examination, before an area appeals
office, or before the Tax Court is taken into
account for federal income tax purposes, for
example, whether the amount was incurred
under § 461 in that taxable year, and, if
§ 404 applies to any portion of the amount
in a particular taxable year, whether that
portion meets the deductibility require-
ments of § 404.

(3) Perjury statement. The request for
settlement must be accompanied by the fol-
lowing declaration: "Under penalties of per-
jury, I declare that I have examined this
request, including accompanying docu-
ments, and, to the best of my knowledge
and belief, the request contains all the rel-
evant facts relating to the request, and such
facts are true, correct, and complete." This
declaration must be signed by, or on be-
half of, the taxpayer by an individual with
the authority to bind the taxpayer in these
matters. The declaration may not be signed
by the taxpayer's representative.

.04 Procedures for Processing the Re-
quest.

(1) Receipt of request acknowledged.
The first line examination manager, ap-
peals officer, or Chief Counsel attorney
(whichever is applicable) will acknowl-
edge receipt of the taxpayer's request for
settlement in writing within 15 business
days of receipt.

(2) Factual development. The first line
examination manager, appeals officer, or
Chief Counsel attorney (whichever is ap-
plicable) will contact the taxpayer to dis-
cuss any questions the Service may have,
or ask for additional information believed
to be necessary to execute the settlement
(for example, to verify the correctness of
the taxpayer's information).

(3) Acceptance. The first line exami-
nation manager, appeals officer, or Chief
Counsel attorney (whichever is applicable)
will accept the taxpayer's request for settle-
ment if the request complies with the ap-
plicable terms of this revenue procedure. For

taxable years before the Tax Court, the
settlement is subject to the approval of the
Court.

(4) Notification of acceptance. The
first line examination manager, appeals of-
ficer, or Chief Counsel attorney (which-
ever is applicable) will notify the taxpayer
in writing when the Service agrees to the
settlement requested by the taxpayer.

.05 Procedures for Implementing the
Settlement.

(1) Closing agreement or other ap-
propriate settlement agreement required. A
taxpayer implementing a settlement is re-
quired to execute a closing agreement un-
der § 7121 or other appropriate settlement
agreement.

(2) Contents of closing agreement or
other appropriate settlement agreement. A
closing agreement or other appropriate
settlement agreement must comply with the
requirements of Rev. Proc. 68-16, 1968-1
C.B. 770, and, in the case of a closing
agreement, must be substantially in the form
set forth in the APPENDIX of this rev-
enue procedure. Settlement agreements in
cases pending before the Tax Court must
conform substantially to the provisions set
forth in the APPENDIX of this revenue pro-
cedure and must conform to the rules and
procedures of the Tax Court.

(3) Review and execution of closing
agreement or other appropriate settlement
agreement.

(a) Taxpayers under examination.
The first line examination manager will pre-
pare a closing agreement. The first line ex-
amination manager should submit the
closing agreement to the Ground Trans-
portation Technical Advisor and his as-
signed counsel for review prior to
submitting the closing agreement to the tax-
payer for execution. Failure to submit the
closing agreement to the Technical Advi-
sor or his assigned counsel for review will
not invalidate the closing agreement. Af-
ter the closing agreement has been ex-
ecuted by the taxpayer, it will be executed
on behalf of the Service by the Director,
Field Operations (LMSB) MCT, New Jer-
sey.

(b) Taxpayers before an area ap-
peals office. The appeals officer or ap-
peals team case leader will prepare a closing
agreement. After the closing agreement has
been executed by the taxpayer, it will be ex-
ecuted on behalf of the Service by an au-
thorized official from Appeals.

(c) Taxpayers before the Tax Court.
For docketed tax years before the Tax
Court, the taxpayer and the Chief Coun-
sel attorney must prepare an appropriate
settlement document, settlement stipula-
tion, or stipulated decision document, pur-
suant to the rules and procedures of the
court. Such settlement document, settle-
ment stipulation, or stipulated decision
document is subject to the approval of the
court.

