Internal Revenue Bulletin 2003-14 (PDF rendition): IRS Revenue Rulings

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

HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Rev. Rul. 2003–32, page 689.
Scholarship grants, employer-related private founda-
tions.This ruling states that for purposes of sections 117 and
4945 of the Code, scholarships and educational grants awarded
by a private foundation under an employer-related program to em-
ployees and their children, when the employee is a victim killed
or seriously injured in a qualified disaster, may be awarded with-
out regard to the percentage guidelines in Rev. Proc. 76–47,
1976–2 C.B. 670. Thus, grants awarded under such a pro-
gram will be described in section 4945(g)(1) and will not be tax-
able expenditures under section 4945(d)(3).
Rev. Rul. 2003–35, page 687.
Federal rates; adjusted federal rates; adjusted federal long-
term rate and the long-term exempt rate.For purposes of
sections 382, 1274, 1288, and other sections of the Code,
tables set forth the rates for April 2003.
T.D. 9047, page 676.
Final regulations apply to certain transactions or events that re-
sult in a Regulated Investment Company (RIC) or a Real Estate
Investment Trust (REIT) owning property that has a basis deter-
mined by reference to a C corporation’s basis in the property.
These regulations affect RICs, REITs, and C corporations and
clarify the tax treatment of transfers of C corporation property
to a RIC or REIT.
T.D. 9049, page 685.
Final regulations under section 705 of the Code provide guid-
ance for making basis adjustments necessary to coordinate sec-
tions 705 and 1032 in situations in which a corporation owns a
direct or indirect interest in a partnership that holds stock in that
corporation.
Notice 2003–18, page 699.
Disaster relief grants; businesses.This notice provides an-
swers to frequently asked questions for businesses not ex-
empt from federal income tax regarding the tax treatment of grant
payments the Empire State Development Corporation, in coor-
dination with the New York City Economic Development Corpo-
ration, will make under three grant programs to businesses
located in the area of the World Trade Center attacks.
EXEMPT ORGANIZATIONS
Rev. Rul. 2003–32, page 689.
Scholarship grants, employer-related private founda-
tions.This ruling states that for purposes of sections 117 and
4945 of the Code, scholarships and educational grants awarded
by a private foundation under an employer-related program to em-
ployees and their children, when the employee is a victim killed
or seriously injured in a qualified disaster, may be awarded with-
out regard to the percentage guidelines in Rev. Proc. 76–47,
1976–2 C.B. 670. Thus, grants awarded under such a pro-
gram will be described in section 4945(g)(1) and will not be tax-
able expenditures under section 4945(d)(3).
EXCISE TAX
Rev. Rul. 2003–32, page 689.
Scholarship grants, employer-related private founda-
tions.This ruling states that for purposes of sections 117 and
4945 of the Code, scholarships and educational grants awarded
by a private foundation under an employer-related program to em-
ployees and their children, when the employee is a victim killed
or seriously injured in a qualified disaster, may be awarded with-
out regard to the percentage guidelines in Rev. Proc. 76–47,
1976–2 C.B. 670. Thus, grants awarded under such a pro-
gram will be described in section 4945(g)(1) and will not be tax-
able expenditures under section 4945(d)(3).
(Continued on the next page)
Bulletin No. 2003–14
April 7, 2003
Announcements of Disbarments and Suspensions begin on page 712.
Finding Lists begin on page ii.
Index for January through March begins on page iv.

ADMINISTRATIVE
T.D. 9044, page 690.
Final regulations under section 6103 of the Code require con-
tractors who engage in tax administration services to notify their
officers and employees of the prohibitions against and penal-
ties for unauthorized disclosure and inspection of returns or re-
turn information.
T.D. 9050, page 693.
Final regulations implement changes to sections 7433 and 7426
of the Code. Section 7433 provides for the recovery of dam-
ages caused by the willful violation of the automatic stay or dis-
charge provisions of the Bankruptcy Code by an employee or
officer of the Service. Section 7426 provides for the recovery
of damages associated with certain wrongful levies.
Notice 2003–19, page 703.
This notice advises taxpayers of the proper address for filing cer-
tain elections, statements, and other documents with the Ser-
vice as a result of the reorganization, including with respect to
offices or officials that no longer exist as part of the reorgani-
zation.
April 7, 20032003–14 I.R.B.

The IRS Mission
Provide America’s taxpayers top quality service by helping them
understand and meet their tax responsibilities and by applying
the tax law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of the
Commissioner of Internal Revenue for announcing official rul-
ings and procedures of the Internal Revenue Service and for pub-
lishing Treasury Decisions, Executive Orders, Tax Conventions,
legislation, court decisions, and other items of general inter-
est. It is published weekly and may be obtained from the Super-
intendent of Documents on a subscription basis. Bulletin contents
are consolidated semiannually into Cumulative Bulletins, which
are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, modify,
or amend any of those previously published in the Bulletin. All pub-
lished rulings apply retroactively unless otherwise indicated. Pro-
cedures relating solely to matters of internal management are
not published; however, statements of internal practices and pro-
cedures that affect the rights and duties of taxpayers are pub-
lished.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpay-
ers or technical advice to Service field offices, identifying de-
tails and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be re-
lied on, used, or cited as precedents by Service personnel in the
disposition of other cases. In applying published rulings and pro-
cedures, the effect of subsequent legislation, regulations, court
decisions, rulings, and procedures must be considered, and Ser-
vice personnel and others concerned are cautioned against reach-
ing the same conclusions in other cases unless the facts and
circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions of
the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A, Tax
Conventions and Other Related Items, and Subpart B, Legisla-
tion and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these sub-
jects are contained in the other Parts and Subparts. Also in-
cluded in this part are Bank Secrecy Act Administrative Rulings.
Bank Secrecy Act Administrative Rulings are issued by the De-
partment of the Treasury’s Office of the Assistant Secretary (En-
forcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The first Bulletin for each month includes a cumulative index for
the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the first Bulletin of the succeeding semiannual pe-
riod, respectively.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.
2003–14 I.R.B.April 7, 2003

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 42.—Low-Income
Housing Credit
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for the
month of April 2003. See Rev. Rul. 2003–35, page
687.
Section 102.—Gifts and
Inheritances
26 CFR 1.102–1: Gifts and inheritances.
Why are grant payments made to businesses
under the World Trade Center grant program not
excluded from a grant recipient’s gross income as
a gift under section 102(a)? See Notice 2003–18,
page 699.
Section 118.—Contributions
to the Capital of a Corpo-
ration
26 CFR 1.118–1: Contributions to the capital of a
corporation.
Are grant payments made to businesses under
the World Trade Center grant programs excluded
from gross income as contributions to capital under
section 118? See Notice 2003–18, page 699.
Section 139.—Disaster Relief
Payments
Why are grant payments made to businesses
under the World Trade Center grant programs not
excluded from a recipient’s gross income as
qualified disaster relief payments under section
139? See Notice 2003–18, page 699.
Section 165.—Losses
26 CFR 1.165–1: Losses.
Must recipients of grant payments made under
the World Trade Center grant programs reduce the
amount of an allowable casualty loss deduction
under section 165 or include in gross income all or
part of a casualty loss claimed in a prior year? See
Notice 2003–18, page 699.
Section 280G.—Golden
Parachute Payments
Federal short-term, mid-term, and long-term
rates are set forth for the month of April 2003. See
Rev. Rul. 2003–35, page 687.
Section 337.—Nonrecognition
for Property Distributed to
Parent in Complete
Liquidation of Subsidiary
26 CFR 1.337(d)–6: New transitional rules
imposing tax on property owned by a C
corporation that becomes property of a RIC or
REIT.
T.D. 9047
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Certain Transfers of Property
to Regulated Investment
Companies [RICs] and Real
Estate Investment Trusts
[REITs]
AGENCY: Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations and removal of
temporary regulations.
SUMMARY: This document contains fi-
nal regulations that apply to certain trans-
actions or events that result in a Regulated
Investment Company [RIC] or a Real Es-
tate Investment Trust [REIT] owning prop-
erty that has a basis determined by reference
to a C corporation’s basis in the property.
These regulations affect RICs, REITs, and
C corporations and clarify the tax treat-
ment of transfers of C corporation prop-
erty to a RIC or REIT.
DATES:Effective Date:These regulations
are effective March 18, 2003.
Applicability Dates:For dates of appli-
cability, see §§1.337(d)–5(d), 1.337(d)–
6(e) and 1.337(d)–7(f).
FOR FURTHER INFORMATION CON-
TACT: Jennifer D. Sledge, (202) 622–7750
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained
in these final regulations has been reviewed
and approved by the Office of Manage-
ment and Budget in accordance with the Pa-
perwork Reduction Act of 1995 (44 U.S.C.
3507(d)) under control number 1545–1672.
This information is required to obtain a ben-
efit,i.e., to elect to recognize gain as if the
C corporation had sold the property at fair
market value or to elect section 1374 treat-
ment.
An agency may not conduct or spon-
sor, and a person is not required to re-
spond to, a collection of information unless
the collection of information displays a valid
control number assigned by the Office of
Management and Budget.
The estimated annual burden per re-
spondent is 30 minutes.
Comments concerning the accuracy of
this burden estimate and suggestions for re-
ducing this burden should be sent to theIn-
ternal Revenue Service, Attn: IRS Reports
Clearance Officer, W:CAR:MP:T:T:SP,
Washington, DC 20224, and to theOf-
fice of Management and Budget, ATTN:
Desk Officer for the Department of the
Treasury, Office of Information and Regu-
latory Affairs, Washington, DC 20503.
Books or records relating to a collec-
tion of information must be retained as long
as their contents might become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required by
26 U.S.C. 6103.
Background
This document contains amendments to
26 CFR part 1. On February 7, 2000, tem-
porary regulations (T.D. 8872, 2000–1 C.B.
639 [65 FR 5775]) (the 2000 temporary
regulations) relating to certain transac-
tions or events that result in a RIC or REIT
owning property that has a basis deter-
mined by reference to a C corporation’s ba-
sis in the property were published in the
Federal Register. A notice of proposed
rulemaking (REG–209135–88, 2000–1 C.B.
2003–14 I.R.B.676April 7, 2003

681 [65 FR 5805]) cross-referencing the
temporary regulations was published in the
Federal Registerfor the same day. The
2000 temporary regulations were intended
to carry out the purposes of the repeal of
theGeneral Utilitiesdoctrine as enacted in
the Tax Reform Act of 1986 (the 1986 Act)
(Public Law 99–514, 100 Stat. 2085), as
amended by the Technical and Miscella-
neous Revenue Act of 1988 (Public Law
100–647, 102 Stat. 3342).
The 1986 Act amended sections 336 and
337 to require corporations to recognize
gain or loss on the distribution of prop-
erty in connection with complete liquida-
tions other than certain subsidiary
liquidations. Section 337(d) directs the Sec-
retary to prescribe regulations as may be
necessary to carry out the purposes of the
General Utilitiesrepeal, including rules to
“ensure that such purposes may not be cir-
cumvented...through the use of a regu-
lated investment company, a real est-
ate investment trust, or tax-exempt
entity....”
The 2000 temporary regulations also re-
flected the principles set forth in Notice 88–
19, 1988–1 C.B. 486, in which the IRS
announced its intention to promulgate regu-
lations under the authority of section 337(d)
with respect to transactions or events that
result in a RIC or REIT owning property
that has a basis determined by reference to
a C corporation’s basis (a carryover ba-
sis). Notice 88–19 provided that the regu-
lations would apply with respect to the net
built-in gain of C corporation assets that be-
come assets of a RIC or REIT by the quali-
fication of a C corporation as a RIC or
REIT or by the transfer of assets of a C cor-
poration to a RIC or REIT (a conversion
transaction). The notice further provided
that, where the regulations apply, the C cor-
poration would be treated, for all purposes,
as if it had sold all of its assets at their re-
spective fair market values and immedi-
ately liquidated. The notice provided,
however, that the regulations would not al-
low the recognition of a net loss and that
immediate gain recognition could be
avoided if the C corporation that quali-
fied as a RIC or REIT or the transferee RIC
or REIT, as the case may have been, elected
to be subject to tax under section 1374 with
respect to the C corporation property. No-
tice 88–19 also indicated that the regula-
tions would apply retroactively to June 10,
1987.
A public hearing on the cross-referenced
notice of proposed rulemaking was held on
May 10, 2000. Written or electronic com-
ments responding to the notice of pro-
posed rulemaking were received. After
consideration of these comments, Trea-
sury and the IRS decided to issue two new
sets of temporary regulations. On January
2, 2002, temporary regulations (T.D. 8975,
2002–1 C.B. 379 [67 FR 8]) (the 2002 tem-
porary regulations) were published in the
Federal Register. The regulations under
§1.337(d)–6T apply to conversion transac-
tions occurring on or after June 10, 1987,
and before January 2, 2002, and the regu-
lations under§1.337(d)–7T apply to con-
version transactions occurring on or after
January 2, 2002. A notice of proposed rule-
making (REG–142299–01 and REG–
209135–88, 2002–1 C.B. 418 [67 FR 48])
cross-referencing the temporary regula-
tions was published in theFederal Reg-
isterfor the same day.
The regulations under§1.337(d)–6T pro-
vide that, if property of a C corporation that
is not a RIC or REIT becomes the prop-
erty of a RIC or REIT in a conversion
transaction, then the C corporation is sub-
ject to deemed sale treatment, unless the
RIC or REIT elects to be subject to sec-
tion 1374 treatment. Thus, the C corpora-
tion generally recognizes gain and loss as
if it sold the property converted to RIC or
REIT property or transferred to the RIC or
REIT (the converted property) to an unre-
lated party at fair market value immedi-
ately before the conversion transaction. If
the C corporation recognizes net gain on the
deemed sale, then the basis of the con-
verted property in the hands of the RIC or
REIT is adjusted to its fair market value im-
mediately before the conversion transac-
tion. The regulations under§1.337(d)–6T
do not permit a C corporation to recog-
nize a net loss on the deemed sale. Where
there is a net loss, the C corporation rec-
ognizes no gain or loss on the deemed sale,
and the C corporation’s basis in the con-
verted property carries over to the RIC or
REIT.
The regulations under§1.337(d)–7T pro-
vide that, if property of a C corporation that
is not a RIC or REIT becomes the prop-
erty of a RIC or REIT in a conversion
transaction, then the RIC or REIT will be
subject to tax on the net built-in gain in the
converted property under the rules of sec-
tion 1374 and the regulations thereunder,
unless the C corporation that qualifies as
a RIC or REIT or transfers property to a
RIC or REIT elects deemed sale treatment.
In most other respects, the regulations un-
der§1.337(d)–7T follow the regulations un-
der§1.337(d)–6T.
No public hearing was requested or held
on the 2002 temporary regulations. Writ-
ten or electronic comments responding to
the notice of proposed rulemaking were re-
ceived. After consideration of all the com-
ments, the proposed regulations are adopted
as amended (the final regulations) by this
Treasury decision, and the corresponding
temporary regulations are removed. The re-
visions are discussed below.
Explanation and Summary of
Comments
This preamble first discusses a change
in the time for making the section 1374
election under§1.337(d)–6. This preamble
then discusses the clarification of the rules
concerning the use of loss carryforwards,
credits and credit carryforwards found in the
regulations under both§1.337(d)–6 and
§1.337(d)–7. Finally, this preamble dis-
cusses the clarification of certain issues re-
lated to the special rule for partnerships
found in§1.337(d)–7.
Time for Making Section 1374 Election
under§1.337(d)–6
As explained above, the regulations un-
der§1.337(d)–6T provide that, if prop-
erty of a C corporation that is not a RIC or
REIT becomes the property of a RIC or
REIT in a conversion transaction, then the
C corporation is subject to deemed sale
treatment, unless the RIC or REIT elects to
be subject to section 1374 treatment. Un-
der§1.337(d)–6T(c)(4)(ii), the section 1374
election may be filed by the RIC or REIT
with any federal income tax return filed by
the RIC or REIT on or before March 15,
2003, provided that the RIC or REIT has
reported consistently with such election for
all periods. Commentators expressed con-
cern that, in the case of a conversion trans-
action occurring on January 1, 2002 (the last
date of applicability of§1.337(d)–6T), the
time limit for making a section 1374 elec-
tion could preclude a RIC or REIT from ex-
tending the due date of its federal income
tax return beyond March 15, 2003. In re-
sponse to this comment, the final regula-
April 7, 20036772003–14 I.R.B.

tions under§1.337(d)–6 extend the time for
making the section 1374 election to Sep-
tember 15, 2003.
Use of Loss Carryforwards, Credits and
Credit Carryforwards
Under the 2002 temporary regulations,
recognized built-in gains and recognized
built-in losses that have been taxed in ac-
cordance with these regulations are treated
like other gains and losses of RICs and
REITs that are not subject to tax under these
regulations. Thus, they are included in com-
puting investment company taxable in-
come for purposes of section 852(b)(2), real
estate investment trust taxable income for
purposes of section 857(b)(2), net capital
gain for purposes of sections 852(b)(3) and
857(b)(3), gross income derived from
sources within any foreign country or pos-
session of the United States for purposes
of section 853, and the dividends paid de-
ductionforpurposesofsections
852(b)(2)(D), 852(b)(3)(A), 857(b)(2)(B),
and 857(b)(3)(A).
In addition, consistent with section 1374,
the 2002 temporary regulations generally al-
low RICs and REITs to use loss carryfor-
wards and credits and credit carryforwards
arising in taxable years for which the cor-
poration that generated the attribute was a
C corporation (and not a RIC or REIT) to
reduce net recognized built-in gain and the
tax thereon, subject to the limitations im-
posed by sections 1374(b)(2) and (b)(3) and
§§1.1374–5 and 1.1374–6. The 2002 tem-
porary regulations also provide an order-
ing rule for applying loss carryforwards,
credits, and credit carryforwards to re-
duce net recognized built-in gain (and the
tax thereon) and RIC or REIT taxable in-
come (and the tax thereon). Under this or-
dering rule, loss carryforwards of a RIC or
REIT must be used to reduce net recog-
nized built-in gain for a taxable year to the
greatest extent possible before such losses
can be used to reduce investment com-
pany taxable income for purposes of sec-
tion 852(b) or real estate investment trust
taxable income for purposes of section
857(b). A similar rule applies to the use of
credits and credit carryforwards.
A commentator asked whether the use
of loss carryforwards, credits and credit car-
ryforwards for purposes of section 1374 af-
fected the use of loss carryforwards, credits
and credit carryforwards for purposes of
subchapter M. In response to this com-
ment,thefinalregulationsunder
§§1.337(d)–6 and 1.337(d)–7 clarify that the
use of loss carryforwards, credits and credit
carryforwards for purposes of the section
1374 tax does not change the extent to
which such loss carryforwards, credits and
credit carryforwards can be used for pur-
poses of subchapter M.
Special Rule for Partnerships under
§1.337(d)–7
Section§1.337(d)–7T applies to prop-
erty transferred by a partnership to a RIC
or REIT to the extent of any C corpora-
tion partner’s proportionate share of the
transferred property (the partnership rule).
The regulations state that, if the partner-
ship elects deemed sale treatment with re-
spect to such transfer, then any gain
recognized by the partnership on the
deemed sale must be specially allocated to
the C corporation partner.
In response to comments, the regula-
tions have been revised to clarify that the
principles of section 704(b) and (c) apply
in determining the C corporation partner’s
share of the transferred property. As re-
vised, the regulations provide that the prin-
ciples of these regulations apply to property
transferred by a partnership to a RIC or
REIT to the extent of any C corporation
partner’s distributive share of the gain or
loss in the transferred property. The fol-
lowing sections highlight other specific
comments received with respect to this rule.
Partnerships with Multiple Corporate
Partners
A commentator expressed concern that
the partnership rule does not specify
whether the C corporation partner or the
partnership is considered the transferor for
purposes of making the deemed sale elec-
tion. Further, the commentator asserted that
in the case of a partnership with multiple
corporate partners, each corporate partner
should be allowed to make (or not make)
a deemed sale election.
Treasury and the IRS believe that re-
quiring each corporate partner to make a
deemed sale election would be inconsis-
tent with section 703(b) (which generally
requires that elections be made at the part-
nership level) and would create unneces-
sary administrative complexity. Therefore,
the final regulations under§1.337(d)–7 re-
tain the rule under section 703(b) that the
deemed sale election is made at the part-
nership level.
Contribution of Loss Assets by
Partnership
Under the partnership rule, if a partner-
ship were to elect deemed sale treatment un-
der§1.337(d)–7T, any gain recognized by
the partnership on the deemed sale is al-
located to the C corporation partner. A com-
mentator expressed concern that if the
contribution by the partnership to a RIC or
REIT includes multiple assets, the deemed
sale may generate losses on certain assets
and gain on others even though there is an
overall net built-in gain. The commenta-
tor suggested that losses recognized by the
partnership must also be allocated to the C
corporation partner.
Under§1.337(d)–7T, when a partner-
ship elects deemed sale treatment, only net
gains are recognized. If a net gain is rec-
ognized, the C corporation partner will re-
ceive the benefit of offsetting losses (as a
result of the reduction in net gain). The fi-
nal regulations under§1.337(d)–7 have been
modified to clarify that the gain allocated
to the C corporation partner on a deemed
sale transaction is the C corporation part-
ner’s distributive share of the net gain in
the assets transferred to the RIC or REIT
by the partnership.
Allocation of Gain or Loss on
Subsequent Sale of RIC or REIT Stock
Under section 358, a partnership that
elects deemed sale treatment under
§1.337(d)–7T(c) with respect to a conver-
sion transaction increases its basis in the
RIC or REIT stock by the net gain recog-
nized on such transaction. A commenta-
tor suggested that the C corporation partner
should be allowed to use this basis in-
crease to offset any gain or loss recog-
nized by the partnership on the eventual sale
of the RIC or REIT stock.
Treasury and the IRS agree with this
comment. Accordingly, the final regula-
tions under§1.337(d)–7 provide that any
adjustment to the basis of the RIC or REIT
stock held by the partnership as a result of
electing deemed sale treatment will con-
stitute an adjustment to the basis of that
stock with respect to the C corporation part-
ner only.
2003–14 I.R.B.678April 7, 2003

Partnerships with Tax-Exempt Partners
A commentator expressed concern that
the partnership rule in§1.337(d)–7T may
have an unintended punitive effect when the
C corporation partner is a tax-exempt en-
tity. Tax-exempt entities that are partners in
a partnership that holds debt financed prop-
erty are subject to tax under the unrelated
business income tax (UBIT) rules unless
certain criteria are satisfied. One of these
criteria (the fractions rule) requires that: (1)
the tax-exempt partner’s share of overall
partnership income for any tax year is no
greater than its smallest share of partner-
ship loss in any tax year; and (2) each al-
location with respect to the partnership has
substantial economic effect within the mean-
ing of section 704(b)(2). The commenta-
tor expressed concern that the special
allocation of gain to the tax-exempt part-
ner that is required by§1.337(d)–7T when
the partnership makes a deemed sale elec-
tion may violate the fractions rule, taint-
ing all income from the partnership for
UBIT purposes.
In response to this comment, Treasury
and the IRS have amended the regulations
under section 514 to provide that alloca-
tions that are mandated by statute or regu-
lation (other than subchapter K of chapter
1 of the Internal Revenue Code and the
regulations thereunder) are not consid-
ered for purposes of determining qualifi-
cation under the fractions rule. This rule
applies to partnership allocations made in
taxable years beginning on or after Janu-
ary 1, 2002.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It also has been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does not
apply to these regulations and, because the
regulations do not impose a collection of
information on small entities, the Regula-
tory Flexibility Act (5 U.S.C. chapter 6)
does not apply. Therefore, a Regulatory
Flexibility Analysis is not required. Pur-
suant to section 7805(f) of the Code, these
final regulations will be submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
their impact on small business.
Drafting Information
The principal author of these regula-
tions is Jennifer D. Sledge of the Office of
Associate Chief Counsel (Corporate). Other
personnel from Treasury Department and
the IRS participated in their development.
*****
Adoption of Amendments to the Regu-
lations
Accordingly, 26 CFR parts 1 and 602 are
amended as follows:
PA RT 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by removing the en-
tries for“Section 1.337(d)–5T”,“Section
1.337(d)–6T”, and“Section 1.337(d)–7T”
and adding entries in numerical order to
read in part as follows:
Authority: 26 U.S.C. 7805***
Section 1.337(d)–5 also issued under 26
U.S.C. 337.
Section 1.337(d)–6 also issued under 26
U.S.C. 337.
Section 1.337(d)–7 also issued under 26
U.S.C. 337.***
§1.337(d)–5T [Redesignated as
§1.337(d)–5]
Par. 2. Section 1.337(d)–5T is redesig-
nated as§1.337(d)–5 and the language
“(temporary)”is removed from the end of
the section heading.
Par. 3. Newly designated§1.337(d)–5is
amended as follows:
1. In paragraph (b)(3), first sentence, the
reference to“§1.337(d)–5T(b)”is removed
and“paragraph (b) of this section”is added
in its place.
2. In paragraph (d), third sentence, the
references to“§1.337(d)–5T(b)(1)”and
“§1.337(d)–6T”are removed and“para-
graph (b)(1) of this section”and
“§1.337(d)–6”are added in their places, re-
spectively.
3. In paragraph (d), fourth sentence, the
reference to“§1.337(d)–6T”is removed and
“§1.337(d)–6”is added in its place.
4. In paragraph (d), last sentence, the
reference to“§1.337(d)–7T”is removed and
“§1.337(d)–7”is added in its place.
Par. 4. Section 1.337(d)–6 is added to
read as follows:
§1.337(d)–6 New transitional rules
imposing tax on property owned by a C
corporation that becomes property of a
RIC or REIT.
(a)General rule—(1)Property owned by
a C corporation that becomes property of
a RIC or REIT.If property owned by a C
corporation (as defined in paragraph (a)(2)(i)
of this section) becomes the property of a
RIC or REIT (the converted property) in a
conversion transaction (as defined in para-
graph (a)(2)(ii) of this section), then deemed
sale treatment will apply as described in
paragraph (b) of this section, unless the RIC
or REIT elects section 1374 treatment with
respect to the conversion transaction as pro-
vided in paragraph (c) of this section. See
paragraph (d) of this section for excep-
tions to this paragraph (a).
(2)Definitions—(i)C corporation.For
purposes of this section, the termC cor-
porationhas the meaning provided in sec-
tion 1361(a)(2) except that the term does
not include a RIC or REIT.
(ii)Conversion transaction.For pur-
poses of this section, the termconversion
transactionmeans the qualification of a C
corporation as a RIC or REIT or the trans-
fer of property owned by a C corporation
to a RIC or REIT.
(b)Deemed sale treatment—(1)In gen-
eral.If property owned by a C corpora-
tion becomes the property of a RIC or REIT
in a conversion transaction, then the C cor-
poration recognizes gain and loss as if it
sold the converted property to an unre-
lated party at fair market value on the
deemed sale date (as defined in paragraph
(b)(3) of this section). This paragraph (b)
does not apply if its application would re-
sult in the recognition of a net loss. For this
purpose,net lossis the excess of aggre-
gate losses over aggregate gains (includ-
ing items of income), without regard to
character.
(2)Basis adjustment.If a corporation
recognizes a net gain under paragraph (b)(1)
of this section, then the converted prop-
erty has a basis in the hands of the RIC or
REIT equal to the fair market value of such
property on the deemed sale date.
(3)Deemed sale date—(i)RIC or REIT
qualifications.If the conversion transac-
tion is a qualification of a C corporation as
a RIC or REIT, then the deemed sale date
is the end of the last day of the C corpo-
April 7, 20036792003–14 I.R.B.

ration’s last taxable year before the first tax-
able year in which it qualifies to be taxed
as a RIC or REIT.
(ii)Other conversion transactions.If the
conversion transaction is a transfer of prop-
erty owned by a C corporation to a RIC or
REIT, then the deemed sale date is the end
of the day before the day of the transfer.
(4)Example.The rules of this para-
graph (b) are illustrated by the following
example:
Example. Deemed sale treatment on merger into
RIC.(i) X, a calendar-year taxpayer, has qualified as
a RIC since January 1, 1991. On May 31, 1994, Y,
a C corporation and calendar-year taxpayer, trans-
fers all of its property to X in a transaction that quali-
fies as a reorganization under section 368(a)(1)(C). X
does not elect section 1374 treatment under para-
graph (c) of this section and chooses not to rely on
§1.337(d)–5. As a result of the transfer, Y is subject
to deemed sale treatment under this paragraph (b) on
its tax return for the short taxable year ending May
31, 1994. On May 31, 1994, Y’s only assets are Capi-
tal Asset, which has a fair market value of $100,000
and a basis of $40,000 as of the end of May 30, 1994,
and $50,000 cash. Y also has an unrestricted net op-
erating loss carryforward of $12,000 and accumu-
lated earnings and profits of $50,000. Y has no taxable
income for the short taxable year ending May 31, 1994,
other than gain recognized under this paragraph (b).
In 1997, X sells Capital Asset for $110,000. As-
sume the applicable corporate tax rate is 35%.
(ii) Under this paragraph (b), Y is treated as if it
sold the converted property (Capital Asset and $50,000
cash) at fair market value on May 30, 1994, recog-
nizing $60,000 of gain ($150,000 amount realized -
$90,000 basis). Y must report the gain on its tax re-
turn for the short taxable year ending May 31, 1994.
Y may offset this gain with its $12,000 net operat-
ing loss carryforward and will pay tax of $16,800 (35%
of $48,000).
(iii) Under section 381, X succeeds to Y’s accu-
mulated earnings and profits. Y’s accumulated earn-
ings and profits of $50,000 increase by $60,000 and
decrease by $16,800 as a result of the deemed sale.
Thus, the aggregate amount of subchapter C earn-
ings and profits that must be distributed to satisfy sec-
tion 852(a)(2)(B) is $93,200 ($50,000 + $60,000 -
$16,800). X’s basis in Capital Asset is $100,000. On
X’s sale of Capital Asset in 1997, X recognizes
$10,000 of gain, which is taken into account in com-
puting X’s net capital gain for purposes of section
852(b)(3).
(c)Election of section 1374 treatment—
(1)In general—(i)Property owned by a C
corporation that becomes property of a RIC
or REIT.Paragraph (b) of this section does
not apply if the RIC or REIT that was for-
merly a C corporation or that acquired prop-
erty from a C corporation makes the
election described in paragraph (c)(4) of this
section. A RIC or REIT that makes such an
election will be subject to tax on the net
built-in gain in the converted property un-
der the rules of section 1374 and the regu-
lations thereunder, as modified by this
paragraph (c), as if the RIC or REIT were
an S corporation.
(ii)Property subject to the rules of sec-
tion 1374 owned by a RIC, REIT, or S cor-
poration that becomes property of a RIC or
REIT.If property subject to the rules of sec-
tion 1374 owned by a RIC, a REIT, or an
S corporation (the predecessor) becomes the
property of a RIC or REIT (the succes-
sor) in a continuation transaction, the rules
of section 1374 apply to the successor to
the same extent that the predecessor was
subject to the rules of section 1374 with re-
spect to such property, and the 10-year rec-
ognition period of the successor with respect
to such property is reduced by the por-
tion of the 10-year recognition period of the
predecessor that expired before the date of
the continuation transaction. For this pur-
pose, a continuation transaction means the
qualification of the predecessor as a RIC
or REIT or the transfer of property from the
predecessor to the successor in a transac-
tion in which the successor’s basis in the
transferred property is determined, in whole
or in part, by reference to the predeces-
sor’s basis in that property.
(2)Modification of section 1374
treatment—(i)Net recognized built-in gain
for REITs—(A)Prelimitation amount.The
prelimitation amount determined as pro-
vided in§1.1374–2(a)(1) is reduced by the
portion of such amount, if any, that is sub-
ject to tax under section 857(b)(4), (5), (6),
or (7). For this purpose, the amount of a
REIT’s recognized built-in gain that is sub-
ject to tax under section 857(b)(5) is com-
puted as follows:
(1) Where the tax under section
857(b)(5) is computed by reference to sec-
tion 857(b)(5)(A), the amount of a
REIT’s recognized built-in gain that is sub-
ject to tax under section 857(b)(5) is the tax
imposed by section 857(b)(5) multiplied by
a fraction the numerator of which is the
amount of recognized built-in gain (with-
out regard to recognized built-in loss and
recognized built-in gain from prohibited
transactions) that is not derived from sources
referred to in section 856(c)(2) and the de-
nominator of which is the gross income
(without regard to gross income from pro-
hibited transactions) of the REIT that is not
derived from sources referred to in sec-
tion 856(c)(2).
(2) Where the tax under section
857(b)(5) is computed by reference to sec-
tion 857(b)(5)(B), the amount of a
REIT’s recognized built-in gain that is sub-
ject to tax under section 857(b)(5) is the tax
imposed by section 857(b)(5) multiplied by
a fraction the numerator of which is the
amount of recognized built-in gain (with-
out regard to recognized built-in loss and
recognized built-in gain from prohibited
transactions) that is not derived from sources
referred to in section 856(c)(3) and the de-
nominator of which is the gross income
(without regard to gross income from pro-
hibited transactions) of the REIT that is not
derived from sources referred to in sec-
tion 856(c)(3).
(B)Taxable income limitation.The tax-
able income limitation determined as pro-
vided in§1.1374–2(a)(2) is reduced by an
amount equal to the tax imposed under sec-
tions 857(b)(5), (6), and (7).
(ii)Loss carryforwards, credits and credit
carryforwards—(A)Loss carryforwards.
Consistent with paragraph (c)(1)(i) of this
section, net operating loss carryforwards and
capital loss carryforwards arising in tax-
able years for which the corporation that
generated the loss was not subject to sub-
chapter M of chapter 1 of the Internal Rev-
enue Code are allowed as a deduction
against net recognized built-in gain to the
extent allowed under section 1374 and the
regulations thereunder. Such loss carryfor-
wards must be used as a deduction against
net recognized built-in gain for a taxable
year to the greatest extent possible before
such losses can be used to reduce other in-
vestment company taxable income for pur-
poses of section 852(b) or other real estate
investment trust taxable income for pur-
poses of section 857(b) for that taxable year.
(B)Credits and credit carryforwards.
Consistent with paragraph (c)(1)(i) of this
section, minimum tax credits and busi-
ness credit carryforwards arising in tax-
able years for which the corporation that
generated the credit was not subject to sub-
chapter M of chapter 1 of the Internal Rev-
enue Code are allowed to reduce the tax
imposed on net recognized built-in gain un-
der this paragraph (c) to the extent allowed
under section 1374 and the regulations
thereunder. Such credits and credit carry-
forwards must be used to reduce the tax im-
posed under this paragraph (c) on net
recognized built-in gain for a taxable year
to the greatest extent possible before such
credits and credit carryforwards can be used
to reduce the tax, if any, on other invest-
2003–14 I.R.B.680April 7, 2003

ment company taxable income for pur-
poses of section 852(b) or on other real
estate investment trust taxable income for
purposes of section 857(b) for that tax-
able year.
(iii)10-year recognition period.In the
case of a conversion transaction that is a
qualification of a C corporation as a RIC
or REIT, the 10-year recognition period de-
scribed in section 1374(d)(7) begins on the
first day of the RIC’s or REIT’s first tax-
able year. In the case of other conversion
transactions, the 10-year recognition pe-
riod begins on the day the property is ac-
quired by the RIC or REIT.
(3)Coordination with subchapter M
rules—(i)Recognized built-in gains and
losses subject to subchapter M. Recog-
nized built-in gains and losses of a RIC or
REIT are included in computing invest-
ment company taxable income for pur-
poses of section 852(b)(2), real estate
investment trust taxable income for pur-
poses of section 857(b)(2), capital gains for
purposes of sections 852(b)(3) and
857(b)(3), gross income derived from
sources within any foreign country or pos-
session of the United States for purposes
of section 853, and the dividends paid de-
ductionforpurposesofsections
852(b)(2)(D), 852(b)(3)(A), 857(b)(2)(B),
and 857(b)(3)(A). In computing such in-
come and deduction items, capital loss car-
ryforwards and net operating loss
carryforwards that are used by the RIC or
REIT to reduce recognized built-in gains are
allowed as a deduction, but only to the ex-
tent that they are otherwise allowable as a
deduction against such income under the In-
ternal Revenue Code (including section
852(b)(2)(B)).
(ii)Treatment of tax imposed.The
amount of tax imposed under this para-
graph (c) on net recognized built-in gain for
a taxable year is treated as a loss sustained
by the RIC or the REIT during such tax-
able year. The character of the loss is
determined by allocating the tax propor-
tionately (based on recognized built-in gain)
among the items of recognized built-in gain
included in net recognized built-in gain.
With respect to RICs, the tax imposed un-
der this paragraph (c) on net recognized
built-in gain is treated as attributable to the
portion of the RIC’s taxable year occur-
ring after October 31.
(4)Making the section 1374 election—
(i)In general.A RIC or REIT makes a sec-
tion 1374 election with the following
statement:“[Insert name and employer iden-
tification number of electing RIC or REIT]
elects under§1.337–6(c) to be subject to the
rules of section 1374 and the regulations
thereunder with respect to its property that
formerly was held by a C corporation, [in-
sert name and employer identification num-
ber of the C corporation, if different from
name and employer identification num-
ber of the RIC or REIT].”However, a RIC
or REIT need not file an election under this
paragraph (c), but will be deemed to have
made such an election if it can demon-
strate that it informed the Internal Rev-
enue Service prior to January 2, 2002, of
its intent to make a section 1374 election.
An election under this paragraph (c) is ir-
revocable.
(ii)Time for making the election.An
election under this paragraph (c) may be
filed by the RIC or REIT with any fed-
eral income tax return filed by the RIC or
REIT on or before September 15, 2003,
provided that the RIC or REIT has reported
consistently with such election for all pe-
riods.
(5)Example.The rules of this para-
graph (c) are illustrated by the following
example:
Example. Section 1374 treatment on REIT elec-
tion.(i)X,aCcorporation that is a calendar-year tax-
payer, elects to be taxed as a REIT on its 1994 tax
return, which it files on March 15, 1995. As a re-
sult, X is a REIT for its 1994 taxable year and would
be subject to deemed sale treatment under paragraph
(b) of this section but for X’s timely election of sec-
tion 1374 treatment under this paragraph (c). X chooses
not to rely on§1.337(d)–5. As of the beginning of the
1994 taxable year, X’s property consisted of Real Prop-
erty, which is not section 1221(a)(1) property and
which had a fair market value of $100,000 and an ad-
justed basis of $80,000, and $25,000 cash. X also had
accumulated earnings and profits of $25,000, unre-
stricted capital loss carryforwards of $3,000, and un-
restricted business credit carryforwards of $2,000. On
July 1, 1997, X sells Real Property for $110,000. For
its 1997 taxable year, X has no other income or de-
duction items. Assume the highest corporate tax rate
is 35%.
(ii) Upon its election to be taxed as a REIT, X re-
tains its $80,000 basis in Real Property and its $25,000
accumulated earnings and profits. X retains its $3,000
of capital loss carryforwards and its $2,000 of busi-
ness credit carryforwards. To satisfy section
857(a)(2)(B), X must distribute $25,000, an amount
equal to its earnings and profits accumulated in non-
REIT years, to its shareholders by the end of its 1994
taxable year.
(iii) Upon X’s sale of Real Property in 1997, X
recognizes gain of $30,000 ($110,000–$80,000). X’s
recognized built-in gain for purposes of applying sec-
tion 1374 is $20,000 ($100,000 fair market value as
of the beginning of X’s first taxable year as a REIT
- $80,000 basis). Because X’s $30,000 of net in-
come for the 1997 taxable year exceeds the net rec-
ognized built-in gain of $20,000, the taxable income
limitation does not apply. X, therefore, has $20,000
net recognized built-in gain for the year. Assuming that
X has not used its $3,000 of capital loss carryfor-
wards in a prior taxable year and that their use is al-
lowed under section 1374(b)(2) and§1.1374–5, X is
allowed a $3,000 deduction against the $20,000 net
recognized built-in gain. X would owe tax of $5,950
(35% of $17,000) on its net recognized built-in gain,
except that X may use its $2,000 of business credit
carryforwards to reduce this tax, assuming that X has
not used the credit carryforwards in a prior taxable year
and that their use is allowed under section 1374(b)(3)
and§1.1374–6. Thus, X owes tax of $3,950 under this
paragraph (c).
(iv) For purposes of subchapter M of chapter 1 of
the Internal Revenue Code, X’s earnings and profits
for the year increase by $26,050 ($30,000 capital gain
on the sale of Real Property - $3,950 tax under this
paragraph (c)). For purposes of section 857(b)(2) and
(b)(3), X’s net capital gain for the year is $23,050
($30,000 capital gain reduced by $3,000 capital loss
carryforward and further reduced by $3,950 tax).
(d)Exceptions—(1)Gain otherwise rec-
ognized.Paragraph (a) of this section does
not apply to any conversion transaction to
the extent that gain or loss otherwise is rec-
ognized on such conversion transaction. See,
for example, sections 336, 351(b), 351(e),
356, 357(c), 367, 368(a)(2)(F), and 1001.
(2)Re-election of RIC or REIT status—
(i)Generally.Except as provided in para-
graphs (d)(2)(ii) and (iii) of this section,
paragraph (a)(1) of this section does not ap-
ply to any corporation that—
(A) Immediately prior to qualifying to
be taxed as a RIC or REIT was subject to
tax as a C corporation for a period not ex-
ceeding two taxable years; and
(B) Immediately prior to being subject
to tax as a C corporation was subject to tax
as a RIC or REIT for a period of at least
one taxable year.
(ii)Property acquired from another cor-
poration while a C corporation.The ex-
ception described in paragraph (d)(2)(i) of
this section does not apply to property ac-
quired by the corporation while it was sub-
ject to tax as a C corporation from any
person in a transaction that results in the ac-
quirer’s basis in the property being deter-
mined by reference to a C corporation’s
basis in the property.
(iii)RICs and REITs previously sub-
ject to section 1374 treatment.If the RIC
or REIT had property subject to paragraph
(c) of this section before the RIC or REIT
became subject to tax as a C corporation
as described in paragraph (d)(2)(i) of this
section, then paragraph (c) of this section
applies to the RIC or REIT upon its requali-
April 7, 20036812003–14 I.R.B.

fication as a RIC or REIT, except that the
10-year recognition period with respect to
such property is reduced by the portion of
the 10-year recognition period that ex-
pired before the RIC or REIT became sub-
ject to tax as a C corporation and by the
period of time that the corporation was sub-
ject to tax as a C corporation.
(e)Effective date.This section applies
to conversion transactions that occur on or
after June 10, 1987, and before January 2,
2002. In lieu of applying this section, tax-
payers generally may apply§1.337(d)–5to
determine the tax consequences (for all tax-
able years) of any conversion transaction
that occurs on or after June 10, 1987, and
before January 2, 2002, except that RICs
and REITs that are subject to section 1374
treatment with respect to a conversion trans-
action may not rely on§1.337(d)–5(b)(1),
but must apply paragraphs (c)(1)(i), (c)(2)(i),
(c)(2)(ii), and (c)(3) of this section, with re-
spect to built-in gains and losses recog-
nized in taxable years beginning on or after
January 2, 2002. Taxpayers are not pre-
vented from relying on§1.337(d)–5 merely
because they elect section 1374 treatment
in the manner described in paragraph (c)(4)
of this section instead of in the manner de-
scribed in§1.337(d)–5(b)(3) and (c). For
conversion transactions that occur on or af-
ter January 2, 2002, see§1.337(d)–7.
§1.337(d)–6T [Removed]
Par. 5. Section 1.337(d)–6T is removed.
Par. 6. Section 1.337(d)–7 is added to
read as follows:
§1.337(d)–7 Tax on property owned by a
C corporation that becomes property of
a RIC or REIT.
(a)General rule—(1)Property owned by
a C corporation that becomes property of
a RIC or REIT.If property owned by a C
corporation (as defined in paragraph (a)(2)(i)
of this section) becomes the property of a
RIC or REIT (the converted property) in a
conversion transaction (as defined in para-
graph (a)(2)(ii) of this section), then sec-
tion 1374 treatment will apply as described
in paragraph (b) of this section, unless the
C corporation elects deemed sale treat-
ment with respect to the conversion trans-
action as provided in paragraph (c) of this
section. See paragraph (d) of this section
for exceptions to this paragraph (a).
(2)Definitions—(i)C corporation.For
purposes of this section, the termC cor-
porationhas the meaning provided in sec-
tion 1361(a)(2) except that the term does
not include a RIC or REIT.
(ii)Conversion transaction.For pur-
poses of this section, the termconversion
transactionmeans the qualification of a C
corporation as a RIC or REIT or the trans-
fer of property owned by a C corporation
to a RIC or REIT.
(b)Section 1374 treatment—(1)In
general—(i)Property owned by a C cor-
poration that becomes property of a RIC or
REIT.If property owned by a C corpora-
tion becomes the property of a RIC or REIT
in a conversion transaction, then the RIC
or REIT will be subject to tax on the net
built-in gain in the converted property un-
der the rules of section 1374 and the regu-
lations thereunder, as modified by this
paragraph (b), as if the RIC or REIT were
an S corporation.
(ii)Property subject to the rules of sec-
tion 1374 owned by a RIC, REIT, or S cor-
poration that becomes property of a RIC or
REIT.If property subject to the rules of sec-
tion 1374 owned by a RIC, a REIT, or an
S corporation (the predecessor) becomes the
property of a RIC or REIT (the succes-
sor) in a continuation transaction, the rules
of section 1374 apply to the successor to
the same extent that the predecessor was
subject to the rules of section 1374 with re-
spect to such property, and the 10-year rec-
ognition period of the successor with respect
to such property is reduced by the por-
tion of the 10-year recognition period of the
predecessor that expired before the date of
the continuation transaction. For this pur-
pose, a continuation transaction means the
qualification of the predecessor as a RIC
or REIT or the transfer of property from the
predecessor to the successor in a transac-
tion in which the successor’s basis in the
transferred property is determined, in whole
or in part, by reference to the predeces-
sor’s basis in that property.
(2)Modification of section 1374
treatment—(i)Net recognized built-in gain
for REITs—(A)Prelimitation amount.The
prelimitation amount determined as pro-
vided in§1.1374–2(a)(1) is reduced by the
portion of such amount, if any, that is sub-
ject to tax under section 857(b)(4), (5), (6),
or (7). For this purpose, the amount of a
REIT’s recognized built-in gain that is sub-
ject to tax under section 857(b)(5) is com-
puted as follows:
(1) Where the tax under section
857(b)(5) is computed by reference to sec-
tion 857(b)(5)(A), the amount of a
REIT’s recognized built-in gain that is sub-
ject to tax under section 857(b)(5) is the tax
imposed by section 857(b)(5) multiplied by
a fraction the numerator of which is the
amount of recognized built-in gain (with-
out regard to recognized built-in loss and
recognized built-in gain from prohibited
transactions) that is not derived from sources
referred to in section 856(c)(2) and the de-
nominator of which is the gross income
(without regard to gross income from pro-
hibited transactions) of the REIT that is not
derived from sources referred to in sec-
tion 856(c)(2).
(2) Where the tax under section
857(b)(5) is computed by reference to sec-
tion 857(b)(5)(B), the amount of a
REIT’s recognized built-in gain that is sub-
ject to tax under section 857(b)(5) is the tax
imposed by section 857(b)(5) multiplied by
a fraction the numerator of which is the
amount of recognized built-in gain (with-
out regard to recognized built-in loss and
recognized built-in gain from prohibited
transactions) that is not derived from sources
referred to in section 856(c)(3) and the de-
nominator of which is the gross income
(without regard to gross income from pro-
hibited transactions) of the REIT that is not
derived from sources referred to in sec-
tion 856(c)(3).
(B)Taxable income limitation.The tax-
able income limitation determined as pro-
vided in§1.1374–2(a)(2) is reduced by an
amount equal to the tax imposed under sec-
tion 857(b)(5), (6), and (7).
(ii)Loss carryforwards, credits and credit
carryforwards—(A)Loss carryforwards.
Consistent with paragraph (b)(1)(i) of this
section, net operating loss carryforwards and
capital loss carryforwards arising in tax-
able years for which the corporation that
generated the loss was not subject to sub-
chapter M of chapter 1 of the Internal Rev-
enue Code are allowed as a deduction
against net recognized built-in gain to the
extent allowed under section 1374 and the
regulations thereunder. Such loss carryfor-
wards must be used as a deduction against
net recognized built-in gain for a taxable
year to the greatest extent possible before
such losses can be used to reduce other in-
vestment company taxable income for pur-
poses of section 852(b) or other real estate
2003–14 I.R.B.682April 7, 2003

investment trust taxable income for pur-
poses of section 857(b) for that taxable year.
(B)Credits and credit carryforwards.
Consistent with paragraph (b)(1)(i) of this
section, minimum tax credits and busi-
ness credit carryforwards arising in tax-
able years for which the corporation that
generated the credit was not subject to sub-
chapter M of chapter 1 of the Internal Rev-
enue Code are allowed to reduce the tax
imposed on net recognized built-in gain un-
der this paragraph (b) to the extent al-
lowed under section 1374 and the
regulations thereunder. Such credits and
credit carryforwards must be used to re-
duce the tax imposed under this paragraph
(b) on net recognized built-in gain for a tax-
able year to the greatest extent possible be-
fore such credits and credit carryforwards
can be used to reduce the tax, if any, on
other investment company taxable income
for purposes of section 852(b) or on other
real estate investment trust taxable income
for purposes of section 857(b) for that tax-
able year.
(iii)10-year recognition period.In the
case of a conversion transaction that is a
qualification of a C corporation as a RIC
or REIT, the 10-year recognition period de-
scribed in section 1374(d)(7) begins on the
first day of the RIC’s or REIT’s first tax-
able year. In the case of other conversion
transactions, the 10-year recognition pe-
riod begins on the day the property is ac-
quired by the RIC or REIT.
(3)Coordination with subchapter M
rules—(i)Recognized built-in gains and
losses subject to subchapter M. Recog-
nized built-in gains and losses of a RIC or
REIT are included in computing invest-
ment company taxable income for pur-
poses of section 852(b)(2), real estate
investment trust taxable income for pur-
poses of section 857(b)(2), capital gains for
purposes of sections 852(b)(3) and
857(b)(3), gross income derived from
sources within any foreign country or pos-
session of the United States for purposes
of section 853, and the dividends paid de-
ductionforpurposesofsections
852(b)(2)(D), 852(b)(3)(A), 857(b)(2)(B),
and 857(b)(3)(A). In computing such in-
come and deduction items, capital loss car-
ryforwards and net operating loss
carryforwards that are used by the RIC or
REIT to reduce recognized built-in gains are
allowed as a deduction, but only to the ex-
tent that they are otherwise allowable as a
deduction against such income under the In-
ternal Revenue Code (including section
852(b)(2)(B)).
(ii)Treatment of tax imposed.The
amount of tax imposed under this para-
graph (b) on net recognized built-in gain for
a taxable year is treated as a loss sustained
by the RIC or the REIT during such tax-
able year. The character of the loss is de-
terminedbyallocatingthetax
proportionately (based on recognized built-in
gain) among the items of recognized built-in
gain included in net recognized built-in gain.
With respect to RICs, the tax imposed un-
der this paragraph (b) on net recognized
built-in gain is treated as attributable to the
portion of the RIC’s taxable year occur-
ring after October 31.
(4)Example.The rules of this para-
graph (b) are illustrated by the following
example:
Example. Section 1374 treatment on REIT elec-
tion.(i)X,aCcorporation that is a calendar-year tax-
payer, elects to be taxed as a REIT on its 2004 tax
return, which it files on March 15, 2005. As a re-
sult, X is a REIT for its 2004 taxable year and is sub-
ject to section 1374 treatment under this paragraph (b).
X does not elect deemed sale treatment under para-
graph (c) of this section. As of the beginning of the
2004 taxable year, X’s property consisted of Real Prop-
erty, which is not section 1221(a)(1) property and
which had a fair market value of $100,000 and an ad-
justed basis of $80,000, and $25,000 cash. X also had
accumulated earnings and profits of $25,000, unre-
stricted capital loss carryforwards of $3,000, and un-
restricted business credit carryforwards of $2,000. On
July 1, 2007, X sells Real Property for $110,000. For
its 2007 taxable year, X has no other income or de-
duction items. Assume the highest corporate tax rate
is 35%.
(ii) Upon its election to be taxed as a REIT, X re-
tains its $80,000 basis in Real Property and its $25,000
accumulated earnings and profits. X retains its $3,000
of capital loss carryforwards and its $2,000 of busi-
ness credit carryforwards. To satisfy section
857(a)(2)(B), X must distribute $25,000, an amount
equal to its earnings and profits accumulated in non-
REIT years, to its shareholders by the end of its 2004
taxable year.
(iii) Upon X’s sale of Real Property in 2007, X
recognizes gain of $30,000 ($110,000 - $80,000). X’s
recognized built-in gain for purposes of applying sec-
tion 1374 is $20,000 ($100,000 fair market value as
of the beginning of X’s first taxable year as a REIT
- $80,000 basis). Because X’s $30,000 of net in-
come for the 2007 taxable year exceeds the net rec-
ognized built-in gain of $20,000, the taxable income
limitation does not apply. X, therefore, has $20,000
net recognized built-in gain for the year. Assuming that
X has not used its $3,000 of capital loss carryfor-
wards in a prior taxable year and that their use is al-
lowed under section 1374(b)(2) and§1.1374–5, X is
allowed a $3,000 deduction against the $20,000 net
recognized built-in gain. X would owe tax of $5,950
(35% of $17,000) on its net recognized built-in gain,
except that X may use its $2,000 of business credit
carryforwards to reduce the tax, assuming that X has
not used the credit carryforwards in a prior taxable year
and that their use is allowed under section 1374(b)(3)
and§1.1374–6. Thus, X owes tax of $3,950 under this
paragraph (b).
(iv) For purposes of subchapter M of chapter 1 of
the Internal Revenue Code, X’s earnings and profits
for the year increase by $26,050 ($30,000 capital gain
on the sale of Real Property - $3,950 tax under this
paragraph (b)). For purposes of section 857(b)(2) and
(b)(3), X’s net capital gain for the year is $23,050
($30,000 capital gain reduced by $3,000 capital loss
carryforward and further reduced by $3,950 tax).
(c)Election of deemed sale treatment—
(1)In general.Paragraph (b) of this sec-
tion does not apply if the C corporation that
qualifies as a RIC or REIT or transfers
property to a RIC or REIT makes the elec-
tion described in paragraph (c)(5) of this
section. A C corporation that makes such
an election recognizes gain and loss as if
it sold the converted property to an unre-
lated party at fair market value on the
deemed sale date (as defined in paragraph
(c)(3) of this section). See paragraph (c)(4)
of this section concerning limitations on the
use of loss in computing gain. This para-
graph (c) does not apply if its application
would result in the recognition of a net loss.
For this purpose,net lossis the excess of
aggregate losses over aggregate gains (in-
cluding items of income), without regard to
character.
(2)Basis adjustment.If a corporation
recognizes a net gain under paragraph (c)(1)
of this section, then the converted prop-
erty has a basis in the hands of the RIC or
REIT equal to the fair market value of such
property on the deemed sale date.
(3)Deemed sale date—(i)RIC or REIT
qualifications.If the conversion transac-
tion is a qualification of a C corporation as
a RIC or REIT, then the deemed sale date
is the end of the last day of the C corpo-
ration’s last taxable year before the first tax-
able year in which it qualifies to be taxed
as a RIC or REIT.
(ii)Other conversion transactions.If the
conversion transaction is a transfer of prop-
erty owned by a C corporation to a RIC or
REIT, then the deemed sale date is the end
of the day before the day of the transfer.
(4)Anti-stuffing rule.A C corporation
must disregard converted property in com-
puting gain or loss recognized on the con-
version transaction under this paragraph (c),
if—
(i) The converted property was acquired
by the C corporation in a transaction to
which section 351 applied or as a contri-
bution to capital;
April 7, 20036832003–14 I.R.B.