##### (4) Amended returns.

(a) In general. In cases pending be-
fore examination or appeals, the Service will
make the adjustments necessary to reflect
the settlement to the taxpayer's returns for
the taxable years under examination or be-
fore an area appeals office. In cases pend-
ing before the Tax Court, the settlement
agreement will include adjustments neces-
sary to reflect the settlement with respect
to the year(s) before the court. The tax-
payer is required to file amended returns to
reflect the settlement for any other affected
taxable years for which a federal income
tax return has been filed as of the date of
the closing agreement. The amended re-
turns must include the adjustments to tax-
able income necessary to reflect the new
method and any collateral adjustments to
taxable income or tax liability resulting from
the change. A taxpayer eligible to file a
"qualified amended return" under Rev. Proc.
94-69, 1994-2 C.B. 804, may satisfy the
requirements of this section by filing a
qualified amended return in accordance with
that revenue procedure.

(b) Time and manner. The taxpayer
must file any required amended returns on
or before the date it executes the closing
agreement or other appropriate settlement
agreement. The taxpayer must provide a
copy of the amended returns to the first line
examination manager, appeals officer, or
Chief Counsel attorney (whichever is ap-
plicable) at the time it files the amended re-
turns.

(5) Application of Rev. Proc. 2002-
18. Except as otherwise provided in this
revenue procedure, the provisions of Rev.
Proc. 2002-18 will apply to any settle-
ment under section 8 of this revenue pro-
cedure.

.06 Effect on Other Offices of the Ser-
vice. If a taxpayer is before an area ap-
peals office or the Tax Court regarding the
treatment of its track structure expendi-
tures and does not settle this issue under the

provisions of this section 8, an appropri-
ate representative from an area appeals of-
fice or Chief Counsel office may settle a
particular taxpayer's case involving this is-
sue on a more favorable or less favorable
basis than provided in this revenue proce-
dure. For example, an appeals officer may
settle a case based on the hazards of liti-
gation.

### SECTION 9. EFFECTIVE DATE

This revenue procedure is effective for
taxable years ending on or after Decem-
ber 31, 2001.

#### SECTION 10. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 2002-9 is modified and am-
plified to include this accounting method
change in the APPENDIX. Rev. Proc.
2001-46 is amplified to address the reclas-
sification of a Class II or III railroad to a
Class I railroad.

##### DRAFTING INFORMATION

The principal author of this revenue pro-
cedure is Patricia Zweibel of the Office of
Associate Chief Counsel (Income Tax and
Accounting). For further information re-
garding this revenue procedure, contact
Ms. Zweibel at (202) 622-5020 (not a toll-
free call).

##### APPENDIX

Department of the Treasury Internal Rev-
enue Service

Closing Agreement on Final Determi-
nation Covering Specific Matters

Under § 7121 of the Internal Revenue
Code of 1986, [Taxpayer's name, address,
telephone number, and identifying num-
ber] ("the taxpayer") and the Commis-
sioner of Internal Revenue make the
following closing agreement:

WHEREAS:

1\. The taxpayer is a Class II or Class III
railroad, as designated by the Surface Trans-
portation Board, that is not required to file
a Form R-1.

2\. The issue covered in this closing
agreement is the taxpayer's treatment of
track structure expenditures incurred as a
result of performing various activities to ac-
quire, construct, maintain, repair, and im-
prove track structure. The definition of
"track structure expenditures" and other

terms defined in section 4 of Rev. Proc.
2002-65, apply for purposes of this clos-
ing agreement.

3\. The taxable years covered by this
closing agreement are [insert applicable tax-
able years].

4\. The taxpayer currently accounts for
track structure expenditures as follows: [in-
sert taxpayer's current method of account-
ing for track structure expenditures].

5\. The taxpayer and the Internal Rev-
enue Service ("Service") rely on the fol-
lowing facts and representations in making
this closing agreement: [insert relevant facts,
including the track maintenance allow-
ance and the capitalized amount under the
track maintenance allowance method for
each taxable year under examination, be-
fore an area appeals office, or before the
Tax Court, an explanation of the compu-
tations used to determine those amounts,
and a statement of whether the track main-
tenance allowance for each of those tax-
able years is taken into account for federal
income tax purposes].