(ii) Such converted property had an ad-
justed basis immediately after its acquisi-
tion by the C corporation in excess of its
fair market value on the date of acquisi-
tion; and
(iii) The acquisition of such converted
property by the C corporation was part of
a plan a principal purpose of which was to
reduce gain recognized by the C corpora-
tion in connection with the conversion trans-
action. For purposes of this paragraph (c)(4),
the principles of section 336(d)(2) apply.
(5)Making the deemed sale election.A
C corporation (or a partnership to which the
principles of this section apply under para-
graph (e) of this section) makes the deemed
sale election with the following statement:
“[Insert name and employer identifica-
tion number of electing corporation or part-
nership] elects deemed sale treatment under
§1.337(d)–7(c) with respect to its prop-
erty that was converted to property of, or
transferred to, a RIC or REIT, [insert name
and employer identification number of the
RIC or REIT, if different from the name and
employer identification number of the C
corporation or partnership].”This state-
ment must be attached to the federal in-
come tax return of the C corporation or
partnership for the taxable year in which the
deemed sale occurs. An election under this
paragraph (c) is irrevocable.
(6)Examples.The rules of this para-
graph (c) are illustrated by the following
examples:
Example 1. Deemed sale treatment on merger into
RIC.(i) X, a calendar-year taxpayer, has qualified as
a RIC since January 1, 2001. On May 31, 2004, Y,
a C corporation and calendar-year taxpayer, trans-
fers all of its property to X in a transaction that quali-
fies as a reorganization under section 368(a)(1)(C). As
a result of the transfer, Y would be subject to sec-
tion 1374 treatment under paragraph (b) of this sec-
tion but for its timely election of deemed sale treatment
under this paragraph (c). As a result of such elec-
tion, Y is subject to deemed sale treatment on its tax
return for the short taxable year ending May 31, 2004.
On May 31, 2004, Y’s only assets are Capital As-
set, which has a fair market value of $100,000 and
a basis of $40,000 as of the end of May 30, 2004, and
$50,000 cash. Y also has an unrestricted net operat-
ing loss carryforward of $12,000 and accumulated
earnings and profits of $50,000. Y has no taxable in-
come for the short taxable year ending May 31, 2004,
other than gain recognized under this paragraph (c).
In 2007, X sells Capital Asset for $110,000. As-
sume the applicable corporate tax rate is 35%.
(ii) Under this paragraph (c), Y is treated as if it
sold the converted property (Capital Asset and $50,000
cash) at fair market value on May 30, 2004, recog-
nizing $60,000 of gain ($150,000 amount realized -
$90,000 basis). Y must report the gain on its tax re-
turn for the short taxable year ending May 31, 2004.
Y may offset this gain with its $12,000 net operat-
ing loss carryforward and will pay tax of $16,800 (35%
of $48,000).
(iii) Under section 381, X succeeds to Y’s accu-
mulated earnings and profits. Y’s accumulated earn-
ings and profits of $50,000 increase by $60,000 and
decrease by $16,800 as a result of the deemed sale.
Thus, the aggregate amount of subchapter C earn-
ings and profits that must be distributed to satisfy sec-
tion 852(a)(2)(B) is $93,200 ($50,000 + $60,000 -
$16,800). X’s basis in Capital Asset is $100,000. On
X’s sale of Capital Asset in 2007, X recognizes
$10,000 of gain which is taken into account in com-
puting X’s net capital gain for purposes of section
852(b)(3).
Example 2. Loss limitation.(i) Assume the facts
are the same as those described inExample 1, but that,
prior to the reorganization, a shareholder of Y con-
tributed to Y a capital asset, Capital Asset 2, which
has a fair market value of $10,000 and a basis of
$20,000, in a section 351 transaction.
(ii) Assuming that Y’s acquisition of Capital As-
set 2 was made pursuant to a plan a principal pur-
pose of which was to reduce the amount of gain that
Y would recognize in connection with the conver-
sion transaction, Capital Asset 2 would be disre-
garded in computing the amount of Y’s net gain on
the conversion transaction.
(d)Exceptions—(1)Gain otherwise rec-
ognized.Paragraph (a) of this section does
not apply to any conversion transaction to
the extent that gain or loss otherwise is rec-
ognized on such conversion transaction. See,
for example, sections 336, 351(b), 351(e),
356, 357(c), 367, 368(a)(2)(F), and 1001.
(2)Re-election of RIC or REIT status—
(i)Generally.Except as provided in para-
graphs (d)(2)(ii) and (iii) of this section,
paragraph (a)(1) of this section does not ap-
ply to any corporation that—
(A) Immediately prior to qualifying to
be taxed as a RIC or REIT was subject to
tax as a C corporation for a period not ex-
ceeding two taxable years; and
(B) Immediately prior to being subject
to tax as a C corporation was subject to tax
as a RIC or REIT for a period of at least
one taxable year.
(ii)Property acquired from another cor-
poration while a C corporation.The ex-
ception described in paragraph (d)(2)(i) of
this section does not apply to property ac-
quired by the corporation while it was sub-
ject to tax as a C corporation from any
person in a transaction that results in the ac-
quirer’s basis in the property being deter-
mined by reference to a C corporation’s
basis in the property.
(iii)RICs and REITs previously sub-
ject to section 1374 treatment.If the RIC
or REIT had property subject to paragraph
(b) of this section before the RIC or REIT
became subject to tax as a C corporation
as described in paragraph (d)(2)(i) of this
section, then paragraph (b) of this section
applies to the RIC or REIT upon its requali-
fication as a RIC or REIT, except that the
10-year recognition period with respect to
such property is reduced by the portion of
the 10-year recognition period that ex-
pired before the RIC or REIT became sub-
ject to tax as a C corporation and by the
period of time that the corporation was sub-
ject to tax as a C corporation.
(e)Special rule for partnerships.The
principles of this section apply to prop-
erty transferred by a partnership to a RIC
or REIT to the extent of any C corpora-
tion partner’s distributive share of the gain
or loss in the transferred property. If the
partnership were to elect deemed sale treat-
ment under paragraph (c) of this section in
lieu of section 1374 treatment under para-
graph (b) of this section with respect to such
transfer, then any net gain recognized by the
partnership on the deemed sale must be al-
located to the C corporation partner, but
does not increase the capital account of any
partner. Any adjustment to the partner-
ship’s basis in the RIC or REIT stock as a
result of deemed sale treatment under para-
graph (c) of this section shall constitute an
adjustment to the basis of that stock with
respect to the C corporation partner only.
The principles of section 743 apply to such
basis adjustment.
(f)Effective date.This section applies to
conversion transactions that occur on or af-
ter January 2, 2002. For conversion trans-
actions that occurred on or after June 10,
1987, and before January 2, 2002, see
§§1.337(d)–5 and 1.337(d)–6.
§1.337(d)–7T [Removed]
Par. 7. Section 1.337(d)–7T is removed.
Par. 8. In§1.514(c)–2, paragraph
(e)(1)(v) is added to read as follows:
§1.514(c)–2 Permitted allocations under
section 514(c)(9)(E).
*****
(e)***
(1)***
(v) Allocations made in taxable years be-
ginning on or after January 1, 2002, that are
mandated by statute or regulation other than
subchapter K of chapter 1 of the Internal
Revenue Code and the regulations there-
under.
*****
2003–14 I.R.B.684April 7, 2003

Par. 9. The authority citation for part 602
continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 10. In§602.101, paragraph (b) is
amended by removing the entries for
“1.337(d)–5T”,“1.337(d)–6T”, and“1.337–
7T”and adding entries in numerical or-
der to the table to read as follows:
§602.101 OMB Control numbers.
*****
(b)***
CFR Part or section where
identified or described
Current OMB
control No.
*****
1.337(d)–5 ............................................................................................................................................................. 1545–1672
1.337(d)–6 ............................................................................................................................................................. 1545–1672
1.337(d)–7 ............................................................................................................................................................. 1545–1672
*****
David A. Mader,
Assistant Deputy Commissioner
of Internal Revenue.
Approved March 7, 2003.
Pamela F. Olson,
Assistant Secretary of the Treasury.
(Filed by the Office of the Federal Register on March 13, 2003,
1:16 p.m., and published in the issue of the Federal Regis-
ter for March 18, 2003, 68 F.R. 12817)
Section 382.—Limitation on
Net Operating Loss
Carryforwards and Certain
Built-In Losses Following
Ownership Change
The adjusted applicable federal long-term rate
is set forth for the month of April 2003. See Rev.
Rul. 2003–35, page 687.
Section 412.—Minimum
Funding Standards
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for the
month of April 2003. See Rev. Rul. 2003–35, page
687.
Section 467.—Certain
Payments for the Use of
Property or Services
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for the
month of April 2003. See Rev. Rul. 2003–35, page
687.
Section 468.—Special Rules
for Mining and Solid Waste
Reclamation and Closing
Costs
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for the
month of April 2003. See Rev. Rul. 2003–35, page
687.
Section 482.—Allocation of
Income and Deductions
Among Taxpayers
Federal short-term, mid-term, and long-term
rates are set forth for the month of April 2003. See
Rev. Rul. 2003–35, page 687.
Section 483.—Interest on
Certain Deferred Payments
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for the
month of April 2003. See Rev. Rul. 2003–35, page
687.
Section 642.—Special Rules
for Credits and Deductions
Federal short-term, mid-term, and long-term
rates are set forth for the month of April 2003. See
Rev. Rul. 2003–35, page 687.
Section 705.—Determination
of Basis of Partner’s Interest
26 CFR 1.705–1: Determination of basis of
partner’s interest.
T.D. 9049
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Amendments to Rules for
Determination of Basis of
Partner’s Interest; Special
Rules
AGENCY: Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations.
SUMMARY: This document contains fi-
nal regulations relating to special rules on
determination of basis of a partner’s inter-
est under section 705. The final regula-
tions are necessary to coordinate sections
705 and 1032.
DATES:Effective Date:These regulations
are effective March 18, 2003.
Applicability Date:For dates of appli-
cability, see§1.705–2(e).
FOR FURTHER INFORMATION CON-
TACT: Barbara (MacMillan) Campbell or
Rebekah A. Myers (202) 622–3050 (not a
toll-free number).
April 7, 20036852003–14 I.R.B.

SUPPLEMENTARY INFORMATION:
Background
On March 29, 2002, the Treasury De-
partment and the IRS published final regu-
lations (T.D. 8986, 2002–1 C.B. 780 [67 FR
15112]) under section 705 of the Internal
Revenue Code (Code) in theFederal Reg-
ister. Those final regulations provide guid-
ance on the coordination of sections 705
and 1032 in situations where a corpora-
tion acquires an interest in a partnership that
holds stock in that corporation, a section
754 election is not in effect with respect to
the partnership for the taxable year in which
the corporation acquires the interest, and the
partnership later sells or exchanges the
stock. During the development of those fi-
nal regulations, the Treasury Department
and the IRS considered other issues re-
lated to the coordination of sections 705 and
1032. Accordingly, also on March 29, 2002,
the Treasury Department and the IRS pub-
lished proposed regulations (REG–167648–
01, 2002–1 C.B. 790 [67 FR 15132]) to
revise the final regulations contained in
§1.705–2of26CFRpart1intheFed-
eral Register. No written comments were
received in response to the notice of pro-
posed rulemaking, and no public hearing
was requested or held. The proposed regu-
lations are adopted as revised by this Trea-
sury decision.
Explanation of Provisions
1. Overview of Proposed Regulations
The proposed regulations apply to situ-
ations where a corporation owns a direct or
indirect interest in a partnership that owns
stock in that corporation, the partnership dis-
tributes money or other property to an-
other partner and that partner recognizes
gain on the distribution during a year in
which the partnership does not have an elec-
tion under section 754 in effect, and the
partnership subsequently sells or exchanges
the stock. As stated in the preamble to the
proposed regulations, in these situations it
may be inconsistent with the intent of sec-
tions 705 and 1032 to increase the basis of
the corporation’s partnership interest by the
full amount of any gain resulting from the
partnership’s sale or exchange of the stock
which is not recognized by the corpora-
tion under section 1032.
Accordingly, the proposed regulations re-
vise the purpose statement of§1.705–2(a)
to take into account situations involving
such partnership distributions. The pro-
posed regulations provide a specific rule
implementing the revised purpose in single
partnership cases. The proposed regula-
tions also revise§1.705–2(c) to clarify that
the tiered partnerships rule applies to situ-
ations involving such partnership distribu-
tions.
In addition, the proposed regulations
clarify that references in the regulations to
stock of a corporate partner include any po-
sition in stock of a corporate partner to
which section 1032 applies.
2. Revisions in Final Regulations
These final regulations follow the pro-
posed regulations but extend the rules of the
proposed regulations to situations where a
corporation owns a direct or indirect inter-
est in a partnership that owns stock in that
corporation, the partnership distributes
money or other property to another part-
ner and that partner recognizes loss on the
distribution or the basis of the property dis-
tributed to that partner is adjusted during
a year in which the partnership does not
have an election under section 754 in ef-
fect, and the partnership subsequently sells
or exchanges the stock. The revisions pro-
vide a more consistent approach, and bet-
ter conform these final regulations to the
final regulations issued on March 29, 2002,
under section 705 (T.D. 8986, 2002–1 C.B.
780).
3. Effective Date
The final regulations apply with re-
spect to sales or exchanges of stock occur-
ring on or after March 18, 2003, except that
paragraph (d) applies with respect to sales
or exchanges of stock occurring on or af-
ter March 29, 2002.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It also has been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does not
apply to these regulations, and because the
regulations do not impose a collection of
information on small entities, the Regula-
tory Flexibility Act (5 U.S.C. chapter 6)
does not apply. Pursuant to section 7805(f)
of the Internal Revenue Code, the notice of
proposed rulemaking preceding these regu-
lations was submitted to the Chief Coun-
sel for Advocacy of the Small Business
Administration for comment on its im-
pact on small businesses.
Drafting Information
The principal author of these proposed
regulations is Barbara (MacMillan) Camp-
bell of the Office of the Associate Chief
Counsel (Passthroughs and Special Indus-
tries). However, personnel from other of-
fices of the IRS and the Treasury
Department participated in their develop-
ment.
*****
Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PA RT 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805***
Par. 2. Section 1.705–1 is amended by
revising paragraph (a)(7) to read as follows:
§1.705–1 Determination of basis of
partner’s interest.
(a)***
(7) For basis adjustments necessary to
coordinate sections 705 and 1032 in cer-
tain situations in which a partnership dis-
poses of stock or any position in stock to
which section 1032 applies of a corpora-
tion that holds a direct or indirect interest
in the partnership, see§1.705–2.
*****
Par. 3. Section 1.705–2 is amended as
follows:
1. Paragraph (a) is amended by adding
a new sentence after the third sentence.
2. Paragraph (b)(2) is added.
3. Paragraph (c)(1) is amended by add-
ing a sentence at the end of the paragraph.
4. Paragraph (d) is added.
5. Paragraph (e) is revised.
The additions and revision read as
follows:
§1.705–2 Basis adjustments coordinating
sections 705 and 1032.
(a)***Similarly, in situations where
a section 754 election was not in effect for
the year in which a partnership distrib-
2003–14 I.R.B.686April 7, 2003

utes money or other property to another
partner and that partner recognizes gain or
loss on the distribution or the basis of the
property distributed to that partner is ad-
justed, the remaining partners’inside ba-
sis and outside basis may not be equal.
***
*****
(b)***
(2)Required adjustments relating to dis-
tributions.(i) This paragraph (b)(2) ap-
plies in situations where a corporation owns
a direct or indirect interest in a partner-
ship that owns stock in that corporation, the
partnership distributes money or other prop-
erty to another partner and that partner rec-
ognizes gain or loss on the distribution or
the basis of the property distributed to that
partner is adjusted during a year in which
the partnership does not have an election
under section 754 in effect, and the part-
nership subsequently sells or exchanges the
stock. In these situations, the increase (or
decrease) in the corporation’s adjusted ba-
sis in its partnership interest resulting from
the sale or exchange of the stock equals the
amount of gain (or loss) that the corpo-
rate partner would have recognized (ab-
sent the application of section 1032) if, for
the year in which the partnership made the
distribution, a section 754 election had been
in effect.
(ii) The provisions of this paragraph
(b)(2) are illustrated by the following
example:
Example.(i) A, B, and corporation C form part-
nership PRS. A and B each contribute $10,000 and C
contributes $20,000 in exchange for a partnership in-
terest. PRS has no liabilities. PRS purchases stock in
corporation C for $10,000, which appreciates in value
to $70,000. PRS distributes $25,000 to A in com-
plete liquidation of A’s interest in PRS in a year for
which an election under section 754 is not in effect.
PRS later sells the C stock for $70,000. PRS real-
izes a gain of $60,000 on the sale of the C stock. C’s
share of the gain is $40,000. Under section 1032, C
does not recognize its share of the gain.
(ii) Normally, C would be entitled to a $40,000
increase in the basis of its PRS interest for its allo-
cable share of PRS’s gain from the sale of the C stock,
but a special rule applies in this situation. If a sec-
tion 754 election had been in effect for the year in
which PRS made the distribution to A, PRS would
have been entitled to adjust the basis of partnership
property under section 734(b)(1)(A) by $15,000 (the
amount of gain recognized by A with respect to the
distribution to A under section 731(a)(1)). See§1.734–
1(b). Under§1.755–1(c)(1)(ii), the basis adjustment
under section 734(b) would have been allocated to the
C stock, increasing its basis to $25,000 (where there
is a distribution resulting in an adjustment under sec-
tion 734(b)(1)(A) to the basis of undistributed part-
nership property, the adjustment is allocated only to
capital gain property).
(iii) If a section 754 election had been in effect
for the year in which PRS made the distribution to A,
the amount of gain that PRS would have recognized
upon PRS’s disposition of C stock would be $45,000
($70,000 minus $25,000 basis in the C stock), and the
amount of gain C would have recognized upon PRS’s
disposition of the C stock (absent the application of
section 1032) would be $30,000 (C’s share of PRS’s
gain of $45,000 from the stock sale). Accordingly, upon
PRS’s sale of the C stock, the increase in the basis
of C’s interest in PRS is $30,000.
(c)***(1)***Similarly, if a cor-
poration owns an indirect interest in its own
stock through a chain of two or more part-
nerships, and a partnership in the chain dis-
tributes money or other property to another
partner and that partner recognizes gain or
loss on the distribution or the basis of the
property distributed to that partner is ad-
justed during a year in which the partner-
ship does not have an election under section
754 in effect, then upon any subsequent sale
or exchange of the stock, the bases of the
interests in the partnerships included in the
chain shall be adjusted in a manner that is
consistent with the purpose of this sec-
tion.
*****
(d)Positions in Stock.For purposes of
this section, stock includes any position in
stock to which section 1032 applies.
(e)Effective date.This section applies
to gain or loss allocated with respect to sales
or exchanges of stock occurring after De-
cember 6, 1999, except that paragraph (d)
of this section is applicable with respect to
sales or exchanges of stock occurring on or
after March 29, 2002, and the fourth sen-
tence of paragraph (a), paragraph (b)(2), and
the third sentence of paragraph (c)(1) of this
section are applicable with respect to sales
or exchanges of stock occurring on or af-
ter March 18, 2003.
David A. Mader,
Assistant Deputy Commissioner
of Internal Revenue.
Approved March 6, 2003.
Pamela F. Olson,
Assistant Secretary of the Treasury.
(Filed by the Office of the Federal Register on March 17, 2003,
8:45 a.m., and published in the issue of the Federal Regis-
ter for March 18, 2003, 68 F.R. 12815)
Section 807.—Rules for
Certain Reserves
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for the
month of April 2003. See Rev. Rul. 2003–35, on
this page.
Section 846.—Discounted
Unpaid Losses Defined
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for the
month of April 2003. See Rev. Rul. 2003–35, on
this page.
Section 1033.—Involuntary
Conversions
26 CFR 1.1033(a)–1: Involuntary conversions;
nonrecognition of gain.
May a business defer, under section 1033,
recognition of gain realized on receipt of a grant
payment made under the World Trade Center grant
program? See Notice 2003–18, page 699.
Section 1274.—Determin-
ation of Issue Price in the
Case of Certain Debt
Instruments Issued for
Property
(Also Sections 42, 280G, 382, 412, 467, 468, 482,
483, 642, 807, 846, 1288, 7520, 7872.)
Federalrates;adjustedfederal
rates; adjusted federal long-term rate
and the long-term exempt rate.For
purposes of sections 382, 1274, 1288,
and other sections of the Code, tables set
forth the rates for April 2003.
Rev. Rul. 2003–35
This revenue ruling provides various pre-
scribed rates for federal income tax pur-
poses for April 2003 (the current month).
Table 1 contains the short-term, mid-term,
and long-term applicable federal rates
(AFR) for the current month for purposes
of section 1274(d) of the Internal Rev-
enue Code. Table 2 contains the short-
term, mid-term, and long-term adjusted
applicable federal rates (adjusted AFR) for
the current month for purposes of section
April 7, 20036872003–14 I.R.B.

1288(b). Table 3 sets forth the adjusted fed-
eral long-term rate and the long-term tax-
exempt rate described in section 382(f).
Table 4 contains the appropriate percent-
ages for determining the low-income hous-
ing credit described in section 42(b)(2) for
buildings placed in service during the cur-
rent month. Finally, Table 5 contains the
federal rate for determining the present
value of annuity, an interest for life or for
a term of years, or a remainder or a rever-
sionary interest for purposes of section
7520.
REV. RUL. 2003–35 TABLE 1
Applicable Federal Rates (AFR) for April 2003
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-Term
AFR1.46%1.45%1.45%1.45%
110% AFR1.61%1.60%1.60%1.59%
120% AFR1.75%1.74%1.74%1.73%
130% AFR1.90%1.89%1.89%1.88%
Mid-Term
AFR2.96%2.94%2.93%2.92%
110% AFR3.26%3.23%3.22%3.21%
120% AFR3.56%3.53%3.51%3.50%
130% AFR3.86%3.82%3.80%3.79%
150% AFR4.46%4.41%4.39%4.37%
175% AFR5.22%5.15%5.12%5.10%
Long-Term
AFR4.58%4.53%4.50%4.49%
110% AFR5.04%4.98%4.95%4.93%
120% AFR5.51%5.44%5.40%5.38%
130% AFR5.98%5.89%5.85%5.82%
REV. RUL. 2003–35 TABLE 2
Adjusted AFR for April 2003
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
adjusted AFR1.26%1.26%1.26%1.26%
Mid-term
adjusted AFR2.57%2.55%2.54%2.54%
Long-term
adjusted AFR4.41%4.36%4.34%4.32%
2003–14 I.R.B.688April 7, 2003

REV. RUL. 2003–35 TABLE 3
Rates Under Section 382 for April 2003
Adjusted federal long-term rate for the current month4.41%
Long-term tax-exempt rate for ownership changes during the current month (the highest
of the adjusted federal long-term rates for the current month and the prior two months.)4.58%
REV. RUL. 2003–35 TABLE 4
Appropriate Percentages Under Section 42(b)(2) for April 2003
Appropriate percentage for the 70% present value low-income housing credit7.87%
Appropriate percentage for the 30% present value low-income housing credit3.37%
REV. RUL. 2003–35 TABLE 5
Rate Under Section 7520 for April 2003
Applicable federal rate for determining the present value of an annuity, an interest for life or a term
of years, or a remainder or reversionary interest3.6%
Section 1288.—Treatment of
Original Issue Discounts on
Tax-Exempt Obligations
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for the
month of April 2003. See Rev. Rul. 2003–35, page
687.
Section 4945.—Taxes on
Taxable Expenditures
26 CFR 53.4945–4: Grants to individuals.
(Also§117;§1.117–1.)
Scholarshipgrants,employer-
related private foundations.This ruling
states that for purposes of sections 117
and 4945 of the Code, scholarships and
educational grants awarded by a private
foundation under an employer-related
program to employees and their children,
when the employee is a victim killed or
seriously injured in a qualified disaster,
may be awarded without regard to the
percentage guidelines in Rev. Proc.
76–47, 1976–2 C.B. 670. Thus, grants
awarded under such a program will be
described in section 4945(g)(1) and will
notbetaxableexpendituresunder
section 4945(d)(3).
Rev. Rul. 2003–32
ISSUE
If a private foundation awards educa-
tional grants to employees or children of
employees of a particular employer who are
victims of a qualified disaster as defined in
§139 of the Internal Revenue Code, and the
educational grants do not satisfy the per-
centage test of Rev. Proc. 76–47, 1976–2
C.B. 670, are these educational grants
treated as scholarships subject to the pro-
visions of§117 and not treated as tax-
able expenditures under§4945(d)(3)?
FACTS
The foundation is exempt from federal
income tax under§501(c)(3) and is a pri-
vate foundation under§509(a). The foun-
dation has applied under§4945(g) for
approval of its proposed scholarship pro-
gram. The foundation intends to provide
scholarships to employees or children of
employees of a particular employer if the
employee is seriously injured or killed as
a result of a qualified disaster within the
meaning of§139(c)(1), (2), or (3). The
foundation will determine whether these cri-
teria are satisfied using objective stan-
dards that are consistently applied.
Section 139(c) provides that the term
“qualified disaster”includes (1) a disas-
ter that results from a terroristic or mili-
tary action (as defined in§692(c)), (2) a
Presidentially declared disaster (as de-
fined in§1033(h)(3)), or (3) a disaster that
results from an accident involving a com-
mon carrier, or from any other event, which
is determined by the Secretary to be of a
catastrophic nature.
The group of employees or children of
employees from whom grantees are se-
lected is sufficiently broad to constitute a
charitable class. The foundation’s scholar-
ship program will satisfy the requirements
of§4945(g)(1) and the guidelines of
April 7, 20036892003–14 I.R.B.

§§4.01 through 4.07 of Rev. Proc. 76–
47, 1976–2 C.B. 670; however, the foun-
dation will award grants without regard to
the percentage limitation test of§4.08 of
Rev. Proc. 76–47. The foundation intends
to make grants to all eligible applicants.
LAW AND ANALYSIS
A grant by a private foundation to an in-
dividual for travel, study, or other similar
purposes is a taxable expenditure by the pri-
vate foundation under§4945(d)(3) un-
less such grant satisfies the requirements of
§4945(g). Such a grant, awarded on an ob-
jective and nondiscriminatory basis pursu-
ant to a procedure approved in advance by
the Secretary, may satisfy the requirements
of§4945(g)(1) if it is demonstrated to the
satisfaction of the Secretary that the grant
(i) constitutes a scholarship or fellowship
grant that is subject to the provisions of
§117(a) as in effect on the day before the
date of the enactment of the Tax Reform
Act of 1986 and (ii) is to be used for study
at an educational organization described in
§170(b)(1)(A)(ii).
When an employer makes educational
grants available to its employees on a pref-
erential basis, the employer-employee re-
lationship immediately suggests that the
grant may be compensatory. To ensure that
employer-related grant programs are out-
side the pattern of employment and, there-
fore, not compensatory, substantial factors
not related to employment must control and
limit grant programs to such an extent that
the preferential treatment derived from em-
ployment does not continue to be of any
significance beyond being an initial quali-
fier.
Rev. Proc. 76–47, 1976–2 C.B. 670, pro-
vides guidelines for determining whether a
grant made by a private foundation under
an employer-related grant program to an
employee or to a child of an employee of
the particular employer is a scholarship un-
der§§117 and 4945(g)(1), rather than a
form of compensation, an employment in-
centive, or an employee fringe benefit. The
Service will assume that grants awarded un-
der an employer-related grant program will
be scholarships or fellowship grants un-
der§§117 and 4945(g)(1) if the program
satisfies the seven conditions in§§4.01
through 4.07 and the percentage test de-
scribed in§4.08 of Rev. Proc. 76–47.
Rev. Proc. 76–47, 1976–2 C.B. 670, pro-
vides that if an employer-related private
foundation’s educational grant program sat-
isfies the seven conditions of Rev. Proc. 76–
47,§§4.01 through 4.07, but does not meet
the percentage test of§4.08, then all the
facts and circumstances will be reviewed
in determining whether the primary pur-
pose of the program is to provide extra
compensation or another employment in-
centive, or whether the primary purpose is
to educate recipients in their individual ca-
pacities.
For this program, employment is the ini-
tial, but not the sole, qualifier. An em-
ployee or the child of an employee is
eligible for an educational grant only in the
event the employee is seriously injured or
killed as a result of a qualified disaster.
These eligibility criteria provide suffi-
cient assurance that the primary purpose of
the grant is to educate recipients in their in-
dividual capacities, outside of any pattern
of employment, rather than to compen-
sate employees or provide an employment
fringe benefit. Therefore, this educational
grant program is not required to satisfy the
percentage test of§4.08 because its eligi-
bility requirements meet the facts and cir-
cumstances test of Rev. Proc. 76–47.
HOLDING
Under the facts set forth above, grants
awarded under the program satisfy the re-
quirements of Rev. Proc. 76–47, 1976–2
C.B. 670, and constitute scholarships sub-
ject to the provisions of§117. Therefore,
grants awarded under the program satisfy
the requirements of§4945(g)(1) and will
not be taxable expenditures under
§4945(d)(3). This revenue ruling does not
address the extent to which the grants meet
the requirements of“qualified scholar-
ships”that may be excluded from the gross
income of recipients under§117(a). See
Notice 87–31, 1987–1 C.B. 475, for fur-
ther information relating to the exclusion
of qualified scholarships from gross in-
come.
APPLICATION
This ruling also applies to Revenue Pro-
cedure 80–39, 1980–2 C.B. 772, which pro-
vides parallel guidelines for determining
whether educational loans made by a pri-
vate foundation under an employer-related
loan program will satisfy the requirements
of§4945(g)(3) and will not be taxable ex-
penditures under§4945(d)(3).
DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Janet E. Gitterman of the Exempt Or-
ganizations, Tax Exempt and Government
Entities Division. For further information
regarding this revenue ruling, contact
Ms. Gitterman at (202) 283–9458 (not a
toll-free call).
Section 6103.—Confiden-
tiality and Disclosure of
Returns and Return
Information
26 CFR 301.6103(n)–1: Disclosure of returns and
return information in connection with procurement
of property and services for tax administration
purposes.
T.D. 9044
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 301 and 602
Amendment of 26 CFR
§301.6103(n)–1to
Incorporate Taxpayer
Browsing Protection Act
AGENCY: Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulation.
SUMMARY: This final regulation requires
persons to whom returns or return infor-
mation is or may be disclosed as autho-
rized by§301.6103(n)–1(a) (generally,
contractors employed to perform tax ad-
ministration services) to notify their
officers and employees of the prohibitions
against and penalties for unauthorized in-
spection of returns or return information.
DATES:Effective Date:This final regula-
tion is effective March 12, 2003.
2003–14 I.R.B.690April 7, 2003

FOR FURTHER INFORMATION CON-
TACT: Carol Marchant, 202–622–4590 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information in this fi-
nal rule has been reviewed and, pending re-
ceipt and evaluation of public comments,
approved by the Office of Management and
Budget (OMB) under 44 U.S.C. 3507 and
assigned control number 1545–1821. The
collection of information in this regula-
tion is in§301.6103(n)–1(c). This infor-
mation is required and will be used to
promote compliance by officers and em-
ployees with the restrictions of sections
6103, 7213, and 7213A, and to protect the
privacy of American taxpayers. The col-
lection of information is required to ob-
tain a benefit. The likely respondents are
state or local governments, business or other
for-profit institutions, Federal agencies,
and/or small businesses or organizations.
Comments on the collection of infor-
mation should be sent to theOffice of
Management and Budget, Attn: Desk Of-
ficer for the Department of the Treasury, Of-
fice of Information and Regulatory Affairs,
Washington, DC 20503, with copies to the
Internal Revenue Service, Attn: IRS Re-
ports Clearance Officer, W:CAR:MP:T:T:
SP, Washington, DC 20224. Comments on
the collection of information should be re-
ceived by May 12, 2003.
Comments are specifically requested
concerning: Whether the collection of in-
formation is necessary for the proper per-
formance of the functions of theInternal
Revenue Service, including whether the in-
formation will have practical utility; The ac-
curacy of the estimated burden associated
with the collection of information (see be-
low); How the quality, utility, and clarity
of the information to be collected may be
enhanced; How the burden of complying
with the collection of information may be
minimized, including through the applica-
tion of automated collection techniques or
other forms of information technology; and
Estimates of capital or start-up costs and
costs of operation, maintenance, and pur-
chase of service to provide information. Es-
timated total annual reporting burden: 250
hours. Estimated average annual burden
hours per respondent: 6 minutes. Estimated
number of respondents: 2500. Estimated an-
nual frequency of responses: Annually.
An agency may not conduct or spon-
sor, and a person is not required to re-
spond to, a collection of information unless
it displays a valid control number assigned
by the Office of Management and Bud-
get. Books or records relating to a collec-
tion of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, returns and return informa-
tion are confidential, as required by 26
U.S.C. 6103.
Background
Under section 7213A of the Internal
Revenue Code (Code) as added by Public
Law 105–35 (111 Stat. 1104) (the Tax-
payer Browsing Protection Act of 1997),
any person described in section 6103(n), or
an officer or employee of any such per-
son, is prohibited from willfully inspect-
ing any returns or return information, except
as authorized by the Code. Any person who
violates section 7213A may be subject to
a fine in any amount not exceeding $1,000,
or imprisonment of not more than one year,
or both. Currently,§301.6103(n)–1(c) pro-
vides that each officer or employee of any
person to whom returns or return informa-
tion is or may be disclosed as authorized
by§301.6103(n)–1(a) must be notified of
the prohibitions against unauthorized dis-
closure of returns or return information, and
the potential penalties for such acts, im-
posed under section 7213. The regulation
does not reflect the penalties imposed by
section 7213A.
This document adopts a final regula-
tion amending§301.6103(n)–1(c) to re-
flect the penalties contained in section
7213A. The regulation requires that each of-
ficer or employee of any person to whom
returns or return information is or may be
disclosed as authorized by§301.6103(n)–
1(a) must also receive notification of the
prohibitions against unauthorized inspec-
tion of returns or return information and the
potential penalties for such acts, in addi-
tion to the notifications of the penalties for
unauthorized disclosure. The Internal Rev-
enue Service (IRS) already requires, in all
section 6103(n) contracts, that contrac-
tors notify their officers and employees of
the penalties for unauthorized inspection.
The final regulation updates the regula-
tory requirements to conform to the present
law for both unauthorized inspection and
disclosure.
Explanation of Provisions
This final regulation adds a require-
ment that persons to whom returns or re-
turn information is or may be disclosed as
authorized by§301.6103(n)–1(a) notify their
officers and employees that such officers
and employees are prohibited from will-
fully inspecting any returns or return in-
formation, except as authorized by the
Code, and that they may be subject to a fine
in any amount not exceeding $1,000, or im-
prisonment of not more than one year, or
both, for any violation of section 7213A.
The IRS has a number of section
6103(n) agreements with federal agen-
cies. This final regulation also clarifies the
penalty provisions that are applicable to of-
ficers and employees of Federal agencies
who are performing tax administration ser-
vices for the IRS pursuant to section
6103(n).
Special Analyses
Section 553 of the Administrative Pro-
cedure Act (5 U.S.C. chapter 5) requires that
a notice of proposed rulemaking be pub-
lished in theFederal Registerand, after
such notice, that the Federal agency that is-
sued the notice give interested persons an
opportunity to participate in the rulemak-
ing through submission of written com-
ments, with or without opportunity for oral
presentation. These requirements are sub-
ject to certain exceptions set forth in 5
U.S.C. 553(b), including when the agency
for good cause finds that notice and pub-
lic comment are impracticable, unneces-
sary, or contrary to the public interest.
Because the final regulation merely amends
an existing regulation to add an additional
notification requirement that has already
been imposed administratively, it is deter-
mined that the notice and public-comment
procedure required by 5 U.S.C. 553 is un-
necessary in this case. For the same rea-
son, a delayed effective date is not required
pursuant to 5 U.S.C. 553(d)(3).
It has also been determined that this
Treasury decision is not a significant regu-
latory action as defined in Executive Or-
der 12866. Therefore, a regulatory
assessment is not required. Because no no-
tice of proposed rulemaking is required, the
provisions of the Regulatory Flexibility Act
April 7, 20036912003–14 I.R.B.

(5 U.S.C. 601–612) do not apply. Pursu-
ant to section 7805(f) of the Code, this regu-
lation was submitted to the Chief Counsel
of the Small Business Administration for
comment on its impact on small business.
Drafting Information
The principal author of this final regu-
lation is Carol Marchant, Office of Asso-
ciate Chief Counsel (Procedure &
Administration), Disclosure and Privacy
Law Division.
*****
Adoption of Amendments to the Regu-
lations
Accordingly, 26 CFR parts 301 and 602
are amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read in part as follows:
Authority: 26 U.S.C. 7805***
Par. 2. In§301.6103(n)–1, paragraph (c)
is revised and paragraph (f) is added to read
as follows:
§301.6103(n)–1 Disclosure of returns
and return information in connection
with procurement of property and
services for tax administration purposes.
*****
(c)Notification requirements. Persons to
whom returns or return information is or
may be disclosed as authorized by para-
graph (a) of this section shall provide writ-
ten notice to their officers or employees—
(1) That returns or return informa-
tion disclosed to such officer or employee
can be used only for a purpose and to the
extent authorized by paragraph (a) of this
section;
(2) That further inspection of any re-
turns or return information for a purpose or
to an extent unauthorized by paragraph (a)
of this section constitutes a misdemeanor,
punishable upon conviction by a fine of as
much as $1,000, or imprisonment for as
long as 1 year, or both, together with costs
of prosecution;
(3) That further disclosure of any re-
turns or return information for a purpose or
to an extent unauthorized by paragraph (a)
of this section constitutes a felony, pun-
ishable upon conviction by a fine of as
much as $5,000, or imprisonment for as
long as 5 years, or both, together with the
costs of prosecution;
(4) That any such unauthorized fur-
ther inspection or disclosure of returns or
return information may also result in an
award of civil damages against any per-
son who is not an officer or employee of
the United States in an amount not less than
$1,000 for each act of unauthorized in-
spection or disclosure or the sum of ac-
tual damages sustained by the plaintiff as
a result of such unauthorized disclosure or
inspection as well as an award of costs and
reasonable attorneys fees; and
(5) If such person is an officer or em-
ployee of the United States, a conviction for
an offense referenced in paragraph (c)(2)
or (c)(3) of this section shall result in dis-
missal from office or discharge from em-
ployment.
*****
(f)Effective date.Section 301.6103(n)–
1(c) is applicable on March 12, 2003.
PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT
Par. 4. The authority citation for part 602
continues to read as follows:
Authority: 26 U.S.C. 7805.
Par.5.In§602.101, paragraph (b) is
amended by adding an entry in numerical
order to the table to read as follows:
§602.101 OMB Control numbers.
*****
(b)***
CFR part or section where
identified and described
Current OMB
control No.
*****
301.6103(n)–1................................................................................................................................................. 1545–1841
*****
David A. Mader,
Assistant Deputy Commissioner
of Internal Revenue.
Approved February 11, 2003.
Pamela F. Olson,
Assistant Secretary of the Treasury.
(Filed by the Office of the Federal Register on March 11, 2003,
8:45 a.m., and published in the issue of the Federal Regis-
ter for March 12, 2003, 68 F.R. 11739)
2003–14 I.R.B.692April 7, 2003

Section 7433.—Civil
Damages for Certain
Unauthorized Collection
Actions
26 CFR 301.7433–1: Civil cause of action for
certain unauthorized collection actions.
T.D. 9050
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 301
Civil Cause of Action for
Damages Caused by Unlawful
Tax Collection Actions,
Including Actions Taken in
Violation of Section 362 or
524 of the Bankruptcy Code
AGENCY: Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations.
SUMMARY: This document contains fi-
nal regulations relating to civil causes of ac-
tion for damages caused by unlawful
collection actions of officers and employ-
ees of the IRS and the awarding of costs
and certain fees. The regulations reflect
amendments made by the Taxpayer Bill of
Rights 2 and the Internal Revenue Ser-
vice Restructuring and Reform Act of 1998.
The regulations affect all persons who suf-
fer damages caused by unlawful collec-
tion actions of officers or employees of the
IRS.
EFFECTIVE DATES: These regulations are
effective March 25, 2003.
FOR FURTHER INFORMATION CON-
TACT: Kevin B. Connelly, (202) 622–3630
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains final amend-
ments to the Procedure and Administra-
tion Regulations (26 CFR part 301) relating
to civil actions for damages caused by un-
lawful collection actions of officers or em-
ployees of the IRS. The Taxpayer Bill of
Rights 2 (TBOR2), Public Law 104–168
(110 Stat. 1465), amended section 7433 of
the Internal Revenue Code of 1986 (Code)
by increasing the maximum amount of
damages a taxpayer may be awarded for un-
lawful collection actions from $100,000 to
$1,000,000. TBOR2 also eliminated the ju-
risdictional requirement that administra-
tive remedies be exhausted before a court
may award damages; TBOR2 authorized the
court, however, to reduce damages if it de-
termined that the plaintiff did not exhaust
administrative remedies. These TBOR2 pro-
visions were effective for actions of IRS of-
ficers or employees after July 30, 1996. The
Internal Revenue Service Restructuring and
Reform Act of 1998 (RRA 1998), Public
Law 105–206 (112 Stat. 685), although re-
taining the pre-existing authorization for an
award of damages in the case of reckless
or intentional disregard of the Code or regu-
lations, amended section 7433(a) by pro-
viding that taxpayers may file actions for
damages caused by the negligent disre-
gard of the Code or regulations. RRA 1998
also added subsection (e) to section 7433.
This amendment provides that an action for
damages could be brought for the IRS’s
willful violation of section 362 (relating to
the automatic stay) or section 524 (relat-
ing to the effect of discharge) of the Bank-
ruptcy Code. Actions for damages caused
by the violation of section 362 or 524 of
the Bankruptcy Code are limited to will-
ful violations. The maximum amount of
damages that may be awarded for negli-
gent disregard under section 7433(a) is
$100,000. The maximum amount of dam-
ages that may be awarded for reckless or
intentional disregard under subsection (a)
or for willful violations of section 362 or
524 of the Bankruptcy Code under sub-
section (e) is $1,000,000. RRA 1998 also
reinstated the requirement under section
7433 that the plaintiff must exhaust ad-
ministrative remedies before a court may
award damages. These RRA 1998 provi-
sions apply to actions of IRS officers or em-
ployees after July 22, 1998.
RRA 1998 also added section 7426(h),
which authorizes persons who bring wrong-
ful levy actions under section 7426 to sue
for damages caused by the reckless or in-
tentional, or negligent, disregard of any pro-
vision of the Code, plus costs of the action.
Consistent with section 7433, damages
awarded under section 7426(h) are lim-
ited to $1,000,000 for reckless or inten-
tional disregard and $100,000 for negligent
disregard. In addition, a plaintiff must ex-
haust administrative remedies before a court
may award damages under section 7426(h).
The provisions of section 7433 relating to
mitigation and the period for bringing an
action also apply to actions brought un-
der section 7426(h). IRS published a no-
tice of proposed rulemaking reflecting these
changes in theFederal Registeron March
5, 2002. (REG–107366–00, 2002–1C.B.
645 [67 FR 9929]). No written comments
on the proposed regulations were received.
No public hearing was held.
Explanation of Provisions
§301.7426–2
RRA 1998 added subsection (h) to sec-
tion 7426. Subsection (h) authorizes per-
sons to sue the United States in Federal
district court for damages due to a wrong-
ful levy caused by the reckless or inten-
tional, or negligent, disregard of a provision
of the Code. Plaintiffs may recover the
lesser of actual direct economic damages
and costs of the action or $1,000,000
($100,000 in the case of negligence). The
amendment also provided that the rules of
section 7433(d) relating to exhaustion of ad-
ministrative remedies, mitigation of dam-
ages, and the period for bringing an action
shall apply. The regulations thus adopt rules
like those promulgated under section 7433.
Plaintiffs must mitigate damages and no
damages may be awarded unless the court
determines that the plaintiff has exhausted
administrative remedies available within the
IRS,e.g., by filing an administrative claim
for damages. The regulations provide that
any action for damages under this section
must be brought within two years after the
date the action accrues. This two-year limi-
tations period is independent of the nine-
month period following the wrongful levy
during which the third party may make a
claim for wrongfully levied property.
§301.7430–8
Section 7430 provides that reasonable
administrative costs may be awarded to the
prevailing party in an administrative pro-
ceeding brought by or against the United
States in connection with the determina-
tion, collection, or refund of any tax, in-
terest, or penalty under Title 26 of the
United States Code. Prior to the amend-
ments in RRA 1998, taxpayers generally
were not entitled to recover costs for ad-
ministrative proceedings in connection with
collection matters. Accordingly, the cur-
April 7, 20036932003–14 I.R.B.

rent regulations exclude such collection mat-
ters, including proceedings under sections
7432 and 7433, from the definition of ad-
ministrative proceedings. To reflect the RRA
1998 amendments, the regulations expand
the definition of an administrative proceed-
ing to include any administrative action for
damages under section 7433(e) and any pro-
cedure or action brought before the IRS
seeking relief with respect to a violation by
the IRS of section 362 or 524 of the Bank-
ruptcy Code.
The regulations provide that the pre-
vailing party is a party who establishes that,
in connection with the collection of his or
her federal tax, the IRS has willfully vio-
lated a provision of section 362 or 524 of
the Bankruptcy Code. The only adminis-
trative costs that may be awarded are those
incurred after the date of the bankruptcy pe-
tition that gave rise to the section 362 stay
or section 524 discharge injunction.
A claim with the IRS for administra-
tive costs must be filed within 90 days af-
ter the date the IRS mails its decision on
the taxpayer’s administrative claim for dam-
ages under§301.7433–2(e) or claim for re-
lief from a violation of section 362 or 524
of the Bankruptcy Code.
§301.7433–1
Section 3102 of RRA 1998 amended
section 7433(a) of the Code by providing
that a taxpayer may sue the United States
in a district court of the United States for
damages caused by the negligent disre-
gard of the Code or regulations in connec-
tion with the collection of the taxpayer’s tax
liability. Section 801 of TBOR2 amended
section 7433(b) by increasing the maxi-
mum amount of damages that a taxpayer
may recover for damages caused by the
reckless or intentional disregard of the Code
or regulations from $100,000 to $1,000,000.
Section 3102 of RRA 1998 caps the amount
of damages that a taxpayer may recover for
negligent disregard at $100,000. The regu-
lations under§301.7433–1 reflect these
changes.
§301.7433–2
RRA 1998 also amended section 7433
by adding subsection (e). Subsection (e)
gives taxpayers the right to petition the
bankruptcy court to recover damages if, in
connection with the collection of a fed-
eral tax, any officer or employee of the IRS
willfully violates section 362 or 524 of the
Bankruptcy Code or any regulation pro-
mulgated thereunder. Damages in connec-
tion with a claim under section 7433(e) for
willful violations of section 362 or 524 are
recoverable under section 7433(b) and are
subject to the limitations imposed by sec-
tion 7433(d). Under section 7433(b), if the
IRS is found liable, the plaintiff may re-
cover an amount equal to the lesser of
$1,000,000 or the actual, direct economic
damages sustained by the plaintiff as a
proximate result of the IRS’s willful ac-
tion plus costs of the action. A plaintiff may
not recover damages for the mere negli-
gent violation of section 362 or 524 of the
Bankruptcy Code.
Section 362 relates to the automatic stay,
which arises by operation of law when a
debtor files a bankruptcy petition. The stay
prohibits certain collection actions against
the debtor, the debtor’s property, and the
property of the bankruptcy estate. Prior to
enactment of section 7433(e), individuals
injured by the IRS’s willful violation of the
automatic stay could only sue to recover ac-
tual damages, including costs and attor-
neys’fees, under Bankruptcy Code section
362(h). Section 7433(e) provides an alter-
native cause of action to recover dam-
ages, but still permits an individual to
recover damages under section 362(h) of the
Bankruptcy Code, in lieu of an action un-
der section 7433(e). However, section
7433(e) explicitly provides that adminis-
trative and litigation costs incurred in press-
ing a claim under section 362(h) of the
Bankruptcy Code may only be paid pur-
suant to, and subject to the conditions de-
scribed in, section 7430 of the Code.
Section 7430 authorizes the payment of ad-
ministrative and litigation costs only if a
taxpayer exhausts administrative remedies.
The regulations provide that in order to
qualify for an award of administrative and
litigation costs in an action under section
362(h) of the Bankruptcy Code, a taxpayer
must (as in the case of damages actions un-
der section 7433(e)) file an administra-
tive claim with the IRS relating to the
violation of the automatic stay.
Section 524 sets forth the effect of a dis-
charge under the Bankruptcy Code. A dis-
charge operates as an injunction against the
commencement or continuation of any ac-
tion to collect a discharged debt as a per-
sonal liability of the debtor. Prior to
enactment of section 7433(e), a debtor who
believed the IRS had willfully violated the
discharge injunction could request the Bank-
ruptcy Court under Bankruptcy Code sec-
tion 105 to hold the IRS in contempt and
seek to recover damages under that Bank-
ruptcy Code provision. Section 7433(e) now
provides the exclusive remedy for the IRS’s
willful violation of the discharge injunc-
tion.
The regulations set forth procedures re-
lating to these claim and damage allow-
ance provisions. Damages recoverable under
section 7433(e) for a violation of the au-
tomatic stay or the discharge injunction are
limited to (1) the actual, direct economic
damages sustained by the taxpayer (and the
taxpayer has a duty to mitigate those dam-
ages), plus (2) costs of the action. The
maximum damage award is $1,000,000. No
petition for damages under section 7433(e)
may be filed in a bankruptcy court unless
the taxpayer first exhausts administrative
remedies within the IRS.
Similar to rules previously adopted with
respect to other wrongful collection ac-
tions, the regulations define direct, eco-
nomic damages as actual, pecuniary
damages sustained by the taxpayer as a re-
sult of the willful violation of section 362
or 524 of the Bankruptcy Code. Injuries
such as inconvenience, loss of reputation,
and emotional distress, are not compens-
able except to the extent they result in ac-
tual pecuniary loss.
The regulations define costs of the ac-
tion that are recoverable as damages un-
der section 7433(e) as: (1) fees of the clerk
and marshal; (2) fees of the court reporter
for all or any part of the stenographic tran-
script necessarily obtained for use in the
case; (3) fees and disbursements for print-
ing and witnesses; (4) fees for exemplifi-
cation and copies of paper necessarily
obtained for use in the case; (5) docket fees;
and (6) compensation of court appointed ex-
perts and interpreters. Costs of the action
do not include any costs other than those
enumerated in this paragraph.
Reasonable administrative and litiga-
tion costs, including attorneys fees, are not
recoverable as direct economic damages.
These costs are recoverable, if at all, un-
der section 7430. The taxpayer generally
will be entitled to reasonable administra-
tive and litigation costs under section 7430
if the taxpayer (1) files an administrative
claim with the IRS, (2) establishes that the
IRS willfully violated either the automatic
stay under Bankruptcy Code section 362 or
2003–14 I.R.B.694April 7, 2003

the discharge injunction under section 524,
(3) substantially prevails with respect to the
amount of damages or the most signifi-
cant issue in controversy, and (4) meets the
requirements of sections 7430(c)(4)(A)(ii)
regarding net worth.
A petition for damages under section
7433 may not be filed in a bankruptcy court
unless the taxpayer first files an adminis-
trative claim for damages with the IRS. The
claim must be made in writing to the Chief,
Local Insolvency Unit, for the judicial dis-
trict in which the taxpayer filed the under-
lying bankruptcy case giving rise to the
alleged violation. The claim must include:
(1) the claimant taxpayer’s name, taxpayer
identification number, current address, cur-
rent home and work telephone numbers and
any convenient times to be contacted; (2)
the court and case number of the bank-
ruptcy case in which the violation occurred;
(3) a description, in reasonable detail, of the
violation (with copies of any available sub-
stantiating documentation or correspon-
dence with the IRS); (4) a description of the
injuries incurred by the taxpayer filing the
claim (with copies of any available sub-
stantiating documentation or evidence); (5)
the dollar amount of the claim, including
any damages that have not yet been in-
curred but which are reasonably foresee-
able (along with any available substantiating
documentation or evidence); and (6) the sig-
nature of the taxpayer or any duly autho-
rized representative.
The regulations provide that, after an ad-
ministrative claim for damages has been
filed, a petition for damages under sec-
tion 7433 may not be filed in a bankruptcy
court until the earlier of (1) the time a de-
cision is rendered on the claim or (2) six
months from the date the administrative
claim is filed. Because a taxpayer must pe-
tition the bankruptcy court for damages
within two years after the cause of action
accrues, the regulations contain an excep-
tion for claims filed in the last six months
before the two-year limitation period ex-
pires. In those circumstances, taxpayers may
file petitions for damages at any time af-
ter they file their administrative claims and
before the period of limitations expires. A
cause of action accrues under this section
when the taxpayer has had a reasonable op-
portunity to discover all essential elements
of a possible cause of action.
Special Analysis
It has been determined that this final
regulation is not a significant regulatory ac-
tion as defined in Executive Order 12866.
Therefore, a regulatory assessment is not re-
quired. It also has been determined that sec-
tion 553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) does not apply to
these regulations, and because the regula-
tions do not impose a collection of infor-
mation on small entities, the Regulatory
Flexibility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the
Code, the notice of proposed rulemaking
was submitted to the Chief Counsel for Ad-
vocacy of the Small Business Administra-
tion for comment on its impact on small
business.
Drafting Information
The principal author of these regula-
tions is Kevin B. Connelly, Office of As-
sociate Chief Counsel (Procedure and
Administration), Collection, Bankruptcy &
Summonses Division, CC:PA:CBS, IRS.
However, other personnel from the IRS and
the Treasury Department participated in their
development.
*****
Adoption of Amendments to the Regu-
lations
Accordingly, 26 CFR part 301 is
amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read in part as follows:
Authority: 26 U.S.C. 7805***
Par. 2. Section 301.7426–2 is added to
read as follows:
§301.7426–2 Recovery of damages in
certain cases.
(a)In general.In addition to remedies
related to wrongful levy set forth in
§301.7426–1(b), if a district court of the
United States finds in any action brought
under section 7426 that any officer or em-
ployee of the Internal Revenue Service reck-
lessly or intentionally, or by reason of
negligence, disregarded any provision of this
title, the United States shall be liable to the
plaintiff for damages. The plaintiff has a
duty to mitigate damages. The total amount
of damages recoverable under this sec-
tion is the lesser of $1,000,000 ($100,000
in the case of negligence), or the sum of—
(1) Actual, direct economic damages as
defined in§301.7433–1(b) sustained as a
proximate result of the reckless, inten-
tional, or negligent actions of the officer or
employee, reduced by the amount of any
damages awarded under§301.7426–1(b);
and
(2) Costs of the action as defined in
§301.7433–1(c).
(b)Administrative remedies must be ex-
hausted.The court may not award a judg-
ment for damages under paragraph (a) of
this section unless the court determines that
the plaintiff has filed an administrative claim
pursuant to paragraph (d) of this section,
and has satisfied the requirements of para-
graph (c) of this section.
(c)No request for damages in a dis-
trict court of the United States prior to fil-
ing an administrative claim.(1) Except as
provided in paragraph (c)(2) of this sec-
tion, no request for damages under para-
graph (a) of this section shall be maintained
in any district court of the United States be-
fore the earlier of the following dates—
(i) The date the decision is rendered on
a claim filed in accordance with paragraph
(d) of this section; or
(ii) The date that is six months after the
date an administrative claim is filed in ac-
cordance with paragraph (d) of this sec-
tion.
(2) If an administrative claim is filed in
accordance with paragraph (d) of this sec-
tion during the last six months of the pe-
riod of limitations described in paragraph
(f) of this section, the claimant may file an
action in a district court of the United States
any time after the administrative claim is
filed and before the expiration of the pe-
riod of limitations.
(d)Procedures for an administrative
claim—(1)Manner.An administrative claim
for the lesser of $1,000,000 ($100,000 in
the case of negligence) or actual, direct eco-
nomic damages as defined in§301.7433–
1(b) shall be sent in writing to the Area
Director, Attn: Compliance Technical Sup-
port Manager of the area in which the tax-
payer currently resides.
April 7, 20036952003–14 I.R.B.