NOW IT IS HEREBY DETERMINED
AND AGREED for federal income tax
purposes:

1\. That the Service is changing the tax-
payer's method of accounting for track
structure expenditures to the track main-
tenance allowance method of accounting de-
scribed in section 5 of Rev. Proc. 2002-
65, for the taxable year ending [insert
earliest open taxable year after which there
is no closed taxable year].

2\. That the method change will be imple-
mented using a cut-off method.

3\. That the adjustments to taxable in-
come necessary to reflect the new method,
and any collateral adjustments to taxable in-
come or tax liability resulting from the
change for each of the taxable years cov-
ered by this agreement, are as follows: [in-
sert appropriate adjustments].

4\. (If appropriate), That the taxpayer has
filed any amended returns required by sec-
tion 8.05(4) of Rev. Proc. 2002-65, to re-
flect the settlement.

5\. That the Service will not require the
taxpayer to change its method of account-
ing for track structure expenditures to a
method other than the track maintenance al-
lowance method for any taxable year for
which a federal income tax return has been
filed as of the date of this closing agree-
ment, provided that: (a) the taxpayer has
complied with all the applicable provi-

sions of the closing agreement; (b) there has
been no taxpayer fraud, malfeasance, or
misrepresentation of a material fact; (c)
there has been no change in the material
facts on which the closing agreement was
based; and (d) there has been no change in
the applicable law on which the closing
agreement was based.

6\. That the Service is not precluded from
challenging the computation of the track
maintenance allowance for any taxable year
covered by this closing agreement on a ba-
sis unrelated to the track maintenance al-
lowance method (for example, that all or

a portion of the amount is not incurred un-
der § 461 or that the taxpayer has not prop-
erly applied the uniform capitalization rules
of § 263A and the regulations thereun-
der).

7\. That the taxpayer accepts this settle-
ment and agrees to the applicable terms of
Rev. Proc. 2002-65.

This agreement is final and conclusive
except:

(1) The matter it relates to may be re-
opened in the event of fraud, malfeasance,
or misrepresentation of a material fact;

(2) It is subject to the Internal Rev-
enue Code sections that expressly pro-
vide that effect be given to their provisions
(including any stated exception for § 7122)
notwithstanding any law or rule of law; and
(3) If it relates to a tax period ending af-
ter the date of this agreement, it is sub-
ject to any law enacted after the agreement
date, that applies to the tax period.

By signing, the parties certify that they
have read and agreed to the terms of this
document.

Taxpayer (other than individual):

By:

Date:

Title:

Commissioner of Internal Revenue:

By:

Date:

Title:

Instructions

[This agreement must be signed and filed in triplicate. (All copies must have original signatures.) The original and copies of the
agreement must be identical. The name of the taxpayer must be stated accurately. The agreement may relate to one or more years.

If an attorney or agent signs the agreement for the taxpayer, the power of attorney (or a copy) authorizing that person to sign must
be attached to the agreement.

If the taxpayer is a corporation, the agreement must be dated and signed with the name of the corporation, the signature and title
of an authorized officer or officers, or the signature of an authorized attorney or agent. It is not necessary that a copy of an en-
abling corporate resolution be attached.

Use additional pages if necessary and identify them as part of this agreement.

Please see Rev. Proc. 68-16, 1968-1 C.B. 770, for a detailed description of practices and procedures applicable to most closing agree-
ments.]

I have examined the specific matters involved and recommend the acceptance of the proposed agreement

(Receiving Officer)

(Date)

(Title)

I have examined the specific matters involved and recommend the acceptance of the proposed agreement
(Receiving Officer)
(Date)

(Title)

# Part IV. Items of General Interest

## Request for Comments Regarding Application for Recognition of Exemption

### Announcement 2002-92

The Internal Revenue Service (IRS) is
revising Form 1023, Application for Rec-
ognition of Exemption under Section
501(c)(3) of the Internal Revenue Code, and
Instructions for Form 1023. To ensure that
this process considers the needs of all who
have an interest in the application filed by
organizations to obtain recognition of ex-
emption from federal income tax under sec-
tion 501(c)(3) of the Internal Revenue Code,
we are seeking comments from exempt or-
ganizations, practitioners, state regula-
tors, vendors, and others.