(2)Form.The administrative claim shall
include—
(i) The name, taxpayer identification
number, current address and current home
and work telephone numbers (indicating any
convenient times to be contacted) of the per-
son making the claim;
(ii) The grounds, in reasonable detail, for
the claim (include copies of any available
substantiating documentation or correspon-
dence with the Internal Revenue Service);
(iii) A description of the damages in-
curred by the claimant filing the claim (in-
clude copies of any available substantiating
documentation or evidence);
(iv) The dollar amount of the claim, in-
cluding any damages that have not yet been
incurred but which are reasonably foresee-
able (include copies of any available sub-
stantiating documentation or evidence); and
(v) The signature of the claimant or duly
authorized representative.
(3)Duly authorized representative.For
purposes of this paragraph (d), a duly au-
thorized representative is any attorney, cer-
tified public accountant, enrolled actuary,
or any other person permitted to repre-
sent the claimant before the Internal Rev-
enue Service who is not disbarred or
suspended from practice before the Inter-
nal Revenue Service and who has a writ-
ten power of attorney executed to the
claimant.
(e)No liability for damages for any sum
in excess of the dollar amount sought in the
administrative claim.See§301.7433–1(f).
(f)Period of limitations—(1)Time for
filing.A civil action under paragraph (a) of
this section must be brought in a district
court of the United States within two years
after the date the cause of action accrues.
(2)Right of action accrues.A cause of
action under paragraph (a) of this section
accrues when the plaintiff has had a rea-
sonable opportunity to discover all essen-
tial elements of a possible cause of action.
(g)Recovery of costs under section 7430.
See§301.7433–1(h).
(h)Effective date.This section is appli-
cable March 25, 2003.
Par. 3. Section 301.7430–1 is amended
by redesignating paragraphs (e), (f) and (g)
as paragraphs (f), (g) and (h), respectively,
revising the phrase“paragraph (e)(1), (e)(2),
(e)(3), or (e)(4) of this section”to read
“paragraph (f)(1), (f)(2), (f)(3), or (f)(4) of
this section”, and adding a new paragraph
(e) to read as follows:
§301.7430–1 Exhaustion of
administrative remedies.
*****
(e)Actions involving willful violations
of the automatic stay under section 362 or
the discharge provisions under section 524
of the Bankruptcy Code—(1)Section 7433
claims.A party has not exhausted admin-
istrative remedies within the Internal Rev-
enue Service with respect to asserted
violations of the automatic stay under sec-
tion 362 of the Bankruptcy Code or the dis-
charge provisions under section 524 of the
Bankruptcy Code unless it files an admin-
istrative claim for damages or for relief from
a violation of section 362 or 524 of the
Bankruptcy Code with the Chief, Local In-
solvency Unit, for the judicial district in
which the bankruptcy petition that is the ba-
sis for the asserted automatic stay or dis-
charge violation was filed pursuant to
§301.7433–2(e) and satisfies the other con-
ditions set forth in§301.7433–2(d) prior to
filing a petition under section 7433.
(2)Section 362(h) claims.A party has
not exhausted administrative remedies
within the Internal Revenue Service with
respect to asserted violations of the auto-
matic stay under section 362 of the Bank-
ruptcy Code unless it files an administrative
claim for relief from a violation of sec-
tion 362 of the Bankruptcy Code with the
Chief, Local Insolvency Unit, for the ju-
dicial district in which the bankruptcy pe-
tition that is the basis for the asserted
automatic stay violation was filed pursu-
ant to§301.7433–2(e) and satisfies the other
conditions set forth in§301.7433–2(d) prior
to filing a petition under section 362(h) of
the Bankruptcy Code.
*****
§301.7430–2 [Amended]
Par. 4. In§301.7430–2, paragraph (c)(2)
is amended by:
1. Adding the language“, except that re-
quests with respect to administrative pro-
ceedings defined by§301.7430–8(c) should
be made to the Chief, Local Insolvency
Unit”at the end of the first sentence.
2. Removing the language“District Di-
rector for the district”and adding“Inter-
nal Revenue Service office”in its place in
the second sentence.
Par. 5. Section 301.7430–3 is amended
by:
1. Revising paragraph (a)(4).
2. Paragraph (b) is amended by adding
the language“, except those collection ac-
tions described by section 7433(e)”at the
end of the penultimate sentence.
The revision reads as follows:
§301.7430–3 Administrative proceeding
and administrative proceeding date.
(a)***
(4) Proceedings in connection with col-
lection actions (as defined in paragraph (b)
of this section), including proceedings un-
der section 7432 or 7433, except proceed-
ings brought under section 7433(e) and
§301.7433–2 or proceedings otherwise de-
scribedin§301.7430–8(c).See
§301.7430–8.
*****
Par. 6. Section 301.7430–6 is amended
by adding a sentence at the end of the sec-
tion to read as follows:
§301.7430–6 Effective dates.
***Sections 301.7430–1(e), 301.7430–
2(c)(2), 7430–3(a)(4) and (b) are appli-
cable with respect to actions taken by the
Internal Revenue Service after July 22,
1998.
Par. 7. Section 301.7430–8 is added to
read as follows:
§301.7430–8 Administrative costs
incurred in damage actions for
violations of section 362 or 524 of the
Bankruptcy Code.
(a)In general.The Internal Revenue Ser-
vice may grant a taxpayer’s request for re-
covery of reasonable administrative costs
incurred in connection with the adminis-
trative proceeding before the Internal Rev-
enue Service relating to the willful violation
of section 362 or 524 of the Bankruptcy
Code only if the taxpayer is a prevailing
party.
(b)Prevailing party.A taxpayer is a pre-
vailing party for purposes of this section
only if—
(1) The taxpayer satisfies the net worth
and size limitations in paragraph (f) of
§301.7430–5;
(2) The taxpayer establishes that in con-
nection with the collection of his or her fed-
eral tax an officer or employee of the
Internal Revenue Service has willfully vio-
lated a provision of section 362 or 524 of
the Bankruptcy Code; and
2003–14 I.R.B.696April 7, 2003

(3) The position of the Internal Rev-
enue Service in the proceeding was not sub-
stantially justified.
(c)Administrative proceeding.For pur-
poses of this section, an administrative pro-
ceeding is a proceeding related to an
administrative claim presented to the In-
ternal Revenue Service seeking relief from
a violation of section 362 or 524 of the
Bankruptcy Code by the Internal Revenue
Service or recovery of damages from the
Internal Revenue Service under§301.7433–
2(e).
(d)Costs incurred after filing of bank-
ruptcy petition.Administrative costs may
be recovered only if incurred on or after the
date of filing of the bankruptcy petition that
formed the basis for the stay on collec-
tion under Bankruptcy Code section 362 or
the discharge injunction under Bankruptcy
Code section 524, as the case might be.
(e)Time for filing claim for adminis-
trative costs.(1) For purposes of this sec-
tion, the taxpayer must file a claim for
administrative costs before the Internal Rev-
enue Service not later than 90 days after the
date the Internal Revenue Service mails to
the taxpayer, or otherwise notifies the tax-
payer of, the decision regarding the claim
for relief from or damages relating to a vio-
lation of the collection stay or the dis-
charge injunction.
(2) If the Internal Revenue Service de-
nies the claim for administrative costs in
whole or in part, the taxpayer must file a
petition with the Bankruptcy Court for ad-
ministrative costs no later than 90 days af-
ter the date on which the denial of the claim
for administrative costs is mailed, or oth-
erwise furnished, to the taxpayer. If the In-
ternal Revenue Service does not respond on
the merits to a request by the taxpayer for
an award of reasonable administrative costs
within six months after such request is filed,
the Internal Revenue Service’s failure to re-
spond may be considered by the taxpayer
as a denial of an award of reasonable ad-
ministrative costs.
(3) For purposes of paragraphs (e)(1) and
(2) of this section, if the 90th day falls on
a Saturday, Sunday, or a legal holiday, the
90-day period shall end on the next suc-
ceeding day which is not a Saturday, Sun-
day, or a legal holiday. The term legal
holiday means a legal holiday in the Dis-
trict of Columbia. If the request for costs
is to be filed with the Internal Revenue Ser-
vice at an office of the Internal Revenue
Service located outside the District of Co-
lumbia, the term legal holiday also means
a statewide legal holiday in the state where
such office is located.
(f)Effective date.This section is appli-
cable with respect to actions taken by the
Internal Revenue Service after July 22,
1998.
Par. 8. Section 301.7433–1 is amended
as follows:
1. In paragraph (a) introductory text, in
the first sentence, the language“, or by rea-
son of negligence,”is added after the lan-
guage“recklessly or intentionally”.In
addition, the language“$100,000”in the
third sentence is removed and“$1,000,000
($100,000 in the case of negligence)”is
added in its place.
2. In paragraph (b)(1), in the first sen-
tence, the language“, or negligent,”is
added after the language“reckless or in-
tentional”.
3. In paragraph (e)(1), in the first sen-
tence, the language“$100,000”is removed
and“$1,000,000 ($100,000 in the case of
negligence)”is added in its place. In ad-
dition, the language“district director
(marked for the attention of the Chief, Spe-
cial Procedures Function) of the district”is
removed and“Area Director, Attn: Com-
pliance Technical Support Manager of the
area”is added in its place.
4. In paragraph (h), in the penultimate
sentence, the language“7432(a)”is re-
moved and“7433(a)”is added in its place.
5. Revising paragraph (i).
The revision reads as follows:
§301.7433–1 Civil cause of action for
certain unauthorized collection actions.
*****
(i)Effective dates.The portions of this
section relating to reckless or intentional acts
are applicable to actions taken by Inter-
nal Revenue Service officials after July 30,
1996. The portions of this section relat-
ing to negligent acts are applicable to ac-
tions taken by the Internal Revenue Service
officials after July 22, 1998.
Par. 9. Section 301.7433–2 is added to
read as follows:
§301.7433–2 Civil cause of action for
violation of section 362 or 524 of the
Bankruptcy Code.
(a)In general.(1) If, in connection with
the collection of a federal tax with respect
to a taxpayer, an officer or employee of the
Internal Revenue Service willfully vio-
lates any provision of section 362 (relat-
ing to the automatic stay) or section 524
(relating to discharge) of title 11, United
States Code, or any regulation promul-
gated under such provision, the taxpayer
may file a petition for damages against the
United States in Federal bankruptcy court.
The taxpayer has a duty to mitigate dam-
ages. The total amount of damages recov-
erable under this section is the lesser of
$1,000,000, or the sum of—
(i) Actual, direct economic damages sus-
tained as a proximate result of the willful
actions of the officer or employee; and
(ii) Costs of the action.
(2) An action under this section consti-
tutes the exclusive remedy under the In-
ternal Revenue Code for violations of
sections 362 and 524 of the Bankruptcy
Code. In addition, taxpayers injured by vio-
lations of section 362 of the Bankruptcy
Code may maintain actions under section
362(h) of the Bankruptcy Code (relating to
an individual injured by a willful viola-
tion of the stay). However, any adminis-
trative or litigation costs in connection with
an action under section 362(h) may be
awarded, if at all, only under section 7430
of the Internal Revenue Code.
(b)Actual, direct economic damages—
(1)Definition.See§301.7433–1(b)(1).
(2)Litigation costs and administrative
costs not recoverable as actual, direct eco-
nomic damages.Litigation costs and ad-
ministrative costs are not recoverable as
actual, direct economic damages. These
costs may be recoverable under section
7430 (see paragraph (h) of this section), or,
solely to the extent described in paragraph
(c) of this section, as costs of the action.
(c)Costs of the action.Costs of the ac-
tion recoverable as damages under this sec-
tion are limited to the costs set forth in
§301.7433–1(c).
(d)No civil action in federal bankruptcy
court prior to filing an administrative
claim—(1)In general.Except as provided
in paragraph (d)(2) of this section, no ac-
tion under paragraph (a)(1) of this sec-
tion shall be maintained in any bankruptcy
court before the earlier of the following
dates—
(i) The date the decision is rendered on
a claim filed in accordance with paragraph
(e) of this section; or
April 7, 20036972003–14 I.R.B.

(ii) The date that is six months after the
date an administrative claim is filed in ac-
cordance with paragraph (e) of this sec-
tion.
(2)When administrative claim filed in
last six months of period of limitations.If
an administrative claim is filed in accor-
dance with paragraph (e) of this section dur-
ing the last six months of the period of
limitations described in paragraph (g) of this
section, the taxpayer may petition the bank-
ruptcy court any time after the administra-
tive claim is filed and before the expiration
of the period of limitations.
(e)Procedures for an administrative
claim—(1)Manner. An administrative claim
for the lesser of $1,000,000 or actual, di-
rect economic damages as defined in para-
graph (b) of this section shall be sent in
writing to the Chief, Local Insolvency Unit,
for the judicial district in which the tax-
payer filed the underlying bankruptcy case
giving rise to the alleged violation.
(2)Form.The administrative claim shall
include—
(i) The name, taxpayer identification
number, current address, and current home
and work telephone numbers (with an iden-
tification of any convenient times to be con-
tacted) of the taxpayer making the claim;
(ii) The location of the bankruptcy court
in which the underlying bankruptcy case
was filed and the case number of the case
in which the violation occurred;
(iii) A description, in reasonable de-
tail, of the violation (include copies of any
available substantiating documentation or
correspondence with the Internal Revenue
Service);
(iv) A description of the injuries in-
curred by the taxpayer filing the claim (in-
clude copies of any available substantiating
documentation or evidence);
(v) The dollar amount of the claim, in-
cluding any damages that have not yet been
incurred but which are reasonably foresee-
able (include copies of any available docu-
mentation or evidence); and
(vi) The signature of the taxpayer or duly
authorized representative.
(3)Duly authorized representative de-
fined.For purposes of this paragraph (e),
a duly authorized representative is any at-
torney, certified public accountant, en-
rolled actuary, or any other person permitted
to represent the taxpayer before the Inter-
nal Revenue Service who is not disbarred
or suspended from practice before the In-
ternal Revenue Service and who has a writ-
ten power of attorney executed by the
taxpayer.
(f)No action in bankruptcy court for any
sum in excess of the dollar amount sought
in the administrative claim.No action for
actual, direct economic damages under para-
graph (a) of this section may be instituted
in federal bankruptcy court for any sum in
excess of the amount (already incurred and
estimated) of the administrative claim filed
under paragraph (e) of this section, ex-
cept where the increased amount is based
upon newly discovered evidence not rea-
sonably discoverable at the time the ad-
ministrative claim was filed, or upon
allegation and proof of intervening facts re-
lating to the amount of the claim.
(g)Period of limitations—(1)Time for
filing.A petition for damages under para-
graph (a) of this section must be filed in
bankruptcy court within two years after the
date the cause of action accrues.
(2)Right of action accrues.A cause of
action under paragraph (a) of this section
accrues when the taxpayer has had a rea-
sonable opportunity to discover all essen-
tial elements of a possible cause of action.
(h)Recovery of litigation costs and ad-
ministrative costs under section 7430—
(1)In general.Litigation costs, as defined
in§301.7433–1(b)(2)(i), including attor-
neys fees, not recoverable under this sec-
tion may be recoverable under section 7430
if a taxpayer challenges in whole or in part
an Internal Revenue Service denial of an
administrative claim for damages by fil-
ing a petition in the bankruptcy court. If,
following the Internal Revenue Service’s de-
nial of an administrative claim for dam-
ages, a taxpayer files a petition in the
bankruptcy court challenging that denial in
whole or in part, substantially prevails with
respect to the amount of damages in con-
troversy, and meets the requirements of sec-
tion 7430(c)(4)(A)(ii) (relating to net worth
and size requirements), the taxpayer will be
considered a prevailing party for purposes
of section 7430, unless the Internal Rev-
enue Service establishes that the position
of the Internal Revenue Service in the pro-
ceeding was substantially justified. Such
taxpayer will generally be entitled to at-
torneys’fees and other reasonable litiga-
tion costs not recoverable under this section.
For purposes of this paragraph (h), if the
Internal Revenue Service does not respond
on the merits to an administrative claim for
damages within six months after the claim
is filed, the Internal Revenue Service’s fail-
ure to respond will be considered a de-
nial of the claim on the grounds that the
Internal Revenue Service did not willfully
violate Bankruptcy Code section 362 or
524.
(2)Administrative costs—(i)In gen-
eral.Administrative costs, as defined in
§301.7433–1(b)(2)(ii), including attorneys’
fees, not recoverable under this section may
be recoverable under section 7430. See
§301.7430–8.
(ii)Limitation regarding recoverable ad-
ministrative costs.Administrative costs may
be awarded only if incurred on or after the
date of filing of the bankruptcy petition that
formed the basis for the stay on collec-
tion under Bankruptcy Code section 362 or
the discharge injunction under Bankruptcy
Code section 524, as the case might be.
(i)Effective date.This section is appli-
cable to actions taken by the Internal Rev-
enue Service officials after July 22, 1998.
David A. Mader,
Assistant Deputy Commissioner
of Internal Revenue.
Approved March 5, 2003.
Pamela F. Olson,
Assistant Secretary of the Treasury.
(Filed by the Office of the Federal Register on March 24, 2003,
8:45 a.m., and published in the issue of the Federal Regis-
ter for March 25, 2003, 68 F.R. 14316)
Section 7520.—Valuation
Tables
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for the
month of April 2003. See Rev. Rul. 2003–35, page
687.
Section 7872.—Treatment of
Loans With Below-Market
Interest Rates
The adjusted applicable federal short-term,
mid-term, and long-term rates are set forth for the
month of April 2003. See Rev. Rul. 2003–35, page
687.
2003–14 I.R.B.698April 7, 2003

Part III. Administrative, Procedural, and Miscellaneous
Tax Treatment of Grants
Made by the Empire State
Development Corporation to
Businesses to Aid Recovery
From the Attack of
September 11, 2001, on the
World Trade Center
Notice 2003–18
PURPOSE
This notice provides answers to fre-
quently asked questions for businesses not
exempt from federal income tax regard-
ing the tax treatment of grant payments the
Empire State Development Corporation (the
ESDC), in coordination with the New York
City Economic Development Corporation
(the EDC), will make to businesses under
(1) the World Trade Center (WTC) Busi-
ness Recovery Grant Program, (2) the WTC
Small Firm Attraction and Retention Grant
Program, and (3) the WTC Job Creation
and Retention Program (collectively, the
“WTC Grant Programs”).
BACKGROUND
The ESDC is a public benefit corpora-
tion of the State of New York and the EDC
is a non-profit corporation organized by the
City of New York. The ESDC will distrib-
ute a portion of $2.7 billion in Commu-
nity Development Block Grants (CDBG)
appropriated by Congress to enable New
York City to make grants under the WTC
Grant Programs. In general, the WTC Grant
Programs are intended for businesses that
were located in the WTC area (the“Eli-
gible Area”as defined in the guidelines for
the WTC Grant Programs) or that intend to
relocate there, and had or have specified
numbers of“full-time permanent employ-
ees”(as defined in the guidelines for the
WTC Grant Programs). Grant funds un-
der the WTC Grant Programs are also avail-
able to tax-exempt non-profit businesses that
meet certain additional criteria. The CDBG
funds for the WTC Grant Programs were
authorized by§434 of the Departments of
Veterans Affairs and Housing and Urban
Development and Independent Agencies
Appropriations Act, 2002, Pub. L. No. 107–
73, 115 Stat. 651, 699 (2001), and Chap-
ter 13 of the Department of Defense and
Emergency Supplemental Appropriations for
Recovery from and Response to Terrorist
Attacks on the United States Act, 2002, Pub.
L. No. 107–117, 115 Stat. 2230, 2336
(2002) (the Acts).
WTC Business Recovery Grant Program
The WTC Business Recovery Grant Pro-
gram (BRGP) provides grants to compen-
sate certain small businesses that were
located in the Eligible Area as of Septem-
ber 11, 2001, for certain losses resulting
from the attack on the WTC. The BRGP is
administered by ESDC in coordination with
EDC on behalf of the State of New York.
Grant recipients must continue their busi-
ness operations at the same location or in-
tend to resume them within New York City.
The BRGP is intended to compensate quali-
fied businesses for the net economic losses
they incurred from September 11, 2001,
through December 31, 2001, in connec-
tion with the attack on the WTC. Such net
economic losses include, but are not lim-
ited to:
(1) damage to, or destruction of, real
property and other tangible assets, includ-
ing equipment, furniture and fixtures, sup-
plies and inventory;
(2) financial losses due to business
interruption, including reduced business ac-
tivity;
(3) employee wages paid for work
that was not performed and fees for con-
tract services that were not performed;
(4) temporary or permanent reloca-
tion expenses; and
(5) debris removal and other clean up
costs.
The net economic loss equals the amount
of economic loss reduced by other speci-
fied governmental grant assistance and by
insurance proceeds the business has re-
ceived or applied for related to its losses.
The amount of a BRGP grant that a
business can receive with respect to a par-
ticular location equals the lesser of (i) the
business’net economic loss or (ii) the maxi-
mum grant amount as computed by the
ESDC (which can range from $50,000 to
$300,000 depending upon the specific area
in which the business was located). A busi-
ness with multiple locations within the Eli-
gible Area may receive a separate grant for
each business location. The maximum grant
to any business, however, cannot exceed
$500,000. The ESDC may require a grant
recipient to repay BRGP grant funds un-
der certain circumstances.
WTC Small Firm Attraction and
Retention Grant Program
The WTC Small Firm Attraction and Re-
tention Grant Program (SFARG) is admin-
istered by the ESDC and the EDC on behalf
of the City and State of New York. The
SFARG program generally is for businesses
employing 200 or fewer full-time perma-
nent employees at an eligible premises. The
SFARG program provides grants to small
businesses that are at risk of leaving down-
town Manhattan that commit to remain in
the Eligible Area for at least 5 years be-
yond their current commitment. It also pro-
vides grants to small businesses that were
located in or near the WTC that commit to
remain in New York City for at least 5
years. The SFARG program will also make
grants to businesses (for example, new busi-
nesses) that commit to remain in the Eli-
gible Area for at least 5 years.
The amount of a SFARG grant gener-
ally is $3,500 per full-time employee. How-
ever, a business that was operating in that
part of the Eligible Area called the“Re-
stricted Zone”(as defined in the SFARG
program guidelines) on September 11, 2001,
and remains or relocates within the Eli-
gible Area, is eligible to receive $5,000 per
full-time employee. The grants are gener-
ally payable in two installments.
Grant recipients must agree to allocate
SFARG funds to wages for full-time per-
manent employees that were on the busi-
ness’payroll as of the dates it requests the
grant disbursements. The ESDC may re-
quire a grant recipient to repay SFARG
funds under certain circumstances, such as
relocating a substantial portion of its busi-
ness from an eligible premises.
WTC Job Creation and Retention
Program
The WTC Job Creation and Retention
Program (JCRP) includes grants to cer-
tain large businesses displaced from their
workspace for at least one month as a re-
sult of the September 11, 2001, attack on
the WTC, and grants to other affected busi-
nesses, including those willing to create new
jobs in lower Manhattan. This program gen-
erally is for businesses employing 200 or
more permanent full-time employees. Busi-
April 7, 20036992003–14 I.R.B.

nesses receiving JCRP grants must com-
mit to remain in lower Manhattan for a
minimum of 7 years and achieve certain
employment goals. Although businesses
seeking to locate new operations in lower
Manhattan are eligible to receive JCRP
grants, priority is given to businesses that
were located in the Eligible Area on Sep-
tember 11, 2001.
Businesses must use the grant proceeds
exclusively for the following expenses in-
curred after September 11, 2001:
(1) wages;
(2) payroll taxes;
(3) employee benefits;
(4) rent; and
(5) moveable equipment and furni-
ture.
The program documents do not indi-
cate that a business must have incurred
property losses to receive a JCRP grant or
that a JCRP grant is intended to compen-
sate for property losses. The ESDC may re-
quire a grant recipient to repay JCRP grant
funds if a business does not meet its com-
mitment to retain or create jobs for the
minimum 7-year period.
Applicable Provisions of Law
Section 61(a) of the Internal Revenue
Code provides that, except as otherwise pro-
vided by law, gross income means all in-
come from whatever source derived. Under
§61, Congress intends to tax all gains or
undeniable accessions to wealth, clearly re-
alized, over which taxpayers have com-
plete dominion.Commissioner v. Glenshaw
Glass Co., 348 U.S. 426 (1955), 1955–1
C.B. 207.
The Internal Revenue Service has con-
sistently concluded that payments to indi-
viduals by governmental units under
legislatively provided social benefit pro-
grams for the promotion of the general wel-
fare are not includible in a recipient’s gross
income (“general welfare exclusion”).See,
e.g., Rev. Rul. 74–205, 1974–1 C.B. 20;
Rev. Rul. 98–19, 1998–1 C.B. 840. To
qualify under the general welfare exclu-
sion, payments must: (i) be made from a
governmental fund, (ii) be for the promo-
tion of general welfare (i.e., generally based
on individual or family needs), and (iii) not
represent compensation for services. Rev.
Rul. 75–246, 1975–1 C.B. 24; Rev. Rul.
82–106, 1982–1 C.B. 16. Payments to busi-
nesses generally do not qualify for the ex-
clusion because they are not based on
individual or family needs.See Bailey v.
Commissioner, 88 T.C. 1293, 1300–1301
(1987),acq., 1989–2 C.B. 1; Rev. Rul. 76–
131, 1976–1 C.B. 16. Moreover, income-
replacementpayments(whetherto
businesses or individuals) do not qualify un-
der the general welfare exclusion.SeeRev.
Rul. 73–408, 1973–2 C.B. 15, Rev. Rul. 76–
75, 1976–1 C.B. 14, andGraff v. Commis-
sioner, 74 T.C. 743 (1980),aff’d, 673 F.2d
784 (5th Cir. 1982).
Section 102(a) provides that the value
of property acquired by gift is excluded
from gross income. Under§102(a), a gift
must proceed“from a‘detached and dis-
interested generosity,’...‘out of affec-
tion, respect, admiration, charity or like
impulses.’”Commissioner v. Duberstein,
363 U.S. 278, 285 (1960), 1960–2 C.B. 428.
On the other hand, payments that proceed
“primarily from the‘constraining force of
any moral or legal duty’or from‘the in-
centive of anticipated benefit’of an eco-
nomic nature”are not gifts.Dubersteinat
285. Governmental grants in response to a
disaster (whether to a business or an indi-
vidual) generally do not qualify as gifts be-
cause the government’s intent in making the
payments proceeds from a government’s
duty to relieve the hardship caused by the
disaster. In addition, a government can ex-
pect an economic benefit from programs
that relieve business or individual hard-
ships.See Kroon v. United States, Civil No.
A–90–71 (D. Alaska 1974), and Rev. Rul.
2003–12, 2003–3 I.R.B. 283.
Section 139(a) excludes from gross in-
come any amount received by an indi-
vidual as a qualified disaster relief payment.
Section 139(b)(1) provides, in part, that the
term“qualified disaster relief payment”
means any amount paid to or for the ben-
efit of an individual:
(1) to reimburse or pay reasonable
and necessary personal, family, living, or
funeral expenses incurred as a result of a
qualified disaster (§139(b)(1));
(2) to reimburse or pay reasonable
and necessary expenses incurred for the re-
pair or rehabilitation of a personal resi-
dence, or repair or replacement of its
contents, to the extent that the need for such
repair, rehabilitation, or replacement is at-
tributabletoaqualifieddisaster
(§139(b)(2)); or
(3) if such amount is paid by a fed-
eral, state, or local government, or agency
or instrumentality thereof, in connection
with a qualified disaster in order to pro-
mote the general welfare (§139(b)(4)).
Thus,§139(b)(4) codifies (but does not
supplant) the administrative general wel-
fare exclusion with respect to certain di-
saster relief payments to individuals.
Section 118(a) provides that, in the case
of a corporation, gross income does not in-
clude any contribution to the capital of the
taxpayer. Section 1.118–1 of the Income Tax
Regulations provides that§118 also ap-
plies to contributions to capital made by
persons other than shareholders. For ex-
ample, the exclusion applies to the value of
land or other property contributed to a cor-
poration by a governmental unit or by a
civic group for the purpose of inducing the
corporation to locate its business in a par-
ticular community, or for the purpose of en-
abling the corporation to expand its
operating facilities. However, the exclu-
sion does not apply to any money or prop-
erty transferred to the corporation in
consideration for goods or services ren-
dered, or to subsidies paid for the pur-
pose of inducing the taxpayer to limit
production.
The Supreme Court of the United States
has also considered the contribution to capi-
tal concept. InDetroit Edison Co. v. Com-
missioner, 319 U.S. 98 (1943), 1943 C.B.
1019, the Court held that payments by pro-
spective customers to an electric utility com-
pany to cover the cost of extending the
utility’s facilities to their homes were part
of the price of service rather than contri-
butions to capital. The case concerned cus-
tomers’payments to a utility company for
the estimated cost of constructing service
facilities that the utility company other-
wise was not obligated to provide.
Later, the Court held that payments to
a corporation by community groups to in-
duce the location of a factory in their com-
munity represented a contribution to capital.
Brown Shoe Co. v. Commissioner, 339 U.S.
583 (1950), 1950–1 C.B. 38. The Court
concluded that the contributions made by
the citizens were made without anticipa-
tion of any direct service or recompense,
but rather with the expectation that the con-
tributions would prove advantageous to the
community at large.Brownat 591. The con-
tract entered into by the community groups
and the corporation provided that in ex-
change for a contribution of land and cash,
the corporation agreed to construct a fac-
2003–14 I.R.B.700April 7, 2003

tory, operate it for at least 10 years, and
meet a minimum payroll.Brownat 586.
Finally, inUnited States v. Chicago,
B.&Q.R.Co., 412 U.S. 401 (1973),
1973–2 C.B. 428, the Court, in determin-
ing whether a taxpayer was entitled to de-
preciate the cost of certain facilities that had
been funded by the federal government,
held that the governmental subsidies were
not contributions to the taxpayer’s capi-
tal. The Court recognized that the hold-
ing inDetroit Edison Co.had been qualified
by its decision inBrown Shoe Co.The
Court inChicago B. & Q. R. Co.found that
the distinguishing characteristic between
those two cases was the differing purposes
motivating the respective transfers. InBrown
Shoe Co.,the only expectation of the con-
tributors was that such contributions might
prove advantageous to the community at
large. Thus, inBrown Shoe Co., because the
transfers were made with the purpose, not
of receiving direct service or recompense,
but only of obtaining advantage for the gen-
eral community, the result was a contribu-
tion to capital.
The Court inChicago, B. & Q. R. Co.,
also stated that there were other character-
istics of a nonshareholder contribution to
capital implicit inDetroit Edison Co.and
Brown Shoe Co.From these two cases, the
Court distilled some of the characteristics
of a nonshareholder contribution to capi-
tal under both the 1939 and 1954 Codes:
1. It must become a permanent part of
the transferee’s working capital structure;
2. It may not be compensation, such as
a direct payment for a specific, quantifi-
able service provided for the transferor by
the transferee;
3. It must be bargained for;
4. The asset transferred must foresee-
ably result in benefit to the transferee in an
amount commensurate with its value; and
5. The asset ordinarily, if not always,
will be employed in or contribute to the
production of additional income and its
value will be assured in that respect.
Under§362(c)(2), if money is received
by a corporation as a contribution to capi-
tal, and is not contributed by a shareholder
as such, then the basis of any property ac-
quired with such money during the 12-
month period beginning on the day the
contribution is received shall be reduced by
the amount of such contribution. The ex-
cess (if any) of the amount of such con-
tribution over the amount of the reduction
shall be applied to the reduction of the ba-
sis of any other property held by the tax-
payer.
Section 165(a) allows a deduction for
any loss sustained during the taxable year
and not compensated for by insurance or
otherwise. Section 165(b) limits the amount
of the deduction for the loss to the ad-
justed basis of the property, as determined
under§1011. Under§165(i)(1), a tax-
payer may elect to take a loss attributable
to a disaster occurring in a Presidentially
declared disaster area into account for the
taxable year immediately preceding the tax-
able year in which the disaster occurred.
Section 165(i)(3) provides that the amount
of the loss taken into account in the pre-
ceding taxable year cannot exceed the un-
compensated amount determined on the
basis of the facts existing at the date the tax-
payer claims the loss. Section 1.165–
1(d)(2)(iii) provides that if a taxpayer has
deducted a loss and in a subsequent tax-
able year receives reimbursement for such
loss, the amount of the reimbursement must
be included in gross income for the tax-
able year in which received, subject to the
provisions of§111, relating to recovery of
amounts previously deducted.
Section 1033(a) provides that if prop-
erty, as a result of its destruction in whole
or in part, is involuntarily converted into
money, the gain, if any, is recognized ex-
cept to the extent that the electing tax-
payer, within 2 years after the close of the
first taxable year in which any gain was re-
alized, purchases other property similar or
related in service or use to the property so
converted. Section 1400L(g) extends this re-
placement period from 2 years to 5 years
for property compulsorily or involuntarily
converted as a result of the terrorist at-
tacks on September 11, 2001, in the New
York Liberty Zone (as defined in
§1400L(h)), if substantially all of the use
of the replacement property is in New York
City. (The New York Liberty Zone is the
area in New York City located on or south
of Canal Street, East Broadway (east of its
intersection with Canal Street), or Grand
Street (east of its intersection with East
Broadway)). Under§1033(a)(2), replace-
ment property is treated as purchased only
if, but for the provisions of§1033(b), its
unadjusted basis would be determined un-
der§1012. In accordance with§1033(a),
the gain is recognized only to the extent that
the amount realized upon such conver-
sion exceeds the cost of the replacement
property.
Under§1033(h)(2), if business or in-
vestment property is involuntarily con-
verted due to a Presidentially declared
disaster as defined in§1033(h)(3) (gener-
ally, a disaster in an area that has been sub-
sequently determined by the President to
warrant federal assistance under the Disas-
ter Relief and Emergency Assistance Act),
any tangible property held for productive
use in a trade or business is treated as prop-
erty similar or related in service or use to
the converted property.
QUESTIONS AND ANSWERS
Q–1. Are grant payments made under the
WTC Grant Programs included in a grant
recipient’s gross income?
A–1.Generally yes. Payments made un-
der the three WTC grant programs (BRGP,
SFARG, and JCRP) are included within the
broad definition of“gross income”under
§61 and, as explained in theQ&Asbe-
low, generally do not qualify for any ex-
clusion under the law. A limited exception
to this general rule applies in the case of
certain JCRP grant payments that qualify
for exclusion as a contribution to capital un-
der§118.See Q&A–5.
Grant recipients should note that, even
if they must include part or all of a grant
in gross income, they are, of course, al-
lowed to deduct against the grant proceeds
and other gross income all deductible busi-
ness expenses, net operating losses, and
other allowable deductions (for example, de-
preciation deductions) for that year. More-
over, to the extent that BRGP grant
payments compensate the recipient for dam-
aged or destroyed property, the recipient
may offset the amount of the grant pay-
ment against the recipient’s adjusted ba-
sis in the damaged or destroyed property,
and defer recognition of the resulting gain
under§1033.See Q&A–6 and Q&A–7.
Q–2. Why are payments made under the
WTC Grant Programs not excluded from a
grant recipient’s gross income under the
general welfare exclusion?
A–2.The grant payments under the WTC
Grant Programs do not qualify for the gen-
eral welfare exclusion because that exclu-
sion generally is limited to individuals who
receive governmental payments to help
them with their individual needs (e.g., hous-
ing, education, and basic sustenance ex-
April 7, 20037012003–14 I.R.B.

penses). In addition, grant payments that
compensate for lost profits or business in-
come (whether to individuals or to busi-
nesses) do not qualify for the general
welfare exclusion.
Q–3. Why are grant payments made un-
der the WTC Grant Programs not excluded
from a grant recipient’s gross income as
gifts under§102?
A–3.The governmental grant payments
to businesses under the WTC Grant Pro-
grams do not qualify for the gift exclu-
sion under§102(a) because the intent of
the federal, state, and local governments in
making these payments proceeds, not from
charity or detached and disinterested gen-
erosity, but from the government’s duty to
relieve the hardship resulting from the di-
saster and the economic benefits it antici-
pates from a revitalized New York City
economy.See Kroon.Neither the Acts that
appropriated the CDBG funds for the WTC
Grant Programs nor the legislative his-
tory of those Acts disclose a donative in-
tent. Instead, Congress indicated that the
grant funds were for“economic revitaliza-
tion,”to help New York City in its“over-
all economic recovery,”and to assist the
“economic recovery”of areas affected by
the terrorist attack.See§434 of Pub. L. No.
107–73, H.R. Conf. Rep. No. 272, 107th
Cong. 1st Sess. 176 (2001), and H.R. Conf.
Rep. No. 350, 107th Cong. 1st Sess. 455
(2001).
Q–4. Why are grant payments made un-
der the WTC Grant Programs not excluded
from a grant recipient’s gross income as
qualified disaster relief payments under
§139?
A–4.The grant payments under the WTC
Grant Programs to businesses other than
sole proprietors do not qualify for exclu-
sion from gross income under§139 be-
cause that exclusion applies only to
individuals. In the case of sole propri-
etors, the grant payments made under the
WTC Grant Programs do not qualify for ex-
clusion under§139 because the payments
are not made for any of the specific pur-
poses described in§139(b)(1), (2), or (4).
Q–5. Are payments made under the WTC
Grant Programs excluded from gross in-
come as contributions to capital under
§118?
A–5.No, in the case of BRGP and
SFARG grant payments, but yes in the case
of some JCRP payments.
The BRGP grant payments compen-
sate small businesses for certain losses re-
sulting from the September 11, 2001, attacks
on the WTC. Accordingly, these payments
are more akin to insurance payments re-
ceived for losses than contributions to capi-
tal of a corporation, within the definition
of§118 and the case law.
Businesses must use SFARG grant pay-
ments to pay wages of their employees, an
ordinary business expense under§162. Ac-
cordingly, such payments are not contri-
butions to the capital of the recipient
corporation under§118 and the case law.
The BRGP and SFARG grant payments
must be included in gross income under
§61.SeeQ&A–1.
To the extent a corporate recipient of a
JCRP grant payment applies for, receives,
and utilizes the grant funds to acquire fur-
niture and equipment, the JCRP grant pay-
ment will be a nonshareholder contribution
to capital under§118 and the case law. Pur-
suant to§362(c), the basis of furniture and
equipment acquired will be reduced by the
amount of the JCRP grant received for such
purposes.
JCRP grant payments that are made for
the other listed purposes of wages, pay-
roll taxes, employee benefits, and rent are
not contributions to the capital of a corpo-
ration under§118 and the case law. These
payments must be included in gross in-
come under§61.SeeQ&A–1.
Q–6. Must recipients of grant payments
made under the WTC Grant Programs re-
duce the amount of an allowable casualty
loss deduction under§165 or include in
gross income all or part of a casualty loss
claimed in a prior year?
A–6.No, in the case of SFARG and
JCRP grant payments, but yes in the case
of BRGP grant payments.
Section 165 allows deductions for cer-
tain losses sustained during the taxable year
only if the loss is not compensated by in-
surance or otherwise. SFARG and JCRP
grant payments are not treated as payments
in the nature of insurance compensation un-
der§165 because they are not paid to com-
pensate the business for losses to damaged
or destroyed property. Thus, SFARG and
JCRP grant payments do not reduce losses
on any property destroyed or damaged in
the attack on the WTC. SFARG and JCRP
grant payments must be included in gross
income (see Q&A–1) except to the extent
that JCRP payments qualify as an exclud-
able contribution to capital under§118.See
Q&A–5.
One purpose of the BRGP is to com-
pensate businesses for damage to, or de-
struction of, real property and other tangible
assets, including equipment, furniture and
fixtures, supplies, and inventory. Thus,
BRGP payments are treated as compensa-
tion received for such losses under§165
to the extent they compensate businesses for
their property losses. If a business prop-
erly deducted property losses resulting from
the WTC attack on a federal income tax re-
turn (for example, for 2000 or 2001), and
is reimbursed for that loss by a BRGP grant
payment in a later year, the business must
include the amount of reimbursement in
gross income, as ordinary income, on its
federal income tax return for that later year
to the extent that its income tax liability for
the prior year was reduced by reason of the
prior year property loss deduction.See
§165(i)(1) and§1.165–1(d)(2)(iii). A busi-
ness that did not deduct the property loss
on a return for a year prior to the year in
which it received the grant payment must
reduce any allowable deduction for prop-
erty loss by the amount of the BRGP grant
payment to the extent such payment com-
pensates for that property loss. If the amount
of compensation exceeds the business’ba-
sis in the damaged or destroyed property,
the excess (gain) generally must be in-
cluded in gross income unless the busi-
ness qualifies to defer recognition of the
gain under§1033.See Q&A–7.
Q–7. May a business defer, under
§1033, recognition of gain realized on re-
ceipt of a grant payment made under the
WTC Grant Programs?
A–7.Yes, in the case of BRGP grant
payments (SFARG and JCRP grant pay-
ments are not paid to compensate the busi-
ness for losses to damaged or destroyed
property). A business may elect, under
§1033, to defer the gain on BRGP grant
payments received to compensate for losses
due to damage to, or destruction of, real
property and other tangible assets, includ-
ing equipment, furniture and fixtures, sup-
plies, and inventory used in a trade or
business caused by the attack on the WTC.
Businesses using BRGP grant payments
for the purpose of repairing or replacing the
damaged or destroyed property generally are
eligible to defer gain under§1033, if they
make the required election and timely pur-
2003–14 I.R.B.702April 7, 2003

chase property similar or related in ser-
vice or use to the converted property, the
basis of which would be determined un-
der§1012 if§1033(b) did not apply
(“qualified replacement property”). Amounts
paid by the grant recipients to repair dam-
aged or destroyed property, including
amounts paid for debris removal and other
clean-up costs, are generally treated as
amounts paid to purchase qualified replace-
ment property. In addition, because the
property for which businesses will receive
the BRGP grant payments was destroyed in
a Presidentially declared disaster, the busi-
nesses may use the BRGP grant payments
to purchase any tangible property of a type
held for use in a trade or business and still
defer recognition of the gain.See
§1033(h)(2). A BRGP grant recipient must
replace the damaged or destroyed prop-
erty within 2 years after the close of the tax-
able year in which the BRGP grant payment
is received (or 5 years if the property was
damaged or destroyed due to the Septem-
ber 11, 2001, terrorist attacks in the New
York Liberty Zone and substantially all of
the use of the replacement property is in
New York City), but if necessary may re-
quest additional time from its local IRS of-
fice. The basis of the new property usually
will be the same as the basis of the old
property if the entire amount of compen-
sation for the damaged property is used to
purchase the replacement property.
The following example illustrates the ap-
plication of§§165 and 1033 to a busi-
ness receiving a BRGP grant payment.
Example.(i) BusinessXowned tangible per-
sonal property with a fair market value of $18,000 and
a basis of $10,000 that was destroyed in the attack on
the World Trade Center.Xfiled an amended 2000 fed-
eral income tax return and properly claimed a casu-
alty loss of $10,000. In 2003,Xreceives a BRGP grant
payment of $18,000 as a result of damage to its tan-
gible personal property and uses the entire amount to
purchase replacement property for use in its trade or
business.
(ii) Pursuant to§111 and the tax benefit rule,X
must include in gross income on its 2003 federal in-
come tax return $10,000 of the grant as ordinary in-
come, attributable to the property loss deductionXtook
on its 2000 income tax return.Xmay defer includ-
ing in income the remaining $8,000 of the grant un-
der§1033, assuming the requirements of that section
are met.X’sbasis in the replacement property is
$10,000 ($18,000 cost of the replacement property mi-
nus $8,000 gain deferred under§1033).
DRAFTING INFORMATION
The principal author of this notice is
Shareen S. Pflanz of the Office of Asso-
ciate Chief Counsel (Income Tax and Ac-
counting). For further information regarding
this notice, contact Mrs. Shareen Pflanz at
202–622–4920 (not a toll-free call).
Place for Filing Certain
Elections, Statements,
Returns and Other Documents
Notice 2003–19
SECTION 1. PURPOSE
Certain provisions of Title 26 of the
Code of Federal Regulations direct taxpay-
ers to file elections, statements, and other
documents with offices or officials that have
been eliminated in the recent Internal Rev-
enue Service (Service) reorganization. This
notice advises taxpayers of the proper ad-
dress for filing certain elections, state-
ments, and other documents with the
Service as a result of the reorganization, in-
cluding with respect to offices or offi-
cials that no longer exist as part of the
reorganization. This notice, however, does
not modify any existing delegation order
and does not identify Service officials who
currently are authorized to perform any ac-
tion currently provided for in a regula-
tion. Taxpayers should contact the Service
if they have questions regarding who within
the Service is authorized to perform any ac-
tion currently provided for in a regulation
with respect to a Service official or posi-
tion that no longer exists as a result of the
reorganization.
This notice does not affect any filing
prior to its issuance. Furthermore, although
this notice does not modify the regula-
tions identified herein, taxpayers should fol-
low the filing instructions contained in the
notice in order to ensure the timely re-
ceipt and processing of filings made with
the Service. However, if a taxpayer files an
election, statement, or document as di-
rected in existing regulations, the Service
will forward such election, statement, or
document to its proper filing location.
The Treasury Department and Service in-
tend to issue revised regulations that will
take into account the recent Service reor-
ganization. In addition, until such time, the
Service intends to periodically update tax-
payers (through updated notices or other
means of communication) regarding where
elections, statements, and other documents
should be filed.
SECTION 2. BACKGROUND
Section 1001(a) of the Internal Rev-
enue Service Restructuring and Reform Act
of 1998, Pub. L. No. 105–206, 112 Stat.
686, requires the Commissioner of Inter-
nal Revenue to develop and implement a
plan to reorganize the Service. As a re-
sult of this reorganization, the Service re-
placed the national, regional, and district
structure with organizational units serv-
ing particular industries and groups of tax-
payers.
Existing regulations direct taxpayers to
file certain elections, statements, and other
documents with various national, regional,
and district offices, and specify that cer-
tain Service officials or positions are au-
thorized to perform certain actions. Some
of these regulations pertain to elections,
statements, and other documents that, be-
cause of a change in the law or other fac-
tor, are no longer required to be filed. Other
regulations specify outdated places of fil-
ing (e.g., the Office of District Director),
contain outdated filing instructions, lack spe-
cific filing addresses for elections, state-
ments, and other documents that are
currently required or permitted to be filed,
or specify that certain actions are to be
taken by Service officials or positions that
no longer exist.
SECTION 3. FORMAT OF THIS
NOTICE
This notice lists the affected sections of
the regulations, and provides the proper Ser-
vice office for filing each election, state-
ment, and other document required or
permitted by the regulations. Section 4 of
this notice is organized according to the In-
ternal Revenue Code section under which
the regulations were issued; section 5 pro-
vides the mailing addresses for the vari-
ous Service offices, including the case
processing site, listed in the notice; and sec-
tion 6 provides a telephone number that tax-
payers may call to obtain information
regarding the location of the nearest Ser-
vice office.
April 7, 20037032003–14 I.R.B.

SECTION 4. REGULATIONS AND
PLACE OF FILING ORGANIZED BY
INTERNAL REVENUE CODE
SECTION
CODE
SECTION
REGULATION
SECTION AND DESCRIPTIONPLACE OF FILING
Non-Code50.8 Taxes Imposed on Certain Hydraulic MiningCincinnati Submission Processing Center
Non-Code302.1–3 through 302.1–7 Taxes Under the
International Claims Settlement Act
Ogden Submission Processing Center
Non-Code303.1–4 through 303.1–7 Taxes Under the Trading
With the Enemy Act
Ogden Submission Processing Center
431.43–3(a)(2) Petroleum Engineer’s Certification of a
Project
Ogden Submission Processing Center
431.43–3(b)(2) Owner’s Continued Certification of a
Project
Ogden Submission Processing Center
481.48–12(d)(7)(ii) Request for Extension of the
Period of Limitations
IRS
Tax Credit Unit
Drop 607
P.O. Box 245
Bensalem, PA 19020
1671.167(d)–1 Agreement as to Useful Life and Rates
of Depreciation
Ogden Submission Processing Center
1671.167(l)–1(h)(5) Depreciation on Qualified Public
Utility Property
Cincinnati Submission Processing Center
1691.169–4 Election to Revoke Amortization Deduction Ogden Submission Processing Center
1751.175–6 Treatment of Expenditures for Soil or Water
Conservation
Cincinnati Submission Processing Center
1801.180–2 Expenditures by Farmers for Fertilizer, etc.Ogden Submission Processing Center
2431.243–4 Dividends Received DeductionOgden Submission Processing Center
2431.243–5 Effect of ElectionOgden Submission Processing Center
3021.302–4 Termination of Shareholder’s Interest
Section 302(c)(2)(A)(iii) agreement: attach to
return
Notice of acquisition: Cincinnati or Ogden
Submission Processing Center
3321.332–4 Liquidations Covering More Than 1 YearOgden Submission Processing Center
3411.341–7 Certain Sales of Stock of Consenting
Corporations
Ogden Submission Processing Center
3811.381(c)(25)–1 Deficiency Dividend of Qualified
Investment Entity
Ogden Submission Processing Center
4421.442–1(b) Change of Accounting PeriodSubmission Processing Center where return
was filed
4431.443–1(b)(2)(v) Computation of Tax for Short
Period Return
Ogden Submission Processing Center
4511.451–6(b)(2) Requests for Revocation of Election
to Include in Gross Income Insurance Proceeds
Ogden Submission Processing Center
5031.503(c)–1 Future Status of Organizations Denied
Exemption
IRS
P.O. Box 192
Covington, KY 41012
5071.507–2 Termination of Private Foundation StatusIRS
P.O. Box 192
Covington, KY 41012
5471.547–2 Deficiency DividendOgden Submission Processing Center
6161.616–2 Election to Defer Development
Expenditures
Submission Processing Center where return
was filed
2003–14 I.R.B.704April 7, 2003

CODE
SECTION
REGULATION
SECTION AND DESCRIPTIONPLACE OF FILING
6421.642(g)–1 Disallowance of Double DeductionCase Processing Site
7541.754–1(c)(1) Time and Manner of Making Election
to Adjust Basis of Partnership Property
Ogden Submission Processing Center
8561.856–6 REIT Election to Treat Property as
Foreclosure Property
Ogden Submission Processing Center
8561.856–8 Revocation of REIT ElectionOgden Submission Processing Center
8601.860–2 Deficiency Dividend Deduction for
Qualified Investment Entity
Ogden Submission Processing Center
8631.863–3(b)(1), (3) and (e)(1) Allocation and
Apportionment of Income (election to use books and
records method)
Philadelphia Submission Processing Center
8631.863–3(e)(1) Allocation and Apportionment of
Income (method change requests)
Philadelphia Submission Processing Center
9361.936–7(c) Revocation of Section 936 ElectionPhiladelphia Submission Processing Center
9641.964–1(c)(3)(ii) Determination of Earnings and
Profits of a Foreign Corporation (method change
statements)
Philadelphia Submission Processing Center
9701.970–2 Election as to Date of Determining
Investment in Export Assets
Philadelphia Submission Processing Center
13751.1375–1(d)(2) Passive Investment Income of an S
Corporation
Ogden Submission Processing Center
14411.1441–4(b)(2)(v) Exemption from Withholding on
Compensation for Independent (and certain
Dependent) Personal Services of a Nonresident
Alien (filing by withholding agent)
Internal Revenue Service
International Section
P.O. Box 920
Bensalem, PA 19020–8518
15021.1502–75(h)(1) Consolidated Return Made by
Common Parent Corporation
Returns should be filed where the common
parent would file a separate return
15631.1563–3(d)(2)(iv) Election Designating Group in
which the Corporation is to be Included
Ogden Submission Processing Center
201620.2016–1 Recovery of Death Taxes Claimed as a
Credit
Taxpayers domiciled in the U.S.:
Cincinnati Submission Processing Center
Taxpayers domiciled outside the U.S.:
Philadelphia Submission Processing Center
203120.2031–6 Estate Tax–Valuation of Household &
Personal Effects
Taxpayers domiciled in the U.S.:
Cincinnati Submission Processing Center
Taxpayers domiciled outside the U.S.:
Philadelphia Submission Processing Center
205320.2053–3 Estate Tax–Deduction for Expenses of
Administering Estate
Taxpayers domiciled in the U.S.:
Cincinnati Submission Processing Center
Taxpayers domiciled outside the U.S.:
Philadelphia Submission Processing Center
205320.2053–9 Estate Tax–Deduction for Certain State
Death Taxes
Taxpayers domiciled in the U.S.:
Cincinnati Submission Processing Center
Taxpayers domiciled outside the U.S.:
Philadelphia Submission Processing Center
205320.2053–10 Estate Tax–Deduction for Certain
Foreign Death Taxes
Taxpayers domiciled in the U.S.:
Cincinnati Submission Processing Center
Taxpayers domiciled outside the U.S.:
Philadelphia Submission Processing Center
2056A20.2056A–2 Requirements for Qualified Domestic
Trusts
Case Processing Site
April 7, 20037052003–14 I.R.B.

CODE
SECTION
REGULATION
SECTION AND DESCRIPTIONPLACE OF FILING
2056A20.2056A–11 Filing Requirements & Payment of
IRC§2056A Estate Tax
Taxpayers domiciled in the U.S.:
Cincinnati Submission Processing Center
Taxpayers domiciled outside the U.S.:
Philadelphia Submission Processing Center
270125.2701–4 Accumulated Qualified Payments
Taxpayers domiciled in the U.S.:
Cincinnati Submission Processing Center
Taxpayers domiciled outside the U.S.:
Philadelphia Submission Processing Center
60121.6012–1(a)(5) Individuals Required to Make
Returns of Income
Submission Processing Center where return
will be filed
60121.6012–2 Corporations Required to Make Returns of
Income
Ogden Submission Processing Center or to the
address specified in the form or instructions.
60321.6032–1 Returns of Banks for Common Trust
Funds
Ogden Submission Processing Center
6036301.6036–1 Notice Required of Executor, Receiver,
or Other Fiduciary
Case Processing Site
60391.6039–2(b)(2) Time for Furnishing Statements (to
Participants in Certain Stock Option Plans)
See Code section 6039(a) as to nature of participant
statements, as 1.6039–2(b)(2) has not yet been
amended to reflect current law.
IRS–Martinsburg Computing Center
Information Reporting Program
Attn: Extension of Time Coordinator
240 Murall Drive
Kearneysville, WV 25430
60431.6043–1 Returns Requiring Corporate Dissolution
or Liquidation
Ogden Submission Processing Center
60441.6044–4 Exemption for Certain Consumer
Cooperatives
Ogden Submission Processing Center
6050J1.6050J–1T Information Returns Relating to
Foreclosure of Security
Ogden Submission Processing Center
609120.6091–1 Estate Tax–Place of Filing of Returns &
Documents
Returns and other forms should be mailed to
the address specified in the form or
instructions.
Other documents should be mailed to:
Taxpayers domiciled in the U.S.:
Cincinnati Submission Processing Center
Taxpayers domiciled outside the U.S.:
Philadelphia Submission Processing Center.
Hand-carried returns, forms, or other
documents should be filed with the local
Service office (see section 6 of this notice).
609125.6091–1 Gift Tax–Place for Filing Returns and
Other Documents
Returns and other forms should be mailed to
the address specified in the form or
instructions.
Other documents should be mailed to:
Taxpayers domiciled in the U.S.:
Cincinnati Submission Processing Center
Taxpayers domiciled outside the U.S.:
Philadelphia Submission Processing Center.
Hand-carried returns, forms, or other
documents should be filed with the local
Service office (see section 6 of this notice).
2003–14 I.R.B.706April 7, 2003

CODE
SECTION
REGULATION
SECTION AND DESCRIPTIONPLACE OF FILING
609131.6091–1 Place for Filing ReturnsReturns should be mailed to the address
specified in the form or instructions.
Hand-carried returns should be filed with the
local Service office (see section 6 of this
notice).
609140.6091–1 Excise Tax–Place for Filing ReturnsReturns should be mailed to the address
specified in the form or instructions.
Hand-carried returns should be filed with the
local Service office (see section 6 of this
notice).
609141.6091–1 Place for Filing ReturnsReturns should be mailed to the address
specified in the form or instructions.
Hand-carried returns should be filed with the
local Service office (see section 6 of this
notice).
609144.6091–1 Place for Filing ReturnsReturns should be mailed to the address
specified in the form or instructions.
Hand-carried returns should be filed with the
local Service office (see section 6 of this
notice).
609155.6091–1 Place for Filing Chapter 44 Tax ReturnsReturns should be mailed to the address
specified in the form or instructions.
Hand-carried returns should be filed with the
local Service office (see section 6 of this
notice).
6091156.6091–1 Place for Filing Chapter 54 (Greenmail)
Tax Returns
Returns should be mailed to the address
specified in the form or instructions.
Hand-carried returns should be filed with the
local Service office (see section 6 of this
notice).
6091301.6091–1 Place for Filing Returns or Other
Documents
Returns and other forms should be mailed to
the address specified in the form or
instructions. Other documents should be
mailed to the Case Processing Site.
Hand-carried returns, forms, or other
documents should be filed with the local
Service office (see section 6 of this notice).
60911.6091–2 Place for Filing Income Tax ReturnsReturns should be mailed to the address
specified in the form or instructions.
Hand-carried returns should be filed with the
local Service office (see section 6 of this
notice).
6104301.6104(a)–5(a) Withholding of Information from
Public Inspection by Applicant for Tax Exempt
Status
IRS
P.O. Box 192
Covington, KY 41012
61611.6161–1 Extension of Time for Paying Tax or
Deficiency
Cincinnati or Ogden Submission Processing
Center
616120.6161–1(b) Extension of Time for Paying Tax
Shown on the Return
Taxpayers domiciled in the U.S.:
Cincinnati Submission Processing Center
Taxpayers domiciled outside the U.S.:
Philadelphia Submission Processing Center.
April 7, 20037072003–14 I.R.B.