### BACKGROUND

In order to be recognized as exempt
from federal income tax under section
501(a) as an organization described in sec-
tion 501(c)(3), the law requires that most
organizations submit an application with a
detailed statement of their proposed activi-
ties sufficient to establish that they qualify
for exemption. This draft application and
accompanying instructions takes into con-
sideration this requirement and comments
we previously received from those involved
in the application process with sugges-
tions for improvements.

### REQUEST FOR PUBLIC COMMENT

The IRS requests comments from ex-
empt organizations, practitioners, and all in-
terested stakeholders on proposed revisions
to the current Form 1023 and Instructions.
The proposed revisions have been posted
on the IRS website, at www.irs.gov/eo.

Interested parties should provide a state-
ment explaining their interest in the Form
1023 and any information that will be use-
ful in revising it. We are particularly in-
terested in comments that address the
following:

1\. Ease of comprehension,

2\. Customer burden,

3\. Technical accuracy, and

4\. Sufficiency of information requested.
Public comments should be submitted in
writing on or before December 2, 2002, to
the following address:

Internal Revenue Service

1111 Constitution Avenue, NW
Washington, DC 20224
Attn: Amy Henchey - Form 1023
Announcement
T:EO:CEO

Comments may also be sent via elec-
tronic mail to *TE/GE-EO-2@irs.gov.
Please note that the * asterisk symbol is an
integral part of the address.

### DRAFTING INFORMATION

The principal author of this announce-
ment is Amy Henchey of Exempt Organi-
zations. For further information regarding
this announcement, contact Amy Henchey
at (202) 283-8856 or Cindy Westcott at
(513) 263-3519 (not a toll-free call).

### 10 or More Employer Plans; Hearing

### Announcement 2002-93

AGENCY: Internal Revenue Service
(IRS), Treasury.

ACTION: Change of date and location
of public hearing.

SUMMARY: This document changes the
date and location of a public hearing on
proposed regulations (REG-165868-01,
2002-31 I.R.B. 270) relating to 10 or more
employer plans under section 419 of the In-
ternal Revenue Code.

DATES: The public hearing originally
scheduled for Tuesday, November 5, 2002,
at 10 a.m., in room 4718, is rescheduled for
Thursday, November 14, 2002, at 10 a.m.,
in room 2140.

ADDRESSES: The public hearing
originally scheduled to be in room 4718
of the Internal Revenue Building, 1111
Constitution Avenue NW, Washington,
DC. will be held in room 2140 of the
Internal Revenue Building, 1111
Constitution Avenue NW, Washington,
DC.

FOR FURTHER INFORMATION: Guy
R. Traynor of the Regulations Unit,
Associate Chief Counsel (Income Tax &
Accounting), (202) 622-7180 (not a
toll-free number).

SUPPLEMENTARY INFORMATION:

A notice of proposed rulemaking and no-
tice of public hearing appearing in the Fed-
eral Register on Thursday, July 11, 2002
(67 FR 45933), announced that a public
hearing on proposed regulations relating to
10 or more employer plans under section
419 of the Internal Revenue Code would
be held on Tuesday, November 5, 2002, be-
ginning at 10 a.m. in room 4718 of the In-
ternal Revenue Building, 1111 Constitution
Avenue NW, Washington, DC.

The date and location of the public hear-
ing has changed. The hearing is sched-
uled for Thursday, November 14, 2002,
beginning at 10 a.m. in room 2140, Inter-
nal Revenue Building, 1111 Constitution
Avenue NW, Washington, DC. We must re-
ceive requests to speak and outlines of oral
comments by October 24, 2002. Because
of the controlled access restrictions, attend-
ers are not admitted beyond the lobby of
the Internal Revenue Building until 9:30
a.m. The Service will prepare an agenda
showing the scheduling of the speakers af-
ter the outlines are received from the per-
sons testifying and make copies available
free of charge at the hearing.

Cynthia E. Grigsby,
Chief, Regulations Unit,
Associate Chief Counsel
(Income Tax & Accounting).

(Filed by the Office of the Federal Register on September 10,
2002, 8:45 a.m., and published in the issue of the Federal Reg-
ister for September 11, 2002, 67 F.R. 57543)

# Definition of Terms

Revenue rulings and revenue procedures
(hereinafter referred to as "rulings") that
have an effect on previous rulings use the
following defined terms to describe the
effect:

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.