CODE
SECTION
REGULATION
SECTION AND DESCRIPTIONPLACE OF FILING
616125.6161–1 Gift Tax–Extension of Time for Paying
Tax or Deficiency
Taxpayers domiciled in the U.S.:
Cincinnati Submission Processing Center
Taxpayers domiciled outside the U.S.:
Philadelphia Submission Processing Center.
616120.6161–2 Extension of Time for Paying Deficiency
in Tax
Taxpayers domiciled in the U.S.:
Cincinnati Submission Processing Center
Taxpayers domiciled outside the U.S.:
Philadelphia Submission Processing Center
616320.6163–1 Estate Tax–Extension of Time for Paying
Tax
Taxpayers domiciled in the U.S.:
Cincinnati Submission Processing Center
Taxpayers domiciled outside the U.S.:
Philadelphia Submission Processing Center.
61641.6164–1 Extension of Time for Payment of Taxes
by Corporation With Carryback
Cincinnati or Ogden Submission Processing
Center
61641.6164–8 Corporations–Payments on TerminationCincinnati or Ogden Submission Processing
Center
616520.6165–1 Estate Tax–Bonds Where Time to Pay
has Been Extended
Taxpayers domiciled in the U.S.:
Cincinnati Submission Processing Center
Taxpayers domiciled outside the U.S.:
Philadelphia Submission Processing Center.
6166A20.6166A–1 Estate Tax–Extension of Time to Pay
Taxpayers domiciled in the U.S.:
Cincinnati Submission Processing Center
Taxpayers domiciled outside the U.S.:
Philadelphia Submission Processing Center.
6324B20.6324B–1 Special Lien for Additional Estate Tax
Attributable to Farm Value
Case Processing Site
632520.6325–1 Estate Tax–Release of Lien or Partial
Discharge of Property
Taxpayers domiciled in the U.S.:
Cincinnati Submission Processing Center
Taxpayers domiciled outside the U.S.:
Philadelphia Submission Processing Center.
6325301.6325–1 Application for Certificate of Discharge
of Property from Lien
Case Processing Site
6326301.6326–1 Appeal of Erroneous Filing of LienCase Processing Site
6334301.6334–3 Determination of Exempt AmountCase Processing Site
6334301.6334–4 Verified StatementsCase Processing Site
6337301.6337–1 Right to Redeem Property Before or
After Sale
Case Processing Site
6343301.6343–1 Request for Release of LevyCase Processing Site
6343301.6343–2 Request for Return of Property
Wrongfully Levied Upon
Case Processing Site
6501301.6501(o)–2 Special Rules for Partnership Items
of Federally Registered Partnerships
Cincinnati or Ogden Submission Processing
Center
6679301.6679–1 Failure to File Returns Regarding
Foreign Corporations or Partnerships
Philadelphia Submission Processing Center
6724301.6724–1 Reasonable CauseCincinnati or Ogden Submission Processing
Center
6863301.6863–1 Stay of Collection of Jeopardy
Assessments
Case Processing Site
6863301.6863–2 Collection of Jeopardy Assessment, Stay
of Sale of Property
Case Processing Site
7001301.7001–1 License to Collect Foreign ItemsSubmission Processing Center where return
will be filed.
7101301.7101–1 Form of Bond and Surety RequiredCase Processing Site
2003–14 I.R.B.708April 7, 2003

CODE
SECTION
REGULATION
SECTION AND DESCRIPTIONPLACE OF FILING
7102301.7102–1 Single Bond in Lieu of Multiple BondsCase Processing Site
7406301.7406–1 Disposition of Judgments and Moneys
Received
Case Processing Site
7425301.7425–2 Discharge of Liens, Nonjudicial SalesCase Processing Site
7430301.7430–1(d)(1)(i) Exhaustion of Administrative
Remedies
Case Processing Site
7432301.7432–1 Civil Damages for Failure to Release
Lien
Case Processing Site
7433301.7433–1 Civil Damages for Unauthorized
Collection Actions
Case Processing Site
7507301.7507–9 Exemption of Insolvent Banks from Tax Cincinnati or Ogden Submission Processing
Center
7517301.7517–1 Estate and Gift Tax–Determination of
Value
Taxpayers domiciled in the U.S.:
Cincinnati Submission Processing Center
Taxpayers domiciled outside the U.S.:
Philadelphia Submission Processing Center.
7623301.7623–1 Rewards for InformationCase Processing Site
SECTION 5. MAILING ADDRESSES
FOR SERVICE OFFICES LISTED IN
THIS NOTICE
Taxpayers required or permitted to file
elections, statements, or other documents
with the Cincinnati Submission Process-
ing Center should mail the election, state-
ment, or other document to the following
address:
Cincinnati Submission Processing
Center
Cincinnati, OH 45999
Taxpayers required or permitted to file
elections, statements, or other documents
with the Ogden Submission Processing Cen-
ter should mail the election, statement, or
other document to the following address:
Ogden Submission Processing Center
P.O. Box 9941
Ogden, UT 84409
Taxpayers required or permitted to file
elections, statements, or other documents
with the Philadelphia Submission Process-
ing Center should mail the election, state-
ment, or other document to the following
address:
Philadelphia Submission Processing
Center
P.O. Box 245
Bensalem, PA 19020
Taxpayers required or permitted to file
elections, statements, or other documents
with a Case Processing Site should mail the
election, statement, or other document to the
appropriate address indicated in the fol-
lowing chart:
Taxpayers located in:Mail Election, Statement, or Other
Document to:
Maine, Massachusetts, New Hampshire,
Vermont, Connecticut, Rhode Island
Internal Revenue Service
Case Processing, Stop 41125
P.O. Box 9112
Boston, MA 02203
New YorkInternal Revenue Service
Case Processing
10 Metrotech Center
625 Fulton Street
Brooklyn, NY 11201
Pennsylvania and New JerseyInternal Revenue Service
Case Processing
P.O. Box 12041
600 Arch Street
Philadelphia, PA 19106
April 7, 20037092003–14 I.R.B.

Taxpayers located in:Mail Election, Statement, or Other
Document to:
Delaware, Maryland, Virginia,
North Carolina, South Carolina
Internal Revenue Service
Case Processing
31 Hopkins Plaza, Room 1108
Baltimore, MD 21201
FloridaInternal Revenue Service
Case Processing, Stop 4900
400 West Bay Street
Jacksonville, FL 32202
Michigan, Ohio, Kentucky,
West Virginia
Internal Revenue Service
Case Processing
P.O. Box 330500, Stop 25
Detroit, MI 48232–6500
Illinois, Indiana, WisconsinInternal Revenue Service
Case Processing, Stop 4040CHI
230 S. Dearborn Street
Chicago, IL 60604
Georgia, Alabama, Mississippi,
Louisiana, Arkansas, Tennessee
Internal Revenue Service
Case Processing, Stop 35
810 Broadway Street
Nashville, TN 37203–3876
Minnesota, North Dakota, South
Dakota, Iowa, Nebraska, Missouri,
Kansas
Internal Revenue Service
Case Processing, Stop 4020
316 N. Robert Street
St. Paul, MN 55101
Texas and OklahomaInternal Revenue Service
Case Processing, MS:4023 DAL
1100 Commerce Street
Dallas, TX 75242
Montana, Wyoming, Colorado, Utah,
Nevada, New Mexico, Arizona
Internal Revenue Service
Case Processing, Stop 4800 DEN
600 17
th
Street
Denver, CO 80204
Northern and Central California except
for Oxnard, including the following
counties:
Alameda, Alpine, Amador, Butte, Calaveras,
Colusa, Nevada, Contra Costa, Del Norte,
El Dorado, Glenn, Humboldt, Lake, Lassen,
Marin, Placer, Mendocino, Modoc, Napa,
Plumas, Sacramento, Shasta, San Francisco,
San Joaquin, San Mateo, Sierra, Siskiyou,
Solano, Sonoma, Sutter, Tehema, Trinity,
Yolo, Yuba, Fresno, Inyo, Kern, Kings,
Madera, Merced, Mono, Monterey, San Benito,
Santa Clara, Stanislaus, Tulare, Tuolumne
Internal Revenue Service
Case Processing
1301 Clay Street, Suite 880S
Oakland, CA 94612–5210
2003–14 I.R.B.710April 7, 2003

Taxpayers located in:Mail Election, Statement, or Other
Document to:
Southern California south of Los Angeles,
including the following counties:
Imperial, Orange, San Diego, San
Bernardino, Riverside and the Carson
area in Los Angeles
Internal Revenue Service
Case Processing
24000 Avila Road
M/S 5735
Laguna Niguel, CA 92607
Los Angeles and Oxnard, including
the following counties:
Los Angeles, San Luis Obispo, Santa
Barbara, Ventura
Internal Revenue Service
Case Processing, Stop 4002
300 N. Los Angeles Street
Los Angeles, CA 90012
Alaska, Hawaii, Idaho, Washington, OregonInternal Revenue Service
Case Processing, M/S W155
915 2
nd
Avenue
Seattle, WA 98174
SBSE Taxpayers outside of the United StatesInternal Revenue Service
Case Processing
P.O. Box 12041
600 Arch Street
Philadelphia, PA 19106
LMSB Taxpayers outside of the United StatesInternal Revenue Service
Case Processing
31 Hopkins Plaza, Room 1108
Baltimore, MD 21201
SECTION 6. OBTAINING
INFORMATION FOR LOCATION OF
SERVICE OFFICES WHERE
ELECTIONS, STATEMENTS,
RETURNS, AND OTHER
DOCUMENTS CAN BE FILED BY
PERSONAL DELIVERY
Taxpayers required to file elections, state-
ments, returns, and other documents who
are permitted to file by personal delivery
with a Service office may obtain informa-
tion regarding the location of the nearest
Service office by calling the Service’s toll-
free number (1–800–829–1040).
SECTION 7. EFFECTIVE DATE
This notice is effective for elections,
statements, and other documents filed on or
after April 7, 2003.
SECTION 8. DRAFTING
INFORMATION
The principal author of this notice is
Michael E. Hara of the Office of Associ-
ate Chief Counsel (Procedure and Admin-
istration).
April 7, 20037112003–14 I.R.B.

Part IV. Items of General Interest
Announcement of Disciplinary Actions Involving Attorneys,
Certified Public Accountants, Enrolled Agents, and Enrolled
Actuaries—Suspensions, Censures, Disbarments, and
Resignations
Announcement 2003–15
Under Title 31, Code of Federal Regu-
lations, Part 10, attorneys, certified pub-
lic accountants, enrolled agents, and enrolled
actuaries may not accept assistance from,
or assist, any person who is under disbar-
ment or suspension from practice before the
Internal Revenue Service if the assistance
relates to a matter constituting practice be-
fore the Internal Revenue Service and may
not knowingly aid or abet another person
to practice before the Internal Revenue Ser-
vice during a period of suspension, disbar-
ment, or ineligibility of such other person.
To enable attorneys, certified public ac-
countants, enrolled agents, and enrolled ac-
tuaries to identify persons to whom these
restrictions apply, the Director, Office of
Professional Responsibility will announce
in the Internal Revenue Bulletin their
names, their city and state, their profes-
sional designation, the effective date of dis-
ciplinary action, and the period of
suspension. This announcement will ap-
pear in the weekly Bulletin at the earliest
practicable date after such action and will
continue to appear in the weekly Bulle-
tins for five successive weeks.
Suspensions From Practice Before the Internal Revenue
Service After Notice and an Opportunity for a Proceeding
Under Title 31, Code of Federal Regu-
lations, Part 10, after notice and an oppor-
tunity for a proceeding before an
administrative law judge, the following in-
dividuals have been placed under suspen-
sion from practice before the Internal
Revenue Service:
NameAddressDesignationEffective Date
Cramer, GeorgeChicago, ILCPAJanuary 18, 2003
to
January 17, 2005
Disbarments From Practice Before the Internal Revenue
Service After Notice and an Opportunity for a Proceeding
Under Title 31, Code of Federal Regu-
lations, Part 10, after notice and an oppor-
tunity for a proceeding before an
administrative law judge, the following in-
dividuals have been disbarred from prac-
tice before the Internal Revenue Service:
NameAddressDesignationEffective Date
Whalley, Christopher J.Ellsworth, MEAttorneyJuly 28, 2002
Chapin, Frank L.Sandpoint, IDEnrolled AgentAugust 13, 2002
Engstrand Jr., Edward E.Minneapolis, MNCPANovember 2, 2002
Fisher, JoannaPortland, OREnrolled AgentNovember 15, 2002
Consent Suspensions From Practice Before the Internal
Revenue Service
Under Title 31, Code of Federal Regu-
lations, Part 10, an attorney, certified pub-
lic accountant, enrolled agent, or enrolled
actuary, in order to avoid institution or con-
clusion of a proceeding for his or her dis-
barment or suspension from practice before
2003–14 I.R.B.712April 7, 2003

the Internal Revenue Service, may offer his
or her consent to suspension from such
practice. The Director, Office of Profes-
sional Responsibility, in his discretion, may
suspend an attorney, certified public ac-
countant, enrolled agent or enrolled actu-
ary in accordance with the consent offered.
The following individuals have been
placed under consent suspension from prac-
tice before the Internal Revenue Service:
NameAddressDesignationDate of Suspension
Kuhajda, BenPlainfield, ILCPAAugust 26, 2002
to
August 24, 2005
Vaughn, James A.Albuquerque, NMCPAOctober 1, 2002
to
September 29, 2004
McBroom, ByronManteca, CACPAOctober 21, 2002
to
October 19, 2006
Jacobs, RobertPhiladelphia, PAAttorneyOctober 21, 2002
to
April 20, 2006
Kwak, JongBeverly Hills, CAAttorneyOctober 22, 2002
to
October 20, 2003
Smith, Frank L.Brooksville, FLAttorneyNovember 1, 2002
to
October 30, 2005
Schwartz, Kenneth J.Woodland Hills, CAAttorneyNovember 1, 2002
to
February 27, 2006
Agulnick, Barry W.New York, NYAttorneyNovember 1, 2002
to
April 29, 2004
O’Connor, Thomas P.Palos Park, ILCPANovember 1, 2002
to
October 20, 2003
Brand, Joe A.Dundee, OHCPANovember 18, 2002
to
November 16, 2004
Battino, StevenPlainview, NYCPANovember 25, 2002
to
May 23, 2004
Chipman, KenFarmington, NMEnrolled AgentDecember 1, 2002
to
November 29, 2003
April 7, 20037132003–14 I.R.B.

NameAddressDesignationDate of Suspension
Kirgis, Grant A.Rochester, MNCPADecember 1, 2002
to
May 30, 2003
Welch, FrankStamford, CTCPAIndefinite
from
January 31, 2003
Pickens, ValerieSeattle, WACPAJanuary 1, 2003
to
December 30, 2004
Kidd, Roger F.Philadelphia, PAAttorneyJanuary 20, 2003
to
April 18, 2003
Sullivan, RaymondSonoma, CAAttorneyMarch 15, 2003
to
November 14, 2003
Expedited Suspensions From Practice Before the Internal
Revenue Service
Under Title 31, Code of Federal Regu-
lations, Part 10, the Director, Office of Pro-
fessional Responsibility, is authorized to
immediately suspend from practice be-
fore the Internal Revenue Service any prac-
titioner who, within five years from the date
the expedited proceeding is instituted (1) has
had a license to practice as an attorney, cer-
tified public accountant, or actuary sus-
pended or revoked for cause or (2) has been
convicted of certain crimes.
The following individuals have been
placed under suspension from practice be-
fore the Internal Revenue Service by vir-
tue of the expedited proceeding provisions:
NameAddressDesignationDate of Suspension
Pirro, Anthony G.South Salem, NYCPAIndefinite
from
June 26, 2002
Scott, RogerBuffalo, NYAttorneyIndefinite
from
August 12, 2002
Patrick, GeorgeCheshire, CTCPAIndefinite
from
September 9, 2002
Rochon, Jason B.Lafayette, LAAttorneyIndefinite
from
September 9, 2002
Voccola, EdwardHingham, MAAttorneyIndefinite
from
October 18, 2002
2003–14 I.R.B.714April 7, 2003

NameAddressDesignationDate of Suspension
Linn, Charles B.Croton-on-Hudson, NYAttorneyIndefinite
from
October 18, 2002
Lum, Eugene K.H.Long Beach, CAAttorneyIndefinite
from
October 18, 2002
Gwilliam, PeterLynn, MACPAIndefinite
from
October 28, 2002
Herlehy, Jon L.McHenry, ILCPAIndefinite
from
October 28, 2002
Herndon, HenryPikeville, NCCPAIndefinite
from
November 1, 2002
McCurry, ToddDurham, NCAttorneyIndefinite
from
November 25, 2002
Adams, James L.Breckenridge, COAttorneyIndefinite
from
November 25, 2002
Cloer, StewartPlano, TXAttorneyIndefinite
from
December 13, 2002
Caruso, RobertSaddle River, NJCPAIndefinite
from
December 16, 2002
Duru, Ike E.Atlanta, GAAttorneyIndefinite
from
January 10, 2003
Pelletier, Richard A.Bolton, CTCPAIndefinite
from
January 10, 2003
Austin, JackSteamboat Springs, COCPAIndefinite
from
January 10, 2003
Gibson, Brian M.Monroe, NYAttorneyIndefinite
from
January 10, 2003
Jackson, RobertMt. Juliet, TNAttorneyIndefinite
from
January 10, 2003
April 7, 20037152003–14 I.R.B.

NameAddressDesignationDate of Suspension
Tenzer, James L.East Meadow, NYAttorneyIndefinite
from
February 4, 2003
Resignations of Enrolled Agents
Under Title 31, Code of Federal Regu-
lations, Part 10, an enrolled agent, in or-
der to avoid the institution or conclusion of
a proceeding for his or her disbarment or
suspension from practice before the Inter-
nal Revenue Service, may offer his or her
resignation as an enrolled agent. The Di-
rector, Office of Professional Responsibil-
ity, in his discretion, may accept the offered
resignation.
The Director, Office of Professional Re-
sponsibility, has accepted offers of resig-
nation as an enrolled agent from the
following individuals:
NameAddressDate of Resignation
Korman, LindaLas Vegas, NVJanuary 23, 2003
2003–14 I.R.B.716April 7, 2003

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as“rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus, if
an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
withmodified, below).
Clarifiedis used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously
published ruling and points out an essen-
tial difference between them.
Modifiedis used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to A but not
to B, and the new ruling holds that it
applies to both A and B, the prior ruling
is modified because it corrects a pub-
lished position. (Compare withamplified
andclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. A ruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revokeddescribes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Supersededdescribes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a
period of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example,modified
andsupersededdescribes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case,
the previously published ruling is first
modified and then, as modified, is super-
seded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current
use and formerly used will appear in
material published in the Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F. R .—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
April 7, 2003i2003–14 I.R.B.

Numerical Finding List
1
Bulletins 2003–1 through 2003–13
Announcements:
2003–1, 2003–2 I.R.B.281
2003–2, 2003–3 I.R.B.301
2003–3, 2003–4 I.R.B.361
2003–4, 2003–5 I.R.B.396
2003–5, 2003–5 I.R.B.397
2003–6, 2003–6 I.R.B.450
2003–7, 2003–6 I.R.B.450
2003–8, 2003–6 I.R.B.451
2003–9, 2003–7 I.R.B.490
2003–10, 2003–7 I.R.B.490
2003–11, 2003–10 I.R.B.585
2003–12, 2003–10 I.R.B.585
2003–13, 2003–11 I.R.B.603
2003–14, 2003–11 I.R.B.603
2003–15, 2003–11 I.R.B.605
2003–16, 2003–12 I.R.B.641
2003–18, 2003–13 I.R.B.675
Notices:
2003–1, 2003–2 I.R.B.257
2003–2, 2003–2 I.R.B.257
2003–3, 2003–2 I.R.B.258
2003–4, 2003–3 I.R.B.294
2003–5, 2003–3 I.R.B.294
2003–6, 2003–3 I.R.B.298
2003–7, 2003–4 I.R.B.310
2003–8, 2003–4 I.R.B.310
2003–9, 2003–5 I.R.B.369
2003–10, 2003–5 I.R.B.369
2003–11, 2003–6 I.R.B.422
2003–12, 2003–6 I.R.B.422
2003–13, 2003–8 I.R.B.513
2003–14, 2003–8 I.R.B.515
2003–15, 2003–9 I.R.B.540
2003–16, 2003–10 I.R.B.575
2003–17, 2003–12 I.R.B.633
Proposed Regulations:
REG–209500–86, 2003–2 I.R.B.262
REG–104385–01, 2003–12 I.R.B.634
REG–116641–01, 2003–8 I.R.B.518
REG–125638–01, 2003–5 I.R.B.373
REG–126016–01, 2003–7 I.R.B.486
REG–126485–01, 2003–9 I.R.B.542
REG–103580–02, 2003–9 I.R.B.543
REG–124069–02, 2003–7 I.R.B.488
REG–131478–02, 2003–13 I.R.B.669
REG–138882–02, 2003–8 I.R.B.522
REG–139768–02, 2003–10 I.R.B.583
REG–151043–02, 2003–3 I.R.B.300
REG–164464–02, 2003–2 I.R.B.262
Revenue Procedures:
2003–1, 2003–1 I.R.B.1
2003–2, 2003–1 I.R.B.76
2003–3, 2003–1 I.R.B.113
2003–4, 2003–1 I.R.B.123
2003–5, 2003–1 I.R.B.163
Revenue Procedures—Continued:
2003–6, 2003–1 I.R.B.191
2003–7, 2003–1 I.R.B.233
2003–8, 2003–1 I.R.B.236
2003–9, 2003–8 I.R.B.516
2003–10, 2003–2 I.R.B.259
2003–11, 2003–4 I.R.B.311
2003–12, 2003–4 I.R.B.316
2003–13, 2003–4 I.R.B.317
2003–14, 2003–4 I.R.B.319
2003–15, 2003–4 I.R.B.321
2003–16, 2003–4 I.R.B.359
2003–17, 2003–6 I.R.B.427
2003–18, 2003–6 I.R.B.439
2003–19, 2003–5 I.R.B.371
2003–20, 2003–6 I.R.B.445
2003–21, 2003–6 I.R.B.448
2003–22, 2003–10 I.R.B.577
2003–23, 2003–11 I.R.B.599
2003–24, 2003–11 I.R.B.599
2003–25, 2003–11 I.R.B.601
2003–26, 2003–13 I.R.B.666
2003–27, 2003–13 I.R.B.667
Revenue Rulings:
2003–1, 2003–3 I.R.B.291
2003–2, 2003–2 I.R.B.251
2003–3, 2003–2 I.R.B.252
2003–4, 2003–2 I.R.B.253
2003–5, 2003–2 I.R.B.254
2003–6, 2003–3 I.R.B.286
2003–7, 2003–5 I.R.B.363
2003–8, 2003–3 I.R.B.290
2003–9, 2003–4 I.R.B.303
2003–10, 2003–3 I.R.B.288
2003–11, 2003–3 I.R.B.285
2003–12, 2003–3 I.R.B.283
2003–13, 2003–4 I.R.B.305
2003–14, 2003–4 I.R.B.302
2003–15, 2003–4 I.R.B.302
2003–16, 2003–6 I.R.B.401
2003–17, 2003–6 I.R.B.400
2003–18, 2003–7 I.R.B.467
2003–19, 2003–7 I.R.B.468
2003–20, 2003–7 I.R.B.465
2003–21, 2003–8 I.R.B.509
2003–22, 2003–8 I.R.B.494
2003–23, 2003–8 I.R.B.511
2003–24, 2003–10 I.R.B.557
2003–25, 2003–13 I.R.B.642
2003–26, 2003–10 I.R.B.563
2003–27, 2003–11 I.R.B.597
2003–28, 2003–11 I.R.B.594
2003–29, 2003–11 I.R.B.587
2003–30, 2003–13 I.R.B.659
2003–31, 2003–13 I.R.B.643
2003–33, 2003–13 I.R.B.642
Treasury Decisions:
9024, 2003–5 I.R.B.365
9025, 2003–5 I.R.B.362
9026, 2003–5 I.R.B.366
9027, 2003–6 I.R.B.413
9028, 2003–6 I.R.B.415
Treasury Decisions—Continued:
9029, 2003–6 I.R.B.403
9030, 2003–8 I.R.B.495
9031, 2003–8 I.R.B.504
9032, 2003–7 I.R.B.471
9033, 2003–7 I.R.B.483
9034, 2003–7 I.R.B.453
9035, 2003–9 I.R.B.528
9036, 2003–9 I.R.B.533
9037, 2003–9 I.R.B.535
9038, 2003–9 I.R.B.524
9039, 2003–10 I.R.B.561
9040, 2003–10 I.R.B.568
9041, 2003–8 I.R.B.510
9042, 2003–10 I.R.B.564
9043, 2003–12 I.R.B.611
9045, 2003–12 I.R.B.610
9046, 2003–12 I.R.B.614
9048, 2003–13 I.R.B.644
1
A cumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 2002–26 through 2002–52 is
in Internal Revenue Bulletin 2003–1, dated January 6, 2003.
2003–14 I.R.B.iiApril 7, 2003

Finding List of Current Actions
on Previously Published Items
2
Bulletins 2003–1 through 2003–13
Notices:
97–19
Modified by
Rev. Proc. 2003–1, 2003–1 I.R.B.1
2001–26
Obsoleted by
T.D. 9032, 2003–7 I.R.B.471
2001–46
Modified by
Notice 2003–6, 2003–3 I.R.B.298
2001–69
Modified and superseded by
Notice 2003–1, 2003–2 I.R.B.257
2002–27
Clarified by
Notice 2003–3, 2003–2 I.R.B.258
2002–40
Modified by
Ann. 2003–18, 2003–13 I.R.B.675
2002–46
Modified by
Notice 2003–10, 2003–5 I.R.B.369
Proposed Regulations:
REG–209500–86
Corrected by
Ann. 2003–6, 2003–6 I.R.B.450
REG–103829–99
Corrected by
Ann. 2003–12, 2003–10 I.R.B.585
REG–126485–01
Withdrawn by
REG–126485–01, 2003–9 I.R.B.542
REG–143321–02
Corrected by
Ann. 2003–12, 2003–10 I.R.B.585
REG–164464–02
Corrected by
Ann. 2003–6, 2003–6 I.R.B.450
Revenue Procedures:
83–23
Supplemented by
Rev. Proc. 2003–21, 2003–6 I.R.B.448
84–37
Modified by
Rev. Proc. 2003–1, 2003–1 I.R.B.1
93–38
Obsoleted by
Rev. Proc. 2003–15, 2003–4 I.R.B.321
Revenue Procedures—Continued:
97–31
Modified by
Rev. Proc. 2003–9, 2003–8 I.R.B.516
98–13
Obsoleted by
T.D. 9032, 2003–7 I.R.B.471
2002–1
Superseded by
Rev. Proc. 2003–1, 2003–1 I.R.B.1
2002–2
Superseded by
Rev. Proc. 2003–2, 2003–1 I.R.B.76
2002–3
Superseded by
Rev. Proc. 2003–3, 2003–1 I.R.B.113
2002–4
Superseded by
Rev. Proc. 2003–4, 2003–1 I.R.B.123
2002–5
Superseded by
Rev. Proc. 2003–5, 2003–1 I.R.B.163
2002–6
Superseded by
Rev. Proc. 2003–6, 2003–1 I.R.B.191
2002–7
Superseded by
Rev. Proc. 2003–7, 2003–1 I.R.B.233
2002–8
Superseded by
Rev. Proc. 2003–8, 2003–1 I.R.B.236
2002–9
Modified and amplified by
Rev. Proc. 2003–20, 2003–6 I.R.B.445
Rev. Rul. 2003–3, 2003–2 I.R.B.252
2002–20
Supplemented by
Rev. Proc. 2003–26, 2003–13 I.R.B.666
2002–22
Modified by
Rev. Proc. 2003–3, 2003–1 I.R.B.113
2002–29
Modified by
Rev. Proc. 2003–10, 2003–2 I.R.B.259
2002–52
Modified by
Rev. Proc. 2003–1, 2003–1 I.R.B.1
2002–67
Supplemented by
Ann. 2003–3, 2003–4 I.R.B.361
2002–75
Superseded by
Rev. Proc. 2003–3, 2003–1 I.R.B.113
Revenue Procedures—Continued:
2003–3
Amplified by
Rev. Proc. 2003–14, 2003–4 I.R.B.319
2003–7
Corrected by
Ann. 2003–4, 2003–5 I.R.B396
Revenue Rulings:
53–131
Modified by
Rev. Rul. 2003–12, 2003–3 I.R.B.283
57–190
Obsoleted by
Rev. Rul. 2003–18, 2003–7 I.R.B.467
65–190
Revoked by
Rev. Rul. 2003–3, 2003–2 I.R.B.252
69–372
Revoked by
Rev. Rul. 2003–3, 2003–2 I.R.B.252
92–19
Supplemented in part by
Rev. Rul. 2003–24, 2003–10 I.R.B.557
2003–2
Revoked by
Rev. Rul. 2003–22, 2003–8 I.R.B.494
Treasury Decisions:
9002
Corrected by
Ann. 2003–8, 2003–6 I.R.B.451
9021
Corrected by
Ann. 2003–16, 2003–12 I.R.B.641
9022
Supplemented by
Ann. 2003–7, 2003–6 I.R.B.450
Corrected by
Ann. 2003–11, 2003–10 I.R.B.585
2
A cumulative list of current actions on previously
published items in Internal Revenue Bulletins
2002–26 through 2002–52 is in Internal Revenue
Bulletin 2003–1, dated January 6, 2003.
April 7, 2003iii2003–14 I.R.B.