Distinguished describes 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

applies to both A and B, the prior ruling
is modified because it corrects a pub-
lished 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
period of time in separate rulings. If the

new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
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 published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings 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 formerly used will appear in
material published in the Bulletin.

A-Individual.

Acq .- Acquiescence.

B-Individual.

BE-Beneficiary.

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.

COOP-Cooperative.

GR-Grantor.

Ct.D .- Court Decision.

IC-Insurance Company.

I.R.B .- Internal Revenue Bulletin.

D-Decedent.

LE-Lessee.

DC-Dummy Corporation.

LP-Limited Partner.

LR-Lessor.

TT-Trustee.

U.S.C .- United States Code.

DISC-Domestic International Sales Corporation.

DR-Donor.

E-Estate.

P-Parent Corporation.

PHC-Personal Holding Company.

PO-Possession of the U.S.
PR-Partner.

PRS Partnership.

PTE-Prohibited Transaction Exemption.

Pub. L .- Public Law.

REIT-Real Estate Investment Trust.

Rev. Proc .- Revenue Procedure.

Rev. Rul .- Revenue Ruling.

S Subsidiary.

S.P.R .- Statements of Procedural Rules.
Stat .- Statutes at Large.

T-Target Corporation.

T.C .- Tax Court.

T.D .- Treasury Decision.

TFE-Transferee.

TFR-Transferor.

T.I.R .- Technical Information Release.

TP-Taxpayer.

TR-Trust.

DE-Donee.

Del. Order-Delegation Order.

M-Minor.

Nonacq .- Nonacquiescence.

X-Corporation.

O- Organization.

Y-Corporation.

Z-Corporation.

EE-Employee.

E.O .- Executive Order.

ER-Employer.

ERISA-Employee Retirement Income Security Act.

EX-Executor.

F-Fiduciary.

FC-Foreign Country.

FICA-Federal Insurance Contributions Act.

FISC- Foreign International Sales Company.

BK-Bank.

B.T.A .- Board of Tax Appeals.

C-Individual.

C.B .- Cumulative Bulletin.

CFR-Code of Federal Regulations.

CI-City.

CY-County.

Numerical Finding List1

Notices-Continued:

Revenue Rulings-Continued:

Bulletin 2002-26 through 2002-40

2002-62, 2002-39 I.R.B. 574

2002-48, 2002-31 I.R.B. 239

2002-63, 2002-40 I.R.B. 644

2002-49, 2002-32 I.R.B. 288

Announcements:

2002-50, 2002-32 I.R.B. 292

Proposed Regulations:

2002-51, 2002-33 I.R.B. 327

2002-59, 2002-26 I.R.B. 28

2002-52, 2002-34 I.R.B. 388

2002-60, 2002-26 I.R.B. 28

REG-248110-96, 2002-26 I.R.B. 19

2002-53, 2002-35 I.R.B. 427

2002-61, 2002-27 I.R.B. 72

REG-110311-98, 2002-28 I.R.B. 109

2002-54, 2002-37 I.R.B. 527

2002-62, 2002-27 I.R.B. 72

REG-103823-99, 2002-27 I.R.B. 44

2002-55, 2002-37 I.R.B. 529

2002-63, 2002-27 I.R.B. 72

REG-103829-99, 2002-27 I.R.B. 59

2002-56, 2002-37 I.R.B. 526

2002-64, 2002-27 I.R.B. 72

REG-103735-00, 2002-28 I.R.B. 109

2002-57, 2002-37 I.R.B. 526

2002-65, 2002-29 I.R.B. 182

REG-106457-00, 2002-26 I.R.B. 23

2002-58, 2002-38 I.R.B. 541

2002-66, 2002-29 I.R.B. 183

REG-106871-00, 2002-30 I.R.B. 190

2002-59, 2002-38 I.R.B. 557

2002-67, 2002-30 I.R.B. 237

REG-106876-00, 2002-34 I.R.B. 392

2002-60, 2002-40 I.R.B. 641

2002-68, 2002-31 I.R.B. 283

REG-106879-00, 2002-34 I.R.B. 402

2002-61, 2002-40 I.R.B. 639

2002-69, 2002-31 I.R.B. 283

REG-107524-00, 2002-28 I.R.B. 110 REG-115285-01, 2002-27 I.R.B. 62

Treasury Decisions:

2002-70, 2002-31 I.R.B. 284

REG-115781-01, 2002-33 I.R.B. 380

2002-71, 2002-32 I.R.B. 323

REG-116644-01, 2002-31 I.R.B. 268

8997, 2002-26 I.R.B. 6

2002-72, 2002-32 I.R.B. 323

REG-123345-01, 2002-32 I.R.B. 321

8998, 2002-26 I.R.B. 1

2002-73, 2002-33 I.R.B. 387

REG-126024-01, 2002-27 I.R.B. 64

8999, 2002-28 I.R.B. 78

2002-74, 2000-33 I.R.B. 387

REG-136311-01, 2002-36 I.R.B. 485

9000, 2002-28 I.R.B. 87

2002-75, 2002-34 I.R.B. 416

REG-164754-01, 2002-30 I.R.B. 212

9001, 2002-29 I.R.B. 128

2002-76, 2002-35 I.R.B. 471

REG-165868-01, 2002-31 I.R.B. 270

9002, 2002-29 I.R.B. 120

2002-77, 2002-35 I.R.B. 471

REG-106359-02, 2002-34 I.R.B. 405

9003, 2002-32 I.R.B. 294

2002-78, 2002-36 I.R.B. 514

REG-122564-02, 2002-26 I.R.B. 25

9004, 2002-33 I.R.B. 331

2002-79, 2002-36 I.R.B. 515

REG-123305-02, 2002-26 I.R.B. 26

9005, 2002-32 I.R.B. 290

2002-80, 2002-36 I.R.B. 515

REG-124256-02, 2002-33 I.R.B. 383

9006, 2002-32 I.R.B. 315

2002-81, 2002-37 I.R.B. 533

REG-133254-02, 2002-34 I.R.B. 412

9007, 2002-33 I.R.B. 349

2002-82, 2002-37 I.R.B. 533

REG-134026-02, 2002-40 I.R.B. 684

9008, 2002-33 I.R.B. 335

2002-83, 2002-38 I.R.B. 564

9009, 2002-33 I.R.B. 328

2002-84, 2002-37 I.R.B. 533

Revenue Procedures:

9010, 2002-33 I.R.B. 341

2002-85, 2002-39 I.R.B. 624

9011, 2002-33 I.R.B. 356

2002-86, 2002-39 I.R.B. 624

2002-43, 2002-28 I.R.B. 99

9012, 2002-34 I.R.B. 389

2002-87, 2002-39 I.R.B. 624

2002-44, 2002-26 I.R.B. 10

9013, 2002-38 I.R.B. 542

2002-88, 2002-38 I.R.B. 564

2002-45, 2002-27 I.R.B. 40 2002-46, 2002-28 I.R.B. 105

9014, 2002-35 I.R.B. 429 9015, 2002-40 I.R.B. 642

2002-89, 2002-39 I.R.B. 626 2002-90, 2002-40 I.R.B. 684

2002-47, 2002-29 I.R.B. 133

9016, 2002-40 I.R.B. 628

2002-48, 2002-37 I.R.B. 531

2002-91, 2002-40 I.R.B. 685

2002-49, 2002-29 I.R.B. 172

Court Decisions:

2002-50, 2002-29 I.R.B. 173

2002-51, 2002-29 I.R.B. 175

2075, 2002-38 I.R.B. 548

2002-52, 2002-31 I.R.B. 242

2002-53, 2002-31 I.R.B. 253

Notices:

2002-54, 2002-35 I.R.B. 432

2002-55, 2002-35 I.R.B. 435

2002-42, 2002-27 I.R.B. 36

2002-56, 2002-36 I.R.B. 483

2002-43, 2002-27 I.R.B. 38

2002-44, 2002-27 I.R.B. 39

2002-57, 2002-39 I.R.B. 575

2002-45, 2002-28, I.R.B. 93

2002-58, 2002-40 I.R.B. 644 2002-59, 2002-39 I.R.B. 615

2002-46, 2002-28 I.R.B. 96

2002-47, 2002-28 I.R.B. 97

2002-60, 2002-40 I.R.B. 645

2002-48, 2002-29 I.R.B. 130

2002-61, 2002-39 I.R.B. 616

2002-49, 2002-29 I.R.B. 130

2002-62, 2002-40 I.R.B. 683

2002-50, 2002-28 I.R.B. 98

Revenue Rulings:

2002-51, 2002-29 I.R.B. 131

2002-52, 2002-30 I.R.B. 187

2002-38, 2002-26 I.R.B. 4

2002-53, 2002-30 I.R.B. 187

2002-39, 2002-27 I.R.B. 33

2002-54, 2002-30 I.R.B. 189

2002-40, 2002-27 I.R.B. 30

2002-55, 2002-36 I.R.B. 481

2002-41, 2002-28 I.R.B. 75

2002-56, 2002-32 I.R.B. 319

2002-42, 2002-28 I.R.B. 76

2002-57, 2002-33 I.R.B. 379

2002-43, 2002-28 I.R.B. 85

2002-58, 2002-35 I.R.B. 432

2002-44, 2002-28 I.R.B. 84

2002-59, 2002-36 I.R.B. 481

2002-45, 2002-29 I.R.B. 116

2002-60, 2002-36 I.R.B. 482

2002-46, 2002-29 I.R.B. 117

2002-61, 2002-38 I.R.B. 563

2002-47, 2002-29 I.R.B. 119

1 A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 2002-1 through 2002-25 is
in Internal Revenue Bulletin 2002-26, dated July 1, 2002.

Finding List of Current Actions
on Previously Published Items1
Bulletin 2002-26 through 2002-40

Announcements:

98-99
Superseded by
Rev. Proc. 2002-44, 2002-26 I.R.B. 10

2000-4
Modified by
Ann. 2002-60, 2002-26 I.R.B. 28

2001-9
Superseded by
Rev. Proc. 2002-44, 2002-26 I.R.B. 10

Notices:

97-26
Modified and superseded by
Notice 2002-62, 2002-39 I.R.B. 574

2001-6
Superseded by
Notice 2002-63, 2002-40 I.R.B. 644

2001-62
Modified and superseded by
Notice 2002-62, 2002-39 I.R.B. 574

Proposed Regulations:

REG-208280-86
Withdrawn by
REG-136311-01, 2002-36 I.R.B. 485

REG-209114-90
Corrected by
Ann. 2002-65, 2002-29 I.R.B. 182

REG-209813-96
Withdrawn by
REG-106871-00, 2002-30 I.R.B. 190

REG-103823-99
Corrected by

Ann. 2002-67, 2002-30 I.R.B. 237
Ann. 2002-79, 2002-36 I.R.B. 515

REG-103829-99
Corrected by
Ann. 2002-82, 2002-37 I.R.B. 533

REG-105885-99
Corrected by
Ann. 2002-67, 2002-30 I.R.B. 237

REG-105369-00
Clarified by
Notice 2002-52, 2002-30 I.R.B. 187
Corrected by
Ann. 2002-67, 2002-30 I.R.B. 237

REG-118861-00
Corrected by
Ann. 2002-67, 2002-30 I.R.B. 237

REG-126100-00
Withdrawn by
REG-133254-02, 2002-34 I.R.B. 412

## Proposed Regulations-Continued

REG-136193-01
Corrected by
Ann. 2002-67, 2002-30 I.R.B. 237

REG-161424-01
Corrected by
Ann. 2002-67, 2002-30 I.R.B. 237

REG-165706-01
Corrected by
Ann. 2002-67, 2002-30 I.R.B. 237

REG-102740-02
Corrected by
Ann. 2002-67, 2002-30 I.R.B. 237

REG-106359-02
Corrected by
Ann. 2002-81, 2002-37 I.R.B. 533

REG-108697-02
Corrected by
Ann. 2002-84, 2002-37 I.R.B. 533

REG-123305-02
Corrected by
Ann. 2002-69, 2002-31 I.R.B. 283

Revenue Procedures:

88-10
Superseded by
Rev. Proc. 2002-48, 2002-37 I.R.B. 531

91-23
Modified and superseded by
Rev. Proc. 2002-52, 2002-31 I.R.B. 242

91-26
Modified and superseded by
Rev. Proc. 2002-52, 2002-31 I.R.B. 242

95-18
Superseded by
Rev. Proc. 2002-51, 2002-29 I.R.B. 175

96-13
Modified and superseded by
Rev. Proc. 2002-52, 2002-31 I.R.B. 242
96-14
Modified and superseded by
Rev. Proc. 2002-52, 2002-31 I.R.B. 242
96-53
Amplified by
Rev. Proc. 2002-52, 2002-31 I.R.B. 242

2001-12
Obsoleted by
T.D. 9004, 2002-33 I.R.B. 331

2001-17
Modified and superseded by
Rev. Proc. 2002-47, 2002-29 I.R.B. 133

2001-26
Superseded by
Rev. Proc. 2002-53, 2002-31 I.R.B. 253

## Revenue Procedures-Continued

2001-45
Superseded by
Rev. Proc. 2002-60, 2002-40 I.R.B. 645

2001-50
Superseded by
Rev. Proc. 2002-57, 2002-39 I.R.B. 575

2001-54
Superseded by
Rev. Proc. 2002-61, 2002-39 I.R.B. 616
2002-9
Modified and amplified by
Rev. Proc. 2002-46, 2002-28 I.R.B. 105
Amplified, clarified, and modified by
Rev. Proc. 2002-54, 2002-35 I.R.B. 432
2002-13
Modified by
Rev. Proc. 2002-45, 2002-27 I.R.B. 40

2002-15
Modified and superseded by
Rev. Proc. 2002-59, 2002-39 I.R.B. 615
2002-19
Amplified and clarified by
Rev. Proc. 2002-54, 2002-35 I.R.B. 432

### Revenue Rulings:

54-571
Obsoleted by
T.D. 9010, 2002-33 I.R.B. 341

55-534
Distinguished by
Rev. Rul. 2002-60, 2002-40 I.R.B. 641

55-606
Obsoleted by
T.D. 9010, 2002-33 I.R.B. 341

59-328
Obsoleted by
T.D. 9010, 2002-33 I.R.B. 341
64-36
Obsoleted by
T.D. 9010, 2002-33 I.R.B. 341

65-129
Obsoleted by
T.D. 9010, 2002-33 I.R.B. 341

67-197
Obsoleted by
T.D. 9010, 2002-33 I.R.B. 341

69-259
Modified and superseded by
Rev. Rul. 2002-50, 2002-32 I.R.B. 292

69-595
Obsoleted in part by
T.D. 9010, 2002-33 I.R.B. 341

1 A cumulative list of current actions on previously published
items in Internal Revenue Bulletins 2002-1 through 2002-25 is
in Internal Revenue Bulletin 2002-26, dated July 1, 2002.

## Revenue Rulings-Continued

70-608
Obsoleted in part by
T.D. 9010, 2002-33 I.R.B. 341

73-232
Obsoleted by
T.D. 9010, 2002-33 I.R.B. 341

76-225
Revoked by
REG-115781-01, 2002-33 I.R.B. 380

77-53
Obsoleted by
T.D. 9010, 2002-33 I.R.B. 341

85-50
Obsoleted by
T.D. 2002-33 I.R.B. 341

92-17
Amplified by
Rev. Rul. 2002-49, 2002-32 I.R.B. 288

92-75
Clarified by
Rev. Proc. 2002-52, 2002-31 I.R.B. 242
93-70
Obsoleted by
T.D. 9010, 2002-33 I.R.B. 341

94-76
Amplified by
Rev. Rul. 2002-42, 2002-28 I.R.B. 76

## Treasury Decisions:

8925
Corrected by
Ann. 2002-89, 2002-39 I.R.B. 626

8997
Corrected by
Ann. 2002-68, 2002-31 I.R.B. 283

8999
Corrected by
Ann. 2002-71, 2002-32 I.R.B. 323

### 9013

Corrected by
Ann. 2002-83, 2002-38 I.R.B. 564

Internal Revenue Bulletin 2002-41 (PDF rendition): IRS Revenue Procedures

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