INDEX
Internal Revenue Bulletins
2003–1 through 2003–13
The abbreviation and number in paren-
thesis following the index entry refer to
the specific item; numbers in roman and
italic type following the parenthesis refer
to the Internal Revenue Bulletin in which
the item may be found and the page num-
ber on which it appears.
Key to Abbreviations:
AnnAnnouncement
CDCourt Decision
DODelegation Order
EOExecutive Order
PLPublic Law
PTEProhibited Transaction
Exemption
RPRevenue Procedure
RRRevenue Ruling
SPRStatement of Procedural
Rules
TCTax Convention
TDTreasury Decision
TDOTreasury Department Order
EMPLOYEE PLANS
Advance letter rulings and determination
letters, areas which will not be issued
from:
Associates Chief Counsel and Division
Counsel/Associate Chief Counsel
(TE/GE) (RP 3) 1,113
Associate Chief Counsel (Interna-
tional) (RP 7) 1,233; correction
(Ann 4) 5,396
Contacts with third parties for determina-
tion or collection of taxes (TD 9028)
6,415
Defined benefit plans, required minimum
distributions (Notice 2) 2,257
Determination letters:
Form 5310 revised (Ann 13) 11,603
Issuing procedures (RP 6) 1,191
Employee stock ownership plans, delayed
effective date, abuse (RR 6) 3,286
Form 5310, Application for Determina-
tion for Terminating Plan, revised (Ann
13) 11,603
Full funding limitations, weighted aver-
age interest rate for:
EMPLOYEE PLANS—
Cont.
January 2003 (Notice 7) 4,310
February 2003 (Notice 14) 8,515
March 2003 (Notice 17) 12,633
Individual retirement arrangements:
Deemed IRAs (RP 13) 4,317
Required minimum distributions
(Notice 3) 2,258
Letter rulings:
Determination letters and information
letters issued by Associates Chief
Counsel and Division Counsel/
Associate Chief Counsel (TE/GE)
(RP 1) 1,1
Information letters, etc. (RP 4) 1,123
Limitation on annual compensation, non-
discrimination (RR 11) 3,285
Nondiscrimination, governmental plans
(Notice 6) 3,298
Practice before the Internal Revenue Ser-
vice (Ann 5) 5,397
Proposed Regulations:
26 CFR 1.401(a)(4)–3,–9, revised;
1.411(b)–2, revised; reductions of
accruals and allocations because of
the attainment of any age; applica-
tion of nondiscrimination cross-
testing rules to cash balance plans
(REG–209500–86, REG–164464–
02) 2,262; correction (Ann 6)
6,450
Qualified retirement plans:
Age discrimination (REG–209500–86,
REG–164464–02) 2,262; correc-
tion (Ann 6) 6,450
Definition of early retirement benefits
and retirement-type subsidies, con-
tingent benefits (Notice 10) 5,369
Distributions, rollover, waiver of
60-day requirement (RP 16) 4,359
Loans to participants or beneficiaries
under section 72(p) (Ann 16) 12,
641
Minimum distributions, delayed
amendment date (RP 10) 2,259
Regulations:
26 CFR 1.72(p)–1; loans from a quali-
fied employer plan to plan partici-
pants or beneficiaries (TD 9021);
correction (Ann 16) 12,641
26 CFR 301.7602–2, added; third
party contacts (TD 9028) 6,415
EMPLOYEE PLANS—
Cont.
Technical advice:
Proposed cash balance regulations,
age discrimination issues (Ann 1)
2,281
To directors and chiefs, appeals
offices, from Associates Chief
Counsel and Division Counsel/
Associate Chief Counsel (TE/GE)
(RP 2) 1,76
To IRS employees (RP 5) 1,163
User fees, request for letter rulings (RP 8)
1,236
EMPLOYMENT TAX
Contacts with third parties for determina-
tion or collection of taxes (TD 9028)
6,415
Disclosure of returns and return informa-
tion by other agencies (TD 9036) 9,
533
Levy restrictions during installment
agreements (TD 9027) 6,413
Practice before the Internal Revenue Ser-
vice (Ann 5) 5,397
Regulations:
26 CFR 31.6011–4, added; 31.6011–
4T, removed; tax shelter regulations
(TD 9046) 12,614
26 CFR 301.6103(p)(2)(B)–1, added;
301.6103(p)(2)(B)–1T, removed;
602.101, amended; disclosure of
returns and return information by
other agencies (TD 9036) 9,533
26 CFR 301.6331–3,–4, added; levy
restrictions during installment agree-
ments (TD 9027) 6,413
26 CFR 301.7602–2, added; third
party contacts (TD 9028) 6,415
Tax shelter regulations (TD 9046) 12,
614
ESTATE TAX
Contacts with third parties for determina-
tion or collection of taxes (TD 9028)
6,415
Disclosure of returns and return informa-
tion by other agencies (TD 9036) 9,
533
Levy restrictions during installment
agreements (TD 9027) 6,413
Practice before the Internal Revenue Ser-
vice (Ann 5) 5,397
2003–14 I.R.B.ivApril 7, 2003

ESTATE TAX—Cont.
Regulations:
26 CFR 20.6011–4, added; 20.6011–
4T, removed; tax shelter regulations
(TD 9046) 12,614
26 CFR 301.6103(p)(2)(B)–1, added;
301.6103(p)(2)(B)–1T, removed;
602.101, amended; disclosure of
returns and return information by
other agencies (TD 9036) 9,533
26 CFR 301.6331–3,–4, added; levy
restrictions during installment agree-
ments (TD 9027) 6,413
26 CFR 301.7602–2, added; third
party contacts (TD 9028) 6,415
Tax shelter regulations (TD 9046) 12,
614
EXCISE TAX
Contacts with third parties for determina-
tion or collection of taxes (TD 9028)
6,415
Disclosure of returns and return informa-
tion by other agencies (TD 9036) 9,
533
Highway vehicle, definition; correction
(Ann 12) 10,585
Insurance premium excise tax, liability
for (TD 9024) 5,365
Levy restrictions during installment
agreements (TD 9027) 6,413
Practice before the Internal Revenue Ser-
vice (Ann 5) 5,397
Proposed Regulations:
26 CFR 41.4482(a)–1; 48.4041–8;
48.4051–1; 48.4072–1; 48.4081–1;
48.6421–4; 145.4051–1; definition
of highway vehicle (REG–103829–
99); correction (Ann 12) 10,585
26 CFR Part 157, added; excise tax on
structured settlement factoring trans-
actions (REG–139768–02) 10,583
Regulations:
26 CFR 46.4374–1, revised; liability
for insurance premium excise tax
(TD 9024) 5,365
26 CFR 53.6011–4, added; 53.6011–
4T, removed; 54.6011–4, added;
54.6011–4T, removed; 56.6011–4,
added; 56.6011–4T, removed; tax
shelter regulations (TD 9046) 12,
614
EXCISE TAX—Cont.
26 CFR 301.6103(p)(2)(B)–1, added;
301.6103(p)(2)(B)–1T, removed;
602.101, amended; disclosure of
returns and return information by
other agencies (TD 9036) 9,533
26 CFR 301.6331–3,–4, added; levy
restrictions during installment agree-
ments (TD 9027) 6,413
26 CFR 301.7602–2, added; third
party contacts (TD 9028) 6,415
26 CFR Part 157, added; 602.101,
amended; excise tax on structured
settlement factoring transactions
(TD 9042) 10,564
Structured settlement factoring transac-
tions (TD 9042) 10,564; (REG–
139768–02) 10,583
Tax shelter regulations (TD 9046) 12,
614
EXEMPT
ORGANIZATIONS
Advance letter rulings and determination
letters, areas which will not be issued
from Associates Chief Counsel and
Division Counsel/Associate Chief
Counsel (TE/GE) (RP 3) 1,113
Contacts with third parties for determina-
tion or collection of taxes (TD 9028)
6,415
Dissolution clause requirements for sec-
tion 501(c)(3) entities seeking a section
115(1) letter ruling (RP 12) 4,316
Form 990, Return of Organization
Exempt From Income Tax, U.S. posses-
sions, relief from filing (RP 21) 6,448
Letter rulings:
Determination letters and information
letters issued by Associates Chief
Counsel and Division Counsel/
Associate Chief Counsel (TE/GE)
(RP 1) 1,1
Information letters, etc. (RP 4) 1,123
List of organizations classified as private
foundations (Ann 10) 7,490; (Ann 14)
11,603
Practice before the Internal Revenue Ser-
vice (Ann 5) 5,397
Private foundations, termination, transfer
of assets (RR 13) 4,305
Regulations:
26 CFR 301.7602–2, added; third
party contacts (TD 9028) 6,415
EXEMPT
ORGANIZATIONS—
Cont.
Tax shelter regulations (TD 9046) 12,
614
Technical advice to:
Directors and chiefs, appeals offices,
from Associates Chief Counsel and
Division Counsel/Associate Chief
Counsel (TE/GE) (RP 2) 1,76
IRS employees (RP 5) 1,163
U.S. possessions, relief from filing Form
990 (RP 21) 6,448
User fees, request for letter rulings (RP 8)
1,236
GIFT TAX
Contacts with third parties for determina-
tion or collection of taxes (TD 9028) 6,
415
Disclosure of returns and return informa-
tion by other agencies (TD 9036) 9,
533
Practice before the Internal Revenue Ser-
vice (Ann 5) 5,397
Regulations:
26 CFR 301.7602–2, added; third
party contacts (TD 9028) 6,415
26 CFR 25.6011–4, added; 25.6011–
4T, removed; tax shelter regulations
(TD 9046) 12,614
26 CFR 301.6103(p)(2)(B)–1, added;
301.6103(p)(2)(B)–1T, removed;
602.101, amended; disclosure of
returns and return information by
other agencies (TD 9036) 9,533
Tax shelter regulations (TD 9046) 12,
614
INCOME TAX
Accounting, application of normalization
accounting rules to balances of excess
deferred income taxes and accumulated
deferred investment tax credits (REG–
104385–01) 12,634
Accuracy-related penalty, defenses avail-
able to the imposition (REG–126016–
01) 7,486
Accrual of income (RR 10) 3,288
Advance letter rulings and determination
letters, areas which will not be issued
from:
April 7, 2003v2003–14 I.R.B.

INCOME TAX—Cont.
Associates Chief Counsel and Division
Counsel/Associate Chief Counsel
(TE/GE) (RP 3) 1,113
Associate Chief Counsel (Interna-
tional) (RP 7) 1,233; correction
(Ann 4) 5,396
Basis of redeemed stock when a distribu-
tion in redemption of stock is treated as
a dividend (Ann 9) 7,490
Capitalization of amounts paid to acquire,
create, or enhance intangible assets
(REG–125638–01) 5,373
Census Bureau, disclosure of tax informa-
tion (TD 9037) 9,535
Charitable contributions; patents (RR 28)
11,594
Consolidated income tax return, common
parent as agent for consolidated group,
substitute agent, tentative carryback
adjustments (Ann 8) 6,451
Constructive sales:
Short sales, transition rule (RR 31) 13,
643
Treatment for appreciated financial
positions (RR 1) 3,291
Contacts with third parties for determina-
tion or collection of taxes (TD 9028)
6,415
Contingent liability transaction cases, list
of arbitrators (Ann 3) 4,361
Corporations:
Acquisitions, auto dealer expansion
(RR 18) 7,467
Foreign tax credit limitation, dividends
from a noncontrolled section 902
corporation (Notice 5) 3,294
S corporation, employee stock owner-
ship plan (ESOP):
Basis (RR 27) 11,597
IRA rollovers and S corporation
election (RP 23) 11,599
Statutory mergers and consolidations
(TD 9038) 9,524; (REG–126485–
01), 9542
Transactions involving deemed sale of
corporate assets under section 338,
new Form 8883 (Ann 2) 3,301
Cost-share payments, Agricultural Man-
agement Assistance Program (AMA)
(RR 15) 4,302
Costa Rican withholding taxes, noncredit-
ability (RR 8) 3,290
Credits:
Adoption credit (Notice 15) 9,540
INCOME TAX—Cont.
Earned income credit, update (TD
9045) 12,610
Education tax credit (TD 9034) 7,
453
Foreign taxpayers, disallowance of
deductions and credits for failure to
file timely return (TD 9043) 12,
611
Low-income housing credit:
2003 population figures used for
calculation (Notice 16) 10,575
Satisfactory bond,“bond factor”
amounts for the period:
January through March 2003 (RR
2) 2,251; correction (RR 22)
8,494
New markets tax credit (RR 20) 7,
465; extension of deadline (Notice
9) 5,369
Disaster relief for taxpayers affected by
the September 11, 2001, terrorist
attack, extension for estates (Ann 18)
13,675
Disciplinary actions involving attorneys,
certified public accountants, enrolled
agents, and enrolled actuaries (Ann 15)
11,605
Disclosure of returns and return informa-
tion by other agencies (TD 9036) 9,
533
Election to treat trust as part of an estate
(TD 9032) 7,471
Electronic tax administration, guidance to
facilitate (TD 9040) 10,568
Estimated tax, application of the addition
to the tax for underpayment (RR 23) 8,
511
Exclusion of gain from the sale or
exchange of a principal residence (TD
9030) 8,495
Family day care, deduction of business
expenses, standard meal rates (RP 22)
10,577
Foreign personal holding company
income, commodities hedging and
interest-bearing liabilities (TD 9039)
10,561
Form 8883, Asset Allocation Statement
Under Section 338, new (Ann 2) 3,301
Information reporting:
On Form 1099–B for securities futures
contracts (Notice 8) 4,310
Payment card transactions, information
reporting and backup withholding
(REG–116641–01) 8,518
INCOME TAX—Cont.
Requirements for qualified tuition and
related expenses under section
6059S, filing information returns on
magnetic media (TD 9029) 6,403
Taxable stock transactions, corporate
reorganizations, brokers (Ann 11)
10,585
Transition rules for acquisitions of
control and substantial changes in
capital structure (Ann 7) 6,450
Innocent spouse relief, nonrequesting
spouse administrative appeal rights (RP
19) 5,371
Insurance companies:
Corporate reorganization and mergers,
demutualization (RR 19) 7,468
Determination of effectively connected
income of foreign insurance compa-
nies (RR 17) 6,400
Interest rate tables (RR 24) 10,557
Loss payment patterns and discount
factors for the 2002 accident year
(RP 17) 6,427
Recomputed differential earnings rate
for 2000 and the differential earn-
ings rate for 2001 for mutual life
insurance companies (RR 4) 2,253
Salvage discount factors for the 2002
accident year (RP 18) 6,439
Interest:
Investment:
Federal short-term, mid-term, and
long-term rates for:
January 2003 (RR 5) 2,254
February 2003 (RR 16) 6,401
March 2003 (RR 26) 10,563
Rates:
Underpayments and overpayments,
quarter beginning:
April 1, 2003 (RR 30) 13,659
Inventory:
LIFO, price indexes used by depart-
ment stores for:
November 2002 (RR 9) 4,303
December 2002 (RR 21) 8,509
January 2003 (RR 33) 13,642
Valuation of vehicle parts cores (RP
20) 6,445
Leave-based donation programs (Notice
1) 2,257
Letter rulings, determination letters and
information letters issued by Associates
Chief Counsel and Division Counsel/
Associate Chief Counsel (TE/GE) (RP
1) 1,1
2003–14 I.R.B.viApril 7, 2003

INCOME TAX—Cont.
Levy restrictions during installment
agreements (TD 9027) 6,413
LIFO recapture installment payments
(Notice 4) 3,294
Loss transactions, exceptions (RP 24) 11,
599
Low-income taxpayer clinics, income tax
return preparer (TD 9026) 5,366
Methods of accounting, nonaccrual expe-
rience (NAE) method (Notice 12) 6,
422
Noncompensatory partnership options
(REG–103580–02) 9,543
Offshore Voluntary Compliance Initiative
(RP 11) 4,311
Partnerships, section 6038, returns
required with respect to controlled for-
eign partnerships (TD 9033) 7,483;
(REG–124069–02) 7,488
Practice before the Internal Revenue Ser-
vice (Ann 5) 5,397
Presidentially declared disaster:
Gross income, disaster relief payments
(RR 12) 3,283
Major disaster and emergency areas
list (RR 29) 11,587
Private activity bonds, 2003 population
figures used for calculation (Notice 16)
10,575
Private foundations, organizations now
classified as (Ann 10) 7,490; (Ann 14)
11,603
Proposed Regulations:
26 CFR 1.46–6, amended; 1.168(i)–3
added; application of normalization
accounting rules to balances of
excess deferred income taxes and
accumulated deferred investment tax
credits of public utilities whose gen-
eration assets cease to be public util-
ity property (REG–104385–01) 12,
634
26 CFR 1.61–8, revised; rents and roy-
alties (REG–151043–02) 3,300
26 CFR 1.121–3, amended; reduced
maximum exclusion of gain from
sale or exchange of principal resi-
dence (REG–138882–02) 8,522
26 CFR 1.167(a)–3, amended;
1.263(a)–4, added; 1.446–5, added;
guidance regarding deduction and
capitalization of expenditures
(REG–125638–01) 5,373
INCOME TAX—Cont.
26 CFR 1.302–5, 1.304–3; redemp-
tions taxable as dividends (REG–
150313–01); correction (Ann 9) 7,
490
26 CFR 1.368–2, revised; statutory
mergers and consolidations (REG–
126485–01) 9,542
26 CFR 1.704–1,–3, amended;
1.721–2, added; 1.761–3, added;
1.1272–1, amended; 1.1273–2,
amended; 1.1275–4, amended; non-
compensatory partnership options
(REG–103580–02) 9,543
26 CFR 1.1502–21,–32, amended;
1.1502–35, added; guidance under
section 1502, suspension of losses
on certain stock dispositions (REG–
131478–02) 13,669
26 CFR 1.6038–3, amended; returns
required with respect to controlled
foreign partnerships (REG–124069–
02) 7,488
26 CFR 1.6043–4; 1.6045–3; informa-
tion reporting relating to taxable
stock transactions (REG–143321–
02); correction (Ann 12) 10,585
26 CFR 1.6662–3, amended;
1.6664–0,–4, amended; establishing
defenses to the imposition of the
accuracy-related penalty (REG–
126016–01) 7,486
26 CFR 31.3406(g)–1, (j)–1, amended;
301.6724–1, amended; information
reporting and backup withholding
for payment card transactions
(REG–116641–01) 8,518
Qualified census tracts, issuers of quali-
fied mortgage bonds and mortgage
credit certificates (RP 15) 4,321
Qualified Payment Card Agent (QPCA),
proposed revenue procedure to request
a determination (Notice 13) 8,513
Regulations:
26 CFR 1.25A–0 through–5, added;
602.101, revised; education tax
credit (TD 9034) 7,453
26 CFR 1.32–2, amended; earned
income credit for taxable years
beginning after December 31, 1978
(TD 9045) 12,610
INCOME TAX—Cont.
26 CFR 1.48–12, amended; 1.48–12T,
removed; 1.152–3, amended; 1.152–
3T, removed; 1.611–3, amended;
1.611–3T, removed; 1.852–9,
amended; 1.852–9T, removed;
301.6011–1, added; 301.6011–1T,
removed; 301.6903–1, amended;
301.6903–1T, removed; 602.101,
amended; guidance necessary to
facilitate electronic tax administra-
tion (TD 9040) 10,568
26 CFR 1.121–1 through–4, amended;
1.121–5, removed; 1.1398–3, added;
exclusion of gain from sale or
exchange of principal residence (TD
9030) 8,495
26 CFR 1.121–3T, added; reduced
maximum exclusion of gain from
sale or exchange of principal resi-
dence (TD 9031) 8,504
26 CFR 1.368–2, revised; 1.368–2T,
added; statutory mergers and con-
solidations (TD 9038) 9,524
26 CFR 1.446–1, amended; 1.1502–
13, revised; intercompany transac-
tions: conforming amendments to
section 446 (TD 9025) 5,362
26 CFR 1.641(b)–3, amended;
1.642(c)–1,–6A, revised; 1.645–1,
added; 1.671–4, amended; 1.6012–3,
amended; 1.6072–1, amended;
301.6109–1, amended; 602.101,
amended; election to treat trust as
part of an estate (TD 9032) 7,471
26 CFR 1.874–1, revised; 1.874–1T,
removed; 1.882–4, revised; 1.882–
4T, removed; disallowance of
deductions and credits for failure to
file timely return (TD 9043) 12,
611
26 CFR 1.954–0,–2, amended; guid-
ance regarding the definition of for-
eign personal holding company
income (TD 9039) 10,561
26 CFR 1.1041–1T, amended;
1.1041–2, added; 602.101, amended;
constructive transfers and transfers
of property to a third party on behalf
of a spouse (TD 9035) 9,528
April 7, 2003vii2003–14 I.R.B.

INCOME TAX—Cont.
26 CFR 1.1502–21, amended; 1.1502–
21T, revised; 1.1502–32, amended;
1.1502–32T, revised; 1.1502–35T,
added; 602.101, amended; guidance
under section 1502; suspension of
losses on certain stock dispositions
(TD 9048) 13,644
26 CFR 1.1502–77T, 602.101; agent
for consolidated group (TD 9002);
correction (Ann 8) 6,451
26 CFR 1.6011–4. added; 1.6011–4T,
removed; 301.6111–2, added;
301.6111–2T, removed; 301.6112–1,
added; 301.6112–1T, removed;
602.101, amended; tax shelter regu-
lations (TD 9046) 12,614
26 CFR 1.6038–3, amended; 1.6038–
3T, added; 602.101, amended;
returns required with respect to con-
trolled foreign partnerships (TD
9033) 7,483
26 CFR 1.6043–4T; information
reporting relating to taxable stock
transactions (TD 9022); correction
(Ann 11) 10,585
26 CFR 1.6050S–0, amended;
1.6050S–1, added; 301.6011–2,
amended; 602.101, amended; infor-
mation reporting for qualified tuition
and related expenses; magnetic
media filing requirements for infor-
mation returns (TD 9029) 6,403
26 CFR 31.3406(j)–1, amended;
31.3406(j)–1T, added; Taxpayer
Identification Number (TIN) Match-
ing Program (TD 9041) 8,510
26 CFR 301.6103(j)(1)–1, revised;
301.6103(j)(1)–1T, removed; disclo-
sure of return information to the
Bureau of the Census (TD 9037) 9,
535
26 CFR 301.6103(p)(2)(B)–1, added;
301.6103(p)(2)(B)–1T, removed;
602.101, amended; disclosure of
returns and return information by
other agencies (TD 9036) 9,533
26 CFR 301.6331–3,–4, added; levy
restrictions during installment agree-
ments (TD 9027) 6,413
26 CFR 301.7602–2, added; third
party contacts (TD 9028) 6,415
26 CFR 301.7701–15, amended; low-
income taxpayer clinics-definition of
income tax return preparer (TD
9026) 5,366
INCOME TAX—Cont.
Rents and royalties, inclusion of advance
rentals in gross income (REG–151043–
02) 3,300
Reportable transactions, book-tax differ-
ences, exceptions (RP 25) 11,601
Sale or exchange of a principal residence,
reduced maximum exclusion of gain
(TD 9031) 8,504;REG–138882–02,
8,522
Section 911(d)(4) waiver, 2002 update
(RP 26) 13,666
Soil and Water Conservation Assistance
Program (SWCA) (RR 14) 4,302
Standard Industry Fare Level (SIFL) for-
mula (RR 25) 13,642
State tax refunds, accrual of income (RR
3) 2,252
Stocks:
Determination and recognition of gain
or loss (RR 7) 5,363
Guidance under section 1502, suspen-
sion of losses on certain stock dispo-
sitions (TD 9048) 13,644; (REG–
131478–02) 13,669
Redemptions by a spouse or former
spouse during marriage or incident
to divorce (TD 9035) 9,528
Tax shelter registrations, effective date
(Notice 11) 6,422
Tax shelter regulations (TD 9046) 12,
614
Taxable stock transactions, corporate
reorganizations, brokers; correction
(Ann 12) 10,585
Taxicabs, information reporting for small
cash transactions (RP 27) 13,667
Taxpayer Indentification Number (TIN)
Matching Program:
Expanded to online matching for all
payors and authorized agents (RP 9)
8,516
Expansion (TD 9041) 8,510
Technical advice to:
Directors and chiefs, appeals offices,
from Associates Chief Counsel and
Divison Counsel/Associate Chief
Counsel (TE/GE) (RP 2) 1,76
IRS employees (RP 5) 1,163
Timing rules of intercompany transaction
(TD 9025) 5,362
Trusts for minors, Indian Gaming Regula-
tory Act (IGRA) (RP 14) 4,319
SELF-EMPLOYMENT
TAX
Contacts with third parties for determina-
tion or collection of taxes (TD 9028) 6,
415
Levy restrictions during installment
agreements (TD 9027) 6,413
Practice before the Internal Revenue Ser-
vice (Ann 5) 5,397
Regulations:
26 CFR 301.6331–3,–4, added; levy
restrictions during installment agree-
ments (TD 9027) 6,413
26 CFR 301.7602–2, added; third
party contacts (TD 9028) 6,415
2003–14 I.R.B.viii*U.S. Government Printing Office: 2003—496–919/60077April 7, 2